1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-5885
J.P. MORGAN & CO. INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-2625764
(State or other jurisdiction (I.R.S. Employer
of
incorporation or Identification No.)
organization)
60 Wall Street, New York, NY
(Address of principal executive offices)
10260-0060
(Zip Code)
(212) 483-2323
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes..X.. No.....
Number of shares outstanding of each of the registrant's classes of
common stock at July 31, 1995:
Common Stock, $2.50 Par Value 187,888,760 Shares
2
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Financial statement information is set forth within this document on the
pages indicated:
Page
Three-month Consolidated statement of income
J.P. Morgan & Co. Incorporated 3
Six-month Consolidated statement of income
J.P. Morgan & Co. Incorporated 4
Consolidated balance sheet
J.P. Morgan & Co. Incorporated 5
Consolidated statement of changes in stockholders' equity
J.P. Morgan & Co. Incorporated 6
Consolidated statement of cash flows
J.P. Morgan & Co. Incorporated 7
Consolidated statement of condition
Morgan Guaranty Trust Company of New York 8
Notes to Consolidated financial statements
J.P. Morgan & Co. Incorporated 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of business sector results; Discussion of the
financial condition and results of operations; Statements
of consolidated average balances and net interest earnings
of J.P. Morgan & Co. Incorporated ("J.P. Morgan") for the
three months and six months ended June 30, 1995; and Table
of asset and liability management derivatives are set forth
on pages 19 through 36 herein.
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 37
SIGNATURES 38
3
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
___________________________________
In millions,
except per share data Three months ended
___________________________________________________________________
June 30 June 30 Increase March Increase
1995 1994 (Decreas 31 (Decreas
e) 1995 e)
___________________________________________________________________
NET INTEREST REVENUE
Interest revenue $2,405 $2,031 $374 $2,470 ($65)
Interest expense 1,897 1,491 406 1,970 (73)
___________________________________________________________________________
_________________
Net interest revenue 508 540 (32) 500 8
NONINTEREST REVENUE
Trading revenue 305 228 77 303 2
Corporate finance revenue 117 87 30 114 3
Credit-related fees 41 55 (14) 43 (2)
Investment management fees 138 127 11 130 8
Operational service fees 140 140 - 140 -
Net investment securities 33 35 (2) 9 24
gains
Other revenue 167 254 (87) 149 18
___________________________________________________________________________
_________________
Total noninterest revenue 941 926 15 888 53
Total revenue 1,449 1,466 (17) 1,388 61
OPERATING EXPENSES
Employee compensation and
benefits 616 592 24 626 (10)
Net occupancy 79 69 10 80 (1)
Technology and 165 145 20 172 (7)
communications
Other expenses 124 130 (6) 124 -
___________________________________________________________________________
_________________
Total operating expenses 984 936 48 1,002 (18)
Income before income taxes 465 530 (65) 386 79
Income taxes 150 180 (30) 131 19
___________________________________________________________________________
_________________
Net income 315 350 (35) 255 60
PER COMMON SHARE
Net income (a) $1.56 $1.73 ($0.17) $1.27 $0.29
Dividends declared 0.75 0.68 0.07 0.75 -
___________________________________________________________________________
_________________
(a) Earnings per share amounts represent both primary and fully diluted
earnings per share.
See notes to financial statements.
4
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
_______
In millions,
except per share data Six months ended
_______________________________________________________
June 30 June 30 Increase
1995 1994 (Decrease)
_______________________________________________________
NET INTEREST REVENUE
Interest revenue $4,875 $3,868 $1,007
Interest expense 3,867 2,931 936
___________________________________________________________________________
_______
Net interest revenue 1,008 937 71
NONINTEREST REVENUE
Trading revenue 608 584 24
Corporate finance revenue 231 204 27
Credit-related fees 84 111 (27)
Investment management fees 268 254 14
Operational service fees 280 284 (4)
Net investment securities 42 126 (84)
gains
Other revenue 316 357 (41)
___________________________________________________________________________
_______
Total noninterest revenue 1,829 1,920 (91)
Total revenue 2,837 2,857 (20)
OPERATING EXPENSES
Employee compensation and 1,242 1,140 102
benefits
Net occupancy 159 133 26
Technology and communications 337 274 63
Other expenses 248 241 7
___________________________________________________________________________
_______
Total operating expenses 1,986 1,788 198
Income before income taxes 851 1,069 (218)
Income taxes 281 374 (93)
___________________________________________________________________________
_______
Net income 570 695 (125)
PER COMMON SHARE
Net income (a) $2.83 $3.43 ($0.60)
Dividends declared 1.50 1.36 0.14
___________________________________________________________________________
_______
(a) For the six months ended June 30, 1995, the earnings per share amount
represents primary earnings per share; fully diluted earnings per share for
the six months ended June 30, 1995, were $2.81. For the six months ended
June 30, 1994, the earnings per share amount represents both primary and
fully diluted earnings per share.
See notes to financial statements.
5
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
______________
Dollars in millions June March December
30 31 31
1995 1995 1994
_______________________________________________________
ASSETS
Cash and due from banks $ $ $ 2,210
1,812 1,153
Interest-earning deposits with banks 1,736 1,650 1,362
Debt investment securities available-for-sale
carried
at fair value (cost: $20,133 at June 1995, 20,416 21,655 22,657
$21,428
at March 1995, and $22,503 at December 1994)
Trading account assets 68,259 68,198 57,065
Securities purchased under agreements to
resell
($26,127 at June 1995, $27,434 at March 26,209 27,478 21,350
1995, and
$21,170 at December 1994) and federal funds
sold
Securities borrowed 10,313 11,073 12,127
Loans 24,043 24,434 22,080
Less: allowance for credit losses 1,132 1,132 1,131
___________________________________________________________________________
______________
Net loans 22,911 23,302 20,949
Customers' acceptance liability 266 658 586
Accrued interest and accounts receivable 3,214 3,011 5,028
Premises and equipment 3,438 3,395 3,318
Less: accumulated depreciation 1,420 1,361 1,302
___________________________________________________________________________
______________
Premises and equipment, net 2,018 2,034 2,016
Other assets 9,406 6,865 9,567
___________________________________________________________________________
______________
Total assets 166,56 167,077 154,917
0
___________________________________________________________________________
______________
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 3,494 2,889 3,693
In offices outside the U.S. 995 682 767
Interest-bearing deposits:
In offices in the U.S. 2,156 2,015 1,826
In offices outside the U.S. 38,671 41,238 36,799
___________________________________________________________________________
______________
Total deposits 45,316 46,824 43,085
Trading account liabilities 42,404 45,210 36,407
Securities sold under agreements to repurchase
($32,864 at June 1995, $32,884 at March
1995, and 38,496 35,843 35,768
$30,179 at December 1994) and federal funds
purchased
Commercial paper 1,903 2,309 3,507
Other liabilities for borrowed money 12,068 11,334 10,900
Accounts payable and accrued expenses 4,804 3,949 6,231
Liability on acceptances 266 658 586
Long-term debt not qualifying as risk-based 5,759 5,009 3,605
capital
Other liabilities 2,340 3,018 2,063
___________________________________________________________________________
______________
153,35 154,154 142,152
6
Long-term debt qualifying as risk-based 3,333 3,283 3,197
capital
___________________________________________________________________________
______________
Total liabilities 156,68 157,437 145,349
9
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares:
10,000,000):
Adjustable rate cumulative preferred stock,
$100 244 244 244
par value (issued and outstanding:
2,444,300)
Variable cumulative preferred stock, $1,000
par 250 250 250
value(issued and outstanding: 250,000)
Common stock, $2.50 par value (authorized
shares:
500,000,000; issued: 200,674,673 at June
1995, 502 502 502
200,672,173 at March 1995 and 200,668,373
at
December 1994)
Capital surplus 1,441 1,448 1,452
Retained earnings 7,315 7,149 7,044
Net unrealized gains on investment
securities, net of 459 449 456
taxes
Other 407 368 367
___________________________________________________________________________
______________
10,618 10,410 10,315
Less: treasury stock (12,856,867 shares at
June 1995,
13,272,339 shares at March 1995 and 747 770 747
12,966,917
shares at December 1994) at cost
___________________________________________________________________________
______________
Total stockholders' equity 9,871 9,640 9,568
___________________________________________________________________________
______________
Total liabilities and stockholders' equity 166,56 167,077 154,917
0
___________________________________________________________________________
______________
See notes to financial statements.
6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
J.P. Morgan & Co. Incorporated
_____________________________________________________________________________
_________________
Dollars in millions Six months ended
____________________________
June 30 June 30
1995 1994
____________________________
PREFERRED STOCK
Adjustable rate cumulative preferred stock
Balance, January 1 and June 30 $ 244 $ 244
Variable cumulative preferred stock
Balance, January 1 and June 30 250 250
___________________________________________________________________________
_____________
Total preferred stock, June 30 494 494
___________________________________________________________________________
_____________
COMMON STOCK
Balance, January 1 502 499
Shares issued under dividend reinvestment plan,
various - 2
employee benefit plans, and conversion of
debentures
___________________________________________________________________________
_____________
Balance, June 30 502 501
___________________________________________________________________________
_____________
CAPITAL SURPLUS
Balance, January 1 1,452 1,393
Shares issued under dividend reinvestment plan,
various
employee benefit plans, and conversion of (11) 58
debentures,
and income tax benefits associated with stock
options
___________________________________________________________________________
_____________
Balance, June 30 1,441 1,451
___________________________________________________________________________
_____________
RETAINED EARNINGS
Balance, January 1 7,044 6,386
Net income 570 695
Dividends declared on adjustable rate cumulative
preferred (6) (6)
stock
Dividends declared on variable cumulative (6) (3)
preferred stock
Dividends declared on common stock (282) (261)
Dividend equivalents on common stock issuable (5) (3)
___________________________________________________________________________
_____________
Balance, June 30 7,315 6,808
___________________________________________________________________________
_____________
NET UNREALIZED GAINS ON INVESTMENT SECURITIES, NET
OF TAXES
Balance, January 1 456 1,165
Net change in net unrealized gains, net of taxes 3 (480)
___________________________________________________________________________
_____________
Balance, June 30 459 685
___________________________________________________________________________
_____________
OTHER
COMMON STOCK ISSUABLE UNDER STOCK AWARD PLANS
Balance, January 1 369 253
Accrued deferred stock awards 61 52
Deferred stock awards distributed, net (20) (11)
___________________________________________________________________________
_____________
Balance, June 30 410 294
___________________________________________________________________________
_____________
FOREIGN CURRENCY TRANSLATION
Balance, January 1 (2) (3)
Translation adjustments (1) (1)
Income tax benefit - 1
___________________________________________________________________________
_____________
Balance, June 30 (3) (3)
___________________________________________________________________________
____________
Total other, June 30 407 291
___________________________________________________________________________
_____________
LESS: TREASURY STOCK
Balance, January 1 747 328
Purchases 103 229
Shares distributed under various employee benefit (103) (14)
plans
___________________________________________________________________________
_____________
Balance, June 30 747 543
___________________________________________________________________________
_____________
Total stockholders' equity, June 30 9,871 9,687
___________________________________________________________________________
_____________
See notes to financial statements.
7
CONSOLIDATED STATEMENT OF CASH FLOWS
J.P. Morgan & Co. Incorporated
_____________________________________________________________________________
___________
Dollars in millions Six months ended
____________________________
June 30 June 30
1995 1994
____________________________
NET INCOME $ 570 $ 695
Adjustments to reconcile to cash provided by (used
in)
operating activities:
Noncash items: depreciation, amortization,
deferred 166 267
income taxes, and stock award plans
(Increase) decrease in assets:
Trading account assets (11,258) (16,561)
Securities purchased under agreements to (4,971) (2,178)
resell
Securities borrowed 1,814 (758)
Accrued interest and accounts receivable 1,812 649
Increase (decrease) in liabilities:
Trading account liabilities 5,947 22,807
Securities sold under agreements to 2,675 (7,916)
repurchase
Accounts payable and accrued expenses (1,449) (485)
Other changes in operating assets and 1,110 (3,308)
liabilities, net
Net investment securities gains included in
cash flows (42) (126)
from investing activities
___________________________________________________________________________
_____________
CASH USED IN OPERATING ACTIVITIES (3,626) (6,914)
___________________________________________________________________________
_____________
Increase in interest-earning deposits with banks (375) (78)
Debt investment securities:
Proceeds from sales 24,147 30,388
Proceeds from maturities, calls, and mandatory 1,035 1,716
redemptions
Purchases (21,142) (32,083)
(Increase) decrease in federal funds sold 98 (34)
Increase in loans (1,997) (1,633)
Payments for premises and equipment (105) (160)
Other changes, net (1,797) (191)
___________________________________________________________________________
_____________
CASH USED IN INVESTING ACTIVITIES (136) (2,075)
___________________________________________________________________________
_____________
Increase (decrease) in noninterest-bearing deposits 28 (433)
Increase in interest-bearing deposits 2,166 3,729
Increase in federal funds purchased 43 1,866
Increase (decrease) in commercial paper (1,604) 1,310
Other liabilities for borrowed money:
Proceeds 7,952 5,585
Payments (6,591) (6,799)
Long-term debt:
Proceeds 2,421 1,075
Payments (283) (518)
Capital stock:
Issued - 64
Purchased or redeemed (103) (229)
Dividends paid (279) (272)
Other changes, net (508) 4,443
___________________________________________________________________________
_____________
CASH PROVIDED BY FINANCING ACTIVITIES 3,242 9,821
___________________________________________________________________________
_____________
Effect of exchange rate changes on cash and due from 122 21
banks
___________________________________________________________________________
_____________
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (398) 853
Cash and due from banks at December 31, 1994 and 2,210 1,008
1993
___________________________________________________________________________
_____________
Cash and due from banks at June 30, 1995 and 1994 1,812 1,861
___________________________________________________________________________
_____________
Cash disbursements were made for:
Interest $3,717 $2,931
Income taxes 257 889
___________________________________________________________________________
_____________
See notes to financial statements.
8
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New
York
___________________________________________________________________________
___________________________________
Dollars in millions June 30 December
1995 31
1994
___________________________________________
ASSETS
Cash and due from banks $ $
1,743 2,182
Interest-earning deposits with banks 1,791 1,605
Debt investment securities available-for-sale carried at 17,590 21,292
fair value
Trading account assets 56,060 45,386
Securities purchased under agreements to resell
and federal funds sold 17,396 16,562
Loans 20,980 19,397
Less: allowance for credit losses 1,027 1,025
___________________________________________________________________________
_________________
Net loans 19,953 18,372
Customers' acceptance liability 216 556
Accrued interest and accounts receivable 3,182 3,594
Premises and equipment 3,054 2,967
Less: accumulated depreciation 1,247 1,149
___________________________________________________________________________
_________________
Premises and equipment, net 1,807 1,818
Other assets 8,167 7,360
___________________________________________________________________________
_________________
Total assets 127,905 118,727
___________________________________________________________________________
_________________
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 3,400 3,698
In offices outside the U.S. 1,030 770
Interest-bearing deposits:
In offices in the U.S. 1,931 1,480
In offices outside the U.S. 38,444 38,566
___________________________________________________________________________
_________________
Total deposits 44,805 44,514
Trading account liabilities 38,009 30,730
Securities sold under agreements to repurchase and
federal funds 21,290 22,099
purchased
Other liabilities for borrowed money 5,634 5,320
Accounts payable and accrued expenses 3,448 2,902
Liability on acceptances 216 556
Long-term debt not qualifying as risk-based capital
(includes $779 3,167 1,968
at 1995 and $630 at 1994 of notes payable to J.P.
Morgan)
Other liabilities 2,243 2,080
___________________________________________________________________________
_________________
118,812 110,169
Long-term debt qualifying as risk-based capital
(includes $1,025 at 1,224 1,249
1995 and $1,030 at 1994 of notes payable to J.P.
Morgan)
___________________________________________________________________________
_________________
Total liabilities 120,036 111,418
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: - -
2,500,000)
Common stock, $25 par value (authorized and outstanding
shares: 250 250
10,000,000)
Surplus 2,820 2,670
Undivided profits 4,644 4,266
Net unrealized gains on investment securities, net of 158 124
taxes
Foreign currency translation (3) (1)
___________________________________________________________________________
_________________
Total stockholder's equity 7,869 7,309
___________________________________________________________________________
_________________
Total liabilities and stockholder's equity 127,905 118,727
___________________________________________________________________________
_________________
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
See notes to financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF J.P. MORGAN & CO. INCORPORATED
Supplementary to notes in the 1994 Annual report to stockholders
1. BASIS OF PRESENTATION
The interim financial information in this report has not been audited.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position and the results of operations for
the interim periods have been made. All adjustments made were of a
normal recurring nature. Management consults with its independent
accountants on significant accounting and reporting matters that arise
during the year.
2. ACCOUNTING CHANGES
ACCOUNTING FOR IMPAIRMENT OF A LOAN
On January 1, 1995, J.P. Morgan adopted Statement of Financial Accounting
Standards (SFAS) No. 114 and subsequent amendment SFAS No. 118, both
entitled, Accounting by Creditors for Impairment of a Loan, which
prescribe criteria for recognition of loan impairment as well as methods
to measure impairment for certain loans, including loans whose terms were
modified in troubled debt restructurings. The standards require that
impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price, or at the
fair value of the collateral if the loan is collateral dependent. In
accordance with these standards, J.P. Morgan defines impaired loans as
those loans on which the accrual of interest is discontinued because the
contractual payment of principal or interest has become 90 days past due
or management has serious doubts about future collectibility of principal
or interest, even though the loans are currently performing (i.e.,
nonaccrual loans). The adoption of these standards did not have a
material impact on J.P. Morgan's financial statements. For additional
information, see Note 9 to the financial statements, Nonperforming assets
and allowance for credit losses.
10
3. INTEREST REVENUE AND EXPENSE
An analysis of interest revenue and expense derived from on-and off-
balance-sheet financial instruments is presented in the table below.
Interest revenue and expense associated with derivative financial
instruments, such as swaps, forwards, spot, futures, options, and debt
securities forwards, used as hedges or to modify the interest rate
characteristics of assets and liabilities, are attributed to and included
with the related balance sheet instrument. Net interest revenue
associated with risk-adjusting swaps that are used to meet longer-term
asset and liability management objectives, including the maximization of
net interest revenue, is not attributed to a specific balance sheet
instrument, but is included in the Other sources caption in the table
below.
Second Six months
quarter
In millions 1995 1994 1995 1994
____________________________________________________________________________
________
INTEREST REVENUE
Deposits with banks $ $ $ $
44 46 103 95
Debt investment securities (a) 373 291 771 563
Trading account assets 782 672 1,61 1,27
1 4
Securities purchased under agreements
to resell and federal funds sold 443 375 855 747
Securities borrowed 187 136 401 251
Loans 436 339 851 673
Other sources, primarily risk- 140 172 283 265
adjusting swaps
___________________________________________________________________________
_______________________
Total interest revenue 2,40 2,03 4,87 3,86
5 1 5 8
____________________________________________________________________________
________
INTEREST EXPENSE
Deposits 616 436 1,23 869
5
Trading account liabilities 332 294 761 561
Securities sold under agreements to
repurchase and federal funds 605 546 1,20 1,10
purchased 0 3
Other borrowed money 204 153 415 278
Long-term debt 140 62 256 120
___________________________________________________________________________
_______________________
Total interest expense 1,89 1,49 3,86 2,93
7 1 7 1
___________________________________________________________________________
_______________________
Net interest revenue 508 540 1,00 937
8
____________________________________________________________________________
_______
(a) Interest revenue from debt investment securities included taxable
revenue
of $332 million and $688 million and revenue exempt from U.S. income
taxes of $41 million and $83 million for the three months and six months
ended June 30, 1995, respectively.
For the three months and six months ended June 30, 1995, net interest
revenue associated with asset and liability management derivatives was
approximately $110 million and $190 million, respectively. At June 30,
1995, approximately ($370) million of net deferred losses on closed
derivative contracts used for asset and liability management purposes
were recorded on the balance sheet. Such amount is primarily composed of
net deferred losses on closed hedge contracts included in the amortized
cost of the debt investment portfolio. As discussed in Note 5 to the
financial statements, Investment Securities, the net unrealized
appreciation associated with debt investment securities was $283 million
at June 30, 1995. Net deferred losses are expected to amortize into Net
interest revenue as follows: ($60) million - remainder of 1995; ($100)
million - 1996; ($70) million - 1997; ($50) million - 1998; ($40) million
- 1999; ($30) million - 2000; and approximately ($20) million thereafter.
The amount of net deferred gains or losses on closed derivative contracts
will change from period to period, primarily due to amortization of such
amounts to net interest revenue and the execution of our asset and
liability management strategies, which may result in the sale of the
underlying hedged instruments and/or termination of hedge contracts.
11
4. TRADING REVENUE
An analysis of trading revenue for the three months and six months ended
June 30, 1995 and 1994, is presented in the following table. Reported
Trading revenue does not include the net interest revenue associated with
our trading activities. As our business objective is to maximize total
revenue, trading-related net interest revenue should be considered when
evaluating results. For additional information related to trading-
related net interest revenue, refer to the trading revenue discussion in
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Second Six months
quarter
In millions 1995 1994 1995 1994
____________________________________________________________________________
________
Swaps and other interest rate $ $ $ $
contracts 100 126 176 392
Debt instruments 73 (3) 167 33
Foreign exchange spot and option 24 27 94 37
contracts
Equities and commodities 108 78 171 122
____________________________________________________________________________
________________________
Trading revenue 305 228 608 584
____________________________________________________________________________
________
5. INVESTMENT SECURITIES
Debt investment securities
A comparison of the cost and carrying values of debt investment securities
available for sale and carried at fair value at June 30, 1995, follows.
Fair and
carrying
In millions Cost value
___________________________________________________________________________
_______
U.S. Treasury $ 3,564 $ 3,645
U.S. government agency, principally 12,075 12,107
mortgage-backed
U.S. state and political subdivision 2,046 2,219
U.S. corporate and bank debt 262 272
Foreign government* 1,350 1,333
Foreign corporate and bank debt 743 746
Other 93 94
___________________________________________________________________________
_______
Total debt investment securities 20,133 20,416
___________________________________________________________________________
_______
* Primarily includes debt of countries that are members of the Organization
for Economic Cooperation and Development.
Net unrealized appreciation associated with debt investment securities
available for sale carried at fair value at June 30, 1995, was $283
million, consisting of gross unrealized appreciation of $523 million and
gross unrealized depreciation of $240 million. Such amounts represent the
gross unrealized appreciation or depreciation on each debt security,
including the effects of any related hedge. For additional detail of gross
unrealized gains and losses associated with open derivative contracts used
to hedge debt investment securities, see Note 7 to the financial
statements, Off-balance-sheet financial instruments.
The following table presents the components of Net realized investment
securities gains.
Second Six months
quarter
In millions 1995 1994 1995 1994
___________________________________________________________________________
___
Gross realized gains from sales $ $ $ $
211 107 271 292
Gross realized losses from sales (178 (88) (229 (183
) ) )
Net gains on maturities, calls and
mandatory redemptions - 16 - 17
___________________________________________________________________________
___
Net investment securities gains 33 35 42 126
___________________________________________________________________________
___
12
Equity investment securities
Net realized gains on the sale of equity investment securities of $132
million and $295 million included in Other revenue for the three months
and six months ended June 30, 1995, respectively, include $148 million
and $316 million of gross realized gains. Gross unrealized gains and
losses as well as a comparison of the cost, fair value, and carrying
value of marketable equity investment securities at June 30, 1995,
follows.
Gross Gross Fair
and
unreali unreali carryin
zed zed g
In millions Cost gains losses value
_________________________________________________________________________
_____
June 30, 1995 $210 $463 - $673
_________________________________________________________________________
_____
Securities without available market quotations:
Nonmarketable equity investment securities, carried at a cost of $420
million, had an estimated fair value of $510 million at June 30, 1995.
6. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, including derivative instruments
used for trading purposes, are carried at fair value. The following
table presents the carrying value of trading account assets and
liabilities at June 30, 1995, and the average balance for the three-month
and six-month periods ended June 30, 1995.
Carrying Average
value balance
___________
_____________________________
June 30 Second Six
In millions 1995 quarter months
1995 1995
___________________________________________________________________________
_______
TRADING ACCOUNT ASSETS
U.S. Treasury $ 5,823 $ 4,957 $ 6,571
U.S. government agency 2,409 2,850 3,280
Foreign government 19,852 19,615 20,194
Corporate debt and equity 10,135 9,638 9,000
Other securities 3,371 6,036 4,276
Interest rate and currency 14,087 14,717 13,250
swaps
Foreign exchange contracts 5,880 6,945 5,901
Interest rate futures and 366 308 235
forwards
Commodity and equity 1,773 1,242 1,293
contracts
Purchased option contracts 4,563 4,051 3,934
___________________________________________________________________________
_______
Total trading account assets 68,259 70,359 67,934
___________________________________________________________________________
_______
TRADING ACCOUNT LIABILITIES
U.S. Treasury 4,411 6,054 7,141
Foreign government 8,716 10,354 10,175
Corporate debt and equity 2,392 4,255 3,699
Other securities 813 535 852
Interest rate and currency 14,266 13,312 12,053
swaps
Foreign exchange contracts 5,341 5,574 4,771
Interest rate futures and 418 373 281
forwards
Commodity and equity 1,661 1,099 1,364
contracts
Written option contracts 4,386 3,980 4,216
___________________________________________________________________________
_______
Total trading account 42,404 45,536 44,552
liabilities
___________________________________________________________________________
_______
13
7. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Derivatives
Derivatives may be used either for trading or asset and liability
management purposes. Accordingly, the notional amounts presented in the
table below have been identified as relating to either trading or asset and
liability management activities based on management's intent and ongoing
usage. A summary of the credit exposure, which is represented by the
positive market value associated with derivatives, after considering the
benefit of approximately $21.8 billion of master netting agreements in
effect at June 30, 1995, is also presented.
Notional Credit
In billions: June 30, 1995 amounts exposure
___________________________________________________________________________
___________________
Interest rate and currency swaps
Trading $ 984.0
Asset and liability 283.4
management(a)(b)(c)
___________________________________________________________________________
___________________
Total interest rate and currency 1,267.4 $14.1
swaps
___________________________________________________________________________
___________________
Foreign exchange spot, forward, and
futures contracts
Trading 452.0
Asset and liability 19.8
management(a)(b)
___________________________________________________________________________
___________________
Total foreign exchange spot,
forward, 471.8 5.9
and futures contracts
___________________________________________________________________________
___________________
Interest rate futures, forward rate
agreements, and debt securities
forwards
Trading 355.2
Asset and liability management 15.7
___________________________________________________________________________
___________________
Total interest rate futures,
forward rate 370.9 0.3
agreements, and debt securities
forwards
___________________________________________________________________________
___________________
Commodity and equity swaps, forward,
and 59.0 1.8
futures contracts, all trading
___________________________________________________________________________
___________________
Purchased options(e)
Trading 467.8
Asset and liability management(a) 3.1
___________________________________________________________________________
___________________
Total purchased options 470.9 4.6
___________________________________________________________________________
___________________
Written options, all trading(f) 471.2
___________________________________________________________________________
___________________
Total credit exposure recorded as
assets on the balance sheet 26.7 (d
)
___________________________________________________________________________
14
(a) The majority of J.P. Morgan's asset and liability management
derivatives
are transacted with independently managed J.P. Morgan derivatives dealers
that function as intermediaries for credit and administrative purposes.
(b) The notional amounts of asset and liability management derivatives
contracts conducted in the foreign exchange markets, primarily forward
contracts, amounted to $22.4 billion at June 30, 1995, and were primarily
denominated in the following currencies: Deutsche mark $4.9 billion,
Japanese yen $3.9 billion, Italian lira $2.2 billion, Belgian franc $1.9
billion, British pound $2.1 billion, Spanish peseta $1.6 billion, Swiss
franc $1.5 billion, and French franc $1.4 billion.
(c) The notional amount of risk-adjusting swaps was $263.7 billion at June
30, 1995.
(d) Total credit exposure related to derivatives increased from $19.5
billion at December 31, 1994, primarily due to the impact of the weakening
of the U.S. dollar and declines in European and Japanese interest rates,
partially offset by increased benefit from master netting agreements at
June 30, 1995.
(e) At June 30, 1995, purchased options used for trading purposes
included $370.8 billion of interest rate options, $66.0 billion of
foreign exchange options, and $31.0 billion of commodity and equity
options. Only interest rate options are used for asset and liability
management purposes. Purchased options executed on an exchange amounted
to $222.3 billion and those negotiated over-the-counter amounted to
$248.6 billion at June 30, 1995.
(f) At June 30, 1995, written options used for trading purposes included
$369.6 billion of interest rate options, $69.2 billion of foreign
exchange options, and $32.4 billion of commodity and equity options.
Written option contracts executed on an exchange amounted to $194.1
billion and those negotiated over-the-counter amounted to $277.1 billion
at June 30, 1995.
Asset and liability management derivatives
As an end user, J.P. Morgan utilizes derivative instruments in the
execution of its asset and liability management strategies. Derivatives
used for these purposes primarily include interest rate swaps, foreign
exchange forward contracts, forward rate agreements, interest rate futures,
and debt securities forwards. Derivatives are used to hedge or modify the
interest rate characteristics of debt investment securities, loans,
deposits, other liabilities for borrowed money, long-term debt, and other
financial assets and liabilities. In addition, we utilize derivatives to
adjust our overall interest rate risk profile primarily through the use of
risk-adjusting swaps.
Net unrealized gains associated with open derivative contracts used to
hedge or modify the interest rate characteristics of related balance sheet
instruments amounted to $128 million at June 30, 1995. Gross unrealized
gains and gross unrealized losses associated with open derivative contracts
used for these purposes at June 30, 1995, are presented below. Such
amounts primarily relate to interest rate and currency swaps used to hedge
or modify the interest rate characteristics of long-term debt and debt
investment securities, principally mortgage-backed securities. See Note 8
to the financial statements, Fair value of financial instruments.
Gross Gross Net
unrealize unrealiz unrealized
d ed
In millions gains losses gains/(loss
es)
___________________________________________________________________________
_______
Debt investment $ 28 $ 19 $ 9
securities
Long-term debt 199 59 140
Deposits 30 48 (18)
Other financial 29 32 (3)
instruments
___________________________________________________________________________
_______
Total 286 158 128
___________________________________________________________________________
_______
15
Net unrealized gains associated with risk-adjusting swaps and their related
hedges that are entered into to meet longer-term asset and liability
management objectives approximated $0.6 billion at June 30, 1995. The net
amount is composed of $3.5 billion of gross unrealized gains and $2.9
billion of gross unrealized losses. The unrealized gains and losses
related to the derivative contracts used to hedge these risk-adjusting
swaps were not material at June 30, 1995. There were no material
terminations of risk-adjusting swaps during the three months and six months
ended June 30, 1995.
Credit-related financial instruments
Credit-related financial instruments include commitments to extend
credit, standby letters of credit and guarantees, and indemnifications in
connection with securities lending activities. The contractual amounts
of these instruments represent the amounts at risk should the contract be
fully drawn upon, the client default, and the value of any existing
collateral become worthless. The credit risk associated with these
instruments varies depending on the creditworthiness of the client and
the value of any collateral held. The maximum credit risk associated
with credit-related financial instruments is measured by the contractual
amounts of these instruments.
A summary of the contractual amount of credit-related financial
instruments at June 30, 1995, is presented in the following table.
June 30
In billions 1995
_________________________________________________________________________
__
Commitments to extend credit $50.6
Standby letters of credit and guarantees 10.1
Securities lending indemnifications (a) 19.5
_________________________________________________________________________
__
(a) At June 30, 1995, J.P. Morgan held cash and other collateral of $19.4
billion in support of securities lending indemnifications.
Other
Consistent with industry practice, amounts receivable and payable for
securities that have not reached the contractual settlement dates are
recorded net on the consolidated balance sheet. Amounts receivable for
securities sold of $29.3 billion were netted against amounts payable for
securities purchased of $27.4 billion to arrive at a net trade date
receivable of $1.9 billion, which was classified as Other assets on the
consolidated balance sheet at June 30, 1995.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, J.P. Morgan estimates that the aggregate net fair
value of all balance sheet and off-balance-sheet financial instruments
exceeded associated net carrying values at June 30, 1995, by
approximately $1.8 billion before considering income taxes, compared with
$2.2 billion at December 31, 1994. Such amounts were primarily
attributable to net appreciation on net loans and risk-adjusting swaps of
$1.2 billion and $0.6 billion, respectively, at June 30, 1995 and $1.2
billion and $0.8 billion, respectively, at December 31, 1994.
16
9. NONPERFORMING ASSETS AND ALLOWANCE FOR CREDIT LOSSES
Total nonperforming assets, net of charge-offs, at June 30, 1995, are
presented in the following table.
June 30
In millions 1995
___________________________________________________________________________
_______
Nonaccrual loans:
Commercial and industrial $127
Other 56
___________________________________________________________________________
_______
183
Restructuring countries 3
___________________________________________________________________________
_______________________
Total nonaccrual loans 186 (a
)
___________________________________________________________________________
_______
Other nonperforming assets 1
___________________________________________________________________________
_______
Total nonperforming assets 187
___________________________________________________________________________
_______
An analysis of the effect of nonaccrual loans, net of charge-offs, on
interest revenue in the three months and six months ended June 30, 1995, is
presented in the following table.
Second Six months
quarter
In millions 1995 1995
___________________________________________________________________________
_______
Interest revenue that would have
been recorded if accruing $4 $9
Less interest revenue recorded 5 19
___________________________________________________________________________
_______________________
Positive impact of nonaccrual loans
on interest revenue 1 10
___________________________________________________________________________
_______
An analysis of the allowance for credit losses at June 30, 1995, is
presented in the following table.
Second Six months
quarter
In millions 1995 1995
___________________________________________________________________________
_______________________
Beginning of period balance $1,132 $1,131
___________________________________________________________________________
_______________________
Recoveries 18 27
Charge-offs:
Commercial and industrial (14) (20)
Restructuring countries - -
Other (4) (6)
___________________________________________________________________________
_______
Net charge-offs - 1
___________________________________________________________________________
_______
Balance, June 30, 1995 (b) 1,132 1,132 (c)
___________________________________________________________________________
_______
(a) As of June 30, 1995, J.P. Morgan's nonaccrual loan balances do not
require a related impairment allowance, as calculated in accordance with
SFAS No. 114. Thus, the amount of total nonaccrual loans at June 30, 1995,
for which there was no related allowance for credit losses in accordance
with SFAS No. 114 was $186 million. For the three months and six months
ended June 30, 1995, the average recorded investment in nonaccrual loans
was $206 million and $208 million, respectively.
(b) In accordance with SFAS No. 5, Accounting for Contingencies, and SFAS
No. 114, an allowance is maintained that is considered adequate to absorb
losses inherent in the existing portfolios of loans and other undertakings
to extend credit, such as irrevocable unused loan commitments, or to make
payments to others for which a client is ultimately liable, such as standby
letters of credit and guarantees, commercial letters of credit and
acceptances, and all other credit exposures, including derivatives. A
judgment as to the adequacy of the allowance is made at the end of each
quarterly reporting period.
(c) At June 30, 1995, the allocation of the allowance for credit losses
was as follows: Specific allocation - borrowers in the U.S. $74 million,
Specific allocation - borrowers outside the U.S. $111 million, Allocation
to general risk $947 million.
17
10. CORPORATE FINANCE AND OTHER REVENUE
In the second quarter of 1995 and 1994, Corporate finance revenue
includes $41 million and $25 million, respectively, of underwriting
revenue. For the six months ended June 30, 1995 and 1994, underwriting
revenue was $63 million and $70 million, respectively.
Other revenue of $167 million in the 1995 second quarter includes
$132 million of net equity investment securities gains. Other revenue of
$254 million in the 1994 second quarter includes net equity investment
securities gains of $264 million, of which $255 million was generated
from the sale of a portion of the firm's investment in Columbia/HCA
common stock.
For the six months ended June 30, 1995, Other revenue of $316
million primarily includes net equity investment securities gains of $295
million. Other revenue of $357 million for the six months ended June 30,
1994, primarily includes net equity investment securities gains of $361
million and $54 million of hedging losses related to the management of
non-trading foreign currency exposures.
11. INCOME TAXES
Income tax expense in the 1995 second quarter reflects a 32% effective
tax rate, compared to a 34% effective tax rate in the 1994 second
quarter. For the six months ended June 30, 1995, the effective tax rate
was 33% versus 35% for the comparable 1994 period. Income tax expense
related to net investment securities gains was approximately $13 million
and $17 million for the three months and six months ended June 30, 1995,
respectively, compared with approximately $14 million and $52 million for
the respective 1994 periods, and was computed at a rate of approximately
41%.
The valuation allowance to reduce deferred tax assets to the amount
expected to be realized totaled $140 million at December 31, 1994. The
valuation allowance is primarily related to the ability to recognize tax
benefits associated with foreign operations. The balance of the
valuation allowance has not changed materially since December 31, 1994.
12. COMMITMENTS AND CONTINGENT LIABILITIES
Excluding mortgaged properties, assets carried at approximately $51.0
billion in the consolidated balance sheet at June 30, 1995, were pledged
as collateral for borrowings, to qualify for fiduciary powers, to secure
public monies as required by law, and for other purposes.
18
13. EARNINGS PER COMMON SHARE
In the calculation of primary and fully diluted earnings per common
share, net income is adjusted by adding back to net income the interest
expense on convertible debentures and the expense related to dividend
equivalents on certain deferred incentive compensation awards, net of the
related income tax effects, and deducting the preferred stock dividends.
Primary and fully diluted earnings per common share are computed by
dividing income components by the weighted-average number of common and
common equivalent shares outstanding during the period.
For the primary earnings per share calculation, the weighted-average
number of common and common equivalent shares outstanding includes the
average number of shares of common stock outstanding, the average number
of shares issuable upon conversion of convertible debentures, and the
average number of shares issuable under employee benefit plans that have
a dilutive effect.
The weighted-average number of common and common equivalent shares
outstanding, assuming full dilution, includes the average number of
shares of common stock outstanding, the average number of shares issuable
upon conversion of convertible debentures, and the average number of
shares issuable under various employee benefit plans. The maximum
dilutive effect is computed using the period-end market price of J.P.
Morgan common stock, if it is higher than the average market price used
in calculating primary earnings per share.
Second
quarter
Dollars in millions 1995 1994
___________________________________________________________________________
____
Adjusted net income $ 310 $ 346
Primary earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 198,241,30 200,011,0
1 49
Fully diluted earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 198,920,49 200,011,1
9 11
___________________________________________________________________________
____
Six months
Dollars in millions 1995 1994
___________________________________________________________________________
____
Adjusted net income $ 559 $687
Primary earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 197,724,06 200,473,4
9 03
Fully diluted earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 199,082,09 200,473,7
5 49
___________________________________________________________________________
____
19
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
J.P. Morgan & Co. Incorporated reported net income of $315 million in the
second quarter of 1995, down 10% from the second quarter of 1994. Net
income in the first quarter of this year was $255 million, including a
special charge of $55 million ($33 million after tax, or $0.17 per share)
related primarily to severance. Second quarter earnings per share were
$1.56 versus $1.73 a year earlier and $1.27 in the 1995 first quarter.
Net income for the first six months of 1995 totaled $570 million,
including the special charge, compared with $695 million in the first six
months of 1994. Six-month earnings per share were $2.83 versus $3.43 a
year ago.
SECOND QUARTER RESULTS AT A GLANCE
First
In millions of dollars, Second quarter quarter
except per share data 1995 1994 1995
___________________________________________________________________________
__
Revenues $1,449 $1,466 $ 1,388
Operating expenses (984) (936) (1,002)
Income taxes (150) (180) (131)
___________________________________________________________________________
___
Net income $ 315 $ 350 $ 255
Net income per share $ 1.56 $ 1.73 $ 1.27
___________________________________________________________________________
___
Dividends declared per $ 0.75 $ 0.68 $ 0.75
share
_________________________________________________________________________
_____
REVENUES in the second quarter were approximately even with those of a
year ago:
-Combined trading and related net interest revenue rose 10% to
$333 million.
-Corporate finance revenue was up 34% to $117 million. Morgan's
market share in capital raising grew, and advisory fees
increased. Investment management fees also rose, while credit-
related fees were lower.
-Net equity investment securities gains were $132 million in the
second quarter versus $264 million in the corresponding 1994
quarter.
OPERATING EXPENSES rose 5% from a year ago.
IN OTHER DEVELOPMENTS, J.P. Morgan has agreed to sell its U.S., U.K.,
and global securities custody businesses, its local custody and
securities clearing businesses in Continental Europe, and its U.S.
commercial paper issuing and paying agency business. The firm also
announced that it would outsource certain cash and check-processing
services. These activities, which represented approximately 5% of
consolidated total revenue for the six month period ended June 30,
1995, are expected to produce a net gain, to be recorded over time, and
are expected to have no material effect on Morgan's ongoing
consolidated results.
20
BUSINESS SECTOR RESULTS
The firm reports financial results for five business sectors. Three are
oriented toward client services: Asset Management and Servicing, Finance
and Advisory, and Sales and Trading. The Equity Investments sector
comprises management of the firm's own portfolio of equity securities.
The Asset and Liability Management sector covers the management of the
firm's overall interest rate exposure. These five sectors generally
reflect the way we operate but do not correspond exactly with the firm's
organizational structure. Presented below are the summary results for
each sector for the three months ended June 30, 1995 and 1994 and the six
months ended June 30, 1995 and 1994.
Asset Asset
Manageme Financ Sales Equit and
nt e y
and and and Inves Liabilit Corpora Consol
t- y te i-
In millions Servici Adviso Tradi ments Manageme Items dated
ng ry ng nt
___________________________________________________________________________
____________
Second
quarter
1995
Total $418 $367 $344 $151 $290 ($121) $1,449
revenue
Total 347 289 289 6 25 28 984
expenses
___________________________________________________________________________
_____________
Pretax 71 78 55 145 265 (149) 465
income
___________________________________________________________________________
_____________
Second
quarter
1994
Total 424 263 278 267 216 18 1,466
revenue
Total 311 273 289 7 24 32 936
expenses
___________________________________________________________________________
____________
Pretax 113 (10) (11) 260 192 (14) 530
income
___________________________________________________________________________
_____________
Six months
1995
Total 828 687 729 324 530 (261) 2,837
revenue
Total 671 565 584 12 48 106 1,986
expenses
___________________________________________________________________________
_____________
Pretax 157 122 145 312 482 (367) 851
income
___________________________________________________________________________
_____________
Six months
1994
Total 858 555 598 374 497 (25) 2,857
revenue
Total 612 517 546 12 46 55 1,788
expenses
___________________________________________________________________________
_____________
Pretax 246 38 52 362 451 (80) 1,069
income
___________________________________________________________________________
__________________
Notes:
(1) The firm's management reporting system and policies were used to
determine the revenues and
expenses directly attributable to each sector on a taxable-equivalent
basis. In addition, earnings
on stockholders' equity and certain overhead expenses not allocated for
management reporting purposes were allocated to each business sector.
Earnings on stockholders' equity were allocated based on management's
assessment of the inherent risk of each sector. Overhead expenses were
allocated based primarily on staff levels and represent costs associated
with various support functions that exist for the benefit of the firm as a
whole.
(2) In the three months ended June 30, 1995 and 1994, $150 million and
$180 million, respectively, related to income taxes were not allocated to
the business sectors. In the six months ended June 30, 1995 and 1994, $281
million and $374 million respectively, related to income taxes were not
allocated to the business sectors.
21
Asset Management and Servicing
The Asset Management and Servicing sector recorded pretax income of $71
million in the second quarter of 1995 compared with $113 million in the
year-earlier period, a decrease of $42 million or 37%. Revenues of $418
million in the second quarter of 1995 were essentially unchanged from the
$424 million in the second quarter of 1994. Revenues from securities-
related services declined, primarily due to lower securities lending fees,
while revenues from asset management increased reflecting an increase in
assets under management, primarily from net new business.
Expenses associated with the Asset Management and Servicing sector
were $347 million in the second quarter of 1995 compared with $311 million
in the second quarter of 1994. The 12% increase in expenses primarily
relates to higher employee compensation and benefits associated with an
increase in staff levels.
Revenues of $828 million for the six month period decreased $30
million from 1994. Expenses for the six month period ended June 30, 1995
increased 10% from 1994 to $671 million.
As previously reported, J.P. Morgan agreed to sell its U.S., U.K.,
and global securities custody businesses, its local custody and securities
clearing businesses in Continental Europe, and its U.S. commercial paper
issuing and paying agency business. J.P. Morgan also announced that it
would outsource certain cash and check-processing services. The moves
reflect a sharpening of the firm's strategic focus on core global banking
activities. These activities represented approximately 20% of the Asset
Management and Servicing sector revenues for the six month period ended
June 30, 1995.
We will continue to provide operational services that complement our
core global banking activities, such as the administration of American and
other depositary receipts as well as U.S. money transfer, and global trust
and agency services. J.P. Morgan's role as operator of the Euroclear
System, the world's largest clearance and settlement system for
internationally traded securities, will not be affected by these actions.
Finance and Advisory
The Finance and Advisory sector recorded pretax income of $78 million in
the second quarter of 1995 compared with a loss of $10 million a year ago.
Total revenue in the second quarter increased 40% to $367 million from
$263 million in the second quarter of 1994 due to higher equities
revenues, primarily from equity derivatives. Revenues from our
underwriting activity and higher advisory and syndication fees also
contributed to the increase.
Expenses in the second quarter for the Finance and Advisory sector
were $289 million compared with $273 million in the second quarter of
1994, an increase of 6% due primarily to increased staff levels.
Revenues for the six month period increased $132 million from 1994.
Expenses for the same period increased $48 million or 9% from 1994.
22
Sales and Trading
The Sales and Trading sector recorded pretax income of $55 million in the
second quarter of 1995 up $66 million from the $11 million pretax loss in
the 1994 second quarter. Total revenue in the second quarter of 1995 was
$344 million compared with $278 million in the second quarter of 1994.
The increase in revenues reflects improved performance in Latin America
and Asia that was partially offset by mortgage-backed securities results.
Total expenses for the Sales and Trading sector of $289 million were
unchanged from the second quarter of 1994.
Total revenue of $729 million for the six months was an increase of
$131 million from 1994. Total expenses increased $38 million or 7% from
last year.
Equity Investments
Equity Investments recorded pretax income of $145 million in the second
quarter of 1995 compared with $260 million in the second quarter of 1994.
Total revenue was $151 million, compared with $267 million in the second
quarter of 1994. The 1995 second quarter reflected net equity investment
securities gains of $132 million, versus $264 million in the year-earlier
quarter, when $255 million was generated from the sale of a portion of the
firm's investment in Columbia / HCA Corporation common stock. Total
revenue for the six month period was $324 million compared with $374
million in 1994. Net unrealized appreciation on the combined portfolio of
marketable and nonmarketable equity investment securities was $553 million
at June 30, 1995, compared with $596 million at March 31, 1995.
The results of the Equity Investment portfolio are also evaluated on
an economic basis using total return. In the second quarter of 1995,
total return was $108 million. Total return for the six months ended June
30, 1995, was $205 million. As our investment strategy covers a longer-
term horizon, total return viewed over short periods will reflect the
impact of short-term market movements, including industry specific events.
Asset and Liability Management
Asset and Liability Management recorded pretax income of $265 million in
the second quarter of 1995 compared with $192 million in the same period a
year ago. Total revenue, which primarily includes net interest revenue
and net investment securities gains, was $290 million and $216 million for
the second quarter of 1995 and 1994 respectively, with the increase due
primarily to activities in the United States. Total unrealized
appreciation on asset and liability management financial instruments,
principally risk adjusting swaps and debt investment securities, was $701
million at June 30, 1995, and $961 million at March 31, 1995. The decline
in unrealized appreciation was primarily due to the recognition of net
interest revenue. Total revenue increased $33 million to $530 million for
the six month period ended June 30, 1995.
As our objective in Asset and Liability Management is to create
longer-term value through the management of interest rate risk related to
J.P. Morgan's assets, liabilities, and off-balance-sheet activities, the
performance of the Asset and Liability Management sector, similar to that
of the Equity Investments sector, is evaluated on an
economic basis using total return. Total return in the second quarter of
1995 was $30 million. Total return for the six month period ended June
30, 1995 was $159 million.
During the twelve months ended June 30, 1995, monthly value at risk
averaged approximately $95 million and ranged from approximately $76
million to $111 million. (This equates to average daily earnings at risk
of approximately $21 million and a range of approximately $17 million to
$24 million.) During the same twelve-month period, monthly total return
was consistently within the range of monthly value at risk.
23
Corporate Items
Corporate Items consists of intercompany eliminations, the taxable
equivalent adjustment, which is calculated to gross-up tax exempt interest
on a taxable basis, and certain revenue and expense items that have not
been allocated to the sectors. Because of the nature of these items,
revenues and expenses will vary from period to period.
Corporate Items in the second quarter of 1995 consisted primarily of
intercompany eliminations and the taxable equivalent adjustment of $27
million. Corporate Items for the second quarter of 1994 included $50
million in interest revenue associated with income tax refunds, past due
interest claims from Brazil, the taxable equivalent adjustment of $30
million, and intercompany eliminations. Corporate Items for the six
months of 1995 consisted primarily of intercompany eliminations, the
taxable equivalent adjustment of $56 million, a $55 million charge related
primarily to severance, and other items not allocated to sectors.
24
FINANCIAL STATEMENT ANALYSIS
REVENUES
Revenues totaled $1.449 billion in the second quarter of 1995, compared
with $1.466 billion a year earlier.
Net interest revenue totaled $508 million in the second quarter of
1995, compared with $540 million in the year-earlier quarter. The 1994
quarter included approximately $35 million of past-due interest payments on
Brazilian assets and $50 million in interest revenue associated with income
tax refunds. Excluding these items, net interest revenue rose 12% from the
1994 second quarter, primarily due to asset and liability management
activities, principally in the United States. Net interest revenue for the
first six months of 1995 was $1.008 billion compared with $937 million
earned in the first six months of 1994. Excluding $105 million related to
past-due interest on Brazilian and Argentine assets and the interest on
income tax refunds, net interest revenue increased 21% from the first half
of 1994.
The following table provides J.P. Morgan's interest-rate-sensitivity
gap at June 30, 1995, including the asset and liability interest-rate-
sensitivity gap and the effect of derivatives on the gap. The resulting
interest-rate-sensitivity gap is presented by U.S. dollar and non-U.S.
dollar currency components and reflects J.P. Morgan's market outlook at
June 30, 1995. Significant variances in interest rate sensitivity may
exist at other dates not presented in the table. Amounts in parentheses
reflect liability sensitive positions.
By repricing or maturity dates
___________________________________________________________________________
________________________
After After
six one
months year
Within but but After
six within within five
In millions months one five years
year
___________________________________________________________________________
________________________
JUNE 30, 1995
Asset and liability interest-
rate-sensitivity gap $(1,459 $(2,570 $8,060 $4,844
) )
Derivatives affecting interest
rate sensitivity 1,224 5,124 (6,962 613
)
___________________________________________________________________________
________________________
Interest-rate-sensitivity gap (235) 2,554 1,098 5,457
(a)
___________________________________________________________________________
________________________
(a) Components of interest-
rate-
sensitivity gap:
U.S. dollar (301) (2,344) 516 5,529
Non-U.S. dollar* 66 4,898 582 (72)
___________________________________________________________________________
_______________
Total (235) 2,554 1,098 5,457
___________________________________________________________________________
_______________
* Primarily yen, deutsche mark, French franc, Belgian franc, and sterling
positions.
25
Trading revenue increased 34% to $305 million from the second quarter of
1994. Reported trading revenue does not include net interest revenue
associated with trading activities, which was $28 million in the second
quarter of 1995 and $74 million in the second quarter of 1994. In the
first six months of 1995 trading revenue was $608 million, compared with
$584 million in the 1994 first half. The following presents an analysis of
trading results, including the related amount of net interest revenue, in
the principal markets in which we participate, for the three months and six
months ended June 30, 1995 and 1994.
Foreign
Swaps and exchange
other spot and Equities
interest Debt option and
rate
In millions contracts instrumen contract commoditi Total
ts s es
___________________________________________________________________________
_______
SECOND QUARTER
1995
Trading revenue $100 $ 73 $ 24 $108 $305
Net interest 6 63 (1) (40) 28
revenue
___________________________________________________________________________
_______
Combined total 106 136 23 68 333
___________________________________________________________________________
_______
SECOND QUARTER
1994
Trading revenue 126 (3) 27 78 228
Net interest 6 87 (5) (14) 74
revenue
___________________________________________________________________________
_______
Combined total 132 84 22 64 302
___________________________________________________________________________
_______
SIX MONTHS 1995
Trading revenue 176 167 94 171 608
Net interest 13 131 (2) (53) 89
revenue
___________________________________________________________________________
_______
Combined total 189 298 92 118 697
___________________________________________________________________________
_______
SIX MONTHS 1994
Trading revenue 392 33 37 122 584
Net interest 15 144 (10) (30) 119
revenue
___________________________________________________________________________
_______
Combined total 407 177 27 92 703
___________________________________________________________________________
________
26
Combined trading and related net interest revenue rose 10% to $333 million
from a year earlier. Combined revenue from debt instruments was $136
million, an increase of $52 million from a year earlier, with improved
performance in Latin America and Asia that was partially offset by mortgage-
backed securities results. Combined revenue from equities and commodities
was up slightly in the second quarter, as was combined revenue from foreign
exchange. Combined trading and net interest revenue from swaps and other
interest rate contracts totaled $106 million versus $132 million a year
ago. Combined trading and related net interest revenue for the first six
months of 1995 was $697 million, compared with $703 million in the same
period in 1994.
Market risk profile
J.P. Morgan employs a value at risk methodology to estimate the potential
losses that could arise from adverse changes in market conditions within a
95% confidence interval, referred to as "Daily Earnings at Risk" (DEaR).
The DEaR estimate for our combined trading activities averaged
approximately $16 million for the twelve-month period ended June 30, 1995,
and ranged from approximately $10 million to $31 million. Daily combined
trading-related revenue averaged $6.2 million during the twelve-month
period ended June 30, 1995. The frequency distribution of daily revenues
around this average, relative to related DEaR estimates, fell within our
expected confidence bands.
Corporate finance revenue rose 34% to $117 million in the second quarter
from the year-earlier quarter. Underwriting revenue totaled $41 million,
64% higher than the corresponding 1994 quarter, and advisory and
syndication fees increased 23% to $76 million. Corporate finance revenue
for the first six months of 1995 was $231 million, compared with $204
million for the six months of 1994. Underwriting revenue for the first six
months of 1995 was $63 million, versus $70 million in the comparable 1994
period.
Credit-related fees were $41 million in the second quarter, 25% lower
than in the second quarter of 1994, primarily due to lower securities
lending revenue. In the first six months of this year, credit-related fees
were $84 million compared with $111 million in the same period of 1994.
Investment management fees increased 9% to $138 million from a year
earlier, reflecting an increase in assets under management, primarily from
net new business. The six-month total increased 6% to $268 million.
27
Operational service fees in the second quarter totaled $140 million,
unchanged from a year ago. For the first six months of 1995, operational
service fees were $280 million, versus $284 million in the 1994 period.
Net investment securities gains were $33 million in the second
quarter, compared with net gains of $35 million in the second quarter of
1994. For the 1995 six-month period, net investment securities gains were
$42 million, compared with $126 million in the first six months of 1994.
Other revenue was $167 million in the second quarter, compared with
$254 million in the 1994 second quarter. The 1995 second quarter reflected
net equity investment securities gains of $132 million, versus $264 million
in the year-earlier quarter, when $255 million was generated from the sale
of a portion of the firm's investment in Columbia/HCA Corporation common
stock. For the first six months of 1995, other revenue was $316 million,
versus $357 million in the comparable 1994 period. Net equity investment
securities gains in the first half were $295 million, compared with $361
million for the first six months of 1994.
OPERATING EXPENSES
Operating expenses were $984 million in the second quarter of 1995, 5%
higher than a year earlier. The weakening in the dollar's value accounted
for 3 percentage points of the increase. Employee compensation and
benefits expenses rose, mostly due to an increase in salary expense
reflecting growth in staff from a year ago. Technology and communications
expenses were $165 million, 14% higher than a year ago, mainly reflecting
expenditures on business support and development and increases in market
information costs.
Expense management initiatives begun in the first quarter of 1995
continued into the second quarter. Excluding the special charge in the
first quarter of 1995, operating expenses rose 4% from the prior quarter
because of an increase in accrued incentive compensation in line with
higher earnings. Expenses other than employee compensation and benefits
were lower than in the first quarter of 1995. At June 30, 1995, staff
totaled 16,267 employees compared with 17,055 employees at December 31,
1994.
Operating expenses in the first six months of 1995, including the $55
million charge in the first quarter, increased 11% to $1.986 billion.
Excluding the special charge, operating expenses rose 8% from the
comparable 1994 period.
Income tax expense of $150 million in the second quarter reflects an
effective tax rate of 32%, down from an effective tax rate of 34% in the
second quarter of 1994. For the six months ended June 30, 1995, the
effective tax rate was 33% versus 35% for the comparable 1994 period.
ASSETS
Total assets were $167 billion at June 30, 1995, unchanged from the total
at March 31, 1995. Nonperforming assets decreased by $30 million to $187
million during the second quarter as new classifications were more than
offset by charge-offs, and sales and repayments. No provision for credit
losses was deemed necessary in the 1995 second quarter. The allowance for
credit losses was $1.132 billion at June 30, 1995.
28
FOREIGN-COUNTRY-RELATED OUTSTANDINGS
Foreign-country-related outstandings represent outstandings to foreign
borrowers that are denominated in U.S. dollars or currencies other than the
borrower's local currency or, in the case of a guarantee, other than the
guarantor's local currency. Countries in which J.P. Morgan's outstandings
exceeded 1.0% of total assets at June 30, 1995, are listed in the following
table. Outstandings include loans, interest-earning deposits with banks,
investment securities, customers' acceptance liability, securities
purchased under agreements to resell, trading account securities, accrued
interest, and other monetary assets. Outstandings generally are
distributed according to the location of the borrower. In the case of
guaranteed outstandings or when tangible, liquid collateral is held and
realizable outside the obligor's country, distribution is generally made
according to the location of the guarantor or the location where the
collateral is held and realizable.
In millions Cross-border outstandings (a
)
_____________________________________________________________________
United Kingdom $5,552
France 2,831
_____________________________________________________________________
At June 30, 1995, Switzerland's cross-border outstandings were $1,449
million, between 0.75% and 1.0% of total assets.
(a) Mexican cross-border outstandings at June 30, 1995, were $917 million,
less than 0.75% of total assets. Not included in Mexican cross-border
outstandings are United Mexican States (UMS) bonds, substantially all of
which have been sold forward, that are collateralized by U.S. Treasury
securities. If the book value of these bonds, which is discussed below,
had been included, total Mexican cross-border outstandings would have
exceeded 1.0% of total assets at June 30, 1995.
The UMS bonds are collateralized as to principal by zero-coupon U.S.
Treasury securities with face value equal to the face value of the
underlying bonds. The collateral, which will become available when the UMS
bonds mature, is pledged to the holders of the bonds and is held by the
Federal Reserve Bank of New York.
U.S.
Treasu
ry
In millions UMS bonds collateral
______________________________________ __________________
Book Face Market Fair
value value value value
___________________________________________________________________________
________________________
JUNE 30, 1995
Due in 2008 $1,093 $1,128 $996 $477
Due in 2019 941 1,165 833 205
___________________________________________________________________________
_______
29
CAPITAL
June 30 March 31 December June 30
31
Dollars in billions 1995 1995 1994 1994
_____________________________________________________________________________
_________________
Total stockholders' equity $ 9.9 $ 9.6 $ 9.6 $ 9.7
Annualized rate of return
on
average common 13.4 % 11.1 % 8.1 % 14.8 %
stockholders'
equity (a) (b)
As percent of period-end
total
assets:
Common equity 5.6 5.5 5.9 5.8
Total equity 5.9 5.8 6.2 6.1
Book value per common $48.14 $47.19 $46.73 $46.86
share (c)
Risk-based capital:
Tier 1 risk-based capital $ 8.6 $ 8.4 $ 8.3 $ 8.2
Total risk-based capital 12.7 12.4 12.2 11.9
Risk adjusted assets 99.0 94.1 86.2 87.9
Capital ratios:
J.P. Morgan
Tier 1 ratio 8.7 % 8.9 % 9.6 % 9.3 %
Total ratio 12.8 13.2 14.2 13.5
Leverage ratio 6.0 5.9 6.5 6.2
Morgan Guaranty Trust
Company of New York
Tier 1 ratio 8.3 % 8.2 % 9.7 % 9.3 %
Total ratio 10.7 10.6 12.6 12.6
Leverage ratio 5.2 5.1 5.5 5.2
___________________________________________________________________________
_________________________
(a) Represents the annualized rate of return on average common
stockholders' equity for the three months ended June 30, 1995, March 31,
1995, December 31, 1994, and June 30, 1994. Excluding the impact of SFAS
No. 115, the annualized rate of return on average common stockholders'
equity would have been 14.1%, 11.7%, 8.6% and 16.6% for the three months
ended June 30, 1995, March 31, 1995, December 31, 1994, and June 30, 1994,
respectively.
(b) The annualized rate of return on average common stockholders' equity
for the six months ended June 30, 1995 and 1994 was 12.3% and 14.8%,
respectively. Excluding the impact of SFAS No. 115, the annualized rate
of return on average common stockholders' equity would have been 12.9% and
16.7% for the six months ended June 30, 1995 and 1994, respectively.
(c) Excluding the impact of SFAS No. 115, the book value per common share
would have been $45.78, $44.87, $44.39 and $43.36 for the three months
ended June 30, 1995, March 31, 1995, December 31, 1994, and June 30, 1994,
respectively.
30
J.P. Morgan's risk-based capital and leverage ratios remain well above the
minimum standards set by the Federal Reserve Board. In accordance with the
Federal Reserve Board guidelines, the risk-based capital and leverage
ratios exclude the equity, assets and off-balance-sheet exposures of J.P.
Morgan Securities, Inc. and the effect of SFAS No. 115.
At June 30, 1995, stockholders' equity included approximately $459
million of net unrealized appreciation on debt investment and marketable
equity investment securities, net the related deferred tax liability of
$287 million. This compares with $449 million of net unrealized
appreciation at March 31, 1995. The unrealized appreciation on debt
investment securities was $283 million and $227 million at June 30, 1995,
and at March 31, 1995, respectively. The unrealized appreciation on
marketable equity investment securities was $463 million at June 30, 1995,
and $498 million at March 31, 1995.
31
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
_________________
Dollars in millions, Three months ended
interest and average rates ______________________________________________
_________
on a taxable-equivalent basis June 30, 1995 June 30, 1994
______________________________________________
_________
Avera Averag Avera Avera
ge e ge ge
balan Intere rate balan Intere rate
ce st ce st
______________________________________________
_________
ASSETS
Interest-earning deposits with
banks, $ $ 44 10.68 % $ $ 46 8.42 %
mainly in offices outside 1,652 2,192
the U.S.
Debt investment securities in
offices in the U.S. (a):
U.S. Treasury 2,785 43 6.19 1,536 19 4.96
U.S. state and political
subdivision 2,066 64 12.43 2,231 68 12.23
Other 11,49 215 7.51 10,24 125 4.89
0 5
Debt investment securities in
offices 4,318 73 6.78 6,232 104 6.69
outside the U.S. (a)
Trading account assets:
In offices in the U.S. 12,39 203 6.57 14,62 243 6.67
7 1
In offices outside the 23,58 580 9.86 25,14 429 6.84
U.S. 5 9
Securities purchased under
agreements
to resell and federal funds 30,24 443 5.87 31,71 375 4.74
sold, 6 7
mainly in offices in the
U.S.
Securities borrowed in offices
in 12,89 187 5.81 14,71 136 3.71
the U.S. 9 4
Loans:
In offices in the U.S. 6,602 115 6.99 7,807 106 5.45
In offices outside the 18,03 325 7.23 16,16 238 5.91
U.S. 7 1
Other interest-earning assets
(b):
In offices in the U.S. 1,128 72 * 924 49 *
In offices outside the 1,030 68 * 648 123 *
U.S.
___________________________________________________________________________
________________
Total interest-earning assets 128,2 2,432 7.61 134,1 2,061 6.16
35 77
Allowance for credit losses (1,13 (1,14
2) 2)
Cash and due from banks 1,829 1,882
Other noninterest-earning 45,57 38,71
assets 0 3
___________________________________________________________________________
_________________
Total assets 174,5 173,6
02 30
___________________________________________________________________________
_________________
Interest and average rates applying to the following asset categories have
been adjusted to a taxable-equivalent basis: Debt investment securities in
offices in the U.S., Trading account assets in offices in the U.S., and
Loans in offices in the U.S. The applicable tax rate used to determine
these adjustments was approximately 41% for the three months ended June 30,
1995 and 1994.
(a) For the three months ended June 30, 1995 and 1994, average debt
investment securities are computed based on historical amortized cost,
excluding the effects of SFAS No. 115 adjustments.
(b) Interest revenue includes the effect of certain off-balance-sheet
transactions.
* Not meaningful
32
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
_____________________________________________________________________________
_______________
Dollars in millions, Three months ended
interest and average rates ______________________________________________
_________
on a taxable-equivalent basis June 30, 1995 June 30, 1994
______________________________________________
_________
Avera Averag Avera Averag
ge e ge e
balan Intere rate balan Intere rate
ce st ce st
______________________________________________
_________
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
In offices in the U.S. $ $ 28 5.14 % $ $ 26 4.68 %
2,184 2,230
In offices outside the 42,39 588 5.56 34,59 410 4.75
U.S. 0 8
Trading account liabilities:
In offices in the U.S. 6,871 108 6.30 7,852 122 6.23
In offices outside the 10,96 224 8.20 10,78 172 6.40
U.S. 3 3
Securities sold under
agreements to
repurchase and federal funds
purchased, mainly in offices 39,45 605 6.15 51,24 546 4.27
in 8 8
the U.S.
Commercial paper, mainly in
offices 2,634 40 6.09 4,434 44 3.98
in the U.S.
Other interest-bearing
liabilities:
In offices in the U.S. 9,254 146 6.33 7,558 79 4.19
In offices outside the 1,731 18 4.17 2,314 30 5.20
U.S.
Long-term debt,
mainly in offices in the 8,692 140 6.46 5,570 62 4.46
U.S.
___________________________________________________________________________
_________________
Total interest-bearing 124, 1,897 6.13 126,5 1,491 4.72
liabilities 177 87
Noninterest-bearing deposits:
In offices in the U.S. 3,33 4,005
0
In offices outside the 1,36 1,754
U.S. 3
Other noninterest-bearing
liabilities 35,8 31,46
83 0
___________________________________________________________________________
_________________
Total liabilities 164,7 163,8
53 06
Stockholders' equity 9,749 9,824
___________________________________________________________________________
_________________
Total liabilities and
stockholders' 174,5 173,6
equity 02 30
Net yield on interest-earning 1.67 1.70
assets
___________________________________________________________________________
_________________
Net interest earnings 535 570
___________________________________________________________________________
_________________
33
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
___________________________________________________________________________
_________________
Dollars in millions, Six months ended
interest and average rates ______________________________________________
_________
on a taxable-equivalent basis June 30, 1995 June 30, 1994
______________________________________________
_________
Avera Averag Avera Avera
ge e ge ge
balan Intere rate balan Intere rate
ce st ce st
______________________________________________
_________
ASSETS
Interest-earning deposits with
banks, $ $ 103 10.60 % $ $ 95 8.34 %
mainly in offices outside 1,960 2,298
the U.S.
Debt investment securities in
offices in the U.S. (a):
U.S. Treasury 2,253 71 6.35 1,369 38 5.60
U.S. state and political
subdivision 2,108 129 12.34 2,227 135 12.22
Other 12,29 445 7.30 9,556 218 4.60
9
Debt investment securities in
offices 5,024 171 6.86 6,649 220 6.67
outside the U.S. (a)
Trading account assets:
In offices in the U.S. 12,86 444 6.96 14,15 433 6.17
6 5
In offices outside the 25,75 1,170 9.16 24,14 842 7.03
U.S. 4 2
Securities purchased under
agreements
to resell and federal funds 29,23 855 5.90 34,13 747 4.41
sold, 0 6
mainly in offices in the
U.S.
Securities borrowed in offices
in 14,10 401 5.73 14,98 251 3.38
the U.S. 3 6
Loans:
In offices in the U.S. 6,846 246 7.25 8,047 205 5.14
In offices outside the 17,31 613 7.14 16,45 478 5.86
U.S. 0 7
Other interest-earning assets
(b):
In offices in the U.S. 1,577 158 * 759 86 *
In offices outside the 839 125 * 762 179 *
U.S.
___________________________________________________________________________
________________
Total interest-earning assets 132,1 4,931 7.52 135,5 3,927 5.84
69 43
Allowance for credit losses (1,13 (1,14
2) 9)
Cash and due from banks 1,835 1,864
Other noninterest-earning 42,22 38,43
assets 3 5
___________________________________________________________________________
_________________
Total assets 175,0 174,6
95 93
___________________________________________________________________________
_________________
Interest and average rates applying to the following asset categories have
been adjusted to a taxable-equivalent basis: Debt investment securities in
offices in the U.S., Trading account assets in offices in the U.S., and
Loans in offices in the U.S. The applicable tax rate used to determine
these adjustments was approximately 41% for the six months ended June 30,
1995 and 1994.
(a) For the six months ended June 30, 1995 and 1994, average debt
investment securities are computed based on historical amortized cost,
excluding the effects of SFAS No. 115 adjustments.
(b) Interest revenue includes the effect of certain off-balance-sheet
transactions.
* Not meaningful
34
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
_____________________________________________________________________________
_______________
Dollars in millions, Six months ended
interest and average rates ______________________________________________
_________
on a taxable-equivalent basis June 30, 1995 June 30, 1994
______________________________________________
_________
Avera Averag Avera Averag
ge e ge e
balan Intere rate balan Intere rate
ce st ce st
______________________________________________
_________
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
In offices in the U.S. $ $ 52 4.93 % $ $ 53 4.57 %
2,129 2,341
In offices outside the 42,15 1,183 5.66 34,87 816 4.72
U.S. 1 8
Trading account liabilities:
In offices in the U.S. 7,136 249 7.04 7,648 226 5.96
In offices outside the 11,76 512 8.78 10,33 335 6.54
U.S. 2 0
Securities sold under
agreements to
repurchase and federal funds
purchased, mainly in offices 41,43 1,200 5.84 53,22 1,103 4.18
in 5 6
the U.S.
Commercial paper, mainly in
offices 2,606 79 6.11 3,996 73 3.68
in the U.S.
Other interest-bearing
liabilities:
In offices in the U.S. 9,395 291 6.25 7,630 141 3.73
In offices outside the 2,113 45 4.29 2,541 64 5.08
U.S.
Long-term debt,
mainly in offices in the 7,987 256 6.46 5,510 120 4.39
U.S.
___________________________________________________________________________
_________________
Total interest-bearing 126, 3,867 6.15 128,1 2,931 4.61
liabilities 714 00
Noninterest-bearing deposits:
In offices in the U.S. 3,34 4,175
2
In offices outside the 1,24 1,647
U.S. 9
Other noninterest-bearing
liabilities 34,1 30,93
32 6
___________________________________________________________________________
_________________
Total liabilities 165,4 164,8
37 58
Stockholders' equity 9,658 9,835
___________________________________________________________________________
_________________
Total liabilities and
stockholders' 175,0 174,6
equity 95 93
Net yield on interest-earning 1.62 1.48
assets
___________________________________________________________________________
_________________
Net interest earnings 1,064 996
___________________________________________________________________________
_________________
35
ASSET AND LIABILITY MANAGEMENT DERIVATIVES
The objective of asset and liability management is to create longer-
term value through the management of interest rate and liquidity risk
related to J.P. Morgan's assets, liabilities, and off-balance-sheet
activities. J.P. Morgan utilizes a variety of financial instruments,
including derivatives, in an integrated manner to achieve these
objectives. Additional information on asset and liability management
derivatives, primarily interest rate swaps, is provided below. For more
information about asset and liability management activities, see Note 7
to the financial statements, Off-balance-sheet financial instruments.
The table below summarizes maturities and weighted-average interest
rates to be received and paid on U.S. dollar and non-U.S. dollar asset and
liability management interest rate swaps at June 30, 1995. The majority of
asset and liability management interest rate swaps, as presented below, are
risk-adjusting swaps. Also included in the table are swaps designated as
hedges or used to modify the interest rate characteristics of assets and
liabilities. Variable rates presented are generally based on the London
Interbank Offered Rate (LIBOR) at June 30, 1995, and reset at predetermined
dates. The table was prepared under the assumption that these variable
interest rates remain constant. The variable interest rates to be received
or paid will change to the extent that rates fluctuate. Such changes may
be substantial.
Not included in the table below are other derivatives used for asset
and liability management purposes, such as currency swaps, basis swaps,
foreign exchange contracts, interest rate futures, forward rate agreements,
debt securities forwards, and purchased options, totaling $43.2 billion at
June 30, 1995. The contractual maturities of these derivative contracts
are primarily less than one year.
36
By expected maturities
___________________________________________________________________________
____________
Aft Aft Aft Aft
er er er er
one two thr fou
Wit yea yea ee r Aft
hin r rs yea yea er
Dollars in billions one but but rs rs fiv Tota
yea wit wit but but e l
r hin hin wit wit yea
two thr hin hin rs
ee fou fiv
r e
___________________________________________________________________________
___________
INTEREST RATE SWAPS -
U.S. DOLLAR
Receive fixed
swaps
Notional amount $18 $14 $ $ $ $ $50.
.7 .4 4.1 2.8 3.4 7.3 7
Weighted average:
Receive rate 6.2 % 6.9 % 6.9 % 8.0 % 7.1 % 7.15 % 6.80 %
7 4 1 9 8
Pay rate 6.1 6.3 6.1 6.2 6.0 6.11 6.20
3 5 4 8 9
Pay fixed swaps
Notional amount $14 $15 $ $ $ $ $53.
.1 .1 9.2 3.7 4.7 6.9 7
Weighted average:
Receive rate 6.1 % 6.1 % 6.1 % 6.2 % 6.1 % 6.21 % 6.16 %
1 8 6 1 0
Pay rate 5.2 6.6 6.1 5.9 6.8 7.24 6.23
7 1 2 7 0
INTEREST RATE SWAPS -
NON-U.S. DOLLAR
Receive fixed
swaps
Notional amount $37 $22 $13 $ $ $ $93.
.3 .0 .4 8.0 5.9 6.7 3
Weighted average:
Receive rate 5.9 % 6.8 % 6.7 % 5.9 % 7.0 % 7.49 % 6.46 %
8 1 0 8 4
Pay rate 4.8 5.6 5.4 4.3 5.6 5.91 5.23
8 8 7 2 8
Pay fixed swaps
Notional amount $25 $22 $13 $ $ $ $81.
.2 .0 .2 8.7 5.0 7.0 1
Weighted average:
Receive rate 5.3 % 5.7 % 5.2 % 4.4 % 5.5 % 5.85 % 5.38 %
0 3 8 2 1
Pay rate 6.2 6.3 6.1 5.5 6.7 7.62 6.35
7 8 5 3 9
___________________________________________________________________________
____________
Total notional amount $95 $73 $39 $23 $19 $27. $278
.3 .5 .9 .2 .0 9 .8
___________________________________________________________________________
____________
There is $2.6 billion and $2.0 billion of notional amounts related to
currency
swaps and basis swaps, respectively, not included in the table above.
37
PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Statement re computation of ratios
27. Financial data schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended June 30, 1995:
April 13, 1995 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release
announcing its
earnings for the three-month period ended March 31, 1995.
May 23, 1995 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release
announcing
the sale of its global custody business.
June 21, 1995 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release
announcing
the sale of its U.S commercial paper processing business and
the
outsourcing of certain cash services.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
(REGISTRANT) J.P. MORGAN & CO. INCORPORATED
BY (SIGNATURE)
/s/ DAVID H. SIDWELL
_______________________________________
(NAME AND TITLE) DAVID H. SIDWELL
MANAGING DIRECTOR AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
DATE: August 14, 1995
1
LIST OF EXHIBITS
EXHIBIT
12. Statement of recomputation of ratios
27. Financial data schedule