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<PAGE>
Date: October 19, 2000
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 Reports on Forms 10-K 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) and in Chase's
Registration Statement on Form S-4 referred to below.
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.
[The following is a transcript of a joint meeting and conference for the
investment community reviewing third quarter financial results and providing a
merger update.]
<PAGE>
1
J.P. MORGAN & CO. INCORPORATED
THE CHASE MANHATTAN CORPORATION
THIRD QUARTER 2000 FINANCIAL RESULTS
October 18, 2000
11:00 a.m.
<PAGE>
3
MR. SHAPIRO: Good morning, my name
is Marc Shapiro, I'm happy to welcome you
to the first joint conference between J.P.
Morgan and Chase in which we discuss our
earnings results. One of us at least has
some good results to report. We will be
letting David Sidwell go first in that
regard.
Dina Dublon will then discuss the
Chase results, I'll come back up here and
talk a little bit about how we see the
merger going and really some more
discussion about the merger and then we'll
all be available, along with a number of
our other associates from senior management
of both companies, to respond to your
questions.
Because of the crowded agenda of
presentations and because of the number of
topics we're going to cover and because of
the questions we think we're likely to get,
<PAGE>
we will probably run a little bit longer
than the hour that we normally allot for
this. If those of you in the audience need
4
to leave sooner we'll understand that.
David, if you will lead off.
MR. SIDWELL: Thank you Marc. Let
me begin with the obligatory disclosure.
If you picked up the materials, you can see
it actually on page 2. Obviously this is
aimed at making sure that we make you aware
that the targets may differ from the actual
results and are subject to the risks and
uncertainties that we laid out in our
annual reports.
Let me then turn to page 5, earnings
were $514 million, earnings per share of
$2.77 cents grew 25 percent from a year
ago. Earnings and EPS are down modestly
from the second quarter of this year.
Return on common equity was 18 percent.
After-tax economic value added, or EVA, was
<PAGE>
$227 million, up $143 million or 170 percent
from a year ago.
Diversification across markets,
products and regions produced solid results
for the quarter. Total revenue of $2.3
billion rose 17 percent from a year ago.
5
Core operating expenses of 1.6 billion were
up 20 percent. The drivers were higher
performance-driven compensation, in line
with stronger performance, growth in
Investment Banking and Equities as we added
people to support the expansion of these
businesses, and the continued investment in
corporate initiatives, such as LabMorgan and
the private banking initiative.
The quarter's efficiency ratio was
69 percent, driven by the increase in
compensation expense.
Let me move onto the segment results,
which are on page 6. Looking first at
client focused activities. Our businesses
<PAGE>
delivered solid results in the quarter.
Combined EVA was $304 million, revenues
increased 19 percent year over year and
were flat with the second quarter.
Revenues drove the changes in pre-tax
income and EVA.
Let me drill down into the revenue
trend by segments, starting with asset
management services. This business
6
reported revenues of $390 million, up $40
million from a year ago, driven primarily
by growth in private banking revenues.
Revenues from institutional
investment management and our equity
investment in American Century also
increased. Assets under management of $373
billion were up 15 percent from a year ago.
The increase equally divided between net
new business and market depreciation. In
addition, there were $114 billion of assets
under management in American Century, our
<PAGE>
investment in American Century as you remember
is 45 percent.
Investment Banking revenues were
$426 million. All activities -- advisory,
debt and equity capital raising and
derivatives origination activities --
contributed to the $60 million increase
from a year ago. Revenues were flat with
the second quarter as an increase in
derivatives origination offset a modest
decline in advisory.
Our year-to-date market share and
7
worldwide completed M&A was 16 percent.
While our completed advisory activity
slowed this quarter from a record level in
the second quarter, we saw a meaningful
pickup in our global advisory pipeline. It
is currently as strong as it has ever been.
Conditions in the debt markets
improved, resulting in higher underwriting
revenues compared to the second quarter.
Equity underwriting revenues, however,
<PAGE>
were flat with the last quarter.
As you know, our strength is
executing large, global transactions.
Several deals were postponed during the
quarter because of issuer-specific
strategic decisions. We continue to have a
healthy pipeline, although obviously
execution will depend on the market
environment. For the nine months we ranked
sixth in the U.S. in lead equity underwritings.
Equities reported revenues of $448
million. While down modestly from the
second quarter, equity derivative revenues
were the main contributor and continued
8
this year's trend of very strong results.
Cash equities revenues were up modestly
versus the second quarter, driven by volume
growth in North America. Compared to a
year ago, cash equities were up
significantly as we continued to reap the
benefits of our investment in this
business, both in the U.S. and Europe.
<PAGE>
Interest rate and currency markets
reported $426 million in revenues.
Derivatives were the story, with the
increase driven by trading gains which more
than offset weaker client demand from
issuers and investors.
Finally, credit markets revenues of
$346 million were flat with the second
quarter. Higher revenues from debt
syndication, and structured finance
activities, as well as trading, were offset
by approximately $100 million in mark to
market losses recorded on an equity
position taken in a debt restructuring of a
U.S. retail distribution company. Our
credit portfolio revenues were unchanged.
9
Let me turn now to our proprietary
segment which is on page 7. We had
divergent trends in the two businesses. Equity
Investments revenues were $14 million,
substantially lower than previous quarters.
<PAGE>
Realized gains of $118 million were offset
by losses from mark-to-market depreciation
on an investment in the telecommunications
industry. Fair value for our
investment securities portfolio at
quarter-end was $1.6 billion, including
approximately $280 million in net
unrealized gains.
The proprietary positioning business
posted very strong results for the third
straight quarter, reporting revenues at
$310 million. These results were driven by
excellent performance in fixed income and
equity relative value portfolios both here
in the U.S. and Europe. As we have stated
before, this business activity was
restructured late last year to focus more
on relative value strategies and to reduce
capital dedicated to significant
10
directional risk positions.
Required capital for this
<PAGE>
segment was reduced in late 1999; it
averaged about $350 million in this
quarter, compared to $1.5 billion in the
prior year's quarter.
Let me say a few words about
year-to-date, which is on page 8 in the
book. After-tax EVA rose 49 percent to
$843 million. EPS was $9.05 per share, up
17 percent. Return on equity was 20
percent, with an efficiency ratio of 67
percent. Revenues were up 15 percent to
$7.6 billion on strength in Equities,
Investment Banking, Asset Management and
Proprietary.
Expenses of $5.1 billion increased
18 percent on similar trends as in the
quarter-higher compensation expenses driven
by stronger performance and the addition of
personnel in Investment Banking and
Equities and the corporate e-finance
initiatives.
The tax rate in the quarter was 28
11
<PAGE>
percent, which was necessary to bring our
effective rate for the year to 33 percent,
which is our current estimate of the full
year 2000 rate.
Let me finish with a few comments on
credit quality. Overall, the credit
quality in the portfolio was relatively
stable through the second quarter,
non-investment grade credit risk being less
than 10 percent of the total credit
portfolio. You can see the split on the
slide between derivatives and loans and
commitments.
Charge-offs on loans were $18
million, primarily to one U.S. health care
industry name. Non-performing loans
declined by $12 million to $128 million.
Finally we had a negative provision for
credit losses of $36 million in the
quarter.
MS. DUBLON: Our story is a little
bit longer and it's a little bit longer
because it's not as good. As you know, the
more complicated, the longer it takes to
<PAGE>
12
explain it. This was a disappointing
quarter for us and we luckily do not have
many of those. The key drivers behind
earnings this quarter is private equity,
where we had large unrealized mark-to-
market write-downs of $560 million. In
Investment Banking we had expense growth
that significantly exceeded revenue growth.
The issue, however, is expenses,
it's not market or credit risk. All other
businesses had very good results, Wealth
Management, Operating Services and
Consumer.
Over the last year we have taken
many and significant actions to reposition
the company for a long-term competitive
advantage and higher growth rates. This
quarter's results should not overshadow this
progress.
Private equity first. Realized cash
gains have grown and are significant. For
the quarter, $538 million, and year-to-date,
$1.2 billion. However, unrealized gains
have clearly been volatile over recent
<PAGE>
13
quarters. $560 million negative this
quarter and, not on this slide, almost $1
billion in the fourth quarter of last year.
This is not a business for the faint
hearted or for those obsessed with
quarterly accounting results.
If we had the option of available-for-
sale accounting here, as we have for our
investment securities portfolio, we would
have had close to $600 million more in
pre-tax income or another 30 cents a share.
The unrealized pre-tax write-down of $560
million would be taken against equity and
offset almost dollar-for-dollar the $550
million improvement in the value of the
investment securities portfolio this
quarter. How many of you have noticed that
improvement?
In any event, it's a very different
report card on exactly the same facts.
Accounting does matter. It definitely
seemed to matter in terms of perceptions.
<PAGE>
For this business, however, reported
earnings are not a good gauge for value
14
creation. So is it a good business for our
shareholders. The point that seems so
difficult to get across is that the quoted
market value of the public securities
portfolio is still, after the price
declines, almost four times the cost of the
investments we made. We carry these
investments at a $1 billion discount from
the quoted market value because of our
restrictions on our ability to sell.
Let me be more specific with an
example, an example that was in the media
this morning. The cost basis for Triton
and Telecorp in our public securities
portfolio is $58 million, that's the money
we put in. Let me round it to $60 million.
The market value of those two securities at
September 30 was rounded to $600 million.
On June 30 it was $1.2 billion. So this
<PAGE>
quarter we reported a large unrealized
loss, most of the decline that you see in
our private equity business.
Are these good investments? We have
written them up and we have written them
15
down. We haven't sold, but to date it
looks pretty good. The public securities
portfolio is only 20 percent of the total.
It gets more attention than the other 80
percent that is generally carried at cost
and is really where most of the value of
the business resides.
You have seen this slide before, it
shows cash on cash returns on liquidated
investments by crop year, the year in which
investments were made. Over the whole
period we have 43 percent compound annual
cash on cash return. Management are
partners in the investments we make. They
are compensated on the basis of cash
returns, not on accounting and unrealized
<PAGE>
gains. There is no incentive to accelerate
sales. We continue to be very positive on
the potential for good cash returns going
forward.
In Investment Banking- revenues are up
16 percent, earnings are down 9 percent.
We have a higher overhead ratio, lower
return on equity and lower shareholder
16
value added, reflecting higher equity
allocation to support the acquisition
planning. Expenses are too high, we know it
is unsustainable and are committed to
return to more disciplined spending. We
have, however, made huge progress this past
year in building the platform for execution
in the TMT (technology, media and telecomm)
sector, M&A advisory, as well as in Asia.
With the merger we will be
addressing the expense issue in a broader
context. I want to use a quote from Sandy
Warner to our board yesterday. What he
said was "Together we are ready and
<PAGE>
committed to move from a transform to a
perform stage."
Revenues were softer than the second
quarter. Trading revenues were flat its last
year and under the second quarter,
reflecting lower market volatility, lower
volume and client spreads in effect in
derivatives, yet we had no unusual activity in
trading, we had zero days this quarter--I
repeat, zero days--with trading loss, better
17
performance than in the prior four
quarters.
Syndication fees and high yield
underwriting, in total about 30 percent of
our Investment Banking fees, are close to 40
percent lower than last year because
markets are slower, not because we lost
share.
Advisory, equity underwriting, high
grade bonds, project finance, private
placements are all significantly higher,
<PAGE>
reflecting the progress we have made.
Flemings had a good two months in
Investment Banking. Their expense ratio is
higher, but they are not the key
contributor to the expense imbalance you
see this quarter.
The deal pipeline, as David
commented on Morgan, is very strong; we are
looking for stronger Investment Banking
fees in the fourth quarter.
A few comments about the Morgan pro
forma results. Combined for the third
quarter we will have, we do have $1.5
18
billion in trading revenues and $1 billion
in Investment Banking fees. In both cases
just number 3, behind Goldman and Morgan
Stanley, so this is where we are on the
scale front.
Two, we had a more diversified
earnings stream, being able to better
counterbalance slower leveraged finance
<PAGE>
markets with equity and equity derivatives.
Our pro forma decline from the second
quarter is more moderate and the growth
from last year more pronounced than most of
our competitors. We will have higher
revenue growth without the necessity to
spend to build capabilities we each don't
have on our own.
You cannot yet see the impact of
lower spending or the impact of the
combined capabilities and clients on the
revenues. Clients though are requesting
and embracing joint pitches. Marc will
elaborate on that later. Our credit
philosophy and practices have held us in
good stead, commercial charge-offs are low
19
this quarter as well as year-to-date. We
continue to be comfortable with the lower
end of our expected loan loss range of 40
to 60 basis points. Non performers, both
commercial and consumer, are down. The
<PAGE>
absolute level and percentage to assets is
low. We can see fluctuations quarter to
quarter, but don't expect significant
changes from the level we are at.
Pro forma for Morgan, our credit
exposure and credit revenues are a much
smaller percentage of capital assets or
revenues. It's more biased toward
investment grade and, as we have said
before, should continue to decline.
Wealth Management includes our
Global Private Banking and Asset Management
businesses. It includes two months of
Flemings results. Private banking had a
great quarter, with over 30 percent revenue
growth. The momentum is strong. The bottom
line reflects large investments in
technology, internet and talent. We have
kept here a better pay-as-you-go expense
20
discipline than we have in the Investment
Bank.
<PAGE>
Total assets under management are
over $300 billion. For mutual fund and
institutional assets under management, of
$180 billion, we had net cash inflows of
$4.6 billion over the period. Operating
cash income is up, but will be burdened
this and next year by amortization of
retention bonuses.
Equity against goodwill is up on
average $2.7 billion for the business, lowering
return on equity and shareholder value
added. With pro forma assets under
management of approximately $750 billion,
we will be a formidable competitor.
Global operating services had record
earnings. Revenue growth in our trustee and
custody businesses are double digits for
the quarter and year-to-date. Revenues
from cash management services are low
single digits, as they have been for the
whole year. The focus on operating
leverage has fueled over 20 percent growth
21
<PAGE>
in the bottom line for all three businesses
for the quarter and year-to-date.
This roughly $3.5 billion revenue
franchise should continue to see
double-digit revenue growth, improved
efficiency and growing market share in a
consolidating environment. It is a gem.
We have many opportunities for synergies
here as well between the equity derivatives
business that Morgan brings and our custody
business.
For the consumer businesses, bottom
line results were strong across the board.
Let me pick up on just two of them. Credit
cards - revenues are flat year over year,
but we have 6 percent revenue growth from
the second quarter. In the quarter we have
acquired record new accounts and now have
three-month sequential growth in card
outstandings, reflecting the benefit,
among other things, of the new management.
In Chase Home Finance we have mixed
trends. In the quarter we had
significantly higher servicing fees.
<PAGE>
22
mortgage originations, however, were 20 percent below
last year and we realized gains on
securities that were hedging our mortgage
servicing rights. In total for the
consumer businesses, revenue growth was anemic with
income growth of 13 percent, driven by
declining credit costs and expense
management.
Shareholder value added is up, and
you can see both from the overhead ratio and
return on equity, that the franchise is very,
very profitable--24 percent return on equity.
We have been judiciously taking actions to
rationalize the business by divesting where we cannot
sustain competitive advantage and investing
where we believe we can.
Over the last twelve months we have
sold some upstate branches, our business in
Beaumont, Texas, Panama and we announced
exit from Hong Kong. At the same time we
have acquired portfolios in credit card and
mortgage businesses. We have invested in
our electronic brokerage of Brown & Company
<PAGE>
23
and see opportunities to leverage Flemings
asset management, as well as Morgan on-line
content with affluent consumers. We
continue aggressively with our Chase.com
initiatives.
Mortgage banking may introduce some
volatility from quarter to quarter, but the
momentum here is very good and David
Coulter is confident we can grow the bottom
line and maintain a very high profitability
level in the business.
How does it all sum up? This is not
an easy quarter. We had the volatility of
Capital Partners, as well as acquisitions
for which investors and analysts don't have
a good history. Operating earnings per
share of 68 cents is 24 cents lower than
last year. That's the starting point and it
is disappointing. Chase Capital Partners
unrealized write-downs cost us 23 cents
over last year. The rationale for
<PAGE>
separating earnings from Capital Partners
is that earnings are not an adequate means
to value the business.
24
With the acquisitions, amortization
of intangibles has more than doubled to 11
cents this quarter. Flemings is in our
numbers as I said for two months. The deal
was non-dilutive to cash earnings per share
in the quarter. Flemings earned for the
two months $52 million in after-tax cash
income after absorbing $48 million in
retention bonuses, but before goodwill.
This is an annualized rate -- all I'm
doing is multiplying it by 6 -- this is an
annualized rate of $500 million before
retention bonuses and $310 million net of
the retention bonuses.
Cash operating results, excluding
Capital Partners, were 88 cents or 4 cents
higher than last year. 5 percent growth is
<PAGE>
not great, it is disappointing to
management, to all of us, but it is also
not as terrible as the first impression.
Our long-term business outlook is
unchanged. Nothing in this quarter points
to a fundamental impairment of our business
franchise. Over the last twelve months, as
25
I have pointed out, we have significantly
repositioned the company. Marc will
address where we are and the progress we
are making with Morgan. Thank you.
MR. SHAPIRO: Thank you Dina. I
would like to turn my attention for a
moment to the merger transaction, because I
think it is one of the most important
things affecting both of our companies and
our valuation of our stock.
I would like to talk about it
focusing on three issues. One is price,
because there have been a lot of commentary
<PAGE>
and questions about price and I want to
address that issue. The second is
synergies, because I think that has a lot
to do with whether the deal pays off or
not. Finally, some comments on execution
and where we are in the transaction right
now.
Let me start with price. Many
people have asked whether in pricing this
transaction we have gone away from our
focus on SVA and capital discipline. Let me
26
tell you how I feel about that. I do not
believe that SVA is a good method for
valuing transactions of this type. Why did
we develop SVA and why do we use it as a
concept? The reason really was so that
units of the company can make the same
trade-off that we can at a corporate level
about the use of capital and the earnings
on that capital.
<PAGE>
We can make the trade-off at the
corporate level because we have a measure
called earnings per share and we can affect
earnings per share by re-buying stock.
Units of our business don't have that
option.
SVA is a means to an end and there
is only one end for any corporate business
and that's increasing valuation. I believe
that increasing valuation is driven by
increasing cash flow per share and earnings
per share. That is the means to the end.
SVA is a way of apportioning that
decision-making process out among units of
a business, so that they can make
27
appropriate trade offs between investment
of capital and the return on that capital,
and that's what we use it for.
I think it works well for small
acquisitions where we can assign the good-
<PAGE>
will to the unit that's doing it and make
sure that they have to have an earnings
requirement on that goodwill, so it works
well for small acquisitions. But when you get
to a large corporate acquisition with a lot
of shares, the issue really for me is what
do those shares do in terms of the growth
rate in earnings per share and the discount
rate on the uncertainty that you apply to
that future growth rate.
So I start with the simple
proposition--which is one way to measure
that is dilution to earnings per share.
This slide is a little bit different than
the one you have in the book because we had
used a different consensus EPS, the one we
should have used and the one we are using
now is before the transaction with Morgan,
so not reflecting any potential dilution.
28
On that basis and on the shares that
<PAGE>
we have to issue in the transaction, we
would need to cover synergies of about $.9
billion, a little bit less than a billion
dollars. What we said in our earlier
estimate was a conservative belief on an
after-tax basis that we can get to $1.2
billion. The way we got to that number was
simply on a conservative estimate of could
we cover the dilution. We can and we will
and I'm going to go into greater detail on
that point later.
The real point is if we can cover
the dilution, then what we will have within
18 months is a company that has as strong
earnings per share as we had before, a
higher growth rate potential on that
earnings per share, less risk because of
the greater diversification of risk and
therefore, in my mind, a lower discount
rate applied to that future growth rate and
earnings per share.
Finally, we won't have to wait very
long to find out if we're right or wrong
<PAGE>
29
about this. This is not a deal that
depends on 10 year growth rates to equalize.
We will know the answer to this question in
a year and I predict that the answer will
be very positive.
The third element that I want to
talk about on price is premium. Some
people say well, it's a great deal, but you
paid too much over the market. Well, the
observation I would make about that is we
looked at exchange ratios. Exchange ratios
vary a great deal from point to point in
time and the market has its own way of
valuing things, and then we're trying to
look more intrinsically at what long-term
values are.
It is not clear to me that if we had
the hypothetical alternative of paying no
premium for another securities firm that
was trading at a higher price-earnings
ratio than the price-earnings ratio we
actually paid for this securities firm,
that we would have had a better
transaction. It might have looked better
<PAGE>
30
because there was no premium, but in our
view, the degree of synergies that we would
have had to overcome would have been
greater and our ability to execute on
developing those synergies would have been
more difficult.
So I'm very comfortable with the
pricing here because we believe it works
out to the benefit of our stockholders.
Finally, there is this question
about timing. The accusation that whether
it's with H&Q, with Flemings or with
Morgan, that we are buying at the top of
the securities market. Well, in the first
place I don't exactly know where the top
is, I have to confess to that and those of
you who do, I wish you would stand up so we
can talk about it.
What I do know is that we take a
long-term view of markets. We believe that
the markets for new economy securities,
<PAGE>
that the markets for Asian securities and
that the markets for equity securities more
broadly in the U.S. and in Europe are fast
31
growing markets and will be for the next
ten to twenty years. Having a broad-based
platform to participate in those markets we
think is a good business proposition.
We don't know exactly where the top
is, but we do believe that we've covered
our risk to some degree by pricing the
bigger transactions with shares that
fluctuate in value, depending upon how the
market fluctuates, and we believe that over
the long term we will be rewarded with
these transactions.
Let me talk about synergy, because I
think that's an important part of the
immediate reward. Synergy falls into two
categories, expenses and revenue. On the
expense side, what we have been doing is
<PAGE>
looking over the last three weeks, since
really the merger planning began, at doing
a much more careful detail of where the
expense synergies were coming from -- try to
map one unit against another comparable
unit, assign them to managers -- we have
many managers now in place for the combined
32
units -- say let's get a much more careful
handle on what the synergy could be.
We haven't completed that process,
when we do we will probably come back and
tell you what we think it shows, but it is
quite clear that it will show that the
numbers that we have given you so far are
very conservative.
Let me give you two examples that I
think illustrate the point. In the back
office processing units of all of our
securities systems and all of our heavy
transactional flow businesses, generally
<PAGE>
speaking, one or the other of us has a much
higher volume than the other, yet we all
have to process all the transactions.
In one particular back office
processing unit for Morgan that does a lot
of their processing volume, expense is
about $30 million. Our view is that we can
add that on incrementally to the platform
we have at Chase for about $3 to $5
million. We can apply that kind of logic
across a whole range of back office
33
processing. I'm not suggesting they will
all be 90 percent, but I do think there
will be significant back office savings.
On the front office, if you looked
at the two companies combined, to take one
other example, we have 600 M&A bankers, we
do not need 600 M&A bankers to have a first
class, top tier, number one M&A practice.
There are significant opportunities for
savings and we have a management group that
<PAGE>
is committed to finding those savings.
On the other hand, we also think
that there is huge revenue opportunity.
The revenue opportunity comes in several
forms. Many of you I think do judge a
securities firm on the basis of M&A and on
the basis of the equity platform. On that
we're already a fully formed company. In M&A,
depending on how you measure it, the
combined companies are No. 4 in terms of
the value of announced transactions, No. 2
in number of transactions and No. 3, I believe,
in the fee revenue that are derived
from those transactions. That's where we
already are today.
34
In September, of the fifteen largest
transactions announced worldwide, we
advised on one side or the other on eight
of those. Of the six of those that were
outside of the United States we advised on
<PAGE>
five of those. We have a fully formed
practice that is producing today at a very
high level in M&A.
On equity platform it's harder to
see because we put together a lot of pieces
recently--Flemings and Morgan and H&Q all
coming together. Together we have over 700
salespeople, we have over 500 equity
research analysts, we cover almost 5,000
companies. We have a big business today.
It is not as strong as M&A on the league
tables today, but that's because none of
these businesses have had the advantage of
having the platform that we have against a
large client base that we now have
together. It's my prediction that within a
year you will see significant improvement
in league table standings.
Despite the fact of the importance of
35
M&A and equities, the real juice in this
<PAGE>
merger is selling products that one company
has to the other's clients, and a lot of
those products, to use a simple example,
are going to be selling structured
derivative products to everybody at Chase
that takes out a syndicated loan, because
in one way or another, most of those people
have a need.
We have found very little client
overlap. As a matter of fact, we looked at
2400 of our core clients in the United
States and we found that the overlap among
those 2400 was about 10 percent, and this
shows the different industry groupings that
we have, but generally across the board it
runs about 10 percent.
In Asia we looked at our top 20
clients on each side and we have one
overlap. There is very little overlap here
and the real juice in this merger is going
to come from the product strengths of one
company and the clients of the other -- that
is going to produce a lot of synergies.
<PAGE>
36
We know that because the reaction
from clients is already very strong. Where
we have a client that knows that we have
these joint capabilities or the
capabilities of the other firm and they
request us, we can make a joint pitch
already to those clients. In the three
weeks since we started working together we
made 54 joint pitches, we have won 19 of
those -- that's a higher batting average than
either of us would have had on our own.
Many of those deals we would not
have won on our own. We would estimate
that the incremental fees that are
associated with just those transactions,
over and above what we could have done on
our own, is in excess of $50 million. We
have 75 more pitches scheduled in the next
three weeks. This is a huge value adding
transaction and we haven't even merged yet.
There is going to be a lot of revenue
produced. We see similar opportunities
already in the private banking activity
where together we are the largest private
<PAGE>
37
bank in the United States.
Finally a word on execution. It is
helpful to have done these before. They are
very large and very complex and knowing
what's coming and knowing how to get it
organized is a big assist. We have a team
in place that's fully staffed across each
of our business units. We have an overall
coordinating team in place. We have filed
all of our regulatory applications. We are
expecting to close in the first quarter,
but we are preparing ourselves to close by
year-end if we are able to get approvals to
do that.
We have made a lot of progress on
naming jobs. The 35 top jobs in this
company were named on the first day of
announcement. Since then we have named
about the same number of jobs in many of
our key staff areas. We expect this week
to announce over 250 jobs in the Investment
<PAGE>
Bank and in the Private Bank -- most of the
key headline of reports. We have
moved faster in this merger than we have in
any of the others, because we understand
38
the importance of speed and because we
think that helps us execute in a much
crisper manner. We are extremely positive
about this merger.
Before I close I would like to say
one other word to our investors and to
those of you who have recommended our
stock. We understand that you put a great
deal of trust in us by your actions in
doing that and we also understand that at
least as of today that has not worked out
as well as we would like for many of us.
We are not a management that is not mindful
of the responsibility you have placed with
us and we understand the importance of it.
It is our view that there will be a time
when everybody who has invested in our
<PAGE>
stock at whatever price they have invested,
will view it as a good investment.
We can't control the market, but we
can control our performance and what we do
about it and we are very committed to
performing at a top tier level that will
justify the confidence of the market and
39
justify your confidence in us.
With that I would like to close and
throw it open for questions, both to those
in the room and those on the telephone. I
am joined by a number of senior associates
here from both J.P. Morgan and from Chase
and I will properly deflect all the
difficult questions.
QUESTIONER: First, in terms of
possible revenue losses that you have
looked at up front in the merger, and whether
there is any update in terms of overlap
there. Secondly, you alluded to or you
<PAGE>
referenced I think an ability to slow
underlying -- investments of Chase going
forward, I wonder if you can give us some
thoughts of how that's going to influence
the expense growth rate. I'm curious where
J.P. Morgan stands today in terms of targeted
proprietary revenues versus total. That number
has been coming down for a long time and now
we have three quarters of high proprietary
profits. What is a normalized way to think
about proprietary income on the Morgan side?
MR. SHAPIRO: My problem is always
40
remembering all these questions that you
asked, so if I forget one along the way I
will start over. I'm going to answer the
second one and let Don Layton answer the
first. Most of the concerns about revenue
losses have been focused on the trading
side and that's where it is so I'll let Don comment.
In terms of expenses, I think it's clear that there is
an awful lot of expenses that we can avoid.
<PAGE>
One small example, as it happens, is
that we both occupy the same building in
Tokyo. We were preparing to build an
equity trading floor on the 13th floor and
Morgan was preparing to build one on the
14th floor. I think we can only build one
now.
Another example is the significant
amount of money that we were committed to
spend to build up our equity derivatives
business and to build up our platform more
broadly in Europe. In both cases, Morgan
brings world class capabilities and we
won't need to spend that money.
I think it will be difficult to
41
track exactly the slowdown in expense
growth that comes from expense avoidance as
we get to the new firm, because we're only
going to be showing combined results and
you're also going to be getting the benefit
<PAGE>
of synergies and I don't know quite how to
plug it in the models.
I will say if we had not done this
merger we would have slowed the growth rate
in expenses, because we are committed to a
long-term balance between revenue growth and
expense growth. Don, if you want to comment
on the revenue loss risk, especially in the
trading areas.
MR. LAYTON: Let me give you some
background I embarrassed myself in our first
two mergers because when we did our planning
I predicted that trading revenues would drop
before they went up again, because of issues of
counterparty credit and overlap and such, and
was proved wrong in both cases as revenues took
off, because any of those negative impacts were
quite modest versus the strategic benefit of
being able to handle more size, be a bigger
factor in the market, capture more of the
bid-offer spread, as you have higher volumes
coming
42
through the same trading organization.
<PAGE>
I'm very reluctant at this merger to
talk about revenue loss, even internally or
externally and any kind of anecdotes I've
heard about it are all relatively modest,
so I don't think it's a material item to
put in the planning at all.
MR. SHAPIRO: With regard to
proprietary trading.
MR. SIDWELL: Obviously I think we
have been very pleased with the results
that we have seen in this business,
particularly in light of the repositioning
we have talked about as we moved from a
business that has a large element of
outright directional positioning to one
which is based more on relative value
strategies and maximizing returns at
the corporate level. I think we have also
achieved something which was important,
which was a re-sizing, in light of the
risks being taken of capital allocated to
our business.
Obviously this tends to be a more
<PAGE>
43
volatile aspect of our business than some
of the more client focused activities and
our last two quarters will probably be a little
further above trend. However, we think
this is an important part of the business
going forward and expect to see over time
good results in this activity.
QUESTIONER: Dina suggested Investment
Banking fees should pick up again in the
fourth quarter. I'm curious what the
foundation of that thinking is. More
specifically, I think we have a very
odd market, capital market environment
to look forward to. I know the standard
answer is if high yield is stuck and
liquidity isn't back, one way out of it is
to go back to lending. In this instance do
you feel comfortable doing that considering
what the examiners have done?
Secondly, if you could discuss a
little bit more about where the merger
integration process is going?
MR. SHAPIRO: Jeff.
MR. BOISI: On the revenue side of
the fourth quarter we are expecting a very
<PAGE>
44
significant pickup in each category. If we just closed
every transaction that we have a current
commitment on, we would have a very
significant pickup off where we are, so it's
across the board.
If you look at our merger business,
this past quarter it's grown 87 percent
year-to-year in terms of the numbers of
transactions. It's almost 150 percent up
from last year. This is just Chase alone.
We see very significant increases both
domestically and internationally in terms
of our positioning in the merger business.
Our backlog of equity transactions
is very robust and that has been growing at
very high rates as well. Our issue has
been syndicated finance business and, more
specifically, the leveraged portion of that
and the high yield business. We have
maintained the market share positions that
we have had in the syndicated finance
<PAGE>
business overall, our number one position.
The leverage finance business through the
lessening of LBO activity has hurt us in
45
this past quarter. However, on the basic
bread and butter business it seems there's a
backlog of business that looks quite good
there.
The high yield business is the area
that has been difficult for us and I think
we have dropped both in terms of the
overall volume of that business, but also
slightly our position in that business,
which we are heavily focused on.
I would tell you that based on the
backlog that we have now of committed
transactions, we expect to see a
significant pickup. I will say, I do want
to add to what Dina and Marc have said so
that you hear it directly from Don Layton
and myself.
<PAGE>
On the expense side, you have to
remember I have been here for three and a
half months and we have had a fair number
of changes. I want to assure all of you
that we are exceedingly focused on this
expense issue.
We have been in the growth mode here
46
for a number of years. As you know, there
is a severe war on talent going on. We have
been protecting our people, but we have
been growing our businesses aggressively
all over the world, in every theater of the
world in almost every significant area. We
were doing that on our own book, building
it person by person, group by group. Now
with the J.P. Morgan transaction we have
completed that all in one fell swoop.
Now, I will tell you in the three
and a half months that we have been here,
even though we were growing it on a
<PAGE>
person-by-person basis, we had not had the
chance--even though I can guarantee you, that
the entire management team in the Investment
Bank has been spending countless hours
focused on how we reposition our expense
base in order to fund that growth. But we
are doing that, we have done it day in and
day out now. Unfortunately it's going to
take a quarter or two to start to see the
benefits of that. I guarantee you you will
see the benefits of that.
47
MR. SHAPIRO: Just one last
addendum. Part of your question said do
you go back to old-fashioned lending, we
are not and J.P. Morgan is not interested
in growing revenue from lending. We grow
revenue from the syndication business, but
neither of us believes that holding
long-term corporate loans is a great
revenue producer and a great return or any
<PAGE>
return on capital and therefore, both of us
in our different ways, have been trying to
work that part of our business down and
will continue to do so.
QUESTIONER: Marc, in the page you had
when you were talking about pricing, you
were looking at reported earnings. I was
wondering if that means you're downplaying
cash earnings, because if I looked at that
on a cash earnings basis, that absorbs most
of the gap that you had in the chart that
you showed between the synergies and the
amount that you would need from Morgan; so
does that mean that cash earnings aren't so
important?
48
MR. SHAPIRO: That's a good question
and that's a good observation, because we
do believe that cash earnings are the most
important thing and it does take the
synergy requirement up a little bit higher.
<PAGE>
It is still a dilution element that we
think will be comfortably covered by the
conservative revenue and expense estimates
that we have here. As I said, I am
increasingly coming to the opinion that
those numbers will be increased.
QUESTIONER: When I look at the
coverage that's needed in the out years
when the synergies are fully phased in,
when I do that math they basically match,
more or less; so that implies to me
that to more than cover and to accertive,
if you see already more benefits than what
you're seeing right now. I was wondering
if you could give us some quantification
to what you really expect as opposed to
the numbers you have out there?
MR. SHAPIRO: I would prefer not to
quantify it until we have completed the
49
more detailed work. It is our gut feeling
<PAGE>
going in that those were conservative
numbers, I feel more strongly that those
are conservative numbers. We would be best
served by waiting to complete the detailed
work that we have done and I would expect
at some point to come back to you with a
better estimate of what it is. I hope I
provided a conviction about where I think
that number is going to go.
QUESTIONER: Two questions, one for
Don Layton. Morgan has been quite enamored
with its prop. trading activity, you have
been more interested in market making.
Could you talk about how you feel about
that activity going forward within the
entire mix of global markets?
Secondly, for Bob Strong, could you
discuss Chase's feeling about the TMT area,
specifically Telecomm, and how that looks
across both the loan book, as well as your
counter-parties on the derivative side?
MR. LAYTON: Chase has emphasized
the market making, which was a historic
<PAGE>
50
strength. In all cases, companies build on
their historic strengths and do what they do
well. I've always talk about proprietary
trading as being kept to a proportionate
size so it doesn't tend to dominate the
total. In the new bank, because it will be so
much larger, I think you will find
proprietary trading will in fact fit that
policy because you have a big denominator
basically.
The second thing is -- and I have had
a talk with the gentleman downtown who
runs this unit -- calling it
proprietary positioning is a bit of a
misnomer. I don't know if there's been a
word invented to cover what they do. While there is
some moderate amount of classic
proprietary trading in there, David did
mention it's more relative value oriented, but there
are a lot of transactions which are using market
transactions to create value. For
example, tax synergies for the
company, which shows up in the P&L for that
unit, which is considered proprietary.
But this unit is far away from your classic long,
short, any fund depending on your view, kind of unit
that swings around.
<PAGE>
51
It's been rebuilt substantially in the last
four to eight quarters.
In our due diligence we determined
this and on that basis I'm even more
comfortable that the underlying true
proprietary in there of the company is
going to be perfectly fine as a percentage
of the corporate earnings, so there is not
a swing factor, and so it does not come to
dominate earnings overall or trading earnings.
MR. SHAPIRO: Bob.
MR. STRONG: In terms of Telecomm and
our total exposure, Telecomm is one of our
larger industry groups and represents about
5 percent of our total exposure. It has
grown over the last year. However, our
growth has been centered on the investment
grade section of Telecomm. As a result, our
<PAGE>
risk profile of our portfolio has improved
quite a bit in the course of the year.
We have no meaningful problems in
52
that portfolio, we have one minor $125
million nonperforming loan, but
fundamentally we are very comfortable with
where we are in Telecomm. Our focus
continues to be to focus on the higher end
to try to provide a market view of what
will sell in the market and to distribute
that out and that has held us in good stead.
MR. SHAPIRO: Everything that we
have in syndication is doing fine. I think
we will take a question on the phone.
MS. MERIDIAN: Diane Meridian of
Morgan Stanley Dean Witter. The question
I have is with respect to Chase Capital
Partners. If you decide that it is in
effect raising your cost of equity for the
entire company, then really Chase Capital
<PAGE>
Partners has to earn an additional amount
of income to offset that.
If you look at the sum of common
equity of the five businesses this quarter
you have about $31 billion worth of equity
on which these five operations have to earn a
return; if you raise the cost of capital
53
a hundred basis points, that is an extra $310
million that you need to earn at Chase
Capital Partners to cover it--which
compared to last year's strong earnings is about
a 22 percent hike over the base.
Is it your sense that it raises the
cost of capital, is there a point at which
you try to think about how to keep the
value of this company, but separate it in
such a way that you don't end up paying for
it in terms of the company overall?
MR. SHAPIRO: I think we said at the
beginning of the year that we really wanted
<PAGE>
to spend the year evaluating the best way
to deal with Chase Capital Partners. We
think it is a fabulous business and a business system
that has proven to be effective a long period of
time. It clearly has a significant effect
on our reported earnings and we know that
that's an issue that we have to deal with
in one way or another.
We have talked about the possibility
of splitting it off. That has a number of
negative things that are associated with
54
it, because it also happens to be very
integrated into our business model for the
Investment Bank. This quarter we are
trying to provide more detail to clearly
split apart the complete income statement
for Chase Capital Partners and also what
the remainder of Chase looks like, because
we think in many ways the two entities are
valued in completely separate ways.
<PAGE>
How the best way is to capture that
for our stockholders--capture that value
for our stockholders--is an issue that we
are still withholding judgment on. We have
probably changed opinions almost every
month since the first of the year as
markets have moved. So I would say by
putting in place at least the holding
period of a year has probably been a wise
thing to do.
We now have the context of a much
larger company to look at it in that
context and I think when we put all those
pieces together we will try to come to some
conclusion at the year-end, but I don't
55
think we're there yet.
QUESTIONER: Is there an option that
we're not aware of, aside from giving us
really good disclosure on the entire income
statement as you did this quarter and splitting it
<PAGE>
off that we haven't talked about or haven't
heard you speak out loud about?
MR. SHAPIRO: There are some other
permutations that we have looked at, but I
don't think we are in a position to discuss
those until we get to a position to tell
you where we think we're going. Is there a
second question on the phone?
MR. DIXON: Question on Flemings, Give us
a sense for how they affected the revenue side,
it looks like they added $350 billion in
revenue. I'm wondering when that came in. Of
the increase in amortization, how much was tied
to the retention pool and what was the
other addition in terms of expenses?
MR. SHAPIRO: Your revenue number
is roughly right; the expense number is
lower than that, but it depends on the
amortization of goodwill and the
56
retention bonuses. When you factor both of
<PAGE>
those elements in then you get expenses
that are roughly equal to the revenue.
Before that you get positive returns in
terms of cash earnings and before the
restricted--or the retention bonuses you get
earnings which are more or less consistent
with where they were performing before.
Their trends are pretty good on the
Investment Banking side. On the Asset
Management side, their revenue has been
affected by the decline in the Asian stock
market in particular and the values there
where they are receiving most of their
revenue on a percentage of assets under
management. They continue to have positive
cash inflows into their funds and have had
almost every month this year and we
continue to see that as a positive value
adding transaction.
MR. DIXON: In terms of the revenue
lines that Flemings affected, it would have
been Trust Investment Management and
Investment Banking spread income?
MR. SHAPIRO: Right, it would be
<PAGE>
57
asset management, some spread income and
some investment banking fees and some small
amount of trading revenue. They have a lot
of fee income that comes from their
brokerage business, equity brokerage
business, which is reported in fee income.
Next question.
QUESTIONER: Marc, at the merger
announcement meeting I believe you
mentioned that the National Consumer
business is one that you are evaluating as
to its strategic position in the merged
company. From the numbers today it would
seem that that business is strongly,
positively contributing to SVA and to
earnings per share and I would argue
probably increases the valuation. How is
your thought process coming about that?
MR. SHAPIRO: David Coulter is the
number one thinker on the subject. David,
would you like to respond?
MR. COULTER: Marc, I'd like to say
thank you to my long lost relative in the
audience. First of all, this is a
perspective of about a month and a half,
so it's formed that well. What I have
<PAGE>
58
observed over the last month and a half is
that Don Boudreau and his team have done a
good job, a very tough job of merging three franchises
together over the last five years,
approximately, and that's tough. Having
done it on the West Coast I understand it.
As I look at the retail franchise, I
think there is real possibility for
continuing to take that shareholder value
number we saw up there today--and I don't
think it's an anomaly--and I think there is
a real possibility to continue to provide
the type of growth off that shareholder
value number that's attractive. I'm not
quite sure what all the details of that
will take.
There will probably be some
businesses that we decide to get out of,
there may be or there will be some
businesses that we decide to add on to.
It's strictly the shareholder value metric
<PAGE>
and I do see an upside of that.
QUESTIONER: As you look at the
business, do you see and compare it with
59
all the consolidation that's going on, is
it big enough?
MR. COULTER: That question probably
applies to the physical footprint, is it
big enough. On the product side, for
instance, if you take mortgage, I think,
although the numbers continue to move
around, at the end of the third quarter
we're probably the number one servicer,
number one originator on the mortgage side.
The physical footprint in this market and
in the Texas market--certainly in this
market--has a real critical mass. In Texas,
Marc will probably talk more about that
than myself, we are a number 4, and probably
a somewhat distant No. 4.
With the way that the market is
<PAGE>
moving in terms of what's the retail market
of the future, I'm not sure that the lack
of physical footprint we see throughout the
rest of the U.S. is necessarily a
disadvantage.
Clearly you need some physical
presence to continue to open up accounts,
60
but I don't think you need the physical
presence of some of the other competitors
out there. The trick is can you twist your
mind around turning that lack of footprint
into a bit of an advantage if you have
other ways to provide just enough physical
presence to open new accounts. You
certainly don't need it to service accounts --
as Schwab shows.
MR. SHAPIRO: Yes.
QUESTIONER: The question is this,
Chase Capital has been stepping up its pace of
investments pretty dramatically over the
<PAGE>
last couple of years; it seems this year in
particular pace of investments is up from
last year. Obviously we have lived through
some changes in market values for certain
sectors of its portfolio. Without thinking
about the relationship with Chase to Chase
Capital Partners, just thinking about the
Capital Partners business itself, have
there been any changes in terms of thinking
about the pace of investments, the nature
of the investments that have been made.
61
There have been press stories about
possibly selling off some of the third
party investments using other people's
money, as well as Chase's. Is there an
evolution about how you are thinking about
Capital Partners?
MR. SHAPIRO: Sure. If Jeff were
here he would say that the opportunity to
invest has never been better, partly
<PAGE>
because of the better equilibrium in the
market, but more so because of the continued
evolution of the deal flow and of the
network that he has put in place over a
long period of time and the interaction of
that with the Investment Bank. Morgan's
capabilities will add importantly to that.
We have been increasing the pace of
investment. Last year we invested about $2
billion directly and about another $800
million in funds; this year it will be
probably closer to $2.5 billion directly
and about a billion dollars in funds. We
have thought that it would be prudent to
cut back on that total and in particular,
62
on the fund part of it, because our returns
on those funds are lower than on our direct
investments.
We do get ancillary benefits from
those investments in terms of our
<PAGE>
relationships and our financing, but we are
working to create more of a secondary
market in those funds and I think that is
the sale that has been discussed in the
papers.
The pace of that investment over the
future I think will be more stable or
possibly even slightly below, depending on
where we come out on the form of Chase
Capital Partners. We are raising a large
third-party fund for the first time in the
history of Chase Capital Partners and that
is all because we believe that the
opportunities are greater now even than our
capacity to invest in them and we want to
see how much we can calibrate what we
invest.
We do believe in the business, we
think it is a business that has
63
demonstrated the capacity to create
<PAGE>
extraordinary value and we want to find a
way to capture the full benefit of that for
our stockholders.
QUESTIONER: Is there any change in the
regulatory view on this?
MR. SHAPIRO: No, with regard to
regulatory views the Fed has proposed some
more capital stringent rulings. We commented on
those saying we didn't think they were such
a great idea. Most of the other
commentators were along the same lines.
The Fed has not come forward with any
conclusions that they have drawn from their
original proposal and the comments they
received. Is there a next question on the
phone?
A VOICE: Two questions, I was
wondering if J.P. Morgan could provide some
comments on their backlog and, to the extent
that some of this backlog can't get
monetized in the fourth quarter, how much
flexibility do both companies have in
managing the compensation expense line down.
<PAGE>
64
MR. SHAPIRO: I will ask Walter
Gubert to comment on the Morgan line. What
I will say on the compensation is we both
have incentive systems that are tied to
actual performance and we do have some
flexibility with adjusting those in line with
performance. Walter, you might want to comment
on how you see the backlog and possibly also on
how you see the merger coming together and the
opportunities we have.
MR. GUBERT: The very simple answer is
that the backlog is very strong. It is across
the board in terms of products; it is across
the geography and we feel, if anything, it is
strengthened by the combination. Several of
my colleagues talked about the dynamics in
terms of pitches, common pitches and success
rate and clearly that is the positive momentum
in terms of our pipeline, it's very, very
strong.
In terms of more broadly, I can say
that the reason the pitch rate is this good
is because there is already remarkable
clarity in terms of how to approach
<PAGE>
65
clients, in terms of who has to work with
whom on specific deal situations. I can
tell you that clarity is a lot better than
what I would have expected.
In my enormous experience in being
involved in mergers myself--this is the
first one. I can tell you that is
enormously energizing for our people and it
translates into bottom line results
quickly. So I'm very optimistic and I
think our teams are very optimistic about
what we can do together.
Because of the complementarity in
terms of clients and products--that is true
in North America, in Latin America, in Asia
and in Europe--the combination of ours is
to take advantage of the growth potential
much better than otherwise. Thank you.
MR. SHAPIRO: Thank you, we will
take one more question on the phone and
then one more question in the audience.
<PAGE>
First on the phone.
MR. EISMAN: Could you give us an
idea of what type of expense controls or
66
expense savings you could realize in the
fourth quarter of this year?
MR. SHAPIRO: No, not specifically
Steve. I think it is true that many of the
projects that we might have had in mind
before the merger would be postponed, plus
the additional focus that Jeff emphasized
so clearly in the Investment Bank on the
expense issues that are there. It is worth
noting that in our other businesses we do
have improved efficiency rates. In Consumer
I think it is notable that expenses were up
only 1 percent last year. In Operating
Services we continued to have increased
efficiency.
In Wealth Management it's harder to
see because of the impact of the merger,
<PAGE>
but I can tell you on a stand-alone basis
we would have increased efficiency. The
issue really has been built up in
Investment Banking and I think you can tell
from Jeff's answer that he is extremely
focused on that issue.
Is there a last question in the
67
audience? If not I'll take a last question
on the phone.
If not, thank you very much for coming.
I want to emphasize again how committed the
entire management team that you see here
from both organizations is in making this
transaction a great success and rewarding
our stockholders. Thank you very much.
