JP Morgan Chase 2006 Annual Report Download - page 37

Year ended December 31, Net income (loss) Return on equity
(in millions, except ratios) 2006 2005 2004(c) 2006 2005 2004(c)
Investment Bank $ 3,674 $ 3,673 $ 2,956 18% 18% 17%
Retail Financial Services 3,213 3,427 2,199 22 26 24
Card Services 3,206 1,907 1,274 23 16 17
Commercial Banking 1,010 951 561 18 28 27
Treasury & Securities Services 1,090 863 277 48 57 14
Asset Management 1,409 1,216 681 40 51 17
Corporate(b) 842 (3,554) (3,482) NM NM NM
Total $ 14,444 $ 8,483 $ 4,466 13% 8% 6%
(a) Represents reported results on a tax-equivalent basis and excludes the impact of credit card securitizations.
(b) Net income includes Income from discontinued operations (after-tax) of $795 million, $229 million and $206 million for 2006, 2005 and 2004, respectively.
(c) 2004 results include six months of the combined Firm’s results and six months of heritage JPMorgan Chase results.
JPMorgan Chase & Co. / 2006 Annual Report 35
Capital allocation
Each business segment is allocated capital by taking into consideration stand-
alone peer comparisons, economic risk measures and regulatory capital
requirements. The amount of capital assigned to each business is referred to
as equity. Effective January 1, 2006, the Firm refined its methodology for allo-
cating capital to the business segments. As prior periods have not been
revised to reflect the new capital allocations, certain business metrics, such as
ROE, are not comparable to the current presentations. For a further discussion
of this change, see Capital management–Line of business equity on page 57
of this Annual Report.
Expense allocation
Where business segments use services provided by support units within the
Firm, the costs of those support units are allocated to the business segments.
Those expenses are allocated based upon their actual cost or the lower of
actual cost or market, as well as upon usage of the services provided. In con-
trast, certain other expenses related to certain corporate functions, or to cer-
tain technology and operations, are not allocated to the business segments
and are retained in Corporate. These retained expenses include: parent com-
pany costs that would not be incurred if the segments were stand-alone busi-
nesses; adjustments to align certain corporate staff, technology and opera-
tions allocations with market prices; and other one-time items not aligned
with the business segments.
During 2005, the Firm refined cost allocation methodologies related to certain
corporate, technology and operations expenses in order to improve transparen-
cy, consistency and accountability with regard to costs allocated across business
segments. Prior periods were not revised to reflect this methodology change.
Credit reimbursement
TSS reimburses the IB for credit portfolio exposures managed by the IB on
behalf of clients that the segments share. At the time of the Merger, the reim-
bursement methodology was revised to be based upon pretax earnings, net of
the cost of capital related to those exposures.
Segment results – Managed basis(a)
The following table summarizes the business segment results for the periods indicated:
Year ended December 31, Total net revenue Noninterest expense
(in millions, except ratios) 2006 2005 2004(c) 2006 2005 2004(c)
Investment Bank $ 18,277 $ 14,613 $ 12,633 $ 12,304 $ 9,749 $ 8,709
Retail Financial Services 14,825 14,830 10,791 8,927 8,585 6,825
Card Services 14,745 15,366 10,745 5,086 4,999 3,883
Commercial Banking 3,800 3,488 2,278 1,979 1,856 1,326
Treasury & Securities Services 6,109 5,539 4,198 4,266 4,050 3,726
Asset Management 6,787 5,664 4,179 4,578 3,860 3,133
Corporate(b) 8(1,136) 769 1,141 5,327 6,370
Total $ 64,551 $ 58,364 $ 45,593 $ 38,281 $ 38,426 $ 33,972