Jp Morgan Chase & Co. · NYSE:JPM
Jp Morgan Chase & — Q3 2002 Earnings Presentation
32 slides from Jp Morgan Chase &'s earnings presentation, Oct 18, 2002
Slide 1: Third Quarter 2002 Financial Results
Third Quarter 2002 Financial Results October 16, 2002
Slide 2: Agenda
Agenda Credit Marc Shapiro Earnings Dina Dublon Investment Bank initiatives Dave Coulter Q&A
Slide 3: Commercial Portfolio Risk Profile
Total Commercial Exposure1 $424 $416 $425 Investment Grade2 77% 79% 80% Non-Investment Grade Criticized3 3% 3% 4% Non-Criticized 20% 17% 16% Commercial Portfolio Risk Profile ($ in billions) 12/31/01 6/30/02 9/30/02 1Exposure includes loans, derivatives and commitments 2Investment grade: JPMorgan Ch
Slide 4: Risk Migration Trends - Exposure
12/31/2001 6/30/2002 9/30/2002 All Other 9.478 8.5 8.5 Emerging Markets 0.3 1.2 Telecom & Related 2.193 2.4 3.2 Cable 0.141 1.3 2.2 Merchant Energy & Related 0.265 0.5 1.6 2.6 5.5 7 Total 12.1 13 16.7 Criticized Exposures 2.6 4.2 7.0 Risk Migration Trends - Exposure ($ in billions) Note: Please refe
Slide 5: Telecom and Related
Telecom and Related ($ in billions) 12/31/2001 6/30/2002 9/30/2002 Investment Grade (IG) 4.05 4.733 4.226 Non IG, non criticized 3.553 3.179 2.887 Criticized but performing 1.107 0.94 0.962 Nonperforming Loans 0.236 0.315 0.752 Investment Grade (IG) Non-IG, non-criticized Criticized, performing Nonp
Slide 6: Merchant Energy and Related
Merchant Energy and Related ($ in billions) 12/31/2001 6/30/2002 9/30/2002 Investment Grade (IG) 0.64 0.6 0.859 Non IG, non criticized 0.723 0.771 0.546 Criticized but performing 0.043 0.13 0.659 Nonperforming Loans 0 0.02 0.17 Investment Grade (IG) Non-IG, non-criticized Criticized, performing Nonp
Slide 7: Enhanced Credit Risk Management Practices Instituted
Issuer thresholds Industry limits Enhanced Credit Risk Management Practices Instituted
Slide 8: Agenda
Agenda Credit Marc Shapiro Earnings Dina Dublon Investment Bank initiatives Dave Coulter Q&A
Slide 9: Earnings Per Share
3Q02 2Q02 3Q01 Reported Net Income $0.01 $0.50 $0.22 Operating Earnings 0.16 0.58 0.55 Earnings Per Share ($ per share)
Slide 10: 3Q02 Operating Results
3Q02 Operating Results ($ in millions) 3Q01 2Q02 3Q02 Operating Earnings 1133 1179 325 Earnings ROE 11% 11% 3% Credit Costs 90% 116% Revenue (8%) (5%) Expenses (7%) (7%) Drivers 2Q02 3Q01 O/(U)
Slide 11: YTD Operating Results
YTD Operating Results Revenue $23.1 (1%) Expenses 14.7 (7%) Credit Costs 4.4 77% Earnings 2.7 (23%) ROE 9% 11% ($ in billions) YTD 02 %O/U YTD 01
Slide 12: Credit Costs
3Q02 %* 2Q02 %* Commercial Loans $834 3.53% $293 1.17% Credit Card (managed) 687 5.51% 767 6.42% Other Consumer 99 0.44% 95 0.43% Total Charge-offs $1,620 2.75% $1,155 1.96% Incremental Reserves Loan loss 278 0 Lending-related commitments 292 0 Credit Costs $2,190 $1,155 Credit Costs ($ in millions)
Slide 13: Nonperforming Assets & Loan Reserves
Nonperforming Assets & Loan Reserves 12/31/2001 6/30/2002 9/30/2002 Commercial -Domestic 2454 2573 3062 Commercial -International 842 1212 1854 Consumer 624 592 640 $4.4 ($ in billions) $5.5 $3.9 Loan Loss Reserve $4.5 $5.0 $5.3 Reserves/NPL 181% 169% 128% Comm. Reserves/ Comm. Loans 1.6% 1.7% 2.1%
Slide 14: Operating Expenses
Operating Expenses Compensation $2.4 (14%) (17%) Non-comp. $2.2 2% 6% Total expenses1 $4.6 (7%) (7%) ($ in billions) 3Q02 2Q02 3Q01 %O/U Wholesale expenses down, Retail expenses up Non-comp driven by marketing, amortization of card premium and occupancy 1Includes restructuring costs of $122mm in 3Q0
Slide 15: Retail and Middle Market
3Q02 2Q02 3Q01 % O/(U) Revenue $3,732 8% 31% Expense 1,647 2% 14% Credit Costs 823 12% 14% Retail and Middle Market ($ in millions, operating basis) 3Q01 2Q02 3Q02 Operating Earnings 421 694 807 Earnings ROE 18% 27% 30% Record quarter - - cyclical factors Credit delinquencies stable Overhead 44% 47%
Slide 16: Treasury and Securities Services
3Q02 2Q02 3Q01 % O/(U) Treasury and Securities Services ($ in millions, operating basis) Revenue slowdown -- productivity focus Gain on sale of investment Revenue $1,022 4% 5% Investor Svcs 394 (8%) (9%) Treasury Svcs 356 8% 3% Inst'l Trust 220 - - - 16% 3Q01 2Q02 3Q02 Operating Earnings 172 174 212
Slide 17: Investment Management & Private Banking
Investment Management & Private Banking ($ in millions, operating basis) Operating Earnings 3Q01 124 2Q02 111 3Q02 98 Earnings ROE 8% 7% 6% Revenue $691 (5%) (9%) Expense 551 (3%) (7%) 3Q02 2Q02 3Q01 % O/(U) Equity market values pressure revenue Performance in line with peers Pre-tax Margin 17% 19%
Slide 18: JPMP Private Equity Losses
JPMP Private Equity Losses 3Q02 2Q02 3Q01 MTM ($120) ($20) ($307) Writedowns/Write-offs (290) (216) (29) Realized Gains 111 111 234 Total Private Equity Losses ($299) ($125) ($102) ($ in millions) MTM on public portfolio, similar to Nasdaq, down 21% Loss driven by tech, telecom and funds Very limite
Slide 19: JPMP: Lower Assets, Improved Diversification
JPMP: Lower Assets, Improved Diversification As of 9/30/02 Telecom Technology Media Industrial Growth Consumer Retail and Services Life Sciences Financial Svcs Real Estate Fund Industry 0.05 0.1 0.03 0.24 0.13 0.09 0.08 0.05 0.23 TMT 17% Industrial Growth 24% Consumer Retail & Services 13% Life Scie
Slide 20: Investment Bank Results
Investment Bank Results ($ in millions, operating basis) Revenue $2,433 (21%) (31%) Expense 1,647 (19%) (23%) Credit Costs 1,316 330% 391% Earnings (256) NM NM ROE NM 10% 15% Overhead Ratio 68% 65% 61% Overhead Ratio excl. restructuring 64% 61% 61% 3Q02 2Q02 3Q01 High credit costs and weak trading d
Slide 21: Capital Markets
3Q02 2Q02 3Q01 % O/(U) Capital Markets ($ in millions) Trading Revenue Fixed income $624 (39%) (51%) Equities (254) NM NM Total $370 (67%) (75%) Capital Markets Revenue Fixed income $1,298 (22%) (32%) Treasury 610 127% 68% Equities (8) NM NM Total $1,900 (18%) (30%) Capital Markets Total Return Rev.
Slide 22: Histogram of Daily Market Risk Related Revenues
Histogram of Daily Market Risk Related Revenues <(30) (30)><(20) (20)><(10) (10)><0 0><10 10><20 20><30 30><40 40><50 50><60 60><70 70><80 80><90 90><100 >100 $ in millions 4 4 4 13 15 27 32 30 16 15 11 11 3 3 1 Number of Trading Days For 9 months ended September 30, 2002 Average Daily Revenue: $30m
Slide 23: League Table Rankings and Investment Banking Fees
Global Syndicated Loans 1 1 U.S. Investment Grade Bonds 2 2 Global Announced M&A 4 5 European Announced M&A 1 8 U.S. Equity and Equity-Related 7 8 YTD 02 League Table Rankings YTD 01 Source: Thomson Financial 3Q02 2Q02 3Q01 Advisory $141 (28%) (58%) Underwriting 392 (34%) (18%) Investment banking fe
Slide 24: 3Q02 Earnings Summary
Record Retail and Operating Services more than offset by impact of credit and capital markets weakness Tight management of capital and liquidity Focus on risk management and expenses - - taking action 3Q02 Earnings Summary
Slide 25: Agenda
Agenda Credit Marc Shapiro Earnings Dina Dublon Investment Bank initiatives Dave Coulter Q&A
Slide 26: Investment Bank - Strategic Framework
Importance of achieving competitive economic returns on capital Breadth of product offering (including credit) and client base are critical to success Value of integrated business model Importance of global footprint Execution and world-class people are key differentiators Investment Bank - Strategi
Slide 27: Business Initiative Rationale
Near-term outlook in capital markets remains weak Fundamental changes underway within industry Need to improve performance in current environment while maintaining full business capabilities Generate capacity to enable selective strategic investments Business Initiative Rationale
Slide 28: Improve productivity of client coverage
Improve productivity of client coverage and origination functions Breadth of global client franchise underpins opportunity to deliver full product capabilities Client executive supported by industry experts and product specialists Resources focused on industry sectors with greatest opportunities
Slide 29: Scale businesses in Asia and Latin America
Scale businesses in Asia and Latin America in line with market opportunities Retain leadership positions in emerging markets Manage local business activities to generate positive SVA while maintaining option on future growth Client coverage teams and equities will be scaled to reflect near-term oppo
Slide 30: Improve efficiency of infrastructure
Continue to improve efficiency and effectiveness of infrastructure Significant opportunities to achieve scale economies through hub and spoke model Productivity will come from changes in support operating model, consolidation of functions, process re- engineering and automation
Slide 31: Impact of Initiatives
Impact of Initiatives Target operating overhead ratio of 60% Headcount reductions of over 2,000 $450MM severance and restructuring costs $700MM savings -- with no improvement in environment
Slide 32: Forward-looking statements
This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase's management and are subject to significant risks and uncertainties. These