Jp Morgan Chase & Co. · NYSE:JPM
Jp Morgan Chase & — Q4 2005 Earnings Presentation
38 slides from Jp Morgan Chase &'s earnings presentation, Jan 18, 2006
Slide 1: Financial Results Fourth Quarter 2005
J A N U A R Y 1 8, 2 0 0 6 FINANCIAL RESULTS Fourth Quarter 2005
Slide 2: Agenda
Agenda n Firm results – 4Q n 2006 Outlook n Appendix 2
Slide 3: Fourth Quarter 2005 Earnings
Fourth Quarter 2005 Earnings n Operating earnings per share of $0.73 n Card results reflect impact of new bankruptcy legislation n Investment Bank – strong IB fees; weak trading results n Retail Financial Services - good deposit and account growth n Strong earnings growth in Commercial Banking, Trea
Slide 4: 4Q05 Earnings Comparison
4Q05 Earnings Comparison ($ in millions, except per share) 4Q05 3Q05 4Q04 Reported Net Income $2,698 $2,527 $1,666 Non-Operating Charges (after-tax) (81) 137 650 Operating Earnings $2,617 $2,664 $2,316 Reported EPS $0.76 $0.71 $0.46 Operating EPS $0.73 $0.75 $0.64 Non-Operating Charges (After-Tax) 4
Slide 5: 4Q05 Significant Operating Items
4Q05 Significant Operating Items After-Tax ($ in millions) Pre-tax Per Share Line of Business Gain on sale of BrownCo $1,254 $0.21 Corporate Impact of bankruptcy law (650) (0.11) Card Services Capital losses: Treasury portfolio repositioning (547) (0.10) Corporate Hybrid ARMs mark to market (120) (0
Slide 6: 4Q05 Operating Performance Comparison
4Q05 Operating Performance Comparison $ O/(U) % O/(U) ($ in millions) 4Q05 3Q05 4Q04 3Q05 4Q04 Revenue (FTE)1 $14,955 ($599) $806 (4%) 6% Credit Costs1 2,286 174 643 8% 39% Expense 8,666 (577) (197) (6%) (2%) Earnings $2,617 ($47) $301 (2%) 13% EPS $0.73 ($0.02) $0.09 (3%) 14% Quarterly Results2 4Q0
Slide 7: LOB Operating Earnings Comparison
LOB Operating Earnings Comparison $ O/(U) % O/(U) ($ in millions) 4Q05 3Q05 4Q04 3Q05 4Q04 Investment Bank $664 ($399) $4 (38%) 1% Retail Financial Services 803 147 28 22% 4% Card Services 302 (239) (213) (44%) (41%) Commercial Banking 289 (12) 35 (4%) 14% Treasury & Securities Services 300 37 155 1
Slide 8: Investment Bank
Investment Bank $O/(U) n Earnings of $664mm flat YoY and down 38% ($ in millions) 4Q05 3Q05 4Q04 from strong 3Q n IB fees of $1.2 billion are highest since 1Q00, Revenue $3,187 ($1,274) ($14) driven primarily by strong advisory and equity Investment Bkg. Fees 1,161 176 81 underwriting fees Fixed Inc
Slide 9: Retail Financial Services – Business Drivers
Retail Financial Services – Business Drivers 4Q05 3Q05 4Q04 Consumer & Small Business n Key metrics growth YoY Checking Accts (MM) 1 8.8 8.7 8.1 - Checking accounts up 8% # of Branches 2,641 2,549 2,508 - Average total deposits up 3% # of ATMs 7,312 7,136 6,650 - Branch sales of credit cards up 47%
Slide 10: Retail Financial Services
Retail Financial Services $ O/(U) ($ in millions, after-tax) $ O/(U) ($ in millions) 4Q05 3Q05 4Q04 4Q05 3Q05 4Q04 Revenue $3,594 $4 $49 Earnings $803 $147 $28 Credit Costs 158 (220) 80 Less: Katrina provision -- 155 -- Expense 2,141 (15) (74) Less: Portfolio Repositioning2 (74) (47) (101) Earnings
Slide 11: Card Services (Managed)
Card Services (Managed) $O/(U) ($ in millions) 4Q05 3Q05 4Q04 n Earnings of $302mm down 41% YoY Revenue $3,721 ($259) ($109) n New bankruptcy legislation Credit Costs 2,236 403 501 negatively impacted pre-tax earnings by $650 million, primarily through Expense 1,017 (269) (265) higher credit costs,
Slide 12: Card Services (Managed) – Adjusted
Card Services (Managed) Adjusted for Paymentech deconsolidation and Bankruptcy $ O/(U) ($ in millions) 4Q05 3Q05 4Q04 3Q05 4Q04 n Revenue up YoY driven by higher Revenue $3,721 $3,980 $3,830 ($259) ($109) loan balances and charge volume, Bankruptcy estimate 75 -- -- partially offset by lower spread.
Slide 13: Commercial Banking
Commercial Banking $O/(U) ($ in millions) 4Q05 3Q05 4Q04 n Earnings of $289mm up 14% YoY Revenue $937 $28 $52 Middle Market 611 19 40 n Loans up 7% YoY and 5% QoQ Mid-Corporate Banking 147 7 5 - Solid growth across all segments Real Estate 141 (2) 8 Other 38 4 (1) Credit Costs (17) 29 (38) n Liabili
Slide 14: Treasury & Securities Services
Treasury & Securities Services $O/(U) ($ in millions) 4Q05 3Q05 4Q04 n Record earnings of $300mm Revenue $1,615 $59 $202 - Up 107% YoY and 14% QoQ Treasury Services 674 26 32 Investor Services 567 31 113 n Liability balances up 16% YoY; Assets Institutional Trust Svcs 374 2 57 under custody up 15% Y
Slide 15: Asset & Wealth Management
Asset & Wealth Management $O/(U) ($ in millions) 4Q05 3Q05 4Q04 n Earnings of $342mm Revenue $1,511 $62 $201 - Up 30% YoY and 9% QoQ Credit Costs (10) 9 11 Expense 1,033 57 114 n Assets under management up 7% YoY; Net asset inflows driven by retail Earnings $342 $27 $79 flows from third party distri
Slide 16: Corporate
Corporate $O/(U) ($ in millions) 4Q05 3Q05 4Q04 n Private Equity Earnings by Unit − Gains of $289mm Private Equity $121 ($20) ($118) − Portfolio of $6.2bn at year end Treasury ex sec. gains/(losses) (235) 38 45 n Treasury excluding securities Other Corporate ex. BrownCo (382) (66) (79) gains/(losses
Slide 17: Capital Strength
Capital Strength 4Q05 3Q05 4Q04 Capital/Balance Sheet ($B)1 Tier 1 capital $72.5 $70.7 $68.6 Risk weighted assets $849.9 $866.3 $791.4 Tier 1 capital ratio 8.5% 8.2% 8.7% Total capital ratio 12.1% 11.3% 12.2% Leverage ratio 6.3% 6.2% 6.2% Common shareholders’ equity less goodwill $63.5 $62.4 $62.1 T
Slide 18: Agenda – 2006 Outlook Overview
Agenda n Firm results – 4Q n 2006 Outlook − Overview − Lines of Business n Appendix 18
Slide 19: 2006 Highlights and Observations
2006 Highlights and Observations n Comments assume steady-state economy and implied rate curve n Wholesale credit costs trend more toward normalized levels during 2006 n On track to achieve $3.0 billion in merger savings n Business as usual expense management – ongoing waste-cutting & investing 19
Slide 20: Comments on Expense
Comments on Expense Proforma % Change O/(U) ($ in millions) 2004 2005 2005 vs. 2004 Total firm expense $35,439 $35,549 0.3% Expense (ex. IB total comp) 30,326 29,764 (1.9%) n Expense excluding IB total compensation expected to be flat to 2005 n Merger savings will reach annualized run-rate of $2.8 b
Slide 21: Comments on Capital
Comments on Capital n Continue to build fortress balance sheet n Tier 1 capital target above 8% − 12/31/05 Tier 1 estimate of 8.5% n Excess capital generation creates capital flexibility − Dividend payout target: 30-40% − Stock buyback: $3.4 bn in 2005 − Investments in the business n Modest increase
Slide 22: Allocated Capital by Line of Business
Allocated Capital by Line of Business Estimated 1 Allocated Capital ($B) 4Q05 1Q06 Key rationale2 Investment Bank $20.0 $20.0 Net asset leverage Retail Financial Services 13.7 13.5 Tier 1 Card 11.8 14.0 Managed receivables leverage Commercial Banking 3.4 5.5 Tier 1 Treasury & Securities Services 1.9
Slide 23: Agenda – Lines of Business
Agenda n Firm results – 4Q n 2006 Outlook − Overview − Lines of Business n Appendix 23
Slide 24: Investment Bank
Investment Bank Performance Target n 20% ROE on $20 billion in equity − Strive to achieve by 2007 2006 Outlook n Strong IB fee pipeline entering 2006 n Better trading revenues in 2006 than 2005; reduced volatility n Continued benefit from growth initiatives n Decline in Credit Portfolio revenues and
Slide 25: Retail Financial Services
Retail Financial Services Performance Targets n Retail Financial Services n Community Banking − 28-30% ROE with volatility − New segment; comparable to peers − Strive to achieve by 2007 − Will include branches, small business, − 50% Overhead Ratio (ex.CDI) loan portfolio and education − Pressure fro
Slide 26: Card Services
Card Services Performance Targets n 3.5% +/- Pre-tax ROO − Min pay is a big 2006 swing factor − Substantial progress in 2006; strive to achieve in 2007 n 20% ROE through the cycle n As nature of business changes, will convert more to ROE target 2006 Outlook n Expect outstandings and charge volume gr
Slide 27: Commercial Banking
Commercial Banking Performance Target n 50% Overhead Ratio n Strive to achieve by end of 2006 2006 Outlook n Continued growth in loan and liability balances; pressure on lending spreads n Credit costs trend more toward normal n Slight increase in expense 27
Slide 28: Treasury & Securities Services
Treasury & Securities Services Performance Target n 35% Pre-tax Margin n Substantial progress in 2006; strive to achieve in 2007 2006 Outlook n Slower liability balance growth n Continued growth in noninterest revenue n Stable expense base - - continue to realize efficiencies 28
Slide 29: Asset & Wealth Management
Asset & Wealth Management Performance Target n 35% Pre-tax Margin while investing for growth n Strive to achieve by end of 2006 2006 Outlook n Continued inflows expected to drive AUM growth n Expense to increase due to ongoing investments in growth areas n Credit costs trend to more normal levels n
Slide 30: Corporate
Corporate 2006 Outlook n Private Equity − $300mm/qtr in private equity gains is a reasonable expectation ($1,691mm in 2005) − Hard to predict; market-driven; will be lumpy n Treasury − Treasury NII of ($1.7)bn in 2005 improves by approximately $400mm − Lumpy but gradual improvement − 2006 NII exit r
Slide 31: 2006 Tech & Ops Major Initiatives
2006 Tech & Ops Major Initiatives Conversion Investments n Tri-state market integration (est. Consumer: n Investment Bank: 3Q06; Wholesale: mid 2007) − Credit infrastructure transformation − Lending platforms − Global equities cash expansion − Deposit systems − Prime brokerage initiatives − Check pr
Slide 32: Conclusions
Conclusions n Balance sheet continues to strengthen − Better capital generation looking forward − Less legal uncertainty n Good expense control while investing for growth n Strong management team n World-class franchises n Tremendous progress on conversions, technology, branding n Still a lot of wor
Slide 33: Agenda – Appendix
Agenda n Firm results – 4Q n 2006 Outlook n Appendix 33
Slide 34: Comments on Revenue
Comments on Revenue n Higher NII in 2006 − Reduced IB non-trading NII − NII in RFS flat on average to 4Q05; deposit margin remains under pressure − Growth in Card NII on higher outstandings − Improvement in Treasury margin n Noninterest revenue growth across most LOBs − IB trading – expect to do bet
Slide 35: Comments on Credit
Comments on Credit Approximate Proforma through the Net Charge-off Rate (%) 2004 2005 Cycle 2006 Comments Investment Bank 0.06% (0.29%) 1.00% Moves to normal, but not in 2006 Commercial Banking 0.12% 0.05% 0.65% Moves to normal, but not in 2006 a Card Services 5.28% 5.21% 5.25% Improved 1H; 2H tbd –
Slide 36: Corporate
Corporate Private Equity Treasury Other Corporate Total ($ in millions) 20041 2005 20041 2005 20041 2005 2004 1 2005 Revenue (adjusted) Securities/Private Equity Gains (Losses) $1,466 $1,691 -- -- $11 $11 $1,477 $1,702 Other Income 49 40 95 (95) 250 202 394 147 Noninterest Revenue 1,515 1,731 95 (95
Slide 37: 2005 Significant Items
2005 Significant Items1 ($ in millions) Pre-tax Line of Business Private equity gains $1,691 Corporate Sale of BrownCo $1,254 Corporate Reduction in wholesale allowance2 $785 IB/CB/TSS/AWM MSR risk management results $283 Retail Financial Services Joint venture dissolution charge ($40) Retail Financ
Slide 38: Disclaimer
Disclaimer This earnings release contains forward-looking statements 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.