JP Morgan Chase 2005 Annual Report Download - page 39

(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
(b) Loans retained include Credit Portfolio, Conduit loans, leverage leases, bridge loans for
underwriting and other accrual loans.
(c) Loans held-for-sale, which include warehouse loans held as part of the IB’s mortgage-
backed, asset-backed and other securitization businesses, are excluded from Total loans for
the allowance coverage ratio and net charge-off rate.
(d) Adjusted assets, a non-GAAP financial measure, equals total average assets minus (1)
securities purchased under resale agreements and securities borrowed less securities sold,
not yet purchased; (2) assets of variable interest entities (VIEs) consolidated under FIN 46R;
(3) cash and securities segregated and on deposit for regulatory and other purposes; and
(4) goodwill and intangibles.The amount of adjusted assets is presented to assist the read-
er in comparing the IB’s asset and capital levels to other investment banks in the securities
industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a
company’s capital adequacy. The IB believes an adjusted asset amount, which excludes
certain assets considered to have a low risk profile, provides a more meaningful measure
of balance sheet leverage in the securities industry.
(e) Equity includes $15.0 billion, $15.0 billion and $14.6 billion of economic risk capital
assigned to the IB for the years ended 2005, 2004 and 2003 respectively.
(f) Nonperforming loans include loans held-for-sale of $109 million, $2 million and
$30 million as of December 31, 2005, 2004 and 2003, respectively. These amounts are
not included in the allowance coverage ratios.
(g) Includes all fixed income mark-to-market trading activities, plus available-for-sale securities
held for proprietary purposes.
(h) Includes VAR on derivative credit valuation adjustments, credit valuation adjustment hedges
and mark-to-market hedges of the accrual loan portfolio, which are all reported in Trading
revenue.This VAR does not include the accrual loan portfolio, which is not marked to market.
(i) Average VARs are less than the sum of the VARs of its market risk components, due to risk
offsets resulting from portfolio diversification. The diversification effect reflects the fact that
the risks are not perfectly correlated. The risk of a portfolio of positions is therefore usually
less than the sum of the risks of the positions themselves.
According to Thomson Financial, in 2005, the Firm improved its ranking in
U.S. Debt, Equity and Equity-related from #5 in 2004 to #4 and in U.S. Equity
and Equity-related from #6 in 2004 to #5. The Firm maintained its #3 position
in Global Announced M&A with 24% market share and its #1 position in
Global Syndicated Loans. The Firm maintained its #2 ranking in U.S. Long-Term
Debt, but dropped from #2 to #4 in Global Long-Term Debt.
According to Dealogic, the Firm was ranked #2 in Investment Banking fees
generated during 2005.
Market shares and rankings(a)
2005 2004 2003
Market Market Market
December 31, Share Rankings Share Rankings Share Rankings
Global debt, equity and
equity-related 6% #4 7% # 3 8% # 3
Global syndicated loans 16 #1 19 # 1 20 # 1
Global long-term debt 6#47 # 2 8 # 2
Global equity and equity-related 7#66 # 6 8 # 4
Global announced M&A 24 #3 24 # 3 16 # 4
U.S. debt, equity and
equity-related 8#48 # 5 9 # 3
U.S. syndicated loans 28 #1 32 # 1 34 # 1
U.S. long-term debt 11 #2 12 # 2 12 # 2
U.S. equity and equity-related 9#58# 6 11 # 4
U.S. announced M&A 24 #3 31 # 2 14 # 7
(a) Source: Thomson Financial Securities data. Global announced M&A is based on rank value;
all other rankings are based upon proceeds, with full credit to each book manager/equal
if joint. Because of joint assignments, market share of all participants will add up to more
than 100%. The market share and rankings for the years ended December 31, 2004 and
2003 are presented on a combined basis, as if the merger of JPMorgan Chase and Bank
One had been in effect during the periods.
JPMorgan Chase & Co. /2005 Annual Report 37
primarily driven by lower loan balances; these factors were partially offset by
higher trading revenue due to more severe credit spread tightening in 2003
relative to 2004. Investment banking fees increased by 24% over the prior
year, driven by significant gains in advisory and debt underwriting. The advisory
gains were a result of increased global market volumes and market share,
while the higher underwriting fees were due to stronger client activity.
The Provision for credit losses was a benefit of $640 million, compared with
a benefit of $181 million in 2003. The improvement in the provision was the
result of a $633 million decline in net charge-offs, partially offset by lower
reductions in the allowance for credit losses in 2004 relative to 2003.
For the year ended December 31, 2004, Noninterest expense was up 5% from
the prior year. The increase from 2003 was driven by higher Compensation
expense, resulting from strategic investments and the impact of the Merger.
Selected metrics
Year ended December 31,(a)
(in millions, except headcount and ratio data) 2005 2004 2003
Revenue by region
Americas $ 8,223 $ 6,870 $ 7,250
Europe/Middle East/Africa 4,627 4,082 4,331
Asia/Pacific 1,728 1,653 1,103
Total net revenue $ 14,578 $ 12,605 $ 12,684
Selected average balances
Total assets $ 598,118 $473,121 $ 436,488
Trading assets–debt and
equity instruments 231,303 173,086 156,408
Trading assets–derivatives receivables 55,239 58,735 83,361
Loans:
Loans retained(b) 42,918 36,494 40,240
Loans held-for-sale(c) 12,014 6,124 4,797
Total loans 54,932 42,618 45,037
Adjusted assets(d) 455,277 393,646 370,776
Equity(e) 20,000 17,290 18,350
Headcount 19,769 17,478 14,691
Credit data and quality statistics
Net charge-offs (recoveries) $ (126) $ 47 $ 680
Nonperforming assets:
Nonperforming loans(f) 594 954 1,708
Other nonperforming assets 51 242 370
Allowance for loan losses 907 1,547 1,055
Allowance for lending related commitments 226 305 242
Net charge-off (recovery) rate(c) (0.29)% 0.13% 1.69%
Allowance for loan losses to average loans(c) 2.11 4.24 2.56
Allowance for loan losses to
nonperforming loans(f) 187 163 63
Nonperforming loans to average loans 1.08 2.24 3.79
Market risk–average trading and
credit portfolio VAR(g)(h)(i)
Trading activities:
Fixed income(g) $67$74$ 61
Foreign exchange 23 17 17
Equities 34 28 18
Commodities and other 21 98
Diversification(i) (59) (43) (39)
Total trading VAR 86 85 65
Credit portfolio VAR(h) 14 14 18
Diversification(i) (12) (9) (14)
Total trading and credit
portfolio VAR $ 88 $90$ 69