<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) April 14, 1998
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 April 14, 1998, the Registrant issued a press release
announcing its earnings for the three-month period ended March 31,
1998. 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
99. Copy of press release of J.P. Morgan & Co. Incorporated dated
April 14, 1998.
<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: April 14, 1998
<PAGE> 1
J.P. Morgan & Co. Incorporated JPMorgan
60 Wall Street
New York, NY 10260-0060
NYSE: symbol: JPM
News release: IMMEDIATE April 14, 1998
J.P. MORGAN REPORTS 1998 FIRST QUARTER RESULTS
Income rises 35% from 1997 fourth quarter, excluding $215 million pretax charge
J.P. Morgan today reported income for the first quarter of $366 million, or
$1.80 per share, up 35% from the 1997 fourth quarter, excluding the effect of a
charge related to previously reported restructuring of business activities. The
$215 million charge ($129 million after tax, or $0.65 per share) is expected to
generate savings of about $250 million annually.
Net income including the charge was $237 million, or $1.15 per share. In the
first quarter a year ago, net income was $424 million, or $2.04 per share.
OTHER HIGHLIGHTS OF THE QUARTER:
- Revenues were up 9% from a year ago, led by robust gains in
mergers and acquisitions, debt and equity underwriting, and
market making. Compared with the fourth quarter, revenues rose
19%.
- Operating expenses including the $215 million charge were
$1.632 billion, compared with $1.191 billion a year ago and
$1.308 billion in the fourth quarter. Excluding the charge,
expenses rose 19% from the year-earlier period and 8% from the
fourth quarter.
- Emerging Asian exposures were reduced by 25% from year-end, to
$4.6 billion from $6.1 billion.
Douglas A. Warner III, chairman, said: "Revenue growth across our investment
banking, market-making, and asset management activities continued to fuel strong
operating momentum. With the restructuring actions, we made tangible progress
toward funding more of our growth through productivity gains. And in emerging
Asia we actively managed our exposures and shifted resources to position the
firm to pursue the most promising opportunities in these fast-changing markets."
FIRST QUARTER 1998 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Fourth
First quarter quarter
----------------------- -------
In millions of dollars, except per share data 1998 1997 1997
------- ------- -------
<S> <C> <C> <C>
Revenues $ 1,997 $ 1,833 $ 1,680
Operating expenses, including charge of $215 (1,632) (1,191) (1,308)
Income taxes (128) (218) (101)
------- ------- -------
Net income 237 424 271
Net income per share $ 1.15 $ 2.04 $ 1.33
------- ------- -------
Dividends declared per share $ 0.95 $ 0.88 $ 0.95
</TABLE>
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.
Press contact: Christopher M. Molanphy 212/648-8213
Investor contact: Ann B. Patton 212/648-9446
<PAGE> 2
J.P.Morgan & Co. Incorporated 2
REVENUES BY BUSINESS SECTOR
Revenues from client-focused activities up 21% from a year ago
REVENUES were $1.997 billion in the first quarter of 1998, up 9% from a year
earlier.
Revenues from client-focused activities, which are reported in the Finance and
Advisory, Market Making, and Asset Management and Servicing sectors, totaled
$1.885 billion in the first quarter of 1998, rising 21% from $1.559 billion in
the year-ago quarter. Revenues from Equity Investments and Proprietary Investing
and Trading activities were $263 million versus $325 million in the 1997 first
quarter.
FINANCE AND ADVISORY (Advisory, Debt and Equity Underwriting, and Credit)
revenues were $564 million in the first quarter of 1998, up 25% from the 1997
first quarter.
Revenues from advisory services and debt and equity underwriting rose 54% to
$340 million in the quarter. The market for advisory and underwriting activity
was robust, particularly in Europe and the Americas, and we assisted clients
around the globe in a number of the quarter's most notable transactions.
For the first quarter of 1998, Securities Data Co. ranked J.P. Morgan fourth in
completed mergers and acquisitions worldwide, up from fifth in the year-ago
quarter; market share advanced to 15.4% from 10.6%. In U.S. equity lead
underwriting, we ranked seventh with a market share of 6.4%, compared with 14th
and a market share of 1.2% in the 1997 first quarter.
MARKET MAKING (Fixed Income, Emerging Markets, Equities, Foreign Exchange, and
Commodities) revenues totaled $919 million in the first quarter, up 25% from a
year earlier.
Fixed income revenues in developed markets rose nearly 75% to $460 million in
the first quarter of 1998. Revenues from swaps and other derivatives were
sharply higher, reflecting increases from more profitable, customized
transactions as well as gains on positions arising from client-related activity.
In emerging markets, market-making revenues were $237 million in the first
quarter, up 27% from $186 million a year ago, reflecting strong results from
local-market activities, particularly in Latin America, and increased
diversification across products and regions. Short-term positioning gains also
contributed to the increase.
Market-making revenues in equities were $116 million in the first quarter of
1998, down 24% from revenues of $152 million a year ago. Equity commissions
posted strong results, reflecting growing market share and volumes. While lower
than the strong 1997 first quarter, equity derivatives revenues rebounded
significantly from the fourth quarter of 1997, when results were adversely
affected during a period of significant market volatility.
Foreign exchange revenues declined 23% to $92 million in the first quarter,
reflecting lower client demand.
Commodities revenues were $14 million in the first quarter of 1998, up from $12
million in the year-ago quarter.
<PAGE> 3
J.P.Morgan & Co. Incorporated 3
ASSET MANAGEMENT AND SERVICING (Institutional Investment Management and Mutual
Funds, Services for Private Clients, and Securities and Futures Services)
revenues were up 7% to $402 million in the first quarter from a year ago.
Revenues generated from asset management services increased 3% to $251 million
in the first quarter of 1998. Assets under management grew 34% to approximately
$286 billion at March 31, 1998, compared with $214 billion at March 31, 1997,
reflecting net new business and market appreciation. Our partnership with and
investment in American Century Companies Inc. produced a net revenue reduction
of $17 million in the quarter, primarily related to funding charges and goodwill
amortization.
Private clients accounted for approximately $170 million of revenues from
Morgan's client-focused activities in the first quarter of 1998, up 26% from the
year-ago quarter. Of this amount, approximately $55 million is recorded in the
Finance and Advisory and Market Making sectors.
Revenues from securities and futures services grew 14% in the quarter versus a
year ago.
EQUITY INVESTMENTS (Equity Investment Portfolio Management) reported revenues of
$25 million in the first quarter, compared with $49 million a year ago. Included
in reported revenues were net gains of $20 million in the current quarter versus
net gains of $33 million a year ago. Total return for Equity Investments, which
combines reported revenues with the change in net unrealized appreciation, was
$85 million in the 1998 first quarter, and reflected appreciation of investments
in the insurance industry. This compares with a loss of $25 million in the first
quarter of 1997.
PROPRIETARY INVESTING AND TRADING (Risk Positioning and Capital and Liquidity
Management) revenues totaled $238 million for the 1998 first quarter, compared
with $276 million a year ago. Total return - reported revenues plus the change
in net unrealized appreciation - for the 1998 first quarter decreased to $180
million from $365 million in the same period a year ago. The 1997 first quarter
reflected exceptionally strong returns across all activities, particularly in
mortgage-backed investment securities.
CORPORATE ITEMS (Revenues not allocated to business sectors, intercompany
eliminations, equity in earnings of certain affiliates, taxable-equivalent
adjustment, and results of sold or discontinued businesses) While immaterial in
the 1998 first quarter, hedges of anticipated foreign currency revenues and
expenses resulted in gains of $59 million in the same period a year ago.
OPERATING EXPENSES
Charge of $215 million related to restructuring initiatives
Operating expenses were $1.632 billion in the 1998 first quarter, compared with
$1.191 billion from the first quarter of last year. The 1998 first quarter
includes a charge of $215 million in connection with previously reported
restructuring initiatives. Excluding this charge, operating expenses rose 19%.
Contributing to the rise were costs of $55 million to prepare for the Year 2000
and European Economic and Monetary Union, as well as an increase of
approximately $50 million related to prior years' employee stock awards. The
value of these awards is
<PAGE> 4
J.P.Morgan & Co. Incorporated 4
finalized each year based on a January stock price pursuant to compensation plan
provisions. Continued spending on client business capabilities and higher levels
of business activity also added to the expense growth.
The charge of $215 million was incurred in the quarter in connection with the
restructuring of certain sales and trading functions in Europe, the refocus of
our investment banking and equities business in Asia, and the rationalization of
resources throughout the firm. The charge primarily reflects severance-related
costs of $140 million associated with staff reductions of approximately 900, and
real estate and equipment write-offs of $75 million.
Savings related to these initiatives are expected to approximate $250 million
annually, starting in the second quarter, and will be reinvested in strategic
growth to capitalize on leadership in global markets, increase investment
banking market share, integrate credit with fixed income activities, and build
our asset management business. As we invest to create long-term value for
shareholders, we aim systematically to increase the revenue-generation
capability of our people, the efficiency of our infrastructure, and our
operating margins.
At March 31, 1998, staff totaled 16,534 employees, compared with 15,483
employees at March 31, 1997, and 16,943 employees at December 31, 1997.
Income-tax expense in the first quarter totaled $128 million, based on an
effective tax rate of 35%, compared with an effective rate of 34% in the
year-earlier quarter.
ASSETS
Total assets were $272 billion at March 31, 1998, compared with $262 billion at
December 31, 1997.
CREDIT-RELATED ITEMS
Exposures in emerging Asia reduced by 25%
During the quarter we reduced exposures to counterparties in Indonesia,
Malaysia, the Philippines, South Korea, and Thailand by 25%, to $4.6 billion at
March 31, 1998, from $6.1 billion at year-end (see page 14). The reductions were
achieved through a combination of principal repayments, loan and investment
securities sales, the purchase of credit protection through derivatives, and
charge-offs. Exposures primarily consist of loans and derivatives and, to a
lesser extent, trading account securities and debt investment securities.
Exposures arising from derivatives, trading account securities, and debt
investment securities will fluctuate with market movements. The firm will
continue to actively manage its exposures in light of evolving events in the
region.
Nonperforming assets at March 31, 1998, were essentially unchanged at
$650 million, compared with $659 million at December 31, 1997. Assets newly
classified as nonperforming were offset by a combination of charge-offs, assets
returned to performing status, and repayments during the quarter. Nonperforming
assets consist primarily of swaps with certain Asian counterparties. Net
charge-offs were $94 million in the quarter and related primarily to
counterparties in South Korea and Indonesia.
At March 31, 1998, the aggregate allowance for credit losses was $987 million,
compared with $1.081 billion at December 31, 1997. Of exposures to Indonesia,
Malaysia, the Philippines, South Korea, and Thailand,
<PAGE> 5
J.P.Morgan & Co. Incorporated 5
approximately $3.5 billion at March 31, 1998, were eligible for coverage by the
aggregate allowance for credit losses, compared with $4.9 billion at year-end.
Morgan considers approximately 55% of the aggregate allowance for credit losses
to relate to these countries as of March 31, 1998. The aggregate allowance,
however, remains available to absorb losses inherent in J.P. Morgan's existing
portfolio of loans, as well as other undertakings to extend credit or make
payments, and all other credit exposures, including derivatives. In management's
judgment, the aggregate allowance for credit losses remains at an adequate
level.
CAPITAL
At March 31, 1998, under the new Federal Reserve Board market risk capital
guidelines for calculation of risk-based capital ratios, J.P. Morgan's estimated
tier 1 and total risk-based capital ratios were 7.4% and 11.0%, respectively;
the estimated leverage ratio was 4.0%. These ratios do not include the impact of
certain portfolio risk-reducing transactions which are under review by the
Federal Reserve for recognition in calculating risk-based capital ratios.
Including these transactions, estimated tier 1 and total risk-based capital
ratios would have been 7.6% and 11.4%, respectively, at March 31, 1998. At
December 31, 1997, J.P. Morgan's tier 1 and total risk-based capital ratios were
8.0% and 11.9%, respectively, and the leverage ratio was 4.4%.
At March 31, 1998, stockholders' equity included $433 million of net unrealized
appreciation on debt investment and marketable equity investment securities, net
the related deferred tax liability of $253 million. This compares with $432
million of net unrealized appreciation at December 31, 1997, net the related
deferred tax liability of $256 million. The net unrealized appreciation on debt
investment securities was $187 million and $261 million at March 31, 1998, and
December 31, 1997, respectively. The net unrealized appreciation on marketable
equity investment securities was $499 million at March 31, 1998, and $427
million at December 31, 1997.
During the first quarter, the firm purchased approximately 1.2 million shares of
its common stock, pursuant to the Board of Directors' December 1997
authorization to purchase up to 7 million shares of J.P. Morgan common stock, to
lessen the dilutive impact on earnings per share of the firm's employee benefit
plans. These purchases may be made in 1998 or beyond in the open market or
through privately negotiated transactions.
# # #
J.P. Morgan is a leading global financial firm that meets critical financial
needs for business enterprises, governments, and individuals. The firm advises
on corporate strategy and structure, raises capital, makes markets in financial
instruments, and manages investment assets. Morgan also commits its own capital
to promising enterprises and invests and trades to capture market opportunities.
This release may contain forward-looking statements. Our statements, which
reflect management's beliefs and expectations, are subject to risks and
uncertainties that may cause actual results to differ materially from these
statements. For a discussion of the risks and uncertainties, please refer to our
1997 Annual Report.
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> 6
J.P.Morgan & Co. Incorporated 6
FINANCIAL SUMMARY
J. P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------
Dollars in millions, except share data
<TABLE>
<CAPTION>
Fourth
First Quarter Quarter
-------------------------------- ------------
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Income (a) $237 $424 $271
PER COMMON SHARE
Net income (b)
Basic (a) $1.26 $2.19 $1.44
Diluted (a) 1.15 2.04 1.33
Dividends declared 0.95 0.88 0.95
Book value (c) 56.55 54.05 55.99
------------ ------------ ------------
Common shares issued and outstanding
at period-end 177,933,414 181,126,591 176,317,729
------------ ------------ ------------
Weighted-average number of common
and dilutive potential common shares
outstanding 198,189,458 203,137,598 197,357,488
------------ ------------ ------------
Dividends declared on common stock $169 $160 $167
Dividends declared on preferred stock 9 9 8
SELECTED RATIOS
Annualized rate of return on average
common stockholders' equity (d) (a)8.6% 15.7% 9.7%
As % of period-end total assets:
Common equity 4.0% 4.6% 4.1%
Total equity 4.3 4.9 4.4
Regulatory capital ratios
Tier 1 risk-based capital ratio (e)7.4% (e) (e)8.0%
Total risk-based capital ratio (e)11.0 (e) (e)11.9
Leverage ratio (e) 4.0 (e) (e) 4.4
------------ ------------ ------------
AVERAGE BALANCES
Debt investment securities (f) $24,100 $25,452 $21,375
Loans 32,540 28,702 33,151
Total interest-earning assets 209,779 189,516 209,870
Total assets 279,657 236,079 269,692
Total interest-bearing liabilities 205,867 182,059 201,381
Total liabilities 268,167 224,684 258,224
Common stockholders' equity 10,796 10,701 10,774
Total stockholders' equity 11,490 11,395 11,468
Net interest earnings (fully taxable basis) 351 470 472
Net yield on interest-earning assets 0.68% 1.01% 0.89%
------------ ------------ ------------
Employees at period-end 16,534 15,483 16,943
------------ ------------ ------------
</TABLE>
(a) Excluding the 1998 first quarter after tax charge of $129 million ($215
million before tax) related to the restructuring of business activities: net
income was $366 million; basic and diluted earnings per share (EPS) were $1.97
and $1.80, respectively; and the annualized rate of return on average common
stockholders' equity was 13.4% (including the impact of SFAS 115) and 14.0%
(excluding the impact of SFAS 115) for the three months ended March 31, 1998.
(b) Effective December 31, 1997, J.P. Morgan adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 supersedes
Accounting Principles Board Opinion (APB) No. 15 and related interpretations and
replaces the computations of primary and fully diluted EPS with basic and
diluted EPS, respectively. Prior period amounts have been restated.
(c) Excluding the impact of SFAS No. 115, the book value per common share would
have been $54.30, $51.98, and $53.74 at March 31, 1998, March 31, 1997, and
December 31, 1997, respectively.
(d) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity would have been 8.9%, 16.5%, and 10.2% for
the three months ended March 31, 1998, March 31, 1997, and December 31, 1997,
respectively.
(e) 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.
The new framework amended 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 March 31, 1998 are estimates. Ratios at March 31,
1997 have not been restated. In accordance with the Federal Reserve Board's
guidelines followed prior to September 30, 1997, ratios at March 31, 1997
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 8.7%, 12.4%, and 5.9%, respectively, at March 31, 1997.
(f) Average debt investment securities are computed on historical amortized
cost, excluding the effects of SFAS No. 115 adjustments.
<PAGE> 7
J.P.Morgan & Co. Incorporated 7
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------
In millions, except share data
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------------------
March 31 March 31 Increase/ December 31 Increase/
1998 1997 (Decrease) 1997 (Decrease)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $ 3,262 $ 2,892 $ 370 $ 3,271 $ (9)
Interest expense 2,926 2,442 484 2,816 110
------- ------- ------- ------- -------
Net interest revenue 336 450 (114) 455 (119)
NONINTEREST REVENUE
Trading revenue 896 697 199 306 590
Investment banking revenue 346 226 120 283 63
Investment management revenue 211 184 27 208 3
Fees and commissions 190 148 42 179 11
Investment securities revenue 43 61 (18) 167 (124)
Other revenue/(loss) (25) 67 (92) 82 (107)
------- ------- ------- ------- -------
Total noninterest revenue 1,661 1,383 278 1,225 436
Total revenue, net of interest expense 1,997 1,833 164 1,680 317
OPERATING EXPENSES
Employee compensation and benefits 1,003 766 237 729 274
Net occupancy 151 73 78 79 72
Technology and communications 301 203 98 305 (4)
Other expenses 177 149 28 195 (18)
------- ------- ------- ------- -------
Total operating expenses (a) 1,632 1,191 441 1,308 324
Income before income taxes 365 642 (277) 372 (7)
Income taxes 128 218 (90) 101 27
------- ------- ------- ------- -------
Net income 237 424 (187) 271 (34)
PER COMMON SHARE
Net income
Basic $ 1.26 $ 2.19 $ (0.93) $ 1.44 $ (0.18)
Diluted 1.15 2.04 (0.89) 1.33 (0.18)
Dividends declared 0.95 0.88 0.07 0.95 --
------- ------- ------- ------- -------
</TABLE>
(a) First quarter 1998 includes a pretax charge of $215 million related to the
restructuring of business activities which were recorded as follows: $140
million in Employee compensation and benefits, related to severance; $70 million
in Net occupancy, related to real-estate write-offs; and $5 million in
Technology and communications, related to equipment write-offs.
<PAGE> 8
J.P. Morgan & Co. Incorporated
8
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In millions, except share data March 31 December 31
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,113 $ 1,758
Interest-earning deposits with banks 1,506 2,132
Debt investment securities available-for-sale carried at fair value (cost: $25,238 at March 1998 and
$22,507 at December 1997) 25,425 22,768
Equity investment securities 1,176 1,085
Trading account assets, net of allowance for credit losses of $350 123,325 111,854
Securities purchased under agreements to resell 31,196 39,002
Securities borrowed 36,784 38,375
Loans, net of allowance for credit losses of $452 at March 1998 and $546 at December 1997 33,292 31,032
Accrued interest and accounts receivable 6,573 4,962
Premises and equipment, net of accumulated depreciation of $1,368 at March 1998 and $1,379
at December 1997 1,840 1,838
Other assets 9,309 7,353
--------- ---------
Total assets 271,539 262,159
--------- ---------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,024 1,482
In offices outside the U.S. 1,001 744
Interest-bearing deposits:
In offices in the U.S. 6,960 9,232
In offices outside the U.S. 51,390 47,421
--------- ---------
Total deposits 60,375 58,879
Trading account liabilities 71,652 71,141
Securities sold under agreements to repurchase ($62,595 at March 1998 and $53,202 at
December 1997) and federal funds purchased 65,740 57,804
Commercial paper 8,921 6,622
Other liabilities for borrowed money 14,990 17,176
Accounts payable and accrued expenses 8,766 10,865
Long-term debt not qualifying as risk-based capital 20,449 18,246
Other liabilities, including allowance for credit losses of $185 3,193 4,129
--------- ---------
254,086 244,862
Liabilities qualifying as risk-based capital:
Long-term debt 4,706 4,743
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150
--------- ---------
Total liabilities 259,942 250,755
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,000,000)
Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244
Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250
Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200
Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,805,567 at
March 1998 and 200,692,673 at December 1997) 502 502
Capital surplus 1,351 1,360
Common stock issuable under stock award plans 1,241 1,185
Retained earnings 9,447 9,398
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 433 432
Foreign currency translation, net of taxes (29) (22)
--------- ---------
13,639 13,549
Less: treasury stock (22,872,153 shares at March 1998 and 24,374,944 shares
at December 1997) at cost 2,042 2,145
--------- ---------
Total stockholders' equity 11,597 11,404
--------- ---------
Total liabilities and stockholders' equity 271,539 262,159
--------- ---------
</TABLE>
Certain prior period amounts have been reclassified to conform with the March
31, 1998 presentation.
<PAGE> 9
J.P. Morgan & Co. Incorporated
9
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In millions, except share data March 31 December 31
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,077 $ 1,663
Interest-earning deposits with banks 1,488 2,195
Debt investment securities available-for-sale carried at fair value 13,618 20,539
Trading account assets, net of allowance for credit losses of $350 94,798 88,995
Securities purchased under agreements to resell 22,175 28,045
Securities borrowed 10,662 13,831
Loans, net of allowance for credit losses of $450 at March 1998 and $545 at December 1997 33,103 30,851
Accrued interest and accounts receivable 6,124 4,534
Premises and equipment, net of accumulated depreciation of $1,193 at March 1998
and $1,208 at December 1997 1,668 1,669
Other assets 4,789 4,096
--------- ---------
Total assets 189,502 196,418
--------- ---------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,032 1,492
In offices outside the U.S. 1,014 752
Interest-bearing deposits:
In offices in the U.S. 6,971 10,156
In offices outside the U.S. 52,922 48,343
--------- ---------
Total deposits 61,939 60,743
Trading account liabilities 63,179 61,562
Securities sold under agreements to repurchase and federal funds purchased 21,944 26,017
Other liabilities for borrowed money 8,304 10,433
Accounts payable and accrued expenses 5,837 7,160
Long-term debt not qualifying as risk-based capital 12,789 14,320
Other liabilities, including allowance for credit losses of $185 1,951 2,713
--------- ---------
175,943 182,948
Long-term debt qualifying as risk-based capital 2,897 3,037
--------- ---------
Total liabilities 178,840 185,985
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: 2,500,000) -- --
Common stock, $25 par value (authorized shares: 11,000,000; issued and
outstanding: 10,599,027) 265 265
Surplus 3,305 3,155
Undivided profits 7,056 6,927
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 65 108
Foreign currency translation, net of taxes (29) (22)
--------- ---------
Total stockholder's equity 10,662 10,433
--------- ---------
Total liabilities and stockholder's equity 189,502 196,418
--------- ---------
</TABLE>
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
<PAGE> 10
J.P. Morgan & Co. Incorporated
10
SUMMARY OF SECTOR RESULTS
J.P. Morgan & Co. Incorporated
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $564 $919 $402 $1,885 $ 25 $238 $263 ($151) $1,997
Total expenses 355 608 343 1,306 7 49 56 270 * 1,632
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 209 311 59 579 18 189 207 (421) 365
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1997
Total revenues 451 733 375 1,559 49 276 325 (51) 1,833
Total expenses 302 474 300 1,076 7 46 53 62 1,191
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 149 259 75 483 42 230 272 (113) 642
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCREASE/(DECREASE), FIRST QUARTER 1998 VS. FIRST QUARTER 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues 113 186 27 326 (24) (38) (62) (100) 164
Total expenses 53 134 43 230 - 3 3 208 441
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 60 52 (16) 96 (24) (41) (65) (308) (277)
- ------------------------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER 1997
Total revenues 439 453 436 1,328 164 235 399 (47) 1,680
Total expenses 320 558 372 1,250 13 38 51 7 1,308
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 119 (105) 64 78 151 197 348 (54) 372
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCREASE/(DECREASE), FIRST QUARTER 1998 VS. FOURTH QUARTER 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues 125 466 (34) 557 (139) 3 (136) (104) 317
Total expenses 35 50 (29) 56 (6) 11 5 263 324
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 90 416 (5) 501 (133) (8) (141) (367) (7)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* First quarter 1998 includes a pretax charge of $215 million related to the
restructuring of business activities.
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, emerging markets,
equities, foreign exchange, and commodities activities. The Asset Management and
Servicing sector includes results of our institutional investment management and
mutual funds, services for private clients, and securities and futures services.
Corporate Items includes revenues and expenses that have not been allocated to
business sectors, intercompany eliminations, equity in earnings of certain
affiliates, taxable-equivalent adjustment, and results of sold or discontinued
businesses. For a complete description of our business sectors, please refer to
the J.P. Morgan & Co. Incorporated 1997 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.
<PAGE> 11
J.P. Morgan & Co. Incorporated
11
<TABLE>
<CAPTION>
SUMMARY OF SECTOR RESULTS
J.P. Morgan & Co. Incorporated
- ----------------------------------------------------------------------------------------------------------------------------
First First Fourth
Quarter Quarter Increase/ Quarter Increase/
In millions 1998 1997 (Decrease) 1997 (Decrease)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Advisory & Underwriting $340 $221 $119 $271 $69
Credit 224 230 (6) 168 56
- ----------------------------------------------------------------------------------------------------------------------------
FINANCE AND ADVISORY 564 451 113 439 125
- ----------------------------------------------------------------------------------------------------------------------------
Fixed Income 460 264 196 228 232
Emerging Markets 237 186 51 122 115
Equities 116 152 (36) (54) 170
Foreign Exchange 92 119 (27) 128 (36)
Commodities 14 12 2 29 (15)
- ----------------------------------------------------------------------------------------------------------------------------
MARKET MAKING 919 733 186 453 466
- ----------------------------------------------------------------------------------------------------------------------------
Asset Management Services 251 243 8 277 (26)
Securities and Futures Services 151 132 19 159 (8)
- ----------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT AND
SERVICING 402 375 27 436 (34)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CLIENT-FOCUSED
REVENUES 1,885 1,559 326 1,328 557
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY INVESTMENTS 25 49 (24) 164 (139)
- ----------------------------------------------------------------------------------------------------------------------------
PROPRIETARY INVESTING AND
TRADING 238 276 (38) 235 3
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL PROPRIETARY REVENUES 263 325 (62) 399 (136)
- ----------------------------------------------------------------------------------------------------------------------------
CORPORATE ITEMS (151) (51) (100) (47) (104)
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REVENUES 1,997 1,833 164 1,680 317
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The activities of our Fixed Income, Emerging Markets, and Equities businesses
are reflected across several sectors. Aggregate revenues for these businesses
for the three months ended March 31 follows: Fixed Income - $607 million (1998)
and $385 million (1997); Emerging Markets - $303 million (1998) and $228 million
(1997); and, Equities - $194 million (1998) and $208 million (1997).
<PAGE> 12
J.P. Morgan & Co. Incorporated
12
<TABLE>
<CAPTION>
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>
First Quarter 1998 $641 $57 $65 $10 $123 $896 $109 $1,005
First Quarter 1997 346 111 120 13 107 697 122 819
Fourth Quarter 1997 126 (142) 202 32 88 306 110 416
- ---------------------------------------------------------------------------------------------------------------------------
</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>
First Quarter 1998 $191 $155 $346
First Quarter 1997 129 97 226
Fourth Quarter 1997 166 117 283
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
J.P. Morgan & Co. Incorporated
13
<TABLE>
<CAPTION>
ASSET QUALITY
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
March 31 December 31 March 31
In millions 1998 1997 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Nonperforming loans:
Commercial and industrial $52 $55 $55
Banks and other financial institutions 4 30 -
Other 26 28 36
- --------------------------------------------------------------------------------------------------
Total nonperforming loans 82 113 91
Other nonperforming assets,
primarily swaps 568 546 19
- --------------------------------------------------------------------------------------------------
Total nonperforming assets 650 659 110
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE ALLOWANCE FOR CREDIT LOSSES
March 31 December 31 March 31
In millions 1998 1997 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Aggregate allowance for credit losses $987 $1,081 $1,113
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
First Quarter
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
Charge-offs:
Commercial and industrial $(43) $(13)
Banks and other financial institutions (40) -
Losses on sale of loans, primarily banks
and other financial institutions (26) -
Recoveries 15 10
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
J.P. Morgan & Co. Incorporated
14
CREDIT EXPOSURES TO CERTAIN ASIAN COUNTRIES
J.P. Morgan & Co. Incorporated
(preliminary)
The following tables present exposures to certain Asian countries based upon
management's view of total exposure.
<TABLE>
<CAPTION>
By financial instrument
- ------------------------------------------------------------------------------------------------------ ---------------
March 31, 1998
- ------------------------------------------------------------------------------------------------------ ---------------
Credit December 31,
In billions Deriva- Other out- deriva- Commit- Total 1997
Loans tives standings tives, ments exposure Total
net
- ------------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Indonesia $0.2 $0.1 $0.1 - $0.1 $0.5 $0.8
Malaysia 0.1 0.1 0.1 - - 0.3 0.4
Philippines 0.1 0.2 0.1 - - 0.4 0.3
South Korea 1.0 1.3 0.7 $(0.3) 0.2 2.9 3.5
Thailand 0.1 0.2 0.2 - - 0.5 1.1
- ------------------------------------------------------------------------------------------------------ ---------------
Total 1.5 1.9 1.2 (0.3) 0.3 4.6 (1)(2) 6.1
- ------------------------------------------------------------------------------------------------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
By counterparty
- -------------------------------------------------------------------------------------
In billions Govern- Commit-
March 31, 1998 Banks ments Other ments Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Indonesia $0.1 $0.1 $0.2 $0.1 $0.5
Malaysia 0.1 - 0.2 - 0.3
Philippines 0.1 0.1 0.2 - 0.4
South Korea 1.5 0.6 0.6 0.2 2.9
Thailand 0.4 - 0.1 - 0.5
- -------------------------------------------------------------------------------------
Total exposure, March 31, 1998 2.2 0.8 1.3 0.3 4.6 (1)(2)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Total, December 31, 1997 3.2 0.8 1.7 0.4 6.1
- -------------------------------------------------------------------------------------
</TABLE>
(1) Approximately $3.5 billion of exposures to Indonesia, Malaysia, the
Philippines, South Korea, and Thailand were eligible for coverage by the
aggregate allowance for credit losses. Credit losses relating to the remaining
exposures, primarily trading account securities (issuer positions) and
investment securities, will be recognized in the income statement.
(2) Bank regulatory reporting rules, which are established by the Federal
Financial Institutions Examination Council (FFIEC), exclude certain items which
management believes are appropriate in determining exposure, including trading
account securities sold short of issuers in the above countries and credit
derivatives with highly rated counterparties in non-emerging Asian countries.
FFIEC exposures at March 31, 1998 by country are as follows: Indonesia $0.5
billion, Malaysia $0.3 billion, Philippines $0.4 billion, South Korea $3.2
billion, and Thailand $0.5 billion. FFIEC exposures at March 31, 1998 by
counterparty are as follows: Banks $2.0 billion, Governments $0.8 billion, and
Other $1.8 billion; excluding total commitments of $0.3 billion.
EXCHANGE AGREEMENT WITH REPUBLIC OF KOREA
On January 28, 1998, an agreement in principle was reached between the Republic
of Korea (South Korea) and a group of international banks (including J.P.
Morgan) on a plan to extend the maturities of short-term credits to the Korean
banking system. Under the plan, Korean banks offered to exchange their
short-term, non-trade credits for new loans, with maturities of one to three
years, guaranteed by the Republic of Korea and bearing a floating rate of
interest at specified rates over the six-month London Interbank Offering Rate.
On April 8, 1998, J.P. Morgan exchanged approximately $410 million of debt
pursuant to the agreement.
