JP Morgan Chase 2003 Annual Report Download - page 31

J.P. Morgan Chase & Co. / 2003 Annual Report 29
JPMorgan Chase is one of the w orld’s leading
investment banks, as evidenced by the breadth
of its client relationships and product capabilities.
The Investment Bank has extensive relationships
with corporations, financial institutions, govern-
ments and institutional investors w orldwide. The
Firm provides a full range of investment banking
and commercial banking products and services,
including advising on corporate strategy and
structure, capital raising in equity and debt
markets, sophisticated risk management, and
market-making in cash securities and derivative
instruments in all major capital markets. The
Investment Bank also commits the Firm’s own cap-
ital to proprietary investing and trading activities.
Investment Bank
Selected financial data
Year ended December 31,
(in millions, except ratios
and employees) 2003 2002 Change
Operat ing revenue:
Investment banking fees $2,855 $ 2,696 6%
Capital markets and
lending revenue:
Trading-related revenue (a) 6,418 4,479 43
Net interest income 2,277 2,642 (14)
Fees and commissions 1,646 1,619 2
Securities gains 1,065 1,076 (1)
All other revenue 179 (14) NM
Total capital markets and
lending revenue 11,585 9,802 18
Total operating revenue 14,440 12,498 16
Operat ing expense:
Compensation expense 4,527 3,974 14
Noncompensation expense 3,596 3,451 4
Severance and related costs 347 587 (41)
Total operating expense 8,470 8,012 6
Operat ing m argin 5,970 4,486 33
Credit costs (181) 2,393 NM
Corporat e credit allocat ion (36) (82) 56
Operat ing earnings $ 3,685 $1,303 183
Shareholder value added:
Operating earnings less preferred
dividends $3,663 $1,281 186
Less: cost of capital 2,295 2,390 (4)
Shareholder value added $1,368 $(1,109) NM
Average allocated capital $19,134 $19,915 (4)
Average assets 510,894 495,464 3
Return on allocated capital 19% 6% 1,300bp
Overhead ratio 59 64 (500)
Compensation as % of revenue (b) 31 32 (100)
Full-time equivalent employees 14,772 15,145 (2)%
(a) Includes net interest income of $2.1 billion and $1.9 billion in 2003 and 2002, respectively.
(b) Excludes severance and related costs.
01 02 03
Operating revenue
(in millions)
01 02 03
Operating earnings
(in millions, except ratios)
14% 6% 19%
$0
$1,000
$2,000
$3,000
$4,000
$2,857
$1,303
$3,685
$5,000
$10,000
$15,000
$14,747
$12,498
$14,440
$0
Return on
allocated
capital
Financial results overview
The 2003 performance of IB was positively influenced by a low inter-
est-rate environment, a more favorable equities market and an
improving credit market, partially offset by continued weakness in
M &A activity.
In 2003, IB reported record operating earnings of $3.7 billion, an
increase of 183% compared w ith 2002. Revenue grow th of 16%
far outpaced expense grow th of 6% . Credit costs w ere negative
$181 million in 2003, compared w ith $2.4 billion in 2002. Return
on allocated capital for the year w as 19% .
Operating revenue of $14.4 billion consisted of investment
banking fees for advisory and underw riting services; capital mar-
kets revenue related to market-making, trading and investing; and
revenue from corporate lending activities.
Year ended December 31,
(in millions) 2003 2002 Change
Investment banking fees
Advisory $640 $743 (14)%
Equity underw riting 697 470 48
Debt underwriting 1,518 1,483 2
Total $2,855 $ 2,696 6%
Investment banking fees of $2.9 billion were up 6% . While
Advisory fees declined by 14% , reflecting depressed levels of
M &A activity, debt underw riting fees w ere up 2% . This 2%
increase is primarily due to grow th in high yield underw riting and
structured finance fees and reflects a partial offset of low er loan
syndication fees. The key contributor to the overall increase in IB
fees w as equity underw riting revenue, which w as up 48% ,
reflecting increases in market share and underwriting volumes.