JP Morgan Chase 2006 Annual Report Download - page 39

(a) Loans retained include Credit Portfolio, conduit loans, leveraged leases, bridge loans for
underwriting and other accrual loans.
(b) Loans held-for-sale, which include loan syndications, and warehouse loans held as part of
the IB’s mortgage-backed, asset-backed and other securitization businesses, are excluded
from Total loans for the allowance coverage ratio and net charge-off rate.
(c) Adjusted assets, a non-GAAP financial measure, equals total average assets minus (1)
securities purchased under resale agreements and securities borrowed less securities sold,
not yet purchased; (2) assets of variable interest entities (VIEs) consolidated under FIN 46R;
(3) cash and securities segregated and on deposit for regulatory and other purposes; and
(4) goodwill and intangibles. The amount of adjusted assets is presented to assist the read-
er in comparing the IB’s asset and capital levels to other investment banks in the securities
industry. Asset-to-equity leverage ratios are commonly used as one measure to assess a
company’s capital adequacy. The IB believes an adjusted asset amount that excludes
the assets discussed above, which are considered to have a low risk profile, provides a
more meaningful measure of balance sheet leverage in the securities industry.
(d) Nonperforming loans include loans held-for-sale of $3 million, $109 million and
$2 million as of December 31, 2006, 2005 and 2004, respectively, which are excluded
from the allowance coverage ratios. Nonperforming loans exclude distressed HFS loans pur-
chased as part of IB’s proprietary activities.
(e) For a more complete description of VAR, see page 77 of this Annual Report.
(f) 2004 results include six months of the combined Firm’s results and six months of heritage
JPMorgan Chase results.
Total average loans of $80.6 billion increased by $24.0 billion, or 42%, from
the prior year. Average loans retained of $58.8 billion increased by $14.0 bil-
lion, or 31%, from the prior year driven by higher levels of capital markets
activity. Average loans held-for-sale of $21.7 billion were up by $10.0 billion,
or 85%, from the prior year driven primarily by growth in the IB securitization
businesses.
IB’s average Total trading and credit portfolio VAR was $88 million for both
2006 and 2005. The Commodities and other VAR category has increased from
$21 million on average for 2005 to $45 million on average for 2006, reflect-
ing the build-out of the IB energy business, which has also increased the effect
of portfolio diversification such that Total IB Trading VAR was down slightly
compared with the prior year.
According to Thomson Financial, in 2006, the Firm maintained its #2 position
in Global Debt, Equity and Equity-related, its #1 position in Global Syndicated
Loans, and its #6 position in Global Equity & Equity-related transactions. The
Firm improved its position in Global Long-term Debt to #3 from #4.
According to Dealogic, the Firm was ranked #1 in Investment Banking fees
generated during 2006, based upon revenue.
Market shares and rankings(a)
2006 2005 2004
Market Market Market
December 31, Share Rankings Share Rankings Share Rankings
Global debt, equity and
equity-related 7% #2 7% #2 7% #3
Global syndicated loans 14 1 15 1 19 1
Global long-term debt 63647 2
Global equity and equity-related 7676 6 6
Global announced M&A 23 4 23 3 22 3
U.S. debt, equity and
equity-related 9283 8 5
U.S. syndicated loans 26 1 28 1 32 1
U.S. long-term debt 12 2 11 2 12 2
U.S. equity and equity-related(b) 8696 9 4
U.S. announced M&A 27 3 26 3 28 2
(a) Source: Thomson Financial Securities data. Global announced M&A is based upon rank
value; all other rankings are based upon proceeds, with full credit to each book
manager/equal if joint. Because of joint assignments, market share of all participants will
add up to more than 100%. The market share and rankings for December 31, 2004 are
presented on a combined basis, as if the merger of JPMorgan Chase and Bank One had
been in effect for the entire period.
(b) References U.S domiciled equity and equity-related transactions, per Thomson Financial.
$2.0 billion increased by 6% driven by strong loan syndication fees. Equity
underwriting fees of $864 million were up 11% from the prior year driven by
improved market share. Fixed Income Markets revenue of $7.3 billion increased
15%, or $935 million, driven by stronger, although volatile, trading results across
commodities, emerging markets, rate markets and currencies. Equity Markets rev-
enues increased 21% to $1.8 billion, primarily due to increased commissions,
which were offset partially by lower trading results, which also experienced a
high level of volatility. Credit Portfolio revenues were $1.4 billion, up $213 mil-
lion from the prior year due to higher gains from loan workouts and sales as
well as higher trading revenue from credit risk management activities.
The Provision for credit losses was a benefit of $838 million compared with a
benefit of $640 million in 2004. The increased benefit was due primarily to the
improvement in the credit quality of the loan portfolio and reflected net recoveries.
Nonperforming assets of $645 million decreased by 46% since the end of 2004.
Total noninterest expense increased 12% to $9.7 billion, largely reflecting higher
performance-based incentive compensation related to growth in revenue.
Noncompensation expense was up 4% from the prior year primarily due to the
impact of the Cazenove business partnership, while the overhead ratio declined
to 67% for 2005, from 69% in 2004.
Selected metrics
Year ended December 31,
(in millions, except headcount and ratio data) 2006 2005 2004(f)
Revenue by region
Americas $ 9,227 $ 8,258 $ 6,898
Europe/Middle East/Africa 7,320 4,627 4,082
Asia/Pacific 1,730 1,728 1,653
Total net revenue $ 18,277 $ 14,613 $ 12,633
Selected average balances
Total assets $ 647,569 $599,761 $ 474,436
Trading assets–debt and
equity instruments 275,077 231,303 190,119
Trading assets–derivative receivables 54,541 55,239 58,735
Loans:
Loans retained(a) 58,846 44,813 37,804
Loans held-for-sale(b) 21,745 11,755 6,124
Total loans 80,591 56,568 43,928
Adjusted assets(c) 527,753 456,920 394,961
Equity 20,753 20,000 17,290
Headcount 23,729 19,802 17,501
Credit data and quality statistics
Net charge-offs (recoveries) $ (31) $ (126) $ 47
Nonperforming assets:
Nonperforming loans(d) 231 594 954
Other nonperforming assets 38 51 242
Allowance for loan losses 1,052 907 1,547
Allowance for lending related commitments 305 226 305
Net charge-off (recovery) rate(b) (0.05)% (0.28)% 0.12%
Allowance for loan losses to average loans(b) 1.79 2.02 4.09
Allowance for loan losses to
nonperforming loans(d) 461 187 163
Nonperforming loans to average loans 0.29 1.05 2.17
Market risk–average trading and
credit portfolio VAR(e)
Trading activities:
Fixed income $56 $67 $74
Foreign exchange 22 23 17
Equities 31 34 28
Commodities and other 45 21 9
Less: portfolio diversification (70) (59) (43)
Total trading VAR 84 86 85
Credit portfolio VAR 15 14 14
Less: portfolio diversification (11) (12) (9)
Total trading and credit portfolio VAR $88 $88 $90
JPMorgan Chase & Co. / 2006 Annual Report 37