JPMorgan Key Figures
JPMorgan Chase & Co.
US-$
2004 (b)
2003 (a)
billions
billions
billions
billions
millions
1,157
402
521
106
4,466
1.55
8.7
12.2
771
215
326
46
6,719
3.24
8.5
11.8
EUR
2004
2003
Balance Sheet
Business Volume
Total Assets
Equity
millions
millions
millions
6,827
6,806
144
7,775
7,745
144
Income Statement
Net Interest Revenue
Net Commissions Received
Other Revenues
Administrative Expenses
Other Expenses
Results from Normal Operations
millions
millions
millions
millions
millions
millions
21
38
27
75
6
7
22
36
18
73
1
9
232
234
Total Assets
Loans
Deposits
Stockholders‘ Equity
Net Income
Net Income per Share (diluted)
Tier I Capital Ratio
Total Capital Ratio
(a)
(b)
(%)
(%)
Heritage JPMorgan Chase only.
2004 results include six months of the combined Firm´s results and six months of heritage JPMorgan Chase results.
(Merged with Bank One Corporation effective July 1, 2004.)
J.P. Morgan AG
Employees
J.P. Morgan AG
Junghofstraße 14
60311 Frankfurt am Main
Annual Report 2004
JPMorgan Key Figures
JPMorgan Chase & Co.
US-$
2004 (b)
2003 (a)
billions
billions
billions
billions
millions
1,157
402
521
106
4,466
1.55
8.7
12.2
771
215
326
46
6,719
3.24
8.5
11.8
EUR
2004
2003
Balance Sheet
Business Volume
Total Assets
Equity
millions
millions
millions
6,827
6,806
144
7,775
7,745
144
Income Statement
Net Interest Revenue
Net Commissions Received
Other Revenues
Administrative Expenses
Other Expenses
Results from Normal Operations
millions
millions
millions
millions
millions
millions
21
38
27
75
6
7
22
36
18
73
1
9
232
234
Total Assets
Loans
Deposits
Stockholders‘ Equity
Net Income
Net Income per Share (diluted)
Tier I Capital Ratio
Total Capital Ratio
(a)
(b)
(%)
(%)
Heritage JPMorgan Chase only.
2004 results include six months of the combined Firm´s results and six months of heritage JPMorgan Chase results.
(Merged with Bank One Corporation effective July 1, 2004.)
J.P. Morgan AG
Employees
J.P. Morgan AG
Junghofstraße 14
60311 Frankfurt am Main
Annual Report 2004
Contents
Letter from the Management Board
Boards
2
3
Business Units
Treasury & Securities Services (TSS)
Treasury Services in Germany
Investor Services in Germany
Institutional Trust Services in Germany
5
6
8
9
Investment Banking
Mergers & Acquisitions
Equity Capital Markets
Debt Capital Markets
Equity Sales
Fixed Income Sales
10
10
11
13
14
15
Private Banking
Asset Management
17
18
Financial Statements
Management Report
Balance Sheet
Income Statement
Notes to Financial Statements
Audit Opinion
Supervisory Board Report
Business Units
22
28
29
30
42
43
44
Contents
1
Letter from the
Management Board
John Jetter, Chairman
Dear Business Partners,
last year was one of the best for global economic growth since
the beginning of the 1990s. In Europe and Germany, economic
forecasts were downgraded early in the year, causing widespread disappointment. Our economists take a broader view
of the European and German economic trends, however. Last
year, inflation was at its lowest point in 40 years despite high
energy and raw materials prices. No economy experienced real
difficulties or fell into a recession. On the other hand, none
performed particularly well. Nevertheless, this proven stability
is a promising starting point for stronger growth in the years
ahead in Germany, the rest of Europe and the United States.
In the first half of 2005, Germany experienced persistent
economic and labor market weakness. Market pressures also
intensified, with many companies adopting a pessimistic outlook. Without any positive growth drivers, the markets are
oscillating between inflationary and growth fears. On one
point, however, optimists and pessimists agree. Any hopes for
an economic rebound will depend on exports and the ability
to take advantage of such opportunities.
In this difficult economic environment, JPMorgan recorded
improved results. The Investment Banking division’s strong
performance and the Bank One acquisition provided for robust
earnings. Since its merger with Bank One, JPMorgan’s assets
have grown by U.S. Dollar 58 billion, making it the world’s
second-largest bank, with total assets of U.S. Dollar 1.2 trillion. The strong operating results demonstrate our business
model’s capabilities.
The Global Custody business recorded higher fee income
from securities services, and met market expectations. In order
to achieve a decisive competitive advantage, we are investing
more in key technologies and expanding our national platforms. On the operating side, we are also focusing on the
development of a common reporting system and improved
risk management.
In 2004, the bank’s results were negatively affected by inherited debt. The U.S. Dollar 2 billion settlement agreement with
Worldcom investors negatively affected the balance sheet. Strict
cost controls should generate U.S. Dollar 3 billion in annual
savings through 2007.
2
Letter from the Management Board
The Fixed Income Markets business proved to be a growth
driver, as earnings increased through strong volume in the credit
and fixed-income markets. JPMorgan Asset Management also
had an excellent year in 2004, and will continue to build on
its expertise in the institutional business in 2005. The equity
markets should continue to trend slightly upward in 2005.
Last year, the Mergers & Acquisitions business was marked
by small- and mid-range transactions, with a noticeable volume
increase toward year-end. For 2005, we expect the number of
strategic transactions to rise. Overall, however, the sluggish
market environment will linger, and our 2005 outlook remains
cautious.
The sluggish economy poses a challenge for many companies, and JPMorgan wants to do its part to continue to help
shape Germany’s future. We have already invested substantially here over the past 50 years and want to further expand
our efficient platform. It was clearly evident from our various
businesses that the overall capital markets sentiment in Germany had improved greatly early in the year compared to the
previous year. The interest in privatizations and the efficient
issuance of large securities tranches in recent months forcefully
demonstrated the potential for the economy and stock market
to rebound. We therefore remain relatively optimistic with
regard to our future presence in the German market.
Our new office building symbolizes our
commitment to Frankfurt
For more than 50 years, JPMorgan has been present in
Frankfurt’s banking and financial center, with offices located
in various parts of the city. In December 2004, the bank finally
consolidated all its operations under one roof at Junghof Plaza.
At the building’s inauguration in February 2004, we invited our
longstanding clients and partners to join us in celebrating yet
another major milestone in JPMorgan’s long and uninterrupted
presence in Germany and Frankfurt.
For the Management Board and executive management,
the move to the new building is highly symbolic, as it clearly
signals JPMorgan’s continued commitment to Germany and
Frankfurt. Given the size of Germany’s economy and its inno-
Left to right: Arnulf Manhold, Peter Schwicht, Thomas Meyer and John Jetter (Chairman)
vative potential, the German market remains very important
to us. For all the economic and political challenges still to be
overcome, we believe that the country’s future is much brighter
than the picture presented by some commentators.
Our business model is based on the value we place on a
strong local market presence. This presence is essential for
us to use all our resources and know-how and remain a step
ahead of the competition on behalf of our clients. The move
to a new office building thus clearly symbolizes our determination to maintain and expand our leading role in Frankfurt
and Germany.
The Management Board
Boards
Supervisory Board
Mark S. Garvin, Chairman
Steven B. Groppi, Deputy Chairman
Carl H. Schneppensiefer, Employee representative
Management Board
John Jetter, Chairman
Arnulf Manhold
Thomas Meyer
Peter Schwicht
Boards
3
Börsenstraße
Grüneburgweg
Eschersheimer Landstraße
Office move
Junghofstraße
JPMorgan art collection
The move to the new office building did not just involve the bank’s employees.
More than 100 pieces of art from the bank’s German collection were transferred
from the old office buildings on Börsenstraße, Grüneburgweg and Eschersheimer
Landstraße to the new Junghof Plaza site.
Treasury & Securities Services (TSS)
– Treasury Services’ innovative financing
concept is named Deal of the Year
for 2004.
– Leading non-indigenous RTGSplus
participant in Germany.
– Independent fund management
platform for Master KAGs installed.
Treasury & Securities Services is a global leader in providing
transaction, investment and information services to support the
needs of our clients, namely chief financial officers, treasurers
and institutional issuers and investors worldwide. Treasury
& Securities Services operates three core businesses within
JPMorgan Chase: Treasury Services, Investor Services and Institutional Trust Services.
Treasury Services is a leading provider of cash management,
trade and treasury services, serving financial institutions, corporate and government clients around the globe. Treasury
Services is the world’s leading provider of U.S. dollar clearing
services, processing an average of U.S. Dollar 1.8 trillion in
U.S. dollar electronic funds transfers daily.
Investor Services is one of the top three custodians in the
world, with U.S. Dollar 9.1 trillion in assets under custody.
The business provides products and services in more than 80
markets to the world’s top mutual funds, investment managers,
pension funds, insurance companies, endowments, foundations
and banks. It is a leader in custody, fund services, securities
lending, compliance and regulatory services, performance
measurement and execution products.
Institutional Trust Services supports debt and equity issuers
with services to enhance liquidity and asset portfolio performance, mitigate risk, expand trading activities, increase cash
flow and lower capital costs. Institutional Trust Services is active
in 17 countries, servicing U.S. Dollar 6.6 trillion in debt and
U.S. Dollar 140 billion in equities worldwide.
– Named Custody Bank of the Year at
the 2005 ICFA European Awards.
– Second-largest non-indigenous
custodian in Germany.
– Voted “Best Trustee and Administrative
Service Provider” by “Institutional
Trust Services“.
In 2004, Treasury & Securities Services:
– generated double-digit revenue growth around the globe;
– created the world’s largest cash management provider
through the merger with Bank One;
– successfully completed the first phase of this merger, with
the integration of the international operating businesses
in 36 countries;
– increased assets under custody by 20%;
– increased corporate trust securities under administration
by 6%;
– Expanded the product depth and geographic reach
through the acquisition of two companies: Tranaut is a
leading hedge fund administrator; TASC is the largest
third-party administration service provider in South Africa.
Treasury & Securities Services
5
Treasury
Blindtext& Securities Services
In 2005, Treasury & Securities Services intends to:
– Leverage the broad product capabilities from the merger
to provide innovative solutions to clients;
– Expand in high-potential markets and segments;
– Cross-sell with business partners across JPMorgan Chase
globally;
– Achieve market differentiation by delivering competitively
superior customer service and product innovation;
– Continue to focus on cost efficiencies to fund investments
in the business;
– expand the range of traditional products through
strategic acquisitions;
– extend product lines and expand geographic reach.
TSS in Germany
Treasury & Securities Services (TSS) is committed to providing
quality services to German clients, backed by JPMorgan’s financial strength and more than 50 years of market experience. In
2004, TSS’ three businesses in Germany became even more
closely aligned, relocating into a single central location and
focusing on implementing operational efficiencies.
In addition, TSS was assigned lead relationship responsibilities
for 25% of the financial institution client portfolio, demonstrating JPMorgan’s commitment to TSS as a core business in
the German market.
As a result of its focused efforts in 2004, revenue for TSS’
three businesses grew more than 16% over the previous
year.
6
Business Units
Treasury Services in Germany
– Number 1 non-indigenous bank in
RTGSplus clearing.
– Received “2004 Deal of the Year” award
from “Trade & Forfaiting Review“.
Treasury Services in Germany delivers a range of cash and
treasury management, liquidity and trade services to meet the
needs of multinational corporations and financial institutions.
In 2004, JPMorgan increased revenue for Treasury Services
products sold to financial institutions by 10%.
JPMorgan leads in U.S. dollar clearing in Germany, with a
32% market share (commercial and treasury payments). Like
U.S. dollar clearing, euro clearing services continue to be a
major product focus in Germany, with Frankfurt as JPMorgan’s
euro clearing hub.
In 2004, mass payments volume grew by about 110% in
comparison with 2003, while the high-value payments business
generated volume growth of about 8%. JPMorgan continues
to be the leading non-indigenous RTGSplus member both in
terms of value and volume of transactions, and the secondlargest member of the RTGSplus clearing system.
As a result of the merger with Bank One, customers from
Bank One in the German market were successfully migrated to JPMorgan AG in 2004. The merged bank continues its
membership in IBOS, an international banking alliance that
provides unparalleled in-country access in the euro zone and
also facilitates some unique sweeping capabilities, providing
an excellent complement to JPMorgan’s suite of liquidity management capabilities.
JPMorgan Chase Commercial Card Solutions signed a cardissuing alliance with RBS Germany to provide commercial card
solutions to our global customers. This alliance was formed
in 2004 following RBS‘ acquisition of the former Santander
Direkt card business in Frankfurt in the previous year. RBS
Germany has been issuing commercial cards in Germany since
their introduction to the market in the mid 1990s and, since
the acquisition of Santander, RBS Germany has become one
of the largest issuers in the country.
Blindtext
The alliance with RBS Germany provides JPMorgan Chase
with the capability to issue travel and entertainment and lodge
card solutions to our multinational customers in Germany.
Treasury Services also continued to invest in Trade Services in
2004. As the world’s largest exporter, Germany is a significant
market for traditional trade services, such as letters of credit, as
well as relatively newer solutions such as supply chain financing,
payables discounting and order-to-pay.
Last year, JPMorgan launched TradeOPT, an end-to-end suite
of classical and electronic solutions designed to support global
financial institutions in providing trade services to their clients.
TradeOPT opens JPMorgan’s global network to other financial
institutions, helping them reduce overhead and leverage platform enhancements while maintaining a presence in the highly
competitive global trade business.
In the Trade Finance area, JPMorgan together with other
leading financial institutions in Germany developed an innovative trade financing service for the Egyptian company Helwan
Fertilizer. This project was named “2004 Deal of the Year” by
“Trade & Forfaiting Review”.
2005 Outlook
With the recent expansion of the EU and continued growth
in the application of technology, corporate treasurers, finance
managers and procurement specialists in Germany remain
focused on seeking greater efficiency. Several areas appear to
offer opportunities, including improving the flow of capital with
the European payments market; reducing excess working capital; using innovative cash concentration methods to maximize
liquidity; and re-engineering trade finance processes through
the use of supply chain financing and innovative e-billing and
discount solutions.
In the area of euro clearing, the introduction and establishment of the euro as a global currency, the new euro payments
regulation and the evolution of the new payment mechanisms
across Europe continue to make this an exciting and challenging
environment within which to operate.
The growing stability and tradeability of the euro is causing
more trade to be denominated in the euro currency and foreign
currency reserves to be invested in euros. The strength of the
euro and its increased use as a currency of contract and the
increasing diversification of central bank reserves, which will
lead to increased holdings of euros, should prompt an increase
in flows in euros and in investable balances.
JPMorgan will continue to provide input into a major
EU directive, The New Legal Framework Directive. This directive,
presently under consideration, will have a significant effect on
the European payments area, if implemented. JPMorgan is also
fully involved in providing input to Credeuro 2, an initiative
driven by the European Payments Council and one that is
likely to replace both Credeuro and the Interbank Convention
on Payments. Similarly, the development of a pan-European
Direct Debit scheme is at its formative stages, and JPMorgan is
represented on the appropriate APACS EPC sub-group.
In 2005 we will be focusing on enhancing our euro clearing
product capabilities so that they more closely mirror our marketleading U.S. dollar clearing product. In particular, JPMorgan
will be addressing the increasingly important issues that arise
as a result of the Interbank Convention on Payments and the
related interbank charges. In the absence of a pan-European
direct debit market infrastructure, we will continue to enhance
our direct debit capabilities so that our customers are able to
achieve a single point of access to initiate direct debits through
the major euro ACH systems. There continue to be market
infrastructure developments, such as TARGET 2, in which we
are actively engaged.
In Trade Services, we announced plans to acquire Vastera, a
global provider of trade management solutions. The acquisition
supports our strategy to provide value to clients throughout
their supply chain. Through Vastera, JPMorgan will offer an
integrated solution that facilitates the management of information and processes in support of physical goods movement and
financial settlement of the complete global trade process.
Treasury & Securities Services
7
Treasury & Securities Services
Investor Services in Germany
– Second-largest non-indigenous custodian
in Germany.
– 10 years of Global Custody in Germany,
with the strongest organic growth in
the industry.
– Development of an independent fund
management platform in Germany
for Master KAGs.
– Named “Custody Bank of the Year”
at the 2005 ICFA European Awards.
Investor Services is among the world’s largest custodians
and has more than EUR 130 billion in assets under custody
for German clients. This area also recorded strong growth in
Germany, including several major business transactions from
new clients, such as the 4 billion mandate from Zürich Financial Services. Last year, JPMorgan increased its market share
in the insurance industry and corporate pension area. Overall,
Investor Services increased its net revenues by 8% over the
previous year.
The continued development of and enhancements to Master
KAG services area clearly demonstrate Investor Services’ strong
commitment to the German market.
The global custody market remains in a consolidation phase.
The market is still highly regulated and subject to constant
regulatory changes. Against this backdrop, financial instituti-
8
Business Units
ons such as JPMorgan must differentiate themselves through
value-added services. Investor Services’ unique ability to offer
sophisticated global capabilities in the areas of performance
measurement, securities lending and electronic reporting as
well as local support was an attractive option for our clients
in 2004.
2005 Outlook
Germany is a key market for JPMorgan Investor Services.
We continue to expand the business through new products,
improved technology and targeted acquisitions.
We expect satisfactory organic growth in 2005. Continued
market consolidation will require continued investment from
the major players. As a global custodian, we invest EUR 500
million a year in information technology worldwide.
Investor Services is positioned to take advantage of consolidations in the industry and the trend of restructuring Master
KAGs based on the U.S./U.K. model. Clients increasingly rely
on JPMorgan’s regulatory reporting capability. In addition, we
see strong growth potential in performance reporting.
Blindtext
Institutional Trust Services
and Clearing in Germany
– Leading non-indigenous bank in
Clearance and Collateral Management
area.
– Named “Best Trustee and Administrative
Service Provider” in Europe by “Structured
Finance International“.
JPMorgan offers a range of institutional trust services in the
German market, including debt trustee and agency services,
securities clearance and collateral management services, and
American Depositary Receipt (ADR) services.
JPMorgan acts as the securities clearing bank for several large
Landesbanks and many private banks in Germany. JPMorgan is
the largest non-indigenous bank in Germany offering clearance
and collateral management services.
In 2004, Institutional Trust Services dedicated additional
resources to its Global Debt team in Frankfurt to leverage the
potential growth in the True Sale securitization market.
Through its Global Debt products, Institutional Trust Services provides market-leading capital market transaction management services, and offers clients dedicated cross-border
and local market expertise in servicing conventional debt and
structured finance products. Predominantly acting in such
roles as trustee, fiscal (or paying) agent, registrar, custodian,
transaction administrator, cash manager and listing agent,
Institutional Trust Services has grown its market share in Germany in all these areas.
In 2004, the business was awarded several significant pieces
of business from new clients, resulting in a 25% increase in
revenue over the previous year.
JPMorgan has 36% of the ADR market in Germany, attracting
U.S. Dollar 5.7 billion in institutional investment. Institutional
Trust Services has created ADR programmes for companies in
a wide range of sectors, including the semiconductor industry, banking, insurance, healthcare, the automotive industry,
pharmaceuticals and chemicals.
2005 Outlook
JPMorgan is growing its Institutional Trust Services business,
offering issuance services in capital market deals, an area where
we expect to see further revenue growth. In addition, Institutional Trust Services is focused on penetrating the market further
with clearance and collateral management services.
Growth in part will be driven by the increasing complexity
of capital markets activities that provide opportunities ranging
from acting as agent on bond payments to providing document
management in structured finance. Targeted acquisitions will
also continue to fuel growth in this business.
In 2005, Institutional Trust Services will introduce several new
products, including a new OTC derivatives collateral management service for banks and asset managers, cross margining
on collateral with futures and options activity, and will continue
to lead industry discussions on the emerging asset-backed
securities repo market.
Treasury & Securities Services
9
Investment Banking
– Vaults into first place in the league
tables for equity and convertible
bond issues in Germany and Austria.
– Top three ranking in Germany
confirmed, with 34 transactions
and a total volume of EUR 22.5 billion.
– Continued expansion of Debt Capital
Markets business.
– Share of M&A transactions involving
financial investors continues to grow.
– New European bond business trading
and syndication team.
Mergers & Acquisitions
In 2004, the volume of announced Mergers & Acquisitions increased by 42% worldwide and by 39% in Europe.
M&A activity involving German companies lagged, however,
rising by only 7% from EUR 55 billion to EUR 59 billion. Last
year, JPMorgan participated in 34 transactions with a volume of EUR 22.5 billion and secured its top three position in
Germany.
The market environment was characterized mainly by small- and
mid-size transactions, and shaped by two clear trends: ongoing
company restructuring projects and the steadily growing share
of financial investors involved in the transactions.
Restructuring transactions still taking precedence
over strategic expansion
Many large corporations are still consolidating and restructuring their businesses, disposing of non-core assets in the
process. Last year saw a significant jump in the volume of real
estate asset disposals along with those involving operating
units.
10
Business Units
Among other transactions, JPMorgan successfully advised
clients on the following corporate asset disposals:
– simultaneous disposal and value-maximizing strategy for
three company units (HT Troplast, Isola, Bakelite) to
strategic and financial investors on behalf of Rüttgers;
– Advisory to Swisscom on the sale of its 95% stake in
debitel;
– Advisory to PSP Swiss Property in its merger with
REG Real Estate Group;
– Advisory to ING on the sale of BHF to Sal. Oppenheim.
In all these cases, JPMorgan’s professional teams added value
by structuring complex transactions and supporting their clients
during the negotiations.
Continued increase in the number of transactions
involving financial investors
In 2004, financial investors were the most dynamic market participants and the driving force behind acquisitions in
Germany. The number of secondary buyouts also increased
last year. These transactions involve the sale of companies
owned by private equity investors to other financial investors. Overall, financial investors participated in four of the top
10 transactions in Germany last year.
JPMorgan is extremely well positioned to work with financial
investors. Our 360° advisory approach pays off on all three
levels. For acquisitions, we offer established M&A advisory
services and our outstanding structuring competencies. For
acquisition financing and/or refinancing, we provide our expertise, access to capital markets and the bank’s own financial
resources. Lastly, our M&A teams and capital markets experts
provide support during the exit transaction.
Based on these competencies, JPMorgan participated in a
series of buy- and sell-side transactions with financial investors
last year. These included:
– Advisory to CVC for the acquisition of BASF
Drucksysteme;
– Advisory to One Equity Partners for the merger of
Howaldtswerke-Deutsche Werft with Thyssen Krupp
Werften to create the new German shipbuilding group
Thyssen Marine Systems;
– Advisory to Investcorp on the sale of Gerresheimer
to Blackstone;
– Advisor to KKR on the sale of Stabilus to Montague
Private Equity;
– Advisor to Permira on the sale of demedis/edh
Group to Henry Schein;
– Advisor to Bessemer on the sale of Mapress Group
to Geberit.
2005 Outlook
The European M&A market picked up noticeably toward
the end of last year. For 2005, we expect an increase in the
volume of strategically driven transactions. With their recently
completed restructuring measures, corporations are now generating strong earnings and free cash flow. In this environment,
strategic acquisitions should once again become possible and
thereby drive future growth.
Equity Capital Markets
The Equity Capital Markets team for Germany/Austria performed exceptionally well in 2004. After being ranked third in
equity and convertible bond issues in Germany and Austria in
2003, JPMorgan jumped to the top spot last year, with a 37.7%
market share following a series of successful transactions.
2004 rankings for equity and convertible bond
issues in Germany and Austria
2004
ranking (2003) Bank
1
2
3
4
5
6
7
8
9
10
(3)
(4)
(1)
(8)
(9)
(-)
(2)
(11)
(5)
(12)
JPMorgan
Morgan Stanley
Deutsche Bank
Citigroup
DrKW
Lehman Brothers
Goldman Sachs
Merrill Lynch
UBS
Erste Bank
Volumen Trans(Euro m) actions
9,186
8,644
7,671
5,234
3,794
3,002
2,428
2,268
1,415
1,207
7
7
12
4
9
1
4
4
5
2
Market
share (%)
37.7 %
35.5 %
31.5 %
21.5 %
15.6 %
12.3 %
10.0 %
9.3 %
5.8 %
5.0 %
Source: EquityWare (December 31, 2004), Transactions > �100 million, 2003 capital
increases not accounted for.
Innovative and groundbreaking transactions
in Germany
JPMorgan became the leader for equity market transactions
in the German-speaking region thanks to our innovative transaction structuring. The combined equities and options offering
by Deutsche Telekom to KfW Bank Group was one example,
while RWE’s sale of its 50% equity interest in Heidelberger
Druckmaschinen AG was another. JPMorgan always aims to
support its clients by providing them with capital and outstanding advisory expertise.
Investment Banking
11
Investment Banking
Capital increase for Bayerische Hypo- und
Vereinsbank AG (HVB)
After taking write-offs on investments, HVB decided to follow
JPMorgan’s recommendation to strengthen its capital base
in the first quarter of 2004. It implemented a EUR 3.0 billion
capital increase with preemptive rights. As advisor, JPMorgan
worked closely with HVB over several months to arrange the
transaction, and guaranteed 40% of the offering as the lead
bookrunner. This transaction was the largest capital increase
of a European bank since April 1999. The transaction was successfully concluded in a very difficult market environment that
included the Madrid bombing attacks among other events.
Capital increase at ProSiebenSat.1 Media AG
In April 2004, ProSiebenSat.1 Media AG carried out a
EUR 282 million capital increase with preemptive rights (common and preferred shares). JPMorgan acted as joint bookrunner
and joint global coordinator. The capital increase was part
of a refinancing strategy to pay down outstanding debt and
strengthen the company’s balance sheet following its acquisition
by the Saban Group, an investment company. The transaction
was favorably received by the market, as reflected in the stock
price of ProSiebenSat.1 Media AG. The stock outperformed the
sector benchmark after the capital increase was announced.
This transaction capped the Group’s 360° advisory coverage. It
also included exclusive financial advisory services to the financial
investors upon entry and a high-yield bond issue.
Joint bookrunner on the public offering of RWE’s
entire 50% equity interest in Heidelberger
Druckmaschinen AG
JPMorgan acted as joint bookrunner and joint global coordinator for the combined EUR 795 million equity and EUR 460
million exchangeable bond offering for Heidelberger shares.
We received the mandate for this highly subscribed offering
thanks to our outstanding equity and equity-linked distribution
platform and our ECM expertise in the region. Despite a rough
market environment on the day of the offering – the DAX lost
2.8% – the issue was broadly sold. No discount was necessary
due to the strong demand.
12
Business Units
KfW/Deutsche Telekom – joint bookrunner for
the first privatization through a combination
of equities and options
In 2004, JPMorgan acted as joint bookrunner for the world’s
first privatization involving a combined equities and options
offering. For KfW bank group, we offered EUR 3.0 billion in
Deutsche Telekom shares, and EUR 1.0 billion in Deutsche
Telekom options linked to the company’s shares, issued in
three tranches of 6, 12, and 18 months. This successful transaction followed up the groundbreaking 5.0 billion euro exchangeable bond offering by KfW bank group in Deutsche
Telekom from 2003. JPMorgan was also the bookrunner on
that transaction.
Leading investment bank in the Austrian
capital market
JPMorgan’s Equity Capital Markets team once again led the
way in the Austrian market for equities and convertible bond
issues in 2004. We successfully advised clients on two separate
occasions for the sale of Telekom Austria shares. JPMorgan
acted as the exclusive financial advisor and bookrunner.
Exclusive advisor and joint bookrunner on the sale
of Telecom Italia’s remaining 14.8% equity interest in
Telekom Austria
Following the successful offering in November 2002,
JPMorgan advised Telecom Italia in January 2004 on the sale
of its remaining stake in Telekom Austria. On January 21, the
shares were widely placed with international institutional
investors in just four hours. We supported this EUR 780 million
offering as the sole financial advisor and joint bookrunner, and
thereby marked the start of a series of highly successful equity
offerings in the European telecom sector in 2004.
Exclusive advisor to ÖIAG and joint bookrunner for the
privatization of EUR 1.1 billion in Telekom Austria stock
On December 2, JPMorgan placed Telekom Austria shares
for the second time last year. We sold a 17% stake valued at
EUR 1.1 billion on behalf of Österreichischen Industrieholding
AG (ÖIAG). JPMorgan advised ÖIAG over a nine-month period
prior to the transaction. This placement was the only European
offering to close at the offering price.
2005 outlook
After last year’s success, we remain optimistic for 2005.
International investors, notably in the United Kingdom and
United States, are showing renewed confidence in German
equities. They believe that Germany will implement the necessary economic reforms, and are therefore increasingly interested
in purchasing German equities. This renewed interest helped
us with equity and convertible bond offerings last year, and
inspires us for 2005. In the months ahead, we should see a
continuation of this trend and an increase in the number of
initial public offerings.
Debt Capital Markets
In 2004, the debt capital markets were marked by a very
attractive interest rate environment and tight spread levels
across product areas and markets. JPMorgan had another
successful year in the German market, maintaining existing
leadership positions while expanding its franchise.
Top non-German bank in syndicated loans
Volume in the syndicated loan market remained very high
for the second year in a row, rising from EUR 83 billion in 2003
to EUR 109 billion last year. Many companies took advantage
of the excellent market conditions to refinance their back-stop
facilities. A significant pick-up in the leveraged loan market
volume also supported the higher volume.
As bookrunner, JPMorgan raised approximately EUR 50 billion
for its German clients in the syndicated loan market last year.
It thereby achieved a commanding number two ranking in this
segment for Germany. JPMorgan was bookrunner on eight
of the 10 largest syndicated loans completed in 2004: E.ON
(EUR 10 billion), Volkswagen (EUR 11 billion), DaimlerChrysler
(U.S. Dollar 5 billion over five years and U.S. Dollar 6 billion
over 364 days), Deutsche Telekom (EUR 5 billion), RWE (EUR
4 billion), BASF (U.S. Dollar 2.5 billion) and BMW (U.S. Dollar
2.5 billion). In addition, we also led some high-profile debut
syndicated loans, such as Tchibo (EUR 1.4 billion) and SAP
(EUR 1 billion).
Longstanding leadership in corporate bonds
maintained
In 2004, we saw a significant 62% decline in corporate
bond issuance compared to the previous year due to limited
acquisition activity, the reduced need for refinancings and a
clear focus on debt reduction by a large number of companies. One notable exception to the overall weak market was
in the corporate high yield segment, where volume picked up
substantially, with total issuance of U.S. Dollar 4.6 billion in
Germany alone.
Last year, JPMorgan increased its share of a contracting German corporate bond market from 8.4% to 9%, thereby ending
the year solidly positioned as number two. JPMorgan has been
a longstanding leader in the German corporate bond market,
with a top three position over the past three years. One of the
highlights of the year was the 10-year debut EUR 700 million
bond offering for Tchibo, the privately owned coffee trader.
The highly successful transaction is the largest-ever unrated
10-year corporate bond issue to date. The proceeds were used
to refinance the EUR 1.4 billion Tchibo acquisition facility, which
JPMorgan lead managed earlier in 2004 in order to acquire
the majority stake of Beiersdorf AG. Another highlight was the
U.S. Dollar 660 million U.S. private placement JPMorgan lead
Investment Banking
13
Mergers
Investment
& Acquisitions
Banking
managed for Volkswagen, which was the largest ever U.S.
private placement at the time. JPMorgan also stepped up its
presence in the high yield market, lead managing three bond issues for Almatis Holding, Prosieben, and MTU Aero Engines.
Financial institutions and public sector
In 2004, issuance in the financial institutions and public sector
area remained strong, rising by 2.2%. JPMorgan continued its
strong presence in this area and further expanded its domestic
operations. A Pfandbriefe team was hired in Frankfurt to head
up the trading and syndication of the European covered bond
business. A key highlight was JPMorgan acting as bookrunner
on Landesbank Rheinland Pfalz’s 5-year Jumbo Pfandbriefe
transaction. In addition to the investment on the Pfandbriefe
side, in late 2004 JPMorgan strengthened its activities in the
Schuldschein market, which will enable us to serve our clients
both on the asset and liability sides more thoroughly.
JPMorgan also expanded its presence in the Laender business, leading a 7-year, EUR 1 billion transaction for State of
Brandenburg and a 10-year, EUR 1 billion transaction for the
State of Hessen. In 2005, JPMorgan expects to build on its
recent footprint in the market.
In the German public sector segment, JPMorgan joint-led
three U.S. dollar transactions for KfW and one of Rentenbank’s
Global U.S. dollar benchmarks.
JPMorgan’s leading presence in the financial institutions
segment was once again demonstrated by its leading of a lower
tier II transaction for Helaba and U.S. dollar benchmarks for IKB
and LBBW. JPMorgan also led a sterling transaction for Hypo
Real Estate Bank International, and a landmark transaction for
WLSGV – the first time a German savings association came to
the international capital markets.
In an environment of tightening spreads, issuers – in particular the Landesbank sector – were keen to pre-fund, as their
guarantees come to an end in July 2005.
JPMorgan also continued to maintain a large market share
in the Austrian market, leading tier I transactions for Övag
and BAWAG and a senior unsecured transaction for Hypo
Alpe Adria.
14
Business Units
Equity Sales
– Second-largest European equities
offering in 2004.
– Market share expanded.
– Equities remain more attractive than bonds.
Equities well positioned in Germany
JPMorgan further secured its strong position in the European
equities and equity-related products market. Last year, we
took part in several major transactions, including a U.S. Dollar
6.2 billion offering for France Telecom, the second-largest in
2004. We placed U.S. Dollar 3.7 billion for Deutsche Telekom,
and on the U.S. Dollar 1 billion Heidelberger Druckmaschinen
AG offering, we placed 50% of the company’s equity in just
two days.
On behalf of HypoVereinsbank, we implemented a
U.S. Dollar 3.7 billion issue with pre-emptive rights.
Two initial public offerings were among our successful
transactions last year: Telecinco and Premier Foods (U.S. Dollar
750 million).
MSCI Asia Pacific (ex Japan) in local currency
MSELCAPF Index
300
290
280
270
260
250
Japanese equities remain our main focus. They will continue
to benefit from the ongoing company restructurings and the
strong demand coming out of China.
The outlook for Continental Europe is also favorable, given
the ongoing company restructuring process and the renewed
growth in corporate earnings, although the U.K. economic
cycle is already too far advanced.
240
230
220
Fixed income sales
210
01/01/2004
03/01/2004
05/01/2004
07/01/2004
09/01/2004
11/01/2004
In 2004, the Asian market generated the
strongest gains
Growth in a difficult market
European equity markets recorded single-digit gains thanks
to a second-half rally of an otherwise very difficult year.
We increased our market share to 9% and secured our top
five ranking for German clients.
Our Portfolio Trading Services business performed well. The
products were especially well received by the clients, such that
our market share by the end of last year was nearly 10%.
2005 outlook
In 2005, JPMorgan expects to move up in the relevant client
rankings, which should further strengthen our existing solid
positioning for European equities.
We expect interest rates to recede to a normal level this year,
with the Fed Funds rate at 4.25% by year-end. Nevertheless, we
also expect that consumption will rise thanks to an improved
labor market and higher income.
Ten-year bond yields remain very low on a historical basis (we
expect them increase to around 5% in the United States), and
global economic growth remains intact. The equities market
should therefore continue to record gains in 2005.
– Broad product range and local service on
behalf of clients.
– Customized solutions through
continuous innovative capacities.
– Increasingly electronic securities trading.
– Start of Pfandbriefe and Schuldschein
loan trading and sales.
In 2004, the Fixed Income business benefited from continued
strong demand for fixed-income and credit products despite the
stabilizing equities market. Our products include government
bonds, Pfandbriefe, Schuldschein loans, corporate bonds, real
estate products and the primary modern credit and investment
instruments such as asset-backed securities, collateralized debt
obligations and their derivatives and synthetic products based
on credit derivatives and hedge funds. Along with these asset
classes, the structuring and packaging of the products plays
an important role in JPMorgan’s fixed income business with
regard to regulatory requirements.
Investment Banking
15
Investment Banking
140
5
120
100
4
80
3
60
2
40
1
01/04/2000
20
10/24/2000
08/16/2001
06/14/2002
04/08/2003
02/03/2004
Government Spread in BP
10yr Bund yield in %
Single_A Corporate Spread
6
11/23/2004
Our local presence is a decisive factor in our success. From
Frankfurt, we advise German and Austrian institutional clients,
including financial institutions and all types of banks along with
insurance companies, pension funds, foundations and asset
management companies. Corporations, the public sector and
financial intermediaries also account for a large part of our client
base. Each one of these target groups must take into account
specific legal frameworks, specific oversight regulations and
diverse accounting rules.
Last year, financial markets were once again characterized
by a relatively high degree of uncertainty and persistently low
interest rates. This environment benefited structured products
and alternative investments such as hedge funds and real estate.
Given the low-yield environment, many investors sought out
products offering additional yields over the interest and credit
components. They also sought out products whose performance
is only marginally linked to traditional investments.
16
Business Units
Many institutional investors sought to diversify their asset
allocations away from traditional investments such as bonds
and equities. Our product range, which includes customized
synthetic credit portfolios, classically managed collateralized
debt obligations and structured guaranteed fixed income
products, largely met their needs. Last year, we focused on
broadening the product range for our German and Austrian
clients. Thus JPMorgan decided to take over a major role in the
so-called domestic business. This involves the trading and sale of
Schuldschein loans and Pfandbriefe issued by the public sector
or banks. We made the necessary investments in personnel
and computer systems. In 2004, we stepped up our efforts to
advise several new client groups, in particular savings banks
and financial intermediaries. Meanwhile, we consolidated the
advisory services for our Austrian clients into an independent
sales team to reflect the growing importance of this market.
We expect that the structured products business will continue
to record robust activity again in 2005. Investors will also seek
out credit products, even though corporate bond spreads have
narrowed considerably in recent years. With our institutional
clients, hedge fund investments will rise. We expect continued
strong demand for structured products tailored to individual
clients.
For many years, JPMorgan has been the leading derivatives
bank, which is confirmed by the number of awards it has received. Derivatives create the foundation for structured products and customized, client-specific product solutions. In that
respect, we are convinced that we are well positioned to offer
our clients optimally tailored solutions.
Private Banking
Blindtext
– Focus on high net worth clients.
– Private banking team in Germany
further strengthened.
– Frankfurt booking platform operational
since mid-2004.
Comprehensive advisory service with 160 years
of tradition
The JPMorgan Private Bank name has a rich tradition and
many years of experience in advising large family fortunes. For
more than 160 years, we have met this challenge with great
success. Unlike many of our competitors, JPMorgan Private
Bank has adopted a strategy focused consistently on high-networth clients whose primary concern is asset preservation. That
applies in particular to family-owned and -operated companies,
for which private investment opportunities are often inextricably
linked to the company’s activities.
In addition to investment advisory services and discretionary
cash management, we provide comprehensive advisory service
on such matters as company successions and inter-generational
asset transfers. In that context, we also provide support for
optimizing the entire portfolio in terms of both specific risks
and our clients’ tax situation.
Expansion of the German business
As the largest market in Europe, Germany plays a significant
role in the bank’s overall strategy. With strong support from
the Group, JPMorgan Private Bank continued to expand last
year, adding new personnel to its Frankfurt team. The creation of a local booking platform was a key milestone in the
development of our activities. This project was successfully
concluded last year, thereby enabling our clients to manage
their accounts and securities held in custody with JPMorgan
Private Bank in Germany.
The bank sponsored targeted client seminars in various cities
and published a series of financial papers tailored to large
family assets. These events and publications generated increased interest in JPMorgan Private Bank’s products and
services and led to the development of valuable new client
relationships.
Through our heightened cooperation with other JPMorgan
Group businesses, in particular the investment bank, we are
increasingly able to present and successfully execute our integrated advisory service to clients.
2005 off to a good start
The number of new clients developed so far by JPMorgan
Private Bank encourages us to continue expanding our business in a targeted and consistent manner. As part of these
efforts, we entered into a partnership with the Intes Academy
for Family Business, a prestigious institute with advisory services to companies, in particular regarding family governance.
Through this partnership, we aim to create additional value
for our common clients.
JPMorgan Private Bank will further strengthen its market
presence this year through valuable informational seminars,
thereby positioning its brand in a targeted fashion.
The economic environment for our business is favorable,
which makes us optimistic as we begin 2005.
Investment Banking • Private Banking
17
Asset Management
– 2004 results reach new high.
– Further increase in assets under
management.
– International real estate investment
expertise successfully implemented
in the European market.
– A preferred partner of nearly all major
banks and retail fund distribution
companies.
Company profile
JPMorgan Asset Management is the central asset manager within the JPMorgan Chase Group. We manage nearly
U.S. Dollar 800 billion worldwide and nearly U.S. Dollar 20
billion in Germany. In Frankfurt, we currently have a staff of
approximately 50 in the client service, client portfolio management, product development marketing, public relations and
risk management areas.
In Germany, JPMorgan has been a reliable partner to its
institutional and retail fund clients for more than 15 years. Our
goal is to provide them with innovative and effective investment
ideas. For institutional clients, we act mainly as advisor on
German Spezialfonds. We also administer retail funds that can
be distributed under their own names (so-called sub-advisory
mandates or white label funds). Our local experts in Frankfurt
handle mainly equity, mixed and bond portfolios. For specialized
portfolios, e.g. emerging market debt or high-yield bonds, we
call on the expertise of our colleagues in London, New York
and other leading financial centers. Our experienced Frankfurtbased professionals nevertheless serve as the competent client
contacts. Thus we ensure that all local requests are satisfied
rapidly and efficiently at all times.
18
Business Units
We also focus on offering a comprehensive range of local
services for retail funds. We are always able to meet the respective needs of our partners. JPMorgan Asset Management
focuses on third-party retail fund distribution through select
clients such as banks, asset managers, insurance companies and
independent brokers. We thereby offer our partners comprehensive, innovative solutions for all asset classes, regions and
styles. Our transparent and team-oriented investment approach
and consistent risk management ensure the continued success
of our products. In addition, we support our partners in their
efforts to achieve their goals through attractive employee training programs and customized marketing materials.
In 2004, JPMorgan Asset Management recorded outstanding
results in Germany in terms of both revenues and income. In the
retail fund sector, we have been a preferred partner of nearly
all major banks and distribution organizations in Germany
since last year. In light of this development, we continuously
strive to support our distribution clients better and to make
our wide-ranging expertise accessible in the greatest possible
way. Thus in 2004 we began to put together a comprehensive
training program for the distribution staff of our partners. We
plan to expand this program further this year. Another key
project last year was the successful transfer of retail customer
deposits from JPMorgan Asset Management in Luxembourg
to fund platforms.
Two trends in the institutional segment continued apace
last year: demand for products with a greater international
orientation and increased specialization within asset classes.
With our broad expertise in all relevant asset classes and key
markets, we were able to satisfy our clients’ demand for increased diversification. We were also able to carry over our
international real estate experience to the local market. This
applied to the marketing of our long-established U.S. strategies
and to the recently developed European strategies.
2005 outlook
We plan to expand the marketing of our competencies for
the institutional business in 2005. The local distribution strategy
in the liquidity products segment is already showing its first
signs of success. We are satisfying client needs in the middle
markets segment by building up our local capacities. We will
also step up our support for consultants.
In the retail fund sector, we are positioning ourselves through
a re-focused distribution strategy to take advantage of the
growing opportunities for banks to distribute third-party funds.
While the key account management department in Frankfurt
serves the main offices of our clients, local staff throughout
Germany serve the individual distribution partners locally.
Asset Management
19
Dedication at the Junghof Plaza
More than 400 clients from the worlds of
business and finance, government representatives
and City of Frankfurt officials attended the
opening ceremony for JPMorgan’s Junghof Plaza
building. Among the speakers were John Lipsky,
the vice chairman and member of the Executive
Board in New York, Karlheinz Weimar, the
Finance Minister of Hesse and Achim Vandreike,
the Mayor of Frankfurt.
Contents
Financial Statements
Management Report
Balance Sheet
Income Statement
Notes to Financial Statements
Audit Opinion
Supervisory Board Report
Business Units
22
28
29
30
42
43
44
Contents/Financial Statements
21
Management Report 2004
Trends
Last year was marked by strong and rapid global economic
growth – notably in Asia and the United States – low inflation
accompanied by continued low interest rates. Financial markets
experienced a high degree of uncertainty, driven mainly by the
unresolved political situation. In contrast to global economic
growth, Germany was characterized by a poor business climate
and weak economic growth, with little hope for an imminent rebound, despite some positive signals coming from the
United States. A dose of optimism could also help the German
economy regain its competitiveness.
Two trends influence the German market environment. The
first is the growing number of financial investors in the market
and the accompanying rebound in investment activity; the
other involves company restructuring programs. International
investors once again have confidence in German equities and
believe in the country’s ability to enact reforms. One weak
spot in the economic recovery process was the clear restraint
by consumers, largely caused by the continued lack of political
will to begin making fundamental structural reforms and by a
worsening labor market.
The 2005 outlook is cautiously optimistic. Equity markets
should record modest gains in 2005.
J.P. Morgan AG once again recorded satisfactory results in
2004. The bank’s activities are focused on operating processes
and relationship management for corporate clients in Germany.
Thus euro clearing, custody and the lending business make up
its core businesses.
The euro is proving to be increasingly stable and tradeable.
Against this backdrop, more and more transactions are being
processed in the single currency. As the largest non-indigenous
euro clearer in Germany’s RTGSplus clearing system, the bank
22
Financial Statements
is very well positioned, especially in the financial institutions
segment. The euro clearing business has been steadily developed. The bank thus remains a leading provider of payments
services in Europe. Volume was up from the previous year’s high
level, and will continue to represent one of the bank’s leading
activities in the future. For our cash management activities on
behalf of corporate clients, we are focusing on broadening our
model to include outsourcing services and on integrating trade
financing in the treasury management process.
The global custody business represents the bank’s second
main business line. In 2004 as in the previous year, we were
again able to win numerous new clients. Last year, the bank’s
custody business increased its market share in the insurance
company and company pension plan area. We see significant growth potential in the performance reporting segment.
Given the ongoing market consolidation, we need to continue
investing in the business, notably in technology.
The lending business remains focused on large German
corporations. The bank also advises a group of medium-sized
companies. Thanks to conservative credit analysis, we were
again able to avoid involvement in major bankruptcies. Foreign
country risk was successfully managed through the establishment of appropriate valuation adjustments. The bank’s foreign
business, relative to total business volume, is not material.
As in previous years, Investment Banking, Private Banking
and Asset Management continued to be provided by sister
companies in Germany last year.
Assets
Financial position
Business volume
Last year, the bank’s total business volume, consisting of
total assets and contingent liabilities, contracted by EUR 947.1
million from EUR 7,774.5 million to EUR 6,827.4 million. During
this period, total assets declined by EUR 938.9 million from
EUR 7,745.3 million to EUR 6,806.4 million.
Third-party deposits
Third-party deposits contracted by EUR 949.5 million to
EUR 6,493.2 million. Bank deposits were also down, declining by EUR 818.1 million to EUR 3,714.8 million, along with
customer deposits, which fell by EUR 250.1 million to
EUR 1,847.8 million. Certificated liabilities increased to
EUR 930.6 million through the issuance of EUR 118.8 million
in bonds.
Lending business
The bank’s loan volume at end-2004 totaled EUR 5,560.3
million, down from EUR 6,654.8 million, and broke down as
follows:
Interbank placings
Commercial and industrial loans
Guarantees
EUR 4,876.4 million
EUR
662.8 million
EUR
21.1 million
The derivatives business had a total credit exposure of
EUR 125.9 million, of which EUR 5.4 million was related
to currency transactions, EUR 5.6 million to interest rate transactions and EUR 114.9 million to other price risks.
Securities business
In 2004, the amount of debt and other fixed-income securities increased by EUR 69.6 million to EUR 1,098.5 million.
Of this total, EUR 334.1 million are part of a securities lending
business.
Equities and other non-fixed-income securities were valued at the lower of cost or market. Last year, this position
increased by EUR 27.0 million from EUR 81.3 million to EUR
108.3 million.
Equity
The book value of the equity including appropriated profit
totaled EUR 143.5 million. Equity consists of EUR 60.0 million
in subscribed capital, EUR 53.7 million in capital reserves and
EUR 29.8 million in profit reserves. EUR 26.1 million exists in
the form of profit-participation rights. Based on the year-end
financial statements, the bank’s liable capital under section
10 of the German Banking Act (KredWG) amounted to
EUR 224.6 million and represented 3.30% of total assets on
December 31, 2004.
Liquidity
At year-end, the bank had a liquidity ratio of 2.15. Liquidity
was assured at all times throughout the year.
The debt securities from the securities lending business
can be refinanced with the German central bank to obtain
liquidity.
In addition, JPMorgan Chase Bank, London, has pledged a
substantial volume of securities, which are safekept by Deutsche Bundesbank, and other refinancing sources exist within
the JPMorgan Group.
Profitability
The result from normal operations fell by EUR 2.0 million
to EUR 7.2 million.
Net interest income fell from EUR 22.4 million to EUR 20.5
million as a result of narrow margins in the newly developed
business.
The increased income from the custody business accounted
for much of the overall EUR 1.9 million increase in fee and
commission income, which totaled EUR 43.7 million. Net fee
and commission income thus rose from EUR 36.2 million to
EUR 37.6 million.
The EUR 8.8 million increase in other operating income to
EUR 26.6 million was due mainly to the acquisition of the
leasing business.
Management Report
23
Management Report 2004
Total administrative expenses increased by EUR 1.6 million
to EUR 74.5 million. This increase was mainly due to increased
costs at the corporate level.
Income received on the sale of securities, write-ups of
securities and write-backs on reserves totaled EUR 4.9 million
(down from EUR 6.8 million), although impairment charges on
securities and an increase in reserves were necessary.
The EUR 5.0 million increase in other operating expenses
to EUR 5.9 million resulted mainly from the depreciation on
leased assets.
Extraordinary expenses included rental agreement restructuring charges and increased rent reserves related to the office
move. Net extraordinary expenses increased by EUR 1.0 million
to EUR 1.2 million.
A fiscal entity and subordination and profit and loss transfer
agreement exist with the bank’s sole shareholder, J.P. Morgan
Beteiligungs- und Verwaltungsgesellschaft mbH, Frankfurt
am Main.
Risk management and exposure
The bank’s risk management system receives high priority and
applies across all businesses. It covers credit risks and all other
types of market and operational risks. The entire Management
Board is responsible for risk management, which consists of
identifying and quantifying risks in all the various businesses
and implementing appropriate solutions to monitor and control
them. The “New Product and Activity Approval Process” plays
a central role throughout the entire bank, as new products are
subjected to a standardized risk appraisal and risk assessment
process, as are changes to existing products and procedures.
The bank protects itself against losses and ensures smooth-functioning operations at all times through an internal, computerassisted audit system, completely separate risk control units,
daily valuations and reconciliations, strictly regulated authorizati-
24
Financial Statements
ons and, lastly, contingency planning. At least every six months,
a key review of all key risks is performed by the risk management
department through a detailed control self-assessment program.
The results are discussed with the responsible risk managers.
Potential corrective measures are established in these programs
in the form of action plans. Their timely implementation is centrally monitored.
Credit risks
Along with the mandatory review accorded every credit
issued, borrowers are ranked on a scale of 1 to 10. At year-end,
98% of total credit volume was ranked in between 1 and 5.
The JPMorgan Group also conducts periodic country reviews
using the same scale. Borrowers never receive a higher rating
than that of the country in which they are based, although
credits benefiting from Hermes coverage and other guarantees
receive higher ratings. Credit equivalents for off-balance-sheet
transactions are determined using the replacement value plus
an add-on to cover future default risk, which is based on a
97.5% probability of the historical price volatility. Separate
software is used to make these calculations.
Each exposure is reviewed at least once per year, with reports
issued quarterly. Limit excesses are monitored daily.
A loan loss reserve was established for a borrower at risk
of defaulting. Loss reserves were made for three country risks
where no Hermes coverage existed and where the country risk
classification fell in the 5 to 6+ range. General provisions for
loan loss reserves were taken based on average default rates
over the past five years.
The risk-weighted assets pursuant to Principle I broke down
as follows:
EUR millions
12/31/2004
12/31/2003
Balance sheet assets
Contingent liabilities
and loan commitments
Derivatives
1,147
1,385
31
3
40
5
Risk-weighted assets
1,181
1,430
EUR millions
12/31/2004
Liable capital pursuant
to section 10 of the
German Banking Law
(KredWG).
Liable capital as a percent
of risk-weighted assets
12/31/2003
224.6
224.6
19.0 %
15.7 %
Total credit volume by country
EUR millions
OECD countries
Non-OECD countries
of which, secured
unsecured
12/31/2004
6,051
653
633
20
Liquidity risk
A cash management group was created for the purpose
of daily liquidity management for the Euro Clearing business.
This group allocates payment flows to the respective clearing
systems and reports the liquidity shortfall or surplus.
Demand for liquidity is constantly monitored during the clearing day and reconciled with Treasury. Liquidity swaps among
the various clearing channels are initiated when necessary.
Liquidity flows between J.P. Morgan AG and other clearers
are continuously controlled. Internal and external operating
limits combined with existing clearing algorithms provide optimum liquidity management and the elimination of liquidity
risk.
At the end of the clearing day, the balances of the various
clearing systems are combined and eliminated accordingly.
12/31/2003
6,919
673
668
5
Market risk
JPMorgan Group has implemented separate, global software
systems to manage the various market risks. Risk positions
are assessed daily and compliance is assured through these
systems.
Interest rate risks
All trading book transactions are assessed daily at market
rates, which are used to determine the value at risk (VAR).
The VAR represents the potential loss on any one day with
a 99% probability. At year-end, the trading portfolio’s VAR
was nil.
A daily VAR is also calculated for non-trading book transactions, which include those of JPMorgan Chase Bank, N.A.,
Frankfurt Branch, although their interest rate risk is immaterial. The highest VAR for these positions last year totaled
U.S. Dollar 1.7 million. At year-end, their VAR stood at
U.S. Dollar 1.4 million.
Management Report
25
Management Report 2004
Currency risks
The bank does not have any currency trading activities. For
foreign currency transactions on the balance sheet, limits are
established for positions in all currencies.
Operational risks
With the JPMorgan Group, the definition of operational
risk includes all risks of potential losses arising from specific
operating, human and systems processes as well as external
factors.
The above-mentioned risks are managed through the maintenance of company controls that include, among others,
standing operating procedures and corporate policies supplemented with specific provisions for Germany.
Employees are selected and given assignments in accordance
with clear guidelines. Particular attention is paid to ongoing
apprenticeship training and continuing education. The Investor
Services business has a permanent representative from the
Education and Development department, who provides training
and follow-up instruction.
Back-up systems exist for all critical systems. These back-up
systems are hosted on various computers in totally separate
buildings and are deployed on a group-wide basis. For the
Frankfurt-based companies, a back-up office complete with its
own data center and communications equipment is maintained
in Eschborn.
The data centers in Bournemouth, England and Wilmington
and Somerset in the United States also have back-up facilities
in a geographically separate location.
26
Financial Statements
Detailed emergency plans are prepared for all businesses, including information technology, and tested at least
once per year in a simulated emergency. This test consists
of three components, namely the management test (decisionmaking and governance), the business test (re-establishment
of the proper business processes) and lastly the technical test
(re-establishment of systems).
2005 outlook
Economists project continued weak economic growth, with
no real improvement before 2006 at the earliest. Business
developments in the current year are satisfactory, despite
a persistently difficult business environment. We expect
further organic growth in 2005, as well as increased activity
in the clearing and securities custody businesses. The credit business remains somewhat down, as the bank applies
conservative valuation principles. Thanks to its conservative
approach, J.P. Morgan AG is not involved in any noteworthy
bankruptcies.
This year, the bank again issued long-term debt. For 2005
overall, we again expect stable results.
Moving moments in words and pictures
A key highlight of the “JPMorgan Housewarming Party”
at the Junghof Plaza was the discussion of the arts between Jean-Christophe Ammann, the former director of
Frankfurt’s Museum of Modern Art, and the photographer
Barbara Klemm. Addressing JPMorgan’s assembled guests,
Klemm described how in 1989 she experienced and documented the fall of the Berlin Wall with her camera while
a photographer for the “Frankfurter Allgemeine Zeitung“.
Since then, the “Berlin Series” photographs on display in
JPMorgan’s new building have become famous and are
a reminder of the events that took place during German
reunification.
Lagebericht
Balance Sheet
Balance sheet of J.P. Morgan AG,
Frankfurt am Main, as of December 31, 2004
Assets (EUR thousands)
Liquid Funds
Interbank Placings
Commercial and Industrial Loans
Debt Securities and other Fixed Income Securities
Equities and other non-Fixed Income Securities
Investments
Tangible Fixed Assets
Other Assets
Prepaid and Deferred Expenses
Total Assets
Liabilities and Equity (EUR thousands)
Liabilities to Banks
Liabilities to Customers
Certificated Liabilities
Other Liabilities
Deferred Income
Accrued Expenses
Profit Participation Rights
Equity
Total Liabilities and Equity
Contingent Liabilities
Other Commitments
28
Financial Statements
Notes
2004
2003
1
2
3
4
32,055
4,876,445
662,828
1,098,496
108,285
262
14,055
13,697
271
6,806,394
0
5,887,070
738,522
1,028,949
81,342
262
4,016
4,913
199
7,745,273
5
6
Notes
2004
2003
7
8
9
3,714,777
1,847,838
930,620
32,513
2,682
108,373
26,076
143,515
6,806,394
4,532,892
2,097,955
811,803
40,906
153
91,973
26,076
143,515
7,745,273
21,053
37,410
29,238
48,146
10
11
12
13
14
Income Statement
Income Statement J.P. Morgan AG, Frankfurt am Main
for the period January 1, 2004 through December 31, 2004
EUR thousands
Interest Income
Interest Expenses
Notes
2004
2003
15
16
17
162,988
142,482
20,506
76
43,708
5,953
37,755
324
26,565
74,470
175,014
152,575
22,439
381
41,814
5,634
36,180
446
17,815
72,853
18
2,593
5,855
1,162
855
–
–
4,907
4,907
6,789
6,789
Income from Investments
Commission Income
Commission Expenses
Net Income from Financial Operations
Other Operating Income
General Administrative Expenses
Amortization and Depreciation of Intangible
and Tangible Fixed Assets
Other Operating Expenses
Expenses from Write-Downs of
Certain Securities and Loan Loss Provisions as
well as Increases in Reserves for Credit Business
Income from Write-Ups of receivables
and certain securities and Write-Backs of
reserves in the lending business
19
Depreciation and amortization of
investments, shares in affiliated banks
and held-to-maturity securities
Results from Normal Operations
Extraordinary Result
Corporate Tax
Other Taxes, if not included under
Other Operating Expenses
Profits transferred as a Result of a Profit-Transfer or
a Partial-Profit-Transfer Agreement
20
9
–
7,206
9,180
-1,237
–
-202
-275
11
11
7
-268
5,958
9,149
Net Income
–
97
Transfers to Profit Reserves:
to Legal Reserves
–
97
Unappropriated Profit
–
–
Balance Sheet/Income Statement
29
Notes to Financial Statements
Notes of J.P. Morgan AG,
Frankfurt am Main for the
periode January 1, 2004
through December 31, 2004
General remarks
J.P. Morgan AG’s balance sheet and income statement were
prepared in accordance with the provisions of the German
Commercial Code (HGB) and the Regulation on Accounting
Principles for Banks and Financial Services Institutions.
The balance sheet and income statement formats are consistent with those of the previous year, as are the accounting
and valuation methods.
Foreign Currency Translation
Foreign currency receivables and liabilities were translated
using the reference exchange rates determined by the European
Central Bank on the balance sheet date.
Unsettled currency forward contracts were valued according
to the forward rate on the balance sheet date. Profits on a
currency conversion were only booked insofar as they did
not exceed the settlement of expenses related to covering a
position in the same currency.
Other Accounting and Valuation Methods
Liquid assets are entered at face value.
Receivables due from banks and customers are entered
using the lower of face value or acquisition cost plus accrued interest minus deferred discount. Individual loss reserves
have been made for doubtful receivables because of country
risk and were deducted from the “Receivables” position on
the balance sheet. Special loss reserves have been made for
doubtful contingent receivables from customers and are reported under “Accrued Expenses.”
General loss reserves for loan losses and recourse claims
were established using the average default rate of the past
five years, with the amount deducted from “Receivables” or
reported under “Accrued Expenses.”
30
Financial Statements
In accordance with section 253 para. 3 of the German Commercial Code (HGB), bonds and other Fixed Income securities
were valued conservatively using the lower of acquisition cost
or face value plus accrued interest, market price on the balance
sheet date or their appraised value. Bonds held by a securities
lending business were valued using the price of the day they
were borrowed.
Equities and other non-Fixed Income securities were valued
at the lower of cost or market.
Investments in other companies were entered at the lower
of acquisition cost or appraised value.
Tangible fixed assets were valued at their acquisition cost
minus scheduled straight-line depreciation in accordance with
section 253 para. 2 line 3 of the German Commercial Code
(HGB). Low-value fixed assets are fully expensed in accordance
with section 6, paragraph 2 of the Income Tax Law (EStG).
Leased assets were valued at their acquisition cost less scheduled depreciation. They are depreciated using the straight-line
method over the generally accepted remaining useful life.
Other assets were valued according to the principle of lower
of cost or market.
Costs and income were reported using the accrual method
and attributed to the respective balance sheet entries.
Amortization of deferred income in the leasing business for
sold lease receivables were generally made using the straightline method. In previous years, an adjustment item was established that corresponded to the present value of all lease
payments and the redemption value.
Upon the expiration of these agreements, the adjustment
item is written back to income to offset the higher depreciation on repurchased lease assets. The remaining amount of
EUR 0.5 million was written back in 2004. Interest on the
residual value sold and entered under deferred income is compounded using the straight-line method.
Liabilities were reported according to the amount repayable,
with certificated liabilities entered at face value.
Pension reserves were established on the basis of an actuarial
expert opinion conforming to the provisions of section 6a of
the Income Tax Law (EStG). The reserve level was determined
using the 1998 Heubeck actuarial tables.
Appropriate reserves were set up for contingent liabilities.
There were no impending losses related to unsettled transactions.
Interest from interest rate swaps and total return swaps were
accrued on a pro rata temporis basis and entered as receivables
or liabilities, whereby the interest rate claims were netted out
against interest rate obligations resulting from the same transaction. The interest rate swaps were recorded using their net
present value, in which future payment streams are discounted
against market interest rates as of the balance sheet date, and
the results netted out for each swap. There was no need to
establish reserves for unrealized net losses. Unrealized losses
from hedging transactions, which are covered by balance sheet
liabilities, and unrealized losses in the bank’s trading portfolio,
which are covered by corresponding unrealized profits from
the interest portion of currency swaps, were not recorded in
the income statement.
Notes to Financial Statements
31
Notes to Financial Statements
Notes to Balance Sheet
(1) Liquid Funds
EUR thousands
Cash
Balances held by Central Banks
of which:
held by Deutsche Bundesbank
12/31/2004
12/31/2003
1
32,054
0
0
32,054
32,055
0
0
(2) Interbank Placings
EUR thousands
Due on demand
With a remaining Term or
Notice Period of:
1. up to 3 months
2. more than 3 months up to 1 year
3. more than 1 year up to 5 years
4. more than 5 year
of which:
Due from Affiliated Banks
12/31/2004
12/31/2003
3,493,569
4,838,261
1,370,771
728
11,377
0
1,382,876
4,876,445
1,042,550
1,001
5,258
0
1,048,809
5,887,070
3,682,308
5,490,765
(3) Commercial and Industrial Loans
EUR thousands
With undetermined Term
Other Claims with a Term or
Notice Period of:
1. up to 3 months,
2. more than 3 months up to 1 year,
3. more than 1 year up to 5 years,
4. more than 5 year
of which: Municipal Loans
Due from Affiliated Entities
32
Financial Statements
12/31/2004
12/31/2003
7,162
22,039
8,598
194,725
444,877
7,466
655,666
662,828
0
5,818
26,888
18,099
659,435
12,061
716,483
738,522
0
6,559
(4) Debt Securities and other
Fixed Income Securities
EUR thousands
Debt Securities and other
Fixed Income Securities:
– Due the following year
Bonds and Debt Securities
– Issued by Public Bodies
of which: eligible as collateral
with Deutsche Bundesbank
– Issued by other Borrowers
of which: eligible as collateral
with Deutsche Bundesbank
12/31/2004
12/31/2003
1,098,496
334,092
1,028,949
323,850
1,098,496
1,028,949
1,098,496
0
1,028,949
0
0
0
(5) Investments
EUR thousands
Investments
of which: Banks
12/31/2004
262
89
12/31/2003
262
89
Marketable securities
EUR thousands
Debt securities and other
Fixed Income securities
listed
unlisted
Equities and other
non-Fixed Income securities
listed
unlisted
Investments
listed
unlisted
12/31/2004
12/31/2003
1,098,496
0
1,028,949
0
0
2,948
0
2,288
133
0
133
0
Notes to Financial Statements
33
Notes to Financial Statements
(6) Changes in Fixed Assets
Acquisition cost/
Depreciation and
Cost of production
Balance
EUR thousands
Tangible Fixed Assets
Investments in other
Companies
Investments in Affiliated
Companies
Additions
Write-Downs
Disposals
Accumulated
Book Value
Current
01/01/2004
314
8,657
2,593
14,055
4,016
357
0
0
95
0
262
262
0
9
0
9
9
0
0
EUR thousands
Due on Demand
With a remaining Term
or Notice Period of:
1. up to 3 months
2. more than 3 months up to 1 year
3. more than 1 year up to 5 years
4. more than 5 years
Financial Statements
12/31/2003
12,712
(7) Liabilities to Banks
34
Balance
12/31/2004
10,314
The complete inventory of tangible fixed assets relates to office equipment, furniture and fixtures.
of which:
Due to Affiliated Banks
Balance
12/31/2004
12/31/2003
1,063,899
1,814,057
1,992,474
503,111
2,806
152,487
2,650,878
3,714,777
2,092,738
518,436
5,952
101,709
2,718,835
4,532,892
2,925,741
3,380,305
(8) Liabilities to Customers
EUR thousands
Due on Demand
With a remaining Term
or Notice Period of:
1. up to 3 months
2. more than 3 months up to 1 year
3. more than 1 year up to 5 years
4. more than 5 years
of which:
Due to Affiliated Entities
12/31/2004
12/31/2003
1,526,537
1,887,974
77,924
7
0
243,370
321,301
1,847,838
30,579
93
0
179,309
209,981
2,097,955
21,605
33,010
(9) Certificated Liabilities
EUR thousands
Debentures issued
Other Certificated Liabilities with a
remaining Term or Notice Period of:
1. up to 3 months
2. more than 3 months up to 1 year
3. more than 1 year up to 5 years
4. more than 5 years
of which:
Own Acceptances and
Promissory Notes Outstanding
12/31/2004
12/31/2003
930,620
811,803
0
0
0
0
930,620
0
0
0
0
811,803
0
0
Notes to Financial Statements
35
Notes to Financial Statements
(10) Accrued Expenses
EUR thousands
12/31/2004
Accrued Expenses for Pensions
and Similar Liabilities
Accrued Tax Expenses
Other Accrued Expenses
80,312
0
28,061
108,373
12/31/2003
73,416
0
18,557
91,973
The other accrued expenses consist mainly of rent reserves and personnel
expense reserves, e.g. for semi-retirement.
(11) Profit Participation Rights
EUR thousands
12/31/2004
J.P. Morgan Beteiligungs- und
Verwaltungsgesellschaft mbH,
Frankfurt am Main
26,076
12/31/2003
26,076
(12) Equity
EUR thousands
12/31/2004
Subscribed capital
Capital Reserves
Profit Reserves
– legal reserves
– other profit reserves
12/31/2003
60,000
53,737
60,000
53,737
6,000
23,778
143,515
6,000
23,778
143,515
Subscribed capital
Subscribed capital consists of EUR 60,000,000, divided into 11,735
shares. All 11,735 shares are held by J.P. Morgan Beteiligungs- und
Verwaltungsgesellschaft mbH, Frankfurt am Main.
Change in Profit Reserves
Balance
EUR thousands
Legal reserves
Other profit reserves
36
Financial Statements
Balance
12/31/2003
Additions
Withdrawals
12/31/2004
6,000
23,778
29,778
0
0
0
0
0
0
6,000
23,778
29,778
Amounts related to the Leasing Business
EUR thousands
Other assets
Liabilities to customers
Other liabilities
Deferred income
12/31/2004
12/31/2003
1,350
4,613
670
2,567
0
0
0
0
Further Positions with Affiliated Banks
EUR thousands
Other assets
Other liabilities
12/31/2004
1,350
6,971
12/31/2003
684
10,723
Foreign Currency Assets and Liabilities
EUR thousands
Assets
Liabilities
12/31/2004
2,003,247
2,002,274
12/31/2003
1,506,222
1,507,946
(13) Contingent Liabilities
EUR thousands
Liabilities from Guarantees and
Indemnity Agreements
12/31/2004
21,053
12/31/2003
29,238
(14) Other Commitments
EUR thousands
Irrevocables Lines of Credit Granted
12/31/2004
37,410
12/31/2003
48,146
Notes to Financial Statements
37
Notes to Financial Statements
Notes to Income Statement
(15) Interest Income
EUR thousands
Loans and Money Market Transactions
Fixed Income Securities and
Debt Register Claims
12/31/2004
12/31/2003
161,123
173,267
1,865
162,988
1,747
175,014
(16) Other Operating Income
Other operating income includes TEUR 7,470 from the leasing
business.
(17) General Administrative Expenses
EUR thousands
Personnel Expenses
– Wages and Salaries
– Social Security Contributions,
Pensions and Welfare Expenses
of which: Pensions
Other Administrative Expenses
12/31/2004
12/31/2003
24,082
23,342
11,066
8,545
35,148
39,322
74,470
13,811
11,319
37,153
35,700
72,853
(18) Other Operating Expenses
This item includes TEUR 2,736 in depreciation on leased assets.
(19) Provisions for Risks
EUR thousands
Loans
Securities from Liquidity Reserve
38
Financial Statements
12/31/2004
838
4,069
4,907
12/31/2003
4,546
2,243
6,789
(20) Extraordinary Result
EUR thousands
12/31/2004
Extraordinary Income
Extraordinary Expenses
6,435
-7,672
-1,237
12/31/2003
0
-202
-202
The extraordinary result reflects of the restructuring of the rent agreement
and the increase in the rent reserve related to the office move.
Miscellaneous Notes
The following forward contracts were unsettled as of the reporting date:
Interest rate swaps,
Cross currency swaps,
Total Return Swaps.
The interest rate forward agreements involve closed positions, in which the
bank serves as intermediary. The total return swaps serve to hedge against
market risk.
12/31/2004
Market value
EUR thousands
Interest Rate Transactions
Interest Rate Swaps
Cross-currency Transactions
Foreign Currency Transactions
Interest/Currency Swaps
Equity-related Transactions
Total Return Swaps
Total
12/31/2003
Market value
Positive
Negative
Positive
Negative
4,782
5,974
2,888
5,171
0
3,678
0
2,486
0
8,171
0
5,861
59,575
68,035
6,455
14,915
38,226
49,285
1,500
12,532
Notes to Financial Statements
39
Notes to Financial Statements
Relations to Affiliated Banks
The consolidated financial statements for the largest and
smallest consolidated groups are prepared by JPMorgan
Chase & Co., New York. They are available from us. A subordination and profit-transfer agreement exists with the
shareholder J.P. Morgan Beteiligungs- und Verwaltungsgesellschaft mbH. A dependent company report, as stipulated
by section 312 of the German Stock Corporation Law (AktG),
is therefore not required.
Other Financial Commitments
The bank is a member of the Federation of German
Banking Industry (Bundesverband Deutscher Banken
e.V.) and its deposit guaranty fund (Einlagensicherungsfonds).
Employees
We employed, on annual average, 232 employees. As of
December 31, 2004, the employees broke down as follows:
Authorized Officers (Prokuristen)
Officers (Handlungsbevollmächtigte)
Commercial Clerks
22
78
128
Total compensation to Managers and Directors
Management Board
compensation totaled
Supervisory Board
compensation totaled
EUR thousands 1,520
EUR thousands
3
No loans were issued to Managers and Directors in 2004.
Total Compensation to Former Managers and Directors
and Their Surviving Dependents
We paid TEUR 170 to former Management Board members
and their surviving dependents. Pension reserves for them
totaled TEUR 10,105 of December 31, 2004.
40
Financial Statements
Management Board
John Jetter, Banker
Arnulf Manhold, Banker
Peter Schwicht, Banker
Thomas Meyer, Banker
Chairman
(as of July 1, 2004)
Supervisory Board
Mark S. Garvin, Managing Director
Senior Country Officer,
JPMorgan Great Britain
Chairman
Steven B. Groppi,
Senior Vice President,
Treasury Services, JPMorgan Europe
Deputy Chairman
Carl H. Schneppensiefer,
Banker
(employee representative)
Frankfurt am Main, May 2005
J.P. Morgan AG
Frankfurt am Main
The Management Board
John Jetter
Arnulf Manhold
Thomas Meyer
Peter Schwicht
Notes to Financial Statements
41
Audit Opinion
Auditor’s Report
(Translation, the German text is authoritative)
We have audited the annual financial statements, together
with the bookkeeping system and the management report of
J.P. Morgan AG, Frankfurt am Main, for the year from January
1 to December 31, 2004. The maintenance of the books and
records and the preparation of the annual financial statements
and Management Report in accordance with German commercial law and supplementary provisions in the articles of
incorporation are the responsibility of the Company’s Board
of Managing Directors. Our responsibility is to express an opinion on the annual financial statements, together with the
bookkeeping system and the management report based on
our audit.
We conducted our audit of the annual financial statements
in accordance with § 317 HGB and German generally accepted
standards for the audit of financial statements promulgated
by the Institut der Wirtschaftsprüfer in Deutschland (IDW).
Those standards require that we plan and perform the audit
such that misstatements materially affecting the presentation
of the net assets, financial position and results of operations
in the annual financial statements in accordance with German
principles of proper accounting and in the management report
are detected with reasonable assurance. Knowledge of the
business activities and the economic and legal environment of
the Company and evaluations of possible misstatements are
taken into account in the determination of audit procedures.
The effectiveness of the accounting-related internal control
system and the evidence supporting the disclosures in the
books and records, the annual financial statements and the
management report are examined primarily on a test basis
within the framework of the audit. The audit includes assessing
the accounting principles used and significant estimates made
by the Company’s Management Board, as well as evaluating
the overall presentation of the annual financial statements
and management report. We believe that our audit provides
a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, the annual financial statements give a true
and fair view of the net assets, financial position and results of
operations of the Company in accordance with German principles of proper accounting. On the whole the management report
provides a suitable understanding of the Company’s position
and suitably presents the risks of future development.
Frankfurt am Main, May 17, 2005
PricewaterhouseCoopers GmbH
Auditing Firm
(Funke)
Auditor
42
Audit Opinion
(Atton)
Auditor
Supervisory Board Report
The Supervisory Board supervised the Management Board
throughout the year on the basis of written and oral reports and
discharged its duties according to the law. Important matters
of business policy were examined by the Supervisory Board and
reviewed by the Management Board. The Supervisory Board
met twice to discuss the Bank’s economic situation, strategy,
integration within the consolidated Group and the general
business environment. In particular, the Supervisory Board
was informed of the default risks in the lending business.
The Supervisory Board was also informed of operational risks
related to euro clearing and securities custody.
Effective July 1, 2004, Thomas Meyer was appointed to the
Management Board. This appointment was entered in the
Commercial Register on October 1, 2004.
The year-end Financial Statements and the Management
Report for the 2004 fiscal year as well as relevant accounting
records have been examined by the duly appointed auditing
firm of PricewaterhouseCoopers GmbH, Frankfurt am Main.
The auditing firm issued an unqualified audit opinion.
The results of an audit carried out by the Supervisory Board
confirm the year-end Financial Statements and the Management Report. The Financial Statements as of December 31,
2004 and the Management Report have been approved by
the Supervisory Board.
The Annual Report is herewith determined.
The Supervisory Board would like to express its thanks to the
Management Board and to all employees for their performance
and commitment.
June 6, 2005
The Supervisory Board
Mark S, Garvin
Chairman
Supervisory Board Report
43
Business Units
of the JPMorgan Group in Germany
J.P. Morgan AG
Management Board
Corporate Banking
Investor Services
Asset Management
Treasury Services
- Financial Institutions Sales
- Corporate Sales
Euro-Clearing
Trade Finance
Berlin Office
(0 69) 71 24-23 71
(0 69) 71 24-45 17
(0 69) 71 24-23 22
(0 69) 71 24-23 31
(0 30) 20 39 45-0
(0 30) 20 39 45-10
(0 30) 20 39 45-11
60284 Frankfurt am Main
Street address:
Junghofstraße 14
60311 Frankfurt am Main
Ingeborg Bretana
Detlef Tamke
(0 69) 71 24-0
(0 69) 71 24-13 06
60284 Frankfurt am Main
Street address:
Junghofstraße 14
60311 Frankfurt am Main
Jörg Prüßmeier
(0 69) 71 24-0
(0 69) 71 24-13 06
60284 Frankfurt am Main
Street address:
Junghofstraße 14
60311 Frankfurt am Main
Martina Reichl
Joachim Treppner
(0 69) 71 24-21 75
(0 69) 71 24-21 80
J.P. Morgan Partners
Deutschland GmbH
General Managers
Kardinal-Faulhaber-Str, 10
80333 München
Arnold Chavkin
Jonathan Meggs
(089) 24 26 89 0
(089) 24 26 89 90
(089) 24 26 89 40
J.P. Morgan International Bank
Limited Frankfurt Branch
60284 Frankfurt am Main
Street address:
Junghofstraße 14
60311 Frankfurt am Main
Andreas Muth
(0 69) 71 24-16 10
(0 69) 71 24-14 37
60284 Frankfurt am Main
Street address:
Junghofstraße 14
60311 Frankfurt am Main
Peter Schwicht
(0 69) 71 24-21 34
(0 69) 71 24-21 08
General Managers
J.P. Morgan Securities
Ltd. Frankfurt Branch
General Managers Equity Sales
J.P. Morgan Fonds
Services GmbH
General Managers
General Manager Private Banking
J.P. Morgan Asset
Management (Europe) S.à r.l.,
Frankfurt Branch
General Manager
Business Units
(0 69) 71 24-12 35
(0 69) 71 24-22 40
(0 69) 71 24-45 60
(0 69) 71 24-23 45
(0 69) 71 24-22 35
(0 69) 71 24-22 40
(0 69) 71 24-23 45
Renate Fink
Andreas Gottlieb
Gerald Loehmer
Iris Schröder
Unter den Linden 12
10117 Berlin
Andreas Graf von Hardenberg
JPMorgan Chase Bank, N. A.,
Frankfurt Branch
44
60284 Frankfurt am Main
Street address:
Junghofstraße 14
60311 Frankfurt am Main
John Jetter (Chairman)
Arnulf Manhold
Thomas Meyer
Peter Schwicht
Ingeborg Bretana
Arnulf Manhold
Peter Schwicht
Telephone
Telefax
(0 69) 71 24-0
(0 69) 71 24-22 09
(0 69) 71 24-22 35
(0 69) 71 24-23 80
(0 69) 71 24-17 85
(0 69) 71 24-21 12
(0 69) 71 24-21 50
(0 69) 71 24-14 30
(0 69) 71 24-12 34
North America
Canada: Calgary, Montreal,
Toronto, Vancouver
United States: New York and
offices in 44 states
Latin America and Caribbean
Argentina: Buenos Aires
Bahamas: Nassau
Brazil: Rio de Janeiro, São Paolo
Cayman-Islands: Georgetown
Chile: Santiago
Colombia: Bogota
Mexico: Mexico City, Monterrey
Peru: Lima
Venezuela: Caracas
Oslo
Dublin
London
Western Europe
Austria: Vienna
Belgium: Brussels
Czech Republic: Prague
Germany: Berlin, Frankfurt, Munich
France: Paris
Greece: Piraeus
UK: Bournemouth, Edinburgh, Essex,
Glasgow, Isle of Man, London
Ireland: Dublin
Italy: Milan, Rome
Channel Islands: St. Helier/Jersey
Luxembourg
Netherlands: Amsterdam
Norway: Oslo
Portugal: Lisbon
Sweden: Stockholm
Switzerland: Geneva, Zurich
Spain: Barcelona, Bilbao, Madrid,
Pamplona, Sevilla, Valencia
Eastern Europe
St. Helier
Stockholm
Warsaw
Amsterdam
Prague
Brussels
Frankfurt
Luxembourg
Vienna
Paris
Geneva
Moscow
Taschkent
Milan
Beijing
Toronto
Tokyo
Istanbul
Seoul
Madrid
New York
Lisbon
Beirut
Piraeus
Tel Aviv
Kairo
Nassau
Mexiko City
Karachi
Hong Kong
Hanoi
Taipei
Manama
Mumbai
Manila
Bangkok
Georgetown
Colombo
Kuala Lumpur
Caracas
Panama City
Poland: Warsaw
Russia: Moscow
Turkey: Istanbul
Uzbekistan: Tashkent
Lagos
Singapore
Bogot
Jakarta
Africa and Middle East
Bahrain: Manama
Egypt: Cairo
Israel: Tel Aviv
Lebanon: Beirut
Nigeria: Lagos
South Africa: Cape Town,
Johannesburg,
Pietermaritzburg
Asia and Pacific
Australia: Adelaide, Brisbane,
Buderim, Canberra, Gold Coast,
Melbourne, Perth, Sidney
China: Beijing, Hong Kong,
Shanghai, Shenzhen, Tianji
India: Mumbai, New Delhi
Indonesia: Jakarta
Japan: Osaka, Tokyo
Malaysia: Kuala Lumpur,
Labuan, Selangor
New Zealand: Auckland, Wellington
Pakistan: Karachi
The Philippines: Manila
Singapore
Sri Lanka: Colombo
South Korea: Soeul
Taiwan: Panchiao, Taipeh
Thailand: Bangkok
Vietnam: Ho Chi Minh City, Hanoi
Lima
Johannesburg
Sydney
S o Paulo
Santiago
Buenos Aires
Wellington
Acknowledgements
Publischer
J.P. Morgan AG
Frankfurt am Main
Layout/Design
Schoeller GmbH
Corporate Communications
Hamburg
Lithography/Printer
Druckhaus Arns
Remscheid
Photos
Management Board: Manjit Jari, Frankfurt
Move: J.P. Morgan AG, Frankfurt
Event: Johannes G. Krzeslack, Frankfurt
North America
Canada: Calgary, Montreal,
Toronto, Vancouver
United States: New York and
offices in 44 states
Latin America and Caribbean
Argentina: Buenos Aires
Bahamas: Nassau
Brazil: Rio de Janeiro, São Paolo
Cayman-Islands: Georgetown
Chile: Santiago
Colombia: Bogota
Mexico: Mexico City, Monterrey
Peru: Lima
Venezuela: Caracas
Oslo
Dublin
London
Western Europe
Austria: Vienna
Belgium: Brussels
Czech Republic: Prague
Germany: Berlin, Frankfurt, Munich
France: Paris
Greece: Piraeus
UK: Bournemouth, Edinburgh, Essex,
Glasgow, Isle of Man, London
Ireland: Dublin
Italy: Milan, Rome
Channel Islands: St. Helier/Jersey
Luxembourg
Netherlands: Amsterdam
Norway: Oslo
Portugal: Lisbon
Sweden: Stockholm
Switzerland: Geneva, Zurich
Spain: Barcelona, Bilbao, Madrid,
Pamplona, Sevilla, Valencia
Eastern Europe
St. Helier
Stockholm
Warsaw
Amsterdam
Prague
Brussels
Frankfurt
Luxembourg
Vienna
Paris
Geneva
Moscow
Taschkent
Milan
Beijing
Toronto
Tokyo
Istanbul
Seoul
Madrid
New York
Lisbon
Beirut
Piraeus
Tel Aviv
Kairo
Nassau
Mexiko City
Karachi
Hong Kong
Hanoi
Taipei
Manama
Mumbai
Manila
Bangkok
Georgetown
Colombo
Kuala Lumpur
Caracas
Panama City
Poland: Warsaw
Russia: Moscow
Turkey: Istanbul
Uzbekistan: Tashkent
Lagos
Singapore
Bogot
Jakarta
Africa and Middle East
Bahrain: Manama
Egypt: Cairo
Israel: Tel Aviv
Lebanon: Beirut
Nigeria: Lagos
South Africa: Cape Town,
Johannesburg,
Pietermaritzburg
Asia and Pacific
Australia: Adelaide, Brisbane,
Buderim, Canberra, Gold Coast,
Melbourne, Perth, Sidney
China: Beijing, Hong Kong,
Shanghai, Shenzhen, Tianji
India: Mumbai, New Delhi
Indonesia: Jakarta
Japan: Osaka, Tokyo
Malaysia: Kuala Lumpur,
Labuan, Selangor
New Zealand: Auckland, Wellington
Pakistan: Karachi
The Philippines: Manila
Singapore
Sri Lanka: Colombo
South Korea: Soeul
Taiwan: Panchiao, Taipeh
Thailand: Bangkok
Vietnam: Ho Chi Minh City, Hanoi
Lima
Johannesburg
Sydney
S o Paulo
Santiago
Buenos Aires
Wellington
Acknowledgements
Publischer
J.P. Morgan AG
Frankfurt am Main
Layout/Design
Schoeller GmbH
Corporate Communications
Hamburg
Lithography/Printer
Druckhaus Arns
Remscheid
Photos
Management Board: Manjit Jari, Frankfurt
Move: J.P. Morgan AG, Frankfurt
Event: Johannes G. Krzeslack, Frankfurt
JPMorgan Key Figures
JPMorgan Chase & Co.
US-$
2004 (b)
2003 (a)
billions
billions
billions
billions
millions
1,157
402
521
106
4,466
1.55
8.7
12.2
771
215
326
46
6,719
3.24
8.5
11.8
EUR
2004
2003
Balance Sheet
Business Volume
Total Assets
Equity
millions
millions
millions
6,827
6,806
144
7,775
7,745
144
Income Statement
Net Interest Revenue
Net Commissions Received
Other Revenues
Administrative Expenses
Other Expenses
Results from Normal Operations
millions
millions
millions
millions
millions
millions
21
38
27
75
6
7
22
36
18
73
1
9
232
234
Total Assets
Loans
Deposits
Stockholders‘ Equity
Net Income
Net Income per Share (diluted)
Tier I Capital Ratio
Total Capital Ratio
(a)
(b)
(%)
(%)
Heritage JPMorgan Chase only.
2004 results include six months of the combined Firm´s results and six months of heritage JPMorgan Chase results.
(Merged with Bank One Corporation effective July 1, 2004.)
J.P. Morgan AG
Employees
J.P. Morgan AG
Junghofstraße 14
60311 Frankfurt am Main
Annual Report 2004