<PAGE> 1
1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-5885
J.P. MORGAN & CO. INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-2625764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Wall Street, New York, NY
(Address of principal executive offices)
10260-0060
(Zip Code)
(212) 483-2323
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes..X.. No.....
Number of shares outstanding of each of the registrant's classes of
common stock at April 30, 1996:
Common Stock, $2.50 Par Value 187,179,112 Shares
<PAGE> 2
2
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Financial statement information is set forth within this document on the pages
indicated:
Page
Three-month Consolidated statement of income
J.P. Morgan & Co. Incorporated 3
Consolidated balance sheet
J.P. Morgan & Co. Incorporated 4
Consolidated statement of changes in stockholders' equity
J.P. Morgan & Co. Incorporated 5
Consolidated statement of cash flows
J.P. Morgan & Co. Incorporated 6
Consolidated statement of condition
Morgan Guaranty Trust Company of New York 7
Notes to Consolidated financial statements
J.P. Morgan & Co. Incorporated 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Discussion of business sector results; Discussion of the financial
condition and results of operations; Statements of consolidated average
balances and net interest earnings of J.P. Morgan & Co. Incorporated
("J.P. Morgan") for the three months ended March 31, 1996; and Table of
asset and liability management derivatives are set forth on pages 16
through 31 herein.
PART II -- OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 32
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 33
SIGNATURES 34
<PAGE> 3
3
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
In millions,
except per share data Three months ended
------------------------------------------------------------
March 31 March 31 Increase/ December 31 Increase/
1996 1995 (Decrease) 1995 (Decrease)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $2,554 $2,470 $ 84 $2,609 ($ 55)
Interest expense 2,158 1,970 188 2,121 37
- ------------------------------------------------------------------------------------------
Net interest revenue 396 500 (104) 488 (92)
NONINTEREST REVENUE
Trading revenue 758 303 455 369 389
Investment banking revenue 201 114 87 158 43
Credit-related fees 38 43 (5) 40 (2)
Investment management fees 157 130 27 156 1
Operational service fees 113 140 (27) 129 (16)
Net investment securities
gains 12 9 3 1 11
Other revenue 65 149 (84) 177 (112)
- ------------------------------------------------------------------------------------------
Total noninterest revenue 1,344 888 456 1,030 314
Total revenue 1,740 1,388 352 1,518 222
OPERATING EXPENSES
Employee compensation and
benefits 730 626 104 608 122
Net occupancy 73 80 (7) 76 (3)
Technology and communications 158 172 (14) 165 (7)
Other expenses 124 124 -- 141 (17)
- ------------------------------------------------------------------------------------------
Total operating expenses 1,085 1,002 83 990 95
Income before income taxes 655 386 269 528 127
Income taxes 216 131 85 162 54
- ------------------------------------------------------------------------------------------
Net income 439 255 184 366 73
PER COMMON SHARE
Net income (a) $ 2.13 $ 1.27 $ 0.86 $ 1.80 $ 0.33
Dividends declared 0.81 0.75 0.06 0.81 --
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Earnings per share amounts represent both primary and fully diluted earnings
per share.
See notes to financial statements.
<PAGE> 4
4
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Dollars in millions March 31 December 31
1996 1995
-------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 732 $ 1,535
Interest-earning deposits with banks 1,183 1,986
Debt investment securities available for
sale carried at fair value (Cost: $27,115
at March 1996 and $24,154 at December 1995) 27,446 24,638
Trading account assets 69,844 69,408
Securities purchased under agreements to
resell ($39,683 at March 1996 and $32,157
at December 1995) and federal funds sold 39,692 32,157
Securities borrowed 22,901 19,830
Loans 28,645 23,453
Less: allowance for credit losses 1,117 1,130
- -------------------------------------------------------------------------------------
Net loans 27,528 22,323
Customers' acceptance liability 339 237
Accrued interest and accounts receivable 4,766 3,539
Premises and equipment 3,354 3,339
Less: accumulated depreciation 1,445 1,412
- -------------------------------------------------------------------------------------
Premises and equipment, net 1,909 1,927
Other assets 8,407 7,299
- -------------------------------------------------------------------------------------
Total assets 204,747 184,879
- -------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 2,784 3,287
In offices outside the U.S. 677 744
Interest-bearing deposits:
In offices in the U.S. 1,765 2,003
In offices outside the U.S. 44,978 40,404
- -------------------------------------------------------------------------------------
Total deposits 50,204 46,438
Trading account liabilities 46,766 45,289
Securities sold under agreements to
repurchase ($55,952 at March 1996 and
$40,803 at December 1995) and federal
funds purchased 58,765 45,099
Commercial paper 4,229 2,801
Other liabilities for borrowed money 15,659 15,129
Accounts payable and accrued expenses 7,265 5,643
Liability on acceptances 339 237
Long-term debt not qualifying as risk-based
capital 5,710 5,737
Other liabilities 1,272 4,465
- -------------------------------------------------------------------------------------
190,209 170,838
Long-term debt qualifying as risk-based
capital 3,691 3,590
- -------------------------------------------------------------------------------------
Total liabilities 193,900 174,428
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
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 --
Common stock, $2.50 par value (authorized
shares: 500,000,000; issued: 200,682,873 at
March 1996 and 200,678,373 at December 1995) 502 502
Capital surplus 1,432 1,430
Retained earnings 8,006 7,731
Net unrealized gains on investment securities,
net of taxes 470 566
Other 593 552
- -------------------------------------------------------------------------------------
11,697 11,275
Less: treasury stock (13,382,388 shares at
March 1996 and 13,562,755 shares at
December 1995) at cost 850 824
- -------------------------------------------------------------------------------------
Total stockholders' equity 10,847 10,451
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 204,747 184,879
- -------------------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
<PAGE> 5
5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Dollars in millions Three months ended
--------------------------------
March 31 March 31
1996 1995
--------------------------------
<S> <C> <C>
PREFERRED STOCK
Adjustable rate cumulative preferred stock
Balance, January 1 and March 31 $ 244 $ 244
- ------------------------------------------------------------------------------------------------------------
Variable cumulative preferred stock
Balance, January 1 and March 31 250 250
- ------------------------------------------------------------------------------------------------------------
Fixed cumulative preferred stock
Balance, January 1 - -
Shares issued 200 -
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 200 -
- ------------------------------------------------------------------------------------------------------------
Total preferred stock, March 31 694 494
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance, January 1 and March 31 502 502
- ------------------------------------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance, January 1 1,430 1,452
Shares issued or distributed under dividend reinvestment
plan, various employee benefit plans, and conversion of
debentures, and income tax benefits associated with stock
options 2 (4)
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 1,432 1,448
- ------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, January 1 7,731 7,044
Net income 439 255
Dividends declared on adjustable rate cumulative preferred
stock (3) (3)
Dividends declared on variable cumulative preferred stock (5) (3)
Dividends declared on common stock (152) (141)
Dividend equivalents on common stock issuable (4) (3)
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 8,006 7,149
- ------------------------------------------------------------------------------------------------------------
NET UNREALIZED GAINS ON INVESTMENT SECURITIES, NET OF TAXES
Balance, January 1 566 456
Net change in net unrealized gains, net of taxes (96) (7)
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 470 449
- ------------------------------------------------------------------------------------------------------------
OTHER
COMMON STOCK ISSUABLE UNDER STOCK AWARD PLANS
Balance, January 1 556 369
Deferred stock awards, net 39 3
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 595 372
- ------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
Balance, January 1 (4) (2)
Translation adjustments 3 (3)
Income tax benefit (expense) (1) 1
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 (2) (4)
- ------------------------------------------------------------------------------------------------------------
Total other, March 31 593 368
- ------------------------------------------------------------------------------------------------------------
LESS: TREASURY STOCK
Balance, January 1 824 747
Purchases 142 67
Shares distributed under various employee benefit plans (116) (44)
- ------------------------------------------------------------------------------------------------------------
Balance, March 31 850 770
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity, March 31 10,847 9,640
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE> 6
6
CONSOLIDATED STATEMENT OF CASH FLOWS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Dollars in millions Three months ended
----------------------------
March 31 March 31
1996 1995
----------------------------
<S> <C> <C>
NET INCOME $ 439 $ 255
Adjustments to reconcile to cash provided by (used in) operating activities:
Noncash items: depreciation, amortization, deferred
income taxes, and stock award plans 268 80
(Increase) decrease in assets:
Trading account assets (422) (11,247)
Securities purchased under agreements to resell (7,523) (6,293)
Securities borrowed (3,071) 1,054
Accrued interest and accounts receivable (1,227) 2,014
Increase (decrease) in liabilities:
Trading account liabilities 1,488 8,715
Securities sold under agreements to repurchase 15,151 2,686
Accounts payable and accrued expenses 1,586 (2,290)
Other changes in operating assets and liabilities, net (5,607) 2,847
Net investment securities gains included in cash flows
from investing activities (12) (9)
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,070 (2,188)
- ----------------------------------------------------------------------------------------------------------------
(Increase) decrease in interest-earning deposits with banks 803 (291)
Debt investment securities:
Proceeds from sales 18,736 9,246
Proceeds from maturities, calls, and mandatory redemptions 747 747
Purchases (22,442) (7,722)
(Increase) decrease in federal funds sold (9) 136
Increase in loans (5,205) (586)
Payments for premises and equipment (42) (53)
Other changes, net 147 (675)
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (7,265) 802
- ----------------------------------------------------------------------------------------------------------------
Decrease in noninterest-bearing deposits (570) (890)
Increase in interest-bearing deposits 4,345 4,559
Decrease in federal funds purchased (1,483) (2,630)
Increase (decrease) in commercial paper 1,428 (1,198)
Other liabilities for borrowed money:
Proceeds 6,250 3,853
Payments (6,390) (2,733)
Long-term debt:
Proceeds 657 1,729
Payments (517) (265)
Capital stock:
Issued or distributed 200 --
Purchased (143) (67)
Dividends paid (162) (147)
Other changes, net 1,780 (1,977)
- ----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 5,395 234
- ----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and due from banks (3) 95
- ----------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND DUE FROM BANKS (803) (1,057)
Cash and due from banks at December 31, 1995 and 1994 1,535 2,210
- ----------------------------------------------------------------------------------------------------------------
Cash and due from banks at March 31, 1996 and 1995 732 1,153
- ----------------------------------------------------------------------------------------------------------------
Cash disbursements made for:
Interest $ 2,279 $ 1,890
Income taxes 252 104
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE> 7
7
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Dollars in millions March 31 December 31
1996 1995
----------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 709 $ 1,421
Interest-earning deposits with banks 1,270 2,081
Debt investment securities available for sale
carried at fair value 23,004 23,625
Trading account assets 54,306 55,298
Securities purchased under agreements to resell
and federal funds sold 25,218 21,013
Loans 25,933 20,628
Less: allowance for credit losses 1,009 1,021
- --------------------------------------------------------------------------------------------
Net loans 24,924 19,607
Customers' acceptance liability 319 237
Accrued interest and accounts receivable 3,424 3,401
Premises and equipment 2,970 2,958
Less: accumulated depreciation 1,249 1,224
- --------------------------------------------------------------------------------------------
Premises and equipment, net 1,721 1,734
Other assets 6,101 4,574
- --------------------------------------------------------------------------------------------
Total assets 140,996 132,991
- --------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 2,731 3,254
In offices outside the U.S. 703 839
Interest-bearing deposits:
In offices in the U.S. 1,707 1,846
In offices outside the U.S. 45,706 40,450
- --------------------------------------------------------------------------------------------
Total deposits 50,847 46,389
Trading account liabilities 41,660 39,126
Securities sold under agreements to repurchase
and federal funds purchased 21,496 20,090
Other liabilities for borrowed money 7,367 7,368
Accounts payable and accrued expenses 4,180 4,168
Liability on acceptances 319 237
Long-term debt not qualifying as risk-based capital
(includes $472 at 1996 and $418 at 1995 of notes 2,507 2,786
payable to J.P. Morgan)
Other liabilities 1,443 2,852
- --------------------------------------------------------------------------------------------
129,819 123,016
Long-term debt qualifying as risk-based capital
(includes $2,237 at 1996 and $1,310 at 1995 of 2,437 1,509
notes payable to J.P. Morgan)
- --------------------------------------------------------------------------------------------
Total liabilities 132,256 124,525
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value
(authorized shares: 2,500,000) -- --
Common stock, $25 par value
(authorized and outstanding shares: 10,000,000) 250 250
Surplus 2,820 2,820
Undivided profits 5,491 5,136
Net unrealized gains on investment securities, net of
taxes 181 264
Foreign currency translation (2) (4)
- --------------------------------------------------------------------------------------------
Total stockholder's equity 8,740 8,466
- --------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 140,996 132,991
- --------------------------------------------------------------------------------------------
</TABLE>
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
See notes to financial statements.
<PAGE> 8
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF J.P. MORGAN & CO. INCORPORATED
Supplementary to notes in the 1995 Annual report to stockholders
1. BASIS OF PRESENTATION
The interim financial information in this report has not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of the
financial position and the results of operations for the interim periods have
been made. All adjustments made were of a normal recurring nature. Management
consults with its independent accountants on significant accounting and
reporting matters that arise during the year.
2. INTEREST REVENUE AND EXPENSE
An analysis of interest revenue and expense derived from on-and
off-balance-sheet financial instruments is presented in the table below.
Interest revenue and expense associated with derivative financial instruments,
such as swaps, forwards, spot, futures, options, and debt securities forwards,
used as hedges or to modify the interest rate characteristics of assets and
liabilities, are attributed to and included with the related balance sheet
instrument. Net interest revenue associated with risk-adjusting swaps that are
used to meet longer-term asset and liability management objectives, including
the maximization of net interest revenue, is not attributed to a specific
balance sheet instrument, but is included in the Other sources caption in the
table below.
<TABLE>
<CAPTION>
First quarter
In millions 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST REVENUE
Deposits with banks $ 27 $ 59
Debt investment securities (a) 394 399
Trading account assets 755 829
Securities purchased under agreements
to resell and federal funds sold 577 412
Securities borrowed 263 214
Loans 440 415
Other sources, primarily risk-adjusting swaps 98 142
- ----------------------------------------------------------------------------------------------
Total interest revenue 2,554 2,470
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 650 619
Trading account liabilities 293 428
Securities sold under agreements to
repurchase and federal funds purchased 787 595
Other borrowed money 289 211
Long-term debt 139 117
- ----------------------------------------------------------------------------------------------
Total interest expense 2,158 1,970
- ----------------------------------------------------------------------------------------------
Net interest revenue 396 500
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Interest revenue from debt investment securities included taxable revenue of
$360 million and $357 million and revenue exempt from U.S. income taxes of $34
million and $42 million for the three months ended March 31, 1996 and 1995,
respectively.
<PAGE> 9
9
For the three months ended March 31, 1996 and 1995, net interest revenue
associated with asset and liability management derivatives was approximately $40
million and $80 million respectively. At March 31, 1996, approximately ($280)
million of net deferred losses on closed derivative contracts used for asset and
liability management purposes were recorded on the balance sheet. Such amount is
primarily composed of net deferred losses on closed hedge contracts included in
the amortized cost of the debt investment portfolio. As discussed in Note 4 to
the financial statements, Investment securities, the net unrealized appreciation
associated with the debt investment portfolio was $331 million at March 31,
1996. Net deferred losses on closed derivative contracts are expected to
amortize into Net interest revenue as follows: ($75) million - remainder of
1996; ($70) million in 1997; ($60) million in 1998; ($30) million in 1999; ($20)
million in 2000; ($10) million in 2001; and approximately ($15) million
thereafter. The amount of net deferred gains or losses on closed derivative
contracts will change from period to period, primarily due to amortization of
such amounts to net interest revenue and the execution of our asset and
liability management strategies, which may result in the sale of the underlying
hedged instruments and/or termination of hedge contracts.
3. TRADING REVENUE
Trading revenue disaggregated by principal product groupings for the three
months ended March 31, 1996 and 1995, is presented in the following table.
Trading-related net interest revenue should be considered when evaluating
trading results since the firm manages its trading activities based on combined
revenues. For additional information refer to the Trading revenue discussion in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
First quarter
In millions 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Income $ 533 $ 57
Equities 94 42
Foreign Exchange 68 102
Commodities 34 19
Proprietary Unit 29 83
- -----------------------------------------------------------------------------------------
Trading revenue 758 303
- -----------------------------------------------------------------------------------------
</TABLE>
4. INVESTMENT SECURITIES
Debt investment securities
A comparison of the cost and carrying values of debt investment securities
available for sale and carried at fair value at March 31, 1996, follows.
<TABLE>
<CAPTION>
Fair and
carrying
In millions Cost value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury $ 919 $ 989
U.S. government agency, principally mortgage-backed 20,060 20,137
U.S. state and political subdivision 1,734 1,895
U.S. corporate and bank debt 148 151
Foreign government* 2,374 2,387
Foreign corporate and bank debt 1,780 1,786
Other 100 101
- ----------------------------------------------------------------------------------------------------
Total debt investment securities 27,115 27,446
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Primarily includes debt of countries that are members of the Organization for
Economic Cooperation and Development.
Net unrealized appreciation associated with debt investment securities available
for sale carried at fair value at March 31, 1996, was $331 million, consisting
of gross unrealized appreciation of $436 million and gross unrealized
depreciation of $105 million. Such amounts represent the gross unrealized
appreciation or depreciation on each debt security, including the effects of any
related hedge. For additional detail of gross unrealized gains and losses
associated with open derivative contracts used to hedge debt investment
securities, see Note 6 to the financial statements, Off-balance-sheet financial
instruments.
<PAGE> 10
10
The following table presents the components of Net realized investment
securities gains.
<TABLE>
<CAPTION>
First quarter
In millions 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Gross realized gains from sales $ 101 $ 60
Gross realized losses from sales (89) (51)
Net gains on maturities, calls and
mandatory redemptions - -
- -------------------------------------------------------------------------------
Net investment securities gains 12 9
- -------------------------------------------------------------------------------
</TABLE>
Equity investment securities
Net realized gains on the sale of equity investment securities of $64 million
and $163 million included in Other revenue for the three months ended March 31,
1996 and 1995, respectively, include $73 million and $168 million of gross
realized gains. Gross unrealized gains and losses as well as a comparison of the
cost, fair value, and carrying value of marketable equity investment securities
at March 31, 1996, follows.
<TABLE>
<CAPTION>
Gross Gross Fair and
unrealized unrealized carrying
In millions Cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1996 $236 $430 $1 $665
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities without available market quotations:
Nonmarketable equity investment securities, carried at a cost of $455 million,
had an estimated fair value of $539 million at March 31, 1996.
5. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, including derivative instruments used
for trading purposes, are carried at fair value. The following table presents
the carrying value of trading account assets and liabilities at March 31, 1996,
and the average balance for the three-month period ended March 31, 1996.
<TABLE>
<CAPTION>
Carrying Average
In millions value balance
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
TRADING ACCOUNT ASSETS
U.S. Treasury $11,198 $11,817
U.S. government agency 2,528 2,293
Foreign government 18,687 19,669
Corporate debt and equity 12,217 13,623
Other securities 3,378 6,948
Interest rate and currency swaps 11,476 11,294
Foreign exchange contracts 2,472 2,872
Interest rate futures and forwards 270 394
Commodity and equity contracts 2,368 1,703
Purchased option contracts 5,250 4,995
- --------------------------------------------------------------------------------------------------
Total trading account assets 69,844 75,608
- --------------------------------------------------------------------------------------------------
TRADING ACCOUNT LIABILITIES
U.S. Treasury 7,528 8,701
Foreign government 11,780 9,510
Corporate debt and equity 4,167 3,748
Other securities 937 2,478
Interest rate and currency swaps 10,010 10,301
Foreign exchange contracts 3,591 3,900
Interest rate futures and forwards 495 520
Commodity and equity contracts 2,943 2,564
Written option contracts 5,315 4,973
- --------------------------------------------------------------------------------------------------
Total trading account liabilities 46,766 46,695
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
11
6. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Derivatives
Derivatives may be used either for trading or asset and liability management
purposes. Accordingly, the notional amounts presented in the table below have
been identified as relating to either trading or asset and liability management
activities based on management's intent and ongoing usage. A summary of the
credit exposure, which is represented by the positive market value associated
with derivatives, after considering the benefit of approximately $25.1 billion
and $27.7 billion of master netting agreements in effect at March 31, 1996 and
December 31, 1995, respectively, is also presented.
<TABLE>
<CAPTION>
Notional amounts Credit exposure
------------------------ -------------------------
March 31 December 31 March 31 December 31
In billions 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate and currency swaps
Trading $1,398.2 $1,233.3
Asset and liability management(a)(b)(c) 279.7 282.3
- ---------------------------------------------------------------------------------------------------------
Total interest rate and currency swaps 1,677.9 1,515.6 $ 11.5 $ 12.4
- ---------------------------------------------------------------------------------------------------------
Foreign exchange spot, forward, and
futures contracts
Trading 465.2 443.7
Asset and liability management(a)(b) 20.5 18.1
- ---------------------------------------------------------------------------------------------------------
Total foreign exchange spot, forward,
and futures contracts 485.7 461.8 2.5 3.3
- ---------------------------------------------------------------------------------------------------------
Interest rate futures, forward rate
agreements, and debt securities forwards
Trading 466.0 412.7
Asset and liability management 15.4 2.7
- ---------------------------------------------------------------------------------------------------------
Total interest rate futures, forward
rate agreements, and debt securities
forwards 481.4 415.4 0.3 0.5
- ---------------------------------------------------------------------------------------------------------
Commodity and equity swaps, forward, and
futures contracts, all trading 85.9 65.1 2.3 1.4
- ---------------------------------------------------------------------------------------------------------
Purchased options(d)
Trading 486.9 462.2
Asset and liability management(a) 2.6 2.6
- ---------------------------------------------------------------------------------------------------------
Total purchased options 489.5 464.8 5.2 5.2
- ---------------------------------------------------------------------------------------------------------
Written options, all trading(e) 613.6 524.0 -- --
- ---------------------------------------------------------------------------------------------------------
Total credit exposure recorded as
assets on the balance sheet 21.8 22.8
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
12
(a) The majority of J.P. Morgan's asset and liability management derivatives are
transacted with independently managed J.P. Morgan derivatives dealers that
function as intermediaries for credit and administrative purposes.
(b) The notional amounts of asset and liability management derivatives contracts
conducted in the foreign exchange markets, primarily forward contracts, amounted
to $23.5 billion at March 31, 1996, and were primarily denominated in the
following currencies: Deutsche mark $5.1 billion, French franc $2.8 billion,
Italian lira $2.6 billion, Spanish peseta $1.9 billion, Japanese yen $1.6
billion, British pound $1.5 billion, Netherlands guilder $1.2 billion, Swiss
franc $1.1 billion, and Belgian franc $1.0 billion.
(c) The notional amount of risk-adjusting swaps was $259.0 billion at
March 31, 1996.
(d) At March 31, 1996, purchased options used for trading purposes included
$375.3 billion of interest rate options, $77.4 billion of foreign exchange
options, and $34.2 billion of commodity and equity options. Only interest rate
options are used for asset and liability management purposes. Purchased
options executed on an exchange amounted to $130.7 billion and those
negotiated over-the-counter amounted to $358.8 billion at March 31, 1996.
(e) At March 31, 1996, written options used for trading purposes included
$493.7 billion of interest rate options, $86.0 billion of foreign exchange
options, and $33.9 billion of commodity and equity options. Written option
contracts executed on an exchange amounted to $201.8 billion and those
negotiated over-the-counter amounted to $411.8 billion at March 31, 1996.
Asset and liability management derivatives
As an end user, J.P. Morgan utilizes derivative instruments in the execution of
its asset and liability management strategies. Derivatives used for these
purposes primarily include interest rate swaps, foreign exchange forward
contracts, forward rate agreements, interest rate futures, and debt securities
forwards. Derivatives are used to hedge or modify the interest rate
characteristics of debt investment securities, loans, deposits, other
liabilities for borrowed money, long-term debt, and other financial assets and
liabilities. In addition, we utilize derivatives to adjust our overall interest
rate risk profile through the use of risk-adjusting swaps.
Net unrealized gains associated with open derivative contracts used to
hedge or modify the interest rate characteristics of related balance sheet
instruments amounted to $156 million at March 31, 1996. Gross unrealized gains
and gross unrealized losses associated with open derivative contracts used for
these purposes at March 31, 1996, are presented below. Such amounts primarily
relate to interest rate and currency swaps used to hedge or modify the interest
rate characteristics of long-term debt, deposits, and debt investment
securities, principally mortgage-backed securities. See Note 7 to the financial
statements, Fair value of financial instruments.
<TABLE>
<CAPTION>
Gross Gross Net
unrealized unrealized unrealized
In millions gains (losses) gains/(losses)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt $176 ($99) $ 77
Deposits 63 (15) 48
Debt investment securities 39 (14) 25
Other financial instruments 30 (24) 6
- -------------------------------------------------------------------------------------------------------------
Total 308 (152) 156
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains associated with risk-adjusting swaps and their related
hedges that are entered into to meet longer-term asset and liability management
objectives approximated $0.3 billion at March 31, 1996. The net amount is
composed of $3.6 billion of gross unrealized gains and $3.3 billion of gross
unrealized losses. The unrealized gains and losses related to the derivative
contracts used to hedge these risk-adjusting swaps, included above, were not
material at March 31, 1996. There were no material terminations of
risk-adjusting swaps during the three months ended March 31, 1996.
<PAGE> 13
13
Credit-related financial instruments
Credit-related financial instruments include commitments to extend credit,
standby letters of credit and guarantees, and indemnifications in connection
with securities lending activities. The contractual amounts of these instruments
represent the amounts at risk should the contract be fully drawn upon, the
client default, and the value of any existing collateral become worthless. The
credit risk associated with these instruments varies depending on the
creditworthiness of the client and the value of any collateral held. The maximum
credit risk associated with credit-related financial instruments is measured by
the contractual amounts of these instruments.
A summary of the contractual amount of credit-related financial instruments
at March 31, 1996, is presented in the following table.
<TABLE>
<CAPTION>
March 31
In billions 1996
- -------------------------------------------------------------------------------
<S> <C>
Commitments to extend credit $59.3
Standby letters of credit and guarantees 12.9
- -------------------------------------------------------------------------------
</TABLE>
Other
Consistent with industry practice, amounts receivable and payable for securities
that have not reached the contractual settlement dates are recorded net on the
consolidated balance sheet. Amounts receivable for securities sold of $25.1
billion were netted against amounts payable for securities purchased of $23.0
billion to arrive at a net trade date receivable of $2.1 billion, which was
classified as Other assets on the consolidated balance sheet at March 31, 1996.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, J.P. Morgan estimates that the aggregate net fair value of all
balance sheet and off-balance-sheet financial instruments exceeded associated
net carrying values at March 31, 1996 and December 31, 1995 by approximately
$1.4 billion before considering income taxes. Such amounts were primarily
attributable to net appreciation on net loans and risk-adjusting swaps of
$1.2 billion and $0.3 billion, respectively, at March 31, 1996 and
$1.2 billion and $0.4 billion, respectively, at December 31, 1995.
<PAGE> 14
14
8. IMPAIRED LOANS AND ALLOWANCE FOR CREDIT LOSSES
Total impaired loans, net of charge-offs, at March 31, 1996, are presented in
the following table. At March 31, 1996, more than half of the impaired loan
balance is measured based upon the present value of expected future cash flows
discounted at an individual loan's effective interest rate, one third is based
on the fair value of the collateral, and the remainder is measured by an
observable market price.
<TABLE>
<CAPTION>
March 31
In millions 1996
- ---------------------------------------------------------------------------------------
<S> <C>
Impaired loans:
Commercial and industrial $110
Other 42
- ---------------------------------------------------------------------------------------
152
Restructuring countries 4
- ---------------------------------------------------------------------------------------
Total impaired loans 156 (a)
- ---------------------------------------------------------------------------------------
Other nonperforming assets -
- ---------------------------------------------------------------------------------------
Total nonperforming assets 156
- ---------------------------------------------------------------------------------------
</TABLE>
An analysis of the effect of impaired loans, net of charge-offs, on
interest revenue in the three months ended March 31, 1996 and 1995, is presented
in the following table.
<TABLE>
<CAPTION>
First quarter First quarter
In millions 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest revenue that would have been
recorded if accruing $ 4 $ 5
Less interest revenue recorded 1 14
- ----------------------------------------------------------------------------------------------
(Negative)/ positive impact of impaired
loans on interest revenue (3) 9
- ----------------------------------------------------------------------------------------------
</TABLE>
An analysis of the allowance for credit losses at March 31, 1996, is presented
in the following table.
<TABLE>
<CAPTION>
First quarter
In millions 1996
- --------------------------------------------------------------------------------
<S> <C>
Beginning of period balance $ 1,130
- --------------------------------------------------------------------------------
Recoveries 5
Charge-offs:
Commercial and industrial (15)
Other (3)
- --------------------------------------------------------------------------------
Net charge-offs (13)
- --------------------------------------------------------------------------------
Balance, March 31, 1996 (b) 1,117 (c)
- --------------------------------------------------------------------------------
</TABLE>
(a) As of March 31, 1996, no reserve is required under Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan, for the $156 million recorded investment in impaired loans. Charge-offs
and interest applied to principal have reduced the recorded investment values to
amounts that are less than the SFAS No. 114 calculated values. For the three
months March 31, 1996, the average recorded investment in impaired loans was
$131 million. (b) In accordance with SFAS No. 5, Accounting for Contingencies,
and SFAS No. 114, an allowance is maintained that is considered adequate to
absorb losses inherent in the existing portfolios of loans and other
undertakings to extend credit, such as irrevocable unused loan commitments, or
to make payments to others for which a client is ultimately liable, such as
standby letters of credit and guarantees, commercial letters of credit and
acceptances, and all other credit exposures, including derivatives. A judgment
as to the adequacy of the allowance is made at the end of each quarterly
reporting period. (c) At March 31, 1996, the allocation of the allowance for
credit losses was as follows: Specific allocation - borrowers in the U.S. $134
million, Specific allocation - borrowers outside the U.S. $56 million,
Allocation to general risk $927 million.
<PAGE> 15
15
9. INVESTMENT BANKING AND OTHER REVENUE
In the first quarter of 1996 and 1995, investment banking revenue of $201
million and $114 million includes $65 million and $22 million, respectively, of
underwriting revenue.
Other revenue of $65 million in the 1996 first quarter includes $64 million
of net equity investment securities gains. Other revenue of $149 million in the
1995 first quarter includes net equity investment securities gains of $163
million and $40 million of costs associated with hedging anticipated foreign
currency revenues and expenses.
10. INCOME TAXES
Income tax expense in the 1996 first quarter reflects a 33% effective tax rate,
compared to a 34% effective tax rate in the 1995 first quarter. Income tax
expense related to net investment securities gains was approximately $5 million
and $4 million for the three months ended March 31, 1996 and 1995, respectively,
computed at a rate of approximately 41%.
The valuation allowance to reduce deferred tax assets to the amount
expected to be realized totaled $140 million at December 31, 1995. The valuation
allowance is primarily related to the ability to recognize tax benefits
associated with foreign operations. The balance of the valuation allowance has
not changed materially since December 31, 1995.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Excluding mortgaged properties, assets carried at approximately $67.8 billion in
the consolidated balance sheet at March 31, 1996, were pledged as collateral for
borrowings, to qualify for fiduciary powers, to secure public monies as required
by law, and for other purposes.
12. EARNINGS PER COMMON SHARE
In the calculation of primary and fully diluted earnings per common share, net
income is adjusted by adding back to net income the interest expense on
convertible debentures and the expense related to dividend equivalents on
certain deferred incentive compensation awards, net of the related income tax
effects, and deducting the preferred stock dividends.
Primary and fully diluted earnings per common share are computed by
dividing income components by the weighted-average number of common and common
equivalent shares outstanding during the period.
For the primary earnings per share calculation, the weighted-average number
of common and common equivalent shares outstanding includes the average number
of shares of common stock outstanding, the average number of shares issuable
upon conversion of convertible debentures, and the average number of shares
issuable under employee benefit plans that have a dilutive effect.
The weighted-average number of common and common equivalent shares
outstanding, assuming full dilution, includes the average number of shares of
common stock outstanding, the average number of shares issuable upon conversion
of convertible debentures, and the average number of shares issuable under
various employee benefit plans. The maximum dilutive effect is computed using
the period-end market price of J.P. Morgan common stock, if it is higher than
the average market price used in calculating primary earnings per share.
<TABLE>
<CAPTION>
First quarter
Dollars in millions 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjusted net income $ 431 $ 249
Primary earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 202,133,593 196,905,106
Fully diluted earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 200,539,222 196,998,250
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
16
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
J.P. Morgan & Co. Incorporated reported net income of $439 million in the first
quarter of 1996, 72% higher than in the first quarter of 1995. Earnings per
share for the quarter were $2.13 versus $1.27 a year ago. Last year, first
quarter earnings included a charge of $55 million ($33 million after tax), or
$0.17 per share, related primarily to severance.
FIRST QUARTER RESULTS AT A GLANCE
<TABLE>
<CAPTION>
In millions of dollars, Fourth
except per share data First quarter quarter
1996 1995 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,740 $ 1,388 $ 1,518
Operating expenses (1,085) (1,002) (990)
Income taxes (216) (131) (162)
- ------------------------------------------------------------------------------
Net income $ 439 $ 255 $ 366
Net income per share $ 2.13 $ 1.27 $ 1.80
- ------------------------------------------------------------------------------
Dividends declared per share $ 0.81 $ 0.75 $ 0.81
</TABLE>
REVENUES rose 25% in the first quarter from a year ago.
- Trading revenue more than doubled to $758 million, as increased client
activity propelled advances in fixed income and equities. Combined
trading and related net interest revenue was up 116% to $788 million. -
Investment banking revenue rose 76% to $201 million.
- Investment management fees grew 21%. Operational service and
credit-related fees were down as a result of the sale of the firm's
custody business in late 1995.
- Net interest revenue declined 21% to $396 million.
OPERATING EXPENSES were up 8% from a year ago, as incentive compensation
accruals for the first quarter increased in line with higher earnings.
IN OTHER DEVELOPMENTS, on May 13, 1996, J.P. Morgan announced that the firm had
reached an agreement in principle to form a strategic alliance with Computer
Sciences Corporation, Andersen Consulting, AT&T Solutions, and Bell Atlantic
Network Integration to manage parts of Morgan's global technology
infrastructure. The Pinnacle Alliance, as the new consortium will be known, is
designed to expand Morgan's access to world-class technological resources and
build its competitive strength as a leader in global finance. The value of the
seven-year agreement is estimated at more than $2 billion. A final agreement
will be negotiated within the next few months. The Pinnacle Alliance will
manage activities that represent about a third of Morgan's $1 billion of annual
technology expenditures.
Morgan expects to achieve aggregate savings of approximately 15 percent on
projected technology costs over the life of the agreement, after an estimated
$100 million transition expense mainly related to the sale of certain
technology equipment to Alliance firms, training, and other personnel expenses.
The transition expense is expected to be recorded in the 1996 third quarter
upon completion of an agreement.
<PAGE> 17
17
BUSINESS SECTOR RESULTS
The firm reports financial results for five business sectors. Three are oriented
toward client services: Finance and Advisory, Sales and Trading, and Asset
Management and Servicing. The Equity Investments sector comprises management of
the firm's own portfolio of equity securities. The Asset and Liability
Management sector covers the management of the firm's overall interest rate
exposure. These five sectors generally reflect the way we operate but do not
correspond exactly with the firm's organizational structure. Presented below are
the summary results for each sector for the three months ended March 31, 1996
and 1995.
<TABLE>
<CAPTION>
Asset Asset
Manage- and
Finance Sales ment Equity Liability Corp-
and and and Inves- Manage- orate Consol-
In millions Advisory Trading Servicing tments ment Items idated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31,1996
Total revenue $ 451 $ 741 $ 349 $ 90 $ 191 $ (82) $1,740
Total expenses 337 339 271 8 29 101 1,085
- --------------------------------------------------------------------------------------------------------------------
Pretax income 114 402 78 82 162 (183) 655
- --------------------------------------------------------------------------------------------------------------------
March 31,1995
Total revenue 320 385 317 173 240 (47) 1,388
Total expenses 276 295 216 6 23 186 1,002
- --------------------------------------------------------------------------------------------------------------------
Pretax income 44 90 101 167 217 (233) 386
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) The firm's management reporting system and policies were used to determine
the revenues and expenses directly attributable to each sector on a
taxable-equivalent basis. In addition, earnings on stockholders' equity and
certain overhead expenses not allocated for management reporting purposes were
allocated to each business sector. Earnings on stockholders' equity were
allocated based on management's assessment of the inherent risk of each 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.
(2) In the three months ended March 31, 1996 and 1995, $216 million and $131
million, respectively, related to income taxes were not allocated to the
business sectors.
<PAGE> 18
18
FINANCE AND ADVISORY
The Finance and Advisory sector recorded pretax income of $114 million in the
first quarter of 1996 compared with $44 million a year ago. Total revenue in the
1996 first quarter increased 41% to $451 million from $320 million in the first
quarter of 1995 reflecting an increase in investment banking revenue principally
due to higher levels of advisory and underwriting activities. Higher revenues
from equity derivatives also contributed to the increase.
Expenses in the first quarter of 1996 for the Finance and Advisory
sector were $337 million compared with $276 million in the first quarter of
1995, an increase of 22% primarily due to higher employee compensation and
benefits expenses.
SALES AND TRADING
The Sales and Trading sector recorded pretax income of $402 million in the first
quarter of 1996 compared with $90 million in the first quarter of 1995. Total
revenue in the first quarter of 1996 increased 92% to $741 million compared with
$385 million in the first quarter of 1995 as revenue in both developed and
emerging markets grew significantly. Total revenue increased due to strong
results in fixed income markets due principally to strong client demand for
swaps, government, and corporate securities; risk management activity for
clients accelerated. Revenues from our proprietary trading unit declined.
Total expenses for the Sales and Trading sector of $339 million
increased $44 million or 15% from the first quarter of 1995 primarily due to
higher employee compensation and benefits expense.
ASSET MANAGEMENT AND SERVICING
The Asset Management and Servicing sector recorded pretax income of $78 million
in the first quarter of 1996 compared with $101 million in the year-earlier
period. Total revenue increased 10% to $349 million in the first quarter of 1996
compared with $317 million in the first quarter of 1995. This increase was
primarily driven by an increase in revenue from asset management, reflecting an
increase in assets under management primarily from net new business.
Expenses associated with Asset Management and Servicing were $271
million in the first quarter of 1996 compared with $216 million in the first
quarter of 1995. The 25% increase in expenses primarily relates to higher
employee compensation and benefits, in part due to higher staff levels.
In a strategic disposition, we sold our securities custody and clearing
business in 1995 and discontinued certain of our cash services. Revenues and
expenses for 1996, which are related to the transition period, and 1995
associated with these businesses, are in the Corporate Items section.
<PAGE> 19
19
EQUITY INVESTMENTS
Equity Investments recorded pretax income of $82 million in the first quarter of
1996 compared with $167 million in the first quarter of 1995. Total revenue was
$90 million, down from $173 million in the first quarter of 1995. The 1996 first
quarter reflected net equity investment securities gains of $64 million versus
$163 million in the year-earlier quarter. Net unrealized appreciation on the
combined portfolio of marketable and nonmarketable equity investment securities
was $513 million at March 31, 1996, compared with $525 million at December 31,
1995.
The results of the Equity Investment portfolio are also evaluated on an
economic basis using total return, which combines revenue and the change in net
unrealized appreciation. Total return for the first quarter of 1996 decreased
20% to $78 million from $97 million in the first quarter of 1995. As our
investment strategy covers a longer-term horizon, total return viewed over
shorter periods will reflect the impact of short-term market movements,
including industry specific events.
ASSET AND LIABILITY MANAGEMENT
Asset and Liability Management recorded pretax income of $162 million in the
first quarter of 1996 compared with $217 million in the same period a year ago.
Total revenue, which primarily includes net interest revenue and net investment
securities gains, was $191 million and $240 million for the first quarter of
1996 and 1995 respectively. The decline in total revenue was primarily due to
the decrease in net interest revenue as a result of the maturity of
higher-yielding instruments since the first quarter of 1995. Net unrealized
appreciation on asset and liability management financial instruments, which
included appreciation associated with risk adjusting swaps and debt investment
securities offset by depreciation associated with longer-term funding, was
$444 million at March 31, 1996 and $553 million at December 31, 1995.
As our objective in Asset and Liability Management is to create
longer-term value through the management of interest rate risk related to J.P.
Morgan's nontrading assets, liabilities, and off-balance-sheet activities, the
performance of the Asset and Liability Management sector, similar to that of the
Equity Investments sector, is evaluated on an economic basis using total return.
Total return, which combines reported revenue and the change in net unrealized
appreciation, decreased 36% to $82 million in the first quarter of 1996 from
$129 million in the first quarter of 1995.
CORPORATE ITEMS
Corporate Items includes revenues and expenses that have not been allocated to
the five business sectors, intercompany eliminations, and the taxable equivalent
adjustment, which is calculated to gross-up tax exempt interest to a taxable
basis.
Corporate Items for the first quarter of 1996 and 1995 included the
revenues and expenses related to the firm's securities custody and clearing
businesses that were sold in 1995 as well as the firm's discontinued cash
services activities. Corporate Items in the first quarter of 1996 also included
the taxable equivalent adjustment of $22 million. Corporate Items for the first
quarter of 1995 included a special charge of $55 million related primarily to
severance and the taxable equivalent adjustment of $29 million.
<PAGE> 20
20
RISK MANAGEMENT
The following presents the market risk profiles related to our trading
activities and asset and liability management activities for the three and
twelve months ended March 31, 1996. Overall, market risk levels of the firm in
the first quarter of 1996 were consistent with risk levels in the fourth quarter
of 1995.
Trading activities
J.P. Morgan employs a value at risk methodology to estimate the potential losses
that could arise from adverse changes in market conditions within a 95%
confidence interval, referred to as "Daily Earnings at Risk" (DEaR). The DEaR
estimate for our combined trading activities for the first quarter of 1996
averaged approximately $22 million and ranged from $17 million to $28 million.
Quarterly average DEaR for the first quarter of 1996 was approximately
$22 million compared with $20 million for the fourth quarter of 1995.
For the twelve months ended March 31, 1996, the DEaR estimate for our
combined trading activities averaged approximately $21 million and ranged from
approximately $14 million to $31 million. Daily combined trading-related revenue
averaged $9.5 million during the twelve-month period ended March 31, 1996.
Consistent with statistical expectations, daily revenue fell short of expected
results by amounts greater than related DEaR estimates within 5% of the
trading days during the twelve months ended March 31, 1996.
Asset and liability management activities
During the twelve months ended March 31, 1996, value at risk measured over a
weekly horizon averaged approximately $35 million and ranged from $21 million to
$50 million. These amounts approximate average DEaR of $16 million and a range
of $10 million to $22 million. Weekly total return related to asset and
liability management activities fell short of expected weekly results by amounts
greater than related weekly value at risk estimates within 5% of the time.
<PAGE> 21
21
FINANCIAL STATEMENT ANALYSIS
REVENUES
Revenues totaled $1.740 billion in the first quarter of 1996, up 25% from $1.388
billion a year earlier.
Net interest revenue declined 21% to $396 million from the first
quarter of 1995, due to lower returns from asset and liability management in
the United States, reflecting a decline in net interest revenue as a result of
the maturity of higher-yielding instruments, and a decrease in trading-related
net interest revenue.
The following table provides J.P. Morgan's interest-rate-sensitivity
gap at March 31, 1996, including the asset and liability
interest-rate-sensitivity gap and the effect of derivatives on the gap. The
resulting interest-rate-sensitivity gap is presented by U.S. dollar and non-U.S.
dollar currency components and reflects J.P. Morgan's market outlook at March
31, 1996. Significant variances in interest rate sensitivity may exist at other
dates not presented in the table. Amounts in parentheses reflect liability
sensitive positions.
By repricing or maturity dates
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
After After
six one
months year
Within but but After
six within within five
In millions months one year five years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 1996
Asset and liability interest-
rate-sensitivity gap $(8,200) $(2,127) $ 8,891 8,565
Derivatives affecting interest
rate sensitivity 5,122 140 (4,068) (1,194)
- ---------------------------------------------------------------------------------------------------
Interest-rate-sensitivity gap (a) (3,078) (1,987) 4,823 7,371
- ---------------------------------------------------------------------------------------------------
(a) Components of interest-rate-
sensitivity gap:
U.S. dollar 4,599 (1,439) 51 6,768
Non-U.S. dollar* (7,677) (548) 4,772 603
- ---------------------------------------------------------------------------------------------------
Total (3,078) (1,987) 4,823 7,371
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Primarily yen, deutsche mark, French franc, Belgian franc, and sterling
positions.
<PAGE> 22
22
Trading revenue rose to $758 million from $303 million a year earlier. Revenues
in both developed and emerging markets were strong and diversified across the
range of the firm's trading products. Reported trading revenue does not include
net interest revenue associated with trading activities, which was $30 million
in the first quarter of 1996 and $61 million a year ago. The following table
presents trading revenue and net interest revenue associated with the firm's
trading activities, in both developed and emerging markets, disaggregated by
principal product groupings. The table does not represent total revenues
generated by business activities as discussed in Business sector results. For
example, underwriting revenues and equities commissions, which are reported in
Investment banking revenue and Operational service fees respectively on the
Consolidated Statement of Income, are not included below.
<TABLE>
<CAPTION>
Fixed Foreign Commo- Proprietary
In millions Income Equities Exchange dities Unit Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter 1996
Trading revenue $533 $ 94 $ 68 $ 34 $ 29 $758
Net interest revenue 69 (43) 5 (2) 1 30
- -----------------------------------------------------------------------------------------------------------
Combined total 602 51 73 32 30 788
- -----------------------------------------------------------------------------------------------------------
First Quarter 1995
Trading revenue 57 42 102 19 83 303
Net interest revenue 66 (17) 4 3 5 61
- -----------------------------------------------------------------------------------------------------------
Combined total 123 25 106 22 88 364
- -----------------------------------------------------------------------------------------------------------
Fourth Quarter 1995
Trading revenue 248 36 63 5 17 369
Net interest revenue 38 (32) 12 (2) -- 16
- -----------------------------------------------------------------------------------------------------------
Combined total 286 4 75 3 17 385
</TABLE>
<PAGE> 23
23
Combined trading and related net interest revenue increased to $788 million from
$364 million a year earlier. Combined revenue from fixed income rose to $602
million in the first quarter from $123 million in the year-earlier quarter
because of strong client demand for swaps as well as government and corporate
securities; risk management activity for clients accelerated. Combined revenue
from equities doubled to $51 million from $25 million a year earlier, driven by
strong demand for equity derivative products. Combined revenue from commodities
was $32 million compared with $22 million in the year-earlier quarter. Foreign
exchange combined revenue totaled $73 million versus $106 million in the first
quarter of 1995. Combined revenue from the firm's proprietary unit was $30
million compared with $88 million in the first quarter of 1995.
Investment banking revenue was up 76% to $201 million in the first quarter.
Underwriting revenue grew to $65 million from $22 million a year ago, as Morgan
raised more debt and equity capital for a broad range of clients. Advisory fees
rose to $136 million from $92 million a year earlier, reflecting our growing
share of the merger-and-acquisition advisory market.
Credit-related fees were $38 million in the first quarter, 12% lower
than in the first quarter of 1995 because of the sale of the custody business in
1995.
Investment management fees advanced 21% to $157 million from a year
ago, as assets under management rose, primarily from net new business.
Operational service fees in the first quarter totaled $113 million, 19%
lower than in the 1995 first quarter. Excluding revenues of $33 million
associated with the recently sold custody business, operational service fees for
the first quarter rose 6% on increased brokerage commissions.
Net investment securities gains were $12 million in the first quarter,
compared with gains of $9 million in the first quarter of 1995.
Other revenue was $65 million in the first quarter, compared with $149
million in the 1995 first quarter. The 1996 first quarter included net equity
investment securities gains of $64 million, versus $163 million a year ago. Also
included in the first quarter of 1995 was $40 million of costs associated with
hedging anticipated foreign currency revenues and expenses.
<PAGE> 24
24
OPERATING EXPENSES
Operating expenses were $1.085 billion in the first quarter of 1996, up 8% from
a year earlier. Excluding the 1995 first quarter charge and the 1995 expenses
associated with the custody business, operating expenses were up 21%. Employee
compensation and benefits expense rose, primarily reflecting higher incentive
compensation accruals in line with higher earnings. Expenses other than employee
compensation and benefits were essentially flat.
At March 31, 1996, staff totaled 15,431 employees compared with 16,443
employees at March 31, 1995.
Income tax expense of $216 million in the first quarter was based on an
effective tax rate of 33% versus 34% in the first quarter of 1995.
ASSETS
Total assets were $205 billion at March 31, 1996, compared with $185 billion at
December 31, 1995, primarily because of an increase in trading-related assets
and loans. Nonperforming assets increased by $38 million to $156 million during
the first quarter as assets newly classified as nonperforming exceeded
charge-offs and repayments. No provision for credit losses was deemed necessary
in the 1996 first quarter. The allowance for credit losses was $1.117 billion at
March 31, 1996.
<PAGE> 25
25
FOREIGN-COUNTRY-RELATED OUTSTANDINGS
Foreign-country-related outstandings represent outstandings to foreign borrowers
that are denominated in U.S. dollars or currencies other than the borrower's
local currency or, in the case of a guarantee, other than the guarantor's local
currency. Countries in which J.P. Morgan's outstandings exceeded 1.0% of total
assets at March 31, 1996, are listed in the following table. Outstandings
include loans, interest-earning deposits with banks, investment securities,
customers' acceptance liability, securities purchased under agreements to
resell, trading account securities, accrued interest, and other monetary assets.
Outstandings generally are distributed according to the location of the
borrower. In the case of guaranteed outstandings or when tangible, liquid
collateral is held and realizable outside the obligor's country, distribution is
generally made according to the location of the guarantor or the location where
the collateral is held and realizable.
<TABLE>
<CAPTION>
In millions Cross-border outstandings(a)
--------------------------------------------------------------------------
<S> <C>
United Kingdom $4,804
France 4,757
--------------------------------------------------------------------------
</TABLE>
At March 31, 1996, Switzerland's cross-border outstandings were $1,584
million, between 0.75% and 1.0% of total assets.
(a) Mexican cross-border outstandings at March 31, 1996, were $1,206 million,
less than 0.75% of total assets. Not included in Mexican cross-border
outstandings are United Mexican States (UMS) bonds, substantially all of which
have been sold forward, which are collateralized by U.S. Treasury securities. If
the book value of these bonds, which is discussed below, had been included,
total Mexican cross-border outstandings would have exceeded 0.75% of total
assets at March 31, 1996.
The UMS bonds are collateralized as to principal by zero-coupon U.S. Treasury
securities with a face value equal to the face value of the underlying bonds.
The collateral, which will become available when the UMS bonds mature, is
pledged to the holders of the bonds and is held by the Federal Reserve Bank of
New York.
<TABLE>
<CAPTION>
U.S.
Treasury
In millions UMS bonds collateral
-----------------------------------------------
Book Face Market Fair
value value value value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, 1996
Due in 2008 $ 95 $102 $ 95 $ 45
Due in 2019 548 703 491 131
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
26
<TABLE>
<CAPTION>
CAPITAL
March 31 December 31 March 31
Dollars in billions 1996 1995 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Total stockholders' equity $ 10.8 $ 10.5 $ 9.6
Annualized rate of return on
average common stockholders'
equity (a) 17.2% 14.7% 11.1%
As percent of period-end total
assets:
Common equity 5.0 5.4 5.5
Total equity 5.3 5.7 5.8
Book value per common share (b) $ 51.57 $ 50.71 $ 47.19
Risk-based capital:
Tier 1 risk-based capital $ 9.5 $ 9.0 $ 8.4
Total risk-based capital 13.9 13.4 12.4
Risk adjusted assets 113.8 103.1 94.1
Capital ratios:
J.P. Morgan
Tier 1 ratio 8.3% 8.8% 8.9%
Total ratio 12.2 13.0 13.2
Leverage ratio 6.2 6.1 5.9
Morgan Guaranty Trust Company
of New York
Tier 1 ratio 8.1% 8.5% 8.2%
Total ratio 11.4 11.0 10.6
Leverage ratio 5.6 5.5 5.1
- --------------------------------------------------------------------------------
</TABLE>
(a) Represents the annualized rate of return on average common stockholders'
equity for the three months ended March 31, 1996, December 31, 1995, and March
31, 1995. Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity would have been 18.1%, 15.5%, and 11.7% for
the three months ended March 31, 1996, December 31, 1995, and March 31, 1995,
respectively.
(b) Excluding the impact of SFAS No. 115, the book value per common share would
have been $49.18, $47.83, and $44.87 for the three months ended March 31, 1996,
December 31, 1995, and March 31, 1995, respectively.
<PAGE> 27
27
J.P. Morgan's risk-based capital and leverage ratios remain well above the
minimum standards set by the Federal Reserve Board. In accordance with the
Federal Reserve Board guidelines, the risk-based capital and leverage ratios
exclude the equity, assets and off-balance-sheet exposures of J.P. Morgan
Securities, Inc. and the effect of SFAS No. 115.
At March 31, 1996, stockholders' equity included approximately $470
million of net unrealized appreciation on debt investment and marketable equity
investment securities, net the related deferred tax liability of $290 million.
Net unrealized appreciation was $566 million at December 31, 1995. The
unrealized appreciation on debt investment securities was $331 million and $484
million at March 31, 1996, and December 31, 1995, respectively. The unrealized
appreciation on marketable equity investment securities was $429 million and
$440 million at March 31, 1996, and December 31, 1995, respectively.
During February 1996, J.P. Morgan issued $200 million of perpetual
6 5/8% cumulative preferred stock, series H, with a stated value of $500 per
share. These shares are represented by 4 million depositary shares with a stated
value of $50 per share, each representing one-tenth of a preferred share.
<PAGE> 28
28
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions, Three months ended
-----------------------------------------------------------------------------------
interest and average rates
on a taxable-equivalent basis March 31, 1996 March 31, 1995
-----------------------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. $ 1,795 $ 27 6.05% $ 2,271 $ 59 10.54%
Debt investment securities in
offices in the U.S. (a):
U.S. Treasury 1,017 19 7.51 1,795 28 6.33
U.S. state and political
subdivision 1,694 49 11.63 2,149 65 12.27
Other 16,680 270 6.51 13,117 230 7.11
Debt investment securities in offices
outside the U.S. (a) 4,907 74 6.07 5,659 98 7.02
Trading account assets:
In offices in the U.S. 17,307 250 5.81 13,339 241 7.33
In offices outside the U.S. 26,913 506 7.56 27,946 590 8.56
Securities purchased under agreements
to resell and federal funds sold,
mainly in offices in the U.S. 41,760 577 5.56 28,202 412 5.92
Securities borrowed in offices in
the U.S. 20,773 263 5.09 15,321 214 5.66
Loans:
In offices in the U.S. 6,678 112 6.75 7,092 131 7.49
In offices outside the U.S. 20,648 332 6.47 16,575 288 7.05
Other interest-earning assets (b):
In offices in the U.S. 1,140 33 * 1,237 86 *
In offices outside the U.S. 1,294 65 * 607 57 *
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 162,606 2,577 6.37 135,310 2,499 7.49
Allowance for credit losses (1,130) (1,131)
Cash and due from banks 1,253 1,842
Other noninterest-earning assets 42,107 39,673
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 204,836 175,694
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest and average rates applying to the following asset categories have been
adjusted to a taxable-equivalent basis: Debt investment securities in offices in
the U.S., Trading account assets in offices in the U.S., and Loans in offices in
the U.S. The applicable tax rate used to determine these adjustments was
approximately 41% for the three months ended March 31, 1996 and 1995.
(a) For the three months ended March 31, 1996 and 1995, average debt investment
securities are computed based on historical amortized cost, excluding the
effects of SFAS No. 115 adjustments.
(b) Interest revenue includes the effect of certain off-balance-sheet
transactions.
* Not meaningful
<PAGE> 29
29
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions, Three months ended
interest and average rates
------------------------------------------------------------------------------
on a taxable-equivalent basis March 31, 1996 March 31, 1995
------------------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
In offices in the U.S. $ 1,930 $ 23 4.79% $ 2,074 $ 24 4.69%
In offices outside the U.S. 45,551 627 5.54 41,909 595 5.76
Trading account liabilities:
In offices in the U.S. 7,925 117 5.94 7,403 141 7.72
In offices outside the U.S. 11,644 176 6.08 12,570 288 9.29
Securities sold under agreements to
repurchase and federal funds
purchased, mainly in offices in
the U.S. 59,322 787 5.34 43,437 595 5.56
Commercial paper, mainly in offices
in the U.S. 3,685 51 5.57 2,577 39 6.14
Other interest-bearing liabilities:
In offices in the U.S. 13,385 192 5.77 9,537 145 6.17
In offices outside the U.S. 1,932 46 9.58 2,499 27 4.38
Long-term debt,
mainly in offices in the U.S. 9,430 139 5.93 7,273 116 6.47
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 154,804 2,158 5.61 129,279 1,970 6.18
Noninterest-bearing deposits:
In offices in the U.S. 3,019 3,354
In offices outside the U.S. 1,098 1,133
Other noninterest-bearing
liabilities 35,239 32,362
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 194,160 166,128
Stockholders' equity 10,676 9,566
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity 204,836 175,694
Net yield on interest-earning assets 1.03 1.59
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest earnings 418 529
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
30
ASSET AND LIABILITY MANAGEMENT DERIVATIVES
The objective of asset and liability management is to create longer-term
value through the management of interest rate risk related to J.P. Morgan's
nontrading assets, liabilities, and off-balance-sheet activities. J.P. Morgan
utilizes a variety of financial instruments, including derivatives, in an
integrated manner to achieve these objectives. Additional information on asset
and liability management derivatives, primarily interest rate swaps, is provided
below. For more information about asset and liability management activities, see
Note 7 to the financial statements, Off-balance-sheet financial instruments.
The table below summarizes maturities and weighted-average interest rates
to be received and paid on U.S. dollar and non-U.S. dollar asset and liability
management interest rate swaps at March 31, 1996. The majority of asset and
liability management interest rate swaps, as presented below, are risk-adjusting
swaps. Also included in the table are swaps designated as hedges or used to
modify the interest rate characteristics of assets and liabilities. Variable
rates presented are generally based on the London Interbank Offered Rate (LIBOR)
in effect on the swaps at March 31, 1996, and reset at predetermined dates. The
table was prepared under the assumption that these variable interest rates
remain constant. The variable interest rates to be received or paid will change
to the extent that rates fluctuate. Such changes may be substantial.
Not included in the table below are other derivatives used for asset and
liability management purposes, such as currency swaps, basis swaps, foreign
exchange contracts, interest rate futures, forward rate agreements, debt
securities forwards, and purchased options, totaling $43.0 billion at March 31,
1996. The contractual maturities of these derivative contracts are primarily
less than one year.
<PAGE> 31
31
<TABLE>
<CAPTION>
By expected maturities
- ------------------------------------------------------------------------------------------------------------------------------------
After After After After
one two three four
year years years years
Within but but but but After
one within within within within five
Dollars in billions year two three four five years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS -
U.S. DOLLAR
Receive fixed
swaps
Notional amount $ 17.2 $ 14.3 $ 5.5 $ 3.4 $ 2.8 $ 10.9 $ 54.1
Weighted average:
Receive rate 6.6% 5.7% 7.1% 7.1% 6.2% 6.9% 6.5%
Pay rate 5.5 5.4 5.3 5.4 5.4 5.4 5.4
Pay fixed swaps
Notional amount $ 18.4 $ 20.2 $ 6.8 $ 3.2 $ 7.0 $ 8.9 $ 64.5
Weighted average:
Receive rate 5.4% 5.4% 5.3% 5.4% 5.4% 5.4% 5.4%
Pay rate 6.4 5.8 6.0 7.2 6.0 7.1 6.2
INTEREST RATE SWAPS -
NON-U.S. DOLLAR
Receive fixed
swaps
Notional amount $ 32.1 $ 22.9 $ 9.0 $ 8.8 $ 4.2 $ 7.6 $ 84.6
Weighted average:
Receive rate 5.8% 5.7% 6.3% 6.7% 6.8% 7.0% 6.1%
Pay rate 3.4 3.6 3.8 4.1 4.7 3.9 3.7
Pay fixed swaps
Notional amount $ 24.1 $ 18.9 $ 9.3 $ 8.3 $ 4.2 $ 7.2 $ 72.0
Weighted average:
Receive rate 3.9% 4.2% 3.7% 4.2% 4.7% 5.4% 4.0%
Pay rate 6.1 6.1 5.8 6.6 7.0 7.2 6.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total notional amount $ 91.8 $ 76.3 $ 30.6 $ 23.7 $ 18.2 $ 34.6 $275.2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Not included in the table above are $3.0 billion and $1.5 billion of notional
amounts related to currency swaps and basis swaps respectively.
<PAGE> 32
32
PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
SUMMARY OF J.P. MORGAN'S ANNUAL MEETING
The 1996 annual meeting of stockholders of J.P. Morgan & Co. Incorporated was
held on Wednesday, May 8, 1996 at the company's 60 Wall Street headquarters;
87.44% of the 187,448,928 shares of common stock outstanding and eligible to be
voted was represented either in person or by proxy, constituting a quorum.
Douglas A. Warner III, Chairman of the Board, presided.
The stockholders took the following actions:
1. Elected all 14 nominees to one-year terms as members of the Board of
Directors. The directors are:
<TABLE>
<CAPTION>
Percent
of
Percent of Shares shares
Director Shares in favor shares voting withheld voting
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas A. Warner III * 162,721,326 99.28% 1,179,266 0.72%
Riley P. Bechtel 162,991,129 99.45 909,463 0.55
Martin Feldstein 163,068,701 99.49 831,891 0.51
Hanna H. Gray 163,000,616 99.45 899,976 0.55
James R. Houghton 162,826,823 99.35 1,073,769 0.65
James L. Ketelsen 162,798,077 99.33 1,102,515 0.67
William S. Lee 162,776,367 99.31 1,124,225 0.69
Roberto G. Mendoza ** 162,813,820 99.34 1,086,772 0.66
Michael E. Patterson ** 162,858,934 99.36 1,041,658 0.64
Lee R. Raymond 162,780,342 99.32 1,120,250 0.68
Richard D. Simmons 163,074,501 99.50 826,091 0.50
Kurt F. Viermetz ** 162,858,998 99.36 1,041,594 0.64
Dennis Weatherstone 162,613,786 99.22 1,286,806 0.78
Douglas C. Yearley 163,075,755 99.50 824,837 0.50
</TABLE>
* Chairman of the Board
** Vice Chairman of the Board
2. Approved the appointment of Price Waterhouse LLP as independent accountants
to perform auditing functions during 1996. There were 163,104,345 shares in
favor, or 99.51% of shares voting; 410,847 shares against, or 0.25% of shares
voting; 385,400 shares abstained; and no shares reflecting broker nonvotes.
3. Defeated the stockholder proposal relating to political non-partisanship.
There were 129,035,792 shares against, or 91.51% of shares voting; 5,101,163
shares for, or 3.62% of shares voting; 6,873,223 shares abstained; and
22,890,414 shares reflecting broker nonvotes.
4. Defeated the stockholder proposal relating to cumulative voting. There were
101,633,444 shares against, or 72.08% of shares voting; 37,447,670 shares for,
or 26.56% of shares voting; 1,929,564 shares abstained; and 22,889,914 shares
reflecting broker nonvotes.
5. Defeated the stockholder proposal relating to structural adjustment. There
were 127,949,028 shares against, or 90.74% of shares voting; 5,406,334 shares
for, or 3.83% of shares voting; 7,655,316 shares abstained; and 22,889,914
shares reflecting broker nonvotes.
<PAGE> 33
33
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Statement re computation of ratios
(incorporated by reference to Exhibit 12 to J.P. Morgan's
registration statement on Form S-3, Registration No. 33-01121)
27. Financial data schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended March 31, 1996:
January 11, 1996 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release announcing
its earnings for the three-month period and fiscal year ended
December 31, 1995.
February 6, 1996 (Item 7)
Reported the issuance by J.P. Morgan of Certificate of Designation,
Preferences and Rights of 6 5/8% Cumulative Preferred Stock, Series
H, of J.P. Morgan & Co. Incorporated.
February 20, 1996 (Item 7)
Reported the issuance by J.P. Morgan of Medium-Term Master Note,
Series A (Subordinated Debt Securities) and Medium-Term Master
Note, Series A (Senior Debt Securities).
February 23, 1996 (Items 5 and 7)
Reported the issuance by J.P. Morgan of 4.50% Exchangeable Notes
due February 27, 1996 (the "Gannett MEDS"), the principal amount of
which at maturity are mandatorily exchangeable into the common
stock of Gannett Co., Inc.
<PAGE> 34
34
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 thereunto duly authorized.
(REGISTRANT) J.P. MORGAN & CO. INCORPORATED
BY (SIGNATURE)
/s/ DAVID H. SIDWELL
---------------------------------------
(NAME AND TITLE) DAVID H. SIDWELL
MANAGING DIRECTOR AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
DATE: May 15, 1996
<PAGE> 35
1
LIST OF EXHIBITS
EXHIBIT
27. Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
1996 INCLUDED IN THE FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 732
<INT-BEARING-DEPOSITS> 1,183
<FED-FUNDS-SOLD> 39,692
<TRADING-ASSETS> 69,844
<INVESTMENTS-HELD-FOR-SALE> 27,446
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 28,645
<ALLOWANCE> 1,117
<TOTAL-ASSETS> 204,747
<DEPOSITS> 50,204
<SHORT-TERM> 78,653
<LIABILITIES-OTHER> 55,642
<LONG-TERM> 9,401
0
694
<COMMON> 502
<OTHER-SE> 9,651
<TOTAL-LIABILITIES-AND-EQUITY> 204,747
<INTEREST-LOAN> 440
<INTEREST-INVEST> 394
<INTEREST-OTHER> 1,720
<INTEREST-TOTAL> 2,554
<INTEREST-DEPOSIT> 650
<INTEREST-EXPENSE> 2,158
<INTEREST-INCOME-NET> 396
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 1,085
<INCOME-PRETAX> 655
<INCOME-PRE-EXTRAORDINARY> 439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
<YIELD-ACTUAL> 1.03
<LOANS-NON> 156
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,130
<CHARGE-OFFS> 18
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,117
<ALLOWANCE-DOMESTIC> 134
<ALLOWANCE-FOREIGN> 56
<ALLOWANCE-UNALLOCATED> 927
</TABLE>
