1
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, NY 10260-0060
NYSE: symbol: JPM
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NEWS RELEASE: IMMEDIATE July 13, 2000
J.P. MORGAN REPORTS SECOND QUARTER 2000 EARNINGS
J.P. Morgan today reported second quarter net income of $542 million, up from
$504 million in the second quarter of 1999. Earnings per share were $2.90, an
increase of 15% from $2.52 a year ago. Return on common equity was 20% in the
quarter compared with 18% in the second quarter of 1999.
Net income for the first half of 2000 was $1.170 billion compared with $1.104
billion in the same period a year ago. Earnings per share were $6.27 compared
with $5.53, an increase of 13%. Return on common equity increased to 22% from
20% in the first half 1999.
HIGHLIGHTS FOR THE SECOND QUARTER:
- - Economic value added (EVA) was $258 million, an increase of 32% from a
year ago
- - Revenues of $2.479 billion were up 13% in a challenging market
environment
- - Momentum continued in Asset Management Services, Equities, and
Investment Banking and our proprietary activities produced excellent
results, offsetting the impact of depressed fixed income and currency
markets
- - Expenses rose 17% as a result of performance-related compensation and
investment in Equities, Investment Banking, and e-finance initiatives
- - We repurchased $480 million of common stock (3.8 million shares) during
the quarter
"Our diversified business mix allowed us to deliver strong results in a tougher
market environment," said Douglas A. Warner III, chairman. "Areas of strategic
growth - asset management, equities, and investment banking - performed well,
and we have a robust pipeline of client activity. At the same time, we
maintained our performance discipline and returned significant capital to
shareholders."
BUSINESS SEGMENT RESULTS
Asset Management Services revenues in the second quarter increased 19% to $409
million from a year ago. Revenues from private banking clients grew
significantly as a result of new client acquisition and higher revenues from
existing clients. Revenues from institutional investment management and our
equity investment in American Century also rose. The segment's pre-tax margin
expanded to 26% in the first half of 2000 from 19% in the prior-year period.
Assets under management grew 13% from a year ago to approximately $372 billion
at June 30, 2000. This excludes $113 billion of assets under management at
American Century, in which we have a 45% interest.
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Press contact: Kristin C. Lemkau 212/648-9583
Investor contact: Ann B. Patton 212/648-9446
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J.P. Morgan & Co. Incorporated 2
Investment Banking revenues were $426 million, up 4% from last year's strong
quarter. Record advisory revenues were driven by strong activity with clients in
Europe and in the technology sector. Debt underwriting revenues were lower owing
to reduced issuance in the markets. For the first half of 2000, Thompson
Financial Securities Data Corporation ranked J.P. Morgan fifth in completed
worldwide mergers and acquisitions, with a market share of 20%, up from sixth
and 15% in the first half of 1999. In Europe, our share increased from 25% to
36%. We ranked sixth among U.S. lead equity underwriters with a market share of
5.8%, compared with eighth and a market share of 4.4% for the first half of
1999.
Equities revenues increased 31% to $504 million over the prior year on strength
in both derivatives and cash securities. Revenues from equity derivatives were
well diversified across regions and increased as a result of significant trading
gains. Revenues from cash equities rose materially on higher volumes and market
share gains, particularly in Europe.
Interest Rate and Currency Markets revenues declined 31% to $384 million from
the prior year quarter owing to lower trading results and client activity across
all products. Issuers and investors were cautious throughout much of the quarter
because of uncertainty about interest rate policy.
Credit Markets revenues were $348 million, 30% below the prior-year quarter. The
decline reflected lower underwriting results in both high-grade and high-yield
debt, as well as lower trading results, particularly in Latin America. Clients'
uncertainty about rising interest rates and equity market volatility slowed
issuance and adversely affected our results. Despite these market conditions,
the overall quality of our credit portfolio remained high and its risk stable.
Equity Investments revenues were $145 million in the second quarter, resulting
primarily from gains realized on investments in the financial services sector.
The accumulated market appreciation of the portfolio, excluding sales, declined
by $65 million in the period. We invested $107 million during the quarter,
approximately one-half of which was committed to the financial services and
telecommunications industries. Equity Investments revenues were $6 million in
the second quarter of 1999.
Proprietary Positioning revenues were $283 million in the quarter, up from $23
million a year ago. Total return - reported revenues and the change in net
unrealized value - was $277 million compared with $5 million a year ago. We
achieved excellent results in several market-neutral trading strategies. Risk
levels were unchanged from the first quarter and partially offset risks in other
business segments.
LabMorgan continued to expand its portfolio of e-finance ventures. Since its
inception in March, LabMorgan has received over 1,000 business ideas from
outside and within the firm. Of these, 48 are in various stages of validation
and acceleration; in addition we continued development of previously launched
ventures.
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J.P. Morgan & Co. Incorporated 3
Significant initiatives announced during the quarter included:
- - SynDirect Wireless, the first wireless communication platform for bond
issuers and investors;
- - FXAll, a multi-dealer, on-line foreign exchange service and
Volbroker.com, the first real time global electronic trading service
for currency options;
- - several fixed income initiatives in Europe and Asia: Coredeal, a
European inter-dealer platform for credit products; Bondclick, a
European government bond multi-dealer brokerage; and Asia Bond Portal,
a multi-dealer platform in Asia.
OPERATING EXPENSES
Operating expenses were $1.660 billion compared with $1.417 billion in the
prior-year quarter, up 17%. The increase was mostly due to higher
performance-driven compensation; expenses associated with expanding our Equities
and Investment Banking businesses, where we hired approximately 100 experienced
bankers, research analysts, and other professionals; and ongoing investment in
corporate e-finance initiatives. Business productivity gains continued to help
fund our investments. The firm's efficiency ratio was 67% in the second quarter
of 2000; compensation expense, which represents two-thirds of our total
expenses, remained stable at 44% of revenues.
CAPITAL
The firm purchased approximately $480 million of its common stock (3.8 million
shares) in the second quarter under its October 1999 authorization to repurchase
up to $3 billion of common stock. The purchases for the first half of 2000
totaled $1.1 billion (9.0 million shares). As of June 30, 2000, approximately
$2.5 billion of the authorization had been utilized; we intend to use the
remaining $500 million over the next three to nine months, subject to market
conditions, business considerations, and other factors. Excess capital averaged
$4.1 billion in the quarter compared with $3.7 billion for first quarter of
2000.
At June 30, 2000, under the Federal Reserve Board market risk capital guidelines
for the calculation of risk-based capital ratios, J.P. Morgan's estimated tier 1
and total risk-based capital ratios were 8.3% and 11.9%, respectively; the
estimated leverage ratio was 4.4%. At March 31, 2000, J.P. Morgan's tier 1 and
total risk-based capital ratios were 8.3% and 12.0%, respectively, and the
leverage ratio was 4.5%.
# # #
J.P. Morgan is a leading global financial firm that meets critical financial
needs for business enterprises, governments, and individuals. The firm advises
on corporate strategy and structure, raises capital, makes markets in financial
instruments, and manages investment assets. Morgan also commits its own capital
to promising enterprises and invests and trades to capture market opportunities.
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J.P. Morgan & Co. Incorporated 4
This release may contain forward-looking statements. Our statements, which
reflect management's beliefs and expectations, are subject to risks and
uncertainties that may cause actual results to differ materially from these
statements. For a discussion of the risks and uncertainties, please refer to the
J.P. Morgan & Co. Incorporated 1999 Annual Report.
Management will host a conference call with investors at 9:15 a.m. Eastern time
on Thursday, July 13. A live audio webcast of the call will be available on the
Internet at http://www.jpmorgan.com/ir/2q2000.html. A replay of the call will be
available until Tuesday, July 18.
Attached are tables with our segment results; a financial summary; interim
consolidated financial statements, which are unaudited; and asset quality
tables. J.P. Morgan news releases, including quarterly financial results and a
historical financial summary, are available on the Internet at www.jpmorgan.com.
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SEGMENT RESULTS
J.P. Morgan & Co. Incorporated
The following table presents our current management reporting structure. Results
have been restated for all periods, reflecting recent organization changes.
Principal changes include the combination of our Credit Markets and Credit
Portfolio segments into a single Credit Markets segment. In addition, revenue
and expense allocations between Investment Banking and the other segments,
primarily Equities and Credit Markets, have been changed to reflect the new
organization. Our consolidated results were not impacted.
Increase / Increase / Increase /
Second Second First Six Six (Decrease), (Decrease), (Decrease),
Quarter Quarter Quarter Months Months 2Q 2000 2Q 2000 YTD 2000
2000 1999 2000 2000 1999 vs. 2Q 1999 vs. 1Q 2000 vs. YTD 1999
------------------------------------------------------------------------------------------------
INVESTMENT BANKING
Total revenues $ 426 $ 409 $ 452 $ 878 $ 736 $ 17 $ (26) $ 142
Total expenses 383 309 409 792 601 74 (26) 191
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Pretax income 43 100 43 86 135 (57) -- (49)
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Pretax EVA 19 75 16 35 88 (56) 3 (53)
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Average required economic capital 631 563 639 635 523 68 (8) 112
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EQUITIES
Total revenues 504 385 584 1,088 640 119 (80) 448
Total expenses 297 192 261 558 378 105 36 180
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Pretax income 207 193 323 530 262 14 (116) 268
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Pretax EVA 162 152 281 443 190 10 (119) 253
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Average required economic capital 762 740 732 747 634 22 30 113
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INTEREST RATE & CURRENCY MARKETS
Total revenues 384 560 489 873 1,209 (176) (105) (336)
Total expenses 280 321 334 614 680 (41) (54) (66)
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Pretax income 104 239 155 259 529 (135) (51) (270)
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Pretax EVA 15 135 32 47 320 (120) (17) (273)
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Average required economic capital 1,789 2,017 1,732 1,760 2,058 (228) 57 (298)
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CREDIT MARKETS
Total revenues 348 496 550 898 1,327 (148) (202) (429)
Total expenses 164 215 262 426 480 (51) (98) (54)
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Pretax income 184 281 288 472 847 (97) (104) (375)
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Pretax EVA 76 94 160 236 474 (18) (84) (238)
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Average required economic capital 3,709 4,225 3,701 3,705 4,479 (516) 8 (774)
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EQUITY INVESTMENTS
Total revenues 145 6 153 298 (8) 139 (8) 306
Total expenses 26 13 45 71 27 13 (19) 44
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Pretax income 119 (7) 108 227 (35) 126 11 262
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Pretax EVA 35 (1) 78 113 (60) 36 (43) 173
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Average required economic capital 1,661 1,365 1,882 1,772 1,321 296 (221) 451
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PROPRIETARY POSITIONING
Total revenues 283 23 188 471 150 260 95 321
Total expenses 53 43 56 109 75 10 (3) 34
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Pretax income 230 (20) 132 362 75 250 98 287
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Pretax EVA 197 (96) 150 347 (189) 293 47 536
------------------------------------------------------------------------------------------------
Average required economic capital 489 1,234 496 492 2,415 (745) (7) (1,923)
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ASSET MANAGEMENT SERVICES
Total revenues 409 343 407 816 652 66 2 164
Total expenses 300 268 303 603 525 32 (3) 78
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Pretax income 109 75 104 213 127 34 5 86
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Pretax EVA 87 56 83 170 91 31 4 79
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Average required economic capital 590 556 530 607 554 34 60 53
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CORPORATE
Total revenues (20) (31) 13 (7) (24) 11 (33) 17
Total expenses 157 56 185 342 218 101 (28) 124
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Pretax income (177) (87) (172) (349) (242) (90) (5) (107)
------------------------------------------------------------------------------------------------
Pretax EVA (207) (108) (240) (447) (161) (99) 33 (286)
------------------------------------------------------------------------------------------------
Average required economic capital (1,273) (1,239) (1,198) (1,282) (1,420) (34) (75) 138
------------------------------------------------------------------------------------------------
CONSOLIDATED
Total revenues 2,479 2,191 2,836 5,315 4,682 288 (357) 633
Total expenses 1,660 1,417 1,855 3,515 2,984 243 (195) 531
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Pretax income 819 774 981 1,800 1,698 45 (162) 102
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Pretax EVA 384 307 560 944 753 77 (176) 191
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Average required economic capital 8,358 9,461 8,514 8,436 10,564 (1,103) (156) (2,128)
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SEGMENT RESULTS (continued)
J.P. Morgan & Co. Incorporated
NOTES TO SEGMENT RESULTS TABLE:
- -- We define economic value added (EVA) as operating income, adjusted to
reflect certain segments on a total return basis, less preferred stock dividends
and a charge for the cost of equity capital. The firm's cost of equity capital
is currently estimated at 10.5%.
- -- Corporate includes revenues and expenses related to Euroclear activities,
as follows:
Second Second First
Quarter Quarter Quarter Six Months Six Months
In millions 2000 1999 2000 2000 1999
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Total revenues $81 $65 $76 $157 $130
Total expenses 4 3 9 13 12
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Pretax income 77 62 67 144 118
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REQUIRED VERSUS AVAILABLE CAPITAL
J.P. Morgan & Co. Incorporated
Second Six
Quarter Months
In millions 2000 2000
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Average common equity $10,897 $10,764
Trust preferred securities 1,150 1,150
Fixed and adjustable preferred stock 444 444
Other adjustments (62) (56)
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Total available capital 12,429 12,302
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Total required economic capital of
business segments 9,631 9,718
Corporate 1,283 1,264
Diversification (2,556) (2,546)
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Total required economic capital 8,358 8,436
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Excess available capital 4,071 3,866
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ADVISORY AND UNDERWRITING FEES
J.P. Morgan & Co. Incorporated
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ADVISORY UNDERWRITING REVENUE TOTAL ADVISORY AND
In millions FEES AND SYNDICATION FEES UNDERWRITING FEES
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Second Quarter 2000 $249 $219 $468
Second Quarter 1999 183 274 457
First Quarter 2000 236 307 543
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Six Months 2000 485 526 1,011
Six Months 1999 356 491 847
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J.P. Morgan & Co. Incorporated
FINANCIAL SUMMARY
J.P. Morgan & Co. Incorporated
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Dollars in millions, except share data
First
Second Quarter Quarter Six Months
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2000 1999 2000 2000 1999
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Net Income $542 $504 $628 $1,170 $1,104
Economic value added (EVA) - after taxes 258 195 358 616 480
Per common share:
Net income
Basic $3.10 $2.71 $3.62 $6.66 $5.94
Diluted 2.90 2.52 3.37 6.27 5.53
Dividends declared 1.00 0.99 1.00 2.00 1.98
Book value 60.76 57.60 59.82
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Common shares issued and outstanding
at period-end 159,869,519 175,949,606 162,502,847
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Weighted-average number of common
and dilutive potential common shares
outstanding 183,730,614 196,539,342 183,589,900 183,660,257 196,461,040
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Dividends declared on common stock $160 $175 $163 $323 $350
Dividends declared on preferred stock 10 9 9 19 18
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Annualized rate of return on average
common stockholders' equity 19.6% 18.0% 23.4% 21.5% 20.1%
As % of period-end total assets:
Common equity 4.2% 4.1% 3.8%
Total equity 4.4 4.4 4.1
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Regulatory capital ratios (a)
Tier 1 risk-based capital ratio 8.3% 8.4% 8.3%
Total risk-based capital ratio 11.9 12.5 12.0
Leverage ratio 4.4 4.5 4.5
Risk-adjusted assets (a) 142,614 142,477 141,064
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Average balances
Debt investment securities (b) $7,263 $29,512 $12,684 $9,973 $31,660
Loans 26,399 25,552 26,654 26,527 26,527
Total interest-earning assets 194,807 192,306 185,561 190,184 194,761
Total assets 271,250 266,145 260,458 265,853 268,142
Total interest-bearing liabilities 184,591 189,071 176,304 180,447 189,740
Total liabilities 259,659 254,446 249,133 254,395 256,567
Common stockholders' equity 10,897 11,005 10,631 10,764 10,881
Total stockholders' equity 11,591 11,699 11,325 11,458 11,575
Net interest earnings before credit loss 394 445 470 864 855
provisions (fully taxable basis)
Net yield on interest-earning assets 0.81% 0.93% 1.02% 0.91% 0.89%
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Employees at period-end 15,988 14,902 15,622
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(a) Regulatory capital ratios and risk-adjusted assets are estimates at
June 30, 2000.
(b) Average debt investment securities are computed on historical amortized
cost, excluding the effects of SFAS No. 115 adjustments.
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J.P. Morgan & Co. Incorporated
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except share data
Three months ended
-----------------------------------------------------------------------
June 30 June 30 Increase/ March 31 Increase/
2000 1999 (Decrease) 2000 (Decrease)
-----------------------------------------------------------------------
NET INTEREST REVENUE
Interest revenue $3,244 $2,713 $531 $3,031 $213
Interest expense 2,865 2,288 577 2,578 287
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Net interest revenue 379 425 (46) 453 (74)
Reversal of provision for loan losses (4) (105) 101 - (4)
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Net interest revenue after loan loss provisions 383 530 (147) 453 (70)
NONINTEREST REVENUES
Trading revenue 906 803 103 950 (44)
Advisory and underwriting fees 468 457 11 543 (75)
Investment management fees 303 260 43 276 27
Fees and commissions 232 191 41 284 (52)
Investment securities revenue/(loss) 128 (29) 157 157 (29)
Other revenue/(loss) 59 (a) (21) (a) 80 173 (a) (114)
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Total noninterest revenues 2,096 1,661 435 2,383 (287)
Total revenues, net 2,479 2,191 288 2,836 (357)
OPERATING EXPENSES
Employee compensation and benefits 1,097 970 127 1,300 (203)
Net occupancy 81 80 1 82 (1)
Technology and communications 246 231 15 258 (12)
Other expenses 236 136 100 215 21
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Total operating expenses 1,660 1,417 243 1,855 (195)
Income before income taxes 819 774 45 981 (162)
Income taxes 277 270 7 353 (76)
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Net income 542 504 38 628 (86)
PER COMMON SHARE
Net income:
Basic $3.10 $2.71 $0.39 $3.62 ($0.52)
Diluted 2.90 2.52 0.38 3.37 (0.47)
Dividends declared 1.00 0.99 0.01 1.00 -
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(a) Includes a provision for credit losses on lending commitments of $37
million, $35 million and $1 million for the three months ended June 30,
2000 and 1999, and March 31, 2000, respectively.
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J.P. Morgan & Co. Incorporated
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except share data
Six months ended
-----------------------------------------------------------------
June 30 June 30 Increase/
2000 1999 (Decrease)
-----------------------------------------------------------------
NET INTEREST REVENUE
Interest revenue $6,275 $5,470 $805
Interest expense 5,443 4,656 787
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Net interest revenue 832 814 18
Reversal of provision for loan losses (4) (105) 101
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Net interest revenue after loan loss provisions 836 919 (83)
NONINTEREST REVENUES
Trading revenue 1,856 1,937 (81)
Advisory and underwriting fees 1,011 847 164
Investment management fees 579 506 73
Fees and commissions 516 405 111
Investment securities revenue/ (loss) 285 (70) 355
Other revenue 232 (a) 138 (a) 94
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Total noninterest revenues 4,479 3,763 716
Total revenues, net 5,315 4,682 633
OPERATING EXPENSES
Employee compensation and benefits 2,397 2,066 331
Net occupancy 163 162 1
Technology and communications 504 478 26
Other expenses 451 278 173
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Total operating expenses 3,515 2,984 531
Income before income taxes 1,800 1,698 102
Income taxes 630 594 36
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Net income 1,170 1,104 66
PER COMMON SHARE
Net income:
Basic $6.66 $5.94 $0.72
Diluted 6.27 5.53 0.74
Dividends declared 2.00 1.98 0.02
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(a) Includes a provision for credit losses on lending commitments of $38
million and $35 million for the six months ended June 30, 2000 and 1999,
respectively.
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J.P. Morgan & Co. Incorporated
CONSOLIDATED BALANCE SHEET (PRELIMINARY)
J.P. Morgan & Co. Incorporated
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In millions, except share data June 30 March 31 December 31
2000 2000 1999
-------------------------------------------
ASSETS
Cash and due from banks $ 2,498 $ 1,901 $ 2,463
Interest-earning deposits with banks 4,705 5,198 2,345
Debt investment securities available-for-sale 5,920 8,600 14,286
Equity investment securities 1,738 1,938 1,734
Trading account assets (including derivative receivables of $39,554 at June
2000, $47,194 at March 2000 and $43,658 at December 1999) 124,391 139,067 117,592
Securities purchased under agreements to resell ($41,910 at June 2000, $42,491
at March 2000 and $34,470 at December 1999) and federal funds sold 43,010 42,916 35,970
Securities borrowed 33,359 33,690 34,716
Loans, net of allowance for loan losses of $283 at June 2000, $290 at March 2000
and $281 at December 1999 26,898 26,870 26,568
Accrued interest and accounts receivable 6,654 6,979 10,119
Premises and equipment, net of accumulated depreciation of $1,361 at June 2000,
$1,325 at March 2000 and $1,319 at December 1999 2,038 2,005 1,997
Other assets 14,695 15,398 13,108
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Total assets 265,906 284,562 260,898
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LIABILITIES
Deposits (including interest-bearing deposits of $43,873 at June 2000, $45,715
at March 2000 and $43,922 at December 1999) 46,511 47,334 45,319
Trading account liabilities (including derivative payables of $40,222 at June
2000, $46,235 at March 2000 and $44,976 at December 1999) 81,324 89,895 80,417
Securities sold under agreements to repurchase ($67,228 at June 2000, $73,811 at
March 2000 and $58,950 at December 1999) and federal funds purchased 67,600 74,641 59,693
Commercial paper 8,152 8,734 11,854
Other liabilities for borrowed money 9,709 10,140 10,258
Accounts payable and accrued expenses 10,313 9,977 10,621
Long-term debt not qualifying as risk-based capital 18,025 20,126 19,048
Other liabilities, including allowance for credit losses of $163 at June 2000,
$126 at March 2000 and $125 at December 1999 6,383 5,883 5,897
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248,017 266,730 243,107
Liabilities qualifying as risk-based capital:
Long-term debt 4,988 5,059 5,202
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 1,150
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Total liabilities 254,155 272,939 249,459
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,000,000)
Adjustable rate cumulative preferred stock, $100 par value (issued and
outstanding: 2,444,300) 244 244 244
Variable cumulative preferred stock, $1,000 par value (issued and
outstanding: 250,000) 250 250 250
Fixed cumulative preferred stock, $500 par value (issued and
outstanding: 400,000) 200 200 200
Common stock, $2.50 par value (authorized shares: 500,000,000; issued:
200,998,455 at June 2000, March 2000 and December 1999) 502 502 502
Capital surplus 1,229 1,247 1,249
Common stock issuable under stock award plans 2,152 1,951 2,002
Retained earnings 11,717 11,354 10,908
Accumulated other comprehensive income:
Net unrealized gains on investment securities, net of taxes 53 119 44
Foreign currency translation, net of taxes (14) (16) (18)
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16,333 15,851 15,381
Less: treasury stock (41,128,936 common shares and 15,000 preferred shares at
June 2000, 38,495,608 common shares at March 2000 and 36,200,897 common
shares at December 1999) at cost 4,582 4,228 3,942
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Total stockholders' equity 11,751 11,623 11,439
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Total liabilities and stockholders' equity 265,906 284,562 260,898
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CREDIT EXPOSURES (PRELIMINARY)
J.P. Morgan & Co. Incorporated
CREDIT EXPOSURE (PRELIMINARY)
June 30, 2000 December 31, 1999
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In billions Carrying value Fair value Carrying value Fair value
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Derivatives $39.6 (a) $39.6 $43.7 (a) $43.7
Loans and lending commitments 26.7 (b) 27.0 26.4 (b) 26.5
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Total credit exposures (c) 66.3 66.6 70.1 70.2
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(a) Carried at fair value on the balance sheet with changes in fair value
recorded in the income statement. Includes credit valuation adjustment
at June 30, 2000 and December 31, 1999, of $605 million and $670
million, respectively.
(b) Amount net of allowance for credit losses of $446 million as of June 30,
2000 and $406 million as of December 31, 1999. Carrying value excludes
the notional value of lending commitments, which are off-balance-sheet
instruments.
(c) Substantially all credit risk related to derivatives, loans, and lending
commitment exposures are managed by the Credit Markets segment.
CREDIT EXPOSURE BEFORE AND AFTER COLLATERAL (PRELIMINARY)
After collateral and netting(b)
--------------------------------------------
June 30, 2000 December 31, 1999 June 30, 2000 December 31, 1999
In billions Gross Exposure Gross Exposure Net Exposure Net Exposure
----------------------------------------------------------------------------------------------------------------------
Derivatives $39.6 (a) $43.7 (a) $34.0 (a) $37.7 (a)
Loans (c) 27.2 26.8 19.7 18.9
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(a) Includes the benefit of master netting agreements of $88.6 billion and
$107.6 billion at June 30, 2000 and December 31, 1999, respectively.
(b) Collateral held consisting of highly rated liquid securities (U.S.
government securities) and cash was as follows: derivatives - $5.6
billion (June 30, 2000) and $6 billion (December 31, 1999); and loans -
$7.5 billion (June 30, 2000) and $7.9 billion (December 31, 1999).
(c) Before allowance for credit losses.
COUNTERPARTY CREDIT QUALITY (PRELIMINARY)
Loans and lending
Derivatives commitments
----------------------------------------- --------------------------------------------
June 30, 2000 December 31, 1999 June 30, 2000 December 31, 1999
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AAA, AA 53 % 52 % 44 % 43 %
A 31 31 27 29
BBB 10 12 18 18
BB or below 6 5 11 10
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100 100 100 100
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Estimated percentages of credit exposures by counterparty credit rating based
on internal credit ratings. Ratings of AAA, AA, A and BBB represent
investment-grade ratings and are analogous to those of public rating agencies
in the United States. Credit exposures reflect the benefits of master netting
agreements, collateral, and purchased credit protection (i.e. credit
derivatives).
EQUITY INVESTMENT SECURITIES
J.P. Morgan & Co. Incorporated
The following table shows gross unrealized gains and losses, a comparison of
the cost, fair value and carrying value of marketable, nonmarketable, and
SBIC (small business investment company) securities portfolios of J.P. Morgan
consolidated. A substantial portion of these are included in our Equity
Investments segment.
In millions: June 30 Marketable Nonmarketable SBIC securities
---------------------------------------------------------------------------------------------------------------------------
Accounting Fair value through equity Cost Fair value through earnings
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Cost $353 $688 $300
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Gross unrealized gains 124 51 284
Gross unrealized losses (10) (6) (1)
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Net unrealized gains 114 45 283
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Fair value 467 733 583
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Carrying value on balance sheet 467 688 583
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J.P. Morgan & Co. Incorporated
ASSET QUALITY
IMPAIRED LOANS
J.P. Morgan & Co. Incorporated
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June 30, March 31, June 30,
In millions 2000 2000 1999
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Impaired loans:
Commercial and industrial $122 $117 (a) $38
Other 18 23 29
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Total impaired loans 140 140 67
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(a) The increase during the first quarter of 2000 primarily relates to the
addition of one European counterparty.
ALLOWANCES FOR CREDIT LOSSES
J.P. Morgan & Co. Incorporated
Allowance for loan losses
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Second Quarter Six Months Ended Second Quarter Six Months Ended
In millions 2000 June 30, 2000 1999 June 30, 1999
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Beginning balance $290 $281 $447 $470
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(Reversal of provision for loan losses) (4) (4) (105) (105)
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Recoveries 3 12 1 6
Charge-offs: (a)
Commercial and industrial - - (7) (10)
Other, primarily other financial
institutions (6) (6) (1) (26)
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Net (charge-offs) / recoveries (3) 6 (7) (30)
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Ending balance 283 283 335 335
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(a) Charge-offs include losses on loan sales of $5 million for the three
months ended June 30, 1999. Charge-offs include losses on loan sales of
$30 million for the six months ended June 30, 1999.
Components of the allowance for loan losses
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June 30, March 31, June 30,
In millions 2000 2000 1999
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Specific counterparty components in the U.S. $ 9 $ 13 $ 6
Specific counterparty components outside the U.S. 66 33 8
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Total specific counterparty 75 46 14
Expected loss 208 244 321
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Total allowance 283 290 335
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Allowance for credit losses on lending commitments*
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Second Quarter Six Months Ended Second Quarter Six Months Ended
In millions 2000 June 30, 2000 1999 June 30, 1999
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Beginning balance $126 $125 $125 $125
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Provision for credit losses 37 38 35 35
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Ending balance 163 163 160 160
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Components of the allowance for credit losses on lending commitments*
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June 30, March 31, June 30,
In millions 2000 2000 1999
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Specific counterparty components in the U.S. $ 19 $ 19 $ 17
Specific counterparty components outside the U.S. 4 4 3
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Total specific counterparty 23 23 20
Expected loss 140 103 140
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Total allowance 163 126 160
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* Includes commitments to extend credit, standby letters of credit, and
guarantees.