<PAGE> 1
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, 1999
J.P. MORGAN & CO. INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 1-5885 13-2625764
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
60 WALL STREET, NEW YORK, NEW YORK 10260-0060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 483-2323
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(Former name or former address, if changed since last report)
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<PAGE> 2
2
ITEM 5. OTHER EVENTS
On April 14, 1999, the Registrant issued a press release announcing its
earnings for the three-month period ended March 31, 1999. 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.
(b) Pro Forma Financial Information
NONE.
(c) Exhibits
12. Statment re computation of ratios.
99. Copy of press release of J.P. Morgan & Co. Incorporated dated
April 14, 1999.
<PAGE> 3
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, 1999
<PAGE> 1
EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
J.P. Morgan & Co. Incorporated
Consolidated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Three Months
Dollars in millions 1999
- --------------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 600
Add: income taxes 324
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 54
Add: fixed charges, excluding interest
on deposits 1,761
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 2,631
Add: interest on deposits 616
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 3,247
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 1,752
Interest factor in net rental expense 9
- --------------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 1,761
Add: interest on deposits 616
- --------------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 2,377
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.49
Including interest on deposits 1.37
- --------------------------------------------------------------------------------
</TABLE>
<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>
- --------------------------------------------------------------------------------
Three Months
Dollars in millions 1999
- --------------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 600
Add: income taxes 324
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 54
Add: fixed charges, excluding interest
on deposits and preferred stock
dividends 1,775
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 2,645
Add: interest on deposits 616
- --------------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 3,261
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 1,752
Interest factor in net rental expense 9
Preferred stock dividends 14
- --------------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 1,775
Add: interest on deposits 616
- --------------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 2,391
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.49
Including interest on deposits 1.36
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</TABLE>
<PAGE> 1
J.P. Morgan & Co. Incorporated JPMORGAN
60 Wall Street
New York, NY 10260-0060
NYSE: symbol: JPM
- --------------------------------------------------------------------------------
News release: IMMEDIATE April 14, 1999
J.P. MORGAN REPORTS FIRST QUARTER 1999 EARNINGS
J.P. Morgan today reported first quarter net income of $600 million, or $3.01
per share. This is an increase of 64% over first quarter 1998 operating income
of $366 million, or $1.80 per share. The 1998 result excludes a charge related
to restructuring of business activities. Return on equity in the first quarter
was 22%, compared with 13% a year ago.
Other highlights for the first quarter:
o Total revenues were up 25% from a year ago.
o Global Finance revenues rose 40%, reflecting strong client activity and
gains from managing our market and credit risk exposures.
o Asset Management and Servicing revenues included a 13% increase in
investment management fees; assets under management rose 11% to $321
billion.
o Proprietary Investments revenues of $97 million reflect lower results from
proprietary investing and trading activities and from our equity
investment portfolio.
o Excluding bonus accruals, core operating expenses were down $100 million
and are on track toward our expense reduction target for the year. Total
expenses rose 11%.
"Strong client activity across our business, continued progress on our key
growth and productivity initiatives, and good returns from managing risk
portfolios globally combined to produce an exceptional result," said Douglas A.
Warner III, chairman.
<TABLE>
<CAPTION>
First quarter results at a glance First quarter Fourth quarter
- --------------------------------------------------------------------------------
In millions of dollars,
except per share data 1999 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 2,491 $ 1,997 $ 1,504
Operating expenses (1,567) (1,632)(a) (1,391)(a)
Income taxes (324) (128) (24)
- --------------------------------------------------------------------------------
Net income 600 237 89
Net income per share $ 3.01 $ 1.15 $ 0.42
Dividends declared per share $ 0.99 $ 0.95 $ 0.99
- --------------------------------------------------------------------------------
</TABLE>
(a) Includes charges of $215 million and $143 million related to restructuring
of business activities and other cost reductions in the first and fourth
quarters of 1998, respectively.
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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 SEGMENT
Revenues from client-focused activities up 32%
Revenues were $2.491 billion in the first quarter of 1999, up 25% from a year
ago. Client-focused revenues, which are reported in the Global Finance and Asset
Management and Servicing sectors, totaled $2.403 billion in the first quarter of
1999, up 32% from $1.817 billion a year ago. Revenues from Proprietary
Investments were $97 million versus $290 million in first quarter 1998.
GLOBAL FINANCE revenues increased 40% to $2.032 billion in the first quarter of
1999 across regions and activities, reflecting the benefits of our diversified
global franchise and an improvement in the market environment since the end of
1998.
o Investment Banking revenues were $258 million, up slightly from the 1998
first quarter. Continued strong growth in advisory revenues offset a
decline in origination revenues from risk management products. J.P.Morgan
was ranked sixth by Securities Data Co. in completed mergers and
acquisitions worldwide, with a market share of 15.8%, and first in
completed cross-border activity.
o Equities revenues of $288 million more than doubled from a year ago,
driven by higher equity derivatives and underwriting revenues, and strong
worldwide equity trading volumes. Our secondary market share continued to
increase in the United States, Europe, and Latin America. We were ranked
sixth by Securities Data Co. in U.S. lead equity underwriting with a
market share of 5.7%.
o Foreign Exchange revenues were $81 million, down from a year ago mainly
because of lower revenues from Asian markets.
o Interest Rate Markets revenues rose 14% to $581 million. Strong
performance in securities and derivatives activities reflected favorable
positioning and continued strength of client demand. Overall, results were
well diversified and particularly robust in Asia.
o Credit Markets revenues were $696 million, up 91%. Revenues across
activities rebounded from the fourth quarter because of narrowing credit
spreads and recovering client demand. The increase over the year-ago
quarter was primarily driven by strong results in Latin America, including
gains on positions in Brazil taken in association with hedging our
economic exposures.
o Credit Portfolio revenues increased 39% to $128 million. This primarily
reflects lower costs related to the implementation of our credit strategy.
Continued progress on this strategy resulted in the reduction of the
economic capital employed in this business by 33% since December 31, 1997.
ASSET MANAGEMENT AND SERVICING revenues were up 2% to $371 million, driven by a
13% increase in investment management fees. Assets under management rose 11% to
$321 billion at March 31, 1999, from a year ago.
<PAGE> 3
J.P. Morgan & Co. Incorporated 3
Proprietary Investments revenues were $97 million, 67% lower than first quarter
1998.
o Proprietary Investing and Trading revenues were $119 million, down 55%.
Total return - reported revenues and the change in net unrealized
appreciation - was $83 million compared with $209 million in first quarter
1998. Lower results from Asian and U.S. markets were partially offset by
strong results in European interest rate markets.
o Equity Investments recorded a loss of $22 million, primarily reflecting
write-downs of Brazilian investments. Revenues were $26 million in the
first quarter of 1998 when we posted net gains of $20 million.
CORPORATE ITEMS had negative revenues of $9 million, compared with negative
revenues of $110 million in last year's first quarter. Hedges of anticipated
foreign currency revenues and expenses had a gain of approximately $75 million,
compared with a loss of approximately $30 million in the 1998 first quarter.
OPERATING EXPENSES
Core operating expense trends reflect progress on productivity initiatives
Operating expenses were $1.567 billion, compared with $1.632 billion in the
first quarter of last year. The 1998 first quarter included a charge of $215
million in connection with restructuring initiatives. Excluding this charge,
expenses rose 11% as higher bonus accruals reflecting our strong results more
than offset lower pre-bonus operating expenses. Before bonus accruals, operating
expenses were down $100 million. We are on track to achieve our previously
stated $400 million pre-bonus expense reduction target for 1999. The firm's
efficiency ratio was 63%, compared with 71% in the first quarter of last year
excluding the charge.
Costs associated with the preparation for the Year 2000 and European Economic
and Monetary Union were $25 million, down from $55 million. Software costs of
$29 million were capitalized rather than expensed because of a change in
accounting rules, and are not included in 1999 expenses or our expense reduction
target.
CREDIT DEVELOPMENTS
Our allowances for credit losses for traditional credit products totaled $572
million at March 31, 1999, compared with $595 million at the end of 1998. Net
charge-offs of $23 million in the first quarter were primarily related to one
counterparty in the United States. At March 31, 1999, management believed the
allowances for credit losses for traditional credit products were appropriately
stated.
Derivatives in our trading portfolio are carried at fair value, which includes
credit considerations, and are not covered by our allowances.
Total emerging market exposures in Asia and Latin America were consistent with
levels at the end of 1998.
<PAGE> 4
J.P. Morgan & Co. Incorporated 4
MARKET RISK DEVELOPMENTS
During the first quarter, market conditions stabilized from the fourth quarter's
extreme conditions, which were characterized by sharp increases in volatilities,
illiquidity, and breakdowns in historical correlations. Daily earnings at risk
(DEaR) in our trading activities was $34 million at March 31, 1999, versus $35
million at year-end 1998; the first quarter reflected higher levels of trading
positions offset by lower volatilities. The DEaR for our investment portfolio,
which consists largely of U.S. government agency securities, was $24 million as
of March 31, 1999, versus $72 million at December 31, 1998. The decline reflects
lower volatility versus the previous quarter, as well as a reduction in the size
and underlying interest rate risk in the portfolio.
CAPITAL
During the first quarter, we increased our capital flexibility through a
reduction in credit and investment portfolio risk. The firm purchased
approximately $110 million of its common stock, or 900,000 shares in total.
These purchases were part of the December 1998 authorization to repurchase $750
million of common stock subject to market conditions and other factors. These
purchases may be made periodically in 1999 or beyond in the open market or
through privately negotiated transactions.
At March 31, 1999, under the Federal Reserve Board market risk capital
guidelines for calculation of risk-based capital ratios, J.P. Morgan's estimated
tier 1 and total risk-based capital ratios were 8.1% and 12.1%, respectively;
the estimated leverage ratio was 4.4%. At December 31, 1998, J.P. Morgan's tier
1 and total risk-based capital ratios were 8.0% and 11.7%, respectively, and the
leverage ratio was 3.9%.
At March 31, 1999, stockholders' equity of $11.630 billion included $10 million
of net unrealized appreciation on debt investment and marketable equity
investment securities, net of the related tax liability of $3 million. This
compares with $147 million of net unrealized appreciation at December 31, 1998,
net of the related tax liability of $87 million. The net unrealized depreciation
on debt investment securities was $26 million at March 31, 1999, compared with
an unrealized appreciation of $125 million at December 31, 1998. The decline
primarily related to decreases in the value of U.S. government and agency
securities. The net unrealized appreciation on marketable equity investment
securities was $39 million at March 31, 1999, and $109 million at December 31,
1998.
# # #
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.
<PAGE> 5
J.P. Morgan & Co. Incorporated 5
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
1998 Annual Report.
Attached are the financial summary; interim consolidated financial statements,
which are unaudited; summary of segment revenues; investment banking revenue
table; 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
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Dollars in millions, except share data
<TABLE>
<CAPTION>
Fourth
First Quarter Quarter
------------------------------------ --------------
1999 1998 1998
--------------------------------------------------
<S> <C> <C> <C>
Net Income $600 (a) $237 (b) $89
PER COMMON SHARE
Net income
Basic $3.24 (a) $1.26 (b) $0.44
Diluted 3.01 (a) 1.15 (b) 0.42
Dividends declared 0.99 0.95 0.99
Book value (c) $56.66 $56.55 $55.01
- ------------------------------------------------------------------------------------------------
Common shares issued and outstanding
at period-end 176,696,808 177,933,414 175,006,281
- ------------------------------------------------------------------------------------------------
Weighted-average number of common
and dilutive potential common shares
outstanding 196,382,735 198,189,458 194,155,078
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Dividends declared on common stock $175 $169 $173
Dividends declared on preferred stock 9 9 9
- ------------------------------------------------------------------------------------------------
Annualized rate of return on average
common stockholders' equity (d) 22.3 % (a) 8.6 % (b) 3.1 %
As % of period-end total assets:
Common equity 4.1 % 4.0 % 4.0 %
Total equity 4.3 4.3 4.3
- ------------------------------------------------------------------------------------------------
Regulatory capital ratios
Tier 1 risk-based capital ratio (e) 8.1 % 7.5 % 8.0 %
Total risk-based capital ratio (e) 12.1 11.1 11.7
Leverage ratio (e) 4.4 4.0 3.9
Risk-adjusted assets (e) 144,618 150,565 140,182
- ------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Debt investment securities (f) $33,833 $24,100 $30,129
Loans 27,513 32,540 28,567
Total interest-earning assets 197,243 209,779 205,703
Total assets 270,163 279,657 286,486
Total interest-bearing liabilities 190,416 205,867 199,579
Total liabilities 258,713 268,167 275,379
Common stockholders' equity 10,756 10,796 10,413
Total stockholders' equity 11,450 11,490 11,107
Net interest earnings before provision
(fully taxable basis) 409 351 348
Net yield on interest-earning assets 0.84 % 0.68 % 0.67 %
- ------------------------------------------------------------------------------------------------
Employees at period-end 15,100 16,534 15,674
- ------------------------------------------------------------------------------------------------
</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 Statement of Financial
Accounting Standards (SFAS) No. 115) and 14.0% (excluding the impact of SFAS No.
115) for the three months ended March 31, 1998.
(b) Excluding the 1998 fourth quarter after tax charge of $86 million ($143
million before tax) related to cost reduction programs: net income was $175
million; basic and diluted earnings per share (EPS) were $0.92 and $0.86,
respectively; and the annualized rate of return on average common stockholders'
equity was 6.4% (including the impact of SFAS No. 115) and 6.4% (excluding the
impact of SFAS No. 115) for the three months ended December 31, 1998.
(c) Excluding the impact of SFAS No. 115, the book value per common share was
$56.56, $54.30, and $54.24, at March 31, 1999, March 31, 1998, and December 31,
1998, respectively.
(d) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity was 22.5%, 8.9%, and 3.1% for the three
months ended March 31, 1999, March 31, 1998, and December 31, 1998,
respectively.
(e) Regulatory capital ratios and risk-adjusted assets are estimates at March
31, 1999.
(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
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March 31 March 31 Increase/ December 31 Increase/
1999 1998 (a) (Decrease) 1998 (Decrease)
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<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $2,757 $3,262 ($505) $3,024 ($267)
Interest expense 2,368 2,926 (558) 2,701 (333)
- --------------------------------------------------------------------------------------------------------------
Net interest revenue 389 336 53 323 66
Provision for loan losses -- -- -- 85 (85)
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Net interest revenue after provision
for loan losses 389 336 53 238 151
NONINTEREST REVENUES
Trading revenue 1,134 896 238 520 614
Investment banking revenue 390 346 44 381 9
Investment management revenue 246 211 35 220 26
Fees and commissions 214 190 24 179 35
Investment securities (loss)/revenue (41) 43 (84) (42) 1
Other revenue/(loss) 159 (25) 184 8 (b) 151
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Total noninterest revenues 2,102 1,661 441 1,266 836
Total revenues, net of interest expense
and provisions for credit losses 2,491 1,997 494 1,504 987
OPERATING EXPENSES
Employee compensation and benefits 1,096 1,003 93 801 295
Net occupancy 82 151 (69) 124 (42)
Technology and communications 247 301 (54) 305 (58)
Other expenses 142 177 (35) 161 (19)
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Total operating expenses 1,567 1,632 (c) (65) 1,391 (d) 176
Income before income taxes 924 365 559 113 811
Income taxes 324 128 196 24 300
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Net income 600 237 363 89 511
PER COMMON SHARE
Net income
Basic $3.24 $1.26 $1.98 $0.44 $2.80
Diluted 3.01 1.15 1.86 0.42 2.59
Dividends declared 0.99 0.95 0.04 0.99 --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Prior to July 1, 1998, changes, excluding charge-offs and recoveries, across
balance sheet reserve or allowance captions - which included an adjustment for
trading derivatives needed to determine fair value, an allowance for loan losses
and an allowance for off-balance-sheet financial instruments such as
commitments, standby letters of credit, and guarantees - were shown as
reclassifications. Reclassifications had no impact on net income, and
accordingly, were not shown on the income statement. Subsequent to July 1,1998,
reclassifications across balance sheet captions for allowances are reflected as
provisions and reversals of provisions in the "Consolidated statement of
income." If reclassifications prior to July 1, 1998 were included in the
"Consolidated statement of income," the captions on the income statement for the
first quarter of 1998 would change with no impact on net income as follows:
Provision for loan losses would be a negative (income) $50 million and Trading
revenue would decrease by $50 million.
(b) Fourth quarter 1998 includes a negative provision of $60 million related to
a decrease in our allowance for credit losses for off-balance-sheet financial
instruments.
(c) 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.
(d) Fourth quarter 1998 includes a pretax charge of $143 million ($86 million
after tax) related to cost reduction programs which was recorded as follows:
$101 million in Employee compensation and benefits, related to severance and $42
million in Net occupancy, related to real estate 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
1999 1998
-----------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,450 $ 1,203
Interest-earning deposits with banks 2,188 2,371
Debt investment securities available-for-sale carried at fair value (cost: $32,132 at March 1999
and $36,107 at December 1998) 32,106 36,232
Equity investment securities 1,096 1,169
Trading account assets 119,853 113,896
Securities purchased under agreements to resell ($27,700 at March 1999
and $31,056 at December 1998) and federal funds sold 29,430 31,731
Securities borrowed 39,248 30,790
Loans, net of allowance for loan losses of $447 at March 1999 and $470 at December 1998 25,785 25,025
Accrued interest and accounts receivable 6,220 7,689
Premises and equipment, net of accumulated depreciation of $1,360 at March 1999
and $1,350 at December 1998 1,903 1,881
Other assets 9,791 9,080
- --------------------------------------------------------------------------------------------------------------------------------
Total assets 269,070 261,067
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 841 1,242
In offices outside the U.S. 557 563
Interest-bearing deposits:
In offices in the U.S. 7,027 7,724
In offices outside the U.S. 48,379 45,499
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 56,804 55,028
Trading account liabilities 76,527 70,643
Securities sold under agreements to repurchase ($61,736 at March 1999
and $62,784 at December 1998) and federal funds purchased 61,910 63,368
Commercial paper 9,533 6,637
Other liabilities for borrowed money 12,413 12,515
Accounts payable and accrued expenses 7,711 9,859
Long-term debt not qualifying as risk-based capital 22,916 23,037
Other liabilities, including allowance for credit losses of $125 3,074 2,999
- --------------------------------------------------------------------------------------------------------------------------------
250,888 244,086
Liabilities qualifying as risk-based capital:
Long-term debt 5,402 4,570
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 257,440 249,806
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,000,000)
Adjustable-rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244
Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250
Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200
Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,934,737 at
March 1999 and 200,873,067 at December 1998) 502 502
Capital surplus 1,249 1,252
Common stock issuable under stock award plans 1,439 1,460
Retained earnings 10,022 9,614
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 10 147
Foreign currency translation, net of taxes (47) (46)
- --------------------------------------------------------------------------------------------------------------------------------
13,869 13,623
Less: treasury stock (24,237,929 shares at March 1999 and 25,866,786 at December 1998) 2,239 2,362
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,630 11,261
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 269,070 261,067
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,415 $ 1,147
Interest-earning deposits with banks 2,170 2,372
Debt investment securities available-for-sale carried at fair value 6,581 3,634
Trading account assets 93,719 90,770
Securities purchased under agreements to resell and federal funds sold 30,392 33,316
Securities borrowed 8,187 8,193
Loans, net of allowance for loan losses of $446 at March 1999 and $470 at December 1998 25,646 24,876
Accrued interest and accounts receivable 5,170 3,898
Premises and equipment, net of accumulated depreciation of $1,164 at March 1999
and $1,160 at December 1998 1,725 1,703
Other assets 8,791 5,337
- ----------------------------------------------------------------------------------------------------------------------
Total assets 183,796 175,246
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 866 1,232
In offices outside the U.S. 559 572
Interest-bearing deposits:
In offices in the U.S. 7,051 7,749
In offices outside the U.S. 50,126 46,668
- ----------------------------------------------------------------------------------------------------------------------
Total deposits 58,602 56,221
Trading account liabilities 67,693 64,776
Securities sold under agreements to repurchase and federal funds purchased 19,200 14,916
Other liabilities for borrowed money 7,588 8,646
Accounts payable and accrued expenses 5,483 6,123
Long-term debt not qualifying as risk-based capital 10,301 10,358
Other liabilities, including allowance for credit losses of $125 1,040 542
- ----------------------------------------------------------------------------------------------------------------------
169,907 161,582
Long-term debt qualifying as risk-based capital 3,146 3,186
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 173,053 164,768
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: 2,500,000) -- --
Common stock, $25 par value (authorized shares: 11,000,000; issued and
outstanding: 10,599,027) 265 265
Surplus 3,305 3,305
Undivided profits 7,120 6,836
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 99 118
Foreign currency translation, net of taxes (46) (46)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 10,743 10,478
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 183,796 175,246
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
<PAGE> 10
10
SUMMARY OF SEGMENT REVENUES
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
The tables below reflect our current management reporting structure. Prior
period amounts have been restated from the presentation appearing in our 1998
Annual Report to reflect organizational changes in the first quarter of 1999.
Specifically, dealer and market making activities in the currencies and
local-currency denominated government securities of emerging countries in
Eastern Europe and Asia, as well as related derivatives, are now reflected in
Interest Rate Markets. These activities were previously included in Credit
Markets. With the exception of this change, the segment presentation is
consistent with that appearing in our 1998 Annual Report. This change did not
have a significant impact on the full year 1996 segment revenues. For a
description of our segments, please refer to the J.P. Morgan & Co. 1998 Annual
Report.
<TABLE>
<CAPTION>
First First Fourth
Quarter Quarter Increase/ Quarter Increase/
In millions 1999 1998 (Decrease) 1998 (Decrease)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Banking $258 $251 $7 $265 ($7)
Equities 288 135 153 180 108
Foreign Exchange 81 105 (24) 72 9
Interest Rate Markets 581 508 73 400 181
Credit Markets 696 364 332 130 566
Credit Portfolio 128 92 36 25 103
- --------------------------------------------------------------------------------------------------
GLOBAL FINANCE 2,032 1,455 577 1,072 960
ASSET MANAGEMENT AND SERVICING 371 362 9 353 18
Equity Investments (22) 26 (48) 47 (69)
Proprietary Investing and Trading 119 264 (145) 192 (73)
- --------------------------------------------------------------------------------------------------
PROPRIETARY INVESTMENTS 97 290 (193) 239 (142)
Corporate Items (9) (110) 101 (160)(a) 151
- --------------------------------------------------------------------------------------------------
TOTAL REVENUES 2,491 1,997 494 1,504 987
- --------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes segment revenues for each of the four quarters of
1998 and the full years of 1998 and 1997.
<TABLE>
<CAPTION>
First Second Third Fourth Full Full
Quarter Quarter Quarter Quarter Year Year
In millions 1998 1998 1998 1998 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Banking $251 $247 $238 $265 $1,001 $768
Equities 135 244 141 180 700 465
Foreign Exchange 105 167 142 72 486 465
Interest Rate Markets 508 455 206 400 1,569 1,287
Credit Markets 364 238 (140) 130 592 841
Credit Portfolio 92 136 97 25 350 447
- ------------------------------------------------------------------------------------------------------------
GLOBAL FINANCE 1,455 1,487 684 1,072 4,698 4,273
ASSET MANAGEMENT AND SERVICING 362 393 383 353 1,491 1,384
Equity Investments 26 102 160 47 335 399
Proprietary Investing and Trading 264 103 147 192 706 895
- ------------------------------------------------------------------------------------------------------------
PROPRIETARY INVESTMENTS 290 205 307 239 1,041 1,294
Corporate Items (110) 68(b) (73)(c) (160)(a) (275)(d) 269
- ------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,997 2,153 1,301 1,504 6,955 7,220
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes a net provision for credit losses of $25 million.
(b) Includes a pretax gain of $131 million related to the sale of the firm's
global trust and agency services business.
(c) Includes a net provision for credit losses of $75 million, and a pretax
gain of $56 million related to the sale of the firm's investment
management business in Australia.
(d) Includes pretax gains of $187 million related to business sales (see notes
b and c), and net provisions for credit losses of $100 million (see notes
a and c).
<PAGE> 11
J.P. Morgan & Co. Incorporated 11
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>
First Quarter 1999 $221 $169 $390
First Quarter 1998 191 155 346
Fourth Quarter 1998 212 169 381
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 12
J.P. Morgan & Co. Incorporated 12
ASSET QUALITY
IMPAIRED LOANS
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31, March 31,
In millions 1999 1998 (a) 1998 (a)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans:
Commercial and industrial $ 34 $ 25 $52
Banks -- -- 2
Other, primarily other financial institutions 67 97 28
- ---------------------------------------------------------------------------------------
Total impaired loans 101 122 82
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Certain reclassifications were made to conform with the categorization used
in Bank regulatory filings.
ALLOWANCES FOR CREDIT LOSSES
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
Allowance for loan losses
- ------------------------------------------------------------------------------------------------------
First Quarter First Quarter Fourth Quarter
In millions 1999 1998 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 470 $ 546 $ 404
- ------------------------------------------------------------------------------------------------------
Provision for credit losses - - 85
- ------------------------------------------------------------------------------------------------------
Reclassifications (a) - (50) -
- ------------------------------------------------------------------------------------------------------
Recoveries 5 9 6
Charge-offs: (b)
Commercial and industrial (3) (23) (6)
Banks - (29) (17)
Other, primarily other financial institutions (25) (1) (2)
- ------------------------------------------------------------------------------------------------------
Net charge-offs (23) (44) (19)
- ------------------------------------------------------------------------------------------------------
Ending balance 447 452 470
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) See note a on page 7.
(b) Charge-offs include losses on loan sales, primarily banks and other
financial institutions, of $25 million, $26 million, and $16 million for the
three months ended March 31, 1999 and 1998, and December 31, 1998, respectively.
<TABLE>
<CAPTION>
Components of the allowance for loan losses
- ----------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
In millions 1999 1998 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specific counterparty components in the U.S. $ 7 $ 29 $ 24
Specific counterparty components outside the U.S. 5 5 19
- ----------------------------------------------------------------------------------------------------
Total specific counterparty 12 34 43
- ----------------------------------------------------------------------------------------------------
Specific country 49 93 116
Expected loss 208 228 175
General 178 115 118
- ----------------------------------------------------------------------------------------------------
Total allowance 447 470 452
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Allowance for off-balance-sheet financial instruments
- -------------------------------------------------------------------------------------------
First Quarter First Quarter Fourth Quarter
In millions 1999 1998 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 125 $ 185 $ 185
- -------------------------------------------------------------------------------------------
Negative provision for credit losses - - (60)
- -------------------------------------------------------------------------------------------
Ending balance 125 185 125
- -------------------------------------------------------------------------------------------
<CAPTION>
Components of the allowance for off-balance-sheet financial instruments
- ----------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
In millions 1999 1998 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specific counterparty components in the U.S. $ 2 $ 1 $ --
Specific counterparty components outside the U.S. 3 2 2
- ----------------------------------------------------------------------------------------------------
Total specific counterparty 5 3 2
- ----------------------------------------------------------------------------------------------------
Specific country 3 30 23
Expected loss 63 66 71
General 54 26 89
- ----------------------------------------------------------------------------------------------------
Total allowance 125 125 185
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
J.P. Morgan & Co. Incorporated 13
EXPOSURES TO EMERGING COUNTRIES
J.P. Morgan & Co. Incorporated
(preliminary)
The following tables present exposures to certain emerging markets based on
management's view of total exposure as of March 31, 1999.
The management view takes into account the following cross-border and local
exposures: the notional or contract value of loans, commitments to extend
credit, securities purchased under agreements to resell, interest-earning
deposits with banks; the fair values of trading account assets (cash securities
and derivatives, excluding any collateral we hold to offset these exposures) and
investment securities; and other monetary assets. It also considers the impact
of credit derivatives, at their notional or contract value, where we have bought
or sold credit protection outside of the respective country. Trading assets
reflect the net of long and short positions of the same issuer. Management's
view differs from bank regulatory rules, which are established by the Federal
Financial Institutions Examination Council (FFIEC), because of its treatment of
credit derivatives, trading account short positions, and the use of fair value
versus cost of investment securities. In addition, management does not net local
funding or liabilities against any local exposures as allowed by the FFIEC.
<TABLE>
<CAPTION>
By type of financial instrument
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Total
In billions Deriva- Other out- deriva- Commit- cross- Local Total
March 31, 1999 Loans tives standings tives ments border exposure exposure
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
China $ -- $0.1 $ -- $ -- $ -- $0.1 $ -- $0.1
Hong Kong 0.6 0.1 0.3 (0.2) 0.1 0.9 0.4 1.3
Indonesia 0.1 -- -- -- 0.1 0.2 -- 0.2
Malaysia -- -- 0.1 (0.1) -- -- -- --
Philippines -- 0.1 0.1 -- -- 0.2 -- 0.2
Singapore -- 0.1 0.2 (0.2) -- 0.1 0.1 0.2
South Korea 0.5 1.3 0.4 (0.5) -- 1.7 -- 1.7
Taiwan -- -- -- -- 0.1 0.1 -- 0.1
Thailand -- 0.1 0.1 -- -- 0.2 -- 0.2
Other 0.1 -- -- (0.1) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Asia, excluding Japan(a) 1.3 1.8 1.2 (1.1) 0.3 3.5 0.5 4.0
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina 0.1 0.3 0.6 (0.3) -- 0.7 0.5 1.2
Brazil 0.4 -- 0.3 (0.3) -- 0.4 1.4 1.8
Chile 0.4 -- 0.1 -- -- 0.5 -- 0.5
Colombia 0.2 -- 0.3 -- -- 0.5 -- 0.5
Mexico 0.6 0.3 0.5 (0.5) -- 0.9 0.7 1.6
Other 0.5 0.1 0.2 (0.1) 0.1 0.8 -- 0.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total Latin America, excluding the Caribbean 2.2 0.7 2.0 (1.2) 0.1 3.8 2.6 6.4
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
By type of counterparty
- -------------------------------------------------------------------------------------------------
In billions Govern-
March 31, 1999 Banks ments Other Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
China $ -- $ -- $0.1 $0.1
Hong Kong 0.1 0.3 0.9 1.3
Indonesia -- 0.1 0.1 0.2
Malaysia -- -- -- --
Philippines -- -- 0.2 0.2
Singapore 0.1 -- 0.1 0.2
South Korea 0.9 0.5 0.3 1.7
Taiwan 0.1 -- -- 0.1
Thailand 0.2 -- -- 0.2
Other -- -- -- --
- -------------------------------------------------------------------------------------------------
Total Asia, excluding Japan(a) 1.4 0.9 1.7 4.0
- -------------------------------------------------------------------------------------------------
Argentina -- 0.6 0.6 1.2
Brazil 0.2 0.6 1.0 1.8
Chile -- -- 0.5 0.5
Colombia -- 0.1 0.4 0.5
Mexico 0.1 0.2 1.3 1.6
Other 0.2 0.1 0.5 0.8
- -------------------------------------------------------------------------------------------------
Total Latin America, excluding the Caribbean 0.5 1.6 4.3 6.4
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Total exposures to Japan, based upon management's view, were $6.6 billion at
March 31, 1999. Total exposures to South Africa, based upon management's view,
were $1.0 billion at March 31, 1999.
