JP Morgan Chase 2003 Annual Report Download - page 128

Notes to consolidated financial statements
J.P. M organ Chase & Co.
126 J.P. Morgan Chase & Co./ 2003 Annual Report
Segment results and reconciliation (table continued on next page)
Treasury & Investment Management
Year ended December 31, Investment Bank Securities Services & Private Banking
(in millions, except ratios) 2003 2002 2001 2003 2002 2001 2003 2002 2001
Operating net interest income $2,277 $ 2,642 $ 2,978 $1,219 $ 1,224 $ 1,302 $467 $ 446 $ 549
Operating noninterest revenue 12,355 9,988 11,916 2,586 2,481 2,289 2,348 2,263 2,531
Equity-related income(b) (1) (2) (8) —— — 11—
Intersegment revenue(c) (191) (130) (139) 187 187 211 62 129 109
Total operating revenue 14,440 12,498 14,747 3,992 3,892 3,802 2,878 2,839 3,189
Total operating expense 8,470 8,012 8,789 3,217 2,994 2,961 2,428 2,346 2,566
Operating margin 5,970 4,486 5,958 775 898 841 450 493 623
Credit costs (181) 2,393 1,160 117 35 85 36
Corporate credit allocation(d) (36) (82) (94) 36 82 94 —— —
Operating earnings (loss) before taxes 6,115 2,011 4,704 810 979 928 415 408 587
Income taxes (benefit) 2,430 708 1,847 290 358 335 147 147 229
Operating earnings (loss) 3,685 1,303 2,857 520 621 593 268 261 358
Merger and restructuring costs
and special items(e)
Pre-SFAS 142 goodwill amortization (e)
Net income (loss) $3,685 $ 1,303 $ 2,857 $520 $ 621 $ 593 $268 $ 261 $ 358
Average allocated capital $19,134 $ 19,915 $ 20,286 $2,711 $ 2,688 $ 2,859 $5,454 $ 5,643 $ 5,781
Average managed assets(f) 510,894 495,464 510,676 18,993 17,780 18,552 33,685 35,729 36,896
Shareholder value added 1,368 (1,109) 392 192 296 247 (394) (423) (344)
Return on allocated capital 19% 6% 14% 19% 23% 21% 5% 5% 6%
Overhead ratio 59 64 60 81 77 78 84 83 80
(a) Corporate/reconciling items includes Support Units and Corporate and the net effect of management accounting policies.
(b) Equity-related income includes equity income of investees accounted for by the equity method.
(c) Intersegment revenue includes intercompany revenue and revenue-sharing agreements, net of intersegment expenses. Transactions between business segments are primarily conducted at
fair value.
(d) Represents an allocation of pre-tax earnings related to certain credit exposures managed within IB’s credit portfolio on behalf of clients shared with TSS.
(e) Represents the after-tax amounts.
(f) Includes credit card receivables that have been securitized. The impact of securitizations on total average assets was $32.4 billion in 2003, $26.5 billion in 2002 and $18.0 billion in 2001.
Operating revenue and expense directly associated with each
segment are included in determining the segment’s operating
earnings. Guidelines exist for allocating to the segments expenses
that are not directly incurred by them, such as corporate over-
head. In addition, management has developed a risk-adjusted
capital methodology that quantifies the different types of risk –
credit, market, operational, business and private equity – within
the various businesses and assigns capital accordingly. Each
business segment is responsible for its credit costs, including
actual net charge-offs and changes in the specific and
Segment information
JPM organ Chase is organized into five major businesses. These
businesses are segmented based on the products and services
provided, or the type of customer served, and reflect the man-
ner in w hich financial information is evaluated by management.
JPM organ Chase uses shareholder value added (“ SVA” ) and
operating earnings as its principal measures of segment
profitability. For a definition of these measurements, see the
Glossary of terms on pages 130-131 of this Annual Report.
Note 34