With hundreds of partnerships, Chase has a market leadership position in building loyalty programs with many of the world's most respected brands. Chase Paymentech Solutions, LLC, a joint venture between JPMorgan Chase and First Data Corporation, is a processor of MasterCard and Visa payments and handled more than 16 billion transactions in the nine months ended September 30, 2008. On May 27, 2008, the Firm announced the termination of Chase Paymentech Solutions. For further information, see Other Business Events on page 7 of this Form 10-Q.
Commercial Banking
Commercial Banking ("CB") serves more than 30,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from approximately $10 million to approximately $2 billion. Commercial Banking delivers extensive industry knowledge, local expertise and a dedicated service model. In partnership with the Firm's other businesses, it provides comprehensive solutions including lending, treasury services, investment banking and asset management to meet its clients' domestic and international financial needs. Treasury & Securities Services
Treasury & Securities Services ("TSS") is a global leader in transaction, investment and information services. TSS is one of the world's largest cash management providers and a leading global custodian. Treasury Services ("TS") provides cash management, trade, wholesale card and liquidity products and services to small and mid-sized companies, multinational corporations, financial institutions and government entities. TS partners with the Commercial Banking, Retail Financial Services and Asset Management businesses to serve clients firmwide. As a result, certain TS revenue is included in other segments' results. Worldwide Securities Services ("WSS") holds, values, clears and services securities, cash and alternative investments for investors and broker-dealers, and manages depositary receipt programs globally. Asset Management
With assets under supervision of $1.6 trillion as of September 30, 2008, Asset Management ("AM") is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity, including both money market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM's client assets are in actively managed portfolios.
OTHER BUSINESS EVENTS
Acquisition of the banking operations of Washington Mutual Bank On September 25, 2008, JPMorgan Chase acquired the banking operations of Washington Mutual from the Federal Deposit Insurance Corporation ("FDIC") for $1.9 billion through a purchase of substantially all of the assets and assumption of specified liabilities of Washington Mutual. Washington Mutual's banking operations consisted of a retail bank network of 2,244 branches, a nationwide credit card lending business, a multi-family and commercial real estate lending business, and nationwide mortgage banking activities. The transaction expands the Firm's consumer branch network into California, Florida, Washington, Georgia, Idaho, Nevada and Oregon. The transaction created the nation's second-largest branch network. The transaction also extends the reach of the Firm's business banking, commercial banking, credit card, consumer lending and wealth management businesses. The transaction was accounted for under the purchase method of accounting in accordance with SFAS 141. The results of operations of Washington Mutual's banking operations for the period September 26, 2008, through September 30, 2008, did not have a material effect on the results of the quarter ended September 30, 2008, except with respect to the charge to conform Washington Mutual's loan loss reserves and the extraordinary gain related to the transaction, both of which are reflected for JPMorgan Chase in the Corporate/Private Equity segment. Beginning October 1, 2008, the results of operations of Washington Mutual's banking operations will be included in the Firm's business segments. For further discussion of the transaction, see Note 2 on pages 93-98 of this Form 10-Q. Merger with The Bear Stearns Companies Inc. Effective May 30, 2008, BSC Merger Corporation, a wholly-owned subsidiary of JPMorgan Chase, merged with The Bear Stearns Companies Inc. ("Bear Stearns") pursuant to the Agreement and Plan of Merger, dated as of March 16, 2008, as amended March 24, 2008, with Bear Stearns becoming a wholly-owned subsidiary of JPMorgan Chase (the "Merger"). The Merger provides the Firm with a leading global prime brokerage platform; strengthens the Firm's equities and asset management businesses; enhances capabilities in mortgage origination, securitization and servicing; and expands the platform of the Firm's energy business. The Merger was accounted for under the purchase method of accounting, which requires that the assets and liabilities of Bear Stearns be fair valued. The total purchase price to complete the Merger was $1.5 billion.

The Merger was accomplished through a series of transactions that were reflected as step acquisitions in accordance with SFAS 141. On April 8, 2008, pursuant to the share exchange agreement, JPMorgan Chase acquired 95 million newly issued shares of Bear Stearns common stock (or 39.5% of Bear Stearns common stock after giving effect to the issuance) for 21 million shares of JPMorgan Chase common stock. Further, between March 24, 2008, and May 12, 2008, JPMorgan Chase acquired approximately 24 million shares of Bear Stearns common stock in the open market at an average purchase price of $12.37 per share. The share exchange and cash purchase transactions resulted in JPMorgan Chase owning approximately 49.4% of Bear Stearns common stock immediately prior to consummation of the Merger. Finally, on May 30, 2008, JPMorgan Chase completed the Merger, and as a result of the Merger, each outstanding share of Bear Stearns common stock (other than shares then held by JPMorgan Chase) was converted into the right to receive 0.21753 shares of common stock of JPMorgan Chase. On May 30, 2008, the shares of common stock that JPMorgan Chase and Bear Stearns acquired from each other in the share exchange transaction were cancelled. From April 8, 2008, through May 30, 2008, JPMorgan Chase accounted for its investment in Bear Stearns under the equity method of accounting in accordance with APB 18. During this period, JPMorgan Chase recorded reductions to its investment in Bear Stearns representing its share of Bear Stearns net losses, which were recorded in other income and accumulated other comprehensive income. Commencing May 31, 2008, Bear Stearns was reflected in JPMorgan Chase's consolidated results of operations. In conjunction with the Merger, in June 2008, the Federal Reserve Bank of New York (the "FRBNY") took control, through a limited liability company ("LLC") formed for this purpose, of a portfolio of $30 billion in assets acquired from Bear Stearns, based upon the value of the portfolio as of March 14, 2008. The assets of the LLC were funded by a $28.85 billion term loan from the FRBNY, and a $1.15 billion subordinated loan from JPMorgan Chase. The JPMorgan Chase loan is subordinated to the FRBNY loan and will bear the first $1.15 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase loan and the expense of the LLC, will be for the account of the FRBNY.
For further discussion of the Merger, see Note 2 on pages 93-98 of this Form 10-Q.
Termination of Chase Paymentech Solutions joint venture The dissolution of Chase Paymentech Solutions, a global payments and merchant acquiring joint venture between JPMorgan Chase and First Data Corporation, was completed on November 1, 2008 and JPMorgan Chase retained approximately 51% of the business under the Chase Paymentech name.
The dissolution of Chase Paymentech Solutions is being accounted for as a step acquisition in accordance with SFAS 141, and the Firm anticipates recognizing an after-tax gain of approximately $600 million in the fourth quarter of 2008 as a result of the dissolution. The gain will represent the amount by which the fair value of the net assets acquired (predominantly intangible assets and goodwill) exceeded JPMorgan Chase's book basis in the net assets transferred to First Data Corporation.
Purchase of additional interest in Highbridge Capital Management In January 2008, JPMorgan Chase purchased an additional equity interest in Highbridge Capital Management, LLC ("Highbridge"). As a result, the Firm currently owns 77.5% of Highbridge. The Firm acquired a majority interest in Highbridge in 2004.
RECENT MARKET DEVELOPMENTS
The liquidity crisis has evolved into a global credit and liquidity issue involving a number of financial institutions, including the failures of some, in the U.S. and Europe. In response to these circumstances, the United States government, particularly the U.S. Department of the Treasury (the "U.S. Treasury"), the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the FDIC, working in cooperation with foreign governments and other central banks, including the Bank of England, the European Central Bank and the Swiss National Bank, have taken a variety of extraordinary measures designed to restore confidence in the financial markets and to strengthen financial institutions, including capital injections, guarantees of bank liabilities and the acquisition of illiquid assets from banks.
In particular, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the "EESA") was signed into law. Pursuant to the EESA, the U.S. Treasury has the authority to take a range of actions for the purpose of stabilizing and providing liquidity to the U.S. financial markets and has proposed several programs, including the purchase by the U.S. Treasury of certain troubled assets from financial institutions (the "Troubled Asset Relief Program") and the direct purchase by the U.S. Treasury of equity of financial institutions (the "Capital Purchase Program").
Other programs and actions taken by U.S. regulatory agencies include (i) the U.S. Treasury's Temporary Guarantee Program for Money Market Funds, (ii) the FRBNY's Money Market Investor Funding Facility (the "MMIF Facility"), which is designed to provide liquidity to U.S. money market investors, (iii) the Federal Reserve's Commercial Paper

Funding Facility, which is designed to provide liquidity to term funding markets by providing a liquidity backstop to U.S. issuers of commercial paper, (iv) the Federal Reserve's Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (the "AML Facility"), which is designed to provide liquidity to money market mutual funds under certain conditions by providing funding to U.S. depository institutions and bank holding companies secured by high-quality asset-backed commercial paper they purchased from those money market mutual funds, (v) the FDIC's Temporary Liquidity Guarantee Program, which enables the FDIC to temporarily provide a 100% guarantee of the senior debt of all FDIC-insured institutions and their holding companies, as well as deposits in noninterest-bearing transaction deposit accounts, (vi) the Federal Reserve's Primary Dealer Credit Facility, which is designed to foster the financial markets generally, was modified to expand the eligible collateral to include any collateral eligible for tri-party repurchase agreements, (vii) the Federal Reserve's Term Securities Lending Facility, which is designed to promote liquidity in the financial markets for treasuries and other collateral, was expanded to (a) include all investment-grade debt securities as eligible collateral for schedule 2 auctions and (b) increase the frequency of schedule 2 auctions, (viii) the Federal Reserve's adoption of an interim rule that provides an exemption, until January 30, 2009, to the Federal Reserve Act to allow insured depository institutions to provide liquidity to their affiliates for assets typically funded in the tri-party repurchase agreement market, and
(ix) the Federal Reserve's Term Auction Facility, which is designed to allow financial institutions to borrow funds at a rate that is below the discount rate.
Capital Purchase Program
Under the Capital Purchase Program, the U.S. Treasury will make $250 billion of capital available to U.S. financial institutions in the form of preferred stock and a warrant to acquire common stock. Pursuant to the Capital Purchase Program, on October 28, 2008, the Firm issued to the U.S. Treasury, in exchange for aggregate consideration of $25.0 billion, (i) 2.5 million shares of the Firm's Fixed Rate Cumulative Perpetual Preferred Stock, Series K, par value $1 and liquidation preference $10,000 per share (and $25.0 billion liquidation preference in the aggregate) (the "Series K Preferred Stock"), and (ii) a warrant (the "Warrant") to purchase up to 88,401,697 shares of the Firm's common stock, at an exercise price of $42.42 per share. The number of shares of common stock to be issued pursuant to the Warrant and the exercise price of the Warrant is subject to adjustment from time to time following, among other things, stock splits, subdivisions or combinations, certain issuances of common stock or convertible securities and certain repurchases of common stock. The Series K Preferred Stock is nonvoting, qualifies as Tier 1 capital and ranks on parity with the Firm's other series of preferred stock. For a discussion of the Firm's preferred stock, see page 56 of this Form 10-Q and Note 22 on pages 141-142 of this Form 10-Q.
The letter agreement between the U.S. Treasury and the Firm, dated October 26, 2008, including the securities purchase agreement (the "Purchase Agreement") concerning the issuance and sale of the Series K Preferred Stock to the U.S. Treasury grants the holders of the Series K Preferred Stock, the Warrant and JPMorgan Chase common stock to be issued under the Warrant certain registration rights and imposes restrictions on dividend and stock repurchases. For a discussion of the dividend and stock repurchase restrictions, see Capital Purchase Program on page 55 and Note 22 on pages 141-142 of this Form 10-Q. In addition, the Purchase Agreement subjects the Firm to the executive compensation limitations as set forth in Section 111(b) of the EESA. MMIF Facility
The MMIF, authorized by the FRBNY, will support a private-sector initiative designed to provide liquidity to U.S. money market investors. Under the MMIF Facility, the FRBNY will provide senior secured funding to a series of special purpose vehicles to finance the purchase of eligible assets such as commercial paper, bank note and certificates of deposit from eligible investors. The Firm has been selected by the FRBNY to advise the U.S. Treasury regarding the MMIF Facility.
AML Facility
On September 19, 2008, the Federal Reserve established a special lending facility, the AML Facility, to provide liquidity to eligible U.S. money market mutual funds ("MMMFs"). Under the AML Facility, participating banking organizations purchase eligible high-quality asset-backed commercial paper ("ABCP") investments from MMMFs, which are then pledged to secure nonrecourse advances from the Federal Reserve Bank of Boston ("FRBB"); participating banking organizations do not bear any credit or market risk related to the ABCP investments they hold under this facility and, therefore, the ABCP investments held are not assessed any regulatory risk-based capital. The AML Facility will be in effect until January 30, 2009. The Firm is currently participating in the AML Facility.

EXECUTIVE OVERVIEW
This overview of management's discussion and analysis highlights selected
information and may not contain all of the information that is important to
readers of this Form 10-Q. For a complete description of events, trends and
uncertainties, as well as the capital, liquidity, credit and market risks, and
the critical accounting estimates affecting the Firm and its various lines of
business, this Form 10-Q should be read in its entirety.
Financial performance of JPMorgan Chase

                                                                   Three months ended September 30,                          Nine months ended September 30,
(in millions, except per share and ratio data)                      2008               2007       Change                      2008              2007       Change

Selected income statement data
Total net revenue                                            $    14,737        $    16,112         (9 )%              $    50,026       $    53,988         (7 )%
Provision for credit losses                                        3,811              1,785        114                      11,690             4,322        170
Provision for credit losses - accounting conformity(a)             1,976                  -         NM                       1,976                 -         NM
Total noninterest expense                                         11,137              9,327         19                      32,245            30,983          4
Income (loss) before extraordinary gain                              (54 )            3,373         NM                       4,322            12,394        (65 )
Extraordinary gain(b)                                                581                  -         NM                         581                 -         NM
Net income                                                           527              3,373        (84 )                     4,903            12,394        (60 )
Diluted earnings per share
Income (loss) before extraordinary gain                      $     (0.06 )      $      0.97        NM%                 $      1.15       $      3.52        (67 )%
Net income                                                          0.11               0.97        (89 )                      1.32              3.52        (63 )
Return on common equity
Income (loss) before extraordinary gain                               (1 )%              11 %                                    4 %              14 %
Net income                                                             1                 11                                      5                14

(a) The third quarter of 2008 included an accounting conformity loan loss reserve provision related to the acquisition of Washington Mutual's banking operations.
(b) JPMorgan Chase acquired Washington Mutual's banking operations from the FDIC for $1.9 billion. The fair value of Washington Mutual net assets acquired exceeded the purchase price which resulted in negative goodwill. In accordance with SFAS 141, nonfinancial assets that are not held-for-sale were written down against that negative goodwill. The negative goodwill that remained after writing down nonfinancial assets was recognized as an extraordinary gain.

Business overview
JPMorgan Chase reported 2008 third-quarter net income of $527 million, or $0.11 per share, compared with net income of $3.4 billion, or $0.97 per share, for the third quarter of 2007. Return on common equity for the quarter was 1%, compared with 11% in the prior year. On September 25, 2008, JPMorgan Chase acquired Washington Mutual's banking operations, significantly strengthening its consumer franchise, with the addition of more than 2,200 branches. Results in the third quarter included an after-tax charge of $1.2 billion to conform loan loss reserves and an extraordinary gain of $581 million related to this transaction. Excluding the conforming adjustment for the Washington Mutual transaction, the decline in net income from the third quarter of 2007 was driven by a significant increase in the provision for credit losses, higher noninterest expense and lower net revenue. Lower net revenue reflected markdowns related to mortgage-related positions and leveraged lending exposures in the Investment Bank, partially offset by increased net interest income. The provision for credit losses rose predominantly due to increases in the allowance for loan losses related to home equity, subprime and prime mortgage and credit card loans, as well as higher net charge-offs. The increase in noninterest expense was driven by higher compensation expense and additional operating costs relating to the Bear Stearns merger.
Net income for the first nine months of 2008 was $4.9 billion, or $1.32 per share, compared with net income of $12.4 billion, or $3.52 per share, for the first nine months of 2007. Return on common equity for the period was 5%, compared with 14% in the prior year. The lower results in the first nine months of 2008 were due to the same drivers highlighted for the third quarter - a significantly higher provision for credit losses, markdowns related to mortgage-related positions and leveraged lending exposures, and higher total noninterest expense, partially offset by increased net interest income. The financial crisis that has plagued the U.S. markets and economy for over a year intensified in the third quarter of 2008, as did the global economic slowdown, resulting in sharp declines across most equity markets that are expected to continue into the fourth quarter of 2008. Credit volatility and the stress in financial markets resulted in the occurrence of significant events during the quarter: the U.S. federal government placed the Federal Home Loan Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie Mae") under its direct control; Lehman Brothers Holdings Inc. declared bankruptcy; the Bank of America Corporation agreed to acquire Merrill Lynch & Co., Inc.; the government provided a loan to American International Group, Inc. ("AIG") in exchange for an equity interest in AIG to prevent the insurer's failure; and Morgan Stanley and The Goldman Sachs Group, Inc. received approval from the Federal Reserve to become federal bank holding companies. The crisis of confidence was most

visible in the liquidity pressures affecting the short-term funding markets, as . . .