<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) July 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 July 14, 1998, the Registrant issued a press release announcing its
earnings for the three-month and six-month periods ended June 30, 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
12. Statement re computation of ratios.
99. Copy of press release of J.P. Morgan & Co.
Incorporated dated July 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: July 14, 1998
<PAGE> 4
EXHIBIT INDEX
-------------
Exhibits Description
-------- -----------
12. Statement re computation of ratios.
99. Copy of press release of J.P. Morgan & Co.
Incorporated dated July 14, 1998.
<PAGE> 1
EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
J.P. Morgan & Co. Incorporated
Consolidated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Six Months
Dollars in millions 1998
- --------------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 718
Add: income taxes 384
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 9
Add: fixed charges, excluding interest
on deposits 4 275
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 5 368
Add: interest on deposits 1 493
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 6 861
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 4 249
Interest factor in net rental expense 26
- --------------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 4 275
Add: interest on deposits 1 493
- --------------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 5 768
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.26(a)
Including interest on deposits 1.19(a)
- --------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 1998, the ratio of earnings to fixed
charges, excluding the second quarter 1998 after tax gain of $79 million ($131
million before tax) related to the sale of the firm's global trust and agency
services business and excluding the first quarter 1998 after tax charge of $129
million ($215 million before tax) related to restructuring of business
activities,was 1.27 excluding interest on deposits and 1.20 including interest
on deposits.
<PAGE> 2
EXHIBIT 12
Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
J.P. Morgan & Co. Incorporated
Consolidated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Six Months
Dollars in millions 1998
- --------------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 718
Add: income taxes 384
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 9
Add: fixed charges, excluding interest
on deposits and preferred stock
dividends 4 303
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 5 396
Add: interest on deposits 1 493
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 6 889
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 4 249
Interest factor in net rental expense 26
Preferred stock dividends 28
- --------------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 4 303
Add: interest on deposits 1 493
- --------------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 5 796
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.25(a)
Including interest on deposits 1.19(a)
- --------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 1998, the ratio of earnings to fixed
charges, excluding the second quarter 1998 after tax gain of $79 million ($131
million before tax) related to the sale of the firm's global trust and agency
services business and excluding the first quarter 1998 after tax charge of $129
million ($215 million before tax) related to restructuring of business
activities,was 1.27 excluding interest on deposits and 1.20 including interest
on deposits.
<PAGE> 1
J.P. Morgan & Co. Incorporated [JP Morgan Logo]
60 Wall Street
New York, NY 10260-0060
NYSE: symbol: JPM
- --------------------------------------------------------------------------------
NEWS RELEASE: IMMEDIATE July 14, 1998
J.P. MORGAN REPORTS 1998 SECOND QUARTER RESULTS
J.P. Morgan today reported net income of $481 million, up 29% from the second
quarter of 1997. The 1998 result includes a gain of $131 million ($79 million
after tax) related to the previously announced sale of the firm's global trust
and agency services business. Excluding the gain, net income was $402 million,
7% higher than in last year's quarter. Earnings per share in the 1998 quarter
were $2.36, or $1.96 per share excluding the gain.
Net income for the first half of 1998, excluding the second quarter gain and a
$129 million after tax restructuring charge taken in the first quarter, was $768
million, compared with $798 million in the first half of 1997.
OTHER HIGHLIGHTS OF THE QUARTER:
- - Revenues from our client-focused activities rose 28% from the year-ago
quarter, benefiting from strong client demand globally and a robust
market environment in the U.S. and Europe; proprietary revenues were
lower.
- - Operating expenses were flat compared with the first quarter as we
funded strategic investment with savings realized from the
restructuring actions announced in March.
- - Exposures to emerging Asia were $3.4 billion, down 26% from the first
quarter and 44% from year-end 1997.
Douglas A. Warner III, chairman, said: "We saw solid progress on our strategic
initiatives in the quarter, with strong revenue momentum across all of our
client-focused activities and tangible results from repositioning our credit
portfolio."
SECOND QUARTER RESULTS AT A GLANCE
<TABLE>
<CAPTION>
First
Second quarter quarter
- --------------------------------------------------------------------------------------------
In millions of dollars, except per share data 1998 1997 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 2,153 $ 1,791 $ 1,997
Operating expenses (1,416) (1,241) (1,632)*
Income taxes (256) (176) (128)
- --------------------------------------------------------------------------------------------
Net income 481 374 237
Net income per share $ 2.36 $ 1.85 $ 1.15
Dividends declared per share $ 0.95 $ 0.88 $ 0.95
- --------------------------------------------------------------------------------------------
</TABLE>
* Includes a pretax charge of $215 million related to the restructuring of
business activities.
The remainder of this release contains information on specific areas of results,
a financial summary, and the consolidated financial statements.
- --------------------------------------------------------------------------------
Press contact: Joseph M. Evangelisti 212/648-9589
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 28% from a year ago
REVENUES in the second quarter of 1998 rose 20% from the prior year to $2.153
billion.
Revenues from client-focused activities, which are reported in the Finance and
Advisory, Market Making, and Asset Management and Servicing sectors, rose 28% to
$1.953 billion in the second quarter of 1998 from $1.521 billion in the year-ago
quarter. Revenues from Equity Investments and Proprietary Investing and Trading
activities were $166 million versus $240 million in the 1997 second quarter.
FINANCE AND ADVISORY (Advisory, Debt and Equity Underwriting, and Credit)
revenues were $588 million in the second quarter of 1998, up 22% from the 1997
second quarter.
Revenues from advisory services and debt and equity underwriting rose 31% to
$334 million in the quarter, reflecting robust demand for investment banking
services, particularly in the Americas and Europe. For the first half of 1998,
Securities Data Co. ranked J.P. Morgan fifth in completed mergers and
acquisitions worldwide, up from seventh in the year-ago first half; market share
advanced to 15.0% from 9.4%. Morgan ranked ninth in U.S. equity lead
underwriting with a market share of 4.3%, compared with 11th and a market share
of 2.7% in the 1997 first half. Revenues from credit activities in the quarter
rose $28 million to $254 million.
MARKET MAKING (Fixed Income, Emerging Markets, Equities, Foreign Exchange, and
Commodities) revenues totaled $920 million in the second quarter, up 42% from a
year earlier.
Fixed income revenues rose 41% to $377 million in the second quarter of 1998.
Revenues from swaps and other derivative transactions with clients were sharply
higher.
In emerging markets, market-making revenues were $149 million in the second
quarter, up 21%. Increased client flows in Asian local markets and derivatives
contributed to the increase.
Market-making revenues in equities were $205 million in the second quarter of
1998, up 30% from $158 million a year ago. Equity derivatives posted strong
increases on higher client demand. Cash secondary trading revenues were also
sharply higher, reflecting growing market share and volumes.
Foreign exchange revenues were $147 million, 75% higher than in the year-ago
quarter. Strong client demand and volatile markets, both in G-7 and emerging
market currencies, contributed to the increase.
Commodities revenues of $42 million more than doubled from a year ago,
reflecting increased client activity in both metals and energy.
ASSET MANAGEMENT AND SERVICING (Institutional Investment Management and Mutual
Funds, Services for Private Clients, and Securities and Futures Services)
revenues were up 14% to $445 million in the second quarter from a year ago.
Revenues generated from asset management increased 8% to $277 million,
reflecting a 14% increase in investment management fees partially offset by the
costs associated with our investment in American Century. Assets under
management approximated $300 billion at June 30, 1998, compared with $234
billion a year ago.
<PAGE> 3
J.P. Morgan & Co. Incorporated 3
Private clients accounted for revenues of approximately $175 million, an
increase of 21%. Of this amount, approximately $45 million is recorded in the
Finance and Advisory and Market Making sectors.
Revenues from securities and futures services were broadly higher. The 24% gain
in the quarter included strong Euroclear revenues and record results in futures
and options brokerage.
EQUITY INVESTMENTS (Equity Investment Portfolio Management) reported revenues of
$108 million in the second quarter, compared with $124 million a year ago. Net
gains of $101 million this quarter primarily related to the sale of an
investment in the insurance industry. Total return - reported revenues plus the
change in net unrealized appreciation - was negative $48 million compared with
$212 million in the 1997 period, which saw exceptional appreciation in insurance
industry investments.
PROPRIETARY INVESTING AND TRADING (Risk Positioning, Credit Investment
Portfolio, and Capital and Liquidity Management) revenues declined to $58
million in the 1998 second quarter from $116 million a year ago. The decline
includes approximately $50 million in losses on the sale of investment
securities related to reducing our Asian credit exposures. Total return -
reported revenues plus the change in net unrealized appreciation - for the 1998
second quarter was $69 million compared with $59 million last year.
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) include the $131
million gain on the sale of our global trust and agency services business.
OPERATING EXPENSES
Expenses flat with first quarter
Operating expenses were $1.416 billion in the second quarter, flat compared with
the first quarter (excluding a $215 million restructuring charge), reflecting
progress on our productivity initiatives. Incremental investments in strategic
growth areas were substantially funded by savings realized from the
restructuring initiatives announced last quarter.
Compared with the prior year, operating expenses in the second quarter increased
14%, reflecting higher incentive compensation accruals and other expenses
related to increased business activity. Costs to prepare for the Year 2000 and
European Economic and Monetary Union were $55 million in the quarter, up from
$14 million a year ago.
CREDIT-RELATED DEVELOPMENTS
Exposures in Emerging Asia reduced 26%
We continued to reduce exposures to counterparties in Indonesia, Malaysia, the
Philippines, South Korea, and Thailand through principal repayments, loan and
investment securities sales, the purchase of credit protection through
derivatives, and charge-offs. Exposures to these countries at June 30, 1998,
were down 26% to $3.4 billion from March 31, 1998, and down 44% since December
31, 1997. Exposures primarily consist of loans, derivatives, trading account
securities, and debt investment securities.
<PAGE> 4
J.P. Morgan & Co. Incorporated 4
Nonperforming assets at June 30, 1998, were $588 million, down from $650 million
at March 31, 1998. Assets newly classified as nonperforming were offset by a
combination of charge-offs and repayments during the quarter. Nonperforming
assets consist primarily of swaps with certain Asian counterparties. Net
charge-offs were $83 million in the quarter and related primarily to
counterparties in South Korea and Indonesia.
At June 30, 1998, the aggregate allowance for credit losses was $904 million,
compared with $987 million at March 31, 1998. Of exposures to Indonesia,
Malaysia, the Philippines, South Korea, and Thailand, approximately $2.5 billion
at June 30, 1998, were eligible for coverage by the aggregate allowance for
credit losses. We consider approximately 47% of the aggregate allowance for
credit losses to relate to these countries as of June 30, 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 June 30, 1998, under the Federal Reserve Board market risk capital guidelines
for calculation of risk-based capital ratios, J.P. Morgan's estimated tier 1 and
total risk-based capital ratios were 7.6% and 11.1%, respectively; the estimated
leverage ratio was 4.1%. At March 31, 1998, J.P. Morgan's tier 1 and total
risk-based capital ratios were 7.5% and 11.1%, respectively, and the leverage
ratio was 4.0%.
J.P. Morgan's risk adjusted assets at June 30, 1998, approximated $151.1
billion, compared with $150.6 billion at March 31, 1998. The increase is net of
a reduction of approximately $6 billion achieved through actions taken as part
of our strategy to reduce the capital employed in our credit portfolio.
At June 30, 1998, stockholders' equity included $376 million of net unrealized
appreciation on debt investment and marketable equity investment securities, net
the related deferred tax liability of $231 million. This compares with $433
million of net unrealized appreciation at March 31, 1998, net the related
deferred tax liability of $253 million. The net unrealized appreciation on debt
investment securities was $237 million and $187 million at June 30, 1998, and
March 31, 1998, respectively. The net unrealized appreciation on marketable
equity investment securities was $370 million at June 30, 1998, and $499 million
at March 31, 1998.
The firm bought back approximately 2.5 million shares of its common stock in the
second quarter, for a total of 3.7 million shares in the year to date. These
purchases are part of an authorization to repurchase 7 million shares to lessen
the dilutive impact of the firm's employee benefit plans on earnings per share.
# # #
<PAGE> 5
J.P. Morgan & Co. Incorporated 5
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>
First
Second Quarter Quarter Six Months
----------------------------- ------------ -----------------------------
1998 1997 1998 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income (a)$481 $ 374 (b)$237 (c)$718 $ 798
PER COMMON SHARE
Net income(d)
Basic (a)$2.57 $ 1.98 (b)$1.26 (c)$3.82 $4.17
Diluted (a)2.36 1.85 (b)1.15 (c)3.51 3.89
Dividends declared 0.95 0.88 0.95 1.90 1.76
Book value(e) $ 57.26 $ 55.37 $ 56.55
- --------------------------------------------------------------------------------------------------------------------------------
Common shares issued and outstanding
at period-end 176,658,607 179,056,875 177,933,414
- --------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of common
and dilutive potential common shares
outstanding 200,064,207 198,148,923 198,189,458 199,740,026 200,750,906
- --------------------------------------------------------------------------------------------------------------------------------
Dividends declared on common stock $ 168 $ 158 $ 169 $ 337 $ 318
Dividends declared on preferred stock 9 9 9 18 18
SELECTED RATIOS
Annualized rate of return on average
common stockholders' equity (f) (a)17.3% 14.1% (b)8.6% (c)13.0% 14.9%
As % of period-end total assets:
Common equity 3.9% 4.3% 4.0%
Total equity 4.2 4.5 4.3
Regulatory capital ratios
Tier 1 risk-based capital ratio (g)7.6% (g) (g)7.5 %
Total risk-based capital ratio (g)11.1 (g) (g)11.1
Leverage ratio (g)4.1 (g) (g)4.0
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Debt investment securities (h) $ 23,185 $ 22,946 $ 24,100 $ 23,611 $ 24,192
Loans 32,556 29,434 32,540 32,548 29,070
Total interest-earning assets 208,459 194,832 209,779 209,087 192,189
Total assets 281,864 243,225 279,657 280,767 239,672
Total interest-bearing liabilities 205,868 185,465 205,867 205,867 183,772
Total liabilities 270,218 232,118 268,167 269,199 228,421
Common stockholders' equity 10,952 10,413 10,796 10,874 10,557
Total stockholders' equity 11,646 11,107 11,490 11,568 11,251
Net interest earnings (fully taxable basis) 306 513 351 657 983
Net yield on interest-earning assets 0.59% 1.06% 0.68% 0.63% 1.03%
- --------------------------------------------------------------------------------------------------------------------------------
Employees at period-end 16,045 15,776 16,534
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excluding the 1998 second quarter after tax gain of $79 million ($131
million before tax) related to the sale of the firm's global trust and agency
services business: net income was $402 million; basic and diluted earnings per
share (EPS) were $2.14 and $1.96, respectively; and the annualized rate of
return on average common stockholders' equity was 14.4% (including the impact of
SFAS No. 115) and 15.0% (excluding the impact of SFAS No. 115) for the three
months ended June 30, 1998.
(b) 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 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 No. 115) and 14.0% (excluding the
impact of SFAS No. 115) for the three months ended March 31, 1998.
(c) Excluding the 1998 second quarter after tax gain of $79 million ($131
million before tax) related to the sale of the firm's global trust and agency
services business and 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 $768 million; basic and diluted EPS were $4.09 and
$3.76, respectively; and the annualized rate of return on average common
stockholders' equity was 13.9% (including the impact of SFAS No. 115) and 14.5%
(excluding the impact of SFAS No. 115) for the six months ended June 30, 1998.
(d) 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.
(e) Excluding the impact of SFAS No. 115, the book value per common share was
$55.31, $52.68, and $54.30, at June 30, 1998, June 30, 1997, and March 31, 1998,
respectively.
(f) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity was 18.0%, 14.7%, and 8.9% for the three
months ended June 30, 1998, June 30, 1997, and March 31, 1998, respectively, and
13.5% and 15.6% for the six months ended June 30, 1998 and 1997, respectively.
(g) 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 June 30, 1998 are estimates. Ratios at June 30,
1997 have not been restated. In accordance with the Federal Reserve Board's
guidelines followed prior to September 30, 1997, ratios at June 30, 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 8.1%, 11.4%, and 5.9%, respectively, at June 30, 1997.
(h) 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
------------------------------------------------------------------
June 30 June 30 Increase/ March 31 Increase/
1998 1997 (Decrease) 1998 (Decrease)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $ 3,106 $ 3,029 $ 77 $ 3,262 ($ 156)
Interest expense 2,816 2,534 282 2,926 (110)
- ----------------------------------------------------------------------------------------------------------------
Net interest revenue 290 495 (205) 336 (46)
NONINTEREST REVENUES
Trading revenue 877 477 400 896 (19)
Investment banking revenue 362 294 68 346 16
Investment management revenue 226 199 27 211 15
Fees and commissions 197 156 41 190 7
Investment securities revenue 68 114 (46) 43 25
Other revenue/(loss) 133 (a) 56 77 (25) 158
- ----------------------------------------------------------------------------------------------------------------
Total noninterest revenues 1,863 1,296 567 1,661 202
Total revenues, net of interest expense 2,153 1,791 362 1,997 156
OPERATING EXPENSES
Employee compensation and benefits 862 734 128 1,003 (141)
Net occupancy 78 104 (26) 151 (73)
Technology and communications 293 240 53 301 (8)
Other expenses 183 163 20 177 6
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 1,416 1,241 175 1,632 (b) (216)
Income before income taxes 737 550 187 365 372
Income taxes 256 176 80 128 128
- ----------------------------------------------------------------------------------------------------------------
Net income 481 374 107 237 244
PER COMMON SHARE
Net income
Basic $ 2.57 $ 1.98 $ 0.59 $ 1.26 $ 1.31
Diluted 2.36 1.85 0.51 1.15 1.21
Dividends declared 0.95 0.88 0.07 0.95 --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Second quarter 1998 includes a pretax gain of $131 million ($79 million
after tax) related to the sale of the firm's global trust and agency services
business.
(b) First quarter 1998 includes a pretax charge of $215 million ($129 million
after tax) related to the restructuring of business activities which was
recorded as follows: $140 million in Employee compensation and benefits, related
to severance; $70 million in Net occupancy, related to real estate write-offs;
and $5 million in Technology and communications, related to equipment
write-offs.
<PAGE> 8
J.P. Morgan & Co. Incorporated 8
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
In millions, except share data
<TABLE>
<CAPTION>
Six months ended
---------------------------------
June 30 June 30 Increase/
1998 1997 (Decrease)
---------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $6,368 $5,921 $ 447
Interest expense 5,742 4,976 766
- --------------------------------------------------------------------------------
Net interest revenue 626 945 (319)
NONINTEREST REVENUES
Trading revenue 1,773 1,174 599
Investment banking revenue 708 520 188
Investment management revenue 437 383 54
Fees and commissions 387 304 83
Investment securities revenue 111 175 (64)
Other revenue 108 (a) 123 (15)
- --------------------------------------------------------------------------------
Total noninterest revenues 3,524 2,679 845
Total revenues, net of interest expense 4,150 3,624 526
OPERATING EXPENSES
Employee compensation and benefits 1,865 1,500 365
Net occupancy 229 177 52
Technology and communications 594 443 151
Other expenses 360 312 48
- --------------------------------------------------------------------------------
Total operating expenses 3,048 (b) 2,432 616
Income before income taxes 1,102 1,192 (90)
Income taxes 384 394 (10)
- --------------------------------------------------------------------------------
Net income 718 798 (80)
PER COMMON SHARE
Net income
Basic $ 3.82 $ 4.17 ($0.35)
Diluted 3.51 3.89 (0.38)
Dividends declared 1.90 1.76 0.14
- --------------------------------------------------------------------------------
</TABLE>
(a) Six months ended June 30, 1998 includes a second quarter pretax gain of $131
million ($79 million after tax) related to the sale of the firm's global trust
and agency services business.
(b) Six months ended June 30, 1998 includes a first quarter 1998 pretax charge
of $215 million ($129 million after tax) related to the restructuring of
business activities which was recorded as follows: $140 million in Employee
compensation and benefits, related to severance; $70 million in Net occupancy,
related to real estate write-offs; and $5 million in Technology and
communications, related to equipment write-offs.
<PAGE> 9
J.P. Morgan & Co. Incorporated 9
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
- -----------------------------------------------------------------------------------------------------------------------------------
In millions, except share data June 30 March 31 December 31
1998 1998 1997
-------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,522 $ 1,113 $ 1,758
Interest-earning deposits with banks 2,804 1,506 2,132
Debt investment securities available-for-sale carried at fair value (cost: $23,461
at June 1998, $25,238 at March 1998, and $22,507 at December 1997) 23,698 25,425 22,768
Equity investment securities 1,012 1,176 1,085
Trading account assets, net of allowance for credit losses of $327 at June 1998 and $350
at March 1998 and December 1997 123,475 123,325 111,854
Securities purchased under agreements to resell 36,537 31,196 39,002
Securities borrowed 40,215 36,784 38,375
Loans, net of allowance for credit losses of $392 at June 1998, $452 at March 1998,
and $546 at December 1997 31,029 33,292 31,032
Accrued interest and accounts receivable 7,536 6,573 4,962
Premises and equipment, net of accumulated depreciation of $1,389 at June 1998,
$1,368 at March 1998, and $1,379 at December 1997 1,855 1,840 1,838
Other assets 11,094 9,309 7,353
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 280,777 271,539 262,159
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 982 1,024 1,482
In offices outside the U.S. 1,254 1,001 744
Interest-bearing deposits:
In offices in the U.S. 6,316 6,960 9,232
In offices outside the U.S. 48,474 51,390 47,421
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 57,026 60,375 58,879
Trading account liabilities 74,997 71,652 71,141
Securities sold under agreements to repurchase ($67,319 at June 1998, $62,595 at March 1998,
and $53,202 at December 1997) and federal funds purchased 69,891 65,740 57,804
Commercial paper 12,738 8,921 6,622
Other liabilities for borrowed money 16,788 14,990 17,176
Accounts payable and accrued expenses 8,268 8,766 10,865
Long-term debt not qualifying as risk-based capital 21,301 20,449 18,246
Other liabilities, including allowance for credit losses of $185 2,223 3,193 4,129
- -----------------------------------------------------------------------------------------------------------------------------------
263,232 254,086 244,862
Liabilities qualifying as risk-based capital:
Long-term debt 4,679 4,706 4,743
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 1,150
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 269,061 259,942 250,755
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,000,000)
Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244 244
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: 200,807,317 at
June 1998, 200,805,567 at March 1998, and 200,692,673 at December 1997) 502 502 502
Capital surplus 1,306 1,351 1,360
Common stock issuable under stock award plans 1,342 1,241 1,185
Retained earnings 9,743 9,447 9,398
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 376 433 432
Foreign currency translation, net of taxes (44) (29) (22)
- -----------------------------------------------------------------------------------------------------------------------------------
13,919 13,639 13,549
Less: treasury stock (24,148,710 shares at June 1998, 22,872,153 shares
at March 1998, and 24,374,944 shares at December 1997) at cost 2,203 2,042 2,145
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,716 11,597 11,404
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 280,777 271,539 262,159
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain prior period amounts have been reclassified to conform with the current
presentation.
<PAGE> 10
J.P. Morgan & Co. Incorporated 10
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
In millions, except share data June 30 December 31
1998 1997
--------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,491 $ 1,663
Interest-earning deposits with banks 2,736 2,195
Debt investment securities available-for-sale carried at fair value 3,891 20,539
Trading account assets, net of allowance for credit losses of $327
at June 1998 and $350 at December 1997 96,070 88,995
Securities purchased under agreements to resell 24,183 28,045
Securities borrowed 13,802 13,831
Loans, net of allowance for credit losses of $390 at June 1998 and $545 at December 1997 30,847 30,851
Accrued interest and accounts receivable 6,934 4,534
Premises and equipment, net of accumulated depreciation of $1,209 at June 1998
and $1,208 at December 1997 1,685 1,669
Other assets 6,298 4,096
- -------------------------------------------------------------------------------------------------------------------------
Total assets 187,937 196,418
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 991 1,492
In offices outside the U.S. 1,262 752
Interest-bearing deposits:
In offices in the U.S. 6,328 10,156
In offices outside the U.S. 50,112 48,343
- -------------------------------------------------------------------------------------------------------------------------
Total deposits 58,693 60,743
Trading account liabilities 64,903 61,562
Securities sold under agreements to repurchase and federal funds purchased 21,413 26,017
Other liabilities for borrowed money 10,453 10,433
Accounts payable and accrued expenses 6,413 7,160
Long-term debt not qualifying as risk-based capital 11,164 14,320
Other liabilities, including allowance for credit losses of $185 780 2,713
- -------------------------------------------------------------------------------------------------------------------------
173,819 182,948
Long-term debt qualifying as risk-based capital 3,287 3,037
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 177,106 185,985
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 7,178 6,927
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 127 108
Foreign currency translation, net of taxes (44) (22)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 10,831 10,433
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 187,937 196,418
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
<PAGE> 11
J.P. Morgan & Co. Incorporated 11
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
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECOND QUARTER 1998
Total revenues $ 588 $ 920 $ 445 $ 1,953 $ 108 $ 58 $ 166 $ 34(a) $ 2,153
Total expenses 366 565 362 1,293 11 48 59 64 1,416
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 222 355 83 660 97 10 107 (30) 737
- ------------------------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1997
Total revenues 481 648 392 1,521 124 116 240 30 1,791
Total expenses 351 455 320 1,126 11 45 56 59 1,241
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 130 193 72 395 113 71 184 (29) 550
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE),
SECOND QUARTER 1998 VS
SECOND QUARTER 1997
Total revenues 107 272 53 432 (16) (58) (74) 4 362
Total expenses 15 110 42 167 -- 3 3 5 175
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 92 162 11 265 (16) (61) (77) (1) 187
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1998
Total revenues 564 919 402 1,885 25 238 263 (151) 1,997
Total expenses 355 608 343 1,306 7 49 56 270 (b) 1,632
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 209 311 59 579 18 189 207 (421) 365
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE),
SECOND QUARTER 1998 VS
FIRST QUARTER 1998
Total revenues 24 1 43 68 83 (180) (97) 185 156
Total expenses 11 (43) 19 (13) 4 (1) 3 (206) (216)
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income 13 44 24 81 79 (179) (100) 391 372
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Second quarter 1998 includes a pretax gain of $131 million related to the
sale of the firm's global trust and agency services business.
(b) 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> 12
J.P. Morgan & Co. Incorporated 12
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS 1998
Total revenues $ 1,152 $ 1,839 $ 847 $ 3,838 $ 133 $ 296 $ 429 ($117)(a) $ 4,150
Total expenses 721 1,173 705 2,599 18 97 115 334 (b) 3,048
- -------------------------------------------------------------------------------------------------------------------------------
Pretax income 431 666 142 1,239 115 199 314 (451) 1,102
- -------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS 1997
Total revenues 932 1,381 767 3,080 173 392 565 (21) 3,624
Total expenses 653 929 620 2,202 18 91 109 121 2,432
- -------------------------------------------------------------------------------------------------------------------------------
Pretax income 279 452 147 878 155 301 456 (142) 1,192
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE),
SIX MONTHS 1998 VS
SIX MONTHS 1997
Total revenues 220 458 80 758 (40) (96) (136) (96) 526
Total expenses 68 244 85 397 -- 6 6 213 616
- -------------------------------------------------------------------------------------------------------------------------------
Pretax income 152 214 (5) 361 (40) (102) (142) (309) (90)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Second Second First Six Six
Quarter Quarter Increase/ Quarter Increase/ Months Months Increase/
In millions 1998 1997 (Decrease) 1998 (Decrease) 1998 1997 (Decrease)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Advisory & Underwriting $ 334 $ 255 $ 79 $ 340 ($ 6) $ 674 $ 476 $ 198
Credit 254 226 28 224 30 478 456 22
- --------------------------------------------------------------------------------------------------------------------------------
FINANCE AND ADVISORY 588 481 107 564 24 1,152 932 220
- --------------------------------------------------------------------------------------------------------------------------------
Fixed Income 377 267 110 460 (83) 837 531 306
Emerging Markets 149 123 26 237 (88) 386 309 77
Equities 205 158 47 116 89 321 310 11
Foreign Exchange 147 84 63 92 55 239 203 36
Commodities 42 16 26 14 28 56 28 28
- --------------------------------------------------------------------------------------------------------------------------------
MARKET MAKING 920 648 272 919 1 1,839 1,381 458
- --------------------------------------------------------------------------------------------------------------------------------
Asset Management Services 277 256 21 251 26 528 499 29
Securities and Futures Services 168 136 32 151 17 319 268 51
- --------------------------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT AND
SERVICING 445 392 53 402 43 847 767 80
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CLIENT-FOCUSED
REVENUES 1,953 1,521 432 1,885 68 3,838 3,080 758
- --------------------------------------------------------------------------------------------------------------------------------
EQUITY INVESTMENTS 108 124 (16) 25 83 133 173 (40)
- --------------------------------------------------------------------------------------------------------------------------------
PROPRIETARY INVESTING AND
TRADING 58 116 (58) 238 (180) 296 392 (96)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL PROPRIETARY REVENUES 166 240 (74) 263 (97) 429 565 (136)
- --------------------------------------------------------------------------------------------------------------------------------
CORPORATE ITEMS 34 (a) 30 4 (151) 185 (117)(a) (21) (96)
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REVENUES 2,153 1,791 362 1,997 156 4,150 3,624 526
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The activities of our Fixed Income, Emerging Markets, and Equities businesses
are reflected across several sectors.
Aggregate revenues for these businesses for the six months ended June 30
follows:
Fixed Income - $1,114 million (1998) and $762 million (1997); Emerging Markets -
$395 million (1998) and $371 million (1997); and, Equities - $519 million (1998)
and $446 million (1997).
(a) Includes a second quarter pretax gain of $131 million related to the sale of
the firm's global trust and agency services business.
(b) Includes a first quarter 1998 pretax charge of $215 million related to the
restructuring of business activities.
<PAGE> 13
J.P. Morgan & Co. Incorporated
13
TRADING REVENUE AND RELATED NET INTEREST REVENUE
J.P. Morgan & Co. Incorporated
The following table presents trading revenue, disaggregated by principal product
grouping across all of our business sector activities, and total trading-related
net interest revenue. This revenue reflects only a portion of the total revenues
generated by our activities and excludes other important sources of revenues,
including fees and commissions. As a result, this table does not reflect the
integrated nature of our business.
<TABLE>
<CAPTION>
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>
Second Quarter 1998 $532 $109 $170 $40 $26 $877 $74 $951
Second Quarter 1997 250 170 72 2 (17) 477 159 636
- ----------------------------------------------------------------------------------------------------------------------------
First Quarter 1998 641 57 65 10 123 896 109 1,005
- ----------------------------------------------------------------------------------------------------------------------------
Six Months 1998 1,173 166 235 50 149 1,773 183 1,956
Six Months 1997 596 281 192 15 90 1,174 281 1,455
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT BANKING REVENUE
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
In millions
- ----------------------------------------------------------------------------------------------------------------------------
ADVISORY AND UNDERWRITING TOTAL INVESTMENT
SYNDICATION FEES REVENUE BANKING REVENUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Second Quarter 1998 $198 $164 $362
Second Quarter 1997 154 140 294
- ----------------------------------------------------------------------------------------------------------------------------
First Quarter 1998 191 155 346
- ----------------------------------------------------------------------------------------------------------------------------
Six Months 1998 389 319 708
Six Months 1997 283 237 520
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
J.P. Morgan & Co. Incorporated 14
ASSET QUALITY
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
In millions 1998 1998 1997 1997
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Nonperforming loans:
Commercial and industrial $ 25 $ 52 $ 55 $ 60
Banks and other financial institutions 2 4 30 14
Other 28 26 28 32
- ------------------------------------------------------------------------------------------------------------
Total nonperforming loans 55 82 113 106
Other nonperforming assets,
primarily swaps 533 568 546 2
- ------------------------------------------------------------------------------------------------------------
Total nonperforming assets 588 650 659 108
- ------------------------------------------------------------------------------------------------------------
</TABLE>
AGGREGATE ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
In millions 1998 1998 1997 1997
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Aggregate allowance for credit losses $ 904 $ 987 $1,081 $1,110
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------ ------------------------------------
1998 1997 1998 1997
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
Charge-offs:
Commercial and industrial ($15) ($8) ($58) ($21)
Banks and other financial institutions (16) (6) (56) (6)
Losses on sale of loans, primarily banks
and other financial institutions (52) - (78) -
Other - (1) - (1)
Recoveries - 12 15 22
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
J.P. Morgan & Co. Incorporated 15
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
- --------------------------------------------------------------------------------------------------------- ---------- -----------
June 30, 1998
- ---------------------------------------------------------------------------------------------------------
Credit March 31, December 31,
In billions Deriva- Other out- deriva- Commit- Total 1998 1997
Loans tives standings tives, net ments exposure Total Total
- --------------------------------------------------------------------------------------------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Indonesia $0.1 - - - $0.1 $0.2 $0.5 $0.8
Malaysia - $0.1 $0.1 - - 0.2 0.3 0.4
Philippines 0.1 0.1 0.1 - - 0.3 0.4 0.3
South Korea 0.5 1.4 0.7 ($0.3) - 2.3 2.9 3.5
Thailand 0.1 0.2 0.1 - - 0.4 0.5 1.1
- --------------------------------------------------------------------------------------------------------- ---------- ------------
Total 0.8 1.8 1.0 (0.3) 0.1 3.4 (1) (2) 4.6 6.1
- --------------------------------------------------------------------------------------------------------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
By counterparty
- ---------------------------------------------------------------------------------------------------
In billions Govern- Commit-
June 30, 1998 Banks ments Other ments Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Indonesia - - $0.1 $0.1 $0.2
Malaysia $0.1 - 0.1 - 0.2
Philippines 0.1 $0.1 0.1 - 0.3
South Korea 1.3 0.4 0.6 - 2.3
Thailand 0.3 - 0.1 - 0.4
- ---------------------------------------------------------------------------------------------------
Total exposure, June 30, 1998 1.8 0.5 1.0 0.1 3.4 (1) (2)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Total, March 31, 1998 2.2 0.8 1.3 0.3 4.6
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Total, December 31, 1997 3.2 0.8 1.7 0.4 6.1
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Approximately $2.5 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 June 30, 1998 by country are as follows: Indonesia $0.3
billion, Malaysia $0.2 billion, the Philippines $0.3 billion, South Korea $2.6
billion, and Thailand $0.5 billion. FFIEC exposures at June 30, 1998 using FFIEC
counterparty definitions, which may differ from the management view, are as
follows: Banks $2.1 billion, Governments $0.7 billion, and Other $1.0 billion;
excluding total commitments of $0.1 billion.
