JPMC_2005_annual_report - JPMORGAN CHASE CO Annual Report 2005 www.jpmorganchase.com JPMorgan Chase Co 2005 Annual Report JPMorgan Chase Co JPMorgan

JPMC_2005_annual_report - JPMORGAN CHASE CO Annual...

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Unformatted text preview: JPMORGAN CHASE & CO. Annual Report 2005 JPMorgan Chase & Co. 2005 Annual Report JPMorgan Chase & Co. JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $1.2 trillion and operations in more than 50 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset and wealth management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its JPMorgan and Chase brands. JPMorgan Chase & Co. Corporate headquarters 270 Park Avenue New York, New York 10017-2070 Telephone: 212-270-6000 Principal subsidiaries JPMorgan Chase Bank, National Association Chase Bank USA, National Association J.P. Morgan Securities Inc. JPMorgan has one of the largest client franchises in the world. Our clients include corporations, institutional investors, hedge funds, governments and affluent individuals in more than 100 countries. The following businesses use the JPMorgan brand: Investment Bank Asset Management Treasury Services Private Bank Worldwide Securities Services Private Client Services Information about JPMorgan capabilities can be found on jpmorgan.com. Annual report on Form 10-K The Annual Report on Form 10-K of JPMorgan Chase & Co. as filed with the Securities and Exchange Commission will be made available upon request to: Office of the Secretary JPMorgan Chase & Co. 270 Park Avenue New York, New York 10017-2070 Stock listing New York Stock Exchange, Inc. London Stock Exchange Limited Tokyo Stock Exchange Chase is a leading U.S. financial services brand serving consumers, small businesses, corporations and governments with a full range of banking and asset management products in local markets and through national distribution. The consumer businesses include: Consumer Banking Credit Card Small Business Home Finance Auto Finance Education Finance The commercial banking businesses include: Business Credit Middle Market Mid-Corporate Equipment Leasing Real Estate Information about Chase capabilities can be found on chase.com. JPMorgan Chase is the brand used to express JPMorgan Chase & Co., the holding company, and is also used by our Treasury Services business and our Community Development Group. Information about the firm is available at . The New York Stock Exchange (NYSE) ticker symbols for stock of JPMorgan Chase & Co. are as follows: JPM (Common Stock) JPMPRH (Depositary Shares Each Representing a One-Tenth Interest in 6 5/8% Cumulative Preferred Stock) Certifications by the Chairman, Chief Executive Officer and Chief Financial Officer of JPMorgan Chase & Co. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, have been filed as exhibits to the Firm's 2005 Annual Report on Form 10-K. The NYSE requires that the Chief Executive Officer of a listed company certify annually that he or she was not aware of any violation by the company of the NYSE's Corporate Governance listing standards. Such certification was made on June 14, 2005. Financial information about JPMorgan Chase & Co. can be accessed by visiting the Investor Relations site of . Additional questions should be addressed to: Investor Relations JPMorgan Chase & Co. 270 Park Avenue New York, New York 10017-2070 Telephone: 212-270-6000 ©2006 JPMorgan Chase & Co. All rights reserved. Printed in the U.S.A. Directors To contact any of the Board members please mail correspondence to: JPMorgan Chase & Co. Attention (Board member) Office of the Secretary 270 Park Avenue New York, New York 10017-2070 The corporate governance principles of the board, the charters of the principal board committees and other governance information can be accessed by visiting and clicking on “Governance.” Stockholders may request a copy of such materials by writing to the Office of the Secretary at the above address. Transfer agent and registrar Mellon Investor Services LLC 480 Washington Blvd. Jersey City, New Jersey 07310-1900 Telephone: 1-800-758-4651 Investor Services Program JPMorgan Chase & Co.’s Investor Services Program offers a variety of convenient, lowcost services to make it easier to reinvest dividends and buy and sell shares of JPMorgan Chase & Co. common stock. A brochure and enrollment materials may be obtained by contacting the Program Administrator, Mellon Investor Services LLC, by calling 1-800-758-4651, by writing them at the address indicated above or by visiting their Web site at . This annual report is printed on paper made from well-managed forests and other controlled sources with the financial section printed on paper containing 20% post-consumer waste (PCW) recycled fibers. The paper is independently certified by SmartWood, a program of the Rainforest Alliance, to the Forest Stewardship Council (FSC) standards. FSC is an independent nonprofit organization devoted to encouraging the responsible management of the world’s forests. FSC sets high standards to ensure forestry is practiced in an environmentally responsible, socially beneficial and economically viable way. Direct deposit of dividends For information about direct deposit of dividends, please contact Mellon Investor Services LLC. Stockholder inquiries Contact Mellon Investor Services LLC: By telephone: Within the United States, Canada and Puerto Rico: 1-800-758-4651 (toll free) From all other locations: 1-201-680-6578 (collect) TDD service for the hearing impaired within the United States, Canada and Puerto Rico: 1-800-231-5469 (toll free) All other locations: 1-201-680-6578 (collect) By mail: Mellon Investor Services LLC 480 Washington Blvd. Jersey City, New Jersey 07310-1900 Duplicate mailings If you receive duplicate mailings because you have more than one account listing and you wish to consolidate your accounts, please write to Mellon Investor Services LLC at the address above. Independent registered public accounting firm PricewaterhouseCoopers LLP 300 Madison Avenue New York, New York 10017 Financial highlights As of or for the year ended December 31, (in millions, except per share, ratio and headcount data) 2005 2004 Reported basis(a) Total net revenue $ 54,533 $ 43,097 Provision for credit losses 3,483 2,544 Total noninterest expense 38,835 34,359 Net income 8,483 4,466 Per common share: Net income per share: Basic Diluted Cash dividends declared per share Book value per share 2.43 2.38 1.36 30.71 1.59 1.55 1.36 29.61 Return on common equity 8% 6% Tier 1 capital ratio 8.5 8.7 Total capital ratio 12.0 12.2 $1,198,942 $ 1,157,248 Loans 419,148 402,114 Deposits 554,991 521,456 Total stockholders’ equity 107,211 105,653 Headcount 168,847 160,968 Total assets Operating basis (pro forma)* Total net revenue $ 59,149 $ 57,760 Provision for credit losses 7,259 6,490 Total noninterest expense 35,549 35,439 Earnings 10,521 10,289 2.95 2.85 Diluted earnings per share Return on common equity 10% 10% (a) Results are presented in accordance with accounting principles generally accepted in the United States of America. 2004 results include six months of the combined Firm’s results and six month of heritage JPMorgan Chase results. * The financial information provided on pages 2-20 is presented on a pro forma combined-operating basis. The unaudited pro forma combined historical results represent how the financial information of JPMorgan Chase & Co. and Bank One Corporation may have appeared on a combined basis had the two companies been merged as of the earliest date indicated. Additional information, including reconciliation of the pro forma numbers to GAAP, can be found on Form 8-K furnished to the Securities and Exchange Commission on January 18, 2006. For a description of operating basis, including management’s reasons for its use of such measures, see page 31 of this Annual Report. Letter from William B. Harrison, Jr, Chairman Dear fellow shareholder, As of year-end , I stepped down as CEO of JPMorgan Chase – turning the leadership of the firm over to my partner, Jamie Dimon, who I believe will prove to be one of the outstanding CEO s the financial services industry has had in a long time. As Chairman, I look forward to contributing to our growth by leveraging my global relationships and contacts and by helping to further develop strategy. As I look back on my years in the industry, all with the same organization, I realize how fortunate I have been and what an exciting journey I have been on. When I left a small town in North Carolina to join Chemical Bank in , my goal was to spend two years in New York and then return to North Carolina. Little did I know I would be part of an industry and a career that were as challenging and rewarding as these have been. I step down as CEO believing that: • JPMorgan Chase is very well positioned strategically to be one of the great financial institutions in the world. • Size does matter in our industry – provided that size translates into operating and scale efficiencies, increased profit margins, stronger earnings and leadership positions. And the benefits of size can only be realized within a culture that values teamwork, partnership and execution. • One should be a leader – not a follower – as our industry irreversibly consolidates in a globalizing world. • A diversified model will prove to have competitive advantage in terms of creating shareholder value over time. • Managements and boards have to manage with a longer-term outlook and resist the pressures of the quarter-to-quarter mindset of the market. • Building the best performance culture in the industry will ensure that all of the inherent potential of size is harvested and maximized. 2 • Relationships matter – with clients and with each other internally – and without them, a firm will never reach its potential and be its best. • Companies with the highest ethical values, which start at the top and cascade all the way down, will be the great companies – and we must keep raising the bar on how we achieve this in a large, complex corporation. • Surrounding yourself with people who are smarter and better than you are is critical because your talent pool will be a key determinant of success. • I have been one of the most fortunate people in the world to have had the experience and the success I have had, and there is not one day that goes by that I don’t think about this. So from a small town to a big city – from a small bank to a big bank, I learned much along the way – that you, in fact, never stop learning. You should always commit to be the best you can be, you should think big and dream big, and you should think about how you can win and what your strategic platform should be to create sustainable shareholder value. And you should do this by always, always having the right set of values and living by them. You learn that the peaks and valleys, the successes and failures of your job and life need to be viewed with the proper perspective and balance, and only with that balance and perspective can you find true north. You learn how important your family and friends are in enabling you to maintain the passion and commitment to be the CEO of a firm like JPMorgan Chase and how privileged you’ve been to have been the leader. Thus, while my JPMorgan Chase career is nearing an end, a new chapter in our company’s long history is beginning. It is time to pass the baton to a new group of leaders, led by Jamie Dimon, who will take this firm to the next level of performance, harvesting its vast potential and maximizing shareholder value through great execution. Letter from James Dimon, Chief Executive Officer Dear fellow shareholder, This is my first letter to you as the CEO of JPMorgan Chase. From a personal standpoint, I want to share with you some feelings and thoughts. I feel a tremendous mix of emotions: excitement about our potential, and a great sense of obligation and responsibility both to you, our shareholder, and to those who have built our company over the years. They have given us an exceptional opportunity – and we owe them not only our gratitude, but also our commitment to deliver on our company’s potential and make them proud of what they have helped to build. William B. Harrison, Jr., Chairman James Dimon, Chief Executive Officer Let me close with a profound thanks to our shareholders who have had the faith to believe in the potential of this firm. Thanks to our outstanding Board of Directors for their support and wisdom, and I want to express my special gratitude to retiring directors Larry Bossidy and Hans Becherer whose advice and counsel over many years have been invaluable. Thanks to all of our clients and customers around the world for the opportunity to serve them. And thanks – , thanks – to our talented and dedicated employees around the world for what they stand for and for what they contribute every day. I could not be more excited and confident about our future. Sincerely, We have accomplished a great deal over the last year, and we are excited about our progress in and our plans for . The foundation for everything we are doing rests on a set of business principles that we believe, when executed properly, create great companies. These principles are described on our Web site: . In essence, we strive to: • Share with you the truth and offer honest assessments of our businesses and our prospects. • Act with integrity and honor. • Do the right thing, not necessarily the easy or expedient thing. • Work hard and with fierce resolve to make this a company of which our shareholders, employees, customers and communities can be proud. • Focus relentlessly on the execution of our business principles. There are some specific issues that are integral to the success of our company. I would like to address them by answering the following questions: I. Are we in the right businesses? II. Can we achieve outstanding performance? III. Are we properly managing our risks? William B. Harrison, Jr. Chairman IV. Do we have the right people and the right compensation strategy? V. Are we a good corporate citizen? March , 3 I. Are we in the right businesses? Let me unequivocally answer this question with a resounding “yes,” for three reasons: each business is already well positioned – in terms of size and scope – within its specific industry; there is exceptional value in the linkages among our businesses; and the company’s size, scale and brands are a competitive strength. Each business is already well positioned within its specific industry Our six major lines of business – Investment Banking, Commercial Banking, Retail Financial Services, Card Services, Asset & Wealth Management, and Treasury & Securities Services – all compete in consolidating industries. Businesses consolidate when the vast economies of scale that can be achieved (in systems, operations, distribution, brand and R&D , to name a few) will benefit the customer. We cannot underestimate the power of these economic forces. Nor can we ignore the inevitable impact they have on our businesses. But change is hard – and many who attempt it fail. The winners will be those who can provide their customers with more access to better financial products and services at a lower price. In this environment, size, scale and staying power matter, and all of our core businesses already have what it takes to succeed; but as I discuss later, we must continue to improve our execution skills to distinguish our company in the marketplace. Our businesses do not and will not want for capital or investment. They are well equipped to survive in good and bad times, and our customers will continually benefit from their stability and efficiency, as well as the investments we are able to make in technology and innovation. Our businesses belong together, and there is exceptional value in the linkages among them As separate entities, our businesses are currently well positioned; together they are even stronger. Putting our businesses together makes sense only if doing so creates value for customers and, ultimately, shareholders. It does not work because we want it to – it only works because it gives the customer more for less, sooner rather than later. We have no interest in selling our customers products that they do not want or need. 4 In this context, the term “cross-sell” can be misleading. “Cross-selling” often carries negative connotations – as if it is a forced and unnatural act. In fact, it should be described more appropriately as “natural product-line extensions,” which businesses have been doing successfully for hundreds of years. Wal-Mart has continually expanded the types of products it sells. Twenty years ago, who would have thought that it would sell lettuce and tomatoes? These product-line extensions are true also for Home Depot, commercial banks, investment banks, stockbrokers and even manufacturers. GE Aircraft Engines now finances and services what it manufactures. The essence of what makes this successful is that the customer is the winner. By extending our product lines, we are able to leverage the substantial investments we have made to build our distribution system (e.g., branches, technology and sales people), strengthen our brand and earn the trust of our customers. For example, today our branches, which are our retail stores, not only accept deposits and provide access to cash, but also sell investments, mortgages, home equity loans, debit and credit cards, and online bill paying services, as well as small business loans, international funds transfers, payroll services, annuities, etc. Our clear “natural product” set is financial services, which is what individuals and businesses want and expect from us. Where the products are “manufactured” is of little interest to them. What is important to them and to us is our ability to provide a better product, or package of products, at a lower cost. Our challenge is to view this from their perspective and ensure that our collective resources are focused accordingly. In addition to providing substantial potential for growth, our mix of businesses presents us with fertile ground for innovation. Here are a few examples of how our businesses are working together: Retail and Card Services. The competitive advantage is formidable when our retail bank – which serves almost million households – joins forces with our credit card company, with its million cardholders. This collaboration should result in excellent new products that address specific consumer needs. For example, we may be able to make life much simpler for our customers by linking credit and debit cards and by offering them other products. The results of recent efforts are promising: credit card sales in our retail branches are up nearly % from two years ago. Commercial Banking and Retail. A strong connection already exists between our Commercial Bank and our retail branches. In fact, there are few successful commercial banks in America that do not have a retail bank – and for good reason. A large share of retail business comes from small businesses and mid-sized companies. Many use branches as their financial back offices for cash, payroll processing and wire transfer services. This interdependency is cost effective for us and beneficial to our customers. In addition, business accounts often lead to new personal accounts and vice versa. Investment Banking and Commercial Banking. A natural connection exists between an investment bank, which essentially serves large public companies, and a commercial bank, which essentially serves mid-sized to small public and non-public companies. Our Commercial Bank already generates hundreds of millions of dollars in revenues from offering its clients traditional investment banking services (e.g., advisory, debt and equity underwriting). Over the next few years, we believe that we can double Commercial Banking’s reven...
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