1 J.P. Morgan & Co. Incorporated JPMORGAN 60 Wall Street New York, NY 10260-0060 NYSE: symbol: JPM - -------------------------------------------------------------------------------- News release: IMMEDIATE April 14, 1999 J.P. MORGAN REPORTS FIRST QUARTER 1999 EARNINGS J.P. Morgan today reported first quarter net income of $600 million, or $3.01 per share. This is an increase of 64% over first quarter 1998 operating income of $366 million, or $1.80 per share. The 1998 result excludes a charge related to restructuring of business activities. Return on equity in the first quarter was 22%, compared with 13% a year ago. Other highlights for the first quarter: o Total revenues were up 25% from a year ago. o Global Finance revenues rose 40%, reflecting strong client activity and gains from managing our market and credit risk exposures. o Asset Management and Servicing revenues included a 13% increase in investment management fees; assets under management rose 11% to $321 billion. o Proprietary Investments revenues of $97 million reflect lower results from proprietary investing and trading activities and from our equity investment portfolio. o Excluding bonus accruals, core operating expenses were down $100 million and are on track toward our expense reduction target for the year. Total expenses rose 11%. "Strong client activity across our business, continued progress on our key growth and productivity initiatives, and good returns from managing risk portfolios globally combined to produce an exceptional result," said Douglas A. Warner III, chairman. First quarter results at a glance First quarter Fourth quarter - -------------------------------------------------------------------------------- In millions of dollars, except per share data 1999 1998 1998 - -------------------------------------------------------------------------------- Revenues $ 2,491 $ 1,997 $ 1,504 Operating expenses (1,567) (1,632)(a) (1,391)(a) Income taxes (324) (128) (24) - -------------------------------------------------------------------------------- Net income 600 237 89 Net income per share $ 3.01 $ 1.15 $ 0.42 Dividends declared per share $ 0.99 $ 0.95 $ 0.99 - -------------------------------------------------------------------------------- (a) Includes charges of $215 million and $143 million related to restructuring of business activities and other cost reductions in the first and fourth quarters of 1998, respectively. - -------------------------------------------------------------------------------- Press contact: Joseph M. Evangelisti 212/648-9589 Investor contact: Ann B. Patton 212/648-9446 2 J.P. Morgan & Co. Incorporated 2 REVENUES BY SEGMENT Revenues from client-focused activities up 32% Revenues were $2.491 billion in the first quarter of 1999, up 25% from a year ago. Client-focused revenues, which are reported in the Global Finance and Asset Management and Servicing sectors, totaled $2.403 billion in the first quarter of 1999, up 32% from $1.817 billion a year ago. Revenues from Proprietary Investments were $97 million versus $290 million in first quarter 1998. GLOBAL FINANCE revenues increased 40% to $2.032 billion in the first quarter of 1999 across regions and activities, reflecting the benefits of our diversified global franchise and an improvement in the market environment since the end of 1998. o Investment Banking revenues were $258 million, up slightly from the 1998 first quarter. Continued strong growth in advisory revenues offset a decline in origination revenues from risk management products. J.P.Morgan was ranked sixth by Securities Data Co. in completed mergers and acquisitions worldwide, with a market share of 15.8%, and first in completed cross-border activity. o Equities revenues of $288 million more than doubled from a year ago, driven by higher equity derivatives and underwriting revenues, and strong worldwide equity trading volumes. Our secondary market share continued to increase in the United States, Europe, and Latin America. We were ranked sixth by Securities Data Co. in U.S. lead equity underwriting with a market share of 5.7%. o Foreign Exchange revenues were $81 million, down from a year ago mainly because of lower revenues from Asian markets. o Interest Rate Markets revenues rose 14% to $581 million. Strong performance in securities and derivatives activities reflected favorable positioning and continued strength of client demand. Overall, results were well diversified and particularly robust in Asia. o Credit Markets revenues were $696 million, up 91%. Revenues across activities rebounded from the fourth quarter because of narrowing credit spreads and recovering client demand. The increase over the year-ago quarter was primarily driven by strong results in Latin America, including gains on positions in Brazil taken in association with hedging our economic exposures. o Credit Portfolio revenues increased 39% to $128 million. This primarily reflects lower costs related to the implementation of our credit strategy. Continued progress on this strategy resulted in the reduction of the economic capital employed in this business by 33% since December 31, 1997. ASSET MANAGEMENT AND SERVICING revenues were up 2% to $371 million, driven by a 13% increase in investment management fees. Assets under management rose 11% to $321 billion at March 31, 1999, from a year ago. 3 J.P. Morgan & Co. Incorporated 3 Proprietary Investments revenues were $97 million, 67% lower than first quarter 1998. o Proprietary Investing and Trading revenues were $119 million, down 55%. Total return - reported revenues and the change in net unrealized appreciation - was $83 million compared with $209 million in first quarter 1998. Lower results from Asian and U.S. markets were partially offset by strong results in European interest rate markets. o Equity Investments recorded a loss of $22 million, primarily reflecting write-downs of Brazilian investments. Revenues were $26 million in the first quarter of 1998 when we posted net gains of $20 million. CORPORATE ITEMS had negative revenues of $9 million, compared with negative revenues of $110 million in last year's first quarter. Hedges of anticipated foreign currency revenues and expenses had a gain of approximately $75 million, compared with a loss of approximately $30 million in the 1998 first quarter. OPERATING EXPENSES Core operating expense trends reflect progress on productivity initiatives Operating expenses were $1.567 billion, compared with $1.632 billion in the first quarter of last year. The 1998 first quarter included a charge of $215 million in connection with restructuring initiatives. Excluding this charge, expenses rose 11% as higher bonus accruals reflecting our strong results more than offset lower pre-bonus operating expenses. Before bonus accruals, operating expenses were down $100 million. We are on track to achieve our previously stated $400 million pre-bonus expense reduction target for 1999. The firm's efficiency ratio was 63%, compared with 71% in the first quarter of last year excluding the charge. Costs associated with the preparation for the Year 2000 and European Economic and Monetary Union were $25 million, down from $55 million. Software costs of $29 million were capitalized rather than expensed because of a change in accounting rules, and are not included in 1999 expenses or our expense reduction target. CREDIT DEVELOPMENTS Our allowances for credit losses for traditional credit products totaled $572 million at March 31, 1999, compared with $595 million at the end of 1998. Net charge-offs of $23 million in the first quarter were primarily related to one counterparty in the United States. At March 31, 1999, management believed the allowances for credit losses for traditional credit products were appropriately stated. Derivatives in our trading portfolio are carried at fair value, which includes credit considerations, and are not covered by our allowances. Total emerging market exposures in Asia and Latin America were consistent with levels at the end of 1998. 4 J.P. Morgan & Co. Incorporated 4 MARKET RISK DEVELOPMENTS During the first quarter, market conditions stabilized from the fourth quarter's extreme conditions, which were characterized by sharp increases in volatilities, illiquidity, and breakdowns in historical correlations. Daily earnings at risk (DEaR) in our trading activities was $34 million at March 31, 1999, versus $35 million at year-end 1998; the first quarter reflected higher levels of trading positions offset by lower volatilities. The DEaR for our investment portfolio, which consists largely of U.S. government agency securities, was $24 million as of March 31, 1999, versus $72 million at December 31, 1998. The decline reflects lower volatility versus the previous quarter, as well as a reduction in the size and underlying interest rate risk in the portfolio. CAPITAL During the first quarter, we increased our capital flexibility through a reduction in credit and investment portfolio risk. The firm purchased approximately $110 million of its common stock, or 900,000 shares in total. These purchases were part of the December 1998 authorization to repurchase $750 million of common stock subject to market conditions and other factors. These purchases may be made periodically in 1999 or beyond in the open market or through privately negotiated transactions. At March 31, 1999, under the Federal Reserve Board market risk capital guidelines for calculation of risk-based capital ratios, J.P. Morgan's estimated tier 1 and total risk-based capital ratios were 8.1% and 12.1%, respectively; the estimated leverage ratio was 4.4%. At December 31, 1998, J.P. Morgan's tier 1 and total risk-based capital ratios were 8.0% and 11.7%, respectively, and the leverage ratio was 3.9%. At March 31, 1999, stockholders' equity of $11.630 billion included $10 million of net unrealized appreciation on debt investment and marketable equity investment securities, net of the related tax liability of $3 million. This compares with $147 million of net unrealized appreciation at December 31, 1998, net of the related tax liability of $87 million. The net unrealized depreciation on debt investment securities was $26 million at March 31, 1999, compared with an unrealized appreciation of $125 million at December 31, 1998. The decline primarily related to decreases in the value of U.S. government and agency securities. The net unrealized appreciation on marketable equity investment securities was $39 million at March 31, 1999, and $109 million at December 31, 1998. # # # 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. 5 J.P. Morgan & Co. Incorporated 5 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 our 1998 Annual Report. Attached are the financial summary; interim consolidated financial statements, which are unaudited; summary of segment revenues; investment banking revenue table; and asset quality tables. J.P. Morgan news releases, including quarterly financial results, are available on the Internet at www.jpmorgan.com. 6 J.P. Morgan & Co. Incorporated 6 FINANCIAL SUMMARY J. P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- Dollars in millions, except share data Fourth First Quarter Quarter ------------------------------------ -------------- 1999 1998 1998 -------------------------------------------------- Net Income $600 (a) $237 (b) $89 PER COMMON SHARE Net income Basic $3.24 (a) $1.26 (b) $0.44 Diluted 3.01 (a) 1.15 (b) 0.42 Dividends declared 0.99 0.95 0.99 Book value (c) $56.66 $56.55 $55.01 - ------------------------------------------------------------------------------------------------ Common shares issued and outstanding at period-end 176,696,808 177,933,414 175,006,281 - ------------------------------------------------------------------------------------------------ Weighted-average number of common and dilutive potential common shares outstanding 196,382,735 198,189,458 194,155,078 - ------------------------------------------------------------------------------------------------ Dividends declared on common stock $175 $169 $173 Dividends declared on preferred stock 9 9 9 - ------------------------------------------------------------------------------------------------ Annualized rate of return on average common stockholders' equity (d) 22.3 % (a) 8.6 % (b) 3.1 % As % of period-end total assets: Common equity 4.1 % 4.0 % 4.0 % Total equity 4.3 4.3 4.3 - ------------------------------------------------------------------------------------------------ Regulatory capital ratios Tier 1 risk-based capital ratio (e) 8.1 % 7.5 % 8.0 % Total risk-based capital ratio (e) 12.1 11.1 11.7 Leverage ratio (e) 4.4 4.0 3.9 Risk-adjusted assets (e) 144,618 150,565 140,182 - ------------------------------------------------------------------------------------------------ AVERAGE BALANCES Debt investment securities (f) $33,833 $24,100 $30,129 Loans 27,513 32,540 28,567 Total interest-earning assets 197,243 209,779 205,703 Total assets 270,163 279,657 286,486 Total interest-bearing liabilities 190,416 205,867 199,579 Total liabilities 258,713 268,167 275,379 Common stockholders' equity 10,756 10,796 10,413 Total stockholders' equity 11,450 11,490 11,107 Net interest earnings before provision (fully taxable basis) 409 351 348 Net yield on interest-earning assets 0.84 % 0.68 % 0.67 % - ------------------------------------------------------------------------------------------------ Employees at period-end 15,100 16,534 15,674 - ------------------------------------------------------------------------------------------------ (a) Excluding the 1998 first quarter after tax charge of $129 million ($215 million before tax) related to the restructuring of business activities: net income was $366 million; basic and diluted earnings per share (EPS) were $1.97 and $1.80, respectively; and the annualized rate of return on average common stockholders' equity was 13.4% (including the impact of Statement of Financial Accounting Standards (SFAS) No. 115) and 14.0% (excluding the impact of SFAS No. 115) for the three months ended March 31, 1998. (b) Excluding the 1998 fourth quarter after tax charge of $86 million ($143 million before tax) related to cost reduction programs: net income was $175 million; basic and diluted earnings per share (EPS) were $0.92 and $0.86, respectively; and the annualized rate of return on average common stockholders' equity was 6.4% (including the impact of SFAS No. 115) and 6.4% (excluding the impact of SFAS No. 115) for the three months ended December 31, 1998. (c) Excluding the impact of SFAS No. 115, the book value per common share was $56.56, $54.30, and $54.24, at March 31, 1999, March 31, 1998, and December 31, 1998, respectively. (d) Excluding the impact of SFAS No. 115, the annualized rate of return on average common stockholders' equity was 22.5%, 8.9%, and 3.1% for the three months ended March 31, 1999, March 31, 1998, and December 31, 1998, respectively. (e) Regulatory capital ratios and risk-adjusted assets are estimates at March 31, 1999. (f) Average debt investment securities are computed on historical amortized cost, excluding the effects of SFAS No. 115 adjustments. 7 J.P. Morgan & Co. Incorporated 7 CONSOLIDATED STATEMENT OF INCOME J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- In millions, except share data Three months ended -------------------------------------------------------------------- March 31 March 31 Increase/ December 31 Increase/ 1999 1998 (a) (Decrease) 1998 (Decrease) -------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $2,757 $3,262 ($505) $3,024 ($267) Interest expense 2,368 2,926 (558) 2,701 (333) - -------------------------------------------------------------------------------------------------------------- Net interest revenue 389 336 53 323 66 Provision for loan losses -- -- -- 85 (85) - -------------------------------------------------------------------------------------------------------------- Net interest revenue after provision for loan losses 389 336 53 238 151 NONINTEREST REVENUES Trading revenue 1,134 896 238 520 614 Investment banking revenue 390 346 44 381 9 Investment management revenue 246 211 35 220 26 Fees and commissions 214 190 24 179 35 Investment securities (loss)/revenue (41) 43 (84) (42) 1 Other revenue/(loss) 159 (25) 184 8 (b) 151 - -------------------------------------------------------------------------------------------------------------- Total noninterest revenues 2,102 1,661 441 1,266 836 Total revenues, net of interest expense and provisions for credit losses 2,491 1,997 494 1,504 987 OPERATING EXPENSES Employee compensation and benefits 1,096 1,003 93 801 295 Net occupancy 82 151 (69) 124 (42) Technology and communications 247 301 (54) 305 (58) Other expenses 142 177 (35) 161 (19) - -------------------------------------------------------------------------------------------------------------- Total operating expenses 1,567 1,632 (c) (65) 1,391 (d) 176 Income before income taxes 924 365 559 113 811 Income taxes 324 128 196 24 300 - -------------------------------------------------------------------------------------------------------------- Net income 600 237 363 89 511 PER COMMON SHARE Net income Basic $3.24 $1.26 $1.98 $0.44 $2.80 Diluted 3.01 1.15 1.86 0.42 2.59 Dividends declared 0.99 0.95 0.04 0.99 -- - -------------------------------------------------------------------------------------------------------------- (a) Prior to July 1, 1998, changes, excluding charge-offs and recoveries, across balance sheet reserve or allowance captions - which included an adjustment for trading derivatives needed to determine fair value, an allowance for loan losses and an allowance for off-balance-sheet financial instruments such as commitments, standby letters of credit, and guarantees - were shown as reclassifications. Reclassifications had no impact on net income, and accordingly, were not shown on the income statement. Subsequent to July 1,1998, reclassifications across balance sheet captions for allowances are reflected as provisions and reversals of provisions in the "Consolidated statement of income." If reclassifications prior to July 1, 1998 were included in the "Consolidated statement of income," the captions on the income statement for the first quarter of 1998 would change with no impact on net income as follows: Provision for loan losses would be a negative (income) $50 million and Trading revenue would decrease by $50 million. (b) Fourth quarter 1998 includes a negative provision of $60 million related to a decrease in our allowance for credit losses for off-balance-sheet financial instruments. (c) First quarter 1998 includes a pretax charge of $215 million ($129 million after tax) related to the restructuring of business activities which was recorded as follows: $140 million in Employee compensation and benefits, related to severance; $70 million in Net occupancy, related to real estate write-offs; and $5 million in Technology and communications, related to equipment write-offs. (d) Fourth quarter 1998 includes a pretax charge of $143 million ($86 million after tax) related to cost reduction programs which was recorded as follows: $101 million in Employee compensation and benefits, related to severance and $42 million in Net occupancy, related to real estate write-offs. 8 J.P. Morgan & Co. Incorporated 8 CONSOLIDATED BALANCE SHEET J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- In millions, except share data March 31 December 31 1999 1998 ----------------------------- ASSETS Cash and due from banks $ 1,450 $ 1,203 Interest-earning deposits with banks 2,188 2,371 Debt investment securities available-for-sale carried at fair value (cost: $32,132 at March 1999 and $36,107 at December 1998) 32,106 36,232 Equity investment securities 1,096 1,169 Trading account assets 119,853 113,896 Securities purchased under agreements to resell ($27,700 at March 1999 and $31,056 at December 1998) and federal funds sold 29,430 31,731 Securities borrowed 39,248 30,790 Loans, net of allowance for loan losses of $447 at March 1999 and $470 at December 1998 25,785 25,025 Accrued interest and accounts receivable 6,220 7,689 Premises and equipment, net of accumulated depreciation of $1,360 at March 1999 and $1,350 at December 1998 1,903 1,881 Other assets 9,791 9,080 - -------------------------------------------------------------------------------------------------------------------------------- Total assets 269,070 261,067 - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 841 1,242 In offices outside the U.S. 557 563 Interest-bearing deposits: In offices in the U.S. 7,027 7,724 In offices outside the U.S. 48,379 45,499 - -------------------------------------------------------------------------------------------------------------------------------- Total deposits 56,804 55,028 Trading account liabilities 76,527 70,643 Securities sold under agreements to repurchase ($61,736 at March 1999 and $62,784 at December 1998) and federal funds purchased 61,910 63,368 Commercial paper 9,533 6,637 Other liabilities for borrowed money 12,413 12,515 Accounts payable and accrued expenses 7,711 9,859 Long-term debt not qualifying as risk-based capital 22,916 23,037 Other liabilities, including allowance for credit losses of $125 3,074 2,999 - -------------------------------------------------------------------------------------------------------------------------------- 250,888 244,086 Liabilities qualifying as risk-based capital: Long-term debt 5,402 4,570 Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities 257,440 249,806 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 Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250 Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200 Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,934,737 at March 1999 and 200,873,067 at December 1998) 502 502 Capital surplus 1,249 1,252 Common stock issuable under stock award plans 1,439 1,460 Retained earnings 10,022 9,614 Accumulated other comprehensive income: Net unrealized gains on investment securities, net of taxes 10 147 Foreign currency translation, net of taxes (47) (46) - -------------------------------------------------------------------------------------------------------------------------------- 13,869 13,623 Less: treasury stock (24,237,929 shares at March 1999 and 25,866,786 at December 1998) 2,239 2,362 - -------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 11,630 11,261 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 269,070 261,067 - -------------------------------------------------------------------------------------------------------------------------------- 9 J.P. Morgan & Co. Incorporated 9 CONSOLIDATED STATEMENT OF CONDITION Morgan Guaranty Trust Company of New York - -------------------------------------------------------------------------------- In millions, except share data March 31 December 31 1999 1998 -------------------------------- ASSETS Cash and due from banks $ 1,415 $ 1,147 Interest-earning deposits with banks 2,170 2,372 Debt investment securities available-for-sale carried at fair value 6,581 3,634 Trading account assets 93,719 90,770 Securities purchased under agreements to resell and federal funds sold 30,392 33,316 Securities borrowed 8,187 8,193 Loans, net of allowance for loan losses of $446 at March 1999 and $470 at December 1998 25,646 24,876 Accrued interest and accounts receivable 5,170 3,898 Premises and equipment, net of accumulated depreciation of $1,164 at March 1999 and $1,160 at December 1998 1,725 1,703 Other assets 8,791 5,337 - ---------------------------------------------------------------------------------------------------------------------- Total assets 183,796 175,246 - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 866 1,232 In offices outside the U.S. 559 572 Interest-bearing deposits: In offices in the U.S. 7,051 7,749 In offices outside the U.S. 50,126 46,668 - ---------------------------------------------------------------------------------------------------------------------- Total deposits 58,602 56,221 Trading account liabilities 67,693 64,776 Securities sold under agreements to repurchase and federal funds purchased 19,200 14,916 Other liabilities for borrowed money 7,588 8,646 Accounts payable and accrued expenses 5,483 6,123 Long-term debt not qualifying as risk-based capital 10,301 10,358 Other liabilities, including allowance for credit losses of $125 1,040 542 - ---------------------------------------------------------------------------------------------------------------------- 169,907 161,582 Long-term debt qualifying as risk-based capital 3,146 3,186 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 173,053 164,768 STOCKHOLDER'S EQUITY Preferred stock, $100 par value (authorized shares: 2,500,000) -- -- Common stock, $25 par value (authorized shares: 11,000,000; issued and outstanding: 10,599,027) 265 265 Surplus 3,305 3,305 Undivided profits 7,120 6,836 Accumulated other comprehensive income: Net unrealized gains on investment securities, net of taxes 99 118 Foreign currency translation, net of taxes (46) (46) - ---------------------------------------------------------------------------------------------------------------------- Total stockholder's equity 10,743 10,478 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholder's equity 183,796 175,246 - ---------------------------------------------------------------------------------------------------------------------- Member of the Federal Reserve System and the Federal Deposit Insurance Corporation. 10 10 SUMMARY OF SEGMENT REVENUES J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- The tables below reflect our current management reporting structure. Prior period amounts have been restated from the presentation appearing in our 1998 Annual Report to reflect organizational changes in the first quarter of 1999. Specifically, dealer and market making activities in the currencies and local-currency denominated government securities of emerging countries in Eastern Europe and Asia, as well as related derivatives, are now reflected in Interest Rate Markets. These activities were previously included in Credit Markets. With the exception of this change, the segment presentation is consistent with that appearing in our 1998 Annual Report. This change did not have a significant impact on the full year 1996 segment revenues. For a description of our segments, please refer to the J.P. Morgan & Co. 1998 Annual Report. First First Fourth Quarter Quarter Increase/ Quarter Increase/ In millions 1999 1998 (Decrease) 1998 (Decrease) - -------------------------------------------------------------------------------------------------- Investment Banking $258 $251 $7 $265 ($7) Equities 288 135 153 180 108 Foreign Exchange 81 105 (24) 72 9 Interest Rate Markets 581 508 73 400 181 Credit Markets 696 364 332 130 566 Credit Portfolio 128 92 36 25 103 - -------------------------------------------------------------------------------------------------- GLOBAL FINANCE 2,032 1,455 577 1,072 960 ASSET MANAGEMENT AND SERVICING 371 362 9 353 18 Equity Investments (22) 26 (48) 47 (69) Proprietary Investing and Trading 119 264 (145) 192 (73) - -------------------------------------------------------------------------------------------------- PROPRIETARY INVESTMENTS 97 290 (193) 239 (142) Corporate Items (9) (110) 101 (160)(a) 151 - -------------------------------------------------------------------------------------------------- TOTAL REVENUES 2,491 1,997 494 1,504 987 - -------------------------------------------------------------------------------------------------- The following table summarizes segment revenues for each of the four quarters of 1998 and the full years of 1998 and 1997. First Second Third Fourth Full Full Quarter Quarter Quarter Quarter Year Year In millions 1998 1998 1998 1998 1998 1997 - ------------------------------------------------------------------------------------------------------------ Investment Banking $251 $247 $238 $265 $1,001 $768 Equities 135 244 141 180 700 465 Foreign Exchange 105 167 142 72 486 465 Interest Rate Markets 508 455 206 400 1,569 1,287 Credit Markets 364 238 (140) 130 592 841 Credit Portfolio 92 136 97 25 350 447 - ------------------------------------------------------------------------------------------------------------ GLOBAL FINANCE 1,455 1,487 684 1,072 4,698 4,273 ASSET MANAGEMENT AND SERVICING 362 393 383 353 1,491 1,384 Equity Investments 26 102 160 47 335 399 Proprietary Investing and Trading 264 103 147 192 706 895 - ------------------------------------------------------------------------------------------------------------ PROPRIETARY INVESTMENTS 290 205 307 239 1,041 1,294 Corporate Items (110) 68(b) (73)(c) (160)(a) (275)(d) 269 - ------------------------------------------------------------------------------------------------------------ TOTAL REVENUES 1,997 2,153 1,301 1,504 6,955 7,220 - ------------------------------------------------------------------------------------------------------------ (a) Includes a net provision for credit losses of $25 million. (b) Includes a pretax gain of $131 million related to the sale of the firm's global trust and agency services business. (c) Includes a net provision for credit losses of $75 million, and a pretax gain of $56 million related to the sale of the firm's investment management business in Australia. (d) Includes pretax gains of $187 million related to business sales (see notes b and c), and net provisions for credit losses of $100 million (see notes a and c). 11 J.P. Morgan & Co. Incorporated 11 INVESTMENT BANKING REVENUE J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- In millions - -------------------------------------------------------------------------------- ADVISORY AND UNDERWRITING TOTAL INVESTMENT SYNDICATION FEES REVENUE BANKING REVENUE - -------------------------------------------------------------------------------- First Quarter 1999 $221 $169 $390 First Quarter 1998 191 155 346 Fourth Quarter 1998 212 169 381 - -------------------------------------------------------------------------------- 12 J.P. Morgan & Co. Incorporated 12 ASSET QUALITY IMPAIRED LOANS J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- March 31, December 31, March 31, In millions 1999 1998 (a) 1998 (a) - ---------------------------------------------------------------------------------------- Impaired loans: Commercial and industrial $ 34 $ 25 $52 Banks -- -- 2 Other, primarily other financial institutions 67 97 28 - --------------------------------------------------------------------------------------- Total impaired loans 101 122 82 - --------------------------------------------------------------------------------------- (a) Certain reclassifications were made to conform with the categorization used in Bank regulatory filings. ALLOWANCES FOR CREDIT LOSSES J.P. Morgan & Co. Incorporated Allowance for loan losses - ------------------------------------------------------------------------------------------------------ First Quarter First Quarter Fourth Quarter In millions 1999 1998 1998 - ------------------------------------------------------------------------------------------------------ Beginning balance $ 470 $ 546 $ 404 - ------------------------------------------------------------------------------------------------------ Provision for credit losses - - 85 - ------------------------------------------------------------------------------------------------------ Reclassifications (a) - (50) - - ------------------------------------------------------------------------------------------------------ Recoveries 5 9 6 Charge-offs: (b) Commercial and industrial (3) (23) (6) Banks - (29) (17) Other, primarily other financial institutions (25) (1) (2) - ------------------------------------------------------------------------------------------------------ Net charge-offs (23) (44) (19) - ------------------------------------------------------------------------------------------------------ Ending balance 447 452 470 - ------------------------------------------------------------------------------------------------------ (a) See note a on page 7. (b) Charge-offs include losses on loan sales, primarily banks and other financial institutions, of $25 million, $26 million, and $16 million for the three months ended March 31, 1999 and 1998, and December 31, 1998, respectively. Components of the allowance for loan losses - ---------------------------------------------------------------------------------------------------- March 31, December 31, March 31, In millions 1999 1998 1998 - ---------------------------------------------------------------------------------------------------- Specific counterparty components in the U.S. $ 7 $ 29 $ 24 Specific counterparty components outside the U.S. 5 5 19 - ---------------------------------------------------------------------------------------------------- Total specific counterparty 12 34 43 - ---------------------------------------------------------------------------------------------------- Specific country 49 93 116 Expected loss 208 228 175 General 178 115 118 - ---------------------------------------------------------------------------------------------------- Total allowance 447 470 452 - ---------------------------------------------------------------------------------------------------- Allowance for off-balance-sheet financial instruments - ------------------------------------------------------------------------------------------- First Quarter First Quarter Fourth Quarter In millions 1999 1998 1998 - ------------------------------------------------------------------------------------------- Beginning balance $ 125 $ 185 $ 185 - ------------------------------------------------------------------------------------------- Negative provision for credit losses - - (60) - ------------------------------------------------------------------------------------------- Ending balance 125 185 125 - ------------------------------------------------------------------------------------------- Components of the allowance for off-balance-sheet financial instruments - ---------------------------------------------------------------------------------------------------- March 31, December 31, March 31, In millions 1999 1998 1998 - ---------------------------------------------------------------------------------------------------- Specific counterparty components in the U.S. $ 2 $ 1 $ -- Specific counterparty components outside the U.S. 3 2 2 - ---------------------------------------------------------------------------------------------------- Total specific counterparty 5 3 2 - ---------------------------------------------------------------------------------------------------- Specific country 3 30 23 Expected loss 63 66 71 General 54 26 89 - ---------------------------------------------------------------------------------------------------- Total allowance 125 125 185 - ---------------------------------------------------------------------------------------------------- 13 J.P. Morgan & Co. Incorporated 13 EXPOSURES TO EMERGING COUNTRIES J.P. Morgan & Co. Incorporated (preliminary) The following tables present exposures to certain emerging markets based on management's view of total exposure as of March 31, 1999. The management view takes into account the following cross-border and local exposures: the notional or contract value of loans, commitments to extend credit, securities purchased under agreements to resell, interest-earning deposits with banks; the fair values of trading account assets (cash securities and derivatives, excluding any collateral we hold to offset these exposures) and investment securities; and other monetary assets. It also considers the impact of credit derivatives, at their notional or contract value, where we have bought or sold credit protection outside of the respective country. Trading assets reflect the net of long and short positions of the same issuer. Management's view differs from bank regulatory rules, which are established by the Federal Financial Institutions Examination Council (FFIEC), because of its treatment of credit derivatives, trading account short positions, and the use of fair value versus cost of investment securities. In addition, management does not net local funding or liabilities against any local exposures as allowed by the FFIEC. By type of financial instrument - ------------------------------------------------------------------------------------------------------------------------------------ Credit Total In billions Deriva- Other out- deriva- Commit- cross- Local Total March 31, 1999 Loans tives standings tives ments border exposure exposure - ------------------------------------------------------------------------------------------------------------------------------------ China $ -- $0.1 $ -- $ -- $ -- $0.1 $ -- $0.1 Hong Kong 0.6 0.1 0.3 (0.2) 0.1 0.9 0.4 1.3 Indonesia 0.1 -- -- -- 0.1 0.2 -- 0.2 Malaysia -- -- 0.1 (0.1) -- -- -- -- Philippines -- 0.1 0.1 -- -- 0.2 -- 0.2 Singapore -- 0.1 0.2 (0.2) -- 0.1 0.1 0.2 South Korea 0.5 1.3 0.4 (0.5) -- 1.7 -- 1.7 Taiwan -- -- -- -- 0.1 0.1 -- 0.1 Thailand -- 0.1 0.1 -- -- 0.2 -- 0.2 Other 0.1 -- -- (0.1) -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total Asia, excluding Japan(a) 1.3 1.8 1.2 (1.1) 0.3 3.5 0.5 4.0 - ------------------------------------------------------------------------------------------------------------------------------------ Argentina 0.1 0.3 0.6 (0.3) -- 0.7 0.5 1.2 Brazil 0.4 -- 0.3 (0.3) -- 0.4 1.4 1.8 Chile 0.4 -- 0.1 -- -- 0.5 -- 0.5 Colombia 0.2 -- 0.3 -- -- 0.5 -- 0.5 Mexico 0.6 0.3 0.5 (0.5) -- 0.9 0.7 1.6 Other 0.5 0.1 0.2 (0.1) 0.1 0.8 -- 0.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total Latin America, excluding the Caribbean 2.2 0.7 2.0 (1.2) 0.1 3.8 2.6 6.4 - ------------------------------------------------------------------------------------------------------------------------------------ By type of counterparty - ------------------------------------------------------------------------------------------------- In billions Govern- March 31, 1999 Banks ments Other Total - ------------------------------------------------------------------------------------------------- China $ -- $ -- $0.1 $0.1 Hong Kong 0.1 0.3 0.9 1.3 Indonesia -- 0.1 0.1 0.2 Malaysia -- -- -- -- Philippines -- -- 0.2 0.2 Singapore 0.1 -- 0.1 0.2 South Korea 0.9 0.5 0.3 1.7 Taiwan 0.1 -- -- 0.1 Thailand 0.2 -- -- 0.2 Other -- -- -- -- - ------------------------------------------------------------------------------------------------- Total Asia, excluding Japan(a) 1.4 0.9 1.7 4.0 - ------------------------------------------------------------------------------------------------- Argentina -- 0.6 0.6 1.2 Brazil 0.2 0.6 1.0 1.8 Chile -- -- 0.5 0.5 Colombia -- 0.1 0.4 0.5 Mexico 0.1 0.2 1.3 1.6 Other 0.2 0.1 0.5 0.8 - ------------------------------------------------------------------------------------------------- Total Latin America, excluding the Caribbean 0.5 1.6 4.3 6.4 - ------------------------------------------------------------------------------------------------- (a) Total exposures to Japan, based upon management's view, were $6.6 billion at March 31, 1999. Total exposures to South Africa, based upon management's view, were $1.0 billion at March 31, 1999.