JP Morgan Chase 2003 Annual Report Download - page 34

Treasury & Securities Services
Treasury & Securities Services, a global leader in
transaction processing and information services
to wholesale clients, is composed of three busi-
nesses. Institutional Trust Services provides a
range of services to debt and equity issuers and
broker-dealers, from traditional trustee and pay-
ing-agent functions to global securities clearance.
Investor Services provides securities custody and
related functions, such as securities lending,
investment analytics and reporting, to mutual
funds, investment managers, pension funds,
insurance companies and banks worldwide.
Treasury Services provides treasury and cash
management, as well as payment, liquidity man-
agement and trade finance services, to a diversi-
fied global client base of corporations, financial
institutions and governments.
Selected financial data
Year ended December 31,
(in millions, except ratios
and employees) 2003 2002 Change
Operat ing revenue:
Fees and commissions $2,562 $ 2,412 6%
Net interest income 1,219 1,224 —
All other revenue 211 256 (18)
Total operating revenue 3,992 3,892 3
Operat ing expense:
Compensation expense 1,261 1,163 8
Noncompensation expense 1,895 1,814 4
Severance and related costs 61 17 259
Total operating expense 3,217 2,994 7
Operat ing m argin 775 898 (14)
Credit costs 1 1—
Corporat e credit allocat ion 36 82 (56)
Operat ing earnings $ 520 $621 (16)
Shareholder value added:
Operating earnings
less preferred dividends $517 $619 (16)
Less: cost of capital 325 323 1
Shareholder value added $192 $296 (35)
Average allocated capital $2,711 $2,688 1
Average assets 18,993 17,780 7
Return on allocated capital 19% 23% (400)bp
Overhead ratio 81 77 400
Assets under custody (in billions) $7,597 $6,336 20%
Full-time equivalent employees 14,616 14,440 1
01 02 03
Operating revenue
(in millions)
01 02 03
Operating earnings
(in millions, except ratios)
21% 23% 19%
$200
$400
$600
$800
$0
$1,000
$2,000
$3,000
$4,000
$0
$3,802
$3,892
$3,992
$593
$621
$520
Return on
allocated
capital
Financial results overview
Treasury & Securities Services (“ TSS” ) operating earnings
decreased by 16% from 2002 w hile delivering a return on allo-
cated capital of 19% . Increased operating expense of 7% and
a low er corporate credit allocation contributed to the low er
earnings.
Operating revenue increased by 3% , w ith grow th at
Institutional Trust Services (“ ITS” ) of 7% . ITS revenue grow th
came from debt product lines, increased volume in asset servic-
ing and the result of acquisitions w hich generated $29 million
of new revenue in 2003. Treasury Services’ revenue rose 6% on
higher trade and commercial payment card revenue and
increased balance-related earnings, including higher balance
deficiency fees resulting from the low er interest rate environ-
ment. Investor Services’ revenue contracted 4% , the result of
low er NII due to low er interest rates, coupled w ith low er foreign
exchange and securities lending revenue.
TSS results included a pre-tax gain of $41 million on the sale of
a nonstrategic business in 2003, compared w ith a pre-tax gain
of $50 million on the sale of the Firm’s interest in a non-U.S.
securities clearing firm in 2002.
Operating expense increased by 7% , attributable to higher
severance, the impact of acquisitions, the cost associated w ith
expensing of options, increased pension costs and charges to pro-
vide for losses on subletting unoccupied excess real estate. The
overhead ratio for TSS w as 81% , compared w ith 77% in 2002.
M anagement’s discussion and analysis
J.P. M organ Chase & Co.
32 J.P. Morgan Chase & Co. / 2003 Annual Report