JP Morgan Chase 2005 Annual Report Download - page 52

Management’s discussion and analysis
JPMorgan Chase & Co.
50 JPMorgan Chase & Co. /2005 Annual Report
TSS net revenue improved by 35% to $4.9 billion. This revenue growth reflected
the benefit of the Merger, the acquisitions noted above, and improved product
revenues across TSS. Net interest income grew to $1.4 billion from $947 million
as a result of average liability balance growth of 46%, to $126 billion, a change
in the corporate deposit pricing methodology in 2004 and wider deposit spreads.
Growth in fees and commissions was driven by a 22% increase in assets under
custody to $9.3 trillion as well as new business growth in trade, commercial
card, global equity products, securities lending, fund services, clearing and ACH.
Partially offsetting these improvements were lower deposit-related fees, which
often decline as interest rates rise, and a soft municipal bond market.
TS net revenue grew to $2.0 billion, IS to $1.7 billion and ITS to $1.2 billion.
TSS firmwide net revenue grew by 41% to $6.5 billion. TSS firmwide net
revenues include TS net revenues recorded in other lines of business.
Credit reimbursement to the Investment Bank was $90 million, compared with
a credit from the Investment Bank of $36 million in the prior year, principally
due to the Merger and a change in methodology. TSS is charged a credit
reimbursement related to certain exposures managed within the Investment
Bank credit portfolio on behalf of clients shared with TSS.
Noninterest expense totaled $4.1 billion, up from $3.0 billion, reflecting the
Merger, the acquisitions noted above, $155 million of software impairment
charges, upfront transition expenses related to on-boarding new custody and
fund accounting clients, and legal and technology-related expenses.
Selected metrics
Year ending December 31,(a)
(in millions, except headcount and where
otherwise noted) 2005 2004 2003
Revenue by business
Treasury Services $ 2,622 $ 1,994 $ 1,200
Investor Services 2,155 1,709 1,448
Institutional Trust Services 1,464 1,154 960
Total net revenue $ 6,241 $ 4,857 $ 3,608
Business metrics
Assets under custody (in billions)(b) $ 11,249 $ 9,300 $ 7,597
Corporate trust securities
under administration (in billions)(c) 6,818 6,676 6,127
Number of:
US$ ACH transactions originated (in millions) 2,966 1,994 NA
Total US$ clearing volume (in thousands) 95,713 81,162 NA
International electronic funds transfer
volume (in thousands)(d) 89,537 45,654 NA
Wholesale check volume (in millions) 3,856 NA NA
Wholesale cards issued (in thousands)(e) 13,206 11,787 NA
Selected average balances
Total assets $ 26,947 $ 23,430 $ 18,379
Loans 10,430 7,849 6,009
Liability balances(f) 164,305 125,712 85,994
Equity 1,900 2,544 2,738
Headcount 24,484 22,612 15,145
TSS firmwide metrics
Treasury Services firmwide revenue(g) $ 5,224 $ 3,665 $ 2,214
Treasury & Securities Services
firmwide revenue(g) 8,843 6,528 4,622
Treasury Services firmwide overhead ratio(h) 55% 62% 62%
Treasury & Securities Services
firmwide overhead ratio(h) 62 74 76
Treasury Services firmwide liability balances(i) $139,579 $102,785 $ 64,819
Treasury & Securities Services firmwide
liability balances(i) 237,699 178,536 118,873
(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.
(b) 2005 assets under custody include approximately $530 billion of ITS assets under custody
that have not been included previously. At December 31, 2005, approximately 5% of total
assets under custody were trust-related.
(c) Corporate trust securities under administration include debt held in trust on behalf of third
parties and debt serviced as agent.
(d) International electronic funds transfer includes non-US$ ACH and clearing volume.
(e) Wholesale cards issued include domestic commercial card, stored value card, prepaid card,
and government electronic benefit card products.
(f) Liability balances include deposits and deposits swept to on-balance sheet liabilities.
(g) Firmwide revenue includes TS revenue recorded in the Commercial Banking, Consumer &
Small Business Banking and Asset & Wealth Management businesses (see below) and
excludes FX revenues recorded in the IB for TSS-related FX activity. TSS firmwide FX revenue,
which includes FX revenue recorded in TSS and FX revenue associated with TSS customers
who are FX customers of the IB, was $382 million, $320 million and $256 million for the
years ended December 31, 2005, 2004 and 2003, respectively.
(h) Overhead ratios have been calculated based on firmwide revenues and TSS and TS expenses,
respectively, including those allocated to certain other lines of business. FX revenues and
expenses recorded in the IB for TSS-related FX activity are not included in this ratio.
(i) Firmwide liability balances include TS’ liability balances recorded in certain lines of business.
Liability balances associated with TS customers who are also customers of the Commercial
Banking line of business are not included in TS liability balances.
(in millions)(a) 2005 2004 2003
Treasury Services revenue reported in
Commercial Banking $ 2,299 $ 1,467 $ 896
Treasury Services revenue reported in
other lines of business 303 204 118
Treasury & Securities Services firmwide metrics include certain TSS
product revenues and liability balances reported in other lines of business
related to customers who are also customers of those other lines of busi-
ness. In order to capture the firmwide impact of TS and TSS products and
revenues, management reviews firmwide metrics such as liability balances,
revenues and overhead ratios in assessing financial performance for TSS.
Firmwide metrics are necessary, in management’s view, in order to under-
stand the aggregate TSS business.