<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 18, 1999
J.P. MORGAN & CO. INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-5885 13-2625764
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
60 WALL STREET, NEW YORK, NEW YORK 10260-0060
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (212) 483-2323
-----------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
On October 18, 1999, the Registrant issued a press release announcing
its earnings for the three-month and nine-month periods ended September
30, 1999. Also, announced in the press release, the Board of Directors
approved the purchase of up to $3 billion in J.P. Morgan common stock.
A copy of such press release is filed herein as Exhibit 99a.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements
NONE.
(b) Pro Forma Financial Information
NONE.
(c) Exhibits
12. Statement re computation of ratios.
99a. Copy of press release of J.P. Morgan & Co. Incorporated dated
October 18, 1999.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
J.P. MORGAN & CO. INCORPORATED
------------------------------
(REGISTRANT)
/s/Grace B. Vogel
----------------------------
NAME: Grace B. Vogel
TITLE: Chief Accounting Officer
DATE: October 18, 1999
<PAGE> 1
EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges
J.P. Morgan & Co. Incorporated
Consolidated
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Nine Months
Dollars in millions 1999
- -----------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 1 546
Add: income taxes 796
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 56
Add: fixed charges, excluding interest
on deposits 5 350
- -----------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 7 636
Add: interest on deposits 1 723
- -----------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 9 359
- -----------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 5 327
Interest factor in net rental expense 23
- -----------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 5 350
Add: interest on deposits 1 723
- -----------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 7 073
- -----------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.43
Including interest on deposits 1.32
- -----------------------------------------------------------------------------
</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>
- -----------------------------------------------------------------------------
Dollars in millions Nine Months
1999
- -----------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 1 546
Add: income taxes 796
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 56
Add: fixed charges, excluding interest
on deposits, and preferred stock
dividends 5 389
- -----------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 7 675
Add: interest on deposits 1 723
- -----------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 9 398
- -----------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 5 327
Interest factor in net rental expense 23
Preferred stock dividends 39
- -----------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 5 389
Add: interest on deposits 1 723
- -----------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 7 112
- -----------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.42
Including interest on deposits 1.32
- -----------------------------------------------------------------------------
</TABLE>
<PAGE> 1
[J.P. MORGAN & CO. INCORPORATED letterhead]
NEWS RELEASE: IMMEDIATE October 18, 1999
J.P. MORGAN REPORTS THIRD QUARTER 1999 EARNINGS;
ANNOUNCES $3 BILLION SHARE BUYBACK
J.P. Morgan today reported third quarter net income of $442 million, or $2.22
per share, up from $156 million, or $0.75 per share, in the third quarter of
1998. Return on equity was 15.6% in the quarter.
Net income for the first nine months was $1.546 billion compared with $874
million in the first nine months of 1998. Earnings per share were $7.76 versus
$4.28 a year ago. Year-to-date return on equity was 18.6%.
The Board of Directors of J.P. Morgan also approved the purchase of up to $3
billion of J.P. Morgan common stock and announced its intention to increase the
quarterly common stock dividend to $1.00 from $0.99 per share when it meets
again in December.
These actions reflect J.P. Morgan's strong business momentum and a significant
improvement in capital productivity. Over the past seven quarters we have
reduced by 50% the risk and capital needs of our credit portfolio, improved
risk-taking efficiency in our markets activities, and implemented a wide-ranging
productivity initiative. At the same time, our investment banking and equities
activities have turned solidly profitable and the contribution of our asset
management services business continues to grow. We remain committed to J.P.
Morgan's strong capitalization and retain ample capital to pursue the numerous
growth opportunities in our target markets.
OTHER HIGHLIGHTS FOR THE THIRD QUARTER:
- - Operating revenues of $1.985 billion were 59% ahead of last year
- - Global Finance revenues of $1.385 billion reflect growth in advisory
services and strong results in equities, while fixed income trading results
were weaker
- - Proprietary Investments revenues of $327 million were driven by results in
Equity Investments
- - Assets under management increased 18% from a year ago, to $323 billion
- - Core expenses before bonuses for the nine months of 1999 were down by more
than $330 million
"Our performance this year marks an important milestone in our strategic shift
toward a less capital intensive business model. The earnings engine we have
built in our core business, combined with our focus on capital and expense
productivity, allows us to return significant capital to shareholders and,
importantly, retain more than enough to pursue significant future growth
opportunities," said Douglas A. Warner III, chairman.
- --------------------------------------------------------------------------------
Press contact: Michael F. Golden 212/648-3784
Investor contact: Ann B. Patton 212/648-9446
<PAGE> 2
J.P. Morgan & Co. Incorporated 2
REVENUES BY SEGMENT
Revenues from client-focused activities reflect recovery in global markets
Revenues were $1.985 billion in the third quarter of 1999, up 59% from the 1998
period, excluding last year's $56 million gain on the sale of our Australian
investment management business. Revenues from client-focused activities,
reported in the Global Finance and Asset Management Services sectors, increased
85% to $1.738 billion. Revenues from Proprietary Investments were $327 million
versus $307 million a year ago.
GLOBAL FINANCE revenues of $1.385 billion more than doubled over the third
quarter of 1998, which was affected by extreme market dislocations.
- - Investment Banking revenues of $310 million were up 30% from last year's
quarter. Advisory services, equity capital markets services, and derivative
origination activities continued to expand with clients across a diverse
range of industries. Advisory revenues surpassed both last year's quarter
and the second quarter of 1999. For the first nine months of 1999, Thomson
Financial Securities Data Corporation ranked J.P. Morgan 6th in completed
mergers and acquisitions volume worldwide with a 13.1% market share.
- - Equities revenues of $289 million increased $148 million from last year.
Both cash and equity derivative results increased. Equity underwriting
revenues increased as we continued to grow market share - J.P. Morgan
ranked 6th in U.S. equity lead underwriting with a 5.5% market share for
1999 - and commission revenues were more than 20% above last year on higher
market share. Equity derivative revenues more than doubled from a year ago
when results were affected by sharp increases in volatility and illiquid
markets, but were down from the second quarter.
- - Interest Rate and Foreign Exchange Markets revenues of $331 million reflect
very strong derivative client activity across all regions, combined with
weaker trading results. Interest Rate Markets revenues rose over last year
as we continued to expand our derivative client franchise, but declined
from the second quarter 1999 due to weaker trading results primarily
associated with illiquid European markets early in the quarter. Foreign
Exchange revenues, while stable through 1999, were down from a very strong
third quarter a year ago.
- - Credit Markets revenues of $186 million were achieved in a difficult
environment that reflected concerns over interest rate increases and
widening spreads, especially for lower-rated securities. Lower issuer and
investor demand for most instruments reduced overall volumes meaningfully
in the quarter, which led to a 48% decline in revenues versus the second
quarter. In last year's quarter, severe market dislocations resulted in
losses of $140 million.
- - Credit Portfolio had revenues of $269 million compared to $152 million in
the previous quarter and $50 million in the same quarter a year ago.
Improving credit default swap spreads on higher-rated
<PAGE> 3
J.P. Morgan & Co. Incorporated 3
counterparties and continuing refinements in measuring and managing credit
risk associated with derivative exposures contributed to revenues during
the quarter. Ongoing improvement in credit markets and the lowering of
certain emerging markets exposures in our traditional credit portfolio
resulted in a $60 million reduction (i.e., income) in the allowances for
credit losses after charge-offs and recoveries. The economic capital
requirement of our credit portfolio has declined by 50% from December 31,
1997, in line with our previously announced target.
ASSET MANAGEMENT SERVICES revenues increased 18% to $353 million versus last
year, reflecting asset growth, a shift towards higher-fee alternative investment
disciplines, and performance fees. Assets under management rose 18% to $323
billion, driven by market appreciation and new business from defined benefit
plans and private clients. Assets under management from private clients
increased 16% to $72 billion.
PROPRIETARY INVESTMENTS revenues were $327 million, up 7%.
- - Equity Investments, which represents equity portfolio management for
Morgan's own account, reported revenues of $341 million in the third
quarter, compared with $160 million a year ago. The increase was mostly
attributable to investments in the cable television and telecommunications
industries, partially offset by write-downs that primarily related to an
investment in the insurance industry.
- - Proprietary Investing and Trading reported a loss of $14 million compared
to a gain of $147 million last year. Total return - reported revenues and
the change in net unrealized value - was a loss of $110 million compared
with a gain of $167 million. The lower results were driven primarily by our
U.S. government agency investment portfolio and our positioning activities
in Asia.
CORPORATE ITEMS had negative revenues of $80 million, including $58 million of
positive revenues from activities related to Euroclear. Revenues are $56 million
lower than the second quarter and $137 million lower than last year, mainly due
to the change in the value of hedges of the firm's anticipated net foreign
currency revenues and expenses. These hedging results are partially offset by
the impact of exchange rate movements on revenues and expenses reported in the
business segments. Additionally, in the third quarter of 1998, we recognized a
$56 million gain on the sale of our investment management business in Australia.
OPERATING EXPENSES
Core operating expenses reflect continued productivity discipline
Operating expenses were $1.341 billion, an increase of $242 million from the
third quarter of last year. Compensation expenses rose as a result of higher
bonus accruals. Non-compensation operating expenses were 15% lower this quarter
reflecting continued focus on productivity. The firm's efficiency ratio was 68%
in the third quarter.
<PAGE> 4
J.P. Morgan & Co. Incorporated 4
Costs associated with preparation for the Year 2000 were $9 million for the
third quarter, down from $45 million last year, which also included preparation
for European Economic and Monetary Union. For the first nine months of 1999,
costs of preparation for the Year 2000 and European Economic and Monetary Union
were $47 million, down from $155 million a year ago. Third quarter 1999 software
costs of $37 million were capitalized rather than recorded as expenses because
of a change in accounting rules and are not included in the 1999 expenses. For
the nine months ended September 30, 1999, $103 million of software costs were
capitalized.
Operating expenses for the first nine months of 1999 were $4.325 billion. Before
bonus accruals and excluding the effect of software capitalization, this
represents a reduction of more than $330 million compared with the first nine
months of last year.
MARKET AND CREDIT RISK DEVELOPMENTS
Firm-wide market and credit risk DEaR for our trading activities approximated
$33 million at September 30, 1999 versus $45 million at June 30, 1999. This
reflects, before diversification benefits, market risk DEaR of $26 million at
September 30, 1999 ($27 million at June 30, 1999) and derivative credit risk
DEaR of approximately $20 million at September 30, 1999 ($35 million at June 30,
1999). The decrease in credit risk DEaR reflects greater use of credit
derivatives to reduce overall portfolio risk levels, as well as methodology
enhancements. We continue to refine our risk measurement and reporting
methodology.
DEaR for our investment portfolio, which consists largely of U.S. government
agency securities, was $24 million at September 30, 1999, versus $30 million at
June 30, 1999.
CAPITAL
On October 13, 1999 the Board of Directors of J.P. Morgan approved the purchase
of up to $3 billion of J.P. Morgan common stock. These purchases may be made
periodically in the open market or through privately negotiated transactions. We
intend to repurchase the shares over a period of 12 to 18 months, subject to
market conditions, business considerations, and other factors. The Board also
announced its intent to increase the quarterly dividend on J.P. Morgan common
stock to $1.00 from $0.99 per share when it meets in December. We will continue
to distribute capital to shareholders based on our assessment of the level of
excess capital, but going forward will be more flexible in determining the
timing and amount of share repurchases and dividend increases.
During the third quarter of 1999, the firm purchased approximately $235 million
of its common stock or 1.9 million shares, for a total of $682 million or 5.3
million shares in the year to date. These purchases were part of the December
1998 authorization to repurchase up to $750 million of common stock, and were
offset by issuance to employees under the firm's compensation plans.
At September 30, 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 9.0% and 13.1%,
<PAGE> 5
J.P. Morgan & Co. Incorporated 5
respectively; the estimated leverage ratio was 4.8%. At June 30, 1999, J.P.
Morgan's tier 1 and total risk-based capital ratios were 8.4% and 12.5%,
respectively, and the leverage ratio was 4.5%.
At September 30, 1999, stockholders' equity of $12 billion included $108 million
of net unrealized depreciation on debt investment and marketable equity
investment securities, net of the related tax benefit of $89 million. This
compares with $52 million of net unrealized depreciation at June 30, 1999, net
of the related tax benefit of $49 million. The net unrealized depreciation on
debt investment securities was $273 million at September 30, 1999, compared with
a net unrealized depreciation of $169 million at June 30, 1999. 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 $76 million at September 30, 1999, and $68 million at June 30,
1999.
OTHER DEVELOPMENTS
On September 1, 1999 J.P. Morgan and the Euroclear Board announced the signing
of a letter of intent to create a new, market-owned European bank to operate all
aspects of the Euroclear System, the leading clearance and settlement system for
internationally traded securities. Subject to a definitive agreement being
reached, J.P. Morgan will remain operator of Euroclear until the successor bank
is established, which is expected to take up to 18 months. After that, Morgan
will remain an important participant and shareholder of Euroclear and retain a
seat on its Board. The management and staff of Euroclear, numbering
approximately 1,200 Morgan employees, will transfer to the new entity.
Under the agreement in principle Morgan will continue to receive pretax banking
income from Euroclear for three years following the signing of a definitive
agreement. This income is subject to a minimum of $195 million and maximum of
$295 million per year, whether it is earned by Morgan prior to the formation of
the new bank or afterward by the new bank. After the new bank is formed, it will
also pay Morgan for certain transition costs and for assets and know-how that
are transferred to it.
# # #
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 the
J.P. Morgan & Co. Incorporated 1998 Annual Report.
<PAGE> 6
J.P. Morgan & Co. Incorporated 6
Attached are tables with our segment results; a financial summary; interim
consolidated financial statements, which are unaudited; investment banking
revenue table; and asset quality tables. J.P. Morgan news releases, including
quarterly financial results and historical financial summary, are available on
the Internet at www.jpmorgan.com.
<PAGE> 7
7
J.P. Morgan & Co. Incorporated
The following table summarizes segment revenues for the quarters ended September
30, 1999 and 1998, and June 30, 1999, respectively.
SUMMARY OF SEGMENT RESULTS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
Interest Rate ASSET
Investment and Credit Credit GLOBAL MANAGEMENT
In millions Banking Equities FX Markets Markets Portfolio FINANCE SERVICES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THIRD QUARTER 1999
Total revenues $310 $289 $331 $186 $269 (a) $1,385 $353
Total expenses 209 214 288 156 34 901 296
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 101 75 43 30 235 484 57
- ----------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1998
Total revenues 238 141 348 (140) 50 (b) 637 300
Total expenses 166 162 280 77 42 727 272
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 72 (21) 68 (217) 8 (90) 28
- ----------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE), THIRD QUARTER 1999 VS. THIRD QUARTER 1998
Total revenues 72 148 (17) 326 219 748 53
Total expenses 43 52 8 79 (8) 174 24
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 29 96 (25) 247 227 574 29
- ----------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1999
Total revenues 320 427 555 361 152 (d) 1,815 343
Total expenses 228 236 321 210 41 1,036 276
- -----------------------------------------------------------------------------------------------------------------------
Pretax income 92 191 234 151 111 779 67
- -----------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE), THIRD QUARTER 1999 VS. SECOND QUARTER 1999
Total revenues (10) (138) (224) (175) 117 (430) 10
Total expenses (19) (22) (33) (54) (7) (135) 20
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 9 (116) (191) (121) 124 (295) (10)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Proprietary
Equity Investing PROPRIETARY Corporate
In millions Investments and Trading INVESTMENTS Items (e) CONSOLIDATED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THIRD QUARTER 1999
Total revenues $341 ($14) $327 ($80) $1,985
Total expenses 53 37 90 54 1,341
- ----------------------------------------------------------------------------------------------------
Pretax income 288 (51) 237 (134) 644
- ----------------------------------------------------------------------------------------------------
THIRD QUARTER 1998
Total revenues 160 147 307 57 (c) 1,301
Total expenses 15 35 50 50 1,099
- ----------------------------------------------------------------------------------------------------
Pretax income 145 112 257 7 202
- ----------------------------------------------------------------------------------------------------
INCREASE/(DECREASE), THIRD QUARTER 1999 VS. THIRD QUARTER 1998
Total revenues 181 (161) 20 (137) 684
Total expenses 38 2 40 4 242
- ----------------------------------------------------------------------------------------------------
Pretax income 143 (163) (20) (141) 442
- ----------------------------------------------------------------------------------------------------
SECOND QUARTER 1999
Total revenues 13 44 57 (24) 2,191
Total expenses 13 42 55 50 1,417
- ----------------------------------------------------------------------------------------------------
Pretax income 0 2 2 (74) 774
- ----------------------------------------------------------------------------------------------------
INCREASE/(DECREASE), THIRD QUARTER 1999 VS. SECOND QUARTER 1999
Total revenues 328 (58) 270 (56) (206)
Total expenses 40 (5) 35 4 (76)
- ----------------------------------------------------------------------------------------------------
Pretax income 288 (53) 235 (60) (130)
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Third quarter 1999 includes a reversal of provisions for credit losses of
($60) million.
(b) Third quarter 1998 includes provisions for credit losses of $75 million.
(c) Third quarter 1998 includes a pretax gain of $56 million related to the
sale of the firm's investment management business in Australia.
(d) Second quarter 1999 includes a net reversal of provisions for credit losses
of ($70) million.
(e) Corporate Items includes revenues and expenses related to Euroclear
activities, as follows:
<TABLE>
<CAPTION>
Third Qtr. Third Qtr. Second Qtr.
1999 1998 1999
<S> <C> <C> <C>
Total revenues $58 $83 $67
Total expenses 8 12 3
- ----------------------------------------------------------------
Pretax income 50 71 64
- ----------------------------------------------------------------
</TABLE>
Note: In connection with the signed letter of intent between J.P. Morgan and the
Board of Directors of the Euroclear group, Morgan will end its role as operator
and banker for the Euroclear system upon the formation of a successor bank to be
owned by Euroclear. Accordingly, segment results have been restated to reflect
Euroclear-related revenues and expenses in Corporate Items. Previously, results
related to our Asset Management and Euroclear activities were included in the
Asset Management & Servicing sector. All amounts in the table above have been
restated to reflect our current reporting structure and policies. For a
description of our segments, please refer to the J.P. Morgan & Co. 1998 Annual
Report.
<PAGE> 8
J.P. Morgan & Co. Incorporated 8
The following table summarizes segment revenues for the nine month periods ended
September 30, 1999 and 1998, respectively.
SUMMARY OF SEGMENT RESULTS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
Interest Rate ASSET
Investment and Credit Credit GLOBAL MANAGEMENT
In millions Banking Equities FX Market Markets Portfolio FINANCE SERVICES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS 1999
Total revenues $888 $1,004 $1,548 $1,243 $575 (a) $5,258 $1,005
Total expenses 647 680 968 625 120 3,040 836
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 241 324 580 618 455 2,218 169
- ----------------------------------------------------------------------------------------------------------------------
NINE MONTHS 1998
Total revenues 736 520 1,583 462 339 (b) 3,640 901
Total expenses 526 578 971 537 109 2,721 833
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 210 (58) 612 (75) 230 919 68
- ----------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE), NINE MONTHS 1999 VS. NINE MONTHS 1998
Total revenues 152 484 (35) 781 236 1,618 104
Total expenses 121 102 (3) 88 11 319 3
- ----------------------------------------------------------------------------------------------------------------------
Pretax income 31 382 (32) 693 225 1,299 101
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Proprietary
Equity Investing PROPRIETARY Corporate
In millions Investments and Trading INVESTMENTS Items (e) CONSOLIDATED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS 1999
Total revenues $332 $149 $481 ($77) $6,667
Total expenses 80 112 192 257 4,325
- -----------------------------------------------------------------------------------------------------
Pretax income 252 37 289 (334) 2,342
- -----------------------------------------------------------------------------------------------------
NINE MONTHS 1998
Total revenues 288 514 802 108 (c) 5,451
Total expenses 39 114 153 440 (d) 4,147
- -----------------------------------------------------------------------------------------------------
Pretax income 249 400 649 (332) 1,304
- -----------------------------------------------------------------------------------------------------
INCREASE/(DECREASE), NINE MONTHS 1999 VS. NINE MONTHS 1998
Total revenues 44 (365) (321) (185) 1,216
Total expenses 41 (2) 39 (183) 178
- -----------------------------------------------------------------------------------------------------
Pretax income 3 (363) (360) (2) 1,038
- -----------------------------------------------------------------------------------------------------
</TABLE>
(a) Nine months 1999 includes a net reversal of provision for credit losses of
($130) million.
(b) Nine months 1998 includes provisions for credit losses of $75 million.
(c) Nine months 1998 includes a pretax gain of $56 million related to the sale
of the firm's investment management business in Australia and a pretax gain
of $131 million related to the sale of the firm's global trust and agency
services business.
(d) Nine months 1998 includes a pretax charge of $215 million related to the
restructuring of business activities.
(e) Corporate Items includes revenues and expenses related to Euroclear
activities, as follows:
<TABLE>
<CAPTION>
Nine Months Nine Months
1999 1998
<S> <C> <C>
Total revenues $188 $238
Total expenses 20 42
- ----------------------------------------------------------------
Pretax income 168 196
- ----------------------------------------------------------------
</TABLE>
Note: In connection with the signed letter of intent between J.P. Morgan and the
Board of Directors of the Euroclear group, Morgan will end its role as operator
and banker for the Euroclear system upon the formation of a successor bank to be
owned by Euroclear. Accordingly, segment results have been restated to reflect
Euroclear-related revenues and expenses in Corporate Items. Previously, results
related to our Asset Management and Euroclear activities were included in the
Asset Management & Servicing sector. All amounts in the table above have been
restated to reflect our current reporting structure and policies. For a
description of our segments, please refer to the J.P. Morgan & Co. 1998 Annual
Report.
<PAGE> 9
J.P. Morgan & Co. Incorporated 9
FINANCIAL SUMMARY
J.P. Morgan & Co. Incorporated
Dollars in millions, except share data
<TABLE>
<CAPTION>
Second
Third Quarter Quarter
------------------------------------ ------------
1999 1998 1999
------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 442 (a) $ 156 $ 504
Per common share
Net income
Basic $ 2.39 (a) $ 0.81 $ 2.71
Diluted 2.22 (a) 0.75 2.52
Dividends declared 0.99 0.95 0.99
Book value (c) $ 58.42 $ 56.22 $ 57.60
- ----------------------------------------------------------------------------------------------------------------
Common shares issued and outstanding
at period-end 174,880,978 174,951,795 175,949,606
- ----------------------------------------------------------------------------------------------------------------
Weighted-average number of common
and dilutive potential common shares
outstanding 194,671,633 196,395,485 196,539,342
- ----------------------------------------------------------------------------------------------------------------
Dividends declared on common stock $ 173 $ 167 $ 175
Dividends declared on preferred stock 7 9 9
- ----------------------------------------------------------------------------------------------------------------
Annualized rate of return on average
common stockholders' equity (d) 15.6% (a) 5.3% 18.0%
As % of period-end total assets:
Common equity 4.4% 3.6% 4.1%
Total equity 4.7 3.9 4.4
- ----------------------------------------------------------------------------------------------------------------
Regulatory capital ratios (e)
Tier 1 risk-based capital ratio 9.0% 7.6% 8.4%
Total risk-based capital ratio 13.1 11.2 12.5
Leverage ratio 4.8 4.0 4.5
Risk-adjusted assets 136,125 148,906 142,477
- ----------------------------------------------------------------------------------------------------------------
Average balances
Debt investment securities (f) $ 27,316 $ 22,225 $ 29,512
Loans 26,026 30,162 25,552
Total interest-earning assets 190,178 204,724 192,306
Total assets 255,909 284,637 266,145
Total interest-bearing liabilities 183,154 201,553 189,071
Total liabilities 244,141 272,841 254,446
Common stockholders' equity 11,074 11,102 11,005
Total stockholders' equity 11,768 11,796 11,699
Net interest earnings before (reversal of provision) /
provision (fully taxable basis) 405 352 445
Net yield on interest-earning assets 0.84% 0.68% 0.93%
- ----------------------------------------------------------------------------------------------------------------
Employees at period-end 15,287 16,155 14,902
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months
------------------------------------
1999 1998
------------------------------------
<S> <C> <C> <C>
Net Income $ 1,546 (b) $ 874
Per common share
Net income
Basic $ 8.33 (b) $ 4.65
Diluted 7.76 (b) 4.28
Dividends declared 2.97 2.85
Book value (c)
- ----------------------------------------------------------------------------------------------
Common shares issued and outstanding
at period-end
- ----------------------------------------------------------------------------------------------
Weighted-average number of common
and dilutive potential common shares
outstanding 195,864,571 198,216,384
- ----------------------------------------------------------------------------------------------
Dividends declared on common stock $ 523 $ 504
Dividends declared on preferred stock 25 27
- ----------------------------------------------------------------------------------------------
Annualized rate of return on average
common stockholders' equity (d) 18.6% (b) %10.3
As % of period-end total assets:
Common equity
Total equity
- ----------------------------------------------------------------------------------------------
Regulatory capital ratios (e)
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Leverage ratio
Risk-adjusted assets
- ----------------------------------------------------------------------------------------------
Average balances
Debt investment securities (f) $ 30,196 $ 23,144
Loans 26,358 31,744
Total interest-earning assets 193,216 207,616
Total assets 264,009 282,071
Total interest-bearing liabilities 187,520 204,413
Total liabilities 252,369 270,426
Common stockholders' equity 10,946 10,951
Total stockholders' equity 11,640 11,645
Net interest earnings before (reversal of provision) /
provision (fully taxable basis) 1,260 1,009
Net yield on interest-earning assets 0.87% 0.65%
- ----------------------------------------------------------------------------------------------
Employees at period-end
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Excluding the 1998 third quarter after tax gain of $34 million ($56 million
before tax) related to the sale of the firm's investment management business in
Australia: net income was $122 million; basic and diluted earnings per share
(EPS) were $0.62 and $0.58, respectively; and the annualized rate of return on
average common stockholders' equity was 4.0% (including the impact of Statement
of Financial Accounting Standards (SFAS) No. 115) and 4.2% (excluding the impact
of SFAS No. 115) for the three months ended September 30, 1998.
(b) 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, the 1998 third quarter after tax gain of $34 million ($56
million before tax) related to the sale of the firm's investment management
business in Australia, and the 1998 first quarter after tax charge of $129
million ($215 million before tax) related to the restructuring of business
activities: net income was $890 million; basic and diluted EPS were $4.73 and
$4.36, respectively; and the annualized rate of return on average common
stockholders' equity was 10.5% (including the impact of SFAS No. 115) and 11.0%
(excluding the impact of SFAS No.115) for the nine months ended September 30,
1998.
(c) Excluding the impact of SFAS No. 115, the book value per common share was
$58.99, $54.70, and $57.87, at September 30, 1999, September 30, 1998, and June
30, 1999, respectively.
(d) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity was 15.4%, 5.4%, and 18.1% for the three
months ended September 30, 1999, September 30, 1998, and June 30, 1999,
respectively, and 18.6% and 10.8% for the nine months ended September 30, 1999
and 1998, respectively.
(e) Regulatory capital ratios and risk-adjusted assets are estimates at
September 30, 1999.
(f) Average debt investment securities are computed on historical amortized
cost, excluding the effects of SFAS No. 115 adjustments.
<PAGE> 10
J.P. Morgan & Co. Incorporated 10
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
In millions, except share data
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------------------------------------
September 30 September 30 Increase/ June 30 Increase/
1999 1998 (Decrease) 1999 (Decrease)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $2,783 $3,249 ($466) $2,713 $70
Interest expense 2,394 2,917 (523) 2,288 106
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 389 332 57 425 (36)
Provision for loan losses - 25 (25) - -
Reversal of provision for loan losses (45) - (45) (105) 60
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest revenue after provision/
(reversal of provision) for loan losses 434 307 127 530 (96)
NONINTEREST REVENUES
Trading revenue 424 69 355 803 (379)
Investment banking revenue 398 312 86 457 (59)
Investment management revenue 270 224 46 260 10
Fees and commissions 206 182 24 191 15
Investment securities revenue / (loss) 271 136 135 (29) 300
Other (loss) / revenue (18)(a) 71 (b) (89) (21)(c) 3
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest revenues 1,551 994 557 1,661 (110)
Total revenues, net 1,985 1,301 684 2,191 (206)
OPERATING EXPENSES
Employee compensation and benefits 889 567 322 970 (81)
Net occupancy 82 84 (2) 80 2
Technology and communications 229 293 (64) 231 (2)
Other expenses 141 155 (14) 136 5
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,341 1,099 242 1,417 (76)
Income before income taxes 644 202 442 774 (130)
Income taxes 202 46 156 270 (68)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 442 156 286 504 (62)
PER COMMON SHARE
Net income
Basic $2.39 $0.81 $1.58 $2.71 ($0.32)
Diluted 2.22 0.75 1.47 2.52 (0.30)
Dividends declared 0.99 0.95 0.04 0.99 -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Third quarter 1999 includes a reversal of provision for credit losses of
$15 million related to the allowance for credit losses on lending
commitments.
(b) Third quarter 1998 includes a pretax gain of $56 million ($34 million after
tax) related to the sale of the firm's investment management business in
Australia.
(c) Second quarter 1999 includes a provision for credit losses of $35 million
related to the allowance for credit losses on lending commitments.
<PAGE> 11
11
J.P. Morgan & Co. Incorporated
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
In millions, except share data
Nine months ended
------------------------------------------------------------
September 30 September 30 Increase/
1999 1998 (Decrease)
------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $8,253 $9,617 ($1,364)
Interest expense 7,050 8,659 (1,609)
- --------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 1,203 958 245
Provision for loan losses - 25 (25)
Reversal of provision for loan losses (150) - (150)
- --------------------------------------------------------------------------------------------------------------------------------
Net interest revenue after provision /
(reversal of provision) for loan losses 1,353 933 420
NONINTEREST REVENUES
Trading revenue 2,361 1,842 519
Investment banking revenue 1,245 1,020 225
Investment management revenue 776 661 115
Fees and commissions 611 569 42
Investment securities revenue 201 247 (46)
Other revenue 120 (a) 179 (b) (59)
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest revenues 5,314 4,518 796
Total revenues, net 6,667 5,451 1,216
OPERATING EXPENSES
Employee compensation and benefits 2,955 2,432 523
Net occupancy 244 313 (69)
Technology and communications 707 887 (180)
Other expenses 419 515 (96)
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 4,325 4,147 (c) 178
Income before income taxes 2,342 1,304 1,038
Income taxes 796 430 366
- --------------------------------------------------------------------------------------------------------------------------------
Net income 1,546 874 672
PER COMMON SHARE
Net income
Basic $8.33 $4.65 $3.68
Diluted 7.76 4.28 3.48
Dividends declared 2.97 2.85 0.12
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Nine months ended September 30, 1999 includes a net provision for credit
losses of $20 million related to the allowance for credit losses on lending
commitments.
(b) Nine months ended September 30, 1998 includes a third quarter pretax gain of
$56 million ($34 million after tax) related to the sale of the firm's investment
management business in Australia and 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.
(c) Nine months ended September 30, 1998, includes a first quarter 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> 12
12
J.P. Morgan & Co. Incorporated
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
In millions, except share data September 30
1999
---------------
<S> <C>
ASSETS
Cash and due from banks $ 1,609
Interest-earning deposits with banks 2,145
Debt investment securities available-for-sale carried at fair value (cost: $24,389 at September 1999,
$26,871 at June 1999, and $36,107 at December 1998) 24,115
Equity investment securities 1,528
Trading account assets (including derivative receivables of $44,580 at September 1999,
$40,391 at June 1999, and $48,124 at December 1998) 106,510
Securities purchased under agreements to resell ($34,705 at September 1999,
$32,739 at June 1999, and $31,056 at December 1998) and federal funds sold 36,755
Securities borrowed 35,518
Loans, net of allowance for loan losses of $301 at September 1999, $335 at June 1999,
and $470 at December 1998 25,114
Accrued interest and accounts receivable 6,826
Premises and equipment, net of accumulated depreciation of $1,325 at September 1999,
$1,322 at June 1999, and $1,350 at December 1998 1,995
Other assets 12,704
- --------------------------------------------------------------------------------------------------------------------------
Total assets 254,819
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 850
In offices outside the U.S. 1,183
Interest-bearing deposits:
In offices in the U.S. 3,849
In offices outside the U.S. 42,941
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 48,823
Trading account liabilities (including derivative payables of $41,022 at September 1999,
$37,329 at June 1999, and $44,683 at December 1998) 72,043
Securities sold under agreements to repurchase ($60,979 at September 1999, $63,460 at June 1999,
and $62,784 at December 1998) and federal funds purchased 61,779
Commercial paper 10,327
Other liabilities for borrowed money 9,447
Accounts payable and accrued expenses 10,507
Long-term debt not qualifying as risk-based capital 20,145
Other liabilities, including allowance for credit losses of $145 at September
1999, $160 at June 1999, and $125 at December 1998 3,333
- --------------------------------------------------------------------------------------------------------------------------
236,404
Liabilities qualifying as risk-based capital:
Long-term debt 5,257
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 242,811
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,000,000)
Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244
Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250
Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200
Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,934,737 at
September 1999 and June 1999, and 200,873,067 at December 1998) 502
Capital surplus 1,241
Common stock issuable under stock award plans 1,713
Retained earnings 10,586
Accumulated other comprehensive income:
Net unrealized (losses) / gains on investment securities, net of taxes (108)
Foreign currency translation, net of taxes (46)
- --------------------------------------------------------------------------------------------------------------------------
14,582
Less: treasury stock (26,053,759 shares at September 1999, 24,985,131 shares at June 1999,
and 25,866,786 shares at December 1998) at cost 2,574
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 12,008
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 254,819
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
- ----------------------------------------------------------------------------------------------------------------------------------
In millions, except share data June 30 December 31
1999 1998
---------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,094 $ 1,203
Interest-earning deposits with banks 2,058 2,371
Debt investment securities available-for-sale carried at fair value (cost: $24,389 at September 1999,
$26,871 at June 1999, and $36,107 at December 1998) 26,702 36,232
Equity investment securities 1,264 1,169
Trading account assets (including derivative receivables of $44,580 at September 1999,
$40,391 at June 1999, and $48,124 at December 1998) 114,465 113,896
Securities purchased under agreements to resell ($34,705 at September 1999,
$32,739 at June 1999, and $31,056 at December 1998) and federal funds sold 33,531 31,731
Securities borrowed 39,977 30,790
Loans, net of allowance for loan losses of $301 at September 1999, $335 at June 1999,
and $470 at December 1998 28,753 25,025
Accrued interest and accounts receivable 6,084 7,689
Premises and equipment, net of accumulated depreciation of $1,325 at September 1999,
$1,322 at June 1999, and $1,350 at December 1998 1,893 1,881
Other assets 12,573 9,080
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 269,394 261,067
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,222 1,242
In offices outside the U.S. 778 563
Interest-bearing deposits:
In offices in the U.S. 6,627 7,724
In offices outside the U.S. 46,708 45,499
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 55,335 55,028
Trading account liabilities (including derivative payables of $41,022 at September 1999,
$37,329 at June 1999, and $44,683 at December 1998) 70,129 70,643
Securities sold under agreements to repurchase ($60,979 at September 1999, $63,460 at June 1999,
and $62,784 at December 1998) and federal funds purchased 64,554 63,368
Commercial paper 13,114 6,637
Other liabilities for borrowed money 10,974 12,515
Accounts payable and accrued expenses 10,089 9,859
Long-term debt not qualifying as risk-based capital 22,722 23,037
Other liabilities, including allowance for credit losses of $145 at September
1999, $160 at June 1999, and $125 at December 1998 4,116 2,999
- -----------------------------------------------------------------------------------------------------------------------------------
251,033 244,086
Liabilities qualifying as risk-based capital:
Long-term debt 5,408 4,570
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 257,591 249,806
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
September 1999 and June 1999, and 200,873,067 at December 1998) 502 502
Capital surplus 1,245 1,252
Common stock issuable under stock award plans 1,540 1,460
Retained earnings 10,334 9,614
Accumulated other comprehensive income:
Net unrealized (losses) / gains on investment securities, net of taxes (52) 147
Foreign currency translation, net of taxes (46) (46)
- -----------------------------------------------------------------------------------------------------------------------------------
14,217 13,623
Less: treasury stock (26,053,759 shares at September 1999, 24,985,131 shares at June 1999,
and 25,866,786 shares at December 1998) at cost 2,414 2,362
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,803 11,261
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 269,394 261,067
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
13
J.P. Morgan & Co. Incorporated
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
In millions, except share data September 30 December 31
1999 1998
---------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,551 $ 1,147
Interest-earning deposits with banks 2,082 2,372
Debt investment securities available-for-sale carried at fair value 5,146 3,634
Trading account assets 79,220 90,770
Securities purchased under agreements to resell and federal funds sold 18,250 33,316
Securities borrowed 10,016 8,193
Loans, net of allowance for loan losses of $300 at September 1999 and $470 at December 1998 24,604 24,876
Accrued interest and accounts receivable 5,131 3,898
Premises and equipment, net of accumulated depreciation of $1,124 at September 1999
and $1,160 at December 1998 1,813 1,703
Other assets 12,349 5,337
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 160,162 175,246
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 873 1,232
In offices outside the U.S. 1,185 572
Interest-bearing deposits:
In offices in the U.S. 3,881 7,749
In offices outside the U.S. 44,103 46,668
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 50,042 56,221
Trading account liabilities 62,404 64,776
Securities sold under agreements to repurchase and federal funds purchased 12,891 14,916
Other liabilities for borrowed money 5,607 8,646
Accounts payable and accrued expenses 6,496 6,123
Long-term debt not qualifying as risk-based capital 7,340 10,358
Other liabilities, including allowance for credit losses of $145 at September 1999
and $125 at December 1998 1,515 542
- -----------------------------------------------------------------------------------------------------------------------------------
146,295 161,582
Long-term debt qualifying as risk-based capital 2,975 3,186
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 149,270 164,768
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 7,303 6,836
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 65 118
Foreign currency translation, net of taxes (46) (46)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 10,892 10,478
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 160,162 175,246
- -----------------------------------------------------------------------------------------------------------------------------------
Member of the Federal Reserve System and the Federal Deposit Insurance Corporation.
</TABLE>
<PAGE> 14
14
J.P. Morgan & Co. Incorporated
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>
Third Quarter 1999 $258 $140 $398
Third Quarter 1998 229 83 312
- ---------------------------------------------------------------------------------------------------------------------------
Second Quarter 1999 258 199 457
- ---------------------------------------------------------------------------------------------------------------------------
Nine Months 1999 737 508 1,245
Nine Months 1998 618 402 1,020
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
15
J.P. Morgan & Co. Incorporated
ASSET QUALITY
IMPAIRED LOANS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
September 30 June 30 September 30
In millions 1999 1999 1998 (a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans:
Commercial and industrial $131 (b) $38 $28
Other, primarily individuals 38 29 32
- ----------------------------------------------------------------------------------------------------------------------------------
Total impaired loans 169 67 60
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Certain reclassifications were made to conform with the categorization used
in Bank regulatory filings.
(b) Increase in impaired commercial and industrial loans during the third
quarter of 1999 primarily relates to newly classified loans in the Latin
American steel industry.
ALLOWANCES FOR CREDIT LOSSES
J.P. Morgan & Co. Incorporated
Allowance for loan losses
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months Ended Third Quarter Nine Months Ended
In millions 1999 September 30, 1999 1998 September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $335 $470 $392 $546
- -----------------------------------------------------------------------------------------------------------------------------------
(Reversal of provision) / provision for loan losses (45) (150) 25 25
- -----------------------------------------------------------------------------------------------------------------------------------
Reclassifications (a) - - - (50)
- -----------------------------------------------------------------------------------------------------------------------------------
Recoveries 17 23 4 13
Charge-offs: (b)
Commercial and industrial (6) (16) (6) (40)
Banks - (1) (5) (66)
Other, primarily financial institutions in 1999 - (25) (6) (24)
- -----------------------------------------------------------------------------------------------------------------------------------
Net recoveries / (charge-offs) 11 (19) (13) (117)
- -----------------------------------------------------------------------------------------------------------------------------------
Ending balance 301 301 404 404
- -----------------------------------------------------------------------------------------------------------------------------------
</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 credit losses on lending
commitments - 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".
(b) Charge-offs include losses on loan sales of $3 million and $11 million for
the three months ended September 30, 1999 and 1998, respectively.
Charge-offs include losses on loan sales, primarily banks and other
financial institutions, of $33 million and $89 million for the nine months
ended September 30, 1999 and 1998, respectively.
Components of the allowance for loan losses
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
September 30 June 30 September 30
In millions 1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specific counterparty components in the U.S. $ 9 $ 6 $ 36
Specific counterparty components outside the U.S. 23 8 5
- -----------------------------------------------------------------------------------------------------------------------------------
Total specific counterparty 32 14 41
- -----------------------------------------------------------------------------------------------------------------------------------
Specific country 24 32 77
Expected loss (c) 245 289 286
- -----------------------------------------------------------------------------------------------------------------------------------
Total allowance 301 335 404
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Allowance for credit losses on lending commitments*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months Ended Third Quarter Nine Months Ended
In millions 1999 September 30, 1999 1998 September 30, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $160 $125 $185 $185
- -----------------------------------------------------------------------------------------------------------------------------------
(Reversal of provision) / provision for credit losses (15) 20 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Ending balance 145 145 185 185
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Components of the allowance for credit losses on lending commitments*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
September 30 June 30 September 30
In millions 1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specific counterparty components in the U.S. $ 20 $ 17 $ 1
Specific counterparty components outside the U.S. 3 3 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total specific counterparty 23 20 3
- ------------------------------------------------------------------------------------------------------------------------------------
Specific country 1 3 7
Expected loss (c) 121 137 175
- ------------------------------------------------------------------------------------------------------------------------------------
Total allowance 145 160 185
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) As previously noted in our 1999 first quarter Form 10-Q, the general
component of our allowances for credit losses is used to estimate the
impact of separately identified limitations in our expected loss model.
Beginning in the second quarter of 1999, the general component is included
as part of the expected loss component for disclosure purposes since all
factors used to derive the general component relate to the expected loss
component. Prior period amounts have been reclassified.
* Includes commitments to extend credit, standby letters of credit, and
guarantees.
<PAGE> 16
16
J.P. Morgan & Co. Incorporated
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 September 30, 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
In billions Deriva- Other out- deriva-
September 30, 1999 Loans tives standings tives
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
China $ - $ 0.1 $ - $ (0.1)
Hong Kong 0.2 0.5 0.4 (0.2)
Indonesia 0.1 - - -
Malaysia - - - 0.1
Philippines - - 0.1 -
Singapore - 0.4 0.1 (0.1)
South Korea 0.2 0.8 0.4 (0.3)
Taiwan - - - -
Thailand - 0.1 0.1 0.1
Other - - - -
- ---------------------------------------------------------------------------------------------------
Total Asia, excluding Japan(a) 0.5 1.9 1.1 (0.5)
- ---------------------------------------------------------------------------------------------------
Argentina 0.1 0.1 0.8 (0.5)
Brazil 0.2 - 0.3 -
Chile 0.4 - - -
Colombia 0.2 - 0.1 -
Mexico 0.4 0.4 0.4 (0.3)
Other 0.2 - 0.3 -
- ---------------------------------------------------------------------------------------------------
Total Latin America, excluding the Caribbean 1.5 0.5 1.9 (0.8)
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
By type of financial instrument
- ------------------------------------------------------------------------------------------------------
Total
In billions Commit- cross- Local Total
September 30, 1999 ments border exposure exposure
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
China $ - $ - $ - $ -
Hong Kong 0.2 1.1 0.3 1.4
Indonesia 0.1 0.2 - 0.2
Malaysia - 0.1 - 0.1
Philippines - 0.1 - 0.1
Singapore - 0.4 0.1 0.5
South Korea - 1.1 0.5 1.6
Taiwan - - - -
Thailand - 0.3 - 0.3
Other - - 0.2 0.2
- ------------------------------------------------------------------------------------------------------
Total Asia, excluding Japan(a) 0.3 3.3 1.1 4.4
- ------------------------------------------------------------------------------------------------------
Argentina - 0.5 0.4 0.9
Brazil - 0.5 1.1 1.6
Chile - 0.4 - 0.4
Colombia - 0.3 - 0.3
Mexico - 0.9 0.3 1.2
Other 0.1 0.6 - 0.6
- ------------------------------------------------------------------------------------------------------
Total Latin America, excluding the Caribbean 0.1 3.2 1.8 5.0
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
By type of counterparty
- -----------------------------------------------------------------------------------------------------------------------------
In billions Govern-
September 30, 1999 Banks ments Other Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
China $ - $ - $ - $ -
Hong Kong 0.6 0.2 0.6 1.4
Indonesia - - 0.2 0.2
Malaysia 0.1 - - 0.1
Philippines - - 0.1 0.1
Singapore 0.4 - 0.1 0.5
South Korea 0.4 0.9 0.3 1.6
Taiwan - - - -
Thailand 0.2 - 0.1 0.3
Other - 0.2 - 0.2
- -----------------------------------------------------------------------------------------------------------------------------
Total Asia, excluding Japan(a) 1.7 1.3 1.4 4.4
- -----------------------------------------------------------------------------------------------------------------------------
Argentina - 0.4 0.5 0.9
Brazil 0.4 0.9 0.3 1.6
Chile - - 0.4 0.4
Colombia - 0.1 0.2 0.3
Mexico - 0.4 0.8 1.2
Other - 0.2 0.4 0.6
- -----------------------------------------------------------------------------------------------------------------------------
Total Latin America, excluding the Caribbean 0.4 2.0 2.6 5.0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total exposures to Japan, based upon management's view, were $3.8 billion
at September 30, 1999.
Total exposures to South Africa, based upon management's view, were $1.9
billion at September 30, 1999.
