DBRS Changes Ratings Trend for JPMorgan Chase & Co. to Positive

DBRS has today changed the trend on all long-term ratings for JPMorgan Chase & Co. (JPMorgan or the Company) and related entities to Positive from Stable. DBRS also changed the Short-Term Instruments rating for the Company’s main bank subsidiary, JPMorgan Chase Bank, N.A., to Positive from Stable. At the same time, DBRS confirmed all ratings, including the Company’s Issuer & Senior Debt rating at A (high) and the Short-Term Instruments rating at R-1 (middle). These rating actions followed a detailed review of the Company’s operating performance and credit fundamentals.

The Positive trend reflects the progress that the Company has made in integrating the Bank One franchise since 2004, resolving past litigation and other legacy issues, and generating momentum in its businesses. For DBRS, the Company’s ratings are underpinned by its strong franchise with leading positions in U.S. banking, global investment banking and global fee-based businesses that include asset and wealth management as well as treasury and securities services. With a much-reduced drag from legacy issues, the Company’s solid financial profile with its well-diversified earnings and its robust risk management also support the ratings.

DBRS notes that JPMorgan has created a powerful U.S. banking franchise by combining Bank One with its own legacy franchise. The Company has a strong super-regional branch network of over 3,000 branches that serves retail and small business customers. Through this combination, the Company has also become one of the three leaders in the U.S. credit-cards industry and added to its strong market positions in mortgage origination, home-equity lending, as well as auto and education finance. JPMorgan also benefits from its strong franchise with middle-market companies where it leverages services from across the Company.

In DBRS’s view, JPMorgan has an impressive investment-banking and capital-markets franchise, ranking among the leaders in many product categories globally. Reflecting its universal banking franchise, fixed income remains a mainstay, but the Company is also among the leaders in advisory business and is an increasingly strong player in the equity capital markets. Improved management of risk taking in trading activities has added stability to fast-growing revenues since 2005. After three years of flat earnings, DBRS perceives that the Company’s challenge is to translate this strong revenue growth and franchise expansion into earnings growth.

DBRS also sees the Company benefiting from its extensive fee-generating businesses globally that add to the diversity of its earnings. The Company operates one of the world’s largest private banks and has substantial asset management businesses. As a leading global custodian, and a major provider of securities services, as well as cash management and treasury services, JPMorgan is gaining from the expansion of global capital markets. Besides adding to its earnings stability, the wide variety of products in these businesses enables the Company to leverage and grow customer relationships across its franchise.

With earnings of $14.4 billion in 2006, up from $8.5 billion in 2005 as legacy issues recede, the Company is generating earnings more in line with the franchise’s earnings power, but still below the Company’s targeted levels. Given the Company’s substantial investments in its businesses and the strength of the integrated franchise, DBRS expects that core earnings will continue to improve, maintaining upward pressure on the ratings.

In sustaining growth and delivering more consistent business results, the Company faces a challenging U.S. environment with weak housing markets and slow economic growth. In expanding its global businesses, the Company faces increasingly global competitors that are gaining strength from capital markets expansion and industry consolidation.

DBRS, however, believes that JPMorgan is well positioned to compete effectively in its principal business lines and continue to generate earnings growth and solid profitability.

Note:
All figures are in U.S. dollars unless otherwise noted.