10-QPeriod: Q3 FY2002

JPMORGAN CHASE & CO Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:JPMJPM-PCJPM-PDJPM-PKJPM-PLJPM-PMJPM-PJAMJBVYLD

Summary

JPMorgan Chase & Co. reported a net income of $40 million, or $0.01 per diluted share, for the third quarter of 2002. This represents a significant decrease compared to the $449 million, or $0.22 per diluted share, reported in the third quarter of 2001. The decline was primarily attributed to weak trading results in a challenging market environment and a substantial increase in the provision for credit losses. Specifically, the provision for credit losses more than doubled year-over-year, driven by higher commercial net charge-offs, particularly in the telecommunications and cable sectors. Despite the overall dip in net income, the Retail & Middle Market Financial Services segment delivered record operating earnings, bolstered by strong consumer credit businesses and mortgage operations. The Investment Bank, however, incurred an operating loss due to increased credit costs and lower revenues. The firm's total revenue for the quarter was $6.9 billion, down 6% from the prior year, impacted by weaker trading revenues and investment banking fees. Total non-interest expenses decreased by 16% year-over-year, largely due to lower merger and restructuring costs, reduced compensation expenses, and the cessation of goodwill amortization following the adoption of SFAS 142. The company maintained strong capital ratios, with its Tier 1 Capital ratio at 8.7%.

Key Highlights

  • 1Net income for the third quarter of 2002 was $40 million ($0.01/share), a significant decrease from $449 million ($0.22/share) in Q3 2001, driven by weak trading and higher credit provisions.
  • 2Total revenue decreased 6% year-over-year to $6.9 billion, impacted by lower trading revenues and investment banking fees.
  • 3The provision for credit losses surged 146% year-over-year to $1.8 billion, reflecting higher commercial net charge-offs, especially in the telecom and cable sectors.
  • 4Non-interest expense decreased 16% year-over-year to $5.1 billion, benefiting from lower restructuring costs, compensation, and the adoption of SFAS 142 (no goodwill amortization).
  • 5The Retail & Middle Market Financial Services segment achieved record operating earnings of $807 million, up 92% year-over-year, driven by strong consumer credit and mortgage businesses.
  • 6The Investment Bank reported an operating loss of $256 million, a substantial decline from operating earnings of $702 million in Q3 2001, due to elevated credit costs and reduced revenue.
  • 7Capital ratios remained strong, with the Tier 1 Capital ratio at 8.7%.

Frequently Asked Questions

The primary drivers for the significant drop in net income were weak trading results in a challenging market environment and a substantial increase in the provision for credit losses. The provision for credit losses more than doubled year-over-year, primarily due to higher commercial net charge-offs, particularly in the telecommunications and cable sectors.

The company managed expenses effectively, with total non-interest expenses decreasing by 16% year-over-year. This reduction was achieved through lower merger and restructuring costs, reduced compensation expenses (including severance costs), and the impact of adopting SFAS 142 which eliminated goodwill amortization. Expense management initiatives were also noted across various business segments.

The Retail & Middle Market Financial Services segment was a strong performer, delivering record operating earnings that were up 92% year-over-year. Conversely, the Investment Bank struggled, reporting an operating loss of $256 million, a significant decline from the prior year, due to higher credit costs and lower revenues.

The company's Board of Directors declared its intention to continue the current quarterly dividend of $0.34 per share, provided that capital ratios remain strong and earnings prospects exceed the current dividend level.