JP Morgan Chase 2003 Annual Report Download - page 25

The table above show s JPM organ Chase’s segment results. These
results reflect the manner in w hich the Firm’s financial informa-
tion is currently evaluated by management and is presented on
an operating basis. Prior-period segment results have been
adjusted to reflect alignment of management accounting policies
or changes in organizational structure among businesses.
IB reported record earnings of $3.7 billion for 2003, up 183%
from 2002, driven by strong grow th in capital markets revenues
and equity underw riting fees, coupled w ith a significant decline
in credit costs. The low –interest-rate environment, improvement
in equity markets and volatility in credit markets produced
increased client and portfolio management revenue in fixed
income and equities, as w ell as strong returns in Global Treasury.
M arket-share gains in equity underw riting contributed to the
increase in Investment banking fees over 2002. IB’s return on
allocated capital w as 19% for the year.
TSS earnings of $520 million for the year w ere dow n 16%
compared w ith 2002. Revenues w ere $4.0 billion for the full
year, up 3% from 2002. Institutional Trust Services and Treasury
Services posted single-digit revenue grow th. Investor Services
revenue declined year-over-year but show ed an improving trend
over the last four consecutive quarters. Return on allocated capi-
tal for TSS w as 19% for the year.
IMPB increased earnings and assets under supervision in 2003.
Earnings of $268 million for the full year w ere up 3% from
2002, reflecting an improved credit portfolio, slightly higher rev-
enues and the benefits of managed expense grow th. The
increase in revenues reflected the acquisition of Retirement Plan
Services, and increased average equity market valuations in
client portfolios and brokerage activity, mostly offset by the
impact of institutional net outflow s. Investment performance in
core institutional products improved, w ith all major asset classes
in U.S. institutional fixed income and equities show ing above-
benchmark results. Return on allocated capital w as 5% for the
year; return on tangible allocated capital w as 20% .
JPM P performance improved significantly, w ith private equity
gains of $27 million, compared w ith private equity losses of
$733 million for 2002. Results for the direct investments portfo-
lio improved by $929 million from 2002, driven by realized gains
on sales and declining w rite-dow ns in the second half of 2003.
JPM P revenue w as impacted in 2003 by losses on sales and
w ritedow ns of private third-party fund investments. JPM P
decreased its operating loss for the year by 64% compared
w ith 2002.
CFS posted record earnings of $2.5 billion, driven by record results
and origination volumes at each of the national credit businesses –
mortgage, credit card and auto. Record revenues for CFS of $14.6
billion w ere up 9% from 2002, driven by record revenues in Chase
Home Finance. Despite significant deposit grow th, Chase Regional
Banking revenues decreased due to deposit spread compression.
CFS’s return on allocated capital w as 28% for the year.
In 2003, JPM organ Chase revised its internal management
reporting policies to allocate certain revenues, expenses and tax-
related items that had been recorded w ithin the Corporate seg-
ment to the other business segments. There was no impact on
the Firm’s overall earnings.
For a discussion of the Firm’s Segment results, see pages 27–44
of this Annual Report.
Capital and liquidity management
JPM organ Chase increased capital during 2003. At December 31,
2003, the Firm’s Tier 1 capital w as $43.2 billion, $5.6 billion higher
than at December 31, 2002. The Tier 1 capital ratio of 8.5% w as
w ell in excess of the minimum regulatory guidelines, it w as 8.2% at
year-end 2002. The Firm maintained the quarterly dividend of $0.34
per share on its common stock. JPM organ Chase did not repur-
chase shares of its common stock in 2003. M anagement expects to
recommend to the Board of Directors that the Firm resume its share
repurchase program after the completion of the pending merger
w ith Bank One Corporation (see Business events below).
The Firm’s liquidity management is designed to ensure sufficient
liquidity resources to meet all its obligations, both on- and
off–balance sheet, in a w ide range of market environments. The
Firm’s access to the unsecured funding markets is dependent
upon its credit rating. During 2003, the Firm maintained senior
debt ratings of AA-/Aa3/A+ at JPM organ Chase Bank and
A+/A1/A+ at the parent holding company. Upon the announce-
ment of the proposed merger w ith Bank One Corporation,
M oody’s and Fitch placed the Firm’s ratings on review for an
Segment results – Operat ing basis(a)
Operat ing revenue (loss) Operat ing earnings (losses) Return on allocat ed capit al
Year ended December 31, Change from Change from
(in millions, except ratios) 2003 2002 2003 2002 2003 2002
Investment Bank $14,440 16% $3,685 183% 19% 6%
Treasury & Securities Services 3,992 3520 (16) 19 23
Investment M anagement &
Private Banking 2,878 1268 355
JPMorgan Partners (190) 81 (293) 64 NM NM
Chase Financial Services 14,632 92,495 828 27
Support Units and Corporate (626) —44 NM NM NM
JPMorgan Chase $35,126 13% $6,719 99% 16% 8%
(a) Represents the reported results excluding the impact of credit card securitizations and, in 2002, merger and restructuring costs and special items.
J.P. Morgan Chase & Co. / 2003 Annual Report 23