JP Morgan Chase 2005 Annual Report Download - page 26

Management’s discussion and analysis
JPMorgan Chase & Co.
24 JPMorgan Chase & Co. /2005 Annual Report
Asset & Wealth Management
Asset & Wealth Management (“AWM”) provides investment advice and
management for institutions and individuals. With Assets under supervision of
$1.1 trillion, AWM is one of the largest asset and wealth managers in the world.
AWM serves four distinct client groups through three businesses: institutions
through JPMorgan Asset Management; ultra-high-net-worth clients through the
Private Bank; high-net-worth clients through Private Client Services; and retail
clients through JPMorgan Asset Management. The majority of AWM’s client
assets are in actively managed portfolios. AWM has global investment expertise
in equities, fixed income, real estate, hedge funds, private equity and liquidity,
including both money market instruments and bank deposits.AWM also pro-
vides trust and estate services to ultra-high-net-worth and high-net-worth
clients, and retirement services for corporations and individuals.
2005 Business events
Collegiate Funding Services
On March 1, 2006, JPMorgan Chase acquired, for approximately $663 million,
Collegiate Funding Services, a leader in student loan servicing and consolida-
tion. This acquisition will enable the Firm to create a comprehensive education
finance business.
BrownCo
On November 30, 2005, JPMorgan Chase sold BrownCo, an on-line deep-
discount brokerage business, to E*TRADE Financial for a cash purchase price
of $1.6 billion. JPMorgan Chase recognized an after-tax gain of $752 million.
Sears Canada credit card business
On November 15, 2005, JPMorgan Chase purchased Sears Canada Inc.’s
credit card operation, including both the private-label card accounts and the
co-branded Sears MasterCard®accounts. The credit card operation includes
approximately 10 million accounts with $2.2 billion (CAD$2.5 billion) in
managed loans. Sears Canada and JPMorgan Chase entered into an ongoing
arrangement under which JPMorgan Chase will offer private-label and co-
branded credit cards to both new and existing customers of Sears Canada.
Chase Merchant Services, Paymentech integration
On October 5, 2005, JPMorgan Chase and First Data Corp. completed the
integration of the companies’ jointly owned Chase Merchant Services and
Paymentech merchant businesses, to be operated under the name of Chase
Paymentech Solutions, LLC.The joint venture is the largest financial transaction
processor in the U.S. for businesses accepting credit card payments via traditional
point of sale, Internet, catalog and recurring billing. As a result of the integration
into a joint venture, Paymentech has been deconsolidated and JPMorgan Chase’s
ownership interest in this joint venture is accounted for in accordance with the
equity method of accounting.
Neovest Holdings, Inc.
On September 1, 2005, JPMorgan Chase completed its acquisition of Neovest
Holdings, Inc., a provider of high-performance trading technology and direct
market access.This transaction will enable the Investment Bank to offer a
leading, broker-neutral trading platform across asset classes to institutional
investors, asset managers and hedge funds.
Enron litigation settlement
On June 14, 2005, JPMorgan Chase announced that it had reached an
agreement in principle to settle, for $2.2 billion, the Enron class action litigation
captioned Newby v. Enron Corp. The Firm also recorded a nonoperating
charge of $1.9 billion (pre-tax) to cover the settlement and to increase its
reserves for certain other remaining material legal matters.
Vastera
On April 1, 2005, JPMorgan Chase acquired Vastera, a provider of global
trade management solutions, for approximately $129 million.Vastera’s business
was combined with the Logistics and Trade Services businesses of TSS’
Treasury Services unit. Vastera automates trade management processes asso-
ciated with the physical movement of goods internationally; the acquisition
enables TS to offer management of information and processes in support of
physical goods movement, together with financial settlement.
WorldCom litigation settlement
On March 17, 2005, JPMorgan Chase settled, for $2.0 billion, the WorldCom,
Inc. class action litigation. In connection with the settlement, JPMorgan Chase
increased the Firm’s Litigation reserve by $900 million.
JPMorgan Partners
On March 1, 2005, the Firm announced that the management team of JPMorgan
Partners, LLC, a private equity unit of the Firm, will become independent when it
completes the investment of the current $6.5 billion Global Fund, which it advises.
The buyout and growth equity professionals of JPMorgan Partners will form a
new independent firm, CCMP Capital, LLC, and the venture professionals will
separately form a new independent firm, Panorama Capital, LLC. JPMorgan Chase
has committed to invest the lesser of $875 million or 24.9% of the limited part-
nership interests in the fund to be raised by CCMP Capital, and has committed
to invest the lesser of $50 million or 24.9% of the limited partnership interests
in the fund to be raised by Panorama Capital. The investment professionals of
CCMP and Panorama will continue to manage the JPMP investments pursuant
to a management agreement with the Firm.
Cazenove
On February 28, 2005, JPMorgan Chase and Cazenove Group plc (“Cazenove”)
formed a business partnership which combined Cazenove’s investment banking
business and JPMorgan Chase’s U.K.-based investment banking business in
order to provide investment banking services in the United Kingdom and
Ireland. The new company is called JPMorgan Cazenove Holdings.
Subsequent events
Sale of insurance underwriting business
On February 7, 2006, JPMorgan Chase announced that the Firm has agreed
to sell its life insurance and annuity underwriting businesses to Protective
Life Corporation for a cash purchase price of approximately $1.2 billion. The
sale, which includes both the heritage Chase insurance business and the life
business that Bank One had bought from Zurich Insurance in 2003, is subject
to normal regulatory approvals and is expected to close in the third quarter
of 2006. JPMorgan Chase anticipates the transaction will have no material
impact on earnings.