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

Glenn Schorr – UBS John McDonald – Sanford Bernstein Guy Moszkowski – Banc of America Betsy Graseck – Morgan Stanley Meredith Whitney – Meredith Whitney Advisory Matthew O’Connor – Deutsche Bank Mike Mayo – CLSA Jason Goldberg – Barclays Capital Moshe Orenbuch – Credit Suisse Jeff Harte – Sandler O’Neill Nancy Bush – NAB Research Ed Najarian – ISI Group James Mitchell – Buckingham Matt Brunell – Wells Fargo Chris Kotowski – Oppenheimer Ron Mandel – GIC Carol Berger – Soleil Brad Ball – Ladenburg, Thalmann & Co. Richard Beauvais – Rockdale Securities

Welcome to the JPMorgan Chase first quarter 2010 earnings call. (Operator Instructions) We 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. Mr. Cavanagh, please go ahead.

Thank you Operator. Good morning everybody. This is Mike. We are going to do the usual here so I am going to refer to a presentation that is available on our website so please get that in front of you if you don’t already have it and we will go through that and then take some Q&A at the end. I will remind people to look at the slide in the back that makes the comments about forward-looking statements. With that let me get going on page 1 and describe the high level trends in the numbers. Overall $3.3 billion in net income for the company, earnings per share of $0.74 on a strong revenue number of $28 billion. You see this little table here that shows you what I will call some large, significant items. I am not going to go through them here because I will cover all of them when I hit the relevant business where they appear. I will just say it is in two broad buckets as you can see here. One is the adjustment for levels of loan loss or credit cost, loan loss reserves really is a credit across investment bank, retail and cards. That is where you will hear those. Then a couple of items of significance in our corporate segment both investment portfolio gains as well as some litigation reserves we have put up there. So we will cover that when we get to corporate. The themes though are very strong investment banking results on strong fixed income market revenue and continued strength in the investment banking fee side. Consumer credit trends you are going to hear are all starting to look very good on the delinquency side and we will cover that further in the businesses. Other businesses performing strongly as a general matter and the balance sheet and capital position obviously as you will see continuing to be quite strong. So I am going to skip slide two. That gives you the GAAP picture what the numbers look like I just referred to versus prior periods. So let’s start with the businesses and do that with the investment bank on page 3. Here you see the investment bank had net income of $2.5 billion. The circled number there on the left on revenues of $8.3 billion. That is an ROE of 25% on the $40 billion of allocated capital we have in the investment bank that we just increased at the beginning of the year. Going through some of the components, I already made the comment about how our investment banking fee number is number one share on a year-to-date basis, $1.4 billion of revenues in the quarter on strong bond underwriting versus prior quarters. You will see a page in the appendix that gives you a sense of where we are across the various capital areas but continue to still feel very good about the investment bank, the corporate finance side of things and the prospects for the rest of the year looking ahead and taking a look at the pipeline. On the fixed income and equity market side I would just say very strong results. It is generally speaking across all areas. $5.5 billion in revenues from fixed income markets and $1.5 billion in equity markets. So that gets you really to the overall revenues we have of $8.3 billion. The next item that really drives the investment bank P&L is credit costs. Here you see we actually had a net benefit in the credit cost as reserve take downs exceeded charge offs. Charge offs themselves were offset by reserves because as you know in this business we downgrade and put up reserves in advance of the charge off events so those amount of actual charge offs in the quarter there were already reserved covering the P&L so it is just the line swing there. So the net release comes from the fact we had loan sales that were done inside our marks net of reserves and therefore had excess reserves after we sold those loans. The same with some loan pay downs that happened as you continue to see the trend in end-of-period loans dramatically changing versus prior periods as large corporates have substantial access to the capital markets. So the next point there I would just say allowance for loan losses at $2.6 billion after the change in reserves against loans is about 5%, would be about 7% or so had we not consolidated the conduit as part of the FAS 166/167 stuff. Moving onto NPL, just to point out NPL is down from $3.5 billion to $2.7 billion. The last point I will make on the investment bank is on the expense side. $4.8 billion of expenses in the quarter. Two drivers there; 35% comp to revenue ratio. That is just an outcome of the real underlying detailed analysis we do on risk adjusted return in the business by area. It comes out to that number in a strong quarter with $8.3 billion worth of revenue you expect to be at the lower end of the range we talked about last quarter of 35-40%. That number will bounce around based upon the underlying methodology and obviously it is a first quarter accrual that will get trued up and will be competitive and do what we need to do over the course of the full-year. The other item is some increased litigation reserves including some mortgage related items in the investment bank as well. So that is it for the investment bank. Retail financial services, moving onto slide 4. Here I am not going to go through all these drivers. You can look at them for yourself. They generally have been consistent with what we have seen before. Good growth in the retail banking side. What I do want to point out is we sent out an 8-K last week just to give you the new segmentation after Charlie’s Investor Day presentation telling you how we were going to attempt to get a better, cleaner view of what the mortgage banking origination side in auto and student and consumer lending businesses would look like without the noise of the real estate portfolios which are obviously suffering and will continue to. So that is really what we have got in the middle box is separate out and you will see it on the next profit and loss page. The same dynamics. At the bottom, real estate portfolios is the totality of the home equity lending business on balance sheet as well as the mortgage balances whether it is Chase originated or WaMu originated. Those dynamics are rolling through there. What you see in the middle of the mortgage origination side; production revenue, MSR, risk management, warehouse and so forth as well as the auto business primarily is a big one away from mortgage. So moving onto the next page which just tells you what happened on the P&L for the quarter in retail banking. Net income was $131 million loss on the upper left there. Again it is the tale of two cities. Piece by piece you see about $900 million worth of profits in retail banking, up a little bit year-over-year and down a little bit quarter-over-quarter. A couple of less days on net interest income versus last quarter is the decline there as well as some of our changes in number of items bringing down quarter-over-quarter some of the NSF ODCs in this quarter versus the fourth quarter. Moving onto mortgage banking the only thing I would point out is on the revenue side when you look at the big comparison versus a year ago I will just remind you that we made about $1 billion which was an extraordinary positive on MSR risk management a year ago. We are slightly positive this year and that is the big swing factor in revenues year-over-year. We continue to have embedded in those revenue numbers elevated levels of repurchase [contra] revenues there, stable with what we had in the past couple of quarters at about $400 million worth or so of repurchase reserve expense. Finally on the real estate side you see the bottom line, a $1.3 billion loss, net of the continued high level of credit costs. As well, a $1.2 billion adjustment to loan loss reserves for the WaMu credit impaired portfolio. Let me drill into credit trends here for home lending on page 6. I will point you now, there is a page…page 15 in our appendix which shows you the delinquency trends across all of the major portfolios on the consumer side including these portfolios and credit cards and what you will see in all of those is improvement in early bucket delinquencies. So we do see that. We will talk about it more when we get to credit cards. That backdrop is favorable for where we may go from here. In the quarter itself you will see by looking at the left of the page balances continue to come down versus prior year in these portfolios. We are not obviously originating at the kind of levels we have talked before. So balances continue to come down. Charge offs stabilizing, a little lower than what it was last quarter. Given what I just said about the early bucket delinquency trends improving somewhat we are hopeful we may see some improvement in these numbers such that we don’t achieve the prior outlook which continues to be printed on the right side of the page. We are not ready to lower those numbers but we will just say that is what we have said before. We are seeing some positive trends and hopefully in another couple of months we can report an improvement on actual trajectory of charge offs on the back of the improved delinquency trends. We are just not ready to do that yet. When it comes down at the bottom right to just the WaMu credit impaired portfolio as you know we have to do life of loan reserving here. All I would say here is we are not seeing the pace of improvement in the WaMu portfolio particularly on the prime side whether it is prime mortgage or prime option ARM that we are seeing in the rest of the Chase portfolio on average due to concentrations in lower FICO scores and geographies. That slower pace of improvement when we roll it through lifetime loss expectations and some of the other inputs a true up of the lifetime loss expectations we have to reserve for that is a $1.2 billion reserve addition in aggregate for WaMu credit impaired. So moving onto credit cards on slide 7. Net income of $300 million loss. The big story is credit. Let me talk about charge offs first. So you will see on the left side down towards the bottom you see the 10.54% net charge off ratio. That is excluding WaMu which is the way we talked about it. As you know we had a benefit due to a payment holiday done early last year which was about a 60 basis point negative impact versus the same benefit last quarter. So on a normalized basis right around 10% plus or minus for a charge off ratio. I will say it now because it comes on the outlook page, we see that normalized 10% type of charge off ratio in the next quarter trending more towards 9.5% plus or minus and if the delinquency trends you will see in the back appendix continue hopefully we get improvements further from there in the second half of the year. So on the back of all of that we have had a lowering of our loan loss allowance of $1 billion in the credit card business on the back of everything I just described. In terms of the rest of the P&L you see revenues affected by the decline in outstanding which is in large part driven by seasonal effect versus last quarter as well as rundown of WaMu portfolios and sales volumes seasonally down versus last quarter as well affecting revenues. Otherwise we feel good about the underlying health of the business and the progress we are making there. So that is the main driver of what is going on in the credit cards for the loss this quarter. Moving on now to commercial banking, slide 8. Commercial banking made about $400 million worth of revenue. Not really a lot different about the story here than what we have talked about before so let me cover it briskly here. I say one thing to point out is slower paced but continued reduction in level of loans and leases. $97 billion in the quarter down from $100 billion last quarter. So while businesses feel to us to be adjusted and poised to grow when they get orders in and have need to do it, they are not yet at that point. We are seeing that more in small business. I didn’t cover that on the retail page but we did see some pickup in small business demand and lending there about $2 billion in originations in the quarter. That is in retail. Here we have yet to see that effect but we are hopeful that will be coming shortly. On the other side of the revenue effect and the balance sheet you see liability balances, cash deposits that are left with us up from a year ago at $133 billion and up a little bit from last quarter at $122 billion. So that together with continued good performance on the fee side in revenues, treasury services products and investment banking fees which continue to be strong gets you about flattish revenue quarter-over-quarter and year-over-year. Credit side improvement from last quarter with credit costs in total of $214 million. Largely 75% of the credit costs coming from real estate related portfolios which as you know were underweighted on a relative basis and so nonetheless we end the quarter with north of 3% allowance to loan loss reserves against a 96 point charge off rate in the quarter. Treasury and Security services on slide 9. Again, I will just start with net income of $279 million, up a little bit from last quarter but just covering the revenue side we see in worldwide security services, the securities side, we are still seeing the negative impact of the declining deposit balances as well as continued narrowing spreads on securities lending in the quarter. FX revenues we get off of that business not totally offset by the benefit of higher assets under custody of $15.3 trillion in the quarter. So the same dynamics continue to grind sideways on revenues in that business. On the treasury and security services side, $882 million of revenues. We see the average liability balances beginning to stabilize at $250 billion last quarter and $248 billion this quarter, down from a year ago on the fact of flight to quality moving against us after the peak we saw in late 2008 and early 2009. That is flowing through on tighter deposit spreads with a revenue effect there. That is really what explains the P&L in treasury and security services. Last business is asset management on page 10. About $400 million in net income, up a lot year-over-year but down a touch from last quarter. $2.1 billion worth of revenues on $1.3 billion in assets under management. I would say just remember that versus a year ago revenues up given the effect of higher assets under management there on higher market levels. Versus last quarter the decline is just really driven by the absence of performance fees which are billed largely as a seasonal event in the fourth quarter. The health of the business looks good here. We have seen some decline in flows as a decline in activity is putting money back to work out of liquidity products primarily. Away from that we have actually seen growth in assets under management and flows in products away from liquidity products which we think is a good sign of the health of the business. Lastly, corporate in P&L impact terms. You see total corporate we had a little bit of private equity gains. Revenues of $136 million which translates into $55 million worth of net income. Then in corporate which is everything else we have $173 million of profit. I will just hit on the three items you see described on the right in the bullets. Again we had another quarter where we had strong gains. We don’t usually count on gains or guide for gains but we had gains of $1 billion related to repositioning the corporate investment portfolio and some trading activity that happened there. So that is $1 billion positive just to call out and understand the significant items were positive. We may still have another quarter, we can always have quarters that have an impact on that line. We may have that again in the second quarter. Maybe not to this magnitude as we continue to focus on how we want the investment portfolio positioned. The second point is that we continued to benefit from running a large investment portfolio. The net interest income coming off the investment portfolio continues to run at a higher level than what I would call normalized. Those two effects are the reason why on the outlook slide this number for corporate I have guided you lower on that as we get towards the end of the year to a number more like $300 million plus or minus. One other noisy item in the quarter, I am not going to get into a lot of details on it but when you see we added $2.3 billion for litigation reserves in corporate for the firm largely related to mortgage related matters. So think about that as we have repurchased reserves we have talked about related to the GSEs as an ongoing expense that we have been reserving for. This relates to the broader question of all other ideas for claims against us from private investors and others related to a good portion of WaMu related. We just put a lot of energy. We are not unique in having exposures here. We have talked about having these potential exposures before. We have just put a lot of energy into coming up with an estimate to put a marker down in our results. So that is all on that item. Capital on slide 12, you see we have 11.5% Tier 1 capital ratio and 9.1% Tier 1 common. Just to remind people you see the bullet below that table that we did adopt FAS 166/167 bringing variable interest entities on balance sheet. The real effect was about $88 billion worth of GAAP assets. Very little risk weighted assets or diminimous risk weighted assets as we largely had that covered in our risk weightings before. The one material impact was the fact that through our actual GAAP equity we had to put up loan loss reserves for the credit card receivables that came on balance sheet of about $7 billion of reserves pre-tax. About a $4.5 billion decline that just went to the equity and negatively impacting capital but nevertheless you see the ratios are very strong and we ended the quarter with $39 billion worth of total credit reserve ratio of nearly 6%. Finally, on the outlook slide I think I really covered this. Let me just pick through everything that we see on the retail side. It is as it was before. As I said we are not necessarily reaffirming this guidance. Hopefully it will be better but we are not ready to change these numbers. We do see delinquency trends looking positive but we have to wait for that to really pull through and more to come in future quarters. On the card services side I have covered all of this. Again no real changes from what we have said before but for the lowering of the charge off estimate on the Chase portfolio is down from what we experienced in this quarter by about 50 basis points looking into the second quarter with the likelihood of some improvement from there in the second half of the year. Corporate I already talked about the $300 million plus or minus number that you should expect to see as we get towards the back end of the year. I will just remind people to the extent there is a bonus tax imposed in the U.K. we would expect that to be a second quarter accounting event. So with that, that is the quarter and that is our outlook. I will just remind you we have a couple of slides here after this that I won’t go through that just cover a few of the items I referred to earlier. With that we can just open it up for questions, Operator.

(Operator Instructions) The first question comes from the line of Glenn Schorr – UBS. Glenn Schorr – UBS: Just top down, if revenues are a little better and very market related expenses are a little higher as comp normalizes and credit is moving in the right direction but trending directionally with the economy, when you look at the revenue front you alluded to it a little in your prepared remarks but can we kind of drill down and try to say where are the leading indicators for revenue growth? Clearly there is potentially a bank fee. There is clearly a bunch of revenue headwinds related to the regulatory change. Can we parse out where there are some leading indicators for revenue growth are or is that kind of waiting on the economy as well?

Let’s all just not call it a bank fee and call it what it is which is a punitive bank tax.

I think you heard me cover some of the items. You hit on some of the businesses are market sensitive but clearly you look at the market sensitive results and you have to feel good about the franchise we have got here. So if market opportunities present themselves and we are serving our clients and those businesses can do well. We think secular trends over the long term are good. Obviously it is too early to call what kind of regulatory impact there could be in any of these businesses and how business models react but we are not worried about our ability to compete and do well in the market side businesses. On the lending side businesses you clearly have the dynamics of portfolios running off affecting revenues. Away from that though I think you see noise in some of the numbers quarter-over-quarter but I think we are positioned to keep building the businesses, taking market share and growing. So the story I would say is as you heard at Investor Day, investing for growth in all of these businesses. More bankers. More branches. Better product. California and the commercial bank, so that is what I would point you to. I guess overlying trends of asset rundown and potential for regulatory impact yes we will have to deal with those but we understand that and we will do fine. Glenn Schorr – UBS: On that point, the things you have noted and others in the outlook related to whether the overdraft policy changes [inaudible] the impact on cards, how much of the fees are kind of in the run rate versus on the comp?

You would say in the first half of the year you will have a lot of the impact on the card side will be in the run rate. We are still waiting for a few pieces of the Card Act legislation to really be finalized which won’t happen until June with reasonable and proportionate fees. Away from that we are going to have it in our run rate shortly. Retail, we have a partial impact of some of the actions we took on overdraft fees, reducing the number of items in this quarter it is already in the run rate. There is some changes in customer behaviors anyway lowering overdraft fees in the quarter. So the rest of those effects won’t come in until the latter part of the year when all the changes go in. Third quarter I guess. So by the end of the year you would probably see those kinds of effects. Glenn Schorr – UBS: [SIC] first of all performance is great. You have been, first of all performance is great and off the charts and you mentioned it is across products. It is across regions. Interesting because VAR is down and you have been signaling competition is healing. You also signaled I thought that [ASP] spreads were narrowing. Was volume and volatility that strong that it carried the day to more competition and lower VAR?

VAR is just an inadequate measure of most things. Remember you are dropping very volatile trading months from a year ago and adding very benign trading months not to VAR. That is a huge reason why VAR has dropped so much and it is not just volatility. First of all, people did a great job. Spreads are back to kind of where they were. So think of it as they have almost normalized and that is fine. But a lot of client flow. A lot of volume and good trading around that.

The next question comes from the line of John McDonald – Sanford Bernstein. John McDonald – Sanford Bernstein: I was wondering on the repurchase reserve any color on what drove the improvement in direct warranty expenses this quarter? Did the GSE’s do we know if they hit their peak vintages and if they are kind of at full capacity in their put back activities now?

No that number is going to bounce around a bit. Put back levels were about similar to what they were in the past couple of quarters. No insight into vintage burnout or anything like that yet. John McDonald – Sanford Bernstein: No insight in terms of whether they are at full capacity and whether they could step up in their activity levels?

Nothing different than what Charlie covered at Investor Day.

The bad news may have peaked. Let’s see if that is true after awhile longer. John McDonald – Sanford Bernstein: On the NSF/OD impact, can you give any color on the assumptions incorporated into your estimate of the $500 million hit? Is it too early to have confidence? Is that really a guess on your part or do you have some confidence in that hit or is it too early?

I would say it is better than just a guess. We did work on it when we did it but it was an early estimate. Let’s leave it at that. We need to see how everything evolves from here. It was a reasonable estimate when we did it but we need to wait and see how it actually pulls through. John McDonald – Sanford Bernstein: You are still offering customers the opt-in. Have you considered this allowance of overdraft on debit that B of A implemented and decided against that?

So far we think the more consumer friendly thing is to fairly offer the consumer an option. Not to push at marketing but to say you have this option or that option. That still is our intent. B of A remember will offer that at the ATM for cash. They will notify the customer. We want to treat our customer very fairly. We think offering them an option probably is something they prefer. They always can turn it down. Remember a lot of the options the customer has is to link to other accounts, link to a credit card, things which are cheaper but we want to make sure we do all those things also for customers. John McDonald – Sanford Bernstein: Embedded in your $500 million is some estimate of how many customers opt-in I guess?

Yes.

Remember it is a very static analysis and we have looked at it again. I don’t think it is going to change dramatically. John McDonald – Sanford Bernstein: On the SOP3 portfolio, the credit impaired, other companies are showing gains to the NAM and NII from purchase account accretion which seems to be related to the repricing of the deposits better than they had marked and in some cases cash flows on the impaired loans coming in better. Do you have that dynamic going on too and just don’t talk about it or is it different for you because you have different assumptions in your marks?

Two things. One it depends on when you did your initial marks and where rate levels were so there is one effect of just actual market driven assumptions and the time you did things. Two, we may have that dynamic over time. We do the SOP33 evaluation at sub-portfolios so we have been focused on our prime option ARM and prime mortgage portfolios. Other ones have been behaving okay and if the day comes when we have a view they would come in below lifetime loss expectations we may have an adjustment to make. That would be down the road. John McDonald – Sanford Bernstein: So far you have not had a material NAM accretion?

Correct.

The next question comes from the line of Guy Moszkowski – Banc of America. Guy Moszkowski – Banc of America: I was wondering if you could give us a little bit more of an update on what you have seen with loan modifications as they affect both first and second mortgages and how that does or doesn’t inform the change in your tone, if not your guidance where you are saying if trends continue then loan losses on home equity prime and sub-prime might not get to those guidance levels. To what extent are modifications affecting that thought process?

If you look at HAMP which is a government program, looking in total not just JP Morgan, the government was aiming I think for 3-4 million [spots]. We actually think at current ramp rates it will take a long time to ramp it up, we will get to about $2 million on HAMP. That is what we believe. In addition to that most of the banks do other modifications which are also good for customers but for us it is more in the double of what we are doing in terms of HAMP mods. In the mortgage lending categories all of the indicators; new delinquencies, roll rates, steps that vary, they are all getting a little bit better. We think that is good. That trend stabilized late last year. January, February and March have gotten better. It is early. Those are actual numbers. You are guessing about what future changes might be because of legislation and stuff like that and we don’t know. We are hoping it will get better. We also think a lot of that will be driven by the economy, not by anything else. Guy Moszkowski – Banc of America: But to the extent that a lot of people think that if you are significantly modifying principle on even firsts but that is going to have a negative impact on second and the like, are you factoring that thought process into the fact you are saying we might still end up with loss rates below the prime guidance levels?

Yes based on the way we see it now. Guy Moszkowski – Banc of America: If I could ask for a little bit more detail on the $2.3 billion build in that litigation reserve. Can you help us understand better the distinctions between the funds that are available there and what you are doing in the investment bank where you also eluded to building some litigation reserve there. I am not sure I understood the distinction you were trying to make between what is available for the GSE rep warranties issues and what this might be for.

Let me make this simple. In the investment bank, retail and corporate we have put up rep and warranty reserves and litigation reserves for GSEs and all other mortgages including private securities. We have tried to do it diligently. Some of those numbers ran through the investment bank this quarter. We have broken out the numbers in retail and we have put the numbers in corporate. A lot of the numbers in corporate relate to WaMu. We are not going to give any other information. We think we properly accrued for reps and warranties whether they come through on the rep and warranty line or the litigation line. There are legitimate claims that some of these mortgages were [properly] done. It is going to be done mortgage by mortgage. Other than that we think we have done a pretty good job recognizing the problem early. Guy Moszkowski – Banc of America: I have one more question which relates to the investment bank. I noticed that assets basically didn’t increase or only a very small amount and yet your revenue in particular in fixed were obviously extremely strong. Is there some color you can give us on increases you are seeing in turnover rate of average positions or something like that? Are you just turning the balance sheet very, very quickly?

It is hard to answer the question. There is plenty of client volume. I don’t know the turnover rate offhand but you might see the balance sheet go up a little bit over time from here.

The next question comes from the line of Betsy Graseck – Morgan Stanley. Betsy Graseck – Morgan Stanley: A couple of questions on credit and capital. If the U.S. economy gets no worse is it safe to assume that you are done adding to reserves on a consolidated basis for the remainder of this spread cycle?

Again your assumptions about what the future holds are as good as ours. Credit card, when we look today remember we have real visibility really only into next quarter, those reserves will be coming down over time. Mortgage, the numbers are starting to look hopeful. There is so much uncertainty around mortgage I want to see it myself before you actually start taking it down. The real question for mortgage to me is how long the high losses last. That is the real question on mortgage not just the reserve number because huge losses are running through our books today and I think in commercial, and I put all wholesale in this; investment banking and middle market it looks like underlying credit trends are getting better, including a reduction in nonperformers, a repair of nonperformers and the financial stability of companies. Betsy Graseck – Morgan Stanley: On the mortgage piece, there is a recent HAMP out on earned principle forgiveness. Could you give us your sense of how you are going to approach this new HAMP modification program?

We are working on that now. We are not ideologically opposed to principle forgiveness. The issue is it has got to be done loan by loan to be fair. There is no other way to do it that is proper and fair both to the mortgage and to the bank. I don’t want to double count it because remember if you do principle forgiveness it is not that different than reducing payments for five years. You can double count a little bit but if we change our programs and we add some additional forgiveness it might change some of the loss rates going forward but we don’t know that for sure. But it might. Remember we have a lot of reserves up for this stuff. High losses running through. Underlying trends are getting a little bit better. It is also not completely clear where all the government programs. We are still working to try and clarify what it is they meant on some of those programs. Betsy Graseck – Morgan Stanley: How far along do you feel you are in the mortgage pig getting through the python? The sloppy underwriting that was done in the 2006, 2007, 2008 period?

53%. Betsy Graseck – Morgan Stanley: 53?

Honestly if things are starting to peak out and the economy gets better you improve the worst part. There is a ways to go. You will see as I see in Washington and things like that. The underlying trends look good and we shouldn’t forget that. Betsy Graseck – Morgan Stanley: Can you give us some sense as to how you think about the capital you have right now? Core Tier 1 9.1%. At what point do you feel you are able to start managing capital either with dividends or buybacks?

I think we have been very clear on the dividends. We want to see real underlying employment growth for at least several months. That is number one. Number two, we want to see real and sustained improvements in delinquencies and charge offs on mortgages and that is not just one month. We would like to see it continue for awhile. Number three, I think we have pointed out as some other banks there is a lot of capital uncertainty. Uncertainty around Basel II rules, Basel III rules, dividend tax rules, bonus tax rules and we would like to see some of that clear up before we start using our capital. That number will probably continue to go up over time. We want to make sure we are always, always properly capitalized and this company is never questioned. You end up with excess capital, you haven’t thrown it away, you just get to use it later. Betsy Graseck – Morgan Stanley: There is just a question could you potentially be in the same position you are in now with card where your reserves are very high relative to your forward look on losses. Could you end up in a position where you have significant amounts of capital and you are not able to deploy it as quickly as you would like?

It is possible, yes. Betsy Graseck – Morgan Stanley: On real employment growth are you talking about net job creation or are you talking about just unemployment going down?

I am talking about net job creation. That is the really important thing in getting more people back to work. The other number has odd calculations in it. Betsy Graseck – Morgan Stanley: That could have a fairly long tail to it.

No, what I mean by real job creation is that we really believe we have a sustained recovery. That to be is 100,000 jobs being added for several months in a row.

The other one is our own credit costs. It is not just delinquencies. It is credit costs making the turn. So retail is stabilized and we would like to see them turn downward.

The next question comes from the line of Meredith Whitney – Meredith Whitney Advisory. Meredith Whitney – Meredith Whitney Advisory: I am more curious about the credit card modifications because there are no government guidelines to follow with those and what your outlook is in terms of how much free capital is freed up by the mortgage modification or if the credit card modifications are what the main driver in improvement is in early stage delinquencies or is there something else?

There are no credit card modification programs any different today than there were way back. Remember by the end of the last two years we have written off close to 20% of the portfolio. You would expect in an economic recovery or even stability that delinquency and charge offs would come down and in fact they are. So you have written off a lot of stuff. Meredith Whitney – Meredith Whitney Advisory: I appreciate that but I am looking at what you put out which is your card modifications doubled from 2008 to 2009. Yes, I would expect that normally but for the average consumer things have not gotten materially better so I am just trying to figure out what is going on.

I think you are talking about the things in credit workout. That just tracks charge offs and bankruptcies and stuff like that.

That stuff is working through. The challenged stuff. So as you see that charge offs associated with that which is charge offs Jamie was talking about you are left with a better performing portfolio at the end of that process. Meredith Whitney – Meredith Whitney Advisory: Would it be then the high end is the most resilient or the low end? If you could just provide a little bit more color in terms of what specifically you did with credit cards.

In credit card across income bands, FICO bands and vintages we are seeing improvement in delinquencies and charge offs. Meredith Whitney – Meredith Whitney Advisory: The main driver of that is? Obviously employment is not improving in your estimation.

I think the main driver is the people who were worse off [before the charge off]. In prior recessions when unemployment stops going up we start to see an improvement in those things. That is typical of a recession that the rate of change of unemployment is a bigger driver of credit card delinquencies and losses than simply absolute rates of unemployment. Meredith Whitney – Meredith Whitney Advisory: A follow-up on your credit card, the portfolio through WaMu has obviously been in run off. Where do you think that portfolio ultimately goes? Not the WaMu portfolio but the collected portfolio?

I think the Chase portfolio which is $132 billion, we believe it is basically stabilized as it is. The WaMu portfolio which is $28 billion is going to keep going down and I think we gave some of those numbers at Investor Day.

The next question comes from the line of Matthew O’Connor – Deutsche Bank. Matthew O’Connor – Deutsche Bank: Given that you are getting more confident in the economic recovery and a lot of banks have significantly pulled back on credit; for example Bank of America is now focused on just the super prime within credit card essentially exiting from below, it just feels like there is a lot of opportunity to lend as demand comes back to call it middle America and below. I am wondering how you are thinking about can you capitalize on some of that opportunity?

Yes. You see us rolling out credit card new programs all the time. I think auto loans are up. I think jumbo loans are up just a little bit but they are up maybe double from a year ago. We still have, and we spoke of this at Investor Day, a large liquidation in the home lending portfolio because people are no longer doing sub-prime, Alt A and option ARM. Some of that we acquired from WaMu. That is going to run off. The other stuff year-over-year I think you actually may start seeing increases. Matthew O’Connor – Deutsche Bank: On the wholesale side of the business there is a lot of commercial real estate one could argue is going to change hands; out of the CMBS, out of the regionals and into potentially banks like yours who seem to be involved in that process. How do you think that is shaking out and where are we in the process of getting restructured? Can you make some money off of that?

I think you have seen a lot of real estate get restructured has problems and it is kind of a delayed lag. It is going to happen over the next two years. If there is a proper way to do real estate lending secured with the right developers and we get some of the upside we would be happy to do it. Matthew O’Connor – Deutsche Bank: Separately, you talked about getting positioned for rising interest rates but it seems like you are doing it relatively slowly. To be fair most banks are adding securities and you are taking them away. It seems like a little bit each quarter. Should we interpret that you aren’t too concerned that either short or maybe more importantly the long end is not going to go up meaningfully any time soon?

I think the way to look at it today is today we are in a fairly neutral position. So I think the disclosure made in the 10-K is for interest rates, the whole curve went up 100 basis points or like $300 million. Call that a very, very neutral position. So we have already gone from being short funded to neutral and the question is are we going to change it from there. [We aren’t] going to change it at all but Mike has said we will change it and rising long rates help earnings. Rising short earnings hurt earnings. So when you talk about neutralizing it you are going to neutralize one versus the other. That is a little complex but we like where we are today and over time that portfolio will probably come down. That portfolio is just one measure of interest rate exposure. It hasn’t come down that much in that portfolio but we have changed the components of it. Matthew O’Connor – Deutsche Bank: Does that mean less extension risk or what do you mean by that?

I would say we are reducing some of the extension risk and reducing some of the credit exposure in it.

: Mike Mayo – CLSA: I am still looking for some clarification. You had $8.3 billion of trading revenues at 30% of the firm’s revenues and I am not really sure why the trading revenues were so high at $8.3 billion. I guess some questions would be one, how much proprietary trading was there? A second part would be how much in derivatives and by the way what does the derivatives legislation do to you guys? Three, how much of that might go away if rates go up on the short end faster than you expect?

I would say it is very little proprietary. It is a lot of client flow. So we are not the only ones who saw that. I think you are going to see the other people report similarly good numbers, somewhat driven by client flow and good results by traders. They are on the ball. They have paid attention. Rising rates don’t necessarily hurt your trading results. It is not because we are taking a mismatch and trading and you see some of that. There is some benefit from the fact spreads keep coming in and you have the reversal last year instead of losses in legacy credit and mortgage positions you had small gains in those things. We agree it was a very good quarter for FICC in particular. We are not going to tell you we expect it to continue like that all year. Mike Mayo – CLSA: Back in the old days you gave some kind of guidance for fixed income trading revenues. If they were $5.5 billion this quarter. Any guess of what a more normal level would be?

I wouldn’t say we have. We always talk about trading as volatile and hard to predict. Obviously we have an investment in people, balance sheet and infrastructure so you expect results that are positive. This was a strong quarter. No question about it. Likely on average it runs lower than this level but I am not going to give you a number on where. Mike Mayo – CLSA: Legislation on derivatives, could that have a positive, negative or uncertain impact? What is your thought?

It is very hard to have a positive impact. The devil is in the details here. When we over-simplify we are not doing justice to the issue. We do believe that most standardized things will go to clearinghouse and that is fine. That in and of itself doesn’t have a huge impact on revenue. Then there is the issue about how much of those and other trades go through an exchange and the transparency that could or couldn’t depending on how it is designed. How much room is left to have exceptions to over the counter or end user exceptions and that is not defined yet. It will be a negative. Depending on the real detail it could be $700 million or a couple of billion dollars. Mike Mayo – CLSA: You have kind of addressed the fixed income trade. On the equity trading side, implied volatility reached a two-year low in March. Mix dropped. Volume increased only 5%. So why did equity trading do so much better?

Our traders did a good job. That was also cash, derivatives and prime broker. If you put it all together I think they all had a good quarter. Mike Mayo – CLSA: Anything by region on all your trading? Did Asia do better? Europe? U.S.?

At the investment bank, Americas did great. Asia did pretty well. Europe did pretty well but not as well as it has done before if I am recalling the numbers correctly. No particular areas of weakness. It was strong pretty much everywhere.

The next question comes from the line of Jason Goldberg – Barclays Capital. Jason Goldberg – Barclays Capital: I guess you addressed the derivative stuff. I guess a lot of uncertainty and also with respect that it changes the [inaudible] process and the SEC voted last week and now are trying to include a 5% risk retention by the sponsors. Can you talk about your thoughts about securitization activity going forward?

I think in credit card it is going to be virtually done because most of them don’t need to do it at all. Some issuers will do it. There is a lot of detail in that 5%. So we are not opposed to the concept of the game. The detail is what trenches, how you do it. I think it will make it smaller but it won’t eliminate it. That is my guess. The real securitization markets you haven’t seen come back yet are the mortgage securitization markets. I think at one point you are going to see that. 5% will just change what kind of spreads there will be on total securitization to give the person is going to own the equity like return and what they have to retain is permanent. Jason Goldberg – Barclays Capital: Then also another area of uncertainty is I guess [comments] reduced on the banks for Basel at the end of this week and I know the Fed encouraged you guys to comment. Maybe your thoughts around that and what you are looking at to be changed from the original documents.

We will get our comments in. We talked a little bit about this at Investor Day. There are going to be a lot of things out there that the big issues are how all those ideas that are on the table and rightly so how in the proposals they connect together with each other; the capital side out of Basel III, the liquidity side of Basel III. Together with everything that is in play today away from Basel III. So I think the biggest point is to just make it cohesive and thoughtful and take time to evaluate the impact analyses that are going to be underway as well. There are powerful potential changes in there that has been well commented on. Our feedback is in and we hope to see a process whereby we get a revised set of proposals towards the end of the year after impact studies are done. We may not get that. We may just get a final rule. We will see.

I think most people think some of those things in Basel, no one is against proper capital liquidity. That we need. A lot of those things in Basel III had too much as you can’t include agency or MBS as liquid security. You need 30% of deposits have to be held like there is going to be a run on 30% of deposits. You need to hold T bills against that. I think a lot of that is going to get modified appropriately so the impact of Basel III will be when it is ultimately rolled out it will be substantially less than the impact you saw on the initial Basel III proposal. Another thing that is really important for American banks is it needs to be consistent globally. That is an important competitive attribute. I think the regulators know that. If different countries do it, it would have a dramatic effect. I also want to point out that Basel III will have a much bigger effect on non-U.S. banks. The European banks have to look at those numbers and they will have a different reaction to it and are probably going to want to phase it in over two years to 50 to make up for the dramatic impact on the balance sheet. Jason Goldberg – Barclays Capital: Lastly, on the slide 6 home lending update you talked about stability and improvement in delinquencies in one bullet and the next bullet you talk to just the impact of the foreclosure moratorium, extended timelines in OREO and modifications. Any sense to kind of quantify the impact in terms of how much delinquencies are being impacted by those factors?

It is really the back-end stuff. The back-end has elevated levels of delinquency rates. 10-15% is what we said once upon a time but having to freshen that up. Remember it is not an income statement effect, the fact those are getting delayed because we have been very active in making sure that we charge things down and realize economic loss just because of those very delays. Yet it does create some inflation of back-end delinquency rates which is why we are so focused on those charts; early bucket delinquencies, mid bucket delinquencies, and then what is going on in the 150 day plus where some of that stuff sits longer before it gets cycled out is a separate issue that has some distortions in it.

The next question comes from the line of Moshe Orenbuch – Credit Suisse. Moshe Orenbuch – Credit Suisse: Following up on the home equity discussion it is encouraging you are hoping and seeing signs perhaps the losses aren’t worse than you expected and could in fact be better. It does seem from the outside a little counterintuitive. Could you expand a little bit on your comments from the Investor Day about the rundown of kind of $60 billion-ish of the JP Morgan home equity portfolio? Is there anything that could make you revisit that? Some of the expectations for your participation in the mortgage market as we go forward?

I don’t get the question. Moshe Orenbuch – Credit Suisse: At the end of the Investor Day Jamie had said inclusive of WaMu you had $250 billion of mortgage assets that were likely to run off the books but over $100 billion of those were JP Morgan assets inclusive of a big chunk of the home equity portfolio. Are you still kind of committed to running down that much of your mortgage assets? Is there anything that might change there?

I think it is really a function of we are trying to give a sense that those run downs are real when you consider how much of even the Chase portfolio when you apply current underwriting standards given proven income as opposed to stated income, LTV’s that are sensitive to forward home price expectations and lower. All of those layered in against a reasonable set of origination levels that would qualify there given where home prices are is what is driving that. It is those underlying factors that allow us to do more volume at those kinds of new lending standards the numbers will be different. That is a reasonable guess on where we might find ourselves going over many years.

The next question comes from the line of Jeff Harte – Sandler O’Neill. Jeff Harte – Sandler O’Neill: How should we be thinking about the tax rate going forward given how it has been low for at least a couple of quarters running now?

Look back on where we are running, low 30’s. We were a little bit lower than that at high 20’s this quarter on a reported basis. So a little bit of audit settlement in this quarter played with the ratio but other than that we would have been around the low 30’s which is a decent place to see the number. Jeff Harte – Sandler O’Neill: When we look at the home equity loss assumptions within RFS, sticking with the $1.4 billion outlook versus the $1.1 billion running now how much of that is just conservatism versus are there kind of modification spill overs or something else driving you to be conservative there?

I think it is more the fact it is a little hard right now given the inflection we are seeing to tune up a better number to give you than to say that is what we last said. Hold the thought while we get some more months of experience under us but given what we are seeing in early buckets it could be we don’t hit those numbers. That is the best I can give you on that score. Not yet able and ready to give numbers as good as what we had before but we are just caveating that they are not so solid anymore given some of the early trends. Jeff Harte – Sandler O’Neill: That is from the economic or credit statistics that you are seeing versus what you are looking for as opposed to there being I don’t know some kind of HAMP rollover effect or something else dragging on it?

The actual rolling delinquencies, charge offs by vintage look a little better. Add to that the uncertainty around housing, government programs, new foreclosures and the economy we are being cautious.

The next question comes from the line of Nancy Bush – NAB Research. Nancy Bush – NAB Research: A quick question on what will happen in a rising rate environment. The Fed continues to keep rates low but the long end keeps creeping up here and making a run at 4. Can you give me some idea how you look at [NEM] in a rising rate environment? How you think your core funding is going to plan? What do you expect on an extraordinary level of deposit pricing competition, etc.?

It is hard to say because you are talking about more of competition than anything else. I believe if you have a rising rate environment with short rates going up 100-200 basis points and long rates going up 200 basis points, it is because of a healthy economy everything will be fine. If you have stagflation and rates going up and you don’t have a healthy economy that is probably the worst situation for a bank. In and of itself it is not the interest rate exposure, it is the other things that are going to drive that including as you pointed out competition. Nancy Bush – NAB Research: Any thoughts, obviously you have been in an extraordinarily liquid environment here and deposits have been rising as a result. Any thoughts about what you will see in the real core deposit growth or lack thereof as rates start to rise and whether you will see any need this time around because we are coming off of such a low rate base to really give consumers more of the rise than you might have otherwise?

When we talk about interest rate exposures we already build into that our assumption about how much a rate rise you pass on to consumers. We already assume that and I would say we are pretty aggressive assuming you have to pass on quite a bit of this at least early on in an interest rate cycle. On the consumer side if you look at consumers they have a lot of excess cash if you talk to economists. A lot of that is also money market funds. So it is a little bit different in deposit accounts. We are going to compete for our client business like everybody else and we assume it will be competitive going forward.

The next question comes from the line of Ed Najarian – ISI Group. Ed Najarian – ISI Group: I am not sure if you are able to break this down but we saw the net interest margin expand from 302 to 332. I am assuming most of that came from FAS 166/167 as well as probably what went on with trade and the corporate securities portfolio. Is there a way to indicate the portion of that which might have been related to the core lending and deposit business?

It was about stable. No material action in that nor looking ahead would I expect there to necessarily be when you put aside the deliberate stuff we are doing in the investment portfolio or just the outcome of what is going on in the trading businesses. Ed Najarian – ISI Group: The $2.3 billion for the litigation reserve I know you indicated that you don’t want to talk in more detail about that but should we consider that pretty much a one-time item and at least for now the expectation would be that would not exist in future quarters?

Since it is going to take years to sort all of this stuff out we took an estimate now and I think it will be awhile before we had any reason to make any changes to that.

We don’t expect to estimate any but you never know when it comes to these items.

The next question comes from the line of James Mitchell – Buckingham. James Mitchell – Buckingham: Do you have any thoughts on the pipeline in the investment bank? Is it up? Down?

It looks fine. A point I made before pipelines are notoriously bad. Things go away and things come in and the debt markets sometimes the pipeline is not there at all so deals can get done very quickly but it looks healthy. James Mitchell – Buckingham: Any kind of more clarity on the impact of the bonus tax in the second quarter? Is it something you think could be quite material? You are not mentioning it because it is on the fall side? How should we think about it?

The only point I want to make is it may be material and if it does happen it is likely to be a second quarter accounting event. That is the only point I want to make at this stage. James Mitchell – Buckingham: So no specifics?

It is a one-off if it happens, even if it is material.

Or so the government in the U.K. says. James Mitchell – Buckingham: You have put out estimates for the impact of lower overdraft fees, the Card Act, etc. and the $500 million range each for the retail business and the card business. Obviously there is some impact in the first quarter. Can you give us some percentages around that? Are we 50% of the way there? Are we 25% of the way there? How should we think about it?

Card is almost 100%. Retail is 50%.

The next question comes from the line of Matt Brunell – Wells Fargo. Matt Brunell – Wells Fargo: A quick question on the slide deck in the appendix. Obviously your early stage delinquencies in home equity and private mortgage are coming down or flattening in the case of prime mortgage. Can you give us an update as to how California and Florida markets specifically are performing in the early stage delinquencies?

I should have said this before. Across vintages, FICO scores, LTV, regions, states, we are seeing pretty much improvement. It is very broad based. Matt Brunell – Wells Fargo: A bigger picture question. What do you think the effects might be on the market specifically JP Morgan trading if the rating agencies come through with the ratings downgrade on some of your competitors in light of potential regulatory changes?

I would put it in the not much category.

I think that is right. My gut would be it is going to take some time for that to actually manifest itself but we will see.

The next question comes from the line of Chris Kotowski – Oppenheimer. Chris Kotowski – Oppenheimer: I noticed even excluding the CNI loans you had an uptick this quarter for the first time in a long time. I wonder is that even excluding the effect of FAS 167 and is that indicative of customers beginning to play some offense in your opinion? Could we actually have seen the bottom in corporate loan demand?

Jamie hit it earlier. What is going on in the investment bank is access is there. FAS 167 drove the change in that business net of market activity. I would say the real litmus test for wholesale would be your middle market business and there it is starting to stabilize but it is still down a touch from last quarter.

The next question comes from the line of Ron Mandel – GIC. Ron Mandel – GIC: I was wondering at this point whether your caution in home equity charge offs there is still some higher charge offs from first mortgages being modified and then the second being written off because that still seems to be such a hot button for the legislators and also for investors in first mortgages.

First of all we are already doing that a little bit. We are already modifying seconds and not all seconds have firsts and not all seconds are in trouble. You really have to parse through all that. I would put that as an issue of uncertainty out there that remains. Yes. We also are doing the 2M cease program like most other banks. Ron Mandel – GIC: Any way of quantifying what the impact of that program and the others might be on the charge offs?

The devil is in the details on how they are done. Not really. Presumably they will be done in a thoughtful way which as Jamie said we are already doing a lot of this stuff on a loan by loan basis in a way that is appropriate and making changes and adjustments and in answer to Guy’s question earlier we factor all that in to how we think about future charge offs and therefore reserving. So we have a view. It is just a question of whether programs come in with something that blankets or is a less thoughtful approach than we think makes sense. Ron Mandel – GIC: It just seems bizarre in some cases that some people stop paying on their first and are still paying on their second. It would seem like those types of loans have no value and essentially would be written off even if they are current now.

That statement if that were true in some cases, and that would be true and your assumptions are all true your conclusion would be true. But that is not always the case. There are a lot of reasons why people are doing things.

The next question comes from the line of Carol Berger – Soleil. Carol Berger – Soleil: I have a non-earnings question for Jamie. Yesterday Kerry Killinger testified before a congressional committee and essentially said the only reason WaMu was put out of business was because it didn’t belong to the club. Given the fact you have just added to reserves for the impaired portfolio, I would like your comments on whether or not WaMu probably would have failed regardless of the way it was handled.

You have to ask the regulators. We had nothing to do with the decisions made around declaring them insolvent and stuff like that. Obviously they were having deposit out flow. If you remember when we bought the company we put up $40 billion of reserves, write down reserves.

We raised $11.5 billion. The next day they replenished the capital that was needed to execute that.

Since then the world has been worse, not better, so we put up slightly additional reserves in certain categories. Plus I am unaware of any club to tell you the truth.

I am not aware there was any other bidder other than ourselves.

I was flying back from China so I didn’t see the testimony.

The next question comes from the line of Brad Ball – Ladenburg, Thalmann & Co. Brad Ball – Ladenburg, Thalmann & Co.: I wonder if you can add some color on credit card sales volume trends up 7% year-over-year in the Chase card. Any comment on trends intra-quarter and also where is the spending being done? Which segments? Do you think it is sustainable at these levels or is this just growing off of a relatively lower year?

Definitely the latter. Growing off of lower year-over-year comps. And as you go back to some of Gordon’s investor day slides the more affluent the segment the earlier and greater magnitude of sales pickup. We think as it relates to the market broadly our share of sales is picking up. All the work the business is doing with the new products and rewards programs and partner programs we have. Then there is some seasonality obviously when you go from the first versus the fourth figure. A big spending season in the fourth quarter.

What I saw was that consumer spend and incomes are kind of back to where they were before this crisis. You have seen retail sales up. You have seen restaurant sales up. You have seen airplane sales up. You see car sales up. That is the facts. You can guess as well as we can guess whether they will continue or not. We even see luxury sales up. Brad Ball – Ladenburg, Thalmann & Co.: So it is not just non-discretionary? It is actually some discretionary categories?

I always question that discretionary breakout because if you really dig into it, it is hard to determine some of that. It is specific luxury items and vacation type travel those are up and they are up even stronger than the aggregate if I remember correctly. Brad Ball – Ladenburg, Thalmann & Co.: A clarification, in your response to the question about the Card Act I think Mike indicated some of the major provisions aren’t implemented until August which we know so we don’t know the impact of those but then later Jamie responded by saying that 100% was in the first quarter number. I am confused by that.

100% of everything we know of. A straggling piece or two that final outcomes of what the legislation would be is not yet…

It could be a cost of $300-500 million. We don’t really know the number yet. Just assume it is going to cost something. Brad Ball – Ladenburg, Thalmann & Co.: So the addition provisions that will be implemented on August 22 will cost between $300-500 million roughly?

That is throwing out a number but purely a guess on my part. Brad Ball – Ladenburg, Thalmann & Co.: Just to be clear again, I am sorry, in the first quarter net loss of $300 million or so there was a Card Act cost both in terms of revenue and expense?

Say that again?

Yes there was. Brad Ball – Ladenburg, Thalmann & Co.: The magnitude of that on a run rate basis is consistent with what your prior guidance had been?

More or less.

Remember those are static analysis. That is saying just kind of run it through but people are changing how they price for cards and how they are using cards. So not much of the static analysis will be what it ultimately cost the company three years from now. Brad Ball – Ladenburg, Thalmann & Co.: Is what you said about the consumer spending trends, is that what drove the comment Mike made about small business starting to pick up a bit? I guess small business on the borrowing side.

That is right.

That is a good sign. Small business loans are up pretty substantially.

The next question comes from the line of Richard Beauvais – Rockdale Securities. Richard Beauvais – Rockdale Securities: Consolidation of the VIE raises two questions I guess. One is concerning your equity account. I understand you took on more liabilities than assets and therefore you reduced your equity. Why did you reduce retained earnings? Why did retained earnings go down by $1.4 billion?

The change was bringing on $88 billion of assets which was largely credit card and then the equity account was putting up loan loss reserves related to those card assets. Richard Beauvais – Rockdale Securities: That gets to the second question.

If you look at the quarter you have earnings minus the after-tax effect of that $7 billion of reserves plus OCI plus a whole bunch of other stuff.

A lot of changes in the quarter but the FAS 166/167 was about $4.5 billion after-tax negative to the equity accounts all driven really by the credit card side which is reserves. Richard Beauvais – Rockdale Securities: I can understand why equity account went down by the $4.5 billion. I was surprised to see it show up in retained earnings. The other question relates to the allowance for loan losses, the $7.4 billion that was added to reserves. Why didn’t that go through the income statement?

That is the accounting pronouncements were on how to handle 166/167. That is a guidance on how all banks will handle that one. Richard Beauvais – Rockdale Securities: Was that the reason net charge offs were higher than the provision? In other words the provision was lower than net charge offs and I am wondering if it is because of the…

No. Independent of that. The provision in charge offs was separately the release of the $1 billion of reserves in credit cards given the improving credit trends, delinquencies and roll rates. Richard Beauvais – Rockdale Securities: So in other words the charge off number shouldn’t be used as an indicator let’s say in the second and third quarter as to what might happen to the provision?

Everything you saw in the card segment about the charge off rate and the guidance we talked about, none of that is affected by 166/167. Thanks everybody. We look forward to next quarter.

Ladies and gentlemen this does conclude today’s teleconference. You may all disconnect.