false--12-31FY20182018-12-310000019617YesfalseLarge Accelerated FilerJPMORGAN CHASE & COfalsefalseNoNo52300000000472953472953P10YP5Y0.0640.080.02520.0750.08250.04620.08750.00450.03630.02430.010.08250.0250.03040.0630.08530.02950.07500.028700.00170.08530.02580.016500.012700.04950.03380.02960.07500.030100.00230.03380.02360.0260000.04900.01810.04900.04900.01810.04900.01560.04900.01810.04900.01810.02580.03470.03250.0330.03780.03330.03320.03330.038three-month LIBORthree-month LIBORthree-month LIBORthree-month LIBORthree-month LIBORthree-month LIBORthree-month LIBORthree-month LIBORthree-month LIBOR0.00380.001620.08P10YP5YP6M30.00558.30.00552.90.00557.5P5YP60DP2YP5Y0.030.030.020.03001.882.122.721.0011.009000000000410493389541049338950.07250.08530.00160.03380.020.0750.08250.01180.00220.08250.06540.087500.01880.0640.08530.00170.03380.02960.0750.08250.02360.010.08250.04620.087500.03040.03700.00600.04300.00600.03000.02250.02300.03000.02250.04500.00900.04300.00600.04500.00600.06500.00800.06000.00700.05500.00700.04300.02250.03000.02250.02300.03000.022530200000000.350.710.70.450.100.30.270.30.10560.14871.000.0038390.00100.0016P5Y01796900000010988700000079800000001143200000089073000000345700000000001494700000019691000000637400000035260000000001612800000096300000000.0550.046250.05750.060.067137.5011.001.0020000000013000000000P3Y1.500.50.5P10Y1300000000170000000018500000001300000000170000000092500000021000000410500000000679635064829167674




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended
 
Commission file
December 31, 2018
 
number 1-5805
JPMorgan Chase & Co.
(Exact name of registrant as specified in its charter)
Delaware
 
13-2624428
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
 
 
 
383 Madison Avenue, New York, New York
 
10179
(Address of principal executive offices)
 
(Zip code)
 
 
 
Registrant’s telephone number, including area code: (212) 270-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 5.45% Non-Cumulative Preferred Stock, Series P
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.70% Non-Cumulative Preferred Stock, Series T
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.30% Non-Cumulative Preferred Stock, Series W
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.125% Non-Cumulative Preferred Stock, Series Y
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.10% Non-Cumulative Preferred Stock, Series AA
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.15% Non-Cumulative Preferred Stock, Series BB
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 5.75% Non-Cumulative Preferred Stock, Series DD
 
The New York Stock Exchange
Depositary Shares, each representing a one-four hundredth interest in a share of 6.00% Non-Cumulative Preferred Stock, Series EE
 
The New York Stock Exchange
Alerian MLP Index ETNs due May 24, 2024
 
NYSE Arca, Inc.
Guarantee of Callable Step-Up Fixed Rate Notes due April 26, 2028 of JPMorgan Chase Financial Company LLC
 
The New York Stock Exchange
Guarantee of Cushing 30 MLP Index ETNs due June 15, 2037 of JPMorgan Chase Financial Company LLC
 
NYSE Arca, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
x Large accelerated filer
o Accelerated filer
o Non-accelerated filer

o Smaller reporting company
o Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The aggregate market value of JPMorgan Chase & Co. common stock held by non-affiliates as of June 30, 2018: $347,963,159,674
Number of shares of common stock outstanding as of January 31, 2019: 3,274,241,726
Documents incorporated by reference: Portions of the registrant’s Proxy Statement for the annual meeting of stockholders to be held on May 21, 2019, are incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.





Form 10-K Index
 
Page
1
 
1
 
1
 
1
 
1–6
 
288–292
 
40, 287, 288
 
300
 
102–119, 219–238,
301–306
 
120–122, 239–243,
307–308
 
256, 309
 
310
7–28
28
29
29
29
 
 
 
 
 
30
30
30
30
30
31
31
31
 
 
 
 
 
32
33
33
33
33
 
 
 
 
 
34-37




Part I


Item 1. Business.
Overview
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”, NYSE: JPM), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with operations worldwide; JPMorgan Chase had $2.6 trillion in assets and $256.5 billion in stockholders’ equity as of December 31, 2018. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and globally many of the world’s most prominent corporate, institutional and government clients.
JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”), a national banking association with U.S. branches in 27 states and the District of Columbia as of December 31, 2018, and Chase Bank USA, National Association (“Chase Bank USA, N.A.”), a national banking association that is the Firm’s principal credit card-issuing bank. In January 2019, the OCC approved an application of merger which was filed by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in December 2018 and which contemplates that Chase Bank USA, N.A. will merge with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. For additional information refer to Supervision and Regulation on pages 1-6 in the 2018 Form 10-K. JPMorgan Chase’s principal nonbank subsidiary is J.P. Morgan Securities LLC (“J.P. Morgan Securities”), a U.S. broker-dealer. The bank and non-bank subsidiaries of JPMorgan Chase operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks. The Firm’s principal operating subsidiary in the U.K. is J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
The Firm’s website is www.jpmorganchase.com. JPMorgan Chase makes available on its website, free of charge, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files or furnishes such material to the U.S. Securities and Exchange Commission (the “SEC”) at www.sec.gov. The Firm has adopted, and posted on its website, a Code of Conduct for all employees of the Firm and a Code of Ethics for its Chairman and Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and all other professionals of the Firm worldwide serving in a finance, accounting, tax or investor relations role.
Business segments
JPMorgan Chase’s activities are organized, for management reporting purposes, into four major reportable business segments, as well as a Corporate segment. The Firm’s
 
consumer business is the Consumer & Community Banking (“CCB”) segment. The Firm’s wholesale business segments are the Corporate & Investment Bank (“CIB”), Commercial Banking (“CB”), and Asset & Wealth Management (“AWM”).
A description of the Firm’s business segments and the products and services they provide to their respective client bases is provided in the “Business segment results” section of Management’s discussion and analysis of financial condition and results of operations (“Management’s discussion and analysis” or “MD&A”), beginning on page 42 and in Note 31.
Competition
JPMorgan Chase and its subsidiaries and affiliates operate in highly competitive environments. Competitors include other banks, brokerage firms, investment banking companies, merchant banks, hedge funds, commodity trading companies, private equity firms, insurance companies, mutual fund companies, investment managers, credit card companies, mortgage banking companies, trust companies, securities processing companies, automobile financing companies, leasing companies, e-commerce and other Internet-based companies, financial technology companies, and other companies engaged in providing similar products and services. The Firm’s businesses generally compete on the basis of the quality and variety of the Firm’s products and services, transaction execution, innovation, reputation and price. Competition also varies based on the types of clients, customers, industries and geographies served. With respect to some of its geographies and products, JPMorgan Chase competes globally; with respect to others, the Firm competes on a national or regional basis. The Firm’s ability to compete also depends upon its ability to attract and retain professional and other personnel, and on its reputation.
Competition in the financial services industry continues to be intense. In some cases, the Firm’s businesses compete with other financial institutions that may have a stronger local presence in certain geographies or that operate under different rules and regulatory regimes than the Firm, and with companies that provide new or innovative products or services, including those that the Firm does not provide.
Supervision and regulation
The Firm is subject to extensive and comprehensive regulation under U.S. federal and state laws, as well as the applicable laws of the jurisdictions outside the U.S. in which the Firm does business. The Firm has experienced an extended period of significant change in regulation which has had and could continue to have significant consequences for how the Firm conducts business in the U.S. and other countries.

 
 
1

Part I

Financial holding company:
Consolidated supervision. JPMorgan Chase & Co. is a bank holding company (“BHC”) and a financial holding company (“FHC”) under U.S. federal law, and is subject to comprehensive consolidated supervision, regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve acts as an “umbrella regulator,” and certain of JPMorgan Chase’s subsidiaries are regulated directly by additional authorities based on the activities of those subsidiaries.
JPMorgan Chase’s national bank subsidiaries, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are supervised and regulated by the Office of the Comptroller of the Currency (“OCC”) and, with respect to certain matters, by the Federal Deposit Insurance Corporation (the “FDIC”). In January 2019, the OCC approved an application of merger which was filed by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in December 2018 and which contemplates that Chase Bank USA, N.A. will merge with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. Completion of the merger, which is expected to occur in the second quarter of 2019, will be subject to customary closing conditions which will be set forth in an agreement and plan of merger to be entered into between the banks. The merger may be abandoned by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. at any time before completion.
JPMorgan Chase’s U.S. broker-dealers are supervised and regulated by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”), and subsidiaries of the Firm that engage in certain futures-related and swaps-related activities are supervised and regulated by the Commodity Futures Trading Commission (“CFTC”). J.P. Morgan Securities plc is a U.K. bank licensed within the European Economic Area (the “EEA”), and is regulated by the U.K. Prudential Regulation Authority (the “PRA”) and the U.K. Financial Conduct Authority (“FCA”).
The Firm’s other non-U.S. subsidiaries are regulated by the banking and securities regulatory authorities in the countries in which they operate.
Permissible business activities. The Bank Holding Company Act generally restricts BHCs from engaging in business activities other than the business of banking and certain closely-related activities. FHCs can engage in a broader range of financial activities, including underwriting, dealing and making markets in securities, and making merchant banking investments in non-financial companies. The Federal Reserve has the authority to limit an FHC’s ability to conduct otherwise permissible activities if the FHC or any of its depository institution subsidiaries ceases to meet applicable eligibility requirements. The Federal Reserve may also impose corrective capital and/or managerial requirements on the FHC, and if deficiencies are persistent, may require divestiture of the FHC’s depository institutions.
 
If any depository institution controlled by an FHC fails to maintain a satisfactory rating under the Community Reinvestment Act, the Federal Reserve must prohibit the FHC and its subsidiaries from engaging in any activities other than those permissible for BHCs.
Capital and liquidity requirements. The Federal Reserve establishes capital, liquidity and leverage requirements for JPMorgan Chase and evaluates the Firm’s compliance with those requirements. The OCC establishes similar requirements for the Firm’s national banking subsidiaries. Banking supervisors globally continue to refine and enhance the Basel III capital framework for financial institutions, including the finalization of post-crisis reforms.
In January 2019, the Basel Committee issued “Minimum capital requirements for market risk,” which supersedes a previous release from January 2016. The Basel Committee expects national regulators to implement these revised market risk requirements for banking organizations in their jurisdictions by January 1, 2022, in line with the other elements of the Basel III Reforms.
U.S. banking regulators have announced their support for the issuance of the Basel III Reforms and are considering how to appropriately apply such reforms in the U.S. Any changes to U.S. capital rules based on the Basel III Reforms would first be proposed for public comment. In October 2018, the U.S. banking regulators issued a notice of proposed rulemaking “Standardized Approach for Calculating the Exposure Amount of Derivatives” (“SA-CCR”), with an implementation date of July 1, 2020. This proposal reflects the U.S implementation of the Basel Committee’s equivalent standard, which was finalized in 2014 as part of the post-crisis reform package.
Under Basel III, bank holding companies and banks are required to measure their liquidity against two specific liquidity tests: the liquidity coverage ratio (“LCR”) and the net stable funding ratio (“NSFR”).  In April 2016, the U.S. banking regulators issued a proposed rule for NSFR, but no final rule has been issued. 
For more information concerning capital and liquidity requirements, refer to Capital Risk Management on pages 85-94 and Liquidity Risk Management on pages 95–100.
Stress tests. As a large BHC, JPMorgan Chase is subject to supervisory stress testing administered by the Federal Reserve as part of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (“CCAR”) framework. The Firm must conduct semi-annual company-run stress tests and must also submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by the Firm and the Federal Reserve. The Federal Reserve’s review of the Firm’s capital plan considers both quantitative and qualitative factors. The Firm is required to receive a notice of non-objection from the Federal Reserve each year before taking capital actions, such as paying dividends, implementing common equity repurchase programs or redeeming or repurchasing capital

2
 
 


instruments. The OCC requires JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. to perform separate, similar stress tests annually. The Firm publishes each year the results of its mid-cycle stress tests under the Firm’s internally-developed “severely adverse” scenario and the results of the annual stress tests for the Firm and its principal banking subsidiaries under the supervisory “severely adverse” scenarios provided by the Federal Reserve and the OCC. The Firm is required to file its 2019 annual CCAR submission on April 5, 2019. Results will be published by the Federal Reserve by June 30, 2019, with disclosures of results by BHCs, including the Firm, to follow within 15 days. The mid-cycle capital stress test submissions are due on October 5, 2019 and BHCs, including the Firm, will publish results by November 4, 2019. For more information concerning the Firm’s CCAR, refer to Capital Risk Management on pages 85-94.
Enhanced prudential standards. As part of its mandate to identify and monitor risks to the financial stability of the U.S. posed by large banking organizations, the Financial Stability Oversight Council (“FSOC”) recommends prudential standards and reporting requirements to the Federal Reserve for systemically important financial institutions (“SIFIs”), such as JPMorgan Chase. The Federal Reserve has adopted several rules to implement those heightened prudential standards, including rules relating to risk management and corporate governance of subject BHCs. Large BHCs such as JPMorgan Chase are required to comply with enhanced liquidity and overall risk management standards, including oversight by the board of directors of risk management activities.
Orderly liquidation authority and resolution and recovery. The Firm is required to submit periodically to the Federal Reserve and the FDIC a plan for resolution under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) in the event of material distress or failure (a “resolution plan”). The Firm’s next resolution plan is due to be filed on or before July 1, 2019. The Firm also has a comprehensive recovery plan detailing the actions it would take to avoid failure by remaining well-capitalized and well-funded in the case of an adverse event.
Certain financial companies, including JPMorgan Chase and certain of its subsidiaries, can also be subjected to resolution under an “orderly liquidation authority.” The U.S. Treasury Secretary, in consultation with the President of the United States, must first make certain determinations concerning extraordinary financial distress and systemic risk, and action must be recommended by the FDIC and the Federal Reserve. Absent such actions, the Firm, as a BHC, would remain subject to resolution under the Bankruptcy Code. The FDIC has issued a draft policy statement describing its “single point of entry” strategy for resolution of SIFIs under the orderly liquidation authority, which seeks to keep operating subsidiaries of a BHC open and impose losses on shareholders and creditors of the BHC in receivership according to their statutory order of priority.
 
The FDIC has not formally adopted its proposed single point of entry strategy.
JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. are both required to provide resolution plans to the FDIC. The FDIC is expected to propose changes to its rules relating to the resolution plans of insured depository institutions (“IDIs”) in an advanced notice of proposed rulemaking. The OCC has published guidelines establishing standards for recovery planning by insured national banks, and JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. have submitted their recovery plans to the OCC.
Certain of the Firm’s non-U.S. subsidiaries are also subject to resolution and recovery planning requirements in the jurisdictions in which they operate.
Holding company as source of strength. JPMorgan Chase & Co. is required to serve as a source of financial strength for its depository institution subsidiaries and to commit resources to support those subsidiaries, including when directed to do so by the Federal Reserve.
Regulation of acquisitions. Acquisitions by BHCs and their banks are subject to multiple requirements established by the Federal Reserve and the OCC. For example, FHCs and BHCs are required to obtain the approval of the Federal Reserve before they may acquire more than 5% of the voting shares of an unaffiliated bank. In addition, acquisitions by financial companies are prohibited if, as a result of the acquisition, the total liabilities of the financial company would exceed 10% of the total liabilities of all financial companies. Furthermore, for certain acquisitions, the Firm must provide written notice to the Federal Reserve prior to acquiring direct or indirect ownership or control of any voting shares of any company with over $10 billion in assets that is engaged in activities that are “financial in nature.”
Volcker Rule. The Volcker Rule prohibits banking entities, including the Firm, from engaging in certain “proprietary trading” activities, subject to exceptions for underwriting, market-making, risk-mitigating hedging and certain other activities. The Volcker Rule also limits the sponsorship of, and investment in, “covered funds,” and imposes limits on certain transactions between the Firm and covered funds for which a JPMorgan Chase entity serves as the investment manager, investment advisor, commodity trading advisor or sponsor, as well as certain covered funds controlled by such funds. The Volcker Rule requires banking entities to establish comprehensive compliance programs reasonably designed to help ensure and monitor compliance with the restrictions under the Volcker Rule.
Consent orders. The Firm remains subject to consent orders entered into with its banking regulators between 2013 and 2016 concerning anti-money laundering, the CIO investigation, foreign exchange trading and referral hiring practices.

 
 
3

Part I

JPMorgan Chase’s subsidiary banks:
The activities of the Firm’s principal subsidiary banks, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., are limited to those specifically authorized under the National Bank Act and related interpretations of the OCC.
FDIC deposit insurance. The FDIC deposit insurance fund provides insurance coverage for certain deposits and is funded through assessments on banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.
FDIC powers upon a bank insolvency. Upon the insolvency of an IDI, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., the FDIC could be appointed as the conservator or receiver under the Federal Deposit Insurance Act (“FDIA”). The FDIC has broad powers to transfer any assets and liabilities without the approval of the institution’s creditors.
Cross-guarantee. An FDIC-insured depository institution can be held liable for any loss incurred or expected to be incurred by the FDIC if another FDIC-insured institution that is under common control with such institution is in default or is deemed to be “in danger of default” (commonly referred to as “cross-guarantee” liability). An FDIC cross-guarantee claim against a depository institution is generally superior in right of payment to claims of the holding company and its affiliates against such depository institution.
Prompt corrective action. The Federal Deposit Insurance Corporation Improvement Act of 1991 requires the relevant federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards. Although these regulations apply only to banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., the Federal Reserve is authorized to take appropriate action against the parent BHC, such as JPMorgan Chase & Co., based on the undercapitalized status of any bank subsidiary. In certain instances, the BHC would be required to guarantee the performance of the capital restoration plan for its undercapitalized subsidiary.
OCC Heightened Standards. The OCC has established guidelines setting forth heightened standards for large banks, including minimum standards for the design and implementation of a risk governance framework for banks. Under these standards, a bank’s risk governance framework must ensure that the bank’s risk profile is easily distinguished and separate from that of its parent BHC for risk management purposes. The bank’s board or risk committee is responsible for approving the bank’s risk governance framework, providing active oversight of the bank’s risk-taking activities, and holding management accountable for adhering to the risk governance framework.
Restrictions on transactions with affiliates. The bank subsidiaries of JPMorgan Chase (including subsidiaries of those banks) are subject to restrictions imposed by federal law on extensions of credit to, investments in stock or
 
securities of, and derivatives, securities lending and certain other transactions with, JPMorgan Chase & Co. and certain other affiliates. These restrictions prevent JPMorgan Chase & Co. and other affiliates from borrowing from such subsidiaries unless the loans are secured in specified amounts and comply with certain other requirements.
Dividend restrictions. Federal law imposes limitations on the payment of dividends by national banks, such as JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. Refer to Note 25 for the amount of dividends that the Firm’s principal bank subsidiaries could pay, at January 1, 2019, to their respective BHCs without the approval of their banking regulators. The OCC and the Federal Reserve also have authority to prohibit or limit the payment of dividends of the bank subsidiaries that they supervise if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the bank.
Depositor preference. Under federal law, the claims of a receiver of an IDI for administrative expense and the claims of holders of U.S. deposit liabilities (including the FDIC and deposits in non-U.S. branches that are dually payable in the U.S. and in a non-U.S. branch) have priority over the claims of other unsecured creditors of the institution, including depositors in non-U.S. branches and public noteholders.
Consumer supervision and regulation. JPMorgan Chase and its national bank subsidiaries are subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) with respect to federal consumer protection laws, including laws relating to fair lending and the prohibition of unfair, deceptive or abusive acts or practices in connection with the offer, sale or provision of consumer financial products and services. These laws include the Truth-in-Lending, Equal Credit Opportunity Act (“ECOA”), Fair Credit Reporting, Fair Debt Collection Practice, Electronic Funds Transfer, Credit Card Accountability, Responsibility and Disclosure (“CARD”) and Home Mortgage Disclosure Acts. The CFPB also has jurisdiction over small business lending activities with respect to fair lending and ECOA. As part of its regulatory oversight, the CFPB has authority to take enforcement actions against firms that offer certain products and services to consumers using practices that are deemed to be unfair, deceptive or abusive. The Firm’s consumer activities are also subject to regulation under state statutes which are enforced by the Attorney General of each state.
Securities and broker-dealer regulation:
The Firm conducts securities underwriting, dealing and brokerage activities in the U.S. through J.P. Morgan Securities LLC and other non-bank broker-dealer subsidiaries, all of which are subject to regulations of the SEC, FINRA and the New York Stock Exchange, among others. The Firm conducts similar securities activities outside the U.S. subject to local regulatory requirements. In the U.K., those activities are conducted by J.P. Morgan Securities plc. Broker-dealers are subject to laws and

4
 
 


regulations covering all aspects of the securities business, including sales and trading practices, securities offerings, publication of research reports, use of customer funds, the financing of client purchases, capital structure, record-keeping and retention, and the conduct of their directors, officers and employees. For information concerning the capital of J.P. Morgan Securities LLC and J.P. Morgan Securities plc, refer to Broker-dealer regulatory capital on page 94.
Investment management regulation:
The Firm’s asset and wealth management businesses are subject to significant regulation in jurisdictions around the world relating to, among other things, the safeguarding and management of client assets, offerings of funds and marketing activities. Certain of the Firm’s subsidiaries are registered with, and subject to oversight by, the SEC as investment advisers. The Firm’s registered investment advisers are subject to the fiduciary and other obligations imposed under the Investment Advisers Act of 1940, as well as various state securities laws. The Firm’s fiduciary activities are also subject to supervision by the OCC.
The Firm’s asset and wealth management businesses continue to be affected by ongoing rule-making and implementation of new regulations, including the SEC’s proposed Regulation Best Interest and rules proposed or adopted by certain U.S. states relating to enhanced standards of conduct for broker-dealers and certain other market participants. In June 2018, the Department of Labor’s fiduciary rule, which would have significantly expanded the universe of persons viewed as investment advice fiduciaries to retirement plans and individual retirement accounts under the Employee Retirement Income Security Act of 1974, as amended, was vacated by the United States Court of Appeals for the Fifth Circuit.
In the European Union (“EU”), substantial revisions to the Markets in Financial Instruments Directive (“MiFID II”) became effective in EU member states beginning in January 2018. These revisions introduced expanded requirements for a broad range of investment management activities, including product governance, transparency on costs and charges, independent investment advice, inducements, record-keeping and client reporting. In addition, the Regulation on Money Market Funds has instituted new requirements to enhance the liquidity and stability of money market funds in the EU.
Derivatives regulation:
The Firm is subject to comprehensive regulation of its derivatives businesses, including regulations that impose capital and margin requirements, require central clearing of standardized over-the-counter (“OTC”) derivatives, mandate that certain standardized over-the-counter swaps be traded on regulated trading venues, and provide for reporting of certain mandated information. In accordance with requirements under the Dodd-Frank Act, JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and J.P. Morgan Securities plc have registered with the CFTC as “swap dealers” and may be required to register with the SEC as
 
“security-based swap dealers.” As a result, these entities are or will be subject to a comprehensive regulatory framework applicable to their swap or security-based swap activities, including capital requirements, rules requiring the collateralization of uncleared swaps and security-based swaps, rules regarding segregation of counterparty collateral, business conduct and documentation standards, record-keeping and reporting obligations, and anti-fraud and anti-manipulation requirements. In the EU, the implementation of the European Market Infrastructure Regulation (“EMIR”) and MiFID II has resulted in comparable, but not identical, changes to the European regulatory regime for derivatives.
The Firm and other derivatives market participants have agreed to adhere to the 2015 Universal Resolution Stay Protocol (the “2015 Protocol”), the 2018 U.S. Resolution Stay Protocol (the “2018 Protocol”) and the Resolution Stay Jurisdictional Modular Protocol, each developed by the International Swaps and Derivatives Association (“ISDA”) in response to regulator concerns that the close-out of derivatives and other financial transactions during the resolution of a large cross-border financial institution could impede resolution efforts and potentially destabilize markets. These protocols provide for the contractual recognition of cross-border stays under various statutory resolution regimes and, in the case of the 2015 Protocol and 2018 Protocol, a contractual stay on certain cross-default rights.
J.P. Morgan Securities LLC is registered with the CFTC as a futures commission merchant, and is a member of the National Futures Association.
Data and cyber regulation:
The Firm and its subsidiaries are subject to numerous U.S. federal and state as well as international laws and regulations concerning the collection, use, confidentiality, disclosure, transfer, protection and handling of information, including personal information of individuals and confidential information (including the EU General Data Protection Regulation), as well as the management of internal and external threats and vulnerabilities to protect information assets and the supporting infrastructure from cyberattacks. These laws and regulations are evolving at a rapid pace, remain a focus of regulators globally and will continue to have a significant impact on all of the Firm’s businesses.
The Bank Secrecy Act and Economic Sanctions:
The Bank Secrecy Act (“BSA”) requires all financial institutions, including banks and securities broker-dealers, to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. The BSA includes a variety of record-keeping and reporting requirements, as well as due diligence/know-your-customer documentation requirements. The Firm is also subject to the regulations and economic sanctions programs administered by the U.S. Treasury’s Office of Foreign Assets Control (“OFAC”). In addition, the EU has adopted various economic sanctions

 
 
5

Part I

programs targeted at countries that are involved in terrorism, hostilities, embezzlement or human rights violations.
Anti-Corruption:
The Firm is subject to laws and regulations relating to corrupt and illegal payments to government officials and others in the jurisdictions in which it operates, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act.
Compensation practices:
The Firm’s compensation practices are subject to oversight by the Federal Reserve, as well as other agencies. The Federal Reserve has issued guidance jointly with the FDIC and the OCC that is designed to ensure that incentive compensation paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety and soundness. The Financial Stability Board (“FSB”) has also established standards covering compensation principles for banks. The Firm’s compensation practices are also subject to regulation and oversight by regulators in other jurisdictions. In Europe, the EU Fourth Capital Requirements Directive (“CRD IV”) includes compensation-related provisions, and the European Banking Authority has instituted guidelines on compensation policies which in certain countries, such as the U.K., are implemented or supplemented by local regulations or guidelines. The Firm expects that the implementation of regulatory guidelines regarding compensation in the U.S. and other countries will continue to evolve, and may affect the manner in which the Firm structures its compensation programs and practices.
Significant international regulatory initiatives:
The EU continues to implement an extensive and complex program of regulatory enhancement to address risks associated with global financial institutions. The EU operates a European Systemic Risk Board that monitors financial stability and encourages supervisory convergence across the EU’s member states, and European Supervisory Authorities (“ESAs”) are responsible for adopting and implementing related rules. The EU is currently reviewing the ESA framework and the European Commission (the “EC”) has proposed legislation to change the roles and responsibilities of the ESAs. The EU has also created a Single Supervisory Mechanism for the euro-zone, under which the regulation of all banks in the zone are under the auspices of the European Central Bank, together with a Single Resolution Mechanism and Single Resolution Board, which has jurisdiction over the resolution of banks in the zone.
Significant regulatory initiatives affecting the Firm’s businesses in the EU include EMIR and MiFID II. EMIR requires the central clearing of certain standardized derivatives and risk mitigation for uncleared OTC derivatives. EMIR is currently in the process of being amended as part of a legislative proposal known as “EMIR REFIT,” which will introduce targeted changes to EMIR to make the rules more streamlined and proportionate. There is also a separate EMIR legislative proposal which includes provisions for third-country supervision of CCPs. MiFID II
 
requires that the trading of standardized OTC derivatives be effected on exchanges or electronic trading platforms, and also significantly enhanced requirements for pre- and post-trade transparency, transaction reporting and investor protection, and introduced position limits and a reporting regime for commodities. MiFID II became effective across EU member states in January 2018 and will be subject to a review by the EC by March 2020.
The EU has also proposed or implemented significant revisions to laws covering securities settlement; mutual funds and pensions; payments; anti-money laundering controls; data security and privacy; transparency and disclosure of securities financing transactions; benchmarks; resolution of banks, investment firms and market infrastructures; and capital and liquidity requirements for banks and investment firms. The EU capital and liquidity legislation for banks and investment firms is implementing many of the finalized Basel III capital and liquidity standards, including in relation to the leverage ratio, market risk capital, and a net stable funding ratio. EU legislation also contemplates a requirement for certain non-EU banks operating in the EU to establish an intermediate parent undertaking (“IPU”) located in the EU. The full impact of the IPU proposal on JPMorgan Chase’s operations and legal entities in the EU will be heavily influenced by the outcome of the EU legislative process, including whether any flexibility is introduced to the requirement. The “trilogue” negotiations to determine the final legislation have concluded and the agreement is subject to a final vote by the European Council and European Parliament before becoming EU law.
The FSB’s standard relating to total loss-absorbing capacity (“TLAC”), which was issued in November 2015, specified minimum TLAC requirements for global systemically important banks, including at the level of their material sub-groups. These requirements are being implemented in the EU in the form of a minimum requirement for own funds and eligible liabilities (“MREL”). The Bank of England published its updated Statement of Policy on its approach to setting MREL in June 2018. This included new requirements on the MREL resources to be held by U.K. material subsidiaries of overseas groups. These rules came into effect, on a transitional basis, from January 1, 2019.
U.K. regulators have adopted a range of policy measures that have significantly changed the markets and prudential regulatory environment in the U.K., and have also introduced measures to enhance accountability of individuals and promote forward-looking conduct risk identification and mitigation. There is significant uncertainty concerning future U.K. policy initiatives in light of the expected departure of the U.K. from the EU, as these initiatives will depend on the future relationship between the EU and U.K. For information concerning the expected departure of the U.K. from the EU, refer to Risk factors on pages 7–28 and Business developments on page 46.


6
 
 


Item 1A. Risk Factors.
The following discussion sets forth the material risk factors that could affect JPMorgan Chase’s financial condition and operations. Readers should not consider any descriptions of these factors to be a complete set of all potential risks that could affect the Firm. Any of the risk factors discussed below could by itself, or combined with other factors, materially and adversely affect JPMorgan Chase’s business, results of operations, financial condition, capital position, liquidity, competitive position or reputation, including by materially increasing expenses or decreasing revenues, which could result in material losses or a decrease in earnings.
Regulatory
JPMorgan Chase’s businesses are highly regulated, and the laws and regulations that apply to JPMorgan Chase have a significant impact on its business and operations.
JPMorgan Chase is a financial services firm with operations worldwide. JPMorgan Chase must comply with the laws and regulations that apply to its operations in all of the jurisdictions around the world in which it does business. The regulation of financial services is extensive and comprehensive.
JPMorgan Chase has experienced an extended period of significant change in laws and regulations affecting the financial services industry, both within and outside the U.S. The supervision of financial services firms also expanded significantly during this period. The wave of increased regulation and supervision of JPMorgan Chase has affected the way that it conducts its business and structures its operations. Existing and new laws and regulations and expanded supervision could require JPMorgan Chase to make further changes to its business and operations. These changes could result in JPMorgan Chase incurring additional costs for complying with laws and regulations and could reduce JPMorgan Chase’s profitability. More specifically, existing and new laws and regulations could require JPMorgan Chase to:
limit the products and services that it offers
reduce the liquidity that it can provide through its market-making activities
stop or discourage it from engaging in business opportunities that it might otherwise pursue
recognize losses in the value of assets that it holds
pay higher assessments, levies or other governmental charges
dispose of certain assets, and do so at times or prices that are disadvantageous
impose restrictions on certain business activities, or
increase the prices that it charges for products and services, which could reduce the demand for them.

 
Differences in financial services regulation can be disadvantageous for JPMorgan Chase’s business.
The content and application of laws and regulations affecting financial services firms sometimes vary according to factors such as the size of the firm, the jurisdiction in which it is organized or operates, and other criteria. For example:
larger firms are often subject to more stringent supervision and regulation
financial technology companies and other non-traditional competitors may not be subject to banking regulation, or may be supervised by a national or state regulatory agency that does not have the same resources or regulatory priorities as the regulatory agencies which supervise more diversified financial services firms, or
the financial services regulatory framework in a particular jurisdiction may favor financial institutions that are based in that jurisdiction.
These types of differences in the regulatory framework can result in a firm such as JPMorgan Chase losing market share to competitors that are less regulated or not subject to regulation, especially with respect to unregulated financial products.
There can also be significant differences in the ways that similar regulatory initiatives affecting the financial services industry are implemented in the U.S. and in other countries and regions in which JPMorgan Chase does business. For example, when adopting rules that are intended to implement a global regulatory initiative or standard, a national regulator may introduce additional or more restrictive requirements, which can create competitive disadvantages for financial services firms, such as JPMorgan Chase, that may be subject to those enhanced regulations.
Legislative and regulatory initiatives outside the U.S. could require JPMorgan Chase to make significant modifications to its operations and legal entity structure in the relevant countries or regions in order to comply with those requirements. These include laws and regulations that have been adopted or proposed relating to:
the resolution of financial institutions
the establishment of locally-based intermediate holding companies
the separation (or “ring fencing”) of core banking products and services from markets activities
requirements for executing or settling transactions on exchanges or through central counterparties (“CCPs”)
position limits and reporting rules for derivatives
governance and accountability regimes
conduct of business requirements, and
restrictions on compensation.

 
 
7

Part I

These types of differences in financial services regulation, or inconsistencies or conflicts between laws and regulations between different jurisdictions, could require JPMorgan Chase to:
divest assets or restructure its operations
absorb increased operational, capital and liquidity costs
change the prices that it charges for its products and services
curtail the products and services that it offers to its customers and clients, or
incur higher costs for complying with different legal and regulatory frameworks.
Any or all of these factors could harm JPMorgan Chase’s ability to compete against other firms that are not subject to the same laws and regulations or supervisory oversight, or harm JPMorgan Chase’s businesses, results of operations and profitability.
Governments in some countries or regions in which JPMorgan Chase does business have adopted laws or regulations which require JPMorgan Chase subsidiaries that operate in those jurisdictions to maintain minimum amounts of capital or liquidity on a stand-alone basis. Some regulators outside the U.S. have also proposed that large banks which conduct certain businesses in their jurisdictions operate through separate subsidiaries located in those jurisdictions. These requirements, and any future laws or regulations that impose restrictions on the way JPMorgan Chase organizes its businesses or increase the capital or liquidity requirements that would apply to JPMorgan Chase subsidiaries, could hinder JPMorgan Chase’s ability to efficiently manage its operations, increase its funding and liquidity costs, and result in lower profitability.
Heightened regulatory scrutiny of JPMorgan Chase’s businesses has increased its compliance costs and could result in restrictions on its operations.
JPMorgan Chase’s operations are subject to heightened oversight and scrutiny from regulatory authorities in many jurisdictions where JPMorgan Chase does business. JPMorgan Chase has paid significant fines, provided other monetary relief, incurred other penalties and experienced other repercussions in connection with resolving several investigations and enforcement actions by governmental agencies. JPMorgan Chase could become subject to similar regulatory resolutions or other actions in the future, and addressing the requirements of any such resolutions or actions could result in JPMorgan Chase incurring higher operational and compliance costs or needing to comply with other restrictions.
In connection with resolving specific regulatory investigations or enforcement actions, certain regulators have required JPMorgan Chase and other financial institutions to admit wrongdoing with respect to the
 
activities that gave rise to the resolution. These types of admissions can lead to:
greater exposure in civil litigation
damage to reputation
disqualification from doing business with certain clients or customers, or in specific jurisdictions, or
other direct and indirect adverse effects.
Furthermore, U.S. government officials have demonstrated a willingness to bring criminal actions against financial institutions and have demanded that institutions plead guilty to criminal offenses or admit other wrongdoing in connection with resolving regulatory investigations or enforcement actions. Resolutions of this type can have significant collateral consequences for the subject financial institution, including:
loss of clients, customers and business
restrictions on offering certain products or services, and
losing permission to operate certain businesses, either temporarily or permanently.
JPMorgan Chase expects that it and other financial services firms will continue to be subject to heightened regulatory scrutiny and governmental investigations and enforcement actions. JPMorgan Chase also expects that regulators will continue to insist that financial institutions be penalized for actual or deemed violations of law with formal and punitive enforcement actions, including the imposition of significant monetary and other sanctions, rather than resolving these matters through informal supervisory actions. Furthermore, if JPMorgan Chase fails to meet the requirements of any resolution of a governmental investigation or enforcement action, or to maintain risk and control processes that meet the heightened standards established by its regulators, it could be required to:
enter into further resolutions
pay additional regulatory fines, penalties or judgments, or
accept material regulatory restrictions on, or changes in the management of, its businesses.
In these circumstances, JPMorgan Chase could also become subject to other sanctions, or to prosecution or civil litigation with respect to the conduct that gave rise to an investigation or enforcement action.
The long-term impact of U.S. tax reform legislation is uncertain, and may be affected by regulatory implementation.
The long-term impact of the Tax Cuts & Jobs Acts (“TCJA”) on JPMorgan Chase and the U.S. economy remains uncertain. While the enactment of the TCJA has had, and should continue to have, a positive impact on JPMorgan Chase’s net income, the competitive environment and other

8
 
 


factors will influence the extent to which these benefits are retained by JPMorgan Chase over the longer term, and the specific impact on JPMorgan Chase’s businesses, products and geographies may vary. In addition, the Treasury Regulations governing certain TCJA provisions have not been finalized and their ultimate impact on JPMorgan Chase is uncertain.
Complying with economic sanctions and anti-corruption and anti-money laundering laws and regulations can increase JPMorgan Chase’s operational and compliance costs and risks.
JPMorgan Chase must comply with economic sanctions and embargo programs administered by the Office of Foreign Assets Control (“OFAC”) and similar national and multi-national bodies and governmental agencies outside the U.S., as well as anti-corruption and anti-money laundering laws and regulations throughout the world. JPMorgan Chase can incur higher costs and face greater compliance risks in structuring and operating its businesses to comply with these requirements. Furthermore, a violation of a sanction or embargo program or anti-corruption or anti-money laundering laws and regulations could subject JPMorgan Chase, and individual employees, to regulatory enforcement actions as well as significant civil and criminal penalties.
JPMorgan Chase’s operations can be constrained in countries with less predictable legal and regulatory frameworks.
If the legal and regulatory system in a particular country is less established or predictable, this can create a more difficult environment in which to conduct business. For example, any of the following could hamper JPMorgan Chase’s operations and reduce its earnings in countries with less established or predictable legal and regulatory regimes:
the absence of a statutory or regulatory basis or guidance for engaging in specific types of business or transactions
the adoption of conflicting or ambiguous laws and regulations, or the inconsistent application or interpretation of existing laws and regulations
uncertainty concerning the enforceability of contractual obligations
difficulty in competing in economies in which the government controls or protects all or a portion of the local economy or specific businesses, or where graft or corruption may be pervasive, and
the threat of arbitrary regulatory investigations, civil litigations or criminal prosecutions, the termination of licenses required to operate in the local market or the suspension of business relationships with governmental bodies.
Conducting business in countries with less-developed legal and regulatory regimes often requires JPMorgan Chase to
 
devote significant additional resources to understanding, and monitoring changes in, local laws and regulations, as well as structuring its operations to comply with local laws and regulations and implementing and administering related internal policies and procedures. There can be no assurance that JPMorgan Chase will always be successful in its efforts to conduct its business in compliance with laws and regulations in countries with less predictable legal and regulatory systems or that JPMorgan Chase will be able to develop effective working relationships with local regulators.
Requirements for the orderly resolution of JPMorgan Chase could result in JPMorgan Chase having to restructure or reorganize its businesses.
JPMorgan Chase is required under Federal Reserve and FDIC rules to prepare and submit periodically to those agencies a detailed plan for rapid and orderly resolution in bankruptcy, without extraordinary government support, in the event of material financial distress or failure. The agencies’ evaluation of the Firm’s resolution plan may change, and the requirements for resolution plans may be modified from time to time. Any such determinations or modifications could result in JPMorgan Chase needing to make changes to its legal entity structure or to certain internal or external activities, which could increase its funding or operational costs.
If the Federal Reserve and the FDIC were to determine that a resolution plan submitted by JPMorgan Chase has deficiencies, they could jointly impose more stringent capital, leverage or liquidity requirements or restrictions on JPMorgan Chase’s growth, activities or operations. After two years, if the deficiencies are not cured, the agencies could also require that JPMorgan Chase restructure, reorganize or divest assets or businesses in ways that could materially and adversely affect JPMorgan Chase’s operations and strategy.
Holders of JPMorgan Chase & Co.’s debt and equity securities will absorb losses if it were to enter into a resolution.
Federal Reserve rules require that JPMorgan Chase & Co. (the “Parent Company”) maintain minimum levels of unsecured external long-term debt and other loss-absorbing capacity with specific terms (“eligible LTD”) for purposes of recapitalizing JPMorgan Chase’s operating subsidiaries if the Parent Company were to enter into a resolution either:
in a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, or
in a receivership administered by the FDIC under Title II of the Dodd-Frank Act (“Title II”).
If the Parent Company were to enter into a resolution, holders of eligible LTD and other debt and equity securities of the Parent Company will absorb the losses of the Parent Company and its subsidiaries.

 
 
9

Part I

The preferred “single point of entry” strategy under JPMorgan Chase’s resolution plan contemplates that only the Parent Company would enter bankruptcy proceedings. JPMorgan Chase’s subsidiaries would be recapitalized, as needed, so that they could continue normal operations or subsequently be divested or wound down in an orderly manner. As a result, the Parent Company’s losses and any losses incurred by its subsidiaries would be imposed first on holders of the Parent Company’s equity securities and thereafter on its unsecured creditors, including holders of eligible LTD and other debt securities. Claims of holders of those securities would have a junior position to the claims of creditors of JPMorgan Chase’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of the Parent Company.
Accordingly, in a resolution of the Parent Company in bankruptcy, holders of eligible LTD and other debt securities of the Parent Company would realize value only to the extent available to the Parent Company as a shareholder of JPMorgan Chase Bank, N.A. and its other subsidiaries, and only after any claims of priority and secured creditors of the Parent Company have been fully repaid.
The FDIC has similarly indicated that a single point of entry recapitalization model could be a desirable strategy to resolve a systemically important financial institution, such as the Parent Company, under Title II. However, the FDIC has not formally adopted a single point of entry resolution strategy.
If the Parent Company were to approach, or enter into, a resolution, none of the Parent Company, the Federal Reserve or the FDIC is obligated to follow JPMorgan Chase’s preferred strategy, and losses to holders of eligible LTD and other debt and equity securities of the Parent Company, under whatever strategy is ultimately followed, could be greater than they might have been under JPMorgan Chase’s preferred strategy.
Political
The expected departure of the U.K. from the EU could negatively affect JPMorgan Chase’s business, results of operations and operating model.
It remains highly uncertain how the expected departure of the U.K. from the EU, which is commonly referred to as “Brexit,” will affect financial services firms such as JPMorgan Chase that conduct substantial operations in the EU from legal entities that are organized in or operating from the U.K. It is possible that the U.K. will depart from the EU in March 2019 without any agreement having been reached between the U.K. and the EU concerning whether or to what extent U.K.-based firms may conduct financial services activities within the EU. It is also possible that any agreement reached between the U.K. and the EU may, depending on the final outcome of the ongoing negotiations and related legislative developments:
impede the ability of U.K.-based financial services firms to conduct business in the EU
 
fail to address significant unresolved issues relating to the cross-border conduct of financial services activities, or
apply only temporarily.
JPMorgan Chase has been making the necessary modifications to its legal entity structure and operations in the EU, the locations in which it operates and the staffing in those locations to address the expected departure of the U.K. from the EU, including the possibility that the U.K. may depart from the EU in March 2019 without a withdrawal agreement in place. If the U.K. departs from the EU with no withdrawal agreement having been reached, the types of structural and operational changes that JPMorgan Chase is in the process of making to its European operations will result in JPMorgan Chase having to sustain a more fragmented operating model across its U.K., EU and other operating entities. Due to considerations such as operating expenses, liquidity, leverage and capital, the modified European operating framework will be more complex, less efficient and more costly than would otherwise have been the case. JPMorgan Chase may experience these types of inefficiencies in its business and operations even if a withdrawal agreement is reached, for example in the event that during the transition period contemplated by such an agreement, the U.K. and the EU fail to reach further agreement on future trade relationships between the U.K. and the EU, or if any other outcome persists that does not assure ongoing access for U.K.-based financial services firms to the EU market.
A disorderly departure of the U.K. from the EU, or the unexpected consequences of any departure, could have significant and immediate destabilizing effects on cross-border financial services activities, depending on circumstances that may exist following such a withdrawal, including:
the possibility that clients and counterparties of financial institutions are not positioned to continue to do business through EU-based legal entities
reduction or fragmentation of market liquidity that may be caused if trading venues or CCPs currently based in the U.K. have not completed arrangements to conduct operations from the EU either immediately or, if authorized to continue to operate from the U.K. on a transitional basis, after any transitional relief has expired
uncertainties concerning the application and interpretation of laws and regulations relating to cross-border financial services activities
inability to engage in certain capital markets activities through EU-based legal entities to the extent that licenses or temporary permission to engage in such activities have not been granted timely by local regulators, and

10
 
 


lack of legal certainty concerning the treatment of existing transactions.
Any or all of the above factors could have an adverse effect on the overall operation of the European financial services market as well as JPMorgan Chase’s business, operations and earnings in the U.K., the EU and globally.
Economic uncertainty or instability caused by political developments can hurt JPMorgan Chase’s businesses.
The economic environment and market conditions in which JPMorgan Chase operates continue to be uncertain due to political developments in the U.S. and other countries. Certain policy initiatives and proposals could cause a contraction in U.S. and global economic growth and higher volatility in the financial markets, including:
inability to reach political consensus to keep the U.S. government open and funded
isolationist foreign policies
the introduction of tariffs and other protectionist trade policies, or
the possible withdrawal or reduction of government support for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (together, the “GSEs”).
These types of political developments, and uncertainty about the possible outcomes of these developments, could:
erode investor confidence in the U.S. economy and financial markets, which could potentially undermine the status of the U.S. dollar as a safe haven currency
provoke retaliatory countermeasures by other countries and otherwise heighten tensions in diplomatic relations
increase concerns about whether the U.S. government will be funded, and its outstanding debt serviced, at any particular time, and
result in periodic shutdowns of the U.S. government or governments in other countries.
These factors could lead to:
greater market volatility
large-scale sales of government debt and other debt and equity securities in the U.S. and other countries
the widening of credit spreads
inflationary pressures
lower investment growth, and
other market dislocations.
Any of these potential outcomes could cause JPMorgan Chase to suffer losses on its market-making positions or in its investment securities portfolio, reduce its liquidity and capital levels, hamper its ability to deliver products and
 
services to its clients and customers, and weaken its results of operations and financial condition.
Market
JPMorgan Chase’s businesses are materially affected by economic and market events and conditions.
JPMorgan Chase’s results of operations can be negatively affected by adverse changes in any of the following:
investor, consumer and business sentiment
events that reduce confidence in the financial markets
inflation or deflation
high unemployment or, conversely, a tightening labor market
the availability and cost of capital and credit
monetary and fiscal policies and actions taken by the Federal Reserve and other central banks or governmental authorities, including any suspension or reversal of large-scale asset purchases
trade policies implemented by governmental authorities
the economic effects of natural disasters, severe weather conditions, health emergencies or pandemics, cyberattacks, outbreaks of hostilities, terrorism or other geopolitical instabilities, and
the health of the U.S. and global economies.
JPMorgan Chase’s consumer businesses can be negatively affected by adverse economic conditions.
JPMorgan Chase’s consumer businesses are particularly affected by U.S. and global economic conditions, including:
interest rates
the rates of inflation and unemployment
housing prices
the level of consumer and small business confidence
changes in consumer spending or in the level of consumer debt, and
the number of personal bankruptcies.
A rapid increase in interest rates could negatively affect consumer credit performance to the extent that consumers are less able to service their debts. Sustained low growth, inflationary pressures or recessionary conditions could diminish customer demand for the products and services offered by JPMorgan Chase’s consumer businesses. These conditions could also increase the cost to provide those products and services. Adverse economic conditions could also lead to an increase in delinquencies and higher net charge-offs, which can reduce JPMorgan Chase’s earnings. These consequences could be significantly worse in certain geographies where high levels of unemployment have resulted from declining industrial or manufacturing activity,

 
 
11

Part I

or where high levels of consumer debt, such as outstanding student loans, impair the ability of customers to pay their other consumer loan obligations.
JPMorgan Chase’s earnings from its consumer businesses could also be adversely affected by governmental policies and actions that affect consumers, including:
policies and initiatives relating to medical insurance, education, immigration and employment status
the inability to reach political consensus to keep the U.S. government open and funded, and
policies aimed at the economy more broadly, such as infrastructure spending and global trade, which could result in higher inflation or reductions in consumer disposable income.
In addition, governmental proposals to permit student loan obligations to be discharged in bankruptcy proceedings could, if enacted into law, encourage certain of JPMorgan Chase’s customers to declare personal bankruptcy and thereby trigger defaults and charge-offs of credit card and other consumer loans extended to those customers.
Unfavorable market and economic conditions can have an adverse effect on JPMorgan Chase’s wholesale businesses.
In JPMorgan Chase’s wholesale businesses, market and economic factors can affect the volume of transactions that JPMorgan Chase executes for its clients or for which it advises clients, and, therefore, the revenue that JPMorgan Chase receives from those transactions. These factors can also influence the willingness of other financial institutions and investors to participate in capital markets transactions that JPMorgan Chase manages, such as loan syndications or securities underwritings. Furthermore, if a significant and sustained deterioration in market conditions were to occur, the profitability of JPMorgan Chase’s capital markets businesses could be reduced to the extent that those businesses:
earn less fee revenue due to lower transaction volumes, including when clients are unwilling or unable to refinance their outstanding debt obligations in unfavorable market conditions
dispose of portions of credit commitments, such as loan syndications or securities underwritings, at a loss, or
hold larger residual positions in credit commitments that cannot be sold at favorable prices.
An adverse change in market conditions in particular segments of the economy, such as a sudden and severe downturn in oil and gas prices or an increase in commodity prices, could have a material adverse effect on clients of JPMorgan Chase whose operations or financial condition are directly or indirectly dependent on the health or stability of those market segments, as well as clients that are engaged in related businesses. JPMorgan Chase could incur losses on its loans and other credit commitments to clients that operate in, or are dependent on, any sector of the economy that is under stress.
 
The fees that JPMorgan Chase earns from managing client assets or holding assets under custody for clients could be diminished by declining asset values or other adverse macroeconomic conditions. For example, higher interest rates or a downturn in financial markets could affect the valuations of client assets that JPMorgan Chase manages or holds under custody, which, in turn, could affect JPMorgan Chase’s revenue from fees that are based on the amount of assets under management or custody. Similarly, adverse macroeconomic or market conditions could prompt outflows from JPMorgan Chase funds or accounts, or cause clients to invest in products that generate lower revenue. Substantial and unexpected withdrawals from a JPMorgan Chase fund can also hamper the investment performance of the fund, particularly if the outflows create the need for the fund to dispose of fund assets at disadvantageous times or prices, and could lead to further withdrawals based on the weaker investment performance.
An economic downturn that results in lower consumer and business spending could also have a negative impact on certain of JPMorgan Chase’s wholesale clients, and thereby diminish JPMorgan Chase’s earnings from its wholesale operations. For example, the businesses of certain of JPMorgan Chase’s wholesale clients are dependent on consistent streams of rental income from commercial real estate properties which are owned or being built by those clients. Severe and sustained adverse economic conditions could reduce the rental cash flows that owners or developers receive from those properties which, in turn, could depress the values of the properties and impair the ability of borrowers to service or refinance their commercial real estate loans. These consequences could result in JPMorgan Chase experiencing higher delinquencies, defaults and write-offs within its commercial real estate loan portfolio and incurring higher costs for servicing a larger volume of delinquent loans in that portfolio, thereby reducing JPMorgan Chase’s earnings from its wholesale businesses.
JPMorgan Chase’s investment securities portfolio and market-making positions can suffer losses due to adverse economic, market and political events and conditions.
JPMorgan Chase generally maintains positions in various fixed income instruments in its investment securities portfolio, and positions in various fixed income, currency, commodity, credit and equity instruments as part of its market-making activities. Market-making positions are intended to facilitate demand from JPMorgan Chase’s clients for these instruments and to provide liquidity for clients. The value of the positions that JPMorgan Chase holds can be significantly affected by factors such as:
JPMorgan Chase’s ability to effectively hedge market and other risks on its positions
changes in the levels and volatility of interest rates, credit spreads, and market prices for currencies, equities and commodities, and the duration of any changes in levels or volatility, and

12
 
 


the availability of liquidity in the capital markets.
All of these are affected by global economic, market and political events and conditions, as well as regulatory restrictions on market-making activities.
JPMorgan Chase’s investment securities portfolio and market-making businesses can also suffer losses due to unanticipated market events, including:
severe declines in asset values
unexpected credit events
unforeseen events or conditions that may cause previously uncorrelated factors to become correlated (and vice versa), or
other market risks that may not have been appropriately taken into account in the development, structuring or pricing of a financial instrument.
If JPMorgan Chase experiences significant losses in its investment securities portfolio or from market-making activities, this could reduce JPMorgan Chase’s profitability and its liquidity and capital levels, and thereby constrain the growth of its businesses.
Changes in interest rates and credit spreads can adversely affect certain of JPMorgan Chase’s revenue and income streams.
JPMorgan Chase can generally be expected to earn higher net interest income when interest rates are increasing. However, higher interest rates can also lead to:
fewer originations of commercial and residential real estate loans
losses on underwriting exposures
lower returns on JPMorgan Chase’s investment securities portfolio
the loss of deposits to the extent that JPMorgan Chase makes incorrect assumptions about depositor behavior
lower net interest income if central banks introduce interest rate increases more quickly than anticipated and this results in a misalignment in the pricing of short-term and long-term borrowings, and
less liquidity in the financial markets and higher funding costs.
All of these outcomes could adversely affect JPMorgan Chase’s revenues and its liquidity and capital levels. Higher interest rates can also negatively affect the payment performance on loans within JPMorgan Chase’s consumer and wholesale loan portfolios that are linked to variable interest rates. If borrowers of variable rate loans are unable to afford higher interest payments, those borrowers may reduce or stop making payments, thereby causing JPMorgan Chase to incur losses and increased operational costs related to servicing a higher volume of delinquent loans.
 
On the other hand, a low interest rate environment may cause:
net interest margins to be compressed, which could reduce the amounts that JPMorgan Chase earns on its investment securities portfolio to the extent that it is unable to reinvest contemporaneously in higher-yielding instruments, and
a reduction in the value of JPMorgan Chase’s mortgage servicing rights (“MSRs”) asset, thereby decreasing revenues.
When credit spreads widen, it becomes more expensive for JPMorgan Chase to borrow. JPMorgan Chase’s credit spreads may widen or narrow not only in response to events and circumstances that are specific to JPMorgan Chase but also as a result of general economic and geopolitical events and conditions. Changes in JPMorgan Chase’s credit spreads will affect, positively or negatively, JPMorgan Chase’s earnings on certain liabilities, such as derivatives, that are recorded at fair value.
JPMorgan Chase’s results may be materially affected by market fluctuations and significant changes in the value of financial instruments.
The value of securities, derivatives and other financial instruments which JPMorgan Chase owns or in which it makes markets can be materially affected by market fluctuations. Market volatility, illiquid market conditions and other disruptions in the financial markets may make it extremely difficult to value certain financial instruments, particularly during periods of market displacement. Subsequent valuations of financial instruments in future periods, in light of factors then prevailing, may result in significant changes in the value of these instruments. In addition, at the time of any disposition of these financial instruments, the price that JPMorgan Chase ultimately realizes will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could cause a decline in the value of financial instruments which JPMorgan Chase owns or in which it makes markets, which may have an adverse effect on JPMorgan Chase’s results of operations.
Under extreme market conditions, hedging and other risk management strategies may not be as effective at mitigating losses as they would be under more normal market conditions. Furthermore, under these conditions, market participants are particularly exposed to trading strategies employed by many market participants simultaneously and on a large scale. JPMorgan Chase’s risk management and monitoring processes seek to quantify and mitigate risk to more extreme market moves. However, severe market events have historically been difficult to predict and JPMorgan Chase could realize significant losses if extreme market events were to occur.

 
 
13

Part I

Credit
JPMorgan Chase can be adversely affected by the financial condition of clients, counterparties, custodians and CCPs.
JPMorgan Chase routinely executes transactions with brokers and dealers, commercial and investment banks, mutual and hedge funds, investment managers and other types of financial institutions. Many of these transactions expose JPMorgan Chase to the credit risk of its clients and counterparties, and can involve JPMorgan Chase in disputes and litigation in the event that a client or counterparty defaults. JPMorgan Chase can also be subject to losses or liability where a financial institution that it has appointed to provide custodial services for client assets or funds becomes insolvent as a result of fraud or the failure to abide by existing laws and obligations, including under the EU Alternative Investment Fund Managers Directive.
A default by a CCP through which JPMorgan Chase executes contracts would require JPMorgan Chase to replace those contracts, thereby increasing its operational costs and potentially resulting in losses. JPMorgan Chase can also be exposed to losses if a member of a CCP in which JPMorgan Chase is also a member defaults on its obligations to the CCP because of requirements that each member of the CCP absorb a portion of those losses.
Disputes may arise with counterparties to derivatives contracts with regard to the terms, the settlement procedures or the value of underlying collateral. The disposition of those disputes could cause JPMorgan Chase to incur unexpected transaction, operational and legal costs, or result in credit losses. These consequences can also impair JPMorgan Chase’s ability to effectively manage its credit risk exposure from its market activities, or cause harm to JPMorgan Chase’s reputation.
JPMorgan Chase’s businesses can be harmed by the insolvency of a significant market participant.
The failure of a significant market participant, such as a major financial institution or a CCP, or concerns about the creditworthiness of such a market participant, can have a cascading effect within the financial markets. JPMorgan Chase’s businesses could be significantly disrupted by such an event, particularly if it leads to other market participants incurring significant losses, experiencing liquidity issues or defaulting. These risks could be magnified in the event of the default, insolvency or resolution of a major global financial counterparty, as JPMorgan Chase is likely to have significant interrelationships with, and credit exposure to, such a counterparty, and would seek to unwind or hedge positions in securities, derivatives and other obligations in multiple jurisdictions during a period of heightened market volatility.
 
JPMorgan Chase’s clearing services business is exposed to the risk of client or counterparty default.
As part of its clearing services activities, JPMorgan Chase is a member of several CCPs. In the event that another member of such an organization defaults on its obligations to the CCP, JPMorgan Chase may be required to pay a portion of any losses incurred by the CCP as a result of that default. As a clearing member, JPMorgan Chase is also exposed to the risk of nonperformance by its clients, which it seeks to mitigate by requiring clients to provide adequate collateral. JPMorgan Chase is exposed to intra-day credit risk of its clients in connection with providing cash management, clearing, custodial and other transaction services to those clients. If a client for which JPMorgan Chase provides these services becomes bankrupt or insolvent, JPMorgan Chase may incur losses, become involved in disputes and litigation with one or more CCPs, the client’s bankruptcy estate and other creditors, or be subject to regulatory investigations. All of the foregoing events can increase JPMorgan Chase’s operational and litigation costs, and JPMorgan Chase may suffer losses to the extent that any collateral that it has received is insufficient to cover those losses. JPMorgan Chase can also be subject to bearing its share of nondefault losses incurred by a CCP due to a business or operational failure affecting the CCP, including due to a cyberattack, litigation, fraud or a systems failure.
JPMorgan Chase may suffer losses if the value of collateral declines in stressed market conditions.
During periods of market stress or illiquidity, JPMorgan Chase’s credit risk may be further increased when JPMorgan Chase cannot realize the fair value of the collateral held by it or when collateral is liquidated at prices that are not sufficient to recover the full amount of the loan, derivative or other exposure due to it. Furthermore, disputes with counterparties concerning the valuation of collateral may increase in times of significant market stress, volatility or illiquidity, and JPMorgan Chase could suffer losses during these periods if it is unable to realize the fair value of collateral or to manage declines in the value of collateral.
JPMorgan Chase could incur significant losses arising from concentrations of credit and market risk.
JPMorgan Chase is exposed to greater credit and market risk to the extent that groupings of its clients or counterparties:
engage in similar or related businesses, or in businesses in related industries
do business in the same geographic region, or
have business profiles, models or strategies that could cause their ability to meet their obligations to be similarly affected by changes in economic conditions.
For example, a significant deterioration in the credit quality of one of JPMorgan Chase’s borrowers or counterparties could lead to concerns about the creditworthiness of other

14
 
 


borrowers or counterparties in similar, related or dependent industries. This type of interrelationship could exacerbate JPMorgan Chase’s credit, liquidity and market risk exposure and potentially cause it to incur losses, including fair value losses in its market-making businesses.
Similarly, challenging economic conditions that affect a particular industry or geographic area could lead to concerns about the credit quality of JPMorgan Chase’s borrowers or counterparties not only in that particular industry or geography but in related or dependent industries, wherever located. These conditions could also heighten concerns about the ability of customers of JPMorgan Chase’s consumer businesses who live in those areas or work in those affected industries or related or dependent industries to meet their obligations to JPMorgan Chase. JPMorgan Chase regularly monitors various segments of its credit and market risk exposures to assess the potential risks of concentration or contagion, but its efforts to diversify or hedge its exposures against those risks may not be successful.
JPMorgan Chase’s consumer businesses can also be harmed by an excessive expansion of consumer credit by bank or non-bank competitors. Heightened competition for certain types of consumer loans could prompt industry-wide reactions such as significant reductions in the pricing or margins of those loans or the making of loans to less-creditworthy borrowers. If large numbers of consumers subsequently default on their loans, whether due to weak credit profiles, an economic downturn or other factors, this could impair their ability to repay obligations owed to JPMorgan Chase and result in higher charge-offs and other credit-related losses. More broadly, widespread defaults on consumer debt could lead to recessionary conditions in the U.S. economy, and JPMorgan Chase’s consumer businesses may earn lower revenues in such an environment.
Disruptions in the liquidity or transparency of the financial markets could cause JPMorgan Chase to be unable to sell, syndicate or realize the value of its positions in various debt instruments, loans, derivatives and other obligations, and thereby lead to increased risk concentrations. If JPMorgan Chase is unable to reduce positions effectively during a market dislocation, this can increase both the market and credit risks associated with those positions and the level of risk-weighted assets (“RWA”) that JPMorgan Chase holds on its balance sheet. These factors could increase JPMorgan Chase’s capital requirements and funding costs and adversely affect the profitability of JPMorgan Chase’s businesses.
Liquidity
Liquidity is critical to JPMorgan Chase’s ability to fund and operate its businesses.
JPMorgan Chase’s liquidity could be impaired at any given time by factors such as:
market-wide illiquidity or disruption
unforeseen cash or capital requirements
 
inability to sell assets, or to sell assets at favorable times or prices
default by a CCP or other significant market participant
unanticipated outflows of cash or collateral
unexpected loss of consumer deposits caused by changes in consumer behavior, and
lack of market or customer confidence in JPMorgan Chase or financial institutions in general.
A diminution of JPMorgan Chase’s liquidity may be caused by events over which it has little or no control. For example, during the 2008-2009 financial crisis, periods of low investor confidence and significant market illiquidity resulted in higher funding costs for JPMorgan Chase and limited its access to some of its traditional sources of liquidity, including securitized debt issuances. There is no assurance that severe conditions of this type will not occur in the future.
JPMorgan Chase may need to raise funding from alternative sources if its access to stable and lower-cost sources of funding, such as deposits and borrowings from Federal Home Loan Banks, is reduced. Alternative sources of funding could be more expensive or limited in availability. JPMorgan Chase’s funding costs could also be negatively affected by actions that JPMorgan Chase may take in order to:
satisfy applicable liquidity coverage ratio and net stable funding ratio requirements
address obligations under its resolution plan, or
satisfy regulatory requirements in jurisdictions outside the U.S. relating to the pre-positioning of liquidity in subsidiaries that are material legal entities.
More generally, if JPMorgan Chase fails to effectively manage its liquidity, this could constrain its ability to fund or invest in its businesses, and thereby adversely affect its results of operations.
JPMorgan Chase & Co. is a holding company and depends on the cash flows of its subsidiaries to make payments on its outstanding securities.
JPMorgan Chase & Co. is a holding company that holds the stock of JPMorgan Chase Bank, N.A. and an intermediate holding company, JPMorgan Chase Holdings LLC (the “IHC”). The IHC in turn holds the stock of substantially all of JPMorgan Chase’s subsidiaries other than JPMorgan Chase Bank, N.A. and its subsidiaries. The IHC also owns other assets and intercompany indebtedness owing to the holding company.
The holding company is obligated to contribute to the IHC substantially all the net proceeds received from securities issuances (including issuances of senior and subordinated debt securities and of preferred and common stock).
The ability of JPMorgan Chase Bank, N.A. and the IHC to make payments to the holding company is also

 
 
15

Part I

limited. JPMorgan Chase Bank, N.A. is subject to restrictions on its dividend distributions, as well as capital adequacy and liquidity requirements and other regulatory restrictions on its ability to make payments to the holding company. The IHC is prohibited from paying dividends or extending credit to the holding company if certain capital or liquidity “thresholds” are breached or if limits are otherwise imposed by JPMorgan Chase’s management or Board of Directors.
As a result of these arrangements, the ability of the holding company to make various payments is dependent on its receiving dividends from JPMorgan Chase Bank, N.A. and dividends and extensions of credit from the IHC. These limitations could affect the holding company’s ability to:
pay interest on its debt securities
pay dividends on its equity securities
redeem or repurchase outstanding securities, and
fulfill its other payment obligations.
These regulatory restrictions and limitations could also result in the holding company seeking protection under bankruptcy laws at a time earlier than would have been the case absent the existence of the capital and liquidity thresholds to which the IHC is subject.
Reductions in JPMorgan Chase’s credit ratings may adversely affect its liquidity and cost of funding.
JPMorgan Chase & Co. and certain of its principal subsidiaries are rated by credit rating agencies. Rating agencies evaluate both general and firm-specific and industry-specific factors when determining credit ratings for a particular financial institution, including:
expected future profitability
risk management practices
legal expenses
ratings differentials between bank holding companies and their bank and non-bank subsidiaries
regulatory developments
assumptions about government support, and
economic and geopolitical trends
JPMorgan Chase closely monitors and manages, to the extent that it is able, factors that could influence its credit ratings. However, there is no assurance that JPMorgan Chase’s credit ratings will not be lowered in the future. Furthermore, any such downgrade could occur at times of broader market instability when JPMorgan Chase’s options for responding to events may be more limited and general investor confidence is low.
A reduction in JPMorgan Chase’s credit ratings could curtail JPMorgan Chase’s business activities and reduce its profitability in a number of ways, including:
reducing its access to capital markets
 
materially increasing its cost of issuing and servicing securities
triggering additional collateral or funding requirements, and
decreasing the number of investors and counterparties that are willing or permitted to do business with or lend to JPMorgan Chase.
Any rating reduction could also increase the credit spreads charged by the market for taking credit risk on JPMorgan Chase & Co. and its subsidiaries. This could, in turn, adversely affect the value of debt and other obligations of JPMorgan Chase & Co. and its subsidiaries.
The regulation, reform and replacement of benchmark rates could have adverse consequences on JPMorgan Chase’s securities issuances and its capital markets and investment activities.
Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks,” including those in widespread and long-standing use, have been the subject of ongoing international, national and other regulatory scrutiny and initiatives and proposals for reform. Some of these reforms are already effective while others are still to be implemented or are under consideration. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated.
Any of the benchmark reforms which have been proposed or implemented, or the general increased regulatory scrutiny of benchmarks, could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with regulations or requirements relating to benchmarks. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks.
Any of these developments, and any future initiatives to regulate, reform or change the administration of benchmarks, could result in adverse consequences to the return on, value of and market for loans, mortgages, securities, derivatives and other financial instruments whose returns are linked to any such benchmark, including those issued, funded or held by JPMorgan Chase.
Various regulators, industry bodies and other market participants in the U.S. and other countries are engaged in initiatives to develop, introduce and encourage the use of alternative rates to replace certain benchmarks. There is no assurance that these new rates will be accepted or widely used by market participants, or that the characteristics of any of these new rates will be similar to, or produce the economic equivalent of, the benchmarks that they seek to replace. If a particular benchmark were to be discontinued and an alternative rate has not been successfully introduced to replace that benchmark, this could result in widespread

16
 
 


dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities, all of which could have adverse effects on JPMorgan Chase’s results of operations. In addition, the transition of a particular benchmark to a replacement rate could affect hedge accounting relationships between financial instruments linked to that benchmark and any related derivatives, which could adversely affect JPMorgan Chase’s results.
On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot be guaranteed after 2021, and there is a substantial risk that LIBOR will be discontinued or modified by 2021. Vast amounts of loans, mortgages, securities, derivatives and other financial instruments are linked to the LIBOR benchmark, and any failure by market participants and regulators to successfully introduce benchmark rates to replace LIBOR and implement effective transitional arrangements to address the discontinuation of LIBOR could, as noted above, result in disruption in the financial markets, suppress capital markets activities and give rise to litigation claims, all of which could have a negative impact on JPMorgan Chase’s results of operations and on LIBOR-linked securities or other instruments which are issued, funded or held by JPMorgan Chase.
Operational
JPMorgan Chase’s businesses are highly dependent on the effectiveness of its operational systems and those of other market participants.
JPMorgan Chase’s businesses rely comprehensively on the ability of JPMorgan Chase’s financial, accounting, transaction execution, data processing and other operational systems to process, record, monitor and report a large number of transactions on a continuous basis, and to do so accurately, quickly and securely. In addition to proper design, installation, maintenance and training, the effective functioning of JPMorgan Chase’s operational systems depends on:
the quality of the information contained in those systems, as inaccurate, outdated or corrupted data can significantly compromise the functionality or reliability of a particular system and other systems to which it transmits or from which it receives information, and
JPMorgan Chase’s ability to appropriately maintain and upgrade its systems on a regular basis, and to ensure that any changes introduced to its systems are managed carefully to ensure security and operational continuity and adhere to all applicable legal and regulatory requirements.
JPMorgan Chase also depends on its ability to access and use the operational systems of its vendors, custodians and
 
other market participants, including clearing and payment systems, CCPs, securities exchanges and data processing, security and technology companies.
The ineffectiveness, failure or other disruption of operational systems upon which JPMorgan Chase depends, including due to a systems malfunction, cyberbreach or other systems failure, could result in unfavorable ripple effects in the financial markets and for JPMorgan Chase and its clients and customers, including:
delays or other disruptions in providing information, services and liquidity to clients and customers
the inability to settle transactions or obtain access to funds and other assets
the possibility that funds transfers, capital markets trades or other transactions are executed erroneously, illegally or with unintended consequences
financial losses, including due to loss-sharing requirements of CCPs, payment systems or other market infrastructures, or as possible restitution to clients and customers
higher operational costs associated with replacing services provided by a system that is unavailable
client or customer dissatisfaction with JPMorgan Chase’s products and services
loss of confidence in the ability of JPMorgan Chase, or financial institutions generally, to protect against and withstand operational disruptions, or
harm to JPMorgan Chase’s reputation.
As the speed, frequency, volume, interconnectivity and complexity of transactions continues to increase, it becomes more challenging to effectively maintain and upgrade JPMorgan Chase’s operational systems and infrastructure, especially due to the heightened risks that:
errors made by JPMorgan Chase or another market participant, whether inadvertent or malicious, cause widespread system disruption
isolated or seemingly insignificant errors in operational systems compound, or migrate to other systems over time, to become larger issues
failures in synchronization or encryption software, or degraded performance of microprocessors due to design flaws, could cause disruptions in operational systems, or the inability of systems to communicate with each other, and
third parties attempt to block the use of key technology solutions by claiming that the use infringes on their intellectual property rights.
If JPMorgan Chase’s operational systems, or those of external parties on which JPMorgan Chase’s businesses depend, are unable to meet the demanding standards of JPMorgan Chase’s businesses and operations, or if they fail

 
 
17

Part I

or have other significant shortcomings, JPMorgan Chase could be materially and adversely affected.
JPMorgan Chase can be negatively affected if it fails to identify and address operational risks associated with the introduction of or changes to products, services and delivery platforms.
When JPMorgan Chase launches a new product or service, introduces a new platform for the delivery or distribution of products or services (including mobile connectivity, electronic trading and cloud computing), or makes changes to an existing product, service or delivery platform, it may not fully appreciate or identify new operational risks that may arise from those changes, or may fail to implement adequate controls to mitigate the risks associated with those changes. For example, ineffective controls over newly-developed electronic trading platforms could inadvertently permit the rapid build-up of unexpected, abnormal or unusually large positions in securities or other financial instruments, or fail to anticipate or address a downturn in market liquidity which leads to sudden or severe changes in asset prices. Any significant failure to identify and mitigate operational risks associated with new products or services or new platforms for delivering or distributing products or services, or changes to existing products, services or delivery platforms, could diminish JPMorgan Chase’s ability to operate one or more of its businesses or result in:
potential liability to clients, counterparties and customers
increased operating expenses
higher litigation costs, including regulatory fines, penalties and other sanctions
damage to JPMorgan Chase’s reputation
impairment of JPMorgan Chase’s liquidity
regulatory intervention, or
weaker competitive standing.
Any of the foregoing consequences could materially and adversely affect JPMorgan Chase’s businesses and results of operations.
JPMorgan Chase’s connections to external operational systems expose it to greater operational risks.
External operational systems with which JPMorgan is connected, whether directly or indirectly, can be sources of operational risk to JPMorgan Chase. JPMorgan Chase may be exposed not only to a systems failure that may be experienced by a vendor or market infrastructure with which JPMorgan Chase is directly connected, but also to a systems breakdown of another party to which such a vendor or infrastructure is connected. Similarly, retailers, data aggregators and other external parties with which JPMorgan Chase’s customers do business can increase JPMorgan Chase’s operational risk. This is particularly the case where activities of customers or those parties are beyond JPMorgan Chase’s security and control systems,
 
including through the use of the internet, personal smart phones and other mobile devices or services.
If an external party obtains access to customer account data on JPMorgan Chase’s systems, and that party experiences a cyberbreach of its own systems or misappropriates that data, this could result in a variety of negative outcomes for JPMorgan Chase and its clients and customers, including:
heightened risk that external parties will be able to execute fraudulent transactions using JPMorgan Chase’s systems
losses from fraudulent transactions, as well as potential liability for losses that exceed thresholds established in consumer protection laws and regulations
increased operational costs to remediate the consequences of the external party’s security breach, and
harm to reputation arising from the perception that JPMorgan Chase’s systems may not be secure.
As JPMorgan Chase’s interconnectivity with clients, customers and other external parties expands, JPMorgan Chase increasingly faces the risk of operational failure with respect to the systems of those parties. Security breaches affecting JPMorgan Chase’s clients or customers, or systems breakdowns or failures, security breaches or human error or misconduct affecting other external parties, may require JPMorgan Chase to take steps to protect the integrity of its own operational systems or to safeguard confidential information, including restricting the access of customers to their accounts. These actions can increase JPMorgan Chase’s operational costs and potentially diminish customer satisfaction.
Furthermore, the widespread and expanding interconnectivity among financial institutions, central agents, CCPs, payment processors, securities exchanges, clearing houses and other financial market infrastructures increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially affect JPMorgan Chase’s ability to conduct business.
JPMorgan Chase’s operations depend on the competence and integrity of its employees and those of external parties.
JPMorgan Chase’s ability to operate its businesses efficiently and profitably, and to offer products and services that meet the expectations of its clients and customers, is highly dependent on the competence and trustworthiness of its employees, as well as employees of other parties on which JPMorgan Chase’s operations rely, including vendors, custodians and financial markets infrastructures. JPMorgan Chase’s businesses could be materially and adversely affected by a significant operational breakdown or failure, theft, fraud or other unlawful conduct, or other negative outcomes caused by human error or misconduct by an

18
 
 


employee of JPMorgan Chase or of another party on which JPMorgan Chase’s operations depend.
JPMorgan Chase faces substantial legal and operational risks in safeguarding personal information.
JPMorgan Chase’s businesses are subject to complex and evolving laws and regulations, both within and outside the U.S., governing the privacy and protection of personal information of individuals. The protected parties can include:
JPMorgan Chase’s clients and customers, and prospective clients and customers
clients and customers of JPMorgan Chase’s clients and customers
employees and prospective employees, and
employees of JPMorgan Chase’s vendors, counterparties and other external parties.
Ensuring that JPMorgan Chase’s collection, use, transfer and storage of personal information comply with all applicable laws and regulations in all relevant jurisdictions, including where the laws of different jurisdictions are in conflict, can:
increase JPMorgan Chase’s compliance and operating costs
hinder the development of new products or services, curtail the offering of existing products or services, or affect how products and services are offered to clients and customers
demand significant oversight by JPMorgan Chase’s management, and
require JPMorgan Chase to structure its businesses, operations and systems in less efficient ways.
Furthermore, JPMorgan Chase cannot ensure that all of its clients and customers, vendors, counterparties and other external parties have appropriate controls in place to protect the confidentiality of the information exchanged between them and JPMorgan Chase, particularly where information is transmitted by electronic means. JPMorgan Chase could be exposed to litigation or regulatory fines, penalties or other sanctions if personal, confidential or proprietary information of clients, customers, employees or others were to be mishandled or misused, such as situations where such information is:
erroneously provided to parties who are not permitted to have the information, or
intercepted or otherwise compromised by third parties.
Concerns regarding the effectiveness of JPMorgan Chase’s measures to safeguard personal information, or even the perception that those measures are inadequate, could cause JPMorgan Chase to lose existing or potential clients and customers, and thereby reduce JPMorgan Chase’s revenues. Furthermore, any failure or perceived failure by JPMorgan Chase to comply with applicable privacy or data protection
 
laws and regulations may subject it to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices, significant liabilities or regulatory fines, penalties or other sanctions. Any of these could damage JPMorgan Chase’s reputation and otherwise adversely affect its businesses.
Recent, well-publicized allegations involving the misuse or inappropriate sharing of personal information have led to expanded governmental scrutiny of practices relating to the safeguarding of personal information and the use or sharing of personal data by companies in the U.S. and other countries. That scrutiny has in some cases resulted in, and could in the future lead to, the adoption of stricter laws and regulations relating to the use and sharing of personal information. These types of laws and regulations could prohibit or significantly restrict financial services firms such as JPMorgan Chase from sharing information among affiliates or with third parties such as vendors, and thereby increase compliance costs, or could restrict JPMorgan Chase’s use of personal data when developing or offering products or services to customers. These restrictions could inhibit JPMorgan Chase’s development or marketing of certain products or services, or increase the costs of offering them to customers.
A successful cyberattack against JPMorgan Chase could cause significant harm to JPMorgan Chase or its clients and customers.
JPMorgan Chase experiences numerous cyberattacks on its computer systems, software, networks and other technology assets on a daily basis. These cyberattacks can take many forms, but a common objective of many of these attacks is to introduce computer viruses or malware into JPMorgan Chase’s systems. These viruses or malicious code are typically designed to:
obtain unauthorized access to confidential information belonging to JPMorgan Chase or its clients, customers, counterparties or employees
manipulate or destroy data
disrupt, sabotage or degrade service on JPMorgan Chase’s systems, or
steal money.
JPMorgan Chase has also experienced significant distributed denial-of-service attacks which are intended to disrupt online banking services.
JPMorgan Chase devotes significant resources to maintain and regularly upgrade its systems to protect them against cyberattacks. However, JPMorgan Chase has experienced security breaches due to cyberattacks in the past, and it is inevitable that additional breaches will occur in the future. Any such breach could result in serious and harmful consequences for JPMorgan Chase or its clients and customers.

 
 
19

Part I

A principal reason that JPMorgan Chase cannot provide absolute security against cyberattacks is that it may not always be possible to anticipate, detect or recognize threats to JPMorgan Chase’s systems, or to implement effective preventive measures against all breaches. This is because:
the techniques used in cyberattacks change frequently and may not be recognized until launched
cyberattacks can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile countries, or whose objective is to disrupt the operations of financial institutions more generally, and
third parties may seek to gain access to JPMorgan Chase’s systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of JPMorgan Chase’s systems.
The risk of a security breach due to a cyberattack could increase in the future as JPMorgan Chase continues to expand its mobile-payments and other internet-based product offerings and its internal use of web-based products and applications.
A successful penetration or circumvention of the security of JPMorgan Chase’s systems or the systems of a vendor, governmental body or another market participant could cause serious negative consequences, including:
significant disruption of JPMorgan Chase’s operations and those of its clients, customers and counterparties, including losing access to operational systems
misappropriation of confidential information of JPMorgan Chase or that of its clients, customers, counterparties, employees or regulators
damage to computers or systems of JPMorgan Chase and those of its clients, customers and counterparties
inability to fully recover and restore data that has been stolen, manipulated or destroyed, or to prevent systems from processing fraudulent transactions
violations by JPMorgan Chase of applicable privacy and other laws
financial loss to JPMorgan Chase or to its clients, customers, counterparties or employees
loss of confidence in JPMorgan Chase’s cybersecurity measures
dissatisfaction among JPMorgan Chase’s clients, customers or counterparties
significant exposure to litigation and regulatory fines, penalties or other sanctions, and
harm to JPMorgan Chase’s reputation.
JPMorgan Chase could also suffer some of the above consequences if a third party were to misappropriate
 
confidential information obtained by intercepting signals or communications from mobile devices used by JPMorgan Chase’s employees.
JPMorgan Chase may not be able to immediately address the consequences of a security breach due to a cyberattack.
A successful breach of JPMorgan Chase’s computer systems, software, networks or other technology assets due to a cyberattack could occur and persist for an extended period of time before being detected due to:
the breadth of JPMorgan Chase’s operations and the high volume of transactions that it processes
the large number of customers, counterparties and third-party service providers with which JPMorgan Chase does business
the proliferation and increasing sophistication of cyberattacks, and
the possibility that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and systems.
The extent of a particular cyberattack and the steps that JPMorgan Chase may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the attack is known. While such an investigation is ongoing, JPMorgan Chase may not necessarily know the full extent of the harm caused by the cyberattack, and that damage may continue to spread. Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyberattack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs and consequences of a cyberattack.
JPMorgan Chase’s operations, results and reputation could be harmed by catastrophes or other events.
JPMorgan Chase’s business and operational systems could be seriously disrupted, and its reputation could be harmed, by events that are wholly or partially beyond its control, including:
cyberbreaches or breaches of physical premises, including data centers
power, telecommunications or internet outages
failures of, or loss of access to, operational systems, including computer systems, servers, networks and other technology assets
damage to or loss of property or assets of JPMorgan Chase or third parties, and any consequent injuries, including in connection with any construction projects undertaken by JPMorgan Chase
natural disasters or severe weather conditions

20
 
 


health emergencies or pandemics, or
events arising from local or larger-scale political events, including outbreaks of hostilities or terrorist acts.
JPMorgan Chase maintains a firm-wide resiliency and crisis management program that is intended to ensure the ability to recover critical business functions and supporting assets, including staff, technology and facilities, in the event of a business interruption. There can be no assurance that JPMorgan Chase’s resiliency plans will fully mitigate all potential business continuity risks to JPMorgan Chase or its clients and customers. Furthermore, should emergency or catastrophic events such as severe or abnormal weather conditions become more chronic, the disruptive effects of those events on JPMorgan Chase’s business and operations, and on its clients, customers, counterparties and employees, could become more significant and long-lasting.
Any significant failure or disruption of JPMorgan Chase’s operations or operational systems, or any catastrophic event, could:
hinder JPMorgan Chase’s ability to provide services to its clients and customers or to transact with its counterparties
require it to expend significant resources to correct the failure or disruption
cause it to incur losses or liabilities, including from loss of revenue, damage to or loss of property, or injuries
expose it to litigation or regulatory fines, penalties or other sanctions, and
harm its reputation.
JPMorgan Chase’s risk management framework and procedures may not be effective in identifying and mitigating every risk to JPMorgan Chase.
JPMorgan Chase’s risk management framework is intended to mitigate risk and loss. The framework includes both the “first line of defense,” consisting of each line of business and Treasury and the Chief Investment Office, including their aligned Operations, Technology and Control Management groups, and the “second line of defense,” consisting of Independent Risk Management. JPMorgan Chase has established processes and procedures to identify, measure, monitor, report and analyze the types of risk to which it is subject. However, there are inherent limitations to risk management strategies because there may be existing or future risks that JPMorgan Chase has not appropriately anticipated or identified.
Any inadequacy or lapse in JPMorgan Chase’s risk management framework, governance structure, procedures and practices, models or reporting systems could expose it to unexpected losses, and its financial condition or results of operations could be materially and adversely affected. In addition, any such inadequacy or lapse could:
require significant resources to remediate
 
attract heightened regulatory scrutiny
expose JPMorgan Chase to regulatory investigations or legal proceedings
subject it to litigation or regulatory fines, penalties or other sanctions
harm its reputation, or
diminish confidence in JPMorgan Chase.
JPMorgan Chase relies on data to assess its various risk exposures. Any deficiencies in the quality or effectiveness of JPMorgan Chase’s data gathering and validation processes could result in ineffective risk management practices. These deficiencies could also result in inaccurate risk reporting.
JPMorgan Chase establishes allowances for probable credit losses that are inherent in its credit exposures. It then employs stress testing and other techniques to determine the capital and liquidity necessary in the event of adverse economic or market events. These processes are critical to JPMorgan Chase’s results of operations and financial condition. They require difficult, subjective and complex judgments, including forecasts of how economic conditions might impair the ability of JPMorgan Chase’s borrowers and counterparties to repay their loans or other obligations. It is possible that JPMorgan Chase will fail to identify the proper factors or that it will fail to accurately estimate the impact of factors that it identifies. 
Many of JPMorgan Chase’s risk management strategies and techniques consider historical market behavior.  These strategies and techniques are based to some degree on management’s subjective judgment. For example, many models used by JPMorgan Chase are based on assumptions regarding historical correlations among prices of various asset classes or other market indicators. In times of market stress, including difficult or less liquid market environments, or in the event of other unforeseen circumstances, previously uncorrelated indicators may become correlated.  Conversely, previously-correlated indicators may make unrelated movements at those times. Sudden market movements and unanticipated or unidentified market or economic movements could, in some circumstances, limit the effectiveness of JPMorgan Chase’s risk management strategies, causing it to incur losses.
JPMorgan Chase could incur significant losses, its capital levels could be reduced and it could face greater regulatory scrutiny if its models or estimations prove to be inadequate.
JPMorgan Chase has developed and uses a variety of models and other analytical and judgment-based estimations to assess and implement mitigating controls over its market, credit, liquidity, operational and other risks. These models and estimations are based on a variety of assumptions and historical trends, and are periodically reviewed and modified as necessary. The models and estimations that JPMorgan Chase uses may not be effective in all cases to

 
 
21

Part I

identify, observe and mitigate risk due to a variety of factors, such as:
reliance on historical trends that may not accurately predict future events, including assumptions underlying the models and estimations which predict correlation among certain market indicators or asset prices
inherent limitations associated with forecasting uncertain economic and financial outcomes
historical trend information may be incomplete, or may not anticipate severely negative market conditions such as extreme volatility, dislocation or lack of liquidity
technology that is introduced to run models or estimations may not perform as expected, or may not be well understood by the personnel using the technology
models and estimations may contain erroneous data, valuations, formulas or algorithms, and
review processes may fail to detect flaws in models and estimations.
Some of the models and other analytical and judgment-based estimations used by JPMorgan Chase in managing risks are subject to review by, and require the approval of, JPMorgan Chase’s regulators. These reviews are required before JPMorgan Chase may use those models and estimations in connection with calculating market risk RWA, credit risk RWA and operational risk RWA under Basel III. If JPMorgan Chase’s models or estimations are not approved by its regulators, it may be subject to higher capital charges, which could adversely affect its financial results or limit the ability to expand its businesses. JPMorgan Chase’s capital actions could also be constrained if a CCAR submission is not approved by its banking regulators due to the perceived inadequacy of its models or estimations.
Enhanced standards for vendor risk management can result in higher costs and other potential exposures.
JPMorgan Chase must comply with enhanced standards for the assessment and management of risks associated with doing business with vendors and other third-party service providers. These requirements are contained both in bank regulatory regulations and guidance and in certain consent orders to which JPMorgan Chase has been subject. JPMorgan Chase incurs significant costs and expenses in connection with its initiatives to address the risks associated with oversight of its third party relationships. JPMorgan Chase’s failure to appropriately assess and manage third-party relationships, especially those involving significant banking functions, shared services or other critical activities, could materially adversely affect JPMorgan Chase. Specifically, any such failure could result in:
potential liability to clients and customers
regulatory fines, penalties or other sanctions
increased operational costs, or
 
harm to JPMorgan Chase’s reputation.
Requirements for physical settlement and delivery in trading agreements could expose JPMorgan Chase to operational and other risks.
Certain of JPMorgan Chase’s markets transactions require the physical settlement by delivery of securities or other obligations that JPMorgan Chase does not own. If JPMorgan Chase is unable to obtain the obligations within the required timeframe, JPMorgan Chase could forfeit payments otherwise due. Failures could also result in settlement delays, which could damage JPMorgan Chase’s reputation and ability to transact business. Failure to timely settle and confirm transactions could also subject JPMorgan Chase to heightened credit and operational risk, and losses in the event of a default.
JPMorgan Chase could incur unexpected losses if estimates and judgments underlying its financial statements are incorrect.
Under U.S. generally accepted accounting principles (“U.S. GAAP”), JPMorgan Chase is required to use estimates and apply judgments in preparing its financial statements, including in determining allowances for credit losses and reserves related to litigation. Certain financial instruments require a determination of their fair value in order to prepare JPMorgan Chase’s financial statements, including:
trading assets and liabilities
instruments in the investment securities portfolio
certain loans
MSRs
structured notes, and
certain repurchase and resale agreements.
Where quoted market prices are not available for these types of financial instruments, JPMorgan Chase may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management estimates and judgment. Sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain financial instruments, which could lead to valuations being subsequently changed or adjusted. If estimates or judgments underlying JPMorgan Chase’s financial statements prove to have been incorrect, JPMorgan Chase may experience material losses.
Lapses in controls over disclosure or financial reporting could materially affect JPMorgan Chase’s profitability or reputation.
There can be no assurance that JPMorgan Chase’s disclosure controls and procedures will be effective in every circumstance, or that a material weakness or significant deficiency in internal control over financial reporting will not occur. Any such lapses or deficiencies could:

22
 
 


materially and adversely affect JPMorgan Chase’s business and results of operations or financial condition
restrict its ability to access the capital markets
require it to expend significant resources to correct the lapses or deficiencies
expose it to litigation or regulatory fines, penalties or other sanctions
harm its reputation, or
otherwise diminish investor confidence in JPMorgan Chase.
JPMorgan Chase could be adversely affected by changes in accounting standards or policies.
The preparation of JPMorgan Chase’s financial statements is based on accounting standards established by the Financial Accounting Standards Board and the Securities and Exchange Commission, as well as more detailed accounting policies established by JPMorgan Chase’s management. From time to time these accounting standards or accounting policies may change, and in some cases these changes could have a material effect on JPMorgan Chase’s financial statements and may adversely affect its financial results or investor perceptions of those results.
For example, on January 1, 2020, JPMorgan Chase and other U.S. companies will be required to implement a new accounting standard, commonly referred to as the Current Expected Credit Losses (“CECL”) framework, which will require earlier recognition of expected credit losses on loans and certain other instruments, replacing the incurred loss model that is currently in use. JPMorgan Chase expects that under CECL, it will need to, among other things, increase the allowance for credit losses related to its loans and other lending-related commitments, which may have a negative impact on its capital levels.
This new accounting standard may result in greater volatility of JPMorgan Chase’s earnings and capital levels over economic cycles and could potentially affect JPMorgan Chase’s capital distribution plans, depending upon final guidance from the regulators. In addition, JPMorgan Chase could be adversely impacted by associated changes in the competitive environment in which it operates, including changes in the availability or pricing of loan products, particularly during periods of economic stress, as well as changes related to non-U.S. financial institutions or other competitors that are not subject to this new accounting standard.
 
Strategic
If JPMorgan Chase’s management fails to develop and execute effective business strategies, and to anticipate changes affecting those strategies, JPMorgan Chase’s competitive standing and results could suffer.
JPMorgan Chase’s business strategies significantly affect its competitive standing and results of operations. These strategies relate to:
the products and services that JPMorgan Chase offers
the geographies in which it operates
the types of clients and customers that it serves
the counterparties with which it does business, and
the methods and distribution channels by which it offers products and services.
If management makes choices about these strategies and goals that prove to be incorrect, do not accurately assess the competitive landscape and industry trends, or fail to address changing regulatory and market environments, then the franchise values and growth prospects of JPMorgan Chase’s businesses may suffer and its earnings could decline.
JPMorgan Chase’s growth and prospects also depend on management’s ability to develop and execute effective business plans to address these strategic priorities, both in the near term and over longer time horizons. Management’s effectiveness in this regard will affect JPMorgan Chase’s ability to develop and enhance its resources, control expenses and return capital to shareholders. Each of these objectives could be adversely affected by any failure on the part of management to:
devise effective business plans and strategies
effectively implement business decisions, including minimizing bureaucratic processes
institute controls that appropriately address the risks associated with business activities and any changes in those activities
offer products and services that are appropriately priced, meet the changing expectations of clients and customers and are delivered in ways that enhance client and customer satisfaction
allocate capital in a manner that promotes long-term stability to enable JPMorgan Chase to build and invest in market-leading businesses, even in a highly stressed environment
allocate capital appropriately due to imprecise modeling or subjective judgments made in connection with those allocations
adequately respond to regulatory requirements
appropriately address shareholder concerns

 
 
23

Part I

react quickly to changes in market conditions or market structures, or
develop and enhance the operational, technology, risk, financial and managerial resources necessary to grow and manage JPMorgan Chase’s businesses.
Additionally, JPMorgan Chase’s Board of Directors plays an important role in exercising appropriate oversight of management’s strategic decisions, and a failure by the Board to perform this function could also impair JPMorgan Chase’s results of operations.
Conduct
Conduct failure by JPMorgan Chase employees can harm clients and customers, impact market integrity, damage JPMorgan Chase’s reputation and trigger litigation and regulatory action.
JPMorgan Chase’s employees interact with clients, customers and counterparties, and with each other, every day. All employees are expected to demonstrate values and exhibit the behaviors that are an integral part of JPMorgan Chase’s How We Do Business Principles, including JPMorgan Chase’s commitment to “do first class business in a first class way.” JPMorgan Chase endeavors to embed conduct risk management throughout an employee’s life cycle, including recruiting, onboarding, training and development, and performance management. Conduct risk management is also an integral component of JPMorgan Chase’s promotion and compensation processes.
Notwithstanding these expectations, policies and practices, certain employees have in the past engaged in improper or illegal conduct, and these instances of misconduct have resulted in litigation as well as resolutions of governmental investigations or enforcement actions involving consent orders, deferred prosecution agreements, non-prosecution agreements and other civil or criminal sanctions. There is no assurance that further inappropriate or unlawful actions by employees will not occur or that any such actions will always be detected, deterred or prevented.
JPMorgan Chase’s reputation could be harmed, and collateral consequences could result, from a failure by one or more employees to act consistently with JPMorgan Chase’s expectations, policies and practices, including by acting in ways that harm clients, customers, other market participants or other employees. Some examples of this include:
improperly selling and marketing JPMorgan Chase’s products or services
engaging in insider trading, market manipulation or unauthorized trading
facilitating illegal or aggressive tax-motivated transactions, or transactions designed to circumvent economic sanction programs
failing to fulfill fiduciary obligations or other duties owed to clients or customers
 
violating anti-trust or anti-competition laws by colluding with other market participants to manipulate markets, prices or indices
engaging in discriminatory behavior or harassment
making risk decisions in ways that subordinate JPMorgan Chase’s risk appetite to employee compensation objectives, and
misappropriating property, confidential or proprietary information, or technology assets belonging to JPMorgan Chase, its clients and customers or third parties.
The consequences of any failure by employees to act consistently with JPMorgan Chase’s expectations, policies or practices could include litigation, or regulatory or other governmental investigations or enforcement actions. Any of these proceedings or actions could result in judgments, settlements, fines, penalties or other sanctions, or lead to:
financial losses
increased operational and compliance costs
greater regulatory scrutiny
regulatory actions that require JPMorgan Chase to restructure, curtail or cease certain of its activities
the need for significant oversight by JPMorgan Chase’s management
loss of clients or customers, and
harm to JPMorgan Chase’s reputation.
Reputation
Damage to JPMorgan Chase’s reputation could harm its businesses.
Maintaining trust in JPMorgan Chase is critical to its ability to attract and retain clients, customers, investors and employees. Damage to JPMorgan Chase’s reputation can therefore cause significant harm to JPMorgan Chase’s business and prospects. Harm to JPMorgan Chase’s reputation can arise from numerous sources, including:
employee misconduct, including discriminatory behavior or harassment
security breaches, including cyberattacks
failure to safeguard client or customer information
not appropriately managing social and environmental risk issues associated with its business activities or those of its clients
compliance or operational failures
litigation or regulatory fines, penalties or other sanctions, and
regulatory investigations or enforcement actions, or resolutions of these matters.

24
 
 


JPMorgan Chase’s reputation could also be harmed by the failure or perceived failure of certain third parties to comply with laws or regulations, including companies in which JPMorgan Chase has made principal investments, parties to joint ventures with JPMorgan Chase, and vendors and other third parties with which JPMorgan Chase does business.
JPMorgan Chase’s reputation or prospects may be significantly damaged by adverse publicity or negative information regarding JPMorgan Chase, whether or not true, that may be posted on social media, non-mainstream news services or other parts of the internet, and this risk can be magnified by the speed and pervasiveness with which information is disseminated through those channels.
Social and environmental activists are increasingly targeting financial services firms such as JPMorgan Chase with public criticism for their relationships with clients that are engaged in certain sensitive industries, including businesses whose products are or are perceived to be harmful to the health of consumers, or whose activities negatively affect or are perceived to negatively affect the environment, workers’ rights or communities. Activists have also engaged in public protests at JPMorgan Chase’s headquarters and other properties. Activist criticism of JPMorgan Chase’s relationships with clients in sensitive industries could potentially engender dissatisfaction among clients, customers, investors and employees with how JPMorgan Chase addresses social and environmental concerns in its business activities. Alternatively, yielding to activism targeted at certain sensitive industries could damage JPMorgan Chase’s relationships with clients and customers, and with governmental bodies in jurisdictions in which JPMorgan Chase does business, whose views are not aligned with those of social and environmental activists. In either case, the resulting harm to JPMorgan Chase’s reputation could:
cause certain clients and customers to cease doing business with JPMorgan Chase
impair JPMorgan Chase’s ability to attract new clients and customers, or to expand its relationships with existing clients and customers
diminish JPMorgan Chase’s ability to hire or retain employees, or
prompt JPMorgan Chase to cease doing business with certain clients.
Any of the above factors could negatively affect JPMorgan Chase’s results of operations and its ability to maintain its competitive standing.
Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect JPMorgan Chase’s reputation. For example, concerns that consumers have been treated unfairly by a financial institution, or that a financial institution has acted inappropriately with respect to the methods used to offer products to customers, can damage the reputation of the industry as a whole. If JPMorgan Chase is perceived to have
 
engaged in these types of behaviors, the measures needed to address the associated reputational issues could increase JPMorgan Chase’s operational and compliance costs and negatively affect its earnings.
Failure to effectively manage potential conflicts of interest can result in litigation and enforcement actions, as well as damage JPMorgan Chase’s reputation.
JPMorgan Chase’s ability to manage potential conflicts of interest has become increasingly complex as its business activities encompass more transactions, obligations and interests with and among JPMorgan Chase’s clients and customers. JPMorgan Chase can become subject to litigation and enforcement actions, and its reputation can be damaged, by the failure or perceived failure to:
adequately address or appropriately disclose conflicts of interest
deliver appropriate standards of service and quality
treat clients and customers with the appropriate standard of care
use client and customer data responsibly and in a manner that meets legal requirements and regulatory expectations
provide fiduciary products or services in accordance with the applicable legal and regulatory standards, or
handle or use confidential information of customers or clients appropriately or in compliance with applicable data protection and privacy laws and regulations.
In the future, a failure or perceived failure to appropriately address conflicts of interest or fiduciary obligations could result in customer dissatisfaction, litigation and regulatory fines, penalties or other sanctions, and heightened regulatory scrutiny and enforcement actions, all of which can lead to lost revenue and higher operating costs and cause serious harm to JPMorgan Chase’s reputation.
Country
Adverse economic and political developments in a country or region, or globally, can have a negative impact on JPMorgan Chase’s businesses.
JPMorgan Chase’s businesses and earnings can be affected by the monetary, fiscal and other policies adopted by regulatory authorities and agencies in the countries in which JPMorgan Chase operates. Changes in fiscal policies by central banks or regulatory authorities, and the manner in which those policies are executed, are beyond JPMorgan Chase’s control and may be difficult to predict. Consequently, unanticipated changes in these policies or the ways in which they are implemented could have a negative impact on JPMorgan Chase’s businesses and results of operations.
Some countries or regions in which JPMorgan Chase operates or invests, or in which JPMorgan Chase may do business in the future, have in the past experienced severe

 
 
25

Part I

economic disruptions particular to those countries or regions. Concerns regarding the fiscal condition of one or more countries, or the possibility that a particular country may decide to depart from a trade, monetary or political pact, can result in a deterioration of economic and market conditions within the affected countries or regions, including:
slowing growth rates, rising inflation or recessionary economic conditions
a contraction of available credit
diminished investor and consumer confidence, including loss of confidence in local banking systems
increased market volatility
reduced commercial activity among trading partners, or
the potential for currency redenomination or the dissolution of a political or economic alliance or treaty.
Any or all of these factors could have a negative impact on JPMorgan Chase’s business and results of operations in the affected country or region.
These developments can also lead to a contagion which causes similar conditions to arise in other countries in the same region or beyond. Furthermore, governments in particular countries or regions in which JPMorgan Chase or its clients do business may choose to adopt protectionist economic or trade policies in response to concerns about domestic economic conditions or as countermeasures to policies or actions taken by other countries or regions. Any or all of these developments could lead to diminished cross-border trade and financing activity within that country or region, all of which could negatively affect JPMorgan Chase’s business and earnings in those jurisdictions and increase its operational costs. If JPMorgan Chase takes steps to reduce its market and credit risk exposure within a particular country or region that is experiencing economic or political disruption, it may incur losses that are higher than expected because it will be disposing of assets when market conditions are likely to be highly unfavorable.
An outbreak of hostilities between countries or within a country or region could have a material adverse effect on the global economy and on JPMorgan Chase’s businesses within the affected region or globally.
Aggressive actions by hostile governments or groups, including armed conflict or intensified cyberattacks, could expand in unpredictable ways by drawing in other countries or escalating into full-scale war with potentially catastrophic consequences, particularly if one or more of the combatants possess nuclear weapons. Depending on the scope of the conflict, the hostilities could result in:
worldwide economic disruption
heightened volatility in financial markets
 
severe declines in asset values, accompanied by widespread sell-offs of investments
substantial depreciation of local currencies, potentially leading to defaults by borrowers and counterparties in the affected region
disruption of global trade, and
diminished consumer, business and investor confidence.
Any of the above consequences could have significant negative effects on JPMorgan Chase’s operations and earnings, both in the countries or region directly affected by the hostilities or globally. Further, if the U.S. were to become directly involved in such a conflict, this could lead to a curtailment of any operations that JPMorgan Chase may have in the affected countries or region, as well as in any nation that is aligned against the U.S. in the hostilities. JPMorgan Chase could also experience more numerous and aggressive cyberattacks launched by or under the sponsorship of one or more of the adversaries in such a conflict.
JPMorgan Chase’s business activities with governmental entities can pose an enhanced risk of loss.
Several of JPMorgan Chase’s businesses engage in transactions with, or trade in obligations of, governmental entities, including national, state, provincial, municipal and local authorities, both within and outside the U.S. These activities can expose JPMorgan Chase to enhanced sovereign, credit-related, operational and reputation risks, including the risks that a governmental entity may:
default on or restructure its obligations
claim that actions taken by government officials were beyond the legal authority of those officials, or
repudiate transactions authorized by a previous incumbent government.
Any or all of these actions could adversely affect JPMorgan Chase’s financial condition and results of operations and could hurt its reputation, particularly if JPMorgan Chase pursues claims against a government obligor in a jurisdiction in which it has significant business relationships with clients or customers.
JPMorgan Chase’s business and revenues in emerging markets can be hampered by local economic, political, regulatory and social factors.
Some of the countries in which JPMorgan Chase conducts business have economies or markets that are less developed and more volatile, and may have legal and regulatory regimes that are less established or predictable, than the U.S. and other developed markets in which JPMorgan Chase operates. Some of these countries have in the past experienced severe economic disruptions, including:
extreme currency fluctuations

26
 
 


high inflation
low or negative growth, and
defaults or potential defaults on sovereign debt.
The governments in these countries have sometimes reacted to these developments by imposing restrictive policies that adversely affect the local and regional business environment, including:
price, capital or exchange controls, including imposition of punitive transfer and convertibility restrictions
expropriation or nationalization of assets or confiscation of property, including intellectual property, and
changes in laws and regulations.
The impact of these actions could be accentuated in trading markets that are smaller, less liquid and more volatile than more-developed markets. These types of government actions can negatively affect JPMorgan Chase’s operations in the relevant country, either directly or by suppressing the business activities of local clients or multi-national clients that conduct business in the jurisdiction. For example, some or all of these governmental actions can result in funds belonging to JPMorgan Chase, or that it places with a local custodian on behalf of a client, being effectively trapped in a country. In addition to the ultimate risk of losing the funds entirely, JPMorgan Chase could be exposed for an extended period of time to the credit risk of a local custodian that is now operating in a deteriorating domestic economy.
In addition, emerging markets countries, as well as certain more developed countries, have been susceptible to unfavorable social developments arising from poor economic conditions and related governmental actions, including:
social unrest
general strikes and demonstrations
crime and corruption
security and personal safety issues
outbreaks of hostilities
overthrow of incumbent governments
terrorist attacks, and
other forms of internal discord.
These economic, political, regulatory and social developments have in the past resulted in, and in the future could lead to, conditions that can adversely affect JPMorgan Chase’s operations in those countries and impair the revenues, growth and profitability of those operations. In addition, any of these events or circumstances in one country can affect JPMorgan Chase’s operations and investments in another country or countries, including in the U.S.
 
Competition
The financial services industry is highly competitive, and JPMorgan Chase’s results of operations will suffer if it is not a strong, effective and forward-looking competitor.
JPMorgan Chase operates in a highly competitive environment and expects that competition in the U.S. and global financial services industry will continue to be intense. Competitors include:
other banks and financial institutions
trading, advisory and investment management firms
finance companies and technology companies, and
other nonbank firms that are engaged in providing similar products and services.
JPMorgan Chase cannot provide assurance that the significant competition in the financial services industry will not materially and adversely affect its future results of operations.
New competitors in the financial services industry continue to emerge. For example, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. These advances have also allowed financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic securities trading, payments processing and online automated algorithmic-based investment advice. Furthermore, both financial institutions and their non-banking competitors face the risk that payments processing and other services could be significantly disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have required and could require JPMorgan Chase to spend more to modify or adapt its products to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies. In addition, new technologies may be used by customers, or breached or infiltrated by third parties, in unexpected ways, which can increase JPMorgan Chase’s costs for complying with laws and regulations that apply to the offering of products and services through those technologies and reduce the income that JPMorgan Chase earns from providing products and services through those new technologies.
Ongoing or increased competition may put pressure on the pricing for JPMorgan Chase’s products and services or may cause JPMorgan Chase to lose market share, particularly with respect to traditional banking products such as deposits and bank accounts. This competition may be on the basis of quality and variety of products and services offered, transaction execution, innovation, reputation and price. The failure of any of JPMorgan Chase’s businesses to meet the expectations of clients and customers, whether due to general market conditions, under-performance, a decision not to offer a particular product or service, changes in client and customer expectations or other

 
 
27

Part I

factors, could affect JPMorgan Chase’s ability to attract or retain clients and customers. Any such impact could, in turn, reduce JPMorgan Chase’s revenues. Increased competition also may require JPMorgan Chase to make additional capital investments in its businesses, or to extend more of its capital on behalf of its clients in order to remain competitive.
Non-U.S. competitors of JPMorgan Chase’s wholesale businesses outside the U.S. are typically subject to different, and in some cases, less stringent, legislative and regulatory regimes. The more restrictive laws and regulations applicable to JPMorgan Chase and other U.S. financial services institutions can put JPMorgan Chase and those firms at a competitive disadvantage to non-U.S. competitors. This could reduce the revenue and profitability of JPMorgan Chase’s wholesale businesses, resulting from:
prohibitions on engaging in certain transactions
higher capital and liquidity requirements
making JPMorgan Chase’s pricing of certain transactions more expensive for clients, and
adversely affecting JPMorgan Chase’s cost structure for providing certain products.
People
JPMorgan Chase’s ability to attract and retain qualified employees is critical to its success.
JPMorgan Chase’s employees are its most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. JPMorgan Chase endeavors to attract talented and diverse new employees and retain and motivate its existing employees. If JPMorgan Chase were unable to continue to attract or retain qualified employees, including successors to the Chief Executive Officer or members of the Operating Committee, JPMorgan Chase’s performance, including its competitive position, could be materially and adversely affected.
Unfavorable changes in immigration policies could adversely affect the quality of JPMorgan Chase’s businesses and operations.
JPMorgan Chase relies on the skills, knowledge and expertise of employees located throughout the world. Changes in immigration policies in the U.S. and other countries that unduly restrict or otherwise make it more difficult for employees or their family members to work in, or transfer among, jurisdictions in which JPMorgan Chase has operations or conducts its business could inhibit JPMorgan Chase’s ability to attract and retain qualified employees, and thereby dilute the quality of its workforce, or could prompt JPMorgan Chase to make structural changes to its worldwide operating model that are less efficient or more costly.


 
Legal
JPMorgan Chase faces significant legal risks from private actions and formal and informal regulatory and government investigations.
JPMorgan Chase is named as a defendant or is otherwise involved in many legal proceedings, including class actions and other litigation or disputes with third parties. Actions currently pending against JPMorgan Chase may result in judgments, settlements, fines, penalties or other sanctions adverse to JPMorgan Chase. Any of these matters could materially and adversely affect JPMorgan Chase’s business, financial condition or results of operations, or cause serious reputational harm. As a participant in the financial services industry, it is likely that JPMorgan Chase will continue to experience a high level of litigation and regulatory and government investigations related to its businesses and operations.
Regulators and other government agencies conduct examinations of JPMorgan Chase and its subsidiaries both on a routine basis and in targeted exams, and JPMorgan Chase’s businesses and operations are subject to heightened regulatory oversight. This heightened regulatory scrutiny, or the results of such an investigation or examination, may lead to additional regulatory investigations or enforcement actions. There is no assurance that those actions will not result in resolutions or other enforcement actions against JPMorgan Chase. Furthermore, a single event involving a potential violation of law or regulation may give rise to numerous and overlapping investigations and proceedings, either by multiple federal, state or local agencies and officials in the U.S. or, in some instances, regulators and other governmental officials in non-U.S. jurisdictions.
If another financial institution violates a law or regulation relating to a particular business activity or practice, this will often give rise to an investigation by regulators and other governmental agencies of the same or similar activity or practice by JPMorgan Chase.
These and other initiatives by U.S. and non-U.S. governmental authorities may subject JPMorgan Chase to judgments, settlements, fines, penalties or other sanctions, and may require JPMorgan Chase to restructure its operations and activities or to cease offering certain products or services. All of these potential outcomes could harm JPMorgan Chase’s reputation or lead to higher operational costs, thereby reducing JPMorgan Chase’s profitability, or result in collateral consequences. In addition, the extent of JPMorgan Chase’s exposure to legal and regulatory matters can be unpredictable and could, in some cases, exceed the amount of reserves that JPMorgan Chase has established for those matters.
Item 1B. Unresolved Staff Comments.
None.

28
 
 


Item 2. Properties.
JPMorgan Chase’s headquarters is located in New York City at 383 Madison Avenue, a 47-story office building that it owns. The Firm has commenced a project to demolish its former headquarters at 270 Park Avenue in New York City and to build a new headquarters on the same site.
The Firm owned or leased facilities in the following locations at December 31, 2018.
December 31, 2018
(in millions)
Approximate square footage
 
 
United States(a)
 
New York City, New York
 
383 Madison Avenue, New York, New York
1.1

All other New York City locations
9.7

Total New York City, New York
10.8

 
 
Other U.S. locations
 
Columbus/Westerville, Ohio
3.7

Chicago, Illinois
2.8

Phoenix/Tempe, Arizona
2.5

Wilmington/Newark, Delaware
2.2

Houston, Texas
2.0

Jersey City, New Jersey
1.7

Dallas/Plano, Texas
1.4

All other U.S. locations
34.6

Total United States
61.7

 
 
Europe, the Middle East and Africa (“EMEA”)
 
25 Bank Street, London, U.K.
1.4

All other U.K. locations
3.1

All other EMEA locations
1.4

Total EMEA
5.9

 
 
Asia Pacific, Latin America and Canada
 
India
3.4

All other locations
3.9

Total Asia Pacific, Latin America and Canada
7.3

Total
74.9

(a)
At December 31, 2018, the Firm owned or leased 5,036 retail branches in 27 states and the District of Columbia.
The premises and facilities occupied by JPMorgan Chase are used across all of the Firm’s business segments and for corporate purposes. JPMorgan Chase continues to evaluate its current and projected space requirements and may determine from time to time that certain of its properties (including the premises and facilities noted above) are no longer necessary for its operations. There is no assurance that the Firm will be able to dispose of any such excess properties, premises, or facilities or that it will not incur costs in connection with such dispositions. Such disposition costs may be material to the Firm’s results of operations in a given period. For information on occupancy expense, refer to the Consolidated Results of Operations on pages 48–51.

 
Item 3. Legal Proceedings.
For a description of the Firm’s material legal proceedings, refer to Note 29.
Item 4. Mine Safety Disclosures.
Not applicable.

 
 
29

Part II


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for registrant’s common equity
JPMorgan Chase’s common stock is listed and traded on the New York Stock Exchange. For a comparison of the cumulative total return for JPMorgan Chase common stock with the comparable total return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index over the five-year period ended December 31, 2018, refer to “Five-year stock performance,” on page 41.
 

For information on the common dividend payout ratio, refer to Capital actions in the Capital Risk Management section of Management’s discussion and analysis on pages 91-92. For a discussion of restrictions on dividend payments, refer to Note 20 and Note 25. On January 31, 2019, there were 195,417 holders of record of JPMorgan Chase common stock. For information regarding securities authorized for issuance under the Firm’s employee share-based incentive plans, refer to Part III, Item 12 on page 33.
Repurchases under the common equity repurchase program
For information regarding repurchases under the Firm’s common equity repurchase program, refer to Capital actions in the Capital Risk Management section of Management’s discussion and analysis on pages 91-92.

Shares repurchased, on a settlement-date basis, pursuant to the common equity repurchase program during 2018 were as follows.
Year ended December 31, 2018
 
Total shares of common stock repurchased
 
Average price paid per share of common stock(a)
 
Aggregate repurchases of common equity (in millions)(a)
 
Dollar value
of remaining
authorized
repurchase
(in millions)(a)
 
First quarter
 
41,419,035

 
$
112.78

 
$
4,671

 
$
5,156

 
Second quarter
 
45,299,370

 
109.67

 
4,968

 
188

(b) 
Third quarter
 
39,282,276

 
112.41

 
4,416

 
16,309

 
October
 
22,697,641

 
108.97

 
2,474

 
13,836

 
November
 
15,389,818

 
109.25

 
1,681

 
12,155

 
December
 
17,416,343

 
101.81

 
1,773

 
10,381

 
Fourth quarter
 
55,503,802

 
106.80

 
5,928

 
10,381

 
Year-to-date
 
181,504,483

 
$
110.09

 
$
19,983

 
$
10,381

(c) 
(a)
Excludes commissions cost.
(b)
The $188 million unused portion under the prior Board authorization was canceled when the $20.7 billion repurchase program was authorized by the Board of Directors on June 28, 2018.
(c)
Represents the amount remaining under the $20.7 billion repurchase program.

Item 6. Selected Financial Data.
For five-year selected financial data, refer to “Five-year summary of consolidated financial highlights (unaudited)” on page 40.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s discussion and analysis of financial condition and results of operations, entitled “Management’s discussion and analysis,” appears on pages 42–147. Such information should be read in conjunction with the Consolidated Financial Statements and Notes thereto, which appear on pages 150-286.

 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
For a discussion of quantitative and qualitative disclosures about market risk, refer to the Market Risk Management section of Management’s discussion and analysis on pages 124–131.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements, together with the Notes thereto and the report thereon dated February 26, 2019, of PricewaterhouseCoopers LLP, the Firm’s independent registered public accounting firm, appear on pages 149-286.
Supplementary financial data for each quarter within the two years ended December 31, 2018, are included on page 287 in the table entitled “Selected quarterly financial data (unaudited).” Also included is a “Glossary of Terms and Acronyms’’ on pages 293–299.

30
 
 


Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

Item 9A. Controls and Procedures.
The internal control framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), “Internal Control — Integrated Framework” (“COSO 2013”), provides guidance for designing, implementing and conducting internal control and assessing its effectiveness. The Firm used the COSO 2013 framework to assess the effectiveness of the Firm’s internal control over financial reporting as of December 31, 2018. Refer to “Management’s report on internal control over financial reporting” on page 148.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Firm’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective. Refer to Exhibits 31.1 and 31.2 for the Certifications furnished by the Chairman and Chief Executive Officer and Chief Financial Officer, respectively.
The Firm is committed to maintaining high standards of internal control over financial reporting. Nevertheless, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, in a firm as large and complex as JPMorgan Chase, lapses or deficiencies in internal controls may occur from time to time, and there can be no assurance that any such deficiencies will not result in significant deficiencies or material weaknesses in internal control in the future and collateral consequences therefrom. For further information, refer to “Management’s report on internal control over financial reporting” on page 148. There was no change in the Firm’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the three months ended December 31, 2018, that has materially affected, or is reasonably likely to materially affect, the Firm’s internal control over financial reporting.

 
Item 9B. Other Information.
None.

 
 
31

Part III



Item 10. Directors, Executive Officers and Corporate Governance.
Executive officers of the registrant
 
Age
 
Name
(at December 31, 2018)
Positions and offices
James Dimon
62
Chairman of the Board and Chief Executive Officer; he had been President from July 2004 until January 2018.
Ashley Bacon
49
Chief Risk Officer since June 2013.
Lori A. Beer
51
Chief Information Officer since September 2017, prior to which she had been Chief Information Officer of the Corporate & Investment Bank since June 2016. She was Global Head of Banking Technology from January 2014 until May 2016. Prior to joining JPMorgan Chase in 2014, she was Executive Vice President of Specialty Businesses and Information Technology for Anthem, Inc.
Mary Callahan Erdoes
51
Chief Executive Officer of Asset & Wealth Management since September 2009.
Stacey Friedman
50
General Counsel since January 2016, prior to which she was Deputy General Counsel since July 2015 and General Counsel for the Corporate & Investment Bank since August 2012.
Marianne Lake
49
Chief Financial Officer since January 2013.
Robin Leopold
54
Head of Human Resources since January 2018, prior to which she had been Head of Human Resources for the Corporate & Investment Bank since August 2012.
Douglas B. Petno
53
Chief Executive Officer of Commercial Banking since January 2012.
Daniel E. Pinto
56
Co-President and Co-Chief Operating Officer since January 2018, Chief Executive Officer of the Corporate & Investment Bank since March 2014, and Chief Executive Officer of Europe, the Middle East and Africa since June 2011. He had been Co-Chief Executive Officer of the Corporate & Investment Bank from July 2012 until March 2014.
Peter Scher
  
57
Head of Corporate Responsibility since 2011 and Chairman of the Mid-Atlantic Region since 2015.

Gordon A. Smith
60
Co-President and Co-Chief Operating Officer since January 2018, and Chief Executive Officer of Consumer & Community Banking since December 2012.
Unless otherwise noted, during the five fiscal years ended December 31, 2018, all of JPMorgan Chase’s above-named executive officers have continuously held senior-level positions with JPMorgan Chase. There are no family relationships among the foregoing executive officers. Information to be provided in Items 10, 11, 12, 13 and 14 of the Form 10-K and not otherwise included herein is incorporated by reference to the Firm’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders to be held on May 21, 2019, which will be filed with the SEC within 120 days of the end of the Firm’s fiscal year ended December 31, 2018.



32
 
 



Item 11. Executive Compensation.
Refer to Item 10.
 


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
For security ownership of certain beneficial owners and management, refer to Item 10.
The following table sets forth the total number of shares available for issuance under JPMorgan Chase’s employee share-based incentive plans (including shares available for issuance to non-employee directors). The Firm is not authorized to grant share-based incentive awards to non-employees, other than to non-employee directors.
December 31, 2018
Number of shares to be issued upon exercise of outstanding options/stock appreciation rights
 
Weighted-average
exercise price of
outstanding
options/stock appreciation rights
 
Number of shares remaining available for future issuance under stock incentive plans
Plan category
 
 
 
 
 
 
 
 
Employee share-based incentive plans approved by shareholders
12,462,572

(a) 
 
$
41.46

 
 
85,860,463

(b) 
Total
12,462,572

 
 
$
41.46

 
 
85,860,463

 
(a)
Does not include restricted stock units or performance stock units granted under the shareholder-approved Long-Term Incentive Plan (“LTIP”), as amended and restated effective May 15, 2018. For further discussion, refer to Note 9.
(b)
Represents shares available for future issuance under the shareholder-approved LTIP.
All shares available for future issuance will be issued under the shareholder-approved LTIP. For further discussion, refer to Note 9.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Refer to Item 10.
Item 14. Principal Accounting Fees and Services.
Refer to Item 10.

 
 
33

Part IV



Item 15. Exhibits, Financial Statement Schedules.
1
 
Financial statements
 
 
The Consolidated Financial Statements, the Notes thereto and the report of the Independent Registered Public Accounting Firm thereon listed in Item 8 are set forth commencing on page 149.
 
 
 
2
 
Financial statement schedules
 
 
 
3
 
Exhibits
 
 
 
3.1
 
 
 
 
3.2
 
 
 
 
3.3
 
 
 
 
 
 
 
3.4
 
 
 
 
3.5
 
 
 
 
3.6
 
 
 
 
3.7
 
 
 
 
 
3.8
 
 
 
 
3.9
 
 
 
 
3.10
 
 
 
 
3.11
 
 
 
 
3.12
 
3.13
 
 
 
 
3.14
 
 
 
 
3.15
 
 
 
 
3.16
 
 
 
 
3.17
 
 
 
 

34
 
 


3.18
 

3.19
 

3.20
 
4.1(a)
 
 
 
 
4.1(b)
 
 
 
 
4.2(a)
 
 
 
 
4.2(b)
 
 
 
 
4.3(a)
 
 
 
 
 
4.3(b)
 
 
 
 
4.4
 
 
 
 
4.5
 
 
 
 
Other instruments defining the rights of holders of long-term debt securities of JPMorgan Chase & Co. and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. JPMorgan Chase & Co. agrees to furnish copies of these instruments to the SEC upon request.
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
10.3
 
 
 
 
10.4
 

 
 
 
10.5
 
 
 
 

 
 
35

Part IV


10.6
 
 
 
 
10.7
 
 
 
 
10.8
 
 
 
 
10.9
 
 
 
 
10.10
 
 
 
 
10.11
 
 
 
 
10.12
 
 
 
 
10.13
 
 
 
 
 
10.14
 
 
 
 
10.15
 
 
 
 
10.16
 
 
 
 
10.17
 
 
 
 
10.18
 

 
 
 
10.19
 
 
 
 
10.20
 
 
 
 
10.21
 

 
 
 
10.22
 
 
 
 
21
 
 
 
 

36
 
 


22
 
Annual Report on Form 11-K of The JPMorgan Chase 401(k) Savings Plan for the year ended December 31, 2018 (to be filed pursuant to Rule 15d-21 under the Securities Exchange Act of 1934).
 
 
 
23
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32
 
 
 
 
101.INS
 
The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.(d)
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
Document.(b)
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.(b)
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.(b)
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.(b)
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.(b)
(a)
This exhibit is a management contract or compensatory plan or arrangement.
(b)
Filed herewith.
(c)
Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
(d)
Pursuant to Rule 405 of Regulation S-T, includes the following financial information included in the Firm’s Form 10-K for the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language) interactive data files: (i) the Consolidated statements of income for the years ended December 31, 2018, 2017 and 2016, (ii) the Consolidated statements of comprehensive income for the years ended December 31, 2018, 2017 and 2016, (iii) the Consolidated balance sheets as of December 31, 2018 and 2017, (iv) the Consolidated statements of changes in stockholders’ equity for the years ended December 31, 2018, 2017 and 2016, (v) the Consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016, and (vi) the Notes to Consolidated Financial Statements.









 
 
37





























page 38 not used


38
 
 

Table of contents



Financial:
 
 
 
 
 
 
 
 
 
 
 
40
 
 
Audited financial statements:
 
 
 
 
 
 
 
41
 
 
148
 
 
 
 
 
 
 
 
Management’s discussion and analysis:
 
149
 
 
 
 
 
 
 
 
42
 
 
150
 
 
 
 
 
 
 
 
43
 
 
155
 
 
 
 
 
 
 
 
48
 
 
 
 
 
 
 
 
 
 
52
 
 
 
 
 
 
 
 
 
 
 
 
55
 
 
 
 
 
 
 
 
 
 
 
 
57
 
 
Supplementary information:
 
 
 
 
 
 
 
60
 
 
287
 
 
 
 
 
 
 
 
79
 
 
288
 
 
 
 
 
 
 
 
 
 
 
 
 
 
84
 
 
293
 
 
 
 
 
 
 
 
102
 
 
 
 
 
 
 
 
 
 
 
 
124
 
 
 
 
 
 
 
 
 
 
 
 
132
 
 
 
 
 
 
 
 
 
 
 
 
134
 
 
 
 
 
 
 
 
 
 
 
 
141
 
 
 
 
 
 
 
 
 
 
 
 
144
 
 
 
 
 
 
 
 
 
 
 
 
147
 
 
 
 
 
 
 
 
 
 
 
 


JPMorgan Chase & Co./2018 Form 10-K
 
39

Financial

FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)

As of or for the year ended December 31,
(in millions, except per share, ratio, headcount data and where otherwise noted)
 
 
 
 
 
 
 
 
2018
2017
 
2016
2015
2014
Selected income statement data
 
 
 
 
 
 
 
Total net revenue
 
$
109,029

$
100,705

 
$
96,569

$
94,440

$
95,994

Total noninterest expense
 
63,394

59,515

 
56,672

59,911

62,156

Pre-provision profit
 
45,635

41,190

 
39,897

34,529

33,838

Provision for credit losses
 
4,871

5,290

 
5,361

3,827

3,139

Income before income tax expense
 
40,764

35,900

 
34,536

30,702

30,699

Income tax expense
 
8,290

11,459

 
9,803

6,260

8,954

Net income
 
$
32,474

$
24,441

(f) 
$
24,733

$
24,442

$
21,745

Earnings per share data
 
 
 
 
 
 
 
Net income: Basic
 
$
9.04

$
6.35

 
$
6.24

$
6.05

$
5.33

              Diluted
 
9.00

6.31

 
6.19

6.00

5.29

Average shares: Basic
 
3,396.4

3,551.6

 
3,658.8

3,741.2

3,808.3

              Diluted
 
3,414.0

3,576.8

 
3,690.0

3,773.6

3,842.3

Market and per common share data
 
 
 
 
 
 
 
Market capitalization
 
$
319,780

$
366,301

 
$
307,295

$
241,899

$
232,472

Common shares at period-end
 
3,275.8

3,425.3

 
3,561.2

3,663.5

3,714.8

Book value per share
 
70.35

67.04

 
64.06

60.46

56.98

Tangible book value per share (“TBVPS”)(a)
 
56.33

53.56

 
51.44

48.13

44.60

Cash dividends declared per share
 
2.72

2.12

 
1.88

1.72

1.58

Selected ratios and metrics
 
 
 
 
 
 
 
Return on common equity (“ROE”)
 
13
%
10
%
 
10
%
11
%
10
%
Return on tangible common equity (“ROTCE”)(a)
 
17

12

 
13

13

13

Return on assets (“ROA”)
 
1.24

0.96

 
1.00

0.99

0.89

Overhead ratio
 
58

59

 
59

63

65

Loans-to-deposits ratio
 
67

64

 
65

65

56

Liquidity coverage ratio (“LCR”) (average)(b)
 
113

119

 
N/A

N/A

N/A

Common equity tier 1 (“CET1”) capital ratio(c)
 
12.0

12.2

 
12.3

11.8

10.2

Tier 1 capital ratio(c)
 
13.7

13.9

 
14.0

13.5

11.6

Total capital ratio(c)
 
15.5

15.9

 
15.5

15.1

13.1

Tier 1 leverage ratio(c)
 
8.1

8.3

 
8.4

8.5

7.6

Supplementary leverage ratio (“SLR”)(d)
 
6.4
%
6.5
%
 
6.5
%
6.5
%
N/A

Selected balance sheet data (period-end)
 
 
 
 
 
 
 
Trading assets
 
$
413,714

$
381,844

 
$
372,130

$
343,839

$
398,988

Investment securities
 
261,828

249,958

 
289,059

290,827

348,004

Loans
 
984,554

930,697

 
894,765

837,299

757,336

Core Loans
 
931,856

863,683

 
806,152

732,093

628,785

Average core loans
 
885,221

829,558

 
769,385

670,757

596,823

Total assets
 
2,622,532

2,533,600

 
2,490,972

2,351,698

2,572,274

Deposits
 
1,470,666

1,443,982

 
1,375,179

1,279,715

1,363,427

Long-term debt
 
282,031

284,080

 
295,245

288,651

276,379

Common stockholders’ equity
 
230,447

229,625

 
228,122

221,505

211,664

Total stockholders’ equity
 
256,515

255,693

 
254,190

247,573

231,727

Headcount
 
256,105

252,539

 
243,355

234,598

241,359

Credit quality metrics
 
 
 
 
 
 
 
Allowance for credit losses
 
$
14,500

$
14,672

 
$
14,854

$
14,341

$
14,807

Allowance for loan losses to total retained loans
 
1.39
%
1.47
%
 
1.55
%
1.63
%
1.90
%
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(e)
 
1.23

1.27

 
1.34

1.37

1.55

Nonperforming assets
 
$
5,190

$
6,426

 
$
7,535

$
7,034

$
7,967

Net charge-offs
 
4,856

5,387

 
4,692

4,086

4,759

Net charge-off rate
 
0.52
%
0.60
%
(g) 
0.54
%
0.52
%
0.65
%
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a)
TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59.
(b)
For the years ended December 31, 2018 and 2017, the percentage represents the Firm’s reported average LCR for the three months ended December 31, 2018 and 2017, per the U.S. LCR public disclosure requirements which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 95–100 for additional information on the Firm’s LCR.
(c)
Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of December 31, 2018, the Firm’s capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital Risk Management on pages 85-94 for additional information on Basel III.
(d)
Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm’s total leverage exposure. Ratios prior to 2018 were calculated under the Basel III Transitional rules, per the SLR public disclosure requirements which became effective January 1, 2015.
(e)
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, refer to Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on pages 120–122.
(f)
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results for the year ended December 31, 2017 included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, refer to Note 24.
(g)
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%.

40
 
JPMorgan Chase & Co./2018 Form 10-K



FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”) common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index. The S&P 500 Index is a commonly referenced equity benchmark in the United States of America (“U.S.”), consisting of leading companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financial Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2013, in JPMorgan Chase common stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,
(in dollars)
2013

 
2014

 
2015

 
2016

 
2017

 
2018

JPMorgan Chase
$
100.00