JP Morgan Chase 2003 Annual Report Download - page 30

Wholesale and other 58%Consumer 42%
Operating revenue (loss)
Contribution of businesses in 2003
Operating earnings (losses)
Wholesale and other 63%Consumer 37%
Wholesale and other includes:
Investment Bank 41%
Treasury & Securities Services 12%
Investment M anagement &
Private Banking 8%
Support Units and Corporate (2)%
JPMorgan Partners (1)%
Consumer includes:
Chase Home Finance 12%
Chase Cardmember Services 18%
Chase Auto Finance 2%
Chase Regional Banking 7%
Chase Middle Market 4%
Other consumer services (1)%
Consumer includes:
Chase Home Finance 20%
Chase Cardmember Services 10%
Chase Auto Finance 3%
Chase Regional Banking 1%
Chase Middle Market 5%
Other consumer services (2)%
Wholesale and other includes:
Investment Bank 55%
Treasury & Securities Services 8%
Investment M anagement &
Private Banking 4%
Support Units and Corporate — %
JPMorgan Partners (4)%
M anagement’s discussion and analysis
J.P. M organ Chase & Co.
28 J.P. Morgan Chase & Co. / 2003 Annual Report
other intangibles generated through acquisitions. The Firm esti-
mates the portfolio effect on required economic capital based on
correlations of risk across risk categories. This estimated diversifi-
cation benefit is not allocated to the business segments.
Performance measurement
The Firm uses the shareholder value added (“ SVA” ) framework
to measure the performance of its business segments. To derive
SVA, a non-GAAP financial measure, for its business segments,
the Firm applies a 12% (after-tax) cost of capital to each seg-
ment, except JPM P – this business is charged a 15% (after-tax)
cost of capital. The capital elements and resultant capital charges
provide each business w ith the financial framework to evaluate the
trade-off betw een using capital versus its return to shareholders.
Capital charges are an integral part of the SVA measurement for
each business. Under the Firm’s model, economic capital is either
underallocated or overallocated to the business segments, as
compared w ith the Firm’s total common stockholders’ equity. The
revenue and SVA impact of this over/under allocation is reported
under Support Units and Corporate. See Glossary of terms on
page 131 of this Annual Report for a definition of SVA and page
44 of this Annual Report for more details.
JPM organ Chase’s lines of business utilize individual perform-
ance metrics unique to the respective businesses to measure
their results versus those of their peers. For a further discussion
of these metrics, see each respective line-of-business discussion
in this Annual Report.
2003 2002
Year ended December 31, Report ed Credit Operating Reported Credit Special Operating
(in millions, except per share data and ratios) result s(a) card (b) basis results(a) card (b) items(c) basis
Consolidat ed incom e stat em ent
Total revenue $33,256 $ 1,870 $ 35,126 $29,614 $ 1,439 $ — $ 31,053
Noninterest expense:
Compensation expense(d) 11,695 — 11,695 10,983 — — 10,983
Noncompensation expense(d) 9,993 — 9,993 10,571 —(1,398) 9,173
Merger and restructuring costs — — —1,210 — (1,210) —
Total noninterest expense 21,688 — 21,688 22,764 — (2,608) 20,156
Provision for credit losses 1,540 1,870 3,410(e) 4,331 1,439 — 5,770(e)
Income before income tax expense 10,028 — 10,028 2,519 — 2,608 5,127
Income tax expense 3,309 — 3,309 856 — 887 1,743
Net income $6,719 $ — $ 6,719 $1,663 $ — $ 1,721 $ 3,384
Earnings per share – diluted $3.24 $ — $ 3.24 $0.80 $ — $ 0.86 $ 1.66
Return on average common equity(f) 16% 16% 4% 8%
(a) Represents condensed results as reported in JPMorgan Chase’s financial statements.
(b) Represents the impact of credit card securitizations. For securitized receivables, amounts that normally would be reported as Net interest income and as Provision for credit losses are
reported as Noninterest revenue.
(c) There were no special items in 2003. For 2002, includes merger and restructuring costs. For a description of special items, see Glossary of terms on page 131 of this Annual Report.
(d) Compensation expense includes $294 million and $746 million of severance and related costs at December 31, 2003 and 2002, respectively. Noncompensation expense includes $336 million
and $144 million of severance and related costs at December 31, 2003 and 2002, respectively.
(e) Represents credit costs, which is composed of the Provision for credit losses as well as the credit costs associated with securitized credit card loans.
(f) Reflects the return on average common equity as it relates to the Firm. Return on allocated capital is a similar metric used by the business segments.
The accompanying summary table provides a reconciliation betw een the Firm’s reported and operating results.