JP Morgan Chase 2003 Annual Report Download - page 59

J.P. Morgan Chase & Co. / 2003 Annual Report 57
• Utilities: The Firm significantly reduced its credit exposure to
this segment over the last tw elve months, from $17.7 billion
to $15.3 billion, a 14% decline. This reduction w as achieved
by significant refinancing activity in nonbank capital markets,
restructurings in the industry and a decline in client demand
for lending activity. Criticized credit exposures, primarily related
to U.S. customers, w ere reduced by 65% , to $998 million.
Utilities became a top-10 industry as a result of the new
industry structure, which consolidated several related sectors.
• Media: To tal credit exposure declined by 20% to $14.1 billion.
The quality of the portfolio w as enhanced by a reduction in criti-
cized exposures, primarily in the European cable sector, w hich
increased the proportion of investment-grade exposures from
58% to 65% of the portfolio. Overall, criticized exposures w ere
reduced by 36% , to $1.7 billion. M edia became a top-10 industry
as a result of the new industry structure, which consolidated
several related sectors.
• Telecom services: In 2003, the telecommunications industry
w orldw ide improved its financial picture significantly after
severe capital and liquidity constraints in 2002. Overall, credit
exposures declined by 30% to $10.9 billion during the year;
75% of the credit exposure is considered investment-grade
compared w ith 59% in 2002. Criticized exposures w ere
reduced by 59% during the year, the result of capital markets
refinancings, other restructurings and acquisitions of weaker
market participants by stronger companies.
• Automotive: In 2003, automotive companies accessed non-
bank capital markets, reducing the Firm’s credit exposure by
$924 million. While total credit exposure to this industry is
significant, more than half of the exposure is undrawn. At
December 31, 2003, 76% of this portfolio w as rated invest-
ment-grade, an increase from 2002.
• All other: All other at December 31, 2003 included
$180 billion of credit exposure to 21 industry segments.
Exposures related to special-purpose entities and high net
w orth individuals totaled 38% of this category. Special-
purpose entities provide secured financing (generally backed
by receivables, loans or bonds) originated by companies in a
diverse group of industries w hich are not highly correlated.
The remaining All other exposure is w ell diversified across
other industries, none of w hich comprise more than 3% of
total exposure.
Commercial crit icized exposure
Exposures deemed criticized generally represent a ratings profile
similar to a rating of CCC+/Caa1 and low er, as defined by
Standard & Poor’s/M oody’s. As of year-end 2003, the total
$8.9 billion in criticized exposure represented 2% of total com-
mercial credit exposure and w as dow n $7.7 billion, or 47% ,
from December 31, 2002. The significant decrease w as due
to improved economic conditions, restructurings and capital
markets refinancings during the year, in particular in the
Telecom services, M edia and Utilities industries.
Criticized exposure - industry concentrations
December 31, 2003
Consumer products 5%
Retail 3%
Emerging markets 3%
Airlines 4%
Machinery &
equipment mfg. 5%
Under 3% 24%
Metal/mining 3%
Real estate 3%
Top 5 50%
$0
$5
$10
$15
12/31/02
Commercial criticized exposure trends
(in billions)
Technology
Telecom services Telecom services
Media
UtilitiesUtilities
All otherAll other
3/31/03 6/30/03 9/30/03 12/ 31/03
$7.3
$2.9
$2.6
$1.4
$1.2
Chemicals/plastics
M et als /mi ni ngM et als /mi ni ng
$6.8
$2.0
$2.5
$1.4
$1.0
$0.9
$6.0
$1.3
$2.6
$1.2
$0.9
$0.8
$5.2
$1.2
$2.5
$0.9
$0.8
$1.2
$0.7
$4.4
$1.0
$1.7
$16.6
$14.6
$12.8
$11.3
$8.9
$0.6
$0.6
$0.6
(a)
(a) Industries show n represent the top five by criticized exposure at the
period indicated.
The top five industries show n above total 50% of the total com-
mercial criticized exposure at December 31, 2003. No industry
below the top five is larger than 5% of the total.
Enron-relat ed exposure
The Firm’s exposure to Enron and Enron-related entities
w as reduced by 11% during the year, from $688 million at
December 31, 2002, to $609 million at December 31, 2003. The
reduction was primarily due to the maturation of $50 million of
debtor-in-possession financing and repayments on secured expo-
sures. At December 31, 2003, secured exposure of $270 million
is performing and is reported on an amortized cost basis.