JP Morgan Chase 2005 Annual Report Download - page 29

JPMorgan Chase & Co. /2005 Annual Report 27
income will gradually improve and that the net loss in Other Corporate will be
reduced as merger savings and other expense reduction initiatives, such as less
excess real estate, are realized.
The Provision for credit losses in 2006 is anticipated to be higher than in
2005, primarily driven by a trend toward a more normal level of provisioning
for credit losses in the wholesale businesses. The consumer Provision for credit
losses in 2006 should reflect generally stable underlying asset quality.
However, it is anticipated that the first half of 2006 will experience lower
credit card net charge-offs, as the record level of bankruptcy filings in the
fourth quarter of 2005 are believed to have included bankruptcy filings that
would otherwise have occurred in 2006. The second half of 2006 is expected
Consolidated results of operations
The following section provides a comparative discussion of
JPM organ Chase’s consolidated results of operations on a reported
basis for the three-year period ended December 31, 2005.
Factors that are related primarily to a single business segment are
discussed in more detail within that business segment than they
are in this consolidated section. For a discussion of the Critical
accounting estimates used by the Firm that affect the Consolidated
results of operations, see pages 81–83 of this Annual Report.
Revenue
Year ended December 31,(a)
(in millions) 2005 2004 2003
Investment banking fees $ 4,088 $ 3,537 $ 2,890
Trading revenue 5,860 3,612 4,427
Lending & deposit related fees 3,389 2,672 1,727
Asset management, administration
and commissions 10,390 8,165 6,039
Securities/private equity gains 473 1,874 1,479
Mortgage fees and related income 1,054 806 790
Credit card income 6,754 4,840 2,466
Other income 2,694 830 601
Noninterest revenue 34,702 26,336 20,419
Net interest income 19,831 16,761 12,965
Total net revenue $ 54,533 $ 43,097 $ 33,384
(a) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results. 2003 reflects the results of heritage JPMorgan Chase only.
2005 compared with 2004
Total net revenue for 2005 was $54.5 billion, up 27% from 2004, primarily
due to the Merger, which affected every revenue category. The increase from
the prior year also was affected by a $1.3 billion gain on the sale of BrownCo;
higher Trading revenue; and higher Asset management, administration and
commissions, which benefited from several new investments and growth in
Assets under management and assets under custody. These increases were offset
partly by available-for-sale (“AFS”) securities losses as a result of repositioning of
the Firm’s Treasury investment portfolio.The discussions that follow highlight
factors other than the Merger that affected the 2005 versus 2004 comparison.
The increase in Investment banking fees reflected continued strength in advisory,
equity and debt underwriting, with particular growth in Europe, which benefited
from the business partnership with Cazenove. Trading revenue increased from
2004, reflecting strength in fixed income, equities and commodities. For a
further discussion of Investment banking fees and Trading revenue, which are
primarily recorded in the IB, see the IB segment results on pages 36–38 of
this Annual Report.
The higher Lending & deposit-related fees were driven by the Merger; absent
the effects of the Merger, the deposit-related fees would have been lower
due to rising interest rates. In a higher interest-rate environment, the value of
deposit balances to a customer is greater, resulting in a reduction of deposit-
related fees. For a further discussion of liability balances (including deposits)
see the CB and TSS segment discussions on pages 47–48 and 49–50,
respectively, of this Annual Report.
The increase in Asset management, administration and commissions revenue
was driven by incremental fees from several new investments, including a
majority interest in Highbridge Capital Management, LLC, the business part-
nership with Cazenove and the acquisition of Vastera. Also contributing to the
higher level of revenue was an increase in Assets under management, reflecting
net asset inflows, mainly in equity-related products, and global equity market
appreciation. In addition, Assets under custody were up due to market value
appreciation and new business. Commissions rose as a result of a higher
volume of brokerage transactions. For additional information on these fees
and commissions, see the segment discussions for IB on pages 36–38, AWM
on pages 51–52 and TSS on pages 49–50 of this Annual Report.
to include increased credit card delinquencies and net charge-offs as a result
of implementation of new FFIEC minimum payment rules.
Firmwide expenses are anticipated to benefit as the run rate of merger savings
is expected to reach approximately $2.8 billion by the end of 2006 driven by
activities such as the tri-state retail conversion and data center upgrades.
Offsetting the merger savings will be continued investment in distribution
enhancements and new product offerings; extensive merger integration activities
and upgrading of technology; and expenses related to recent acquisitions, such
as the Sears Canada credit card business and Collegiate Funding Services.