JP Morgan Chase 2003 Annual Report Download - page 46

Support Units and Corporate
Selected financial data
Year ended December 31,
(in millions, except employees) 2003 2002 Change
Operat ing revenue $ (626) $ (626) $ —
Operat ing expense 34 (73) 107
Credit costs 124 132 (8)
Pre-t ax loss (784) (685) (99)
Incom e tax benefit 828 372 456
Operat ing earnings (losses) $ 44 $(313) 357
Average allocated capital $1,150 $(1,783) 2,933
Average assets 20,737 21,591 (854)
Shareholder value added 78 88 (10)
Full-time equivalent employees 9,838 13,023 (3,185)
The Support Units and Corporate sector includes technology,
legal, audit, finance, human resources, risk management, real
estate management, procurement, executive management and
marketing groups w ithin Corporate. The technology and pro-
curement services organizations seek to provide services to the
Firm’s businesses that are competitive with comparable third-
party providers in terms of price and service quality. These units
use the Firm’s global scale and technology to gain efficiencies
through consolidation, standardization, vendor management
and outsourcing.
Support Units and Corporate reflects the application of the
Firm’s management accounting policies at the corporate level.
These policies allocate the costs associated w ith technology,
operational and staff support services to the business seg-
ments, w ith the intent to recover all expenditures associated
w ith these services. Other items are retained within Support
Units and Corporate based on policy decisions, such as the
over/under allocation of economic capital, the residual compo-
nent of credit costs and taxes. Business segment revenues are
reported on a tax-equivalent basis, with the offset reflected in
Support Units and Corporate.
During 2003, the Firm reviewed its management accounting
policies, which resulted in the realignment of certain revenues
and expenses from the Corporate segment to other business
segments. The policy refinements ranged from updating
expense-allocation methodologies to revising transfer pricing
policies to more clearly reflect the actual interest income and
expense of the Firm. The impact of these changes w as allocated
among the business segments; prior periods have been revised
to reflect the current methodologies.
For 2003, Support Units and Corporate had operating earnings of
$44 million, compared w ith an operating loss of $313 million in
2002, driven primarily by income tax benefits not allocated to the
business segments.
In allocating the allow ance (and provision) for credit losses, each
business is responsible for its credit costs. Although the Support
Units and Corporate sector has no traditional credit assets, the
residual component of the allow ance, w hich is available for losses
in any business segment, is maintained at the corporate level. For
a further discussion of the residual component, see Allow ance for
credit losses on pages 64–65 of this Annual Report.
Average allocated capital w as $2.9 billion higher than 2002,
reflecting a reduction in risks and economic capital allocated to
the business segments.
In December 2002, JPM organ Chase entered into a seven-year
agreement w ith IBM to outsource portions of the Firm’s internal
technology infrastructure services. Commencing April 1, 2003,
2,800 employees w ere transferred to IBM in connection w ith this
agreement. The agreement is expected to transform the Firm’s
technology infrastructure through increased cost variability,
access to the best research and innovation, and improved service
levels. By moving from a traditional fixed-cost approach to one
w ith increased capacity and cost variability, the Firm expects to
be able to respond more quickly to changing market conditions.
M anagement’s discussion and analysis
J.P. M organ Chase & Co.
44 J.P. Morgan Chase & Co. / 2003 Annual Report