10-QPeriod: Q2 FY2004

JPMORGAN CHASE & CO Quarterly Report for Q2 Ended Jun 30, 2004

Filed August 9, 2004For Securities:JPMJPM-PCJPM-PDJPM-PKJPM-PLJPM-PMJPM-PJAMJBVYLD

Summary

JPMorgan Chase & Co. reported a net loss of $548 million, or $(0.27) per diluted share, for the second quarter of 2004. This loss was primarily driven by a significant $3.7 billion pre-tax addition to litigation reserves. Excluding this charge and $90 million in merger costs, the company would have reported a profit. Total revenue for the quarter was $8.6 billion, a slight decrease year-over-year, impacted by lower trading and treasury revenues, partially offset by stronger investment banking fees and private equity gains. The company also announced the completion of its merger with Bank One Corporation on July 1, 2004, a transaction valued at $58.5 billion, which is expected to yield significant cost savings. The integration of Bank One will be a key focus going forward.

Key Highlights

  • 1Net loss of $548 million ($0.27/share) in Q2 2004, largely due to a $3.7 billion pre-tax litigation reserve charge.
  • 2Total revenue of $8.6 billion, down 5% year-over-year, impacted by lower trading and treasury revenues.
  • 3Investment banking fees increased 15% year-over-year, driven by advisory and equity underwriting.
  • 4Merger with Bank One Corporation completed on July 1, 2004, for $58.5 billion; expected cost savings of $3.0 billion by 2007.
  • 5Provision for credit losses decreased significantly by 53% year-over-year, reflecting improved credit quality.
  • 6Tier 1 capital ratio remained strong at 8.2%, though slightly down from 8.4% in the prior year.
  • 7Repurchased 669,247 shares of common stock to cover tax obligations on restricted stock distributions.

Frequently Asked Questions

JPMorgan Chase reported a net loss of $548 million primarily due to a significant $3.7 billion pre-tax charge to increase litigation reserves. This charge was taken after a comprehensive review of major litigation exposures and reflects management's assessment of the appropriate reserve level in light of current information. Excluding this charge and merger costs, the company would have been profitable.

The merger with Bank One Corporation was completed on July 1, 2004. The results reported for the quarter ended June 30, 2004, are for JPMorgan Chase alone and do not include Bank One's results. The merger, valued at $58.5 billion, is expected to generate significant cost savings and is a key strategic development for the company moving forward.

Trading revenue for the second quarter of 2004 was $873 million, down 44% from the second quarter of 2003. This decline was attributed to lower revenues in both fixed income and equity markets, reflecting challenging market conditions.

Credit quality appears to be improving. The provision for credit losses decreased significantly year-over-year, driven by lower commercial net charge-offs and improved credit quality across the portfolio. Consumer credit costs also showed stability with slight improvements in delinquency rates.