JPMorgan Chase Reports 2005 First-Quarter Net Income of $2.3 Billion after Litigation Charge of $558 Million and Merger Charge of $90 Million

Business Wire, April 20, 2005

Discussion of Historical Results:

Operating earnings were $1.3 billion, an increase of $308 million, or 30%, from the prior year. Results were driven by the merger, increased investment banking fees, and an increased benefit from the provision for credit losses, partially offset by lower net interest income and higher compensation expense. Compared to the prior quarter, operating earnings doubled, primarily due to higher trading revenues.

Revenues of $4.2 billion were up $416 million, or 11%, compared to the prior year. Investment banking fees of $985 million increased $295 million, or 43%, compared to the prior year, reflecting continued strong levels of debt underwriting, advisory and equity underwriting fees and the merger. European investment banking fees were very strong, more than doubling from the prior year and up nearly 50% from the prior quarter. Fixed Income Markets revenues of $2.3 billion were up 9% from the prior year, primarily driven by the merger, and up 50% from the prior quarter on strength in trading revenues in credit and interest rate markets. Equity Markets revenues of $556 million were down 12% from the prior year reflecting reduced trading results, but increased significantly from the prior quarter. Credit Portfolio revenues of $350 million were up marginally from the prior year, reflecting the merger and gains from loan workouts offset by lower loan balances and spreads.

The provision for credit losses was a benefit of $366 million compared to a benefit of $188 million in the prior year. The increased benefit was primarily attributable to a greater reduction in the allowance for credit losses, reflecting improvement in credit quality as a result of the turnover in the loan portfolio mix toward higher rated clients and net recoveries.

Expenses of $2.5 billion were up $199 million, or 9%, from the prior year, due to the merger and increased compensation costs. The increase in compensation expense reflected higher incentive compensation accruals to recognize improved financial performance.

Discussion of Proforma Combined Results:

Operating earnings were $1.3 billion, down $26 million, or 2%, from the prior year. Compared to the prior quarter, operating earnings doubled, primarily due to higher trading revenues. Results versus the prior year reflected higher investment banking fees, marginally lower trading revenues compared to the prior year's record quarter and lower net interest income.

Revenues of $4.2 billion were down $27 million, or 1%, compared to the prior year. Investment banking fees of $985 million increased $242 million, or 33%, compared to the prior year due to the continued strength in advisory fees, up 79%; debt underwriting fees, up 16%; and equity underwriting fees, up 34%. European investment banking fees were very strong, more than doubling from the prior year and up nearly 50% from the prior quarter. Fixed Income Markets revenues of $2.3 billion were down marginally from the very strong level of the prior year. Results were driven by strong client activity and portfolio management trading performance across most major asset classes. Compared to the prior quarter, revenues of $2.3 billion were up 50% due to strength in the trading revenues in credit and interest rate markets. Equity Markets revenues decreased $118 million, or 18%, primarily due to lower portfolio management trading results versus the prior year. Compared to the prior quarter, revenues of $556 million more than doubled and represented the best quarterly result since first quarter 2004. Credit Portfolio revenues of $350 million were down 24% compared to the prior year, reflecting lower net interest income from reduced loan balances and commitments.