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