JP Morgan Chase 2003 Annual Report Download - page 82

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M anagement’s discussion and analysis
J.P. M organ Chase & Co.
80 J.P. Morgan Chase & Co. / 2003 Annual Report
JPM organ Chase’s 2002 net income w as $1.7 billion, relatively
flat w hen compared with the prior year. Net income per diluted
share w as $0.80 in 2002, unchanged from 2001.
Total revenues for 2002 of $29.6 billion w ere up by only 1%
from 2001. The consumer businesses of the Firm contributed to
the higher revenue, benefiting primarily from the gradual reduc-
tion in interest rates in 2002. M ortgage originations at Chase
Home Finance in high-margin sectors like retail, w holesale, tele-
phone-based and e-commerce reached $113 billion, 30%
above the level reached in 2001. This exceptional grow th, how -
ever, was partly offset by the sluggishness in the w holesale busi-
nesses, primarily IB, due to the continued slow dow n in market
activities, a reflection of the w eak economic environment and
diminished investor confidence.
From a business-segment point of view, the revenue results
w ere mixed in 2002. CFS revenue of $13.4 billion grew by 24%
over 2001, reflecting high volumes across all consumer credit
businesses and significant gains in Chase Home Finance from
the hedging of M SRs, partially offset by the negative impact of
low er interest rates on deposits. TSS reported modest revenue
grow th, as strong gains in Treasury Services and Institutional
Tr ust Services, attributable mostly to new businesses, w ere offset
by a decline in Investor Services, w hich suffered from the low er
value of assets held under custody. These increases w ere offset
by declines in the Firm’s w holesale businesses. In IB, revenue
declined 15% , driven by the reduction in capital markets and
lending revenue, as w ell as in Investment banking fees. The
reduction in capital markets revenue w as primarily attributable
to low er portfolio management revenue related to both fixed
income and equities transactions. IM PB’s revenue in 2002
declined 11% from 2001, reflecting the depreciation in the
equities market and institutional outflow s across all asset classes.
JPM P recognized private equity losses of $733 million in 2002,
compared w ith losses of $1.2 billion in 2001, as a result of
low er levels of w rite-dow ns and w rite-offs, particularly in the
Technology and Telecommunications sectors.
The Firm’s total noninterest expense w as $22.8 billion in 2002,
dow n 4% from 2001, w ith both years incurring several large
charges. In 2002, the costs associated w ith merger and restruc-
turing initiatives w ere $1.2 billion, versus $2.5 billion in 2001.
In addition, in 2002, the Firm recorded a $1.3 billion charge
in connection w ith the settlement of its Enron-related surety
litigation and the establishment of a reserve related to certain
material litigation, proceedings and investigations, as well as a
$98 million charge for unoccupied excess real estate. Excluding
the impact of these charges in both years, the Firm’s full-year
2002 noninterest expense of $20.2 billion w as low er than that
of 2001. Severance and related costs from expense manage-
ment initiatives, approximately 70% of w hich w ere in IB, added
$890 million to noninterest expense for 2002. These charges
w ere more than offset by the continued focus on expenses,
w hich kept spending levels low, and by the adoption in 2002
of SFAS 142, w hich eliminated the amortization of goodw ill.
All business segments reported lower-to-flat noninterest expenses,
except CFS, w here higher business volumes resulted in expense
grow th. IB and IM PB reduced headcount in response to low er
market activity levels. At TSS, tight expense management in
2002 allow ed for investments w hile keeping expense levels
essentially flat w ith 2001.
The Provision for credit losses increased to $4.3 billion in 2002,
up 36% from the prior year. This w as principally attributable to
troubled commercial credits in the Telecommunications and
Cable sectors and the impact of the Providian acquisition in
2002, partially offset by a decrease in the consumer provision,
reflecting the effect of credit card securitizations.
Income tax expense in 2002 w as $856 million, compared w ith
$847 million in 2001. The effective tax rate w as 34% in 2002,
versus 33% in 2001. The increase in the effective tax rate w as
principally attributable to the level of income earned in certain
state and local tax jurisdictions in 2002.
Comparison between 2002 and 2001