-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ui7Y84Nr6c/K3sqrq/wDCQuBqMJlCHOzTtLHZG/JAPS6HA1uPdRer66Hcsj5Idcs zHcjPnUcOFQNcAKvhL6jkg== 0000950123-97-008542.txt : 19971015 0000950123-97-008542.hdr.sgml : 19971015 ACCESSION NUMBER: 0000950123-97-008542 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971013 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971014 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN J P & CO INC CENTRAL INDEX KEY: 0000068100 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 132625764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-05885 FILM NUMBER: 97695262 BUSINESS ADDRESS: STREET 1: 60 WALL ST CITY: NEW YORK STATE: NY ZIP: 10260 BUSINESS PHONE: 2124832323 MAIL ADDRESS: STREET 1: P O BOX 271 STREET 2: C/O WILLIAM D HALL CITY: WILMINGTON STATE: DE ZIP: 19899 8-K 1 J.P. MORGAN & CO. INCORPORATED 1 ============================================================================= SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------- Date of Report (Date of earliest event reported) October 13, 1997 J.P. MORGAN & CO. INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 1-5885 13-2625764 (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification No.) 60 WALL STREET, NEW YORK, NEW YORK 10260-0060 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 483-2323 ----------------------------------------------------------------------------- (Former name or former address, if changed since last report) ============================================================================= 2 ITEM 5. OTHER EVENTS On October 13, 1997, the Registrant issued a press release announcing its earnings for the three-month and nine-month periods ended September 30, 1997. A copy of such press release is filed herein as Exhibit 99. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements NONE. The financial statements included in this report are not required to be filed as part of this report. (b) Pro Forma Financial Information NONE. (c) Exhibits 12. Statement re computation of ratios. 99. Copy of press release of J.P. Morgan & Co. Incorporated dated October 13, 1997. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. J.P. MORGAN & CO. INCORPORATED ------------------------------ (REGISTRANT) /s/ Grace B. Vogel ---------------------------- NAME: Grace B. Vogel TITLE: Chief Accounting Officer DATE: October 13, 1997 EX-12 2 STATEMENT RE COMPUTATION OF RATIOS 1 EXHIBIT 12 PAGE 1
Computation of Ratio of Earnings to Fixed Charges J.P. Morgan & Co. Incorporated Consolidated - -------------------------------------------------------------------------------------------------------------------------- Nine months Dollars in millions 1997 - -------------------------------------------------------------------------------------------------------------------------- Earnings: Net income 1,194 Add: income taxes 588 Less: equity in undistributed income of all affiliates accounted for by the equity method 32 Add: fixed charges, excluding interest on deposits 5,644 - -------------------------------------------------------------------------------------------------------------------------- Earnings available for fixed charges, excluding interest on deposits 7,394 Add: interest on deposits 2,043 - -------------------------------------------------------------------------------------------------------------------------- Earnings available for fixed charges, including interest on deposits 9,437 - -------------------------------------------------------------------------------------------------------------------------- Fixed charges: Interest expense, excluding interest on deposits 5,622 Interest factor in net rental expense 22 - -------------------------------------------------------------------------------------------------------------------------- Total fixed charges, excluding interest on deposits 5,644 Add: interest on deposits 2,043 - -------------------------------------------------------------------------------------------------------------------------- Total fixed charges, including interest on deposits 7,687 - -------------------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges: Excluding interest on deposits 1.31 Including interest on deposits 1.23 - --------------------------------------------------------------------------------------------------------------------------
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Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends J.P. Morgan & Co. Incorporated Consolidated - -------------------------------------------------------------------------------------------------------------------------- Nine months Dollars in millions 1997 - -------------------------------------------------------------------------------------------------------------------------- Earnings: Net income 1,194 Add: income taxes 588 Less: equity in undistributed income of all affiliates accounted for by the equity method 32 Add: fixed charges, excluding interest on deposits and preferred stock dividends 5,644 - -------------------------------------------------------------------------------------------------------------------------- Earnings available for fixed charges, excluding interest on deposits 7,394 Add: interest on deposits 2,043 - -------------------------------------------------------------------------------------------------------------------------- Earnings available for fixed charges, including interest on deposits 9,437 - -------------------------------------------------------------------------------------------------------------------------- Fixed charges: Interest expense, excluding interest on deposits 5,622 Interest factor in net rental expense 22 Preferred stock dividends 40 - -------------------------------------------------------------------------------------------------------------------------- Total fixed charges, excluding interest on deposits 5,684 Add: interest on deposits 2,043 - -------------------------------------------------------------------------------------------------------------------------- Total fixed charges, including interest on deposits 7,727 - -------------------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges and preferred stock dividends: Excluding interest on deposits 1.30 Including interest on deposits 1.22 - --------------------------------------------------------------------------------------------------------------------------
EX-99 3 PRESS RELEASE 1 IMMEDIATE October 13, 1997 J.P. MORGAN REPORTS 1997 THIRD QUARTER RESULTS J.P. Morgan & Co. Incorporated reported net income of $396 million in the third quarter of 1997, up 43% from $276 million in the third quarter of 1996. Earnings per share for the quarter were $1.96, compared with $1.32 a year ago. In 1996, third quarter earnings included a special charge of $71 million ($42 million after tax, or $0.21 per share) related to the formation of a strategic alliance to manage parts of the firm's global technology infrastructure. Net income for the first nine months of 1997 totaled $1.194 billion, an increase from $1.155 billion a year ago. Earnings per share in the first nine months were $5.84 versus $5.60. Douglas A. Warner III, chairman, said: "Global growth in our business produced strong, diversified results. We gained market share, reflecting sustained momentum with clients, and continued to invest in expanded client capabilities." THIRD QUARTER 1997 RESULTS AT A GLANCE
Second Third quarter quarter - -------------------------------------------------------------------------------------------------------------- In millions of dollars, except per share data 1997 1996 1997 - -------------------------------------------------------------------------------------------------------------- Revenues $ 1,916 $ 1,549 $ 1,791 Operating expenses (1,326) (1,137) (1,241) Income taxes (194) (136) (176) - -------------------------------------------------------------------------------------------------------------- Net income 396 276 374 Net income per share $ 1.96 $ 1.32 $ 1.85 - -------------------------------------------------------------------------------------------------------------- Dividends declared per share $ 0.88 $ 0.81 $ 0.88
REVENUES in the third quarter rose 24% from the same period a year ago. - Finance and Advisory revenues rose 28% to $548 million, reflecting continued growth in advisory services and debt and equity underwriting. - Market Making revenues, up 23% to $669 million, were strong and diversified. - Asset Management and Servicing revenues increased 23% to $407 million, reflecting growth in both institutional investment management and private client services. - Equity Investments revenues rose to $66 million from $59 million. - Proprietary Investing and Trading revenues were $241 million, up from $203 million. - -------------------------------------------------------------------------------- Press contact: Joseph M. Evangelisti 212/648-9589 Investor contact: Ann B. Patton 212/648-9446 2 2 OPERATING EXPENSES, excluding the 1996 third quarter special charge of $71 million, rose 24% in the 1997 third quarter from the same period a year ago. IN OTHER DEVELOPMENTS during the 1997 third quarter, J.P. Morgan and American Century Companies, Inc. agreed to form a business partnership to pursue growth opportunities in asset management and personal financial services. As part of the agreement, Morgan will purchase a 45% economic interest in American Century for approximately $900 million; Morgan will have an option to increase that interest to 50% at the end of three years. The transaction is expected to close in early 1998, pending approval by each firm's Board of Directors and U.S. regulatory agencies. American Century, the fourth largest no-load U.S. mutual fund company selling directly to individuals, manages $60 billion of assets in about 70 mutual funds. The remainder of this release contains information on specific areas of results, a financial summary, and the consolidated financial statements. A summary of business sector results is included on pages 10 and 11. REVENUES BY BUSINESS SECTOR REVENUES rose to $1.916 billion, up 24% from the third quarter of 1996. Revenues from client-focused activities, which are reported in the Finance and Advisory, Market Making, and Asset Management and Servicing sectors, totaled $1.624 billion, up 25% from $1.304 billion a year ago. Revenues from Equity Investments and Proprietary Investing and Trading activities increased to $307 million from $262 million in 1996. FINANCE AND ADVISORY (Advisory, Debt and Equity Underwriting, and Credit) revenues increased 28% to $548 million. Revenues from advisory services and debt and equity underwriting in both developed and emerging markets increased 74% to $328 million, reflecting record levels of investment banking activity. Revenues from the global credit business declined to $220 million from $240 million a year ago, primarily because of lower syndication revenues. Market share increased in both debt and equity underwriting and mergers and acquisitions activity. According to Securities Data Co., J.P. Morgan ranked sixth in U.S. debt and equity underwriting for the first nine months of 1997, and market share grew to 8.7% from 6.9% a year ago. In completed mergers and acquisitions transactions worldwide, Morgan also ranked sixth on a year-to-date basis; market share rose to 10.7%, compared with 8.9% in the prior year. MARKET MAKING (Fixed Income, Equities, Foreign Exchange, and Commodities) revenues totaled $669 million, up 23% from $545 million a year ago. Fixed income revenues in developed markets increased 16% to $333 million, with especially strong results in Europe. In emerging markets, market-making revenues were $111 million, down from $153 million a year ago. In 3 3 equities, market making revenues were up 83% to $106 million. Equity commissions increased sharply, reflecting growing volumes and market share on U.S. and European exchanges; equity derivative revenues also grew. Foreign exchange revenues rose more than 70% to $99 million on strong client demand in active markets. Commodities revenues were $20 million in the current period versus a loss of $10 million a year ago. ASSET MANAGEMENT AND SERVICING (Investment Management, Private Client Services, Futures and Options Brokerage, and Euroclear System) revenues rose 23% to $407 million in the third quarter from a year ago. Revenues generated from institutional investment management activities and services for private clients increased 23% to $259 million. Assets under management were approximately $244 billion at September 30, 1997, compared with $197 billion at September 30, 1996. Futures and Options Brokerage as well as Euroclear-related revenues also increased. Private clients accounted for approximately $160 million of revenues from the firm's client-focused activities in the third quarter, up 31% from 1996. Of this amount, $51 million is recorded in the Finance and Advisory and Market Making sectors. EQUITY INVESTMENTS (Equity Portfolio Management for Morgan's own account) reported revenues of $66 million in the third quarter, compared with $59 million a year ago. Included in reported revenues were net gains of $54 million in the current quarter versus $56 million a year ago. On a total return basis, combining reported revenues with the change in net unrealized appreciation, Equity Investments earned $176 million in the 1997 third quarter, primarily related to investments in the insurance and financial services industries. A year ago, total return was a loss of $48 million. PROPRIETARY INVESTING AND TRADING (Market Risk Positioning and Capital and Liquidity Management) revenues totaled $241 million for the 1997 third quarter, compared with $203 million a year ago. Total return - reported revenues plus the change in net unrealized appreciation - for the 1997 third quarter was $173 million, compared with $165 million in 1996. OPERATING EXPENSES Operating expenses were $1.326 billion in the 1997 third quarter, compared with $1.137 billion in the third quarter of 1996. Excluding the technology-related special charge of $71 million in last year's third quarter, 1997 third quarter expenses grew 24% from a year earlier. The increase reflects continued spending on investment banking, equities, and asset management capabilities and higher levels of client-related business activity. Also contributing to the rise were expenditures related to initiatives to prepare for the year 2000 and the anticipated conversion to a single European currency. At September 30, 1997, staff totaled 16,525 employees, compared with 15,188 employees at September 30, 1996. Income tax expense in the third quarter totaled $194 million, based on an effective tax rate of 33%, the same rate used in the year-earlier quarter. 4 4 ASSETS Total assets were $270 billion at September 30, 1997, compared with $250 billion at June 30, 1997. CAPITAL As of September 30, 1997, J.P. Morgan adopted the Federal Reserve Board's new market risk capital guidelines for calculation of risk-based capital ratios, in advance of the mandatory implementation date of January 1, 1998. The new framework amends the existing guidelines by incorporating a measure of market risk for trading positions. In addition, the capital and assets of the Section 20 subsidiary, J.P. Morgan Securities Inc., are no longer excluded from the calculations. Under these new rules, J.P. Morgan's estimated tier 1 and total risk-based capital ratios at September 30, 1997, were 8.0% and 11.5%, respectively, and the estimated leverage ratio was 4.5%. Prior period ratios have not been restated. At September 30, 1997, stockholders' equity included approximately $598 million of net unrealized appreciation on debt investment and marketable equity investment securities, net the related deferred tax liability of $353 million. This compares with $518 million of net unrealized appreciation at June 30, 1997, net the related deferred tax liability of $310 million. The net unrealized appreciation on debt investment securities was $343 million and $294 million at September 30, 1997, and June 30, 1997, respectively. The net unrealized appreciation on marketable equity investment securities was $608 million at September 30, 1997, and $534 million at June 30, 1997. # # # J.P. Morgan is a leading global financial firm that meets critical financial needs for business enterprises, governments, and individuals. The firm advises on corporate strategy and structure, raises capital, makes markets in financial instruments, and manages investment assets. Morgan also commits its own capital to promising enterprises and invests and trades to capture market opportunities. Attached are the financial summary; interim consolidated financial statements, which are unaudited; summary of sector results; trading and investment banking revenue tables; and asset quality tables. J.P. Morgan news releases, including quarterly financial results, are available on the Internet at www.jpmorgan.com. 5
5 FINANCIAL SUMMARY J. P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------------- Dollars in millions, except share data Second Third Quarter Quarter Nine Months ---------------------------- ------------- ---------------------------- 1997 1996 1997 1997 1996 -------------------------------------------------------------------------------- Net Income $396 $276 $374 $1,194 $1,155 PER COMMON SHARE Net income (a) $ 1.96 $ 1.32 $ 1.85 $ 5.84 $5.60 Dividends declared 0.88 0.81 0.88 2.64 2.43 Book value (b) 56.83 52.62 55.37 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted-average number of common and common equivalent shares outstanding 197,776,475 201,755,770 198,148,923 199,821,082 202,029,375 - ------------------------------------------------------------------------------------------------------------------------------------ Dividends declared on common stock $157 $ 151 $158 $475 $454 Dividends declared on preferred stock 9 9 9 27 24 SELECTED RATIOS Annualized rate of return on average common stockholders' equity (c) 14.3% 10.3% 14.1% 14.7% 14.8% As % of period-end total assets: Common equity 4.1% 4.9% 4.3% Total equity 4.3 5.2 4.5 Regulatory capital ratios Tier 1 risk-based capital ratio (d) 8.0% (d) (d) Total risk-based capital ratio (d) 11.5 (d) (d) Leverage ratio (d) 4.5 (d) (d) - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE BALANCES Debt investment securities (e) $ 24,473 $ 23,171 $ 22,946 $ 24,287 $ 24,450 Loans 31,201 26,976 29,434 29,788 27,603 Total interest-earning assets 201,723 171,409 194,832 195,402 167,055 Total assets 262,114 211,452 243,225 247,234 208,683 Total interest-bearing liabilities 196,271 162,175 185,465 187,984 158,371 Total liabilities 250,674 200,431 232,118 235,920 197,822 Common stockholders' equity 10,746 10,327 10,413 10,620 10,194 Total stockholders' equity 11,440 11,021 11,107 11,314 10,861 Net interest earnings (fully taxable basis) 489 445 513 1,472 1,282 Net yield on interest-earning assets 0.96% 1.03% 1.06% 1.01% 1.03% - ------------------------------------------------------------------------------------------------------------------------------------ Employees at period-end 16,525 15,188 15,776 - ------------------------------------------------------------------------------------------------------------------------------------
(a) Earnings per share amounts represent both primary and fully diluted earnings per share for the three months ended September 30, 1996. Fully diluted earnings per share were $1.95 and $1.84 for the three months ended September 30, 1997, and June 30, 1997, respectively, and $5.82 and $5.57 for the nine months ended September 30, 1997 and 1996, respectively. (b) Excluding the impact of SFAS No. 115, the book value per common share would have been $53.73, $51.01, and $52.68 at September 30, 1997, September 30, 1996, and June 30, 1997, respectively. (c) Excluding the impact of SFAS No. 115, the annualized rate of return on average common stockholders' equity would have been 15.0%, 10.6%, and 14.7% for the three months ended September 30, 1997, September 30, 1996, and June 30, 1997, respectively, and 15.4% and 15.5% for the nine months ended September 30, 1997 and 1996, respectively. (d) As of September 30, 1997, J.P. Morgan adopted the Federal Reserve Board's new market risk capital guidelines for calculation of risk-based capital ratios, in advance of the mandatory implementation date of January 1, 1998. The new framework amends the existing guidelines by incorporating a measure of market risk for trading positions. In addition, the capital and assets of the Section 20 subsidiary, J.P. Morgan Securities Inc., are no longer excluded from the calculations; however, the effect of SFAS No. 115 continues to be excluded. Risk-based capital ratios for September 30, 1997, are estimates. Prior period ratios have not been restated. In accordance with the Federal Reserve Board's guidelines followed prior to September 30, 1997, the prior period ratios exclude the equity, assets, and off-balance sheet exposures of J.P. Morgan Securities Inc. and the effect of SFAS No. 115. The tier 1 risk-based capital ratio, total risk-based capital ratio and leverage ratio computed under such former guidelines were 8.1%, 11.7%, and 6.2%, respectively, at September 30, 1996, and 8.1%, 11.4%, and 5.9%, respectively, at June 30, 1997. (e) Average debt investment securities are computed on historical amortized cost, excluding the effects of SFAS No. 115 adjustments. 6
6 CONSOLIDATED STATEMENT OF INCOME J.P. Morgan & Co. Incorporated - ------------------------------------------------------------------------------------------------------------------------------------ In millions, except share data Three months ended ---------------------------------------------------------------------------- September 30 September 30 Increase/ June 30 Increase/ 1997 1996 (Decrease) 1997 (Decrease) ---------------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $3,161 $2,675 $ 486 $3,029 $ 132 Interest expense 2,689 2,250 439 2,534 155 - ------------------------------------------------------------------------------------------------------------------------------------ Net Interest Revenue 472 425 47 495 (23) NONINTEREST REVENUE Trading revenue 657 510 147 477 180 Investment banking revenue 320 233 87 294 26 Investment management revenue 201 164 37 199 2 Fees and commissions 164 137 27 156 8 Investment securities revenue 67 68 (1) 114 (47) Other revenue 35 12 23 56 (21) - ------------------------------------------------------------------------------------------------------------------------------------ Total noninterest revenue 1,444 1,124 320 1,296 148 Total revenue 1,916 1,549 367 1,791 125 OPERATING EXPENSES Employee compensation and benefits 798 685 113 734 64 Net occupancy 77 74 3 104 (27) Technology and communications 277 248 29 240 37 Other expenses 174 130 44 163 11 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 1,326 1,137 189 1,241 85 Income before income taxes 590 412 178 550 40 Income taxes 194 136 58 176 18 - ----------------------------------------------------------------------------------------------------------------------------------- Net income 396 276 120 374 22 PER COMMON SHARE Net income (a) $ 1.96 $ 1.32 $0.64 $ 1.85 $0.11 Dividends declared 0.88 0.81 0.07 0.88 -- - -----------------------------------------------------------------------------------------------------------------------------------
(a) See Financial Summary for per common share data assuming full dilution. 7
7 CONSOLIDATED STATEMENT OF INCOME J.P. Morgan & Co. Incorporated - ---------------------------------------------------------------------------------------------------------------- In millions, except share data Nine months ended ------------------------------------------------------------------- September 30 September 30 Increase/ 1997 1996 (Decrease) ------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $9,082 $7,788 $ 1,294 Interest expense 7,665 6,570 1,095 - ---------------------------------------------------------------------------------------------------------------- Net interest revenue 1,417 1,218 199 NONINTEREST REVENUE Trading revenue 1,831 1,965 (134) Investment banking revenue 840 644 196 Investment management revenue 584 493 91 Fees and commissions 468 430 38 Investment securities revenue 242 218 24 Other revenue 158 82 76 - ---------------------------------------------------------------------------------------------------------------- Total noninterest revenue 4,123 3,832 291 Total revenue 5,540 5,050 490 OPERATING EXPENSES Employee compensation and benefits 2,298 2,152 146 Net occupancy 254 223 31 Technology and communications 720 564 156 Other expenses 486 387 99 - ---------------------------------------------------------------------------------------------------------------- Total operating expenses 3,758 3,326 432 Income before income taxes 1,782 1,724 58 Income taxes 588 569 19 - ---------------------------------------------------------------------------------------------------------------- Net income 1,194 1,155 39 PER COMMON SHARE Net income (a) $5.84 $5.60 $0.24 Dividends declared 2.64 2.43 0.21 - ----------------------------------------------------------------------------------------------------------------
(a) See Financial Summary for per common share data assuming full dilution. 8
8 CONSOLIDATED BALANCE SHEET J.P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------------- In millions, except share data September 30 June 30 December 31 1997 1997 1996 ---------------------------------------------- ASSETS Cash and due from banks $ 813 $ 752 $ 906 Interest-earning deposits with banks 1,813 2,054 1,908 Debt investment securities available-for-sale carried at fair value (cost: $21,915 at September 1997, $24,642 at June 1997, and $24,610 at December 1996) 22,258 24,936 24,865 Trading account assets, net of allowance for credit losses of $350 115,144 105,825 90,980 Securities purchased under agreements to resell and federal funds sold ($18 at September 1997, $0 at June 1997, and $50 at December 1996) 44,058 36,425 32,505 Securities borrowed 38,824 37,837 27,931 Loans, net of allowance for credit losses of $546 at September 1997, $560 at June 1997, and $566 at December 1996 31,449 28,734 27,554 Customers' acceptance liability 270 175 212 Accrued interest and accounts receivable 5,859 4,446 3,789 Premises and equipment 3,160 3,194 3,137 Less: accumulated depreciation 1,345 1,353 1,272 - ------------------------------------------------------------------------------------------------------------------------------------ Premises and equipment, net 1,815 1,841 1,865 Other assets 7,292 7,465 9,511 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets 269,595 250,490 222,026 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 1,022 1,235 1,501 In offices outside the U.S. 749 641 708 Interest-bearing deposits: In offices in the U.S. 8,970 9,274 7,103 In offices outside the U.S. 44,785 45,827 43,412 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits 55,526 56,977 52,724 Trading account liabilities 69,799 59,436 50,919 Securities sold under agreements to repurchase and federal funds purchased ($5,464 at September 1997, $3,142 at June 1997, and $5,312 at December 1996) 74,473 67,464 61,429 Commercial paper 5,267 4,289 4,132 Other liabilities for borrowed money 17,477 19,615 19,948 Accounts payable and accrued expenses 8,512 7,025 5,935 Liability on acceptances 270 175 212 Long-term debt not qualifying as risk-based capital 17,229 14,890 9,411 Other liabilities, including allowance for credit losses of $200 4,097 4,000 1,442 - ------------------------------------------------------------------------------------------------------------------------------------ 252,650 233,871 206,152 Long-term debt qualifying as risk-based capital 4,163 4,121 3,692 Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 750 ]----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 257,963 239,142 210,594 STOCKHOLDERS' EQUITY Preferred stock (authorized shares: 10,400,000) Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244 244 Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250 250 Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200 200 Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,691,873 at September 1997, 200,689,973 at June 1997 and 200,688,123 at December 1996) 502 502 502 Capital surplus 1,380 1,402 1,446 Retained earnings 9,308 9,085 8,635 Net unrealized gains on investment securities, net of taxes 598 518 464 Other 1,070 968 826 - ------------------------------------------------------------------------------------------------------------------------------------ 13,552 13,169 12,567 Less: treasury stock (22,487,572 shares at September 1997, 21,633,098 at June 1997 and 15,765,455 at December 1996) at cost 1,920 1,821 1,135 - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 11,632 11,348 11,432 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity 269,595 250,490 222,026 - ------------------------------------------------------------------------------------------------------------------------------------
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9 CONSOLIDATED STATEMENT OF CONDITION Morgan Guaranty Trust Company of New York - ------------------------------------------------------------------------------------------------------------- In millions, except share data September 30 December 31 1997 1996 ----------------------------- ASSETS Cash and due from banks $ 771 $ 920 Interest-earning deposits with banks 1,776 1,910 Debt investment securities available-for-sale carried at fair value 21,093 23,510 Trading account assets, net of allowance for credit losses of $350 92,353 72,549 Securities purchased under agreements to resell and federal funds sold 30,546 21,081 Securities borrowed 12,180 6,681 Loans, net of allowance for credit losses of $545 at September 1997 and $565 at December 1996 31,288 27,378 Customers' acceptance liability 270 212 Accrued interest and accounts receivable 4,748 3,470 Premises and equipment 2,822 2,812 Less: accumulated depreciation 1,174 1,116 - ------------------------------------------------------------------------------------------------------------- Premises and equipment, net 1,648 1,696 Other assets 4,121 5,406 - ------------------------------------------------------------------------------------------------------------- Total assets 200,794 164,813 - ------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 1,027 1,495 In offices outside the U.S. 775 749 Interest-bearing deposits: In offices in the U.S. 8,983 7,114 In offices outside the U.S. 45,817 43,716 - ------------------------------------------------------------------------------------------------------------- Total deposits 56,602 53,074 Trading account liabilities 58,307 44,039 Securities sold under agreements to repurchase and federal funds purchased 40,076 30,787 Other liabilities for borrowed money 9,989 13,215 Accounts payable and accrued expenses 6,335 4,203 Liability on acceptances 270 212 Long-term debt not qualifying as risk-based capital 13,563 5,436 Other liabilities, including allowance for credit losses of $200 2,531 977 - ------------------------------------------------------------------------------------------------------------- 187,673 151,943 Long-term debt qualifying as risk-based capital 2,758 2,979 - ------------------------------------------------------------------------------------------------------------- Total liabilities 190,431 154,922 STOCKHOLDER'S EQUITY Preferred stock, $100 par value (authorized shares: 2,500,000) - - Common stock, $25 par value (authorized shares: 11,000,000; outstanding: 10,599,027) 265 265 Surplus 3,155 3,155 Undivided profits 6,793 6,334 Net unrealized gains on investment securities, net of taxes 169 149 Foreign currency translation (19) (12) - ------------------------------------------------------------------------------------------------------------- Total stockholder's equity 10,363 9,891 - ------------------------------------------------------------------------------------------------------------- Total liabilities and stockholder's equity 200,794 164,813 - ------------------------------------------------------------------------------------------------------------- Member of the Federal Reserve System and the Federal Deposit Insurance Corporation.
10
10 SUMMARY OF SECTOR RESULTS J.P. Morgan & Co. Incorporated - ------------------------------------------------------------------------------------------------------------------------------------ Asset TOTAL Finance Manage- CLIENT- Equity Proprietary TOTAL and Market ment and FOCUSED Invest- Investing PROPRIETARY Corporate CONSOL- In millions Advisory Making servicing ACTIVITIES ments and Trading ACTIVITIES Items IDATED - ------------------------------------------------------------------------------------------------------------------------------------ THIRD QUARTER 1997 Total revenues $ 548 $ 669 $ 407 $1,624 $ 66 $ 241 $ 307 $(15) $1,916 Total expenses 343 528 339 1,210 10 49 59 57 1,326 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 205 141 68 414 56 192 248 (72) 590 - ------------------------------------------------------------------------------------------------------------------------------------ THIRD QUARTER 1996 Total revenues 429 545 330 1,304 59 203 262 (17) 1,549 Total expenses 261 420 282 963 7 33 40 134 1,137 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 168 125 48 341 52 170 222 (151) 412 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE/(DECREASE), THIRD QUARTER 1997 VS. THIRD QUARTER 1996 Total revenues 119 124 77 320 7 38 45 2 367 Total expenses 82 108 57 247 3 16 19 (77) 189 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 37 16 20 73 4 22 26 79 178 - ------------------------------------------------------------------------------------------------------------------------------------ SECOND QUARTER 1997 Total revenues 481 648 392 1,521 124 116 240 30 1,791 Total expenses 351 455 320 1,126 11 45 56 59 1,241 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 130 193 72 395 113 71 184 (29) 550 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE/(DECREASE), THIRD QUARTER 1997 VS. SECOND QUARTER 1997 Total revenues 67 21 15 103 (58) 125 67 (45) 125 Total expenses (8) 73 19 84 (1) 4 3 (2) 85 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 75 (52) (4) 19 (57) 121 64 (43) 40 - ------------------------------------------------------------------------------------------------------------------------------------
BUSINESS SECTORS: We describe the activities of J.P. Morgan using five business sectors. Three of these sectors - Finance and Advisory, Market Making, and Asset Management and Servicing - focus on services we provide for clients, including positions taken to facilitate client transactions. Two sectors comprise proprietary activities that we conduct exclusively for our own account: Equity Investments and Proprietary Investing and Trading. The Finance and Advisory sector includes results of our Advisory, Debt and Equity Underwriting, and Credit activities. The Market Making sector includes results of our Fixed Income, Equities, Foreign Exchange, and Commodities activities. The Asset Management and Servicing sector includes results of our Investment Management, Private Client Services, Futures and Options Brokerage, and Euroclear System activities. Corporate Items includes revenues and expenses that have not been allocated to the five business sectors, intercompany eliminations, and the taxable-equivalent adjustment. For a complete description of our business sectors, please refer to the J.P. Morgan & Co. Incorporated 1996 Annual report. METHODOLOGY: The firm's management reporting system and policies were used to determine the revenues and expenses directly attributable to each business sector. Earnings on stockholders' equity were allocated based on management's assessment of the inherent risk of the components of each sector. In addition, certain overhead expenses not allocated for management reporting purposes were allocated to each business sector. Overhead expenses were allocated based primarily on staff levels, and represent costs associated with various support functions that exist for the benefit of the firm as a whole. Certain prior year amounts have been reclassified to conform with the 1997 presentation. Effective January 1, 1997, as compensation for managing the firm's credit risk, Global Credit receives fees from other Morgan businesses. Such fees are included as revenues in the Finance and Advisory sector and as a reduction in revenues reported by businesses on whose behalf such credit risk is managed. 11
11 SUMMARY OF SECTOR RESULTS J.P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------------- Asset TOTAL Finance Manage- CLIENT- Equity Proprietary TOTAL and Market ment and FOCUSED Invest- Investing PROPRIETARY Corporate CONSOL- In millions Advisory Making servicing ACTIVITIES ments and Trading ACTIVITIES Items IDATED - ------------------------------------------------------------------------------------------------------------------------------------ NINE MONTHS 1997 Total revenues $1,480 $2,050 $1,174 $4,704 $239 $633 $872 $(36) $5,540 Total expenses 996 1,457 959 3,412 28 140 168 178 3,758 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 484 593 215 1,292 211 493 704 (214) 1,782 - ------------------------------------------------------------------------------------------------------------------------------------ NINE MONTHS 1996 Total revenues 1,271 1,955 1,026 4,252 251 634 885 (87) 5,050 Total expenses 788 1,271 827 2,886 23 109 132 308 3,326 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 483 684 199 1,366 228 525 753 (395) 1,724 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE/(DECREASE), NINE MONTHS 1997 VS. 1996 Total revenues 209 95 148 452 (12) (1) (13) 51 490 Total expenses 208 186 132 526 5 31 36 (130) 432 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 1 (91) 16 (74) (17) (32) (49) 181 58 - ------------------------------------------------------------------------------------------------------------------------------------
Third Third Second Nine Nine Quarter Quarter Increase/ Quarter Increase/ Months Months Increase/ In millions 1997 1996 (Decrease) 1997 (Decrease) 1997 1996 (Decrease) - ----------------------------------------------------------------------------------------------------------------------------- REVENUES Advisory & Underwriting $ 328 $ 189 $ 139 $ 255 $ 73 $ 804 $ 589 $ 215 Global Credit 220 240 (20) 226 (6) 676 682 (6) - ----------------------------------------------------------------------------------------------------------------------------- FINANCE AND ADVISORY 548 429 119 481 67 1,480 1,271 209 - ----------------------------------------------------------------------------------------------------------------------------- Fixed Income 333 286 47 267 66 864 1,019 (155) Emerging Markets 111 153 (42) 123 (12) 420 428 (8) Equities 106 58 48 158 (52) 416 283 133 Foreign Exchange 99 58 41 84 15 302 206 96 Commodities 20 (10) 30 16 4 48 19 29 - ----------------------------------------------------------------------------------------------------------------------------- MARKET MAKING 669 545 124 648 21 2,050 1,955 95 - ----------------------------------------------------------------------------------------------------------------------------- Asset Management Services * 259 211 48 256 3 758 660 98 Securities and Futures Services 148 119 29 136 12 416 366 50 - ----------------------------------------------------------------------------------------------------------------------------- ASSET MANAGEMENT AND SERVICING 407 330 77 392 15 1,174 1,026 148 - ----------------------------------------------------------------------------------------------------------------------------- TOTAL CLIENT-FOCUSED REVENUES 1,624 1,304 320 1,521 103 4,704 4,252 452 - ----------------------------------------------------------------------------------------------------------------------------- EQUITY INVESTMENTS 66 59 7 124 (58) 239 251 (12) - ----------------------------------------------------------------------------------------------------------------------------- PROPRIETARY INVESTING AND TRADING 241 203 38 116 125 633 634 (1) - ----------------------------------------------------------------------------------------------------------------------------- TOTAL PROPRIETARY REVENUES 307 262 45 240 67 872 885 (13) - ----------------------------------------------------------------------------------------------------------------------------- CORPORATE ITEMS (15) (17) 2 30 (45) (36) (87) 51 - ----------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED REVENUES 1,916 1,549 367 1,791 125 5,540 5,050 490 - -----------------------------------------------------------------------------------------------------------------------------
* Includes Investment Management and Private Client Services 12
12 TRADING REVENUE AND RELATED NET INTEREST REVENUE J.P. Morgan & Co. Incorporated - ------------------------------------------------------------------------------------------------------------------------------------ In millions - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL NET FIXED FOREIGN PROPRIETARY TRADING INTEREST COMBINED INCOME EQUITIES EXCHANGE COMMODITIES TRADING REVENUE REVENUE TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ Third Quarter 1997 $ 416 $ 51 $ 78 $ 17 $ 95 $ 657 $118 $ 775 Third Quarter 1996 403 43 59 (15) 20 510 65 575 - ------------------------------------------------------------------------------------------------------------------------------------ Second Quarter 1997 250 170 72 2 (17) 477 159 636 - ------------------------------------------------------------------------------------------------------------------------------------ Nine Months 1997 1,012 332 270 32 185 1,831 399 2,230 Nine Months 1996 1,267 261 236 24 177 1,965 137 2,102 - ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING REVENUE J.P. Morgan & Co. Incorporated - --------------------------------------------------------------------------------------------------------------------- In millions - --------------------------------------------------------------------------------------------------------------------- ADVISORY AND UNDERWRITING TOTAL INVESTMENT SYNDICATION FEES REVENUE BANKING REVENUE - --------------------------------------------------------------------------------------------------------------------- Third Quarter 1997 $188 $132 $320 Third Quarter 1996 150 83 233 Nine Months 1997 471 369 840 Nine Months 1996 385 259 644 - ---------------------------------------------------------------------------------------------------------------------
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13 ASSET QUALITY J.P. Morgan & Co. Incorporated - --------------------------------------------------------------------------------------------------------------------- NONPERFORMING ASSETS September 30 June 30 December 31 September 30 In millions 1997 1997 1996 1996 -------------- --------------- ------------- ------------ Impaired loans: Commercial and industrial $ 46 $ 60 $ 89 $ 125 Other 33 44 29 34 - --------------------------------------------------------------------------------------------------------------------- 79 104 118 159 Restructuring countries 1 2 2 2 - --------------------------------------------------------------------------------------------------------------------- Total impaired loans 80 106 120 161 Other nonperforming assets 4 2 - - - --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets 84 108 120 161 - ---------------------------------------------------------------------------------------------------------------------
AGGREGATE ALLOWANCE FOR CREDIT LOSSES September 30 June 30 December 31 September 30 In millions 1997 1997 1996 1996 -------------- --------------- ------------- ----------- Aggregate allowance for credit losses $1,096 $1,110 $1,116 $1,113 - ---------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months ------------------------------- ------------------------------- 1997 1996 1997 1996 ------------------------------- ------------------------------- Charge-offs: Commercial and industrial $(17) $(12) $(38) $(28) Other (10) (4) (17) (7) Recoveries 14 4 36 18 Translation adjustment (1) - (1) - - -------------------------------------------------------------------------------- -------------------------------
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