-----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, Ag+Rx9OfZ0WnktUYPzU0k8vLRA2oPLZHZSMhUuc+n6NHOCSse2yXbTQj8e65jp8l Xq9Q/9BPKC+KFM+HtscqaQ== 0000950123-99-009401.txt : 19991020 0000950123-99-009401.hdr.sgml : 19991020 ACCESSION NUMBER: 0000950123-99-009401 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991018 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991019 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: 99730657 BUSINESS ADDRESS: STREET 1: 60 WALL ST CITY: NEW YORK STATE: NY ZIP: 10260 BUSINESS PHONE: 2124832323 MAIL ADDRESS: STREET 1: 500 STANTON CHRISTIANA RD STREET 2: ATTN RANDY REDCAY CITY: NEWARK STATE: DE ZIP: 19713 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 18, 1999 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 18, 1999, the Registrant issued a press release announcing its earnings for the three-month and nine-month periods ended September 30, 1999. Also, announced in the press release, the Board of Directors approved the purchase of up to $3 billion in J.P. Morgan common stock. A copy of such press release is filed herein as Exhibit 99a. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements NONE. (b) Pro Forma Financial Information NONE. (c) Exhibits 12. Statement re computation of ratios. 99a. Copy of press release of J.P. Morgan & Co. Incorporated dated October 18, 1999. 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 18, 1999 EX-12 2 STATEMENT RE: COMPUTATION OF RATIOS 1 EXHIBIT 12 Computation of Ratio of Earnings to Fixed Charges J.P. Morgan & Co. Incorporated Consolidated
- ----------------------------------------------------------------------------- Nine Months Dollars in millions 1999 - ----------------------------------------------------------------------------- Earnings: Net income $ 1 546 Add: income taxes 796 Less: equity in undistributed income of all affiliates accounted for by the equity method 56 Add: fixed charges, excluding interest on deposits 5 350 - ----------------------------------------------------------------------------- Earnings available for fixed charges, excluding interest on deposits 7 636 Add: interest on deposits 1 723 - ----------------------------------------------------------------------------- Earnings available for fixed charges, including interest on deposits 9 359 - ----------------------------------------------------------------------------- Fixed charges: Interest expense, excluding interest on deposits 5 327 Interest factor in net rental expense 23 - ----------------------------------------------------------------------------- Total fixed charges, excluding interest on deposits 5 350 Add: interest on deposits 1 723 - ----------------------------------------------------------------------------- Total fixed charges, including interest on deposits 7 073 - ----------------------------------------------------------------------------- Ratio of earnings to fixed charges: Excluding interest on deposits 1.43 Including interest on deposits 1.32 - -----------------------------------------------------------------------------
2 EXHIBIT 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends J. P. Morgan & Co. Incorporated Consolidated
- ----------------------------------------------------------------------------- Dollars in millions Nine Months 1999 - ----------------------------------------------------------------------------- Earnings: Net income $ 1 546 Add: income taxes 796 Less: equity in undistributed income of all affiliates accounted for by the equity method 56 Add: fixed charges, excluding interest on deposits, and preferred stock dividends 5 389 - ----------------------------------------------------------------------------- Earnings available for fixed charges, excluding interest on deposits 7 675 Add: interest on deposits 1 723 - ----------------------------------------------------------------------------- Earnings available for fixed charges, including interest on deposits 9 398 - ----------------------------------------------------------------------------- Fixed charges: Interest expense, excluding interest on deposits 5 327 Interest factor in net rental expense 23 Preferred stock dividends 39 - ----------------------------------------------------------------------------- Total fixed charges, excluding interest on deposits 5 389 Add: interest on deposits 1 723 - ----------------------------------------------------------------------------- Total fixed charges, including interest on deposits 7 112 - ----------------------------------------------------------------------------- Ratio of earnings to fixed charges: Excluding interest on deposits 1.42 Including interest on deposits 1.32 - -----------------------------------------------------------------------------
EX-99.A 3 COPY OF PRESS RELEASE DATED OCTOBER 18, 1999 1 [J.P. MORGAN & CO. INCORPORATED letterhead] NEWS RELEASE: IMMEDIATE October 18, 1999 J.P. MORGAN REPORTS THIRD QUARTER 1999 EARNINGS; ANNOUNCES $3 BILLION SHARE BUYBACK J.P. Morgan today reported third quarter net income of $442 million, or $2.22 per share, up from $156 million, or $0.75 per share, in the third quarter of 1998. Return on equity was 15.6% in the quarter. Net income for the first nine months was $1.546 billion compared with $874 million in the first nine months of 1998. Earnings per share were $7.76 versus $4.28 a year ago. Year-to-date return on equity was 18.6%. The Board of Directors of J.P. Morgan also approved the purchase of up to $3 billion of J.P. Morgan common stock and announced its intention to increase the quarterly common stock dividend to $1.00 from $0.99 per share when it meets again in December. These actions reflect J.P. Morgan's strong business momentum and a significant improvement in capital productivity. Over the past seven quarters we have reduced by 50% the risk and capital needs of our credit portfolio, improved risk-taking efficiency in our markets activities, and implemented a wide-ranging productivity initiative. At the same time, our investment banking and equities activities have turned solidly profitable and the contribution of our asset management services business continues to grow. We remain committed to J.P. Morgan's strong capitalization and retain ample capital to pursue the numerous growth opportunities in our target markets. OTHER HIGHLIGHTS FOR THE THIRD QUARTER: - - Operating revenues of $1.985 billion were 59% ahead of last year - - Global Finance revenues of $1.385 billion reflect growth in advisory services and strong results in equities, while fixed income trading results were weaker - - Proprietary Investments revenues of $327 million were driven by results in Equity Investments - - Assets under management increased 18% from a year ago, to $323 billion - - Core expenses before bonuses for the nine months of 1999 were down by more than $330 million "Our performance this year marks an important milestone in our strategic shift toward a less capital intensive business model. The earnings engine we have built in our core business, combined with our focus on capital and expense productivity, allows us to return significant capital to shareholders and, importantly, retain more than enough to pursue significant future growth opportunities," said Douglas A. Warner III, chairman. - -------------------------------------------------------------------------------- Press contact: Michael F. Golden 212/648-3784 Investor contact: Ann B. Patton 212/648-9446 2 J.P. Morgan & Co. Incorporated 2 REVENUES BY SEGMENT Revenues from client-focused activities reflect recovery in global markets Revenues were $1.985 billion in the third quarter of 1999, up 59% from the 1998 period, excluding last year's $56 million gain on the sale of our Australian investment management business. Revenues from client-focused activities, reported in the Global Finance and Asset Management Services sectors, increased 85% to $1.738 billion. Revenues from Proprietary Investments were $327 million versus $307 million a year ago. GLOBAL FINANCE revenues of $1.385 billion more than doubled over the third quarter of 1998, which was affected by extreme market dislocations. - - Investment Banking revenues of $310 million were up 30% from last year's quarter. Advisory services, equity capital markets services, and derivative origination activities continued to expand with clients across a diverse range of industries. Advisory revenues surpassed both last year's quarter and the second quarter of 1999. For the first nine months of 1999, Thomson Financial Securities Data Corporation ranked J.P. Morgan 6th in completed mergers and acquisitions volume worldwide with a 13.1% market share. - - Equities revenues of $289 million increased $148 million from last year. Both cash and equity derivative results increased. Equity underwriting revenues increased as we continued to grow market share - J.P. Morgan ranked 6th in U.S. equity lead underwriting with a 5.5% market share for 1999 - and commission revenues were more than 20% above last year on higher market share. Equity derivative revenues more than doubled from a year ago when results were affected by sharp increases in volatility and illiquid markets, but were down from the second quarter. - - Interest Rate and Foreign Exchange Markets revenues of $331 million reflect very strong derivative client activity across all regions, combined with weaker trading results. Interest Rate Markets revenues rose over last year as we continued to expand our derivative client franchise, but declined from the second quarter 1999 due to weaker trading results primarily associated with illiquid European markets early in the quarter. Foreign Exchange revenues, while stable through 1999, were down from a very strong third quarter a year ago. - - Credit Markets revenues of $186 million were achieved in a difficult environment that reflected concerns over interest rate increases and widening spreads, especially for lower-rated securities. Lower issuer and investor demand for most instruments reduced overall volumes meaningfully in the quarter, which led to a 48% decline in revenues versus the second quarter. In last year's quarter, severe market dislocations resulted in losses of $140 million. - - Credit Portfolio had revenues of $269 million compared to $152 million in the previous quarter and $50 million in the same quarter a year ago. Improving credit default swap spreads on higher-rated 3 J.P. Morgan & Co. Incorporated 3 counterparties and continuing refinements in measuring and managing credit risk associated with derivative exposures contributed to revenues during the quarter. Ongoing improvement in credit markets and the lowering of certain emerging markets exposures in our traditional credit portfolio resulted in a $60 million reduction (i.e., income) in the allowances for credit losses after charge-offs and recoveries. The economic capital requirement of our credit portfolio has declined by 50% from December 31, 1997, in line with our previously announced target. ASSET MANAGEMENT SERVICES revenues increased 18% to $353 million versus last year, reflecting asset growth, a shift towards higher-fee alternative investment disciplines, and performance fees. Assets under management rose 18% to $323 billion, driven by market appreciation and new business from defined benefit plans and private clients. Assets under management from private clients increased 16% to $72 billion. PROPRIETARY INVESTMENTS revenues were $327 million, up 7%. - - Equity Investments, which represents equity portfolio management for Morgan's own account, reported revenues of $341 million in the third quarter, compared with $160 million a year ago. The increase was mostly attributable to investments in the cable television and telecommunications industries, partially offset by write-downs that primarily related to an investment in the insurance industry. - - Proprietary Investing and Trading reported a loss of $14 million compared to a gain of $147 million last year. Total return - reported revenues and the change in net unrealized value - was a loss of $110 million compared with a gain of $167 million. The lower results were driven primarily by our U.S. government agency investment portfolio and our positioning activities in Asia. CORPORATE ITEMS had negative revenues of $80 million, including $58 million of positive revenues from activities related to Euroclear. Revenues are $56 million lower than the second quarter and $137 million lower than last year, mainly due to the change in the value of hedges of the firm's anticipated net foreign currency revenues and expenses. These hedging results are partially offset by the impact of exchange rate movements on revenues and expenses reported in the business segments. Additionally, in the third quarter of 1998, we recognized a $56 million gain on the sale of our investment management business in Australia. OPERATING EXPENSES Core operating expenses reflect continued productivity discipline Operating expenses were $1.341 billion, an increase of $242 million from the third quarter of last year. Compensation expenses rose as a result of higher bonus accruals. Non-compensation operating expenses were 15% lower this quarter reflecting continued focus on productivity. The firm's efficiency ratio was 68% in the third quarter. 4 J.P. Morgan & Co. Incorporated 4 Costs associated with preparation for the Year 2000 were $9 million for the third quarter, down from $45 million last year, which also included preparation for European Economic and Monetary Union. For the first nine months of 1999, costs of preparation for the Year 2000 and European Economic and Monetary Union were $47 million, down from $155 million a year ago. Third quarter 1999 software costs of $37 million were capitalized rather than recorded as expenses because of a change in accounting rules and are not included in the 1999 expenses. For the nine months ended September 30, 1999, $103 million of software costs were capitalized. Operating expenses for the first nine months of 1999 were $4.325 billion. Before bonus accruals and excluding the effect of software capitalization, this represents a reduction of more than $330 million compared with the first nine months of last year. MARKET AND CREDIT RISK DEVELOPMENTS Firm-wide market and credit risk DEaR for our trading activities approximated $33 million at September 30, 1999 versus $45 million at June 30, 1999. This reflects, before diversification benefits, market risk DEaR of $26 million at September 30, 1999 ($27 million at June 30, 1999) and derivative credit risk DEaR of approximately $20 million at September 30, 1999 ($35 million at June 30, 1999). The decrease in credit risk DEaR reflects greater use of credit derivatives to reduce overall portfolio risk levels, as well as methodology enhancements. We continue to refine our risk measurement and reporting methodology. DEaR for our investment portfolio, which consists largely of U.S. government agency securities, was $24 million at September 30, 1999, versus $30 million at June 30, 1999. CAPITAL On October 13, 1999 the Board of Directors of J.P. Morgan approved the purchase of up to $3 billion of J.P. Morgan common stock. These purchases may be made periodically in the open market or through privately negotiated transactions. We intend to repurchase the shares over a period of 12 to 18 months, subject to market conditions, business considerations, and other factors. The Board also announced its intent to increase the quarterly dividend on J.P. Morgan common stock to $1.00 from $0.99 per share when it meets in December. We will continue to distribute capital to shareholders based on our assessment of the level of excess capital, but going forward will be more flexible in determining the timing and amount of share repurchases and dividend increases. During the third quarter of 1999, the firm purchased approximately $235 million of its common stock or 1.9 million shares, for a total of $682 million or 5.3 million shares in the year to date. These purchases were part of the December 1998 authorization to repurchase up to $750 million of common stock, and were offset by issuance to employees under the firm's compensation plans. At September 30, 1999, under the Federal Reserve Board market risk capital guidelines for calculation of risk-based capital ratios, J.P. Morgan's estimated tier 1 and total risk-based capital ratios were 9.0% and 13.1%, 5 J.P. Morgan & Co. Incorporated 5 respectively; the estimated leverage ratio was 4.8%. At June 30, 1999, J.P. Morgan's tier 1 and total risk-based capital ratios were 8.4% and 12.5%, respectively, and the leverage ratio was 4.5%. At September 30, 1999, stockholders' equity of $12 billion included $108 million of net unrealized depreciation on debt investment and marketable equity investment securities, net of the related tax benefit of $89 million. This compares with $52 million of net unrealized depreciation at June 30, 1999, net of the related tax benefit of $49 million. The net unrealized depreciation on debt investment securities was $273 million at September 30, 1999, compared with a net unrealized depreciation of $169 million at June 30, 1999. The decline primarily related to decreases in the value of U.S. government and agency securities. The net unrealized appreciation on marketable equity investment securities was $76 million at September 30, 1999, and $68 million at June 30, 1999. OTHER DEVELOPMENTS On September 1, 1999 J.P. Morgan and the Euroclear Board announced the signing of a letter of intent to create a new, market-owned European bank to operate all aspects of the Euroclear System, the leading clearance and settlement system for internationally traded securities. Subject to a definitive agreement being reached, J.P. Morgan will remain operator of Euroclear until the successor bank is established, which is expected to take up to 18 months. After that, Morgan will remain an important participant and shareholder of Euroclear and retain a seat on its Board. The management and staff of Euroclear, numbering approximately 1,200 Morgan employees, will transfer to the new entity. Under the agreement in principle Morgan will continue to receive pretax banking income from Euroclear for three years following the signing of a definitive agreement. This income is subject to a minimum of $195 million and maximum of $295 million per year, whether it is earned by Morgan prior to the formation of the new bank or afterward by the new bank. After the new bank is formed, it will also pay Morgan for certain transition costs and for assets and know-how that are transferred to it. # # # 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. This release may contain forward-looking statements. Our statements, which reflect management's beliefs and expectations, are subject to risks and uncertainties that may cause actual results to differ materially from these statements. For a discussion of the risks and uncertainties, please refer to the J.P. Morgan & Co. Incorporated 1998 Annual Report. 6 J.P. Morgan & Co. Incorporated 6 Attached are tables with our segment results; a financial summary; interim consolidated financial statements, which are unaudited; investment banking revenue table; and asset quality tables. J.P. Morgan news releases, including quarterly financial results and historical financial summary, are available on the Internet at www.jpmorgan.com. 7 7 J.P. Morgan & Co. Incorporated The following table summarizes segment revenues for the quarters ended September 30, 1999 and 1998, and June 30, 1999, respectively. SUMMARY OF SEGMENT RESULTS J.P. Morgan & Co. Incorporated
Interest Rate ASSET Investment and Credit Credit GLOBAL MANAGEMENT In millions Banking Equities FX Markets Markets Portfolio FINANCE SERVICES - ---------------------------------------------------------------------------------------------------------------------- THIRD QUARTER 1999 Total revenues $310 $289 $331 $186 $269 (a) $1,385 $353 Total expenses 209 214 288 156 34 901 296 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 101 75 43 30 235 484 57 - ---------------------------------------------------------------------------------------------------------------------- THIRD QUARTER 1998 Total revenues 238 141 348 (140) 50 (b) 637 300 Total expenses 166 162 280 77 42 727 272 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 72 (21) 68 (217) 8 (90) 28 - ---------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), THIRD QUARTER 1999 VS. THIRD QUARTER 1998 Total revenues 72 148 (17) 326 219 748 53 Total expenses 43 52 8 79 (8) 174 24 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 29 96 (25) 247 227 574 29 - ---------------------------------------------------------------------------------------------------------------------- SECOND QUARTER 1999 Total revenues 320 427 555 361 152 (d) 1,815 343 Total expenses 228 236 321 210 41 1,036 276 - ----------------------------------------------------------------------------------------------------------------------- Pretax income 92 191 234 151 111 779 67 - ----------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), THIRD QUARTER 1999 VS. SECOND QUARTER 1999 Total revenues (10) (138) (224) (175) 117 (430) 10 Total expenses (19) (22) (33) (54) (7) (135) 20 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 9 (116) (191) (121) 124 (295) (10) - ----------------------------------------------------------------------------------------------------------------------
Proprietary Equity Investing PROPRIETARY Corporate In millions Investments and Trading INVESTMENTS Items (e) CONSOLIDATED - ---------------------------------------------------------------------------------------------------- THIRD QUARTER 1999 Total revenues $341 ($14) $327 ($80) $1,985 Total expenses 53 37 90 54 1,341 - ---------------------------------------------------------------------------------------------------- Pretax income 288 (51) 237 (134) 644 - ---------------------------------------------------------------------------------------------------- THIRD QUARTER 1998 Total revenues 160 147 307 57 (c) 1,301 Total expenses 15 35 50 50 1,099 - ---------------------------------------------------------------------------------------------------- Pretax income 145 112 257 7 202 - ---------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), THIRD QUARTER 1999 VS. THIRD QUARTER 1998 Total revenues 181 (161) 20 (137) 684 Total expenses 38 2 40 4 242 - ---------------------------------------------------------------------------------------------------- Pretax income 143 (163) (20) (141) 442 - ---------------------------------------------------------------------------------------------------- SECOND QUARTER 1999 Total revenues 13 44 57 (24) 2,191 Total expenses 13 42 55 50 1,417 - ---------------------------------------------------------------------------------------------------- Pretax income 0 2 2 (74) 774 - ---------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), THIRD QUARTER 1999 VS. SECOND QUARTER 1999 Total revenues 328 (58) 270 (56) (206) Total expenses 40 (5) 35 4 (76) - ---------------------------------------------------------------------------------------------------- Pretax income 288 (53) 235 (60) (130) - ----------------------------------------------------------------------------------------------------
(a) Third quarter 1999 includes a reversal of provisions for credit losses of ($60) million. (b) Third quarter 1998 includes provisions for credit losses of $75 million. (c) Third quarter 1998 includes a pretax gain of $56 million related to the sale of the firm's investment management business in Australia. (d) Second quarter 1999 includes a net reversal of provisions for credit losses of ($70) million. (e) Corporate Items includes revenues and expenses related to Euroclear activities, as follows:
Third Qtr. Third Qtr. Second Qtr. 1999 1998 1999 Total revenues $58 $83 $67 Total expenses 8 12 3 - ---------------------------------------------------------------- Pretax income 50 71 64 - ----------------------------------------------------------------
Note: In connection with the signed letter of intent between J.P. Morgan and the Board of Directors of the Euroclear group, Morgan will end its role as operator and banker for the Euroclear system upon the formation of a successor bank to be owned by Euroclear. Accordingly, segment results have been restated to reflect Euroclear-related revenues and expenses in Corporate Items. Previously, results related to our Asset Management and Euroclear activities were included in the Asset Management & Servicing sector. All amounts in the table above have been restated to reflect our current reporting structure and policies. For a description of our segments, please refer to the J.P. Morgan & Co. 1998 Annual Report. 8 J.P. Morgan & Co. Incorporated 8 The following table summarizes segment revenues for the nine month periods ended September 30, 1999 and 1998, respectively. SUMMARY OF SEGMENT RESULTS J.P. Morgan & Co. Incorporated
Interest Rate ASSET Investment and Credit Credit GLOBAL MANAGEMENT In millions Banking Equities FX Market Markets Portfolio FINANCE SERVICES - ---------------------------------------------------------------------------------------------------------------------- NINE MONTHS 1999 Total revenues $888 $1,004 $1,548 $1,243 $575 (a) $5,258 $1,005 Total expenses 647 680 968 625 120 3,040 836 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 241 324 580 618 455 2,218 169 - ---------------------------------------------------------------------------------------------------------------------- NINE MONTHS 1998 Total revenues 736 520 1,583 462 339 (b) 3,640 901 Total expenses 526 578 971 537 109 2,721 833 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 210 (58) 612 (75) 230 919 68 - ---------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), NINE MONTHS 1999 VS. NINE MONTHS 1998 Total revenues 152 484 (35) 781 236 1,618 104 Total expenses 121 102 (3) 88 11 319 3 - ---------------------------------------------------------------------------------------------------------------------- Pretax income 31 382 (32) 693 225 1,299 101 - ----------------------------------------------------------------------------------------------------------------------
Proprietary Equity Investing PROPRIETARY Corporate In millions Investments and Trading INVESTMENTS Items (e) CONSOLIDATED - ----------------------------------------------------------------------------------------------------- NINE MONTHS 1999 Total revenues $332 $149 $481 ($77) $6,667 Total expenses 80 112 192 257 4,325 - ----------------------------------------------------------------------------------------------------- Pretax income 252 37 289 (334) 2,342 - ----------------------------------------------------------------------------------------------------- NINE MONTHS 1998 Total revenues 288 514 802 108 (c) 5,451 Total expenses 39 114 153 440 (d) 4,147 - ----------------------------------------------------------------------------------------------------- Pretax income 249 400 649 (332) 1,304 - ----------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), NINE MONTHS 1999 VS. NINE MONTHS 1998 Total revenues 44 (365) (321) (185) 1,216 Total expenses 41 (2) 39 (183) 178 - ----------------------------------------------------------------------------------------------------- Pretax income 3 (363) (360) (2) 1,038 - -----------------------------------------------------------------------------------------------------
(a) Nine months 1999 includes a net reversal of provision for credit losses of ($130) million. (b) Nine months 1998 includes provisions for credit losses of $75 million. (c) Nine months 1998 includes a pretax gain of $56 million related to the sale of the firm's investment management business in Australia and a pretax gain of $131 million related to the sale of the firm's global trust and agency services business. (d) Nine months 1998 includes a pretax charge of $215 million related to the restructuring of business activities. (e) Corporate Items includes revenues and expenses related to Euroclear activities, as follows:
Nine Months Nine Months 1999 1998 Total revenues $188 $238 Total expenses 20 42 - ---------------------------------------------------------------- Pretax income 168 196 - ----------------------------------------------------------------
Note: In connection with the signed letter of intent between J.P. Morgan and the Board of Directors of the Euroclear group, Morgan will end its role as operator and banker for the Euroclear system upon the formation of a successor bank to be owned by Euroclear. Accordingly, segment results have been restated to reflect Euroclear-related revenues and expenses in Corporate Items. Previously, results related to our Asset Management and Euroclear activities were included in the Asset Management & Servicing sector. All amounts in the table above have been restated to reflect our current reporting structure and policies. For a description of our segments, please refer to the J.P. Morgan & Co. 1998 Annual Report. 9 J.P. Morgan & Co. Incorporated 9 FINANCIAL SUMMARY J.P. Morgan & Co. Incorporated Dollars in millions, except share data
Second Third Quarter Quarter ------------------------------------ ------------ 1999 1998 1999 ------------------------------------------------------ Net Income $ 442 (a) $ 156 $ 504 Per common share Net income Basic $ 2.39 (a) $ 0.81 $ 2.71 Diluted 2.22 (a) 0.75 2.52 Dividends declared 0.99 0.95 0.99 Book value (c) $ 58.42 $ 56.22 $ 57.60 - ---------------------------------------------------------------------------------------------------------------- Common shares issued and outstanding at period-end 174,880,978 174,951,795 175,949,606 - ---------------------------------------------------------------------------------------------------------------- Weighted-average number of common and dilutive potential common shares outstanding 194,671,633 196,395,485 196,539,342 - ---------------------------------------------------------------------------------------------------------------- Dividends declared on common stock $ 173 $ 167 $ 175 Dividends declared on preferred stock 7 9 9 - ---------------------------------------------------------------------------------------------------------------- Annualized rate of return on average common stockholders' equity (d) 15.6% (a) 5.3% 18.0% As % of period-end total assets: Common equity 4.4% 3.6% 4.1% Total equity 4.7 3.9 4.4 - ---------------------------------------------------------------------------------------------------------------- Regulatory capital ratios (e) Tier 1 risk-based capital ratio 9.0% 7.6% 8.4% Total risk-based capital ratio 13.1 11.2 12.5 Leverage ratio 4.8 4.0 4.5 Risk-adjusted assets 136,125 148,906 142,477 - ---------------------------------------------------------------------------------------------------------------- Average balances Debt investment securities (f) $ 27,316 $ 22,225 $ 29,512 Loans 26,026 30,162 25,552 Total interest-earning assets 190,178 204,724 192,306 Total assets 255,909 284,637 266,145 Total interest-bearing liabilities 183,154 201,553 189,071 Total liabilities 244,141 272,841 254,446 Common stockholders' equity 11,074 11,102 11,005 Total stockholders' equity 11,768 11,796 11,699 Net interest earnings before (reversal of provision) / provision (fully taxable basis) 405 352 445 Net yield on interest-earning assets 0.84% 0.68% 0.93% - ---------------------------------------------------------------------------------------------------------------- Employees at period-end 15,287 16,155 14,902 - ----------------------------------------------------------------------------------------------------------------
Nine Months ------------------------------------ 1999 1998 ------------------------------------ Net Income $ 1,546 (b) $ 874 Per common share Net income Basic $ 8.33 (b) $ 4.65 Diluted 7.76 (b) 4.28 Dividends declared 2.97 2.85 Book value (c) - ---------------------------------------------------------------------------------------------- Common shares issued and outstanding at period-end - ---------------------------------------------------------------------------------------------- Weighted-average number of common and dilutive potential common shares outstanding 195,864,571 198,216,384 - ---------------------------------------------------------------------------------------------- Dividends declared on common stock $ 523 $ 504 Dividends declared on preferred stock 25 27 - ---------------------------------------------------------------------------------------------- Annualized rate of return on average common stockholders' equity (d) 18.6% (b) %10.3 As % of period-end total assets: Common equity Total equity - ---------------------------------------------------------------------------------------------- Regulatory capital ratios (e) Tier 1 risk-based capital ratio Total risk-based capital ratio Leverage ratio Risk-adjusted assets - ---------------------------------------------------------------------------------------------- Average balances Debt investment securities (f) $ 30,196 $ 23,144 Loans 26,358 31,744 Total interest-earning assets 193,216 207,616 Total assets 264,009 282,071 Total interest-bearing liabilities 187,520 204,413 Total liabilities 252,369 270,426 Common stockholders' equity 10,946 10,951 Total stockholders' equity 11,640 11,645 Net interest earnings before (reversal of provision) / provision (fully taxable basis) 1,260 1,009 Net yield on interest-earning assets 0.87% 0.65% - ---------------------------------------------------------------------------------------------- Employees at period-end - ----------------------------------------------------------------------------------------------
(a) Excluding the 1998 third quarter after tax gain of $34 million ($56 million before tax) related to the sale of the firm's investment management business in Australia: net income was $122 million; basic and diluted earnings per share (EPS) were $0.62 and $0.58, respectively; and the annualized rate of return on average common stockholders' equity was 4.0% (including the impact of Statement of Financial Accounting Standards (SFAS) No. 115) and 4.2% (excluding the impact of SFAS No. 115) for the three months ended September 30, 1998. (b) Excluding the 1998 second quarter after tax gain of $79 million ($131 million before tax) related to the sale of the firm's global trust and agency services business, the 1998 third quarter after tax gain of $34 million ($56 million before tax) related to the sale of the firm's investment management business in Australia, and the 1998 first quarter after tax charge of $129 million ($215 million before tax) related to the restructuring of business activities: net income was $890 million; basic and diluted EPS were $4.73 and $4.36, respectively; and the annualized rate of return on average common stockholders' equity was 10.5% (including the impact of SFAS No. 115) and 11.0% (excluding the impact of SFAS No.115) for the nine months ended September 30, 1998. (c) Excluding the impact of SFAS No. 115, the book value per common share was $58.99, $54.70, and $57.87, at September 30, 1999, September 30, 1998, and June 30, 1999, respectively. (d) Excluding the impact of SFAS No. 115, the annualized rate of return on average common stockholders' equity was 15.4%, 5.4%, and 18.1% for the three months ended September 30, 1999, September 30, 1998, and June 30, 1999, respectively, and 18.6% and 10.8% for the nine months ended September 30, 1999 and 1998, respectively. (e) Regulatory capital ratios and risk-adjusted assets are estimates at September 30, 1999. (f) Average debt investment securities are computed on historical amortized cost, excluding the effects of SFAS No. 115 adjustments. 10 J.P. Morgan & Co. Incorporated 10 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/ 1999 1998 (Decrease) 1999 (Decrease) ------------------------------------------------------------------------------------ NET INTEREST REVENUE Interest revenue $2,783 $3,249 ($466) $2,713 $70 Interest expense 2,394 2,917 (523) 2,288 106 - --------------------------------------------------------------------------------------------------------------------------------- Net interest revenue 389 332 57 425 (36) Provision for loan losses - 25 (25) - - Reversal of provision for loan losses (45) - (45) (105) 60 - --------------------------------------------------------------------------------------------------------------------------------- Net interest revenue after provision/ (reversal of provision) for loan losses 434 307 127 530 (96) NONINTEREST REVENUES Trading revenue 424 69 355 803 (379) Investment banking revenue 398 312 86 457 (59) Investment management revenue 270 224 46 260 10 Fees and commissions 206 182 24 191 15 Investment securities revenue / (loss) 271 136 135 (29) 300 Other (loss) / revenue (18)(a) 71 (b) (89) (21)(c) 3 - --------------------------------------------------------------------------------------------------------------------------------- Total noninterest revenues 1,551 994 557 1,661 (110) Total revenues, net 1,985 1,301 684 2,191 (206) OPERATING EXPENSES Employee compensation and benefits 889 567 322 970 (81) Net occupancy 82 84 (2) 80 2 Technology and communications 229 293 (64) 231 (2) Other expenses 141 155 (14) 136 5 - --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 1,341 1,099 242 1,417 (76) Income before income taxes 644 202 442 774 (130) Income taxes 202 46 156 270 (68) - --------------------------------------------------------------------------------------------------------------------------------- Net income 442 156 286 504 (62) PER COMMON SHARE Net income Basic $2.39 $0.81 $1.58 $2.71 ($0.32) Diluted 2.22 0.75 1.47 2.52 (0.30) Dividends declared 0.99 0.95 0.04 0.99 - - ---------------------------------------------------------------------------------------------------------------------------------
(a) Third quarter 1999 includes a reversal of provision for credit losses of $15 million related to the allowance for credit losses on lending commitments. (b) Third quarter 1998 includes a pretax gain of $56 million ($34 million after tax) related to the sale of the firm's investment management business in Australia. (c) Second quarter 1999 includes a provision for credit losses of $35 million related to the allowance for credit losses on lending commitments. 11 11 J.P. Morgan & Co. Incorporated CONSOLIDATED STATEMENT OF INCOME J.P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------------------------------------------------------- In millions, except share data Nine months ended ------------------------------------------------------------ September 30 September 30 Increase/ 1999 1998 (Decrease) ------------------------------------------------------------ NET INTEREST REVENUE Interest revenue $8,253 $9,617 ($1,364) Interest expense 7,050 8,659 (1,609) - -------------------------------------------------------------------------------------------------------------------------------- Net interest revenue 1,203 958 245 Provision for loan losses - 25 (25) Reversal of provision for loan losses (150) - (150) - -------------------------------------------------------------------------------------------------------------------------------- Net interest revenue after provision / (reversal of provision) for loan losses 1,353 933 420 NONINTEREST REVENUES Trading revenue 2,361 1,842 519 Investment banking revenue 1,245 1,020 225 Investment management revenue 776 661 115 Fees and commissions 611 569 42 Investment securities revenue 201 247 (46) Other revenue 120 (a) 179 (b) (59) - -------------------------------------------------------------------------------------------------------------------------------- Total noninterest revenues 5,314 4,518 796 Total revenues, net 6,667 5,451 1,216 OPERATING EXPENSES Employee compensation and benefits 2,955 2,432 523 Net occupancy 244 313 (69) Technology and communications 707 887 (180) Other expenses 419 515 (96) - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 4,325 4,147 (c) 178 Income before income taxes 2,342 1,304 1,038 Income taxes 796 430 366 - -------------------------------------------------------------------------------------------------------------------------------- Net income 1,546 874 672 PER COMMON SHARE Net income Basic $8.33 $4.65 $3.68 Diluted 7.76 4.28 3.48 Dividends declared 2.97 2.85 0.12 - --------------------------------------------------------------------------------------------------------------------------------
(a) Nine months ended September 30, 1999 includes a net provision for credit losses of $20 million related to the allowance for credit losses on lending commitments. (b) Nine months ended September 30, 1998 includes a third quarter pretax gain of $56 million ($34 million after tax) related to the sale of the firm's investment management business in Australia and a second quarter pretax gain of $131 million ($79 million after tax) related to the sale of the firm's global trust and agency services business. (c) Nine months ended September 30, 1998, includes a first quarter pretax charge of $215 million ($129 million after tax) related to the restructuring of business activities which was recorded as follows: $140 million in Employee compensation and benefits, related to severance; $70 million in Net occupancy, related to real estate write-offs; and $5 million in Technology and Communications, related to equipment write-offs. 12 12 J.P. Morgan & Co. Incorporated CONSOLIDATED BALANCE SHEET J.P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------------------------------------------------- In millions, except share data September 30 1999 --------------- ASSETS Cash and due from banks $ 1,609 Interest-earning deposits with banks 2,145 Debt investment securities available-for-sale carried at fair value (cost: $24,389 at September 1999, $26,871 at June 1999, and $36,107 at December 1998) 24,115 Equity investment securities 1,528 Trading account assets (including derivative receivables of $44,580 at September 1999, $40,391 at June 1999, and $48,124 at December 1998) 106,510 Securities purchased under agreements to resell ($34,705 at September 1999, $32,739 at June 1999, and $31,056 at December 1998) and federal funds sold 36,755 Securities borrowed 35,518 Loans, net of allowance for loan losses of $301 at September 1999, $335 at June 1999, and $470 at December 1998 25,114 Accrued interest and accounts receivable 6,826 Premises and equipment, net of accumulated depreciation of $1,325 at September 1999, $1,322 at June 1999, and $1,350 at December 1998 1,995 Other assets 12,704 - -------------------------------------------------------------------------------------------------------------------------- Total assets 254,819 - -------------------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 850 In offices outside the U.S. 1,183 Interest-bearing deposits: In offices in the U.S. 3,849 In offices outside the U.S. 42,941 - -------------------------------------------------------------------------------------------------------------------------- Total deposits 48,823 Trading account liabilities (including derivative payables of $41,022 at September 1999, $37,329 at June 1999, and $44,683 at December 1998) 72,043 Securities sold under agreements to repurchase ($60,979 at September 1999, $63,460 at June 1999, and $62,784 at December 1998) and federal funds purchased 61,779 Commercial paper 10,327 Other liabilities for borrowed money 9,447 Accounts payable and accrued expenses 10,507 Long-term debt not qualifying as risk-based capital 20,145 Other liabilities, including allowance for credit losses of $145 at September 1999, $160 at June 1999, and $125 at December 1998 3,333 - -------------------------------------------------------------------------------------------------------------------------- 236,404 Liabilities qualifying as risk-based capital: Long-term debt 5,257 Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 242,811 STOCKHOLDERS' EQUITY Preferred stock (authorized shares: 10,000,000) Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,934,737 at September 1999 and June 1999, and 200,873,067 at December 1998) 502 Capital surplus 1,241 Common stock issuable under stock award plans 1,713 Retained earnings 10,586 Accumulated other comprehensive income: Net unrealized (losses) / gains on investment securities, net of taxes (108) Foreign currency translation, net of taxes (46) - -------------------------------------------------------------------------------------------------------------------------- 14,582 Less: treasury stock (26,053,759 shares at September 1999, 24,985,131 shares at June 1999, and 25,866,786 shares at December 1998) at cost 2,574 - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 12,008 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 254,819 - --------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET J.P. Morgan & Co. Incorporated - ---------------------------------------------------------------------------------------------------------------------------------- In millions, except share data June 30 December 31 1999 1998 --------------------------- ASSETS Cash and due from banks $ 2,094 $ 1,203 Interest-earning deposits with banks 2,058 2,371 Debt investment securities available-for-sale carried at fair value (cost: $24,389 at September 1999, $26,871 at June 1999, and $36,107 at December 1998) 26,702 36,232 Equity investment securities 1,264 1,169 Trading account assets (including derivative receivables of $44,580 at September 1999, $40,391 at June 1999, and $48,124 at December 1998) 114,465 113,896 Securities purchased under agreements to resell ($34,705 at September 1999, $32,739 at June 1999, and $31,056 at December 1998) and federal funds sold 33,531 31,731 Securities borrowed 39,977 30,790 Loans, net of allowance for loan losses of $301 at September 1999, $335 at June 1999, and $470 at December 1998 28,753 25,025 Accrued interest and accounts receivable 6,084 7,689 Premises and equipment, net of accumulated depreciation of $1,325 at September 1999, $1,322 at June 1999, and $1,350 at December 1998 1,893 1,881 Other assets 12,573 9,080 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets 269,394 261,067 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 1,222 1,242 In offices outside the U.S. 778 563 Interest-bearing deposits: In offices in the U.S. 6,627 7,724 In offices outside the U.S. 46,708 45,499 - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 55,335 55,028 Trading account liabilities (including derivative payables of $41,022 at September 1999, $37,329 at June 1999, and $44,683 at December 1998) 70,129 70,643 Securities sold under agreements to repurchase ($60,979 at September 1999, $63,460 at June 1999, and $62,784 at December 1998) and federal funds purchased 64,554 63,368 Commercial paper 13,114 6,637 Other liabilities for borrowed money 10,974 12,515 Accounts payable and accrued expenses 10,089 9,859 Long-term debt not qualifying as risk-based capital 22,722 23,037 Other liabilities, including allowance for credit losses of $145 at September 1999, $160 at June 1999, and $125 at December 1998 4,116 2,999 - ----------------------------------------------------------------------------------------------------------------------------------- 251,033 244,086 Liabilities qualifying as risk-based capital: Long-term debt 5,408 4,570 Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 257,591 249,806 STOCKHOLDERS' EQUITY Preferred stock (authorized shares: 10,000,000) Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244 Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250 Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200 Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,934,737 at September 1999 and June 1999, and 200,873,067 at December 1998) 502 502 Capital surplus 1,245 1,252 Common stock issuable under stock award plans 1,540 1,460 Retained earnings 10,334 9,614 Accumulated other comprehensive income: Net unrealized (losses) / gains on investment securities, net of taxes (52) 147 Foreign currency translation, net of taxes (46) (46) - ----------------------------------------------------------------------------------------------------------------------------------- 14,217 13,623 Less: treasury stock (26,053,759 shares at September 1999, 24,985,131 shares at June 1999, and 25,866,786 shares at December 1998) at cost 2,414 2,362 - ----------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 11,803 11,261 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 269,394 261,067 - -----------------------------------------------------------------------------------------------------------------------------------
13 13 J.P. Morgan & Co. Incorporated CONSOLIDATED STATEMENT OF CONDITION Morgan Guaranty Trust Company of New York
- ----------------------------------------------------------------------------------------------------------------------------------- In millions, except share data September 30 December 31 1999 1998 --------------------------------- ASSETS Cash and due from banks $ 1,551 $ 1,147 Interest-earning deposits with banks 2,082 2,372 Debt investment securities available-for-sale carried at fair value 5,146 3,634 Trading account assets 79,220 90,770 Securities purchased under agreements to resell and federal funds sold 18,250 33,316 Securities borrowed 10,016 8,193 Loans, net of allowance for loan losses of $300 at September 1999 and $470 at December 1998 24,604 24,876 Accrued interest and accounts receivable 5,131 3,898 Premises and equipment, net of accumulated depreciation of $1,124 at September 1999 and $1,160 at December 1998 1,813 1,703 Other assets 12,349 5,337 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets 160,162 175,246 - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 873 1,232 In offices outside the U.S. 1,185 572 Interest-bearing deposits: In offices in the U.S. 3,881 7,749 In offices outside the U.S. 44,103 46,668 - ----------------------------------------------------------------------------------------------------------------------------------- Total deposits 50,042 56,221 Trading account liabilities 62,404 64,776 Securities sold under agreements to repurchase and federal funds purchased 12,891 14,916 Other liabilities for borrowed money 5,607 8,646 Accounts payable and accrued expenses 6,496 6,123 Long-term debt not qualifying as risk-based capital 7,340 10,358 Other liabilities, including allowance for credit losses of $145 at September 1999 and $125 at December 1998 1,515 542 - ----------------------------------------------------------------------------------------------------------------------------------- 146,295 161,582 Long-term debt qualifying as risk-based capital 2,975 3,186 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 149,270 164,768 STOCKHOLDER'S EQUITY Preferred stock, $100 par value (authorized shares: 2,500,000) - - Common stock, $25 par value (authorized shares: 11,000,000; issued and outstanding: 10,599,027) 265 265 Surplus 3,305 3,305 Undivided profits 7,303 6,836 Accumulated other comprehensive income: Net unrealized gains on investment securities, net of taxes 65 118 Foreign currency translation, net of taxes (46) (46) - ----------------------------------------------------------------------------------------------------------------------------------- Total stockholder's equity 10,892 10,478 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholder's equity 160,162 175,246 - ----------------------------------------------------------------------------------------------------------------------------------- Member of the Federal Reserve System and the Federal Deposit Insurance Corporation.
14 14 J.P. Morgan & Co. Incorporated INVESTMENT BANKING REVENUE J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------------------------------------------------- In millions - --------------------------------------------------------------------------------------------------------------------------- ADVISORY AND UNDERWRITING TOTAL INVESTMENT SYNDICATION FEES REVENUE BANKING REVENUE - --------------------------------------------------------------------------------------------------------------------------- Third Quarter 1999 $258 $140 $398 Third Quarter 1998 229 83 312 - --------------------------------------------------------------------------------------------------------------------------- Second Quarter 1999 258 199 457 - --------------------------------------------------------------------------------------------------------------------------- Nine Months 1999 737 508 1,245 Nine Months 1998 618 402 1,020 - --------------------------------------------------------------------------------------------------------------------------
15 15 J.P. Morgan & Co. Incorporated ASSET QUALITY IMPAIRED LOANS J.P. Morgan & Co. Incorporated
- ---------------------------------------------------------------------------------------------------------------------------------- September 30 June 30 September 30 In millions 1999 1999 1998 (a) - ---------------------------------------------------------------------------------------------------------------------------------- Impaired loans: Commercial and industrial $131 (b) $38 $28 Other, primarily individuals 38 29 32 - ---------------------------------------------------------------------------------------------------------------------------------- Total impaired loans 169 67 60 - ----------------------------------------------------------------------------------------------------------------------------------
(a) Certain reclassifications were made to conform with the categorization used in Bank regulatory filings. (b) Increase in impaired commercial and industrial loans during the third quarter of 1999 primarily relates to newly classified loans in the Latin American steel industry. ALLOWANCES FOR CREDIT LOSSES J.P. Morgan & Co. Incorporated Allowance for loan losses
- ----------------------------------------------------------------------------------------------------------------------------------- Third Quarter Nine Months Ended Third Quarter Nine Months Ended In millions 1999 September 30, 1999 1998 September 30, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Beginning balance $335 $470 $392 $546 - ----------------------------------------------------------------------------------------------------------------------------------- (Reversal of provision) / provision for loan losses (45) (150) 25 25 - ----------------------------------------------------------------------------------------------------------------------------------- Reclassifications (a) - - - (50) - ----------------------------------------------------------------------------------------------------------------------------------- Recoveries 17 23 4 13 Charge-offs: (b) Commercial and industrial (6) (16) (6) (40) Banks - (1) (5) (66) Other, primarily financial institutions in 1999 - (25) (6) (24) - ----------------------------------------------------------------------------------------------------------------------------------- Net recoveries / (charge-offs) 11 (19) (13) (117) - ----------------------------------------------------------------------------------------------------------------------------------- Ending balance 301 301 404 404 - -----------------------------------------------------------------------------------------------------------------------------------
(a) Prior to July 1, 1998, changes, excluding charge-offs and recoveries, across balance sheet reserve or allowance captions - which included an adjustment for trading derivatives needed to determine fair value, an allowance for loan losses and an allowance for credit losses on lending commitments - were shown as reclassifications. Reclassifications had no impact on net income, and accordingly, were not shown on the income statement. Subsequent to July 1,1998, reclassifications across balance sheet captions for allowances are reflected as provisions and reversals of provisions in the "Consolidated statement of income". (b) Charge-offs include losses on loan sales of $3 million and $11 million for the three months ended September 30, 1999 and 1998, respectively. Charge-offs include losses on loan sales, primarily banks and other financial institutions, of $33 million and $89 million for the nine months ended September 30, 1999 and 1998, respectively. Components of the allowance for loan losses
- ----------------------------------------------------------------------------------------------------------------------------------- September 30 June 30 September 30 In millions 1999 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Specific counterparty components in the U.S. $ 9 $ 6 $ 36 Specific counterparty components outside the U.S. 23 8 5 - ----------------------------------------------------------------------------------------------------------------------------------- Total specific counterparty 32 14 41 - ----------------------------------------------------------------------------------------------------------------------------------- Specific country 24 32 77 Expected loss (c) 245 289 286 - ----------------------------------------------------------------------------------------------------------------------------------- Total allowance 301 335 404 - -----------------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses on lending commitments*
- ----------------------------------------------------------------------------------------------------------------------------------- Third Quarter Nine Months Ended Third Quarter Nine Months Ended In millions 1999 September 30, 1999 1998 September 30, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Beginning balance $160 $125 $185 $185 - ----------------------------------------------------------------------------------------------------------------------------------- (Reversal of provision) / provision for credit losses (15) 20 - - - ----------------------------------------------------------------------------------------------------------------------------------- Ending balance 145 145 185 185 - -----------------------------------------------------------------------------------------------------------------------------------
Components of the allowance for credit losses on lending commitments*
- ------------------------------------------------------------------------------------------------------------------------------------ September 30 June 30 September 30 In millions 1999 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Specific counterparty components in the U.S. $ 20 $ 17 $ 1 Specific counterparty components outside the U.S. 3 3 2 - ------------------------------------------------------------------------------------------------------------------------------------ Total specific counterparty 23 20 3 - ------------------------------------------------------------------------------------------------------------------------------------ Specific country 1 3 7 Expected loss (c) 121 137 175 - ------------------------------------------------------------------------------------------------------------------------------------ Total allowance 145 160 185 - ------------------------------------------------------------------------------------------------------------------------------------
(c) As previously noted in our 1999 first quarter Form 10-Q, the general component of our allowances for credit losses is used to estimate the impact of separately identified limitations in our expected loss model. Beginning in the second quarter of 1999, the general component is included as part of the expected loss component for disclosure purposes since all factors used to derive the general component relate to the expected loss component. Prior period amounts have been reclassified. * Includes commitments to extend credit, standby letters of credit, and guarantees. 16 16 J.P. Morgan & Co. Incorporated EXPOSURES TO EMERGING COUNTRIES J.P. Morgan & Co. Incorporated (preliminary) The following tables present exposures to certain emerging markets based on management's view of total exposure as of September 30, 1999. The management view takes into account the following cross-border and local exposures: the notional or contract value of loans, commitments to extend credit, securities purchased under agreements to resell, interest-earning deposits with banks; the fair values of trading account assets (cash securities and derivatives, excluding any collateral we hold to offset these exposures) and investment securities; and other monetary assets. It also considers the impact of credit derivatives, at their notional or contract value, where we have bought or sold credit protection outside of the respective country. Trading assets reflect the net of long and short positions of the same issuer. Management's view differs from bank regulatory rules, which are established by the Federal Financial Institutions Examination Council (FFIEC), because of its treatment of credit derivatives, trading account short positions, and the use of fair value versus cost of investment securities. In addition, management does not net local funding or liabilities against any local exposures as allowed by the FFIEC.
By type of financial instrument - --------------------------------------------------------------------------------------------------- Credit In billions Deriva- Other out- deriva- September 30, 1999 Loans tives standings tives - --------------------------------------------------------------------------------------------------- China $ - $ 0.1 $ - $ (0.1) Hong Kong 0.2 0.5 0.4 (0.2) Indonesia 0.1 - - - Malaysia - - - 0.1 Philippines - - 0.1 - Singapore - 0.4 0.1 (0.1) South Korea 0.2 0.8 0.4 (0.3) Taiwan - - - - Thailand - 0.1 0.1 0.1 Other - - - - - --------------------------------------------------------------------------------------------------- Total Asia, excluding Japan(a) 0.5 1.9 1.1 (0.5) - --------------------------------------------------------------------------------------------------- Argentina 0.1 0.1 0.8 (0.5) Brazil 0.2 - 0.3 - Chile 0.4 - - - Colombia 0.2 - 0.1 - Mexico 0.4 0.4 0.4 (0.3) Other 0.2 - 0.3 - - --------------------------------------------------------------------------------------------------- Total Latin America, excluding the Caribbean 1.5 0.5 1.9 (0.8) - ---------------------------------------------------------------------------------------------------
By type of financial instrument - ------------------------------------------------------------------------------------------------------ Total In billions Commit- cross- Local Total September 30, 1999 ments border exposure exposure - ------------------------------------------------------------------------------------------------------ China $ - $ - $ - $ - Hong Kong 0.2 1.1 0.3 1.4 Indonesia 0.1 0.2 - 0.2 Malaysia - 0.1 - 0.1 Philippines - 0.1 - 0.1 Singapore - 0.4 0.1 0.5 South Korea - 1.1 0.5 1.6 Taiwan - - - - Thailand - 0.3 - 0.3 Other - - 0.2 0.2 - ------------------------------------------------------------------------------------------------------ Total Asia, excluding Japan(a) 0.3 3.3 1.1 4.4 - ------------------------------------------------------------------------------------------------------ Argentina - 0.5 0.4 0.9 Brazil - 0.5 1.1 1.6 Chile - 0.4 - 0.4 Colombia - 0.3 - 0.3 Mexico - 0.9 0.3 1.2 Other 0.1 0.6 - 0.6 - ------------------------------------------------------------------------------------------------------ Total Latin America, excluding the Caribbean 0.1 3.2 1.8 5.0 - ------------------------------------------------------------------------------------------------------
By type of counterparty - ----------------------------------------------------------------------------------------------------------------------------- In billions Govern- September 30, 1999 Banks ments Other Total - ----------------------------------------------------------------------------------------------------------------------------- China $ - $ - $ - $ - Hong Kong 0.6 0.2 0.6 1.4 Indonesia - - 0.2 0.2 Malaysia 0.1 - - 0.1 Philippines - - 0.1 0.1 Singapore 0.4 - 0.1 0.5 South Korea 0.4 0.9 0.3 1.6 Taiwan - - - - Thailand 0.2 - 0.1 0.3 Other - 0.2 - 0.2 - ----------------------------------------------------------------------------------------------------------------------------- Total Asia, excluding Japan(a) 1.7 1.3 1.4 4.4 - ----------------------------------------------------------------------------------------------------------------------------- Argentina - 0.4 0.5 0.9 Brazil 0.4 0.9 0.3 1.6 Chile - - 0.4 0.4 Colombia - 0.1 0.2 0.3 Mexico - 0.4 0.8 1.2 Other - 0.2 0.4 0.6 - ----------------------------------------------------------------------------------------------------------------------------- Total Latin America, excluding the Caribbean 0.4 2.0 2.6 5.0 - -----------------------------------------------------------------------------------------------------------------------------
(a) Total exposures to Japan, based upon management's view, were $3.8 billion at September 30, 1999. Total exposures to South Africa, based upon management's view, were $1.9 billion at September 30, 1999. -----END PRIVACY-ENHANCED MESSAGE-----