SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement.
[ ] Confidential, for use of the commission only (as permitted by Rule
14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[X] Soliciting material under Rule 14a-12.
J.P. Morgan & Co. Incorporated
(Name of Registrant as Specified in Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
This filing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements include, but
are not limited to, statements about the benefits of the merger between Chase
and J.P. Morgan, including future financial and operating results, Chase's
plans, objectives, expectations and intentions and other statements that are not
historical facts. Such statements are based upon the current beliefs and
expectations of J.P. Morgan's and Chase's management and are subject to
significant risks and uncertainties. Actual results may differ from those set
forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ from
those set forth in the forward-looking statements: the risk that the businesses
of Chase and J.P. Morgan will not be combined successfully; the risk that the
growth opportunities and cost savings from the merger may not be fully realized
or may take longer to realize than expected; the risk that the integration
process may result in the disruption of ongoing business or the loss of key
employees or may adversely effect relationships with employees and clients; the
risk that stockholder or required regulatory approvals of the merger will not be
obtained or that adverse regulatory conditions will be imposed in connection
with a regulatory approval of the merger; the risk of adverse impacts from an
economic downturn; the risks associated with increased competition, unfavorable
political or other developments in foreign markets, adverse governmental or
regulatory policies, and volatility in securities markets, interest or foreign
exchange rates or indices; or other factors impacting operational plans.
Additional factors that could cause Chase's and J.P. Morgan's results to differ
materially from those described in the forward-looking statements can be found
in the 1999 Annual Report on Form 10-K of each of Chase and J.P. Morgan, filed
with the Securities and Exchange Commission and available at the Securities and
Exchange Commission's internet site (http://www.sec.gov).
Chase has filed a Registration Statement on Form S-4 with the Securities and
Exchange Commission containing a preliminary joint proxy statement-prospectus
regarding the proposed transaction. Stockholders are urged to read the
definitive joint proxy statement-prospectus when it becomes available because it
will contain important information. The definitive joint proxy
statement-prospectus will be sent to stockholders of Chase and J.P. Morgan
seeking their approval of the proposed transaction. Stockholders also will be
able to obtain a free copy of the definitive joint proxy statement-prospectus,
as well as other filings containing information about Chase and J.P. Morgan,
without charge, at the SEC's internet site (http://www.sec.gov). Copies of the
definitive joint proxy statement-prospectus and the SEC filings that will be
incorporated by reference in the definitive joint proxy statement-prospectus can
also be obtained, without charge, by directing a request to The Chase Manhattan
Corporation, 270 Park Avenue, New York, NY 10017, Attention: Office of the
Corporate Secretary (212-270-6000), or to J.P. Morgan & Co. Incorporated, 60
Wall Street, New York, NY 10260, Attention: Investor Relations (212-483-2323).
Information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, is contained in the materials filed with the SEC by J.P. Morgan and
Chase on September 13, 2000 and September 14, 2000, respectively.
<PAGE>
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, NY 10260-0060
NYSE: symbol: JPM
--------------------------------------------------------------------------------
News release: IMMEDIATE October 18, 2000
J.P. Morgan reports third quarter 2000 earnings
J.P. Morgan today reported third quarter net income of $514 million, up from
$442 million in the third quarter of 1999. Earnings per share were $2.77, an
increase of 25% from $2.22 a year ago. Return on common equity was 18% in the
quarter compared with 16% in the third quarter of 1999. Net income for the first
nine months of 2000 was $1.684 billion compared with $1.546 billion in the same
period a year ago. Earnings per share were $9.05 compared with $7.76, an
increase of 17%. Return on common equity increased to 20% from 19% in the first
nine months of 1999.
Merger Announcement
On September 13, 2000, The Chase Manhattan Corporation and J.P. Morgan & Co.
Incorporated announced that they have agreed to merge. The merged firm will be
named J.P. Morgan Chase & Co. The transaction is expected to be accounted for as
a pooling of interests and to be tax-free to J.P. Morgan and Chase stockholders.
The deal is expected to close by the end of the first quarter of 2001 and is
subject to approval by shareholders of both companies, as well as by U.S.
Federal and state and foreign regulatory authorities.
Highlights for the third quarter:
o Economic value added (EVA) was $227 million, an increase of 170% over the
prior year's quarter
o Revenues of $2.322 billion rose 17% from a year ago
o Asset Management Services revenues rose 11% on strength in private banking
o Investment Banking revenues increased 16% on growth in capital raising and
advisory fees
o Combined revenues in Equities, Interest Rate Markets, and Credit Markets
increased $222 million o Proprietary Positioning revenues of $310 million
were strong while Equity Investment revenues of $14 million reflected
weakness in the telecommunications sector
o Expenses of $1.609 billion increased 20%
"The diversification of our franchise across markets, products, and regions
produced solid results for the quarter," said Douglas A. Warner III, chairman.
"As the work on our merger with Chase progresses, we are increasingly optimistic
about the growth opportunities and synergies we can realize from our
complementary strengths and expanded client franchise."
--------------------------------------------------------------------------------
Press contact: Joseph M. Evangelisti 212/648-9589
Investor contact: Ann B. Patton 212/648-9446
<PAGE>
J.P. Morgan & Co. Incorporated 2
Business segment results
Asset Management Services revenues in the third quarter were $390 million, an
increase of 11% over the prior-year period. Private banking revenues were the
primary driver of the increase. Revenues from institutional investment
management and our equity investment in American Century also rose. Assets under
management grew 15% from a year ago to approximately $373 billion at September
30, 2000. This excludes $114 billion of assets under management at American
Century, in which we have a 45% interest.
Investment Banking revenues were $426 million in the quarter, up $60 million
from the year-ago quarter. Advisory, capital raising, and derivatives
origination activities contributed to the increase. For the first nine months of
2000, Thomson Financial Securities Data ranked J.P. Morgan sixth in completed
worldwide mergers and acquisitions, with a market share of 16.2%. This compares
with a rank of sixth for the 1999 nine months and a share of 13.1%. We ranked
sixth among U.S. lead equity underwriters with a market share of 4.3%, compared
with sixth and a market share of 5.5% in the 1999 year-to-date period.
Equities revenues increased 78% to $448 million over the prior-year quarter,
with equity derivatives the largest contributor to this sector. Revenues from
equity derivatives doubled, reflecting sharply higher trading gains across all
regions as well as increased client demand, particularly in Europe. Cash
equities increased more than 50% on higher volumes in both the U.S. and Europe.
Interest Rate and Currency Markets revenues increased 33% to $426 million over
the prior-year quarter because of significantly improved derivatives trading
results, primarily in Europe. In the year-ago quarter we had very weak trading
results, mainly associated with European markets. Compared to the prior year's
quarter, client flows were weaker across most interest rate and currency
markets.
Credit Markets revenues were $346 million, down 19% from the prior-year period.
While revenues from activities in debt capital markets, structured finance, and
Latin America rose, this increase was more than offset by lower revenues from
managing our credit risk portfolio. This quarter we recognized valuation gains
from improved credit quality in our portfolio, although a lower amount than in
last year's quarter, and we recorded mark-to-market losses of approximately $100
million on an equity position taken in a debt restructuring.
Equity Investments revenues were $14 million in the third quarter. The results
included realized gains of $118 million on investments in the financial services
sector, offset by a reduction of approximately $100 million in unrealized market
appreciation, primarily associated with an investment in the telecommunications
industry. In the third quarter of 1999, reported revenues were $341 million,
mainly as a result of an increase in unrealized appreciation in the portfolio.
Proprietary Positioning revenues were $310 million in the third quarter. Total
return - reported revenues and the change in net unrealized value - was $337
million. Proprietary Positioning returns were driven by excellent
<PAGE>
J.P. Morgan & Co. Incorporated 3
results in our fixed income and equity relative value portfolios in the U.S. and
Europe. In the year-ago quarter Proprietary Positioning revenues were $6 million
and total return was a loss of $110 million. The weakness in the year-ago
quarter resulted from significant losses in our U.S. government agency
investment and Asian portfolios, where we have significantly reduced risk.
Operating expenses
In the third quarter 2000, operating expenses were $1.609 billion, an increase
of $268 million from the prior-year period. Compensation expense, the primary
driver of the increase, rose because of higher performance-driven compensation
and new hires, primarily in Investment Banking, Equities, and our corporate
e-finance initiatives. The firm's efficiency ratio was 69% for the quarter and
67% for the year to date.
Income tax expense in the quarter totaled $199 million, based on an effective
tax rate of 28%, compared to an effective rate of 31% in last year's quarter.
The year-to-date effective tax rate is 33%, compared with 34% for the first nine
months of 1999.
Capital
The firm purchased approximately $383 million of its common stock (2.8 million
shares) in the third quarter under its October 1999 authorization to repurchase
up to $3 billion of common stock. The purchases for the first nine months of
2000 totaled $1.5 billion (11.8 million shares). In conjunction with the merger
announcement, the Board of Directors cancelled the $142 million remaining under
the October 1999 authorization to purchase up to $3 billion of J.P. Morgan
common stock and terminated its dividend reinvestment plan. Excess capital
averaged $3.8 billion in the quarter compared with $4.1 billion for second
quarter of 2000.
At September 30, 2000, under the Federal Reserve Board's capital adequacy
guidelines, J.P. Morgan's estimated tier 1 and total risk-based capital ratios
were 8.8% and 12.4%, respectively; the estimated leverage ratio was 4.5%. At
June 30, 2000, J.P. Morgan's tier 1 and total risk-based capital ratios were
8.4% and 12.1%, respectively, and the leverage ratio was 4.4%.
# # #
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
<PAGE>
J.P. Morgan & Co. Incorporated 4
statements. For a discussion of the risks and uncertainties, please refer to the
J.P. Morgan & Co. Incorporated 1999 Annual Report.
J.P. Morgan & Co. Incorporated and The Chase Manhattan Corporation will hold a
presentation for investors at 11:00 a.m. (Eastern Daylight Time) on Wednesday,
October 18 to review their respective financial results for the quarter ended
September 30, 2000. A live audio webcast of the presentation will be available
on the Internet at www.jpmorgan.com or www.chase.com. In addition persons
interested in listening to the presentation by telephone may dial in at
973-872-3100.
Attached are tables with our segment results; a financial summary; interim
consolidated financial statements, which are unaudited; and asset quality
tables. J.P. Morgan news releases, including quarterly financial results and a
historical financial summary, are available on the Internet at www.jpmorgan.com.
<PAGE>
5
Segment Results
J.P. Morgan & Co. Incorporated
The following table reflects our current management reporting structure. For a
description of our segments, please refer to the J.P. Morgan & Co. Incorporated
1999 Annual Report.
<TABLE>
Increase/ Increase / Increase /
Third Third Second Nine Nine (Decrease), (Decrease), (Decrease),
Quarter Quarter Quarter Months Months 3Q 2000 vs. 3Q 2000 vs. YTD 2000 vs.
2000 1999 2000 2000 1999 3Q 1999 2Q 2000 YTD 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Banking
Total revenues $426 $366 $426 $1,304 $1,102 $60 $ - $202
Total expenses 368 292 383 1,160 893 76 (15) 267
------------------------------------------------------------------------------------------------
Pretax income 58 74 43 144 209 (16) 15 (65)
------------------------------------------------------------------------------------------------
Pretax EVA 22 50 19 57 138 (28) 3 (81)
------------------------------------------------------------------------------------------------
Average required economic
capital 918 517 631 730 521 401 287 209
------------------------------------------------------------------------------------------------
Equities
Total revenues 448 252 504 1,536 892 196 (56) 644
Total expenses 263 168 297 821 546 95 (34) 275
------------------------------------------------------------------------------------------------
Pretax income 185 84 207 715 346 101 (22) 369
------------------------------------------------------------------------------------------------
Pretax EVA 152 51 162 595 241 101 (10) 354
------------------------------------------------------------------------------------------------
Average required economic
capital 708 524 762 734 598 184 (54) 136
------------------------------------------------------------------------------------------------
Interest Rate & Currency Markets
Total revenues 426 321 384 1,299 1,530 105 42 (231)
Total expenses 282 288 280 896 968 (6) 2 (72)
------------------------------------------------------------------------------------------------
Pretax income 144 33 104 403 562 111 40 (159)
------------------------------------------------------------------------------------------------
Pretax EVA 64 (65) 15 111 255 129 49 (144)
------------------------------------------------------------------------------------------------
Average required economic
capital 1,616 2,012 1,789 1,712 2,042 (396) (173) (330)
------------------------------------------------------------------------------------------------
Credit Markets
Total revenues 346 425 348 1,244 1,752 (79) (2) (508)
Total expenses 189 153 164 615 633 36 25 (18)
------------------------------------------------------------------------------------------------
Pretax income 157 272 184 629 1,119 (115) (27) (490)
------------------------------------------------------------------------------------------------
Pretax EVA 6 135 76 242 609 (129) (70) (367)
------------------------------------------------------------------------------------------------
Average required economic
capital 4,181 3,716 3,709 3,864 4,225 465 472 (361)
------------------------------------------------------------------------------------------------
Equity Investments
Total revenues 14 341 145 312 333 (327) (131) (21)
Total expenses 28 52 26 99 79 (24) 2 20
------------------------------------------------------------------------------------------------
Pretax income (14) 289 119 213 254 (303) (133) (41)
------------------------------------------------------------------------------------------------
Pretax EVA (115) 164 35 (2) 104 (279) (150) (106)
------------------------------------------------------------------------------------------------
Average required economic
capital 1,523 1,488 1,661 1,689 1,377 35 (138) 312
------------------------------------------------------------------------------------------------
Proprietary Positioning
Total revenues 310 6 283 781 156 304 27 625
Total expenses 72 37 53 181 112 35 19 69
------------------------------------------------------------------------------------------------
Pretax income 238 (31) 230 600 44 269 8 556
------------------------------------------------------------------------------------------------
Pretax EVA 235 (193) 197 582 (382) 428 38 964
------------------------------------------------------------------------------------------------
Average required economic
capital 347 1,503 489 444 2,111 (1,156) (142) (1,667)
------------------------------------------------------------------------------------------------
Asset Management Services
Total revenues 390 350 409 1,206 1,002 40 (19) 204
Total expenses 302 276 300 905 801 26 2 104
------------------------------------------------------------------------------------------------
Pretax income 88 74 109 301 201 14 (21) 100
------------------------------------------------------------------------------------------------
Pretax EVA 60 56 87 230 147 4 (27) 83
------------------------------------------------------------------------------------------------
Average required economic
capital 620 565 590 595 553 55 30 42
------------------------------------------------------------------------------------------------
Corporate
Total revenues (38) (76) (20) (45) (100) 38 (18) 55
Total expenses 105 75 157 447 293 30 (52) 154
------------------------------------------------------------------------------------------------
Pretax income (143) (151) (177) (492) (393) 8 34 (99)
------------------------------------------------------------------------------------------------
Pretax EVA (112) (97) (207) (559) (258) (15) 95 (301)
------------------------------------------------------------------------------------------------
Average required economic
capital (1,198) (1,122) (1,273) (1,239) (1,316) (76) 75 77
------------------------------------------------------------------------------------------------
Consolidated
Total revenues 2,322 1,985 2,479 7,637 6,667 337 (157) 970
Total expenses 1,609 1,341 1,660 5,124 4,325 268 (51) 799
------------------------------------------------------------------------------------------------
Pretax income 713 644 819 2,513 2,342 69 (106) 171
------------------------------------------------------------------------------------------------
Pretax EVA 312 101 384 1,256 854 211 (72) 402
Average required economic
capital 8,715 9,203 8,358 8,529 10,111 (488) 357 (1,582)
------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
6
Segment Results (continued)
J.P. Morgan & Co. Incorporated
Notes to segment results table:
-- We define economic value added (EVA) as operating income, adjusted to reflect
certain segments on a total return basis, less preferred stock dividends and a
charge for the cost of equity capital. The firm's cost of equity capital is
currently estimated at 10.5%.
-- Corporate includes revenues and expenses related to Euroclear activities, as
follows:
In millions Third Third Second Nine Nine
Quarter Quarter Quarter Months Months
2000 1999 2000 2000 1999
-------------------------------------------------------------------
Total revenues $87 $58 $81 $244 $188
Total expenses 8 8 4 21 20
-------------------------------------------------------------------
Pretax income 79 50 77 223 168
-------------------------------------------------------------------
Required versus available capital
J.P. Morgan & Co. Incorporated
In millions Third Quarter Nine Months
2000 2000
--------------------------------------------------------------------------
Average common equity $11,030 $10,853
Trust preferred securities 1,150 1,150
Fixed and adjustable preferred stock 444 444
Other adjustments (101) (71)
--------------------------------------------------------------------------
Total available capital 12,523 12,376
--------------------------------------------------------------------------
Total required economic capital of
business segments 9,913 9,768
Corporate 1,272 1,282
Diversification (2,470) (2,521)
--------------------------------------------------------------------------
Total required economic capital 8,715 8,529
--------------------------------------------------------------------------
Excess available capital 3,808 3,847
--------------------------------------------------------------------------
Advisory and underwriting fees
J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
Advisory Underwriting revenue Total advisory and
In millions fees and syndication fees underwriting fees
--------------------------------------------------------------------------------
Third Quarter 2000 $ 195 $ 205 $ 400
Third Quarter 1999 204 194 398
Second Quarter 2000 249 219 468
--------------------------------------------------------------------------------
Nine Months 2000 680 731 1,411
Nine Months 1999 560 685 1,245
--------------------------------------------------------------------------------
<PAGE>
7
J.P. Morgan & Co. Incorporated
Financial Summary
J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
Dollars in millions, except share data
<TABLE>
Second
Third Quarter Quarter Nine Months
---------------------------- ----------- -----------------------------
2000 1999 2000 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income $514 $442 $542 $1,684 $1,546
Economic value added (EVA) - after taxes 227 84 258 843 564
Per common share:
Net income
Basic $2.97 $2.39 $3.10 $9.64 $8.33
Diluted 2.77 2.22 2.90 9.05 7.76
Dividends declared 1.00 0.99 1.00 3.00 2.97
Book value $62.31 $58.42 $60.76
--------------------------------------------------------------------------------------------------------------------------------
Common shares issued and outstanding
at period-end 159,770,014 174,880,978 159,869,519
--------------------------------------------------------------------------------------------------------------------------------
Weighted-average number of common
and dilutive potential common shares
outstanding 181,478,885 194,671,633 183,730,614 182,933,133 195,864,571
--------------------------------------------------------------------------------------------------------------------------------
Dividends declared on common stock $160 $174 $159 $482 $523
Dividends declared on preferred stock 10 7 10 29 25
--------------------------------------------------------------------------------------------------------------------------------
Annualized rate of return on average
common stockholders' equity 18.2 % 15.6 % 19.6 % 20.4 % 18.6 %
As % of period-end total assets:
Common equity 4.0 % 4.4 % 4.2 %
Total equity 4.3 4.7 4.4
--------------------------------------------------------------------------------------------------------------------------------
Regulatory capital ratios (a)
Tier 1 risk-based capital ratio 8.8 % 9.1 % 8.4 %
Total risk-based capital ratio 12.4 13.2 12.1
Leverage ratio 4.5 4.8 4.4
Risk-adjusted assets (a) 138,049 134,941 140,354
--------------------------------------------------------------------------------------------------------------------------------
Average balances
Debt investment securities (b) $5,851 $27,316 $7,263 $8,589 30,196
Loans 26,103 26,026 26,399 26,384 26,358
Total interest-earning assets 195,702 190,178 194,812 192,038 193,217
Total assets 270,425 255,909 271,254 267,390 264,009
Total interest-bearing liabilities 185,267 183,154 184,591 182,066 187,522
Total liabilities 258,701 244,141 259,663 255,843 252,369
Common stockholders' equity 11,030 11,074 10,897 10,853 10,946
Total stockholders' equity 11,724 11,768 11,591 11,547 11,640
Net interest earnings before credit loss 361 405 393 1,225 1,260
provisions (fully taxable basis)
Net yield on interest-earning assets 0.73 % 0.84 % 0.81 % 0.85 % 0.87 %
--------------------------------------------------------------------------------------------------------------------------------
Employees at period-end 17,044 15,287 15,988
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Regulatory capital ratios and risk-adjusted assets are estimates at
September 30, 2000.
(b) Average debt investment securities are computed on historical amortized
cost, excluding the effects of SFAS No. 115 adjustments.
<PAGE>
8
J.P. Morgan & Co. Incorporated
Consolidated statement of income
J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
<TABLE>
In millions, except share data
Three months ended
-------------------------------------------------------------------------------------
September 30 September 30 Increase/ June 30 Increase/
2000 1999 (Decrease) 2000 (Decrease)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest revenue
Interest revenue $3,354 $2,783 $571 $3,244 $110
Interest expense 3,004 2,394 610 2,865 139
----------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 350 389 (39) 379 (29)
Reversal of provision for loan losses (7) (45) 38 (4) (3)
----------------------------------------------------------------------------------------------------------------------------------
Net interest revenue after loan
loss provisions 357 434 (77) 383 (26)
Noninterest revenues
Trading revenue 852 424 428 906 (54)
Advisory and underwriting fees 400 398 2 468 (68)
Investment management fees 284 270 14 303 (19)
Fees and commissions 233 206 27 232 1
Investment securities (loss) / revenue (1) 271 (272) 128 (129)
Other revenue / (loss) 197 (a) (18)(a) 215 59 (b) 138
----------------------------------------------------------------------------------------------------------------------------------
Total noninterest revenues 1,965 1,551 414 2,096 (131)
Total revenues, net 2,322 1,985 337 2,479 (157)
Operating expenses
Employee compensation and benefits 1,118 889 229 1,097 21
Net occupancy 91 82 9 81 10
Technology and communications 247 229 18 246 1
Other expenses 153 141 12 236 (83)
----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,609 1,341 268 1,660 (51)
Income before income taxes 713 644 69 819 (106)
Income taxes 199 202 (3) 277 (78)
----------------------------------------------------------------------------------------------------------------------------------
Net income 514 442 72 542 (28)
Per common share
Net income:
Basic $2.97 $2.39 $0.58 $3.10 ($0.13)
Diluted 2.77 2.22 0.55 2.90 (0.13)
Dividends declared 1.00 0.99 0.01 1.00 -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes a reversal of provision for credit losses on lending commitments
of $29 million and $15 million for the three months ended September 30,
2000 and 1999, respectively.
(b) Includes a provision for credit losses on lending commitments of $37
million for the three months ended June 30, 2000.
<PAGE>
9
J.P. Morgan & Co. Incorporated
Consolidated statement of income
J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
<TABLE>
In millions, except share data
Nine months ended
---------------------------------------------------------
September 30 September 30 Increase/
2000 1999 (Decrease)
---------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue
Interest revenue $9,629 $8,253 $1,376
Interest expense 8,447 7,050 1,397
-------------------------------------------------------------------------------------------------------
Net interest revenue 1,182 1,203 (21)
Reversal of provision for loan losses (11) (150) 139
-------------------------------------------------------------------------------------------------------
Net interest revenue after loan
loss provisions 1,193 1,353 (160)
Noninterest revenues
Trading revenue 2,708 2,361 347
Advisory and underwriting fees 1,411 1,245 166
Investment management fees 863 776 87
Fees and commissions 749 611 138
Investment securities revenue 284 201 83
Other revenue 429 (a) 120 (a) 309
-------------------------------------------------------------------------------------------------------
Total noninterest revenues 6,444 5,314 1,130
Total revenues, net 7,637 6,667 970
Operating expenses
Employee compensation and benefits 3,515 2,955 560
Net occupancy 254 244 10
Technology and communications 751 707 44
Other expenses 604 419 185
-------------------------------------------------------------------------------------------------------
Total operating expenses 5,124 4,325 799
Income before income taxes 2,513 2,342 171
Income taxes 829 796 33
-------------------------------------------------------------------------------------------------------
Net income 1,684 1,546 138
Per common share
Net income:
Basic $9.64 $8.33 $1.31
Diluted 9.05 7.76 1.29
Dividends declared 3.00 2.97 0.03
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes a net provision for credit losses on lending commitments of $9
million and $20 million for the nine months ended September 30, 2000 and
1999, respectively.
<PAGE>
10
J.P. Morgan & Co. Incorporated
Consolidated balance sheet (preliminary)
J.P. Morgan & Co. Incorporated
<TABLE>
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In millions, except share data September 30 June 30 December 31
2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 881 $ 2,498 $ 2,463
Interest-earning deposits with banks 5,156 5,122 2,345
Debt investment securities available-for-sale 5,050 5,920 14,286
Equity investment securities 1,484 1,738 1,734
Trading account assets (including derivative receivables of $35,549
at September 2000, $39,115 at June 2000
and $43,658 at December 1999) 140,428 124,391 117,592
Securities purchased under agreements to resell ($42,713 at September 2000,
$41,910 at June 2000 and
$34,470 at December 1999) and federal funds sold 43,788 43,010 35,970
Securities borrowed 34,874 33,359 34,716
Loans, net of allowance for loan losses of $258 at September 2000,
$283 at June 2000 and $281 at December 1999 26,729 26,898 26,568
Accrued interest and accounts receivable 6,050 6,654 10,119
Premises and equipment, net of accumulated depreciation of $1,271 at
September 2000, $1,361 at June 2000
and $1,319 at December 1999 2,086 2,038 1,997
Other assets 15,155 14,695 13,108
------------------------------------------------------------------------------------------------------------------------------------
Total assets 281,681 266,323 260,898
------------------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits (including interest-bearing deposits of $38,402 at September 2000,
$43,873 at June 2000 and $43,922 at December 1999) 40,184 46,511 45,319
Trading account liabilities (including derivative payables of $37,886 at
September 2000, $40,193 at June 2000 and $44,976 at December 1999) 83,537 81,324 80,417
Securities sold under agreements to repurchase ($82,748 at
September 2000, $67,228 at June 2000 and
$58,950 at December 1999) and federal funds purchased 83,267 67,600 59,693
Commercial paper 12,124 8,152 11,854
Other liabilities for borrowed money 12,813 9,709 10,258
Accounts payable and accrued expenses 10,366 10,730 10,621
Long-term debt not qualifying as risk-based capital 16,486 18,025 19,048
Other liabilities, including allowance for credit losses of $134 at
September 2000, $163 at June 2000 and $125 at December 1999 4,801 6,383 5,897
------------------------------------------------------------------------------------------------------------------------------------
263,578 248,434 243,107
Liabilities qualifying as risk-based capital:
Long-term debt 4,991 4,988 5,202
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 1,150
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 269,719 254,572 249,459
Stockholders' equity
Preferred stock (authorized shares: 10,000,000)
Adjustable rate cumulative preferred stock, $100 par value (issued: 2,444,300) 244 244 244
Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250 250
Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200 200
Common stock, $2.50 par value (authorized shares: 500,000,000; issued:
200,998,455 at September 2000, June 2000 and December 1999) 502 502
Capital surplus 1,211 1,229 1,249
Common stock issuable under stock award plans 2,157 2,152 2,002
Retained earnings 12,052 11,717 10,908
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 25 53 44
Foreign currency translation, net of taxes (15) (14) (18)
------------------------------------------------------------------------------------------------------------------------------------
16,626 16,333 15,381
Less: treasury stock (41,228,441 common shares and 15,000 preferred shares at September 2000,
41,128,936 common shares and 15,000 preferred shares at June 2000 and 36,200,897
common shares at December 1999) at cost 4,664 4,582 3,942
------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,962 11,751 11,439
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 281,681 266,323 260,898
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11
Credit Exposures (preliminary)
J.P. Morgan & Co. Incorporated
Credit exposure (preliminary)
<TABLE>
September 30, 2000 December 31, 1999
--------------------------------- ---------------------------------
In billions Carrying value Fair value Carrying value Fair value
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Derivatives $35.5 (a) $35.5 $43.7 (a) $43.7
Loans and lending commitments 26.6 (b) 26.7 26.4 (b) 26.5
----------------------------------------------------------------------------------------------------------------------
Total credit exposures (c) 62.1 62.2 70.1 70.2
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Carried at fair value on the balance sheet with changes in fair value
recorded in the income statement. Includes credit valuation adjustment as
of September 30, 2000 and December 31, 1999 of $617 million and $670
million, respectively.
(b) Amount net of allowance for credit losses of $392 million as of September
30, 2000 and $406 million as of December 31, 1999. Carrying value excludes
the notional value of lending commitments, which are off-balance-sheet
instruments.
(c) Substantially all credit risk related to derivatives, loans, and lending
commitment exposures are managed by the Credit Markets segment.
Credit exposure before and after collateral (preliminary)
<TABLE>
After collateral and(b)tting
-----------------------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999 September 30, 2000 December 31, 1999
In billions Gross Exposure Gross Exposure Net Exposure Net Exposure
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Derivatives $35.5(a) $43.7(a) $30.2(a) $37.7(a)
Loans (c) 27.0 26.8 18.8 18.9
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the benefit of master netting agreements of $79.9 billion and
$94.0 billion at September 30, 2000 and December 31, 1999, respectively.
(b) Collateral held consisting of highly rated liquid securities (U.S.
government securities) and cash was as follows: derivatives - $5.3 billion
(September 30, 2000) and $6 billion (December 31, 1999); and loans - $8.2
billion (September 30, 2000) and $7.9 billion (December 31, 1999).
(c) Before allowance for credit losses.
Counterparty credit quality (preliminary)
<TABLE>
Loans and lending
Derivatives commitments
---------------------------------------- ------------------------------------------
September 30, 2000 December 31, 1999 September 30, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA, AA 52% 52% 42% 43%
A 34 31 31 29
BBB 9 12 16 18
BB or below 5 5 11 10
----------------------------------------------------------------------------------------------------------------
100 100 100 100
----------------------------------------------------------------------------------------------------------------
</TABLE>
Estimated percentages of credit exposures by counterparty credit rating based on
internal credit ratings. Ratings of AAA, AA, A and BBB represent
investment-grade ratings and are analogous to those of public rating agencies in
the United States. Credit exposures reflect the benefits of master netting
agreements, collateral, and purchased credit protection (i.e. credit
derivatives).
Equity investment securities
J.P. Morgan & Co. Incorporated
The following table shows gross unrealized gains and losses, a comparison
of the cost, fair value and carrying value of marketable, nonmarketable,
and SBIC (small business investment company) securities portfolios of J.P.
Morgan consolidated. A substantial portion of these are included in our
Equity Investments segment.
<TABLE>
In millions: September 30 Marketable Nonmarketable SBIC securities
----------------------------------------------------------------------------------------------------------------
Accounting Fair value through equity Cost Fair value through earnings
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost $198 $774 $303
----------------------------------------------------------------------------------------------------------------
Gross unrealized gains 36 88 185
Gross unrealized losses (12) (13) -
----------------------------------------------------------------------------------------------------------------
Net unrealized gains 24 75 185
----------------------------------------------------------------------------------------------------------------
Fair value 222 849 488
----------------------------------------------------------------------------------------------------------------
Carrying value on balance sheet 222 774 488
----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
12
J.P. Morgan & Co. Incorporated
Asset Quality
Impaired loans
J.P. Morgan & Co. Incorporated
<TABLE>
September 30, June 30, September 30,
In millions 2000 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans:
Commercial and industrial $113 $122 $131
Other 15 18 38
-----------------------------------------------------------------------------------------------------
Total impaired loans 128 140 169
-----------------------------------------------------------------------------------------------------
</TABLE>
Allowances for credit losses
J.P. Morgan & Co. Incorporated
<TABLE>
Allowance for loan losses
-----------------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months Ended Third Quarter Nine Months Ended
In millions 2000 September 30, 2000 1999 September 30, 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $283 $281 $335 $470
-----------------------------------------------------------------------------------------------------------------------------
(Reversal of provision) for loan losses (7) (11) (45) (150)
-----------------------------------------------------------------------------------------------------------------------------
Recoveries - 12 17 23
Charge-offs: (a)
Commercial and industrial (5) (5) (6) (16)
Other, primarily other financial institutions (13) (19) - (26)
-----------------------------------------------------------------------------------------------------------------------------
Net (charge-offs) / recoveries (18) (12) 11 (19)
-----------------------------------------------------------------------------------------------------------------------------
Ending balance 258 258 301 301
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Charge-offs include losses on loan sales of $6 million for the three and
nine months ended September 30, 2000. Charge-offs include losses on loan
sales of $3 million for the three months ended September 30, 1999.
Charge-offs include losses on loan sales, primarily banks and other
financial institutions, of $33 million for the nine months ended September
30, 1999.
<TABLE>
Components of the allowance for loan losses
--------------------------------------------------------------------------------------------------
September 30, June 30, September 30,
In millions 2000 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specific counterparty components in the U.S. $ 6 $ 9 $ 9
Specific counterparty components outside the U.S. 65 66 23
--------------------------------------------------------------------------------------------------
Total specific counterparty 71 75 32
Expected loss 187 208 269
--------------------------------------------------------------------------------------------------
Total allowance 258 283 301
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Allowance for credit losses on lending commitments*
-----------------------------------------------------------------------------------------------------------------------------
Third Quarter Nine Months Ended Third Quarter Nine Months Ended
In millions 2000 September 30, 2000 1999 September 30, 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $163 $125 $160 $125
-----------------------------------------------------------------------------------------------------------------------------
(Reversal of provision) provision for credit losses (29) 9 (15) 20
-----------------------------------------------------------------------------------------------------------------------------
Ending balance 134 134 145 145
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Components of the allowance for credit losses on lending commitments*
-----------------------------------------------------------------------------------------------------
September 30, June 30, September 30,
In millions 2000 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Specific counterparty components in the U.S. $ 2 $ 19 $ 20
-----------------------------------------------------------------------------------------------------
Specific counterparty components outside the U.S. 4 4 3
-----------------------------------------------------------------------------------------------------
Total specific counterparty 6 23 23
-----------------------------------------------------------------------------------------------------
Expected loss 128 140 122
-----------------------------------------------------------------------------------------------------
Total allowance 134 163 145
-----------------------------------------------------------------------------------------------------
* Includes commitments to extend credit, standby letters of credit, and guarantees.
</TABLE>
