Fitch Affirms JPMorgan Chase's Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed its ratings for JPMorgan Chase & Co (JPM) as follows:

--Long-term Issuer Default Rating (IDR) at 'AA-';

--Short-term IDR at 'F1+';

--Individual rating at 'B'.

Fitch has also affirmed JPM's other existing ratings at current levels. The Rating Outlook is Stable. A full rating list is shown below.

JPM not only survived the financial crisis without direct extraordinary assistance but was able to expand opportunistically during the worst of times (e.g. Bear Stearns and Washington Mutual). It has consistently made capital and liquidity a priority, resources that help mitigate concerns about some of the company's businesses that continue to face strong economic or regulatory headwinds and/or are inherently more volatile contributors to earnings. JPM's capital ratios are well above current required minimums, and each of its businesses is capitalized to compare well with peers, providing the company substantial cushion against the potential effects of a continued weak economy and expected higher future capital requirements from pending regulatory reforms.

Loan quality exhibited considerable deterioration during the past few years, although it remained manageable in light of JPM's ability to absorb losses through earnings. As of mid 2010, some portfolios were exhibiting signs of improvement which prompted JPM to reduce its reserve coverage. Nevertheless, the level of troubled loans and credit losses within the consumer and corporate loan portfolios continues to compare favorably to peer banks globally, and the loan loss reserve remains very strong by historical standards. Fitch anticipates that JPM will continue to reduce its loan loss reserves if favorable trends in losses and delinquencies continue. Of note, however, is the risk that JPM and other U.S. banks might reduce reserves too much or too quickly.

JPM's investment bank (IB) now has a dominant, global franchise, and this business has been the single most significant contributor to consolidated earnings in recent periods, particularly as some of JPM's consumer business results have been dampened by high levels of credit loss provisions. Earnings from the IB are inherently subject to market volatility, and material swings can and do disproportionately sway IB results and, because of its proportional importance, consolidated financial results. Regulatory reform (especially the Dodd-Frank Act) is likely to place constraints on some aspects of this business, which could have a meaningful deleterious effect on the scope of activities in the future. Fitch considers this a moderate risk, while nevertheless noting that considerable uncertainty remains pending the adoption of specific regulations to implement the Act which may take several years.

JPM also faces many additional challenges. The CARD act and other pending regulatory reforms have or will reduce a number of revenue sources, particularly in several of the company's consumer businesses. Because it is one of the largest mortgage servicers, JPM has been experiencing higher levels of repurchase requests. JPM has set aside more than $2.3 billion in reserves for reps and warranties (approximately 79% of pending requests), a level that is more than double that of the other large banks. Still, charges associated with future requests could be meaningful. Throughout its various businesses, JPM faces considerable litigation risk. While it has set aside reserves for litigation, including a special $2.3 billion provision in the first half of 2010, this risk remains significant. Lastly, but perhaps most importantly, JPM faces reputation risk. Much of its success during the past several years can be attributed to having avoided some of the more problematic activities leading to the financial crisis and thus became the institution to which customers flocked when there was a flight to quality. Anything that tarnishes JPM's image would likely result in a diminution of this competitive advantage.

Ratings could be negatively affected if the challenges facing JPM, as outlined in the above paragraph, result in material reductions in profitability, resulting in meaningful deterioration in capital or liquidity strength. Ratings could also be negatively affected if improving asset quality trends reverse, which is not expected, at least in the near term.

Potential factors that could drive positive implications for JPM's ratings are more difficult to envision, given the relative importance of the IB business, the nature of which is inherently market sensitive, and the high level of current ratings.

JPM, following both organic growth and the acquisition of Bear Stearns, has risen to become a dominant investment bank and securities underwriter. Importantly, JPM is also a major global provider of custody, clearing and other securities services. Through its Chase-branded businesses, JPM also operates one of the largest retail banks in the U.S. in terms of total deposits, loans, branches, mortgage originations/servicing and credit card issuance. JPM also has a substantial presence across the commercial and corporate banking spectrum, including small and middle market business, and provides a full array of products and services to these customer segments.

Fitch has taken the following rating actions:

JPMorgan Chase & Co

--Long-term IDR affirmed at `AA-';

--Long-term senior debt affirmed at `AA-';

--Long-term subordinated debt affirmed at `A+';

--Preferred stock affirmed at `A';

--Short-term IDR affirmed at 'F1+';

--Commercial paper affirmed at `F1+';

--Individual affirmed at `B';

--Support affirmed at '5';

--Support Floor affirmed at `NF';

--Long-term debt guaranteed by TLGP affirmed at `AAA';

--Short-term debt guaranteed by TLGP: 'F1+' withdrawn (issues have matured).

JPMorgan Chase Bank N.A.

--Long-term deposits affirmed at `AA';

--Long-term IDR affirmed at `AA-';

--Long-term senior debt affirmed at `AA-';

--Long-term subordinated debt affirmed at `A+';

--Short-term IDR affirmed at 'F1+';

--Short-term debt affirmed at `F1+';

--Short-term deposits affirmed at `F1+';

--Individual affirmed at `B';

--Support affirmed at '1';

--Support Floor affirmed at `A+'.

Chase Bank USA, N.A.

--Long-term deposits affirmed at `AA';

--Long-term IDR affirmed at `AA-';

--Long-term senior debt affirmed at `AA-';

--Long-term subordinated debt affirmed at `A+';

--Short-term IDR affirmed at 'F1+';

--Short-term debt affirmed at `F1+';

--Short-term deposits affirmed at `F1+';

--Individual affirmed at `B';

--Support affirmed at '1';

--Support Floor affirmed at `A+'.

Custodial Trust Co.

--Long-term deposits affirmed at `AA';

--Long-term IDR affirmed at `AA-';

--Short-term IDR affirmed at 'F1+';

--Individual affirmed at `B';

--Support affirmed at '1';

JPMorgan Bank & Trust Company, National Association

--Long-term deposits assigned `AA';

--Long-term IDR assigned `AA-';

--Short-term IDR assigned 'F1+';

--Short-term deposits assigned `F1+';

--Individual assigned `B';

--Support assigned '1';

--Support Floor assigned `A+'.

JPMorgan Chase Bank, Dearborn

--Long-term deposits affirmed at `AA';

--Long-term senior debt: 'AA-' withdrawn (issues have matured);

--Long-term IDR assigned `AA-';

--Short-term IDR assigned 'F1+';

--Short-term debt: `F1+' withdrawn (issues have matured);

--Short-term deposits affirmed at `F1+';

--Individual assigned `B';

--Support assigned '1';

--Support Floor assigned `A+'.

Bear Stearns Companies LLC

--Long-term IDR affirmed at `AA-';

--Long-term senior debt affirmed at `AA-';

--Long-term subordinated debt affirmed at `A+';

--Short-term IDR affirmed at 'F1+';

--Short-term debt: `F1+' withdrawn (issues have matured);

--Individual affirmed at `B'.

JPMorgan Clearing Corp (formerly Bear Stearns Securities Corp)

--Long-term IDR affirmed at `AA-';

--Short-term IDR affirmed at 'F1+'.

Banc One Financial LLC

--Short-term IDR affirmed at 'F1+';

--Short-term debt affirmed at 'F1+';

--Support affirmed at '5'.

Bank One Capital Trust III

Bank One Capital Trust VI

Chase Capital II

Chase Capital III

Chase Capital VI

First Chicago NBD Capital I

JPMorgan Chase Capital X, XI, XII through XXVIII

--Preferred affirmed at 'A'.

Bank One Corp

--Long-term subordinated debt affirmed at `A+'.

Bank One, NA (Chicago)

--Long-term deposits affirmed at `AA'.

J.P.Morgan & Co., Inc.

--Long-term senior debt affirmed at `AA-';

--Long-term subordinated debt affirmed at `A+';

--Preferred affirmed at 'A'.

Morgan Guaranty Trust Co. of New York

--Long-term senior debt affirmed at `AA-'.

NBD Bank, N.A. (MI)

--Long-term subordinated debt affirmed at `A+'.

Providian National Bank

--Long-term deposits affirmed at `AA'.

Washington Mutual Bank

--Long-term deposits affirmed at `AA'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria:

--'Global Financial Institutions Rating Criteria', Aug. 16, 2010

--'Rating Criteria for Securities Firms', Dec. 30, 2009

Related Research:

--'Fitch: Large U.S. Bank Ratings Vulnerable to GSE Mortgage Loan Repurchases', Aug. 18, 2010

--'U.S. Banking Quarterly 1Q10-Finding Stability', June 2, 2010

Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

Rating Criteria For Securities Firms - Financial Institutions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493276

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