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IMMEDIATE October 10, 1996
J.P. MORGAN REPORTS 1996 THIRD QUARTER RESULTS
J.P. Morgan & Co. Incorporated reported net income of $276 million in the third
quarter of 1996, 23% lower than in the third quarter of 1995. Earnings per share
were $1.32 compared with $1.78 a year ago.
The 1996 third quarter earnings reflected a special charge of $71 million ($42
million after tax, or $0.21 per share) related to the previously announced
formation of a strategic alliance to manage parts of the firm's global
technology infrastructure. Excluding the charge, net income totaled $318 million
in the third quarter of 1996, 12% lower than in the third quarter of 1995.
Net income for the first nine months of 1996, including the third quarter
special charge, totaled $1.155 billion, up 24% from $930 million a year earlier.
Earnings per share in the first nine months were $5.60 compared with $4.62 a
year ago. Nine-month earnings in 1995 included a first quarter charge of $55
million ($33 million after tax, or $0.17 per share) related primarily to
severance.
Douglas A. Warner III, chairman, said: "Year-to-date performance is well ahead
of last year, although third quarter results did not achieve the levels of the
first two quarters. The mix of our revenues reflected sustained momentum in
client-related business activities, with investment banking revenues up more
than 50 percent as our market share continued to grow. Trading revenues for the
first nine months nearly doubled, and investment management fees showed solid
growth."
THIRD QUARTER RESULTS AT A GLANCE
Second
Third quarter quarter
In millions of dollars, except per share data 1996 1995 1996
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Revenues $ 1,549 $ 1,549 $ 1,761
Operating expenses (1,137) (1,022) (1,104)
Income taxes (136) (167) (217)
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Net income $ 276 $ 360 $ 440
Net income per share $1.32 $1.78 $2.14
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Dividends declared per share $0.81 $0.75 $0.81
REVENUES equaled the level in the third quarter of 1995:
- Trading revenue rose 28% to $510 million due to higher results in
fixed income and foreign exchange. Combined trading and related net
interest revenue was up 35% to $575 million.
- Investment banking revenue was up 19% to $233 million.
- Investment management fees grew 9%. Credit-related fees were flat,
and operational service fees were lower as a result of the sale of
the firm's custody business in late 1995.
- Net interest revenue declined 16% to $425 million.
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Press contact: William McBride 212/648-9537
Investor contact: Ann B. Patton 212/648-9446
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- Other revenue decreased 52% to $69 million due to lower net equity
investment securities gains.
OPERATING EXPENSES, excluding the special charge, rose 4% from a year ago.
IN OTHER DEVELOPMENTS, Morgan announced in August an agreement to sell its
institutional U.S. cash-processing business. The sale is expected to close
in the fourth quarter, subject to regulatory approvals, and is not expected
to have any material effect on Morgan's ongoing financial results.
Morgan completed the agreement to form the Pinnacle Alliance in July. The
firm expects to achieve aggregate savings of approximately 15% on projected
technology costs over the seven-year life of the Alliance agreement after
the special charge.
The remainder of this release contains information on specific areas of results,
a financial summary, and the consolidated financial statements.
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REVENUES
Revenues totaled $1.549 billion in the third quarter of 1996, equal to the level
in the year-earlier quarter. Revenues in the third quarter trailed the levels in
the first two quarters of 1996 primarily because of lower trading results and
lower net equity investment securities gains. For the first nine months of 1996,
revenues were up 15% to $5.050 billion from the corresponding 1995 period.
NET INTEREST REVENUE, the aggregate of interest revenue and expense generated by
the firm's asset and liability management, credit-related, and trading
activities, declined 16% to $425 million from the third quarter of 1995. The
principal factor in the decline was the maturing of higher-yielding asset and
liability management positions.
TRADING REVENUE rose 28% to $510 million in the third quarter from $399 million
a year earlier. Trading revenue for the first nine months of 1996 totaled $1.965
billion, up from $1.007 billion in the corresponding 1995 period. Year-to-date
trading revenues in both developed and emerging markets were strong and
diversified across the firm's products.
Reported trading revenue does not include net interest revenue associated with
trading activities, which was $65 million in the third quarter of 1996 and $26
million a year ago.
Combined trading and related net interest revenue rose to $575 million in the
third quarter from $425 million a year earlier. (For details, see the table of
combined trading and related net interest revenue by principal product groupings
on page 11.) Combined revenue from fixed income rose to $448 million in the
third quarter from $308 million in the year-earlier quarter, driven by continued
strong client demand for swaps and for government and corporate securities.
Combined revenue from equities was $39 million compared with $52 million a year
earlier. Foreign exchange combined revenue increased to $64 million from $29
million in the third quarter of 1995, largely in emerging markets.
INVESTMENT BANKING REVENUE increased 19% to $233 million in the third quarter.
Underwriting revenue grew to $83 million from $71 million a year ago. Advisory
and syndication fees in the third quarter rose to $150 million from $124 million
a year earlier.
For the third quarter of 1996, J.P. Morgan ranked as the fourth largest
underwriter of U.S. debt and equity issues, according to Securities Data Co. In
advisory activities, Securities Data Co. ranked J.P. Morgan sixth in completed
mergers and acquisitions worldwide and fourth in pending transactions in the
first nine months of 1996.
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CREDIT-RELATED FEES of $39 million in the third quarter were flat compared with
the third quarter of 1995. Excluding revenues from the custody business, which
was sold in 1995, and from the discontinued cash-processing businesses,
credit-related fees rose 13% from a year earlier.
INVESTMENT MANAGEMENT FEES advanced 9% to $164 million from a year ago, as
assets under management rose, primarily from net new business. Assets under
management at September 30, 1996, were approximately $193 billion.
OPERATIONAL SERVICE FEES in the third quarter totaled $98 million, 28% lower
than in the third quarter of 1995. Excluding revenues from the custody and
cash-processing businesses, operational service fees were unchanged.
NET INVESTMENT SECURITIES GAINS were $11 million in the third quarter, compared
with net losses of $22 million in the third quarter of 1995.
OTHER REVENUE was $69 million in the third quarter, compared with $145 million a
year earlier. The 1996 third quarter reflected net equity investment securities
gains of $56 million, compared with $91 million in the year-earlier quarter.
OPERATING EXPENSES
Operating expenses were $1.137 billion in the third quarter, compared with
$1.022 billion in the third quarter of 1995. Excluding the technology-related
special charge and expenses associated with the custody and cash-processing
businesses, 1996 third quarter operating expenses grew 10% from a year earlier.
Employee compensation & benefits rose primarily due to higher incentive
compensation accruals, reflecting the increasing proportion of revenue from our
client-based businesses and more competitive market conditions. Other expenses
increased due to higher levels of business activity.
The formation of the Pinnacle Alliance resulted in a special charge of $71
million, which is reflected in technology & communications expenses.
Approximately 700 employees in areas covered by the agreement were transferred
to Alliance firms. Costs associated with the transferred employees, previously
reflected in employee compensation & benefits, are now reflected in payments to
the Alliance and included in technology & communications expenses.
At September 30, 1996, staff totaled 15,188 employees compared with 16,394
employees at September 30, 1995. Income tax expense of $136 million in the third
quarter was based on an effective tax rate of 33% versus 32% in the third
quarter of 1995.
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ASSETS
Total assets were $212 billion at September 30, 1996, compared with $199 billion
at June 30, 1996. Nonperforming assets increased by $27 million to $161 million
during the third quarter as repayments and charge-offs were more than offset by
assets newly classified as nonperforming. No provision for credit losses was
deemed necessary in the 1996 third quarter. The allowance for credit losses was
$1.113 billion at September 30, 1996. (For details, see asset quality tables on
page 12.)
CAPITAL
At September 30, 1996, J.P. Morgan's estimated Tier 1 and total risk-based
capital ratios were 8.0% and 11.5%, respectively, compared with Tier 1 and total
risk-based capital ratios of 8.2% and 11.7% at June 30, 1996. The leverage
ratio was 6.2% at September 30, 1996 and 6.3% at June 30, 1996.
At September 30, 1996, stockholders' equity included approximately $317 million
of net unrealized appreciation on debt investment and marketable equity
investment securities, net the related deferred tax liability of $178 million.
Net unrealized appreciation was $367 million at June 30, 1996. The net
unrealized appreciation on debt investment securities was $224 million and $226
million at September 30, 1996, and June 30, 1996, respectively. The net
unrealized appreciation on marketable equity investment securities was $271
million and $343 million at September 30, 1996, and June 30, 1996, respectively.
# # #
J.P. Morgan is a global banking firm that serves clients with complex financial
needs through an integrated range of advisory, financing, trading, investment,
and related capabilities.
Attached are the financial summary, the interim consolidated financial
statements which are unaudited, the combined trading and related net interest
revenue table, and the asset quality tables. J.P. Morgan news releases,
including quarterly financial results, are available on the Internet
(http://www.jpmorgan.com).
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FINANCIAL SUMMARY
J. P. Morgan & Co. Incorporated
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Dollars in millions, except per share data
Third Quarter Second Nine Months
---------------------------- Quarter ----------------------------
1996 1995 1996 1996 1995
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Net Income $ 276 $ 360 $ 440 $ 1,155 $ 930
PER COMMON SHARE
Net income (a) $ 1.32 $ 1.78 $ 2.14 $ 5.60 $ 4.62
Dividends declared 0.81 0.75 0.81 2.43 2.25
Book value (b) 52.62 49.36 52.40
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Weighted-average number of common and
common equivalent shares outstanding 201,755,770 199,300,749 202,063,927 202,029,375 198,179,495
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Dividends declared on common stock $ 151 $ 140 $ 151 $ 454 $ 422
Dividends declared on preferred stock 9 6 7 24 18
SELECTED RATIOS
Annualized rate of return on average
common stockholders' equity (c) 10.3% 14.9% 17.1% 14.8% 13.2%
As % of period-end total assets:
Common equity 4.9 5.4 5.2
Total equity 5.2 5.7 5.5
Regulatory capital ratios (d)
Tier 1 risk-based capital ratio 8.0 8.5 8.2
Total risk-based capital ratio 11.5 12.5 11.7
Leverage ratio 6.2 6.3 6.3
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AVERAGE BALANCES
Debt investment securities (e) $ 23,171 $ 21,542 $ 25,880 $ 24,450 $ 21,636
Loans 26,976 23,777 28,514 27,603 24,029
Total interest-earning assets 171,409 132,423 167,087 167,055 132,255
Total assets 211,452 174,014 209,691 208,683 174,731
Total interest-bearing liabilities 162,175 124,442 158,123 158,371 125,948
Total liabilities 200,431 164,055 198,807 197,822 164,972
Common stockholders' equity 10,327 9,465 10,190 10,194 9,265
Total stockholders' equity 11,021 9,959 10,884 10,861 9,759
Net interest earnings (fully taxable basis) 445 534 419 1,282 1,598
Net yield on interest-earning assets 1.03% 1.60% 1.01% 1.03% 1.62%
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Employees at period-end 15,188 16,394 15,391
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(a) Earnings per share amounts represent both primary and fully diluted earnings
per share, except for the nine months ended September 30, 1996 and 1995. Fully
diluted earnings per share were $5.57 and $4.57 for the nine months ended
September 30, 1996 and 1995, respectively.
(b) Excluding the impact of SFAS No. 115, the book value per common share would
have been $51.01, $46.82, and $50.54 for the three months ended September 30,
1996, September 30, 1995, and June 30, 1996, respectively.
(c) Excluding the impact of SFAS No. 115, the annualized rate of return on
average common stockholders' equity would have been 10.6%, 15.6%, and 17.8% for
the three months ended September 30, 1996, September 30, 1995, and June 30,
1996, respectively, and 15.5% and 13.8% for the nine months ended September 30,
1996 and 1995, respectively.
(d) In accordance with the Federal Reserve Board guidelines, these ratios
exclude the equity, assets and off-balance-sheet exposures of J.P. Morgan
Securities, Inc. and the effect of SFAS No. 115. Risk-based capital ratios for
September 30, 1996, are estimates.
(e) Average debt investment securities are computed based on historical
amortized cost, excluding the effects of SFAS No. 115 adjustments.
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CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except per share data
Three months ended
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September 30 September 30 Increase/ June 30 Increase/
1996 1995 (Decrease) 1996 (Decrease)
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NET INTEREST REVENUE
Interest revenue $2,675 $ 2,453 $ 222 $ 2,559 $ 116
Interest expense 2,250 1,946 304 2,162 88
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Net interest revenue 425 507 (82) 397 28
NONINTEREST REVENUE
Trading revenue 510 399 111 697 (187)
Investment banking revenue 233 195 38 210 23
Credit-related fees 39 38 1 38 1
Investment management fees 164 150 14 172 (8)
Operational service fees 98 137 (39) 104 (6)
Net investment securities gains (losses) 11 (22) 33 (51) 62
Other revenue 69 145 (76) 194 (125)
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Total noninterest revenue 1,124 1,042 82 1,364 (240)
Total revenue 1,549 1,549 -- 1,761 (212)
OPERATING EXPENSES
Employee compensation and benefits 685 648 37 737 (52)
Net occupancy 74 87 (13) 76 (2)
Technology and communications 248 169 79 158 90
Other expenses 130 118 12 133 (3)
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Total operating expenses 1,137 1,022 115 1,104 33
Income before income taxes 412 527 (115) 657 (245)
Income taxes 136 167 (31) 217 (81)
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Net income 276 360 (84) 440 (164)
PER COMMON SHARE
Net income (a) $ 1.32 $ 1.78 ($0.46) $ 2.14 ($0.82)
Dividends declared 0.81 0.75 0.06 0.81 --
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(a) Earnings per share amounts represent both primary and fully diluted earnings
per share.
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CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except per share data
Nine months ended
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September 30 September 30 Increase/
1996 1995 (Decrease)
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NET INTEREST REVENUE
Interest revenue $ 7,788 $7,328 $ 460
Interest expense 6,570 5,813 757
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Net interest revenue 1,218 1,515 (297)
NONINTEREST REVENUE
Trading revenue 1,965 1,007 958
Investment banking revenue 644 426 218
Credit-related fees 115 122 (7)
Investment management fees 493 418 75
Operational service fees 315 417 (102)
Net investment securities gains (losses) (28) 20 (48)
Other revenue 328 461 (133)
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Total noninterest revenue 3,832 2,871 961
Total revenue 5,050 4,386 664
OPERATING EXPENSES
Employee compensation and benefits 2,152 1,890 262
Net occupancy 223 246 (23)
Technology and communications 564 506 58
Other expenses 387 366 21
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Total operating expenses 3,326 3,008 318
Income before income taxes 1,724 1,378 346
Income taxes 569 448 121
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Net income 1,155 930 225
PER COMMON SHARE
Net income (a) $ 5.60 $ 4.62 $0.98
Dividends declared 2.43 2.25 0.18
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(a) See Financial summary for per common share data assuming full dilution.
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CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
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Dollars in millions September 30 June 30 December 31
1996 1996 1995
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ASSETS
Cash and due from banks $ 1,088 $ 651 $ 1,535
Interest-earning deposits with banks 2,193 1,427 1,986
Debt investment securities available for sale carried at fair value (Cost: $26,341 at
September 1996, $22,486 at June 1996, and $24,154 at December 1995) 26,565 22,712 24,638
Trading account assets 80,784 69,375 69,408
Securities purchased under agreements to resell ($34,658 at September 1996,
$36,488 at June 1996, and $32,157 at December 1995) and federal funds sold 34,686 36,544 32,157
Securities borrowed 25,430 25,620 19,830
Loans 30,002 29,588 23,453
Less: allowance for credit losses 1,113 1,125 1,130
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Net loans 28,889 28,463 22,323
Customers' acceptance liability 287 236 237
Accrued interest and accounts receivable 3,585 3,738 3,539
Premises and equipment 3,068 3,387 3,339
Less: accumulated depreciation 1,236 1,492 1,412
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Premises and equipment, net 1,832 1,895 1,927
Other assets 6,309 8,104 7,299
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Total assets 211,648 198,765 184,879
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LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 2,115 1,906 3,287
In offices outside the U.S. 917 750 744
Interest-bearing deposits:
In offices in the U.S. 6,016 2,498 2,003
In offices outside the U.S. 40,860 43,303 40,404
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Total deposits 49,908 48,457 46,438
Trading account liabilities 45,601 44,267 45,289
Securities sold under agreements to repurchase ($58,318 at September 1996, $51,604 at June 1996,
and $40,803 at December 1995) and federal funds purchased 61,094 55,114 45,099
Commercial paper 4,448 5,102 2,801
Other liabilities for borrowed money 19,966 16,510 15,129
Accounts payable and accrued expenses 6,255 6,159 5,643
Liability on acceptances 287 236 237
Long-term debt not qualifying as risk-based capital 8,176 6,109 5,737
Other liabilities 1,095 2,047 4,465
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196,830 184,001 170,838
Long-term debt qualifying as risk-based capital 3,740 3,733 3,590
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Total liabilities 200,570 187,734 174,428
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,400,000 at September 1996 and June 1996,
and 10,000,000 at December 1995)
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 at September 200 200 --
and June 1996)
Common stock, $2.50 par value (authorized shares: 500,000,000;
issued: 200,684,623 at September 1996, 200,683,373 at June 1996, and 200,678,373 at December
1995) 502 502 502
Capital surplus 1,442 1,435 1,430
Retained earnings 8,392 8,281 7,731
Net unrealized gains on investment securities, net of taxes 317 367 566
Other 754 686 552
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12,101 11,965 11,275
Less: treasury stock (14,767,312 shares at September 1996, 14,083,799 shares at June 1996, and
13,562,755 shares at December 1995) at cost 1,023 934 824
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Total stockholders' equity 11,078 11,031 10,451
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Total liabilities and stockholders' equity 211,648 198,765 184,879
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CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
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Dollars in millions September 30 December 31
1996 1995
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ASSETS
Cash and due from banks $ 1,044 $ 1,429
Interest-earning deposits with banks 2,196 1,995
Debt investment securities available for sale carried at fair value 21,899 23,767
Trading account assets 64,424 55,373
Securities purchased under agreements to resell and federal
funds sold 26,262 20,996
Loans 29,837 23,319
Less: allowance for credit losses 1,112 1,129
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Net loans 28,725 22,190
Customers' acceptance liability 287 237
Accrued interest and accounts receivable 3,230 3,420
Premises and equipment 2,737 2,967
Less: accumulated depreciation 1,082 1,232
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Premises and equipment, net 1,655 1,735
Other assets 2,778 4,571
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Total assets 152,500 135,713
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LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 2,114 3,275
In offices outside the U.S. 961 839
Interest-bearing deposits:
In offices in the U.S. 6,029 1,975
In offices outside the U.S. 41,166 40,985
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Total deposits 50,270 47,074
Trading account liabilities 38,650 39,197
Securities sold under agreements to repurchase and federal
funds purchased 27,795 20,274
Other liabilities for borrowed money 13,417 8,509
Accounts payable and accrued expenses 4,464 4,187
Liability on acceptances 287 237
Long-term debt not qualifying as risk-based capital 4,275 2,786
Other liabilities 1,315 3,324
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140,473 125,588
Long-term debt qualifying as risk-based capital 2,517 1,659
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Total liabilities 142,990 127,247
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: 2,500,000) -- --
Common stock, $25 par value (authorized shares: 11,000,000 at September
1996 and 10,000,000 at December 1995; outstanding: 10,599,027 at September 1996
and 10,000,000 at December 1995) 265 250
Surplus 3,140 2,820
Undivided profits 5,971 5,136
Net unrealized gains on investment securities, net of taxes 143 264
Foreign currency translation (9) (4)
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Total stockholder's equity 9,510 8,466
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Total liabilities and stockholder's equity 152,500 135,713
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Prior period balances were restated to reflect the merger of J.P. Morgan
Delaware with Morgan Guaranty Trust Company effective June 1996.
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
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COMBINED TRADING AND RELATED NET INTEREST REVENUE
J.P. Morgan & Co. Incorporated
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Dollars in millions
Fixed Foreign Proprietary
Income Equities Exchange Commodities Unit Total
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Third Quarter 1996
Trading revenue $ 403 $ 43 $ 59 ($15) $ 20 $ 510
Net interest revenue* 45 (4) 5 4 15 65
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Combined total 448 39 64 (11) 35 575
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Third Quarter 1995
Trading revenue $ 267 $ 75 $ 26 $ 6 $ 25 $ 399
Net interest revenue 41 (23) 3 -- 5 26
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Combined total 308 52 29 6 30 425
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Second Quarter 1996
Trading revenue $ 331 $ 124 $109 $ 5 $ 128 $ 697
Net interest revenue 54 (9) 5 (5) (3) 42
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Combined total 385 115 114 -- 125 739
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Nine Months 1996
Trading revenue $1,267 $ 261 $236 $ 24 $ 177 $1,965
Net interest revenue* 168 (56) 15 (3) 13 137
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Combined total 1,435 205 251 21 190 2,102
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Nine Months 1995
Trading revenue $ 420 $ 213 $190 $ 37 $ 147 $1,007
Net interest revenue 163 (80) 10 2 20 115
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Combined total 583 133 200 39 167 1,122
* Estimated
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ASSET QUALITY
J.P. Morgan & Co. Incorporated
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NONPERFORMING ASSETS
September 30 June 30 December 31 September 30
Dollars in millions 1996 1996 1995 1995
------------ ------- ----------- ------------
Impaired loans:
Commercial and industrial $125 $ 96 $ 67 $135
Other 34 36 48 50
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159 132 115 185
Restructuring countries 2 2 2 2
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Total impaired loans 161 134 117 187
Other nonperforming assets -- -- 1 1
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Total nonperforming assets 161 134 118 188
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ALLOWANCE FOR CREDIT LOSSES
September 30 June 30 December 31 September 30
Dollars in millions 1996 1996 1995 1995
------------ ------- ----------- ------------
Allowance for credit losses $1,113 $1,125 $1,130 $1,132
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Third Quarter Nine Months
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1996 1995 1996 1995
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Charge-offs:
Commercial and industrial ($12) ($11) ($28) ($31)
Other (4) -- (7) (6)
Recoveries 4 11 18 38
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