JP Morgan Chase 2005 Annual Report Download - page 53

Asset & Wealth Management
Asset & Wealth Management 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
provides trust and estate services to ultra-high-net-worth and
high-net-worth clients, and retirement services for corporations
and individuals.
Selected income statement data
Year ended December 31,(a)
(in millions, except ratios) 2005 2004 2003
Revenue
Asset management, administration
and commissions $ 4,189 $ 3,140 $ 2,258
Other income 394 243 224
Noninterest revenue 4,583 3,383 2,482
Net interest income 1,081 796 488
Total net revenue 5,664 4,179 2,970
Provision for credit losses(b) (56) (14) 35
Noninterest expense
Compensation expense 2,179 1,579 1,213
Noncompensation expense 1,582 1,502 1,265
Amortization of intangibles 99 52 8
Total noninterest expense 3,860 3,133 2,486
Operating earnings before
income tax expense 1,860 1,060 449
Income tax expense 644 379 162
Operating earnings $ 1,216 $ 681 $ 287
Financial ratios
ROE 51% 17% 5%
Overhead ratio 68 75 84
Pre-tax margin ratio(c) 33 25 15
(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 includes a $3 million special provision related to Hurricane Katrina.
(c) Pre-tax margin represents Operating earnings before income tax expense divided by Total net
revenue, which is a comprehensive measure of pre-tax performance and is another basis by
which AWM management evaluates its performance and that of its competitors. Pre-tax margin
is an effective measure of AWM’s earnings, after all costs are taken into consideration.
2005 compared with 2004
Operating earnings of $1.2 billion were up $535 million from the prior
year due to the Merger and increased revenue, partially offset by higher
compensation expense.
Net revenue was $5.7 billion, up $1.5 billion, or 36%. Noninterest revenue,
primarily fees and commissions, of $4.6 billion was up $1.2 billion, principally
due to the Merger, the acquisition of a majority interest in Highbridge Capital
Management in 2004, net asset inflows and global equity market appreciation.
Net interest income of $1.1 billion was up $285 million, primarily due to the
Merger, higher deposit and loan balances, partially offset by narrower deposit
spreads.
Private Bank client segment revenue of $1.7 billion increased by $135 million.
Retail client segment revenue of $1.5 billion increased by $360 million.
Institutional client segment revenue was up $504 million to $1.4 billion due to
the acquisition of a majority interest in Highbridge Capital Management. Private
Client Services client segment revenue grew by $486 million, to $1.0 billion.
Provision for credit losses was a benefit of $56 million, compared with a
benefit of $14 million in the prior year, due to lower net charge-offs and
refinements in the data used to estimate the allowance for credit losses.
Noninterest expense of $3.9 billion increased by $727 million, or 23%,
reflecting the Merger, the acquisition of Highbridge and increased compensa-
tion expense related primarily to higher performance-based incentives.
2004 compared with 2003
Operating earnings were $681 million, up 137% from the prior year, due
largely to the Merger but also driven by increased revenue and a decrease
in the Provision for credit losses; these were partially offset by higher
Compensation expense.
Total net revenue was $4.2 billion, up 41%, primarily due to the Merger.
Additionally, fees and commissions increased due to global equity market
appreciation, net asset inflows and the acquisition of JPMorgan Retirement
Plan Services (“RPS”) in 2003. Fees and commissions also increased due to an
improved product mix, with an increased percentage of assets in higher-yielding
products. Net interest income increased due to deposit and loan growth.
The Provision for credit losses was a benefit of $14 million, a decrease of
$49 million, due to an improvement in credit quality.
Noninterest expense was $3.1 billion, up 26%, due to the Merger, increased
Compensation expense and increased technology and marketing initiatives.
Selected metrics
Year ended December 31,(a)
(in millions, except headcount and ranking
data, and where otherwise noted) 2005 2004 2003
Revenue by client segment
Private bank $ 1,689 $ 1,554 $ 1,437
Retail 1,544 1,184 774
Institutional 1,395 891 681
Private client services 1,036 550 78
Total net revenue $ 5,664 $ 4,179 $ 2,970
Business metrics
Number of:
Client advisors 1,430 1,333 651
Retirement Plan Services participants 1,299,000 918,000 756,000
% of customer assets in 4 & 5 Star Funds(b) 46% 48% 48%
% of AUM in 1st and 2nd quartiles:(c)
1 year 69 66 57
3 years 68 71 69
5 years 74 68 65
Selected average balances
Total assets $ 41,599 $ 37,751 $ 33,780
Loans 26,610 21,545 16,678
Deposits(d) 42,123 32,431 20,576
Equity 2,400 3,902 5,507
Headcount 12,127 12,287 8,520
JPMorgan Chase & Co. /2005 Annual Report 51