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IMMEDIATE July 10, 1997
J.P. MORGAN REPORTS 1997 SECOND QUARTER RESULTS
J.P. Morgan & Co. Incorporated reported net income of $374 million in the second
quarter of 1997, compared with $440 million in the second quarter of 1996.
Earnings per share for the quarter were $1.85, compared with $2.14 a year ago.
Net income for the first six months of 1997 totaled $798 million, down from $879
million in 1996. Earnings per share in the first six months were $3.89 versus
$4.28 a year ago.
"Morgan's global business gained momentum through the second quarter, after a
slow start," said Douglas A. Warner III, chairman. "While proprietary results
were down, revenues from client-related activities rose and investment banking
performance was our strongest to date."
SECOND QUARTER 1997 RESULTS AT A GLANCE
First
Second quarter quarter
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In millions of dollars, except per share data 1997 1996 1997
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Revenues $ 1,791 $ 1,761 $ 1,833
Operating expenses (1,241) (1,104) (1,191)
Income taxes (176) (217) (218)
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Net income 374 440 424
Net income per share $ 1.85 $ 2.14 $ 2.04
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Dividends declared per share $ 0.88 $ 0.81 $ 0.88
REVENUES were up slightly in the second quarter from a year ago.
- Finance and Advisory revenues rose 13% to $481 million on strong
results from advisory activities and debt and equity underwriting.
- Market Making revenues were $648 million, up from $639 million a year
ago, as increases in equities outpaced declines in global fixed income
results.
- Asset Management and Servicing revenues increased 12% to $392 million,
reflecting growth in investment management and private client
activities.
- Equity Investments revenues were $124 million versus $126 million.
- Proprietary Investing and Trading revenues declined to $116 million
from $216 million.
OPERATING EXPENSES rose 12% in the 1997 second quarter from a year ago. The
increase reflected planned spending in areas targeted for growth and
included a charge of $28 million incurred in connection with the renovation
of office space in New York.
The remainder of this release contains information on specific areas of results,
a financial summary, and the consolidated financial statements. A summary of
business sector results is included on page 10.
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Press contact: Joseph M. Evangelisti 212/648-9589
Investor contact: Ann B. Patton 212/648-9446
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REVENUES BY BUSINESS SECTOR
REVENUES were $1.791 billion in the second quarter, compared with $1.761 billion
in the year-ago quarter.
Revenues from client-focused activities, which are reported in the Finance and
Advisory, Market Making, and Asset Management and Servicing sectors, totaled
$1.521 billion, up 7% from $1.416 billion a year ago. Revenues from Equity
Investments and Proprietary Investing and Trading activities declined to $240
million from $342 million in 1996.
FINANCE AND ADVISORY (Advisory, Debt and Equity Underwriting, and Credit)
revenues increased 13% to $481 million, reflecting continued growth across
investment banking activities.
Revenues from advisory services and debt and equity underwriting in both
developed and emerging markets increased 31% to $255 million. The market for
advisory and underwriting activity remained strong, and Morgan assisted clients
in a number of the quarter's notable transactions. Revenues from global credit
activities were $226 million, essentially unchanged from a year ago.
For the first half of 1997, Securities Data Co. ranked J.P. Morgan fifth in U.S.
debt and equity underwriting, up from sixth a year ago. Morgan ranked seventh in
completed mergers and acquisitions transactions worldwide, unchanged from the
first six months of 1996.
MARKET MAKING (Fixed Income, Equities, Foreign Exchange, and Commodities)
revenues totaled $648 million compared with $639 million a year ago. After a
brief slowdown caused by the mid-March directional shift in U.S. monetary
policy, financial markets worldwide generally gained strength in the second
quarter.
Fixed income revenues in developed markets were $267 million, compared with $277
million in the 1996 second quarter.
In emerging markets, revenues were $123 million, down from $151 million a year
ago. Revenue increases in local market activities in Eastern Europe and Asia
were more than offset by lower revenues from external debt trading.
In equities, market making revenues were up 20% to $158 million. Equity
derivative revenues grew and equity commissions increased sharply, primarily
reflecting growing market share on U.S. and European exchanges.
Foreign exchange revenues rose 4% to $84 million. Commodities revenues were $16
million versus a loss of $2 million a year ago.
ASSET MANAGEMENT AND SERVICING (Investment Management, Private Client Services,
Futures and Options Brokerage, and Euroclear System) revenues rose 12% to $392
million in the second quarter from a year ago. Revenues generated from
institutional investment management activities and services for private clients
increased 10% to $256 million. Assets under management were approximately $234
billion at June 30, 1997. Futures and Options Brokerage as well as
Euroclear-related revenues also increased.
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Private clients accounted for approximately $145 million of revenues from the
firm's client-focused activities in the second quarter, up 15% from 1996, $45
million of which is recorded in the Finance and Advisory and Market Making
sectors.
EQUITY INVESTMENTS (Equity Portfolio Management for Morgan's own account)
reported revenues of $124 million in the second quarter, compared with $126
million a year ago. Included in reported revenues were net gains of $118
million, primarily related to the sale of equity investments in the
communications and insurance industries. A year ago, net gains were also $118
million. On a total return basis, combining reported revenues with the change in
net unrealized appreciation, Equity Investments earned $212 million in the 1997
second quarter, primarily related to insurance industry investments. A year ago,
total return was $103 million.
PROPRIETARY INVESTING AND TRADING (Market Risk Positioning and Capital and
Liquidity Management) revenues totaled $116 million for the 1997 second quarter,
compared with $216 million a year ago. Trading losses were $17 million, compared
with gains of $128 million in the 1996 second quarter. Total return - reported
revenues plus the change in net unrealized appreciation - for the 1997 second
quarter was $59 million, compared with $89 million in 1996.
OPERATING EXPENSES
Operating expenses increased 12% to $1.241 billion in the 1997 second quarter
and included a charge of $28 million incurred in connection with the renovation
of office space in New York. Expense increases were concentrated in two business
sectors - Finance and Advisory, and Asset Management and Servicing - where
Morgan is investing to expand market share and business capacity. Higher levels
of business activity also contributed to the overall rise in expenses, as did
initiatives to prepare for the year 2000 and the anticipated conversion to a
single European currency.
At June 30, 1997, staff totaled 15,776 employees, compared with 15,391 employees
at June 30, 1996.
Income tax expense in the second quarter totaled $176 million, based on an
effective tax rate of 32%, compared with 33% in the year-earlier quarter.
ASSETS
Total assets were $250 billion at June 30, 1997, compared with $226 billion at
March 31, 1997.
At June 30, 1997, the aggregate allowance for credit losses was $1.110 billion
versus $1.113 billion at March 31, 1997. Nonperforming assets decreased to $108
million at June 30, 1997, from $110 million at March 31, 1997, as assets newly
classified as nonperforming were more than offset by assets returned to
performing status, repayments, and charge-offs. No provision for credit losses
was deemed necessary in the 1997 second quarter.
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CAPITAL
At June 30, 1997, J.P. Morgan's estimated tier 1 and total risk-based capital
ratios were 8.0% and 11.3%, respectively, compared with tier 1 and total
risk-based capital ratios of 8.7% and 12.4%, respectively, at March 31, 1997.
The leverage ratio was 5.9% at both June 30, 1997, and March 31, 1997.
At June 30, 1997, stockholders' equity included approximately $518 million of
net unrealized appreciation on debt investment and marketable equity investment
securities, net the related deferred tax liability of $310 million. This
compares with $402 million of net unrealized appreciation at March 31, 1997, net
the related deferred tax liability of $227 million. The net unrealized
appreciation on debt investment securities was $294 million and $243 million at
June 30, 1997 and March 31, 1997, respectively. The net unrealized appreciation
on marketable equity investment securities was $534 million at June 30, 1997,
and $386 million at March 31, 1997.
During the second quarter of 1997, the firm completed the purchase of J.P.
Morgan common stock in the open market pursuant to the Board of Directors'
December 1996 authorization of the purchase of up to $750 million of shares. In
addition, the firm continues its program of purchasing J.P. Morgan shares to
lessen the dilutive impact on earnings per share of the firm's employee benefit
plans.
# # #
J.P. Morgan is a leading global financial firm that meets critical financial
needs for business enterprises, governments, financial institutions, 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.
Attached are the financial summary; interim consolidated financial statements,
which are unaudited; summary of sector results; trading and investment banking
revenue tables; and asset quality tables. J.P. Morgan news releases, including
quarterly financial results, are available on the Internet at 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
First
Second Quarter Quarter Six Months
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1997 1996 1997 1997 1996
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Net Income $ 374 $ 440 $ 424 $ 798 $ 879
PER COMMON SHARE
Net income (a) $ 1.85 $ 2.14 $ 2.04 $ 3.89 $ 4.28
Dividends declared 0.88 0.81 0.88 1.76 1.62
Book value 55.37 52.40 54.05
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Weighted-average number of common and
common equivalent shares outstanding 198,148,923 202,063,927 203,137,598 200,750,906 202,048,817
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Dividends declared on common stock $ 158 $ 151 $ 160 $ 318 $ 303
Dividends declared on preferred stock 9 8 9 18 16
SELECTED RATIOS
Annualized rate of return on average
common stockholders' equity 14.1% 17.1% 15.7% 14.9% 17.1%
As % of period-end total assets:
Common equity 4.3% 5.2% 4.6%
Total equity 4.5 5.5 4.9
Regulatory capital ratios (b)
Tier 1 risk-based capital ratio 8.0% 8.2% 8.7%
Total risk-based capital ratio 11.3 11.7 12.4
Leverage ratio 5.9 6.3 5.9
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AVERAGE BALANCES
Debt investment securities (c) $ 22,946 $ 25,880 $ 25,452 $ 24,192 $ 25,096
Loans 29,434 28,514 28,702 29,070 27,920
Total interest-earning assets 194,832 167,087 189,516 192,189 164,854
Total assets 243,225 209,691 236,079 239,672 207,284
Total interest-bearing liabilities 185,465 158,123 182,059 183,772 156,448
Total liabilities 232,118 198,807 224,684 228,421 196,504
Common stockholders' equity 10,413 10,190 10,701 10,557 10,127
Total stockholders' equity 11,107 10,884 11,395 11,251 10,780
Net interest earnings (fully taxable basis) 513 419 470 983 837
Net yield on interest-earning assets 1.06% 1.01% 1.01% 1.03% 1.02%
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Employees at period-end 15,776 15,391 15,483
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(a) Earnings per share amounts represent both primary and fully diluted earnings
per share, except for the three months ended June 30, 1997 and the six months
ended June 30, 1996. Fully diluted earnings per share were $1.84 and $4.27 for
the three months ended June 30, 1997 and the six months ended June 30, 1996,
respectively.
(b) 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
June 30, 1997, are estimates.
(c) 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
----------------------------------------------------------------
June 30 June 30 Increase/ March 31 Increase/
1997 1996 (Decrease) 1997 (Decrease)
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NET INTEREST REVENUE
Interest revenue $3,029 $2,559 $ 470 $2,892 $ 137
Interest expense 2,534 2,162 372 2,442 92
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Net interest revenue 495 397 98 450 45
NONINTEREST REVENUE
Trading revenue 477 697 (220) 697 (220)
Investment banking revenue 294 210 84 226 68
Investment management revenue 199 172 27 184 15
Fees and commissions 156 142 14 148 8
Investment securities revenue 114 72 42 61 53
Other revenue 56 71 (15) 67 (11)
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Total noninterest revenue 1,296 1,364 (68) 1,383 (87)
Total revenue 1,791 1,761 30 1,833 (42)
OPERATING EXPENSES
Employee compensation and benefits 734 737 (3) 766 (32)
Net occupancy 104 76 28 73 31
Technology and communications 240 158 82 203 37
Other expenses 163 133 30 149 14
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Total operating expenses 1,241 1,104 137 1,191 50
Income before income taxes 550 657 (107) 642 (92)
Income taxes 176 217 (41) 218 (42)
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Net income 374 440 (66) 424 (50)
PER COMMON SHARE
Net income (a) $ 1.85 $ 2.14 ($0.29) $ 2.04 ($0.19)
Dividends declared 0.88 0.81 0.07 0.88 --
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(a) See Financial Summary for per common share data assuming full dilution.
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CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
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In millions, except per share data
Six months ended
---------------------------------
June 30 June 30 Increase/
1997 1996 (Decrease)
---------------------------------
NET INTEREST REVENUE
Interest revenue $5,921 $5,113 $ 808
Interest expense 4,976 4,320 656
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Net interest revenue 945 793 152
NONINTEREST REVENUE
Trading revenue 1,174 1,455 (281)
Investment banking revenue 520 411 109
Investment management revenue 383 329 54
Fees and commissions 304 293 11
Investment securities revenue 175 150 25
Other revenue 123 70 53
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Total noninterest revenue 2,679 2,708 (29)
Total revenue 3,624 3,501 123
OPERATING EXPENSES
Employee compensation and benefits 1,500 1,467 33
Net occupancy 177 149 28
Technology and communications 443 316 127
Other expenses 312 257 55
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Total operating expenses 2,432 2,189 243
Income before income taxes 1,192 1,312 (120)
Income taxes 394 433 (39)
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Net income 798 879 (81)
PER COMMON SHARE
Net income (a) $ 3.89 $ 4.28 ($0.39)
Dividends declared 1.76 1.62 0.14
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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 June 30 March 31 December 31
1997 1997 1996
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ASSETS
Cash and due from banks $ 752 $ 1,174 $ 906
Interest-earning deposits with banks 2,054 1,955 1,908
Debt investment securities available-for-sale carried at fair value
(cost: $24,642 at June 1997, $23,416
at March 1997, and $24,610 at December 1996) 24,936 23,659 24,865
Trading account assets, net of allowance for credit losses of $350 105,825 89,417 90,980
Securities purchased under agreements to resell ($36,425 at June 1997,
$35,034 at March 1997, and $32,455 at December 1996)
and federal funds sold 36,425 35,108 32,505
Securities borrowed 37,837 31,981 27,931
Loans, net of allowance for credit losses of $560 at June 1997, $563
at March 1997, and $566 at December 1996 28,734 28,890 27,554
Customers' acceptance liability 175 257 212
Accrued interest and accounts receivable 4,446 5,569 3,789
Premises and equipment 3,194 3,160 3,137
Less: accumulated depreciation 1,353 1,313 1,272
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Premises and equipment, net 1,841 1,847 1,865
Other assets 7,465 6,525 9,511
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Total assets 250,490 226,382 222,026
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LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,235 1,219 1,501
In offices outside the U.S. 641 806 708
Interest-bearing deposits:
In offices in the U.S. 9,274 10,293 7,103
In offices outside the U.S. 45,827 41,253 43,412
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Total deposits 56,977 53,571 52,724
Trading account liabilities 59,436 55,338 50,919
Securities sold under agreements to repurchase ($64,322 at June 1997,
$55,448 at March 1997, and $56,117 at December 1996)
and federal funds purchased 67,464 60,155 61,429
Commercial paper 4,289 4,023 4,132
Other liabilities for borrowed money 19,615 19,948 19,948
Accounts payable and accrued expenses 7,025 4,825 5,935
Liability on acceptances 175 257 212
Long-term debt not qualifying as risk-based capital 14,890 10,855 9,411
Other liabilities, including allowance for credit losses of $200 4,000 986 1,442
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233,871 209,958 206,152
Long-term debt qualifying as risk-based capital 4,121 4,118 3,692
Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 750
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Total liabilities 239,142 215,226 210,594
STOCKHOLDERS' EQUITY
Preferred stock (authorized shares: 10,400,000)
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: 200,689,973 at June 1997, 200,689,373 at March 1997
and 200,688,123 at December 1996) 502 502 502
Capital surplus 1,402 1,413 1,446
Retained earnings 9,085 8,883 8,635
Net unrealized gains on investment securities, net of taxes 518 402 464
Other 968 864 826
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13,169 12,758 12,567
Less: treasury stock (21,633,098 shares at June 1997, 19,562,782
at March 1997 and 15,765,455 at December 1996) at cost 1,821 1,602 1,135
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Total stockholders' equity 11,348 11,156 11,432
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Total liabilities and stockholders' equity 250,490 226,382 222,026
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CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
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Dollars in millions June 30 December 31
1997 1996
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ASSETS
Cash and due from banks $ 718 $ 920
Interest-earning deposits with banks 2,056 1,910
Debt investment securities available-for-sale carried at fair value 23,827 23,510
Trading account assets, net of allowance for credit losses of $350 84,442 72,549
Securities purchased under agreements to resell, securities borrowed
and federal funds sold 38,468 27,762
Loans, net of allowance for credit losses of $558 at June 1997 and $565
at December 1996 28,560 27,378
Customers' acceptance liability 175 212
Accrued interest and accounts receivable 3,429 3,470
Premises and equipment 2,858 2,812
Less: accumulated depreciation 1,185 1,116
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Premises and equipment, net 1,673 1,696
Other assets 5,144 5,406
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Total assets 188,492 164,813
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LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,235 1,495
In offices outside the U.S. 662 749
Interest-bearing deposits:
In offices in the U.S. 9,285 7,114
In offices outside the U.S. 46,711 43,716
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Total deposits 57,893 53,074
Trading account liabilities 49,908 44,039
Securities sold under agreements to repurchase and federal funds purchased 35,061 30,787
Other liabilities for borrowed money 12,678 13,215
Accounts payable and accrued expenses 5,063 4,203
Liability on acceptances 175 212
Long-term debt not qualifying as risk-based capital 11,500 5,436
Other liabilities, including allowance for credit losses of $200 3,257 977
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175,535 151,943
Long-term debt qualifying as risk-based capital 2,817 2,979
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Total liabilities 178,352 154,922
STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: 2,500,000) -- --
Common stock, $25 par value (authorized shares: 11,000,000; outstanding: 10,599,027) 265 265
Surplus 3,155 3,155
Undivided profits 6,578 6,334
Net unrealized gains on investment securities, net of taxes 156 149
Foreign currency translation (14) (12)
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Total stockholder's equity 10,140 9,891
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Total liabilities and stockholder's equity 188,492 164,813
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Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
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SUMMARY OF SECTOR RESULTS
J.P. Morgan & Co. Incorporated
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Asset TOTAL
Finance Manage- CLIENT- Equity Proprietary TOTAL
and Market ment and FOCUSED Invest- Investing PROPRIETARY Corporate CONSOL-
In millions Advisory Making Servicing ACTIVITIES ments and Trading ACTIVITIES Items IDATED
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SECOND QUARTER 1997
Total revenues $481 $648 $392 $1,521 $124 $116 $240 $30 $1,791
Total expenses 351 455 320 1,126 11 45 56 59 1,241
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Pretax income 130 193 72 395 113 71 184 (29) 550
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SECOND QUARTER 1996
Total revenues 426 639 351 1,416 126 216 342 3 1,761
Total expenses 268 441 274 983 8 40 48 73 1,104
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Pretax income 158 198 77 433 118 176 294 (70) 657
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SIX MONTHS 1997
Total revenues 932 1,381 767 3,080 173 392 565 (21) 3,624
Total expenses 653 929 620 2,202 18 91 109 121 2,432
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Pretax income 279 452 147 878 155 301 456 (142) 1,192
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SIX MONTHS 1996
Total revenues 842 1,410 696 2,948 192 431 623 (70) 3,501
Total expenses 527 851 545 1,923 16 76 92 174 2,189
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Pretax income 315 559 151 1,025 176 355 531 (244) 1,312
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BUSINESS SECTORS:
We describe the activities of J.P. Morgan using five business sectors. Three of
these sectors - Finance and Advisory, Market Making, and Asset Management and
Servicing - focus on services we provide for clients. Two sectors comprise
proprietary activities that we conduct exclusively for our own account: Equity
Investments and Proprietary Investing and Trading. The Finance and Advisory
sector includes results of our Advisory, Debt and Equity Underwriting, and
Credit activities. The Market Making sector includes results of our Fixed
Income, Equities, Foreign Exchange, and Commodities activities, including
positions taken to facilitate client transactions. The Asset Management and
Servicing sector includes results of our Investment Management, Private Client
Services, Futures and Options Brokerage, and Euroclear System activities. The
Equity Investments sector includes results from our proprietary equity
investment portfolio management activities and the Proprietary Investing and
Trading sector includes results from our market risk positioning and capital and
liquidity management activities. Corporate Items includes revenues and expenses
that have not been allocated to the five business sectors, intercompany
eliminations, the taxable-equivalent adjustment, and the results of sold or
discontinued businesses. For a complete description of our business sectors,
please refer to the J.P. Morgan & Co. Incorporated 1996 Annual Report.
METHODOLOGY:
The firm's management reporting system and policies were used to determine the
revenues and expenses directly attributable to each business sector. Earnings on
stockholders' equity were allocated based on management's assessment of the
inherent risk of the components of each sector. In addition, certain overhead
expenses not allocated for management reporting purposes were allocated to each
business 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. Certain prior year amounts have been
reclassified to conform with the 1997 presentation.
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TRADING REVENUE
J.P. Morgan & Co. Incorporated
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Dollars in millions
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FIXED FOREIGN PROPRIETARY
INCOME EQUITIES EXCHANGE COMMODITIES TRADING TOTAL
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Second Quarter 1997 $250 $170 $72 $2 ($17) $477
Second Quarter 1996 331 124 109 5 128 697
Six Months 1997 596 281 192 15 90 1,174
Six Months 1996 864 218 177 39 157 1,455
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INVESTMENT BANKING REVENUE
J.P. Morgan & Co. Incorporated
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Dollars in millions
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ADVISORY AND UNDERWRITING TOTAL INVESTMENT
SYNDICATION FEES REVENUE BANKING REVENUE
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Second Quarter 1997 $154 $140 $294
Second Quarter 1996 99 111 210
Six Months 1997 283 237 520
Six Months 1996 235 176 411
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ASSET QUALITY
J.P. Morgan & Co. Incorporated
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NONPERFORMING ASSETS
June 30 March 31 December 31 June 30
Dollars in millions 1997 1997 1996 1996
-------- --------- ------------ --------
Impaired loans:
Commercial and industrial $ 60 $ 55 $ 89 $ 96
Other 44 34 29 36
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104 89 118 132
Restructuring countries 2 2 2 2
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Total impaired loans 106 91 120 134
Other nonperforming assets 2 19 - -
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Total nonperforming assets 108 110 120 134
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AGGREGATE ALLOWANCE FOR CREDIT LOSSES
June 30 March 31 December 31 June 30
Dollars in millions 1997 1997 1996 1996
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Aggregate allowance for credit losses $1,110 $1,113 $1,116 $1,125
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Second Quarter Six Months
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1997 1996 1997 1996
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Charge-offs:
Commercial and industrial ($8) ($1) ($21) ($16)
Other (7) - (7) (3)
Recoveries 12 9 22 14
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