JP Morgan Chase 2003 Annual Report Download - page 33

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J.P. Morgan Chase & Co. / 2003 Annual Report 31
By client segment
IB Dimensions of 2003 revenue diversification
54%
12%
11%
8%
7%
5%
3%
By business revenue By geographic region
48%
12%
11%
10%
10%
5%
4%
Fixed income capital markets
Treasury
Debt underwriting
Equity capital markets
Credit portfolio
Equity underw riting
Advisory
Financial institutions
Diversified industries
TMT
Natural resources
Governments
Consumer/healthcare
Real estate
Europe, Middle East
& Africa
Latin America 5%
Asia/Pacific 8%
31%
North America 56%
average allocated capital by $712 million, and it increased share-
holder value added by $65 million.
Business outlook
In 2004, the composition of IB’s revenues is expected to change.
Grow th in client-related revenue may be offset by potentially
low er securities gains and NII. NII may be low er due to decreased
spreads on investment securities and low er loan volumes. The IB
credit outlook is stable, although credit costs may be higher than
the unusually low levels seen in 2003.
from last year, driven by positioning to benefit from interest rate
movements and mortgage basis volatility. Credit portfolio rev-
enue of $1.4 billion w as dow n 6% the result of tightening of
credit spreads in the second quarter of 2003, as w ell as low er
NII, w hich reflected low er levels of commercial loans. Equities
revenue of $1.5 billion was up 51% from last year due to higher
client activity and portfolio management results in derivatives
and convertibles.
Operating expense increased 6% from 2002, reflecting higher
incentives related to improved financial performance and the
impact of expensing stock options. Noncompensation costs w ere
up 4% from the prior year due to increases in technology and
occupancy costs. Severance and related costs of $347 million
w ere dow n 41% . The overhead ratio for 2003 w as 59% , com-
pared w ith 64% in 2002.
Credit costs w ere negative $181 million, $2.6 billion low er than
in the prior year, reflecting improvement in the overall credit
quality of the commercial portfolio and the restructuring of sev-
eral nonperforming commercial loans.
Corporate credit allocation
In 2003, IB assigned to TSS pre-tax earnings and allocated capi-
tal associated w ith clients shared w ith TSS. Prior periods have
been revised to reflect this allocation. The impact to IB of this
change decreased pre-tax operating results by $36 million and
Client and Nonclient Revenue
Year ended December 31,
(in millions) 2003 2002 Change
Client revenue:
Investment banking fees $2,855 $2,696 6%
Capital markets revenue:
Trading revenue 4,485 3,840 17
Other capital markets revenue 2,904 2,875 1
Total client revenue 10,244 9,411 9
Nonclient revenue:
Treasury revenue 1,726 1,815 (5)
Portfolio management revenue 2,470 1,272 94
Total nonclient revenue 4,196 3,087 36
Operat ing revenue $ 14,440 $12,498 16%