JP Morgan Chase 2008 Annual Report Download - page 70

Management’s discussion and analysis
68 JPMorgan Chase & Co./ 2008 Annual Report
TREASURY & SECURITIES SERVICES
As a result of the transaction with the Bank of New York on October 1,
2006, selected corporate trust businesses were transferred from TSS
to the Corporate/Private Equity segment and are reported in discon-
tinued operations.
Selected income statement data
Year ended December 31,
(in millions, except ratio data) 2008 2007 2006
Revenue
Lending & deposit-related fees $ 1,146 $ 923 $ 735
Asset management, administration
and commissions 3,133 3,050 2,692
All other income 917 708 612
Noninterest revenue 5,196 4,681 4,039
Net interest income 2,938 2,264 2,070
Total net revenue 8,134 6,945 6,109
Provision for credit losses 82 19 (1)
Credit reimbursement to IB(a) (121) (121) (121)
Noninterest expense
Compensation expense 2,602 2,353 2,198
Noncompensation expense 2,556 2,161 1,995
Amortization of intangibles 65 66 73
Total noninterest expense 5,223 4,580 4,266
Income before income tax
expense 2,708 2,225 1,723
Income tax expense 941 828 633
Net income $ 1,767 $ 1,397 $ 1,090
Revenue by business
Treasury Services $ 3,555 $ 3,013 $ 2,792
Worldwide Securities Services 4,579 3,932 3,317
Total net revenue $ 8,134 $ 6,945 $ 6,109
Financial ratios
ROE 47% 47% 48%
Overhead ratio 64 66 70
Pretax margin ratio(b) 33 32 28
Year ended December 31,
(in millions, except headcount) 2008 2007 2006
Selected balance sheet data
(period-end)
Equity $ 4,500 $ 3,000 $ 2,200
Selected balance sheet data
(average)
Total assets $ 54,563 $ 53,350 $ 31,760
Loans(c) 26,226 20,821 15,564
Liability balances(d) 279,833 228,925 189,540
Equity 3,751 3,000 2,285
Headcount 27,070 25,669 25,423
(a) TSS is charged a credit reimbursement related to certain exposures managed within
IB credit portfolio on behalf of clients shared with TSS. Beginning in first quarter
2009, income statement and balance sheet items for credit portfolio activity related
to joint IB/TSS clients will be reflected proportionally in the respective IB and TSS
financials. This will replace the previous approach whereby a credit reimbursement
was charged to TSS by IB.
(b) Pretax margin represents income before income tax expense divided by total net
revenue, which is a measure of pretax performance and another basis by which
management evaluates its performance and that of its competitors.
(c) Loan balances include wholesale overdrafts, commercial card and trade finance loans.
(d) Liability balances include deposits and deposits swept to on-balance sheet liabilities
such as commercial paper, federal funds purchased and securities loaned or sold
under repurchase agreements.
2008 compared with 2007
Net income was a record $1.8 billion, an increase of $370 million, or
26%, from the prior year, driven by higher total net revenue. This
increase was largely offset by higher noninterest expense.
Total net revenue was a record $8.1 billion, an increase of $1.2 bil-
lion, or 17%, from the prior year. Worldwide Securities Services post-
ed record net revenue of $4.6 billion, an increase of $647 million, or
16%, from the prior year. The growth was driven by wider spreads in
securities lending, foreign exchange and liability products, increased
product usage by new and existing clients (largely in custody, fund
services, alternative investment services and depositary receipts) and
higher liability balances, reflecting increased client deposit activity
resulting from recent market conditions. These benefits were offset
partially by market depreciation. Treasury Services posted record net
revenue of $3.6 billion, an increase of $542 million, or 18%, reflect-
ing higher liability balances and volume growth in electronic funds
transfer products and trade loans. Revenue growth from higher liabil-
ity balances reflects increased client deposit activity resulting from
recent market conditions as well as organic growth. TSS firmwide net
revenue, which includes Treasury Services net revenue recorded in
other lines of business, grew to $11.1 billion, an increase of $1.5 bil-
lion, or 16%. Treasury Services firmwide net revenue grew to $6.5
billion, an increase of $869 million, or 15%.
Noninterest expense was $5.2 billion, an increase of $643 million, or
14%, from the prior year, reflecting higher expense related to busi-
ness and volume growth as well as continued investment in new
product platforms.
2007 compared with 2006
Net income was a record $1.4 billion, an increase of $307 million, or
28%, from the prior year, driven by record total net revenue, partially
offset by higher noninterest expense.
68 JPMorgan Chase & Co./ 2008 Annual Report
TSS is a global leader in transaction, investment and
information services. TSS is one of the world’s largest
cash management providers and a leading global custo-
dian. TS provides cash management, trade, wholesale
card and liquidity products and services to small and
mid-sized companies, multinational corporations, finan-
cial institutions and government entities. TS partners
with the Commercial Banking, Retail Financial Services
and Asset Management businesses to serve clients
firmwide. As a result, certain TS revenue is included in
other segments’ results. WSS holds, values, clears and
services securities, cash and alternative investments for
investors and broker-dealers, and manages depositary
receipt programs globally.