j.p. morgan chase & co. j.p. morgan ag · markets recorded declines in two consecutive years....

J.P. Morgan Chase & Co.Total AssetsLoans Deposits Stockholders’ Equity Net IncomeNet Income per Share (dilu

Tier I Capital Ratio Total Capital Ratio

J.P. Morgan AG

Balance Sheet

Business VolumeTotal AssetsEquity

Income Statement

Net Interest RevenueNet Commissions ReceivedOther RevenuesAdministrative ExpensesOther ExpensesResults from Normal Opera

Employees

JPMorgan Key

Annual Report 2001J.P. Morgan AG

Engl. Ums

Umschlag_engl_r68 10.07.2002 10:07 Uhr Seite 1

J.P. Morgan Chase & Co. US-$ 2001 2000

Total Assets billions 694 715Loans billions 217 216Deposits billions 294 279Stockholders’ Equity billions 41 42Net Income millions 1,694 5,727Net Income per Share (diluted) 0.80 2.86

Tier I Capital Ratio (%) 8.3 8.5Total Capital Ratio (%) 11.9 12.0

J.P. Morgan AG 2001 2000

Balance Sheet EUR

Business Volume millions 7,278 7,310Total Assets millions 7,168 7,141Equity millions 143 142

Income Statement EUR

Net Interest Revenue millions 36 33Net Commissions Received millions 45 45Other Revenues millions 8 4Administrative Expenses millions 58 61Other Expenses millions 2 1Results from Normal Operations millions 4 8

Employees 221 233

JPMorgan Key Figures

2002060153-00 Schoeller Corporate Comm. · Geschäftsbericht 2001 “J.P. Morgan AG”Engl. Umschlag außen · 606x280mm+5mm B. · Offset ext. · Server u-206-282 · 13.06.2002 möl


North AmericaCanada: Calgary, Montreal,

Toronto, VancouverUnited States: New York and

offices in 44 states

Latin America and CaribbeanArgentina: Buenos Aires

Bahamas: NassauBarbados: Christ Church

Brazil: Porto Alegre, Rio de Janeiro,Sao Paolo

British Virgin Islands: RoadtownChile: Santiago

Colombia: BogotaMexico: Mexico City

Panama: Panama CityPeru: Lima

Venezuela: Caracas

Western EuropeAustria: Vienna

Belgium: BrusselsCzech Republic: Prague

Germany: Berlin, FrankfurtFrance: Paris

Greece: PiraeusUK: Bournemouth,

Glasgow, Edingburgh, LondonIreland: Dublin

Italy: Milan, RomeChannel Islands: St. Helier/Jersey

LuxembourgNetherlands: Amsterdam

Norway: OsloPortugal: Lisbon

Sweden: StockholmSwitzerland: Geneva, Zurich

Spain: Madrid

Eastern EuropePoland: WarsawRussia: MoscowTurkey: Istanbul

Uzbekistan: Tashkent

Africa and Middle EastEgypt: Cairo

Israel: Tel AvivBahrain: Manama

Lebanon: BeirutNigeria: Lagos

South Africa: Cape Town, Illovo,Johannesburg

Asia and PacificAustralia: Adelaide, Brisbane, Bundall,

Bunderim, Canberra, Eastwood,Melbourne, Sidney

India: MumbaiIndonesia: Jakarta

Japan: Osaka, TokyoMalaysia: Kuala Lumpur, Selangor

New Zealand: Auckland, WellingtonPakistan: Karachi

The Philippines: Makati CitySingapore

Sri Lanka: ColomboSouth Korea: Chung-Ku, Soeul

Taiwan: Panchiao, Taipei, TaoyuanThailand: Bangkok

Vietnam: Ho Chi Minh City, HanoiChina: Beijing, Hong Kong, Shanghai,

Shenzhen, Tianjin

Brussels

Oslo

Geneva

New York

Toronto

Nassau

CaracasPanama City

Bogota

Mexico City

Lisbon

Madrid

Lagos

Cairo Manama

Johannesburg

Sao Paulo

Buenos AiresSantiago

St. Helier

Warsaw

Frankfurt

Amsterdam

MilanParis

LondonDublin

Luxembourg

Istanbul

Piraeus

Moscow

Beirut

Taschken

Lima

Karachi

Vienna

Prague

Tel Aviv

Stockholm

Christ Church

Roadtown

JPMorgan Chase worldwide

CYAN MAGENTA YELLOW BLACK PAN 661 CV


Brussels

Oslo

Geneva

Lagos

Cairo Manama

Mumbai

Hong KongHanoi

Bangkok

Taipei

Manila

Kuala Lumpur

Jakarta

Singapore

Beijing

SeoulTokyo

Sydney

Johannesburg

Warsaw

Frankfurt

Amsterdam

MilanParis

n

Luxembourg

Istanbul

Piraeus

Moscow

Beirut

Taschkent

Karachi

Colombo

Vienna

Prague

Tel Aviv

Stockholm

Wellington

de


Overview 2

Letter from the Management Board 4

Boards 6

Business Units 7

Financial Statements 29

Management Report 30

Supervisory Board Report 51

Contents

Lay engl.28.6. 10.07.2002 10:21 Uhr Seite 1

JPMorgan ChaseJPMorgan Chase is a leading global financial services firm with assets of more

than US$700 billion and operations in more than 50 countries. Withrelationships with over 99% of the Fortune 1000 companies, the firm isa leader in investment banking, asset management, private banking,private equity, custody and transaction services, retail and middle mar-ket financial services and e-finance. Based in New York, JPMorganChase serves more than 30 million retail customers, leading multina-tional corporations, institutional investors and government clients.Most recently, the bank is the product of the November 10, 2001 merg-er between the former Chase Manhattan Bank and Morgan GuarantyTrust Company of New York. The newly created entity benefits fromtwo strong global brands – JPMorgan and Chase – which have 150years of history behind them and form the basis for future success.

JPMorgan is the investment banking arm of JPMorgan Chase. In Europe,moreover, the bank operates under the JPMorgan registered tradename. The stock is a component of the Dow Jones Industrial Average.More information on JPMorgan Chase is available on the Internet atwww.jpmorganchase.com.

J.P. Morgan AGJPMorgan has always enjoyed a strong market presence in Germany since its

founding in 1948. The bank offers all the financial and advisory servicesof an integrated universal bank combining a worldwide presence withlocal market knowledge. JPMorgan is an innovative partner to Germanindustry and a leader in the capital markets and processing servicesbusinesses. Clients include leading German corporations, financial insti-tutions and governmental organizations. JPMorgan is a key financialmarket intermediary that brings together issuers and investors aroundthe globe.The German headquarters are located in Frankfurt.

2 Overview

Overview


J.P. Morgan AG offers a broad range of services, including lending, pay-ments, deposits, brokerage and custody. Proximity to clients andexpertise in all market-related legal, regulatory and tax issues are thebank’s hallmarks. JPMorgan is a member of the Deutsche Börse inFrankfurt, and our equity analysts provide research coverage on 50 ofthe companies listed in the DAX 100 index. As the German financialmarketplace undergoes significant changes in the years ahead,JPMorgan is well prepared to meet the challenges.

IFR-AwardsThe International Financial Review gave JPMorgan its coveted IFR “Bank of

the Year 2001” award. JPMorgan received this distinction after anintensive two-month selection process conducted by an internationalIFR team comprised of financial journalists and analysts. JPMorganwon 19 awards, compared with seven for its next closest competitor.

The IFR Award is a highly respected distinction in a fiercely competitiveand demanding market. These awards were established to recognizeoutstanding performance in international capital markets. TheInternational Financial Review is a well-known source of informationon capital markets.

Overview 3

Overview of JPMorgan Group business lines in Germany

J.P. Morgan AG JPMorgan Chase J.P. Morgan J.P. Morgan Fleming J.P. Morgan Fleming J.P. Morgan PartnersBank, Frankfurt Securities Ltd, Investment GmbH Fonds Marketing Deutschland GmbH

branch

• Custody • Advisory, financing, • Brokerage • Investment • Asset management • Private equity

• Payments trade and • IPO’s management and for banks, insurance

• Lending investment banking • Investment banking “Spezialfonds“ companies and

• Guaranties • Deposits business for and independent

• Deposits • Lending institutional clients investment advisors

• Brokerage • Brokerage • Retail funds

• Mergers and

Acquisitions (M&A)


4 Letter from the Management Board

Last year saw the merger of Chase Manhattan Bank with Morgan GuarantyTrust Company of New York, which took effect on November 10, 2001. Inour case, the merger involved only a name change to J.P. Morgan AG.As the new name suggests, our current business strategy is consist-ent with that of the former JPMorgan. Looking forward, however,JPMorgan’s successful investment banking and asset management busi-nesses will benefit from the addition of Chase’s lending, payments andcustody businesses. The new bank has developed close client ties overmany years, which form a solid foundation for recurring business. Ourstrategic orientation remains globally focused on large multinational cor-porations, financial institutions and insurance companies. As planned,the German investment banking business will be handled by a sister company during a transition period. During this period, there-fore, J.P. Morgan AG will concentrate mainly on custody, payments and lending.

Letter from the Management Board

From left to right:Peter Schwicht,

Rainer Gebbe,Arnulf Manhold.


Letter from the Management Board 5

Our bank is an essential link in JPMorgan’s global network. Our advisoryservices on behalf of German corporations with subsidiaries in theUnited States are particularly important. We work closely with the prod-uct groups and German-speaking client advisors in New York to offeroptimized financial advice. In the other direction, we help foreign com-panies conduct their financial business in the Frankfurt marketplace.

In the transactions businesses, i.e. payments and custody, we maintainedand strengthened our market positions. We expect to record furthergains, especially in our custody business, as demand for investmentfunds continues to grow.

The bank recorded satisfactory earnings in 2001. The transfer of all tradingactivities to London reduced our earnings capacity. We neverthelessincreased interest income and fee income from investment bankingactivities while at the same time reducing overhead costs.Through con-servative risk management, we avoided significant write-downs. Themerger, however, resulted in higher one-time personnel expenses,which had a negative impact on earnings.

The current year outlook appears satisfactory, as the transaction volume inour main business areas remains steady. Last year’s equity market down-turn did not affect our business activities.


Boards

6 Boards

Rainer Gebbe

Arnulf Manhold

Peter Schwicht

Supervisory BoardMark S. Garvin, ChairmanStephen F. Wilder, Deputy chairmanCarl H. Schneppensiefer, Employee representative

Management BoardRainer Gebbe, ChairmanGünther Himpich (until Februar 28, 2001)Arnulf ManholdPeter Schwicht (as of July 1, 2002)Sylvia Seignette (until June 30, 2002)


Business Lines

Investor Services 8

Treasury Services 12

Euro-Clearing 14

Trade e-Solutions 16

Investment Banking 18

Mergers & Acquisitions 20

Equity Sales 22

Fixed Income 24

JPMorgan Fleming Asset Management 26


AWARDS

World's Best at Custody (Euromoney, July 2001)

No. 1 Best Global Custodian in Europe(Global Investor, May 2001)

Global Custodian of the Year (The Banker, September 2001)

8 Investor Services

Hopes for a turnaround in equity markets at the beginning of last year weredashed as the U.S. economy slid into recession, aggravated by the eventsof September 11. For the first time since the 1973–74 oil crisis, equitymarkets recorded declines in two consecutive years. Last year, the Daxindex fell by 19.8% and the Stoxx 50 by 18.5%. The German andEuropean markets trended in line with those of the United States, as theNasdaq Composite index also lost approximately 19% on the year(source: Börsen-Zeitung).

Nevertheless, the German equity market is enjoying ever-increasing popu-larity among both institutional and individual investors. Although thenumber of shareholders fell by around 13% in the second half of lastyear relative to the first half, an average of 12.9 million citizens – i. e. 20%of the population over the age of 14 – owned stocks or shares in equityfunds during the year as a whole. In 2000, the corresponding figure was18.5% (source: DAI).With a 41.5% market share, retail equity funds makeup by far the greatest segment of the overall fund market, followed byfixed income funds, which account for 26.6%. All fund groups continuedto record net cash inflows last year. Despite the unfavorable market envi-

Investor Services

From left to right:Arnulf Manhold,

Kirsten Wicht,Oliver Berger.


Investor Services 9

ronment, retail equity funds posted net cash inflows of EUR 8.3 billion.This figure was down considerably from the previous year record of EUR 65.8 billion. Nevertheless, we view these sustained inflows as a clearsign that investors are still optimistic about equities.

Last year, German retail funds and Spezialfonds recorded total net cashinflows of EUR 80.6 billion, or EUR 38.6 billion and EUR 42.2 billion,respectively. This total was down from the EUR 102 billion recorded in2000. Overall, the assets under management totaled EUR 918.6 billion,down from EUR 932 billion in 2000. Last year, Spezialfonds accounted forEUR 501.1 billion (EUR 508.4 billion in 2000), i.e. well over half the overalltotal, while retail funds accounted for EUR 417.5 billion (EUR 423.6 billionin 2000).

Institutional assets under management were spread among a total of 5,261Spezialfonds last year, compared with 5,258 in 2000. This essentiallyunchanged number is noteworthy since from 1999 to 2000, the numberof Spezialfonds increased by 487 (source: BVI).

In this difficult market environment, we recorded further gains andimproved our market position. Cash inflows from existing clientsincreased, and we also acquired new blue chip clients. Despite the mar-ket downturn, we increased the net asset value of our securities portfo-lios managed on behalf of German clients to approximately EUR 78 bil-lion last year, up from EUR 74 billion in 2000. These assets consist ofinvestments in special securities funds and direct investments by ourclients with whom we have a global custody agreement.

German legislation aimed at shaping the future of social security has alteredthe investment landscape and increased the popularity of investmentfunds.

Investment companies can now offer investors more attractive retirementsavings products that feature one-time payouts, payment plans orinstallment payments on the one hand and minimal reserve capitalrequirements to cover redemptions on the other.


10 Investor Services

In early 2002, two new amendments to European investment directiveswere on the verge of being enacted after years of debate. We expectthese new investment themes – crossborder distribution of retailfunds and new structured funds – will generate significant interest.The new structured funds, which allow for a mix of all duly authorizedinvestment instruments, should be very popular. An EU Commissiondocument on pension fund directives, on the other hand, is still in thedraft stage.

The inception of pension funds gives the investment market new mo-mentum for both retail funds and Spezialfonds.The growing demandfrom institutional investors (pension and relief funds as well as insur-ers) for multimanager investment approaches benefits global custo-dians with a market presence in Germany, since they are the onlyones who can meet the heightened investor expectations for safe-keeping and managing securities.

It takes a global custodian to consolidate mandates given by investors toseveral different advisors and to apply a single measure to the variousasset classes in order to calculate the client’s composite performance.

The increased demand for global custodians is also a function of thegrowing popularity of international portfolio investment strategies.Global custodians offer access to more than 80 markets worldwideand a far more extensive network than is found through a traditionalcustodial bank or international clearing system.


In Germany, market liberalization has led to new opportunities andincreased flexibility, as evidenced by the Fourth Financial MarketsPromotion Law and the loosening of regulations on outsourcing. In2001 we added to our leadership position as a custodial bank forSpezialfonds by winning three major mandates, and we now look forward to meeting the challenges ahead by enhancing our range ofservices.

In light of the new regulations governing private retirement savings aswell as the German investing public’s growing acceptance of equities –both Spezialfonds and retail funds – we expect continued robustgrowth. We will use our capacities and know-how in these promisingmarkets.

Investor Services 11

U.S. Japan U.K. Germany

11

3.1

1.7

0.2

Future growth by region

Pension fund market comparison(in US$ trillions)


Treasury Services

Last year, Treasury Services further consolidated its position as the global leader in U.S. dollar clearing and the leading non-Europeaneuro clearer. Our clients are leading multinational corporations, insur-ance companies and financial institutions in Germany and Austria.

In a continuously evolving market, we not only provide our clients withfinancial services but also act as a first-rate advisor and business partner for matters involving treasury, international payments, liquid-ity management, cash management and e-commerce.

Our core competency consists of providing worldwide support and advisory services to optimize the daily processing of internal pay-ment flows. We offer our corporate clients efficient payment systemsthat enable effective assets and liabilities management and an opti-mum use of liquidity. Last year, our services on behalf of financialinstitutions were focused on U.S. dollar payments, liquidity manage-ment, foreign currency payments and continuous linked settlement(CLS). JPMorgan is a CLS member and has established itself as a third-party provider.

12 Treasury Services

From left to right:Andreas Gottlieb,

Carolyn Weiss,Renate Fink.

AWARDS

Best Cash Management Specialist(The Asset, 2001)

Cash Management Solution of the Year(Financial Intelligence)


Treasury Services 13

Treasury Services is a pioneer in the development of innovative financialproducts. These new products are backed by highly sophisticateddata processing and communications technologies as well as localand international customer service emphasizing quality.

While continuing to strengthen our traditional products, we are also taking up the challenge of e-commerce. Treasury Services main-tained its leadership position through advances in the area ofInternet-based platforms. Our systems and contingency programsproved their effectiveness during the disruptions to U.S. dollar pay-ments caused by the events of September 11 in New York. We en-sured error-free U.S. dollar payments processing.

Once again in 2001, Treasury Services achievements in the areas of tech-nological innovations and first-class customer service earned recog-nition. Among the awards received were “Best Cash ManagementSpecialist” (The Asset, 2001) and “Cash Management Solution of theYear” (Financial Intelligence).

Last year, we maintained our position despite a less favorable economicenvironment and falling interest rates.

We continue to invest in our human resources and product develop-ments, as we did last year. Our goal is to strengthen our position forcash management services to large corporations and banks in theAustrian and German financial markets.


Euro-Clearing

From left to right:Wolfgang Heidland,

Paula Blaskovic.J.P. Morgan AG successfully defended its position as a leading euro clear-ing institute last year and ranked first among non-European clearers.Many of our clients, in particular those in Asia, are often surprised tolearn that an American bank has such a strong position in Europe.Our success has traditionally been based on our unique approach offocusing all euro clearing, liquidity management and cash manage-ment at J.P. Morgan AG.

European banks have since adapted to the demands of the marketplaceand their clients. Our main advantage involves our innovative capac-ities and customized individual service. New product investmentsand continued development of artificial intelligence have resulted incost savings for both the bank and our clients. In the business world,globalization can often lead to declining service quality. As a globalfinancial services provider, therefore, JPMorgan places great empha-sis on employee training. Customer satisfaction is assured through acomprehensive understanding of the products, market practices andthe individual needs of our clients.

14 Euro-Clearing


JPMorgan’s experience as the largest U.S. dollar clearer and a leadingeuro clearer ensures that we play a prominent role in European work-ing groups, which also benefits our clients. The primary goal of theseworking groups is to develop standardized straight-through process-ing (STP) of payments and a common fee structure. Thanks to ourwidely acknowledged expertise, JPMorgan has assumed a leadingrole in the conceptual development of RTGSplus, the new Germanreal-time gross processing system.

RTGSplus is a completely new form of clearing system. Paymentexchanges and communications take place exclusively by way of aglobal S.W.I.F.T. standard. Thanks to state-of-the-art IP technology, allRTGSplus participants benefit from efficient liquidity management.The system’s launch last November 5 was completed on scheduleand without a hitch in spite of all the challenges this project posedfor the Deutsche Bundesbank and other participants.

The November 10, 2001 merger between Chase Manhattan Bank andMorgan Guaranty Trust Company of New York also went smoothlyand caused no disruptions for our clients. In the final stage of the con-version to the Euro the local currencies had to be given up at the endof last year. Our customer service department was busy assisting cus-tomers seeking advice in their own internal conversion projects. Thistransition was also handled without complications.

The tragic events of September 11 clearly highlighted the need for afunctional contingency data processing center. JPMorgan conducts regular testing for a complete systems shutdown. These tests haveshown that the system can be brought back online within two hours.Moreover, should such a systems shutdown occur at J.P. Morgan AG,other JPMorgan units in Europe or the United States would be able toprocess all client orders thanks to our centralized back-office pro-cessing. Thus we can ensure continuous transaction processing forour clients.

Euro-Clearing 15


As part of the Treasury Services division within the new JPMorgan Chase,our Trade Finance unit achieved its goals for 2001. The products andservices we developed were introduced to the market.

We extended the range of our IT solutions developed in-house, whichconsist of various applications operating on a common Internet-based platform. One new addition involves the Trade OriginationProcess (TOP). This software enables clients to initiate trade financetransactions online. TradeDocSM makes it possible to generate elec-tronic trade documentation based on the routine communicationswith exporters and transportation companies. TradeInfoExchangeSM

(TIE) allows exporters to determine the status of certain transactionsthrough their own invoice number and to inquire about courier ship-ments through direct access to the shipper’s database. The applica-tion’s other functions include access to multiple branches, a costanalysis as well as the preparation of risk and performance manage-ment reports broken down by region, country and customer.We haveexpanded TIE’s functionality, so that it does provide information notonly to exporters/sellers but also to importers/buyers and financialinstitutions conducting trade finance business with JPMorgan.

JPMorgan's trade solutions are not limited to our own in-house products.They also include third-party applications such as bolero.net andTradeCard.

JPMorgan was the first institution to support the “Connect theCommunity”package from bolero.net.This package facilitates access,since it avoids the high costs of full membership. The launch ofboleroSURF, which monitors the contractual compliance of tradefinance transactions electronically, represents yet another steptowards completely automated trade documents processing.

16 Trade e-Solutions

Trade e-Solutions


JPMorgan was also the first financial institution to provide its corporateclients and financial institutions with a white-label version of theTradeCard technology platform. This new product enables buyersand sellers to initiate and process the entire transaction online andthereby improve their financial supply chains. Thus our clients haveaccess to a document management and money processing platformvia an Internet-based platform or their own processing systems. OnMarch 31, 2002, the International Chamber of Commerce (ICC) pub-lished its eUCP code as an electronic supplement to the existing uni-form codes (UCP500).This development brings the eagerly anticipat-ed world of paper-free trade documentation one step closer.

JPMorgan is well prepared to accompany its clients through this revolu-tionary transformation. Our goal is to ensure the best-possible service while continuing to offer cutting-edge, innovative solutions.

Trade e-Solutions 17


18 Investment Banking

Against the backdrop of a challenging market environment and decliningtransaction volume, we again increased our market share last year.Investment banking remains JPMorgan’s core business, even after thebank’s merger. As part of the merger, we successfully integrated the var-ious business units, including Syndicated Finance, Fixed Income,Emerging Markets, Derivatives and M&A and Capital Markets Services.JPMorgan was named “Bank of the Year 2001” and received 19 otherawards from the International Financial Review, twice as many as theclosest runner-up. JPMorgan focuses on customer-oriented solutions.Now firmly established as a globally competitive financial institution, thebank is well prepared for the next decisive phase of global competition.

Investment Banking

From left to right:Lutz Brade,

Christian Schmiderer,John Jetter,

Martin Schütz.IFR AWARDS

No. 1 in Global Syndicated Loans

World’s Best Debt House

Emerging MarketBond House of the Year


Investment Banking 19

JPMorgan’s teamwork extends across borders and product lines, and ouremphasis on local market expertise and proximity to clients is widelyrecognized as first-rate. Our goal is to work with the bank’s expertsaround the world in order to provide our clients in Germany with thebest-possible solutions. Mutual respect, trust and recognition of individ-ual contributions are the principles that guide our professional teams.Our motivated employees are the basis for our success, and last year theGerman investment banking division did not make any massive layoffsdespite the difficult market environment. Instead, we retained our invest-ment banking team comprising 30 employees.

Through diversification, JPMorgan has become less dependent on capitalmarkets trends. Our current focus is to build up a leadership position ininvestment banking. As a leading global financial services provider, weaim to develop significant business volume with Fortune 1000 clients inthe key global markets.

A recovery in the financial markets will no doubt depend on improved economic fundamentals. The healthier economy should lead to a discernible recovery as early as 2002. As a result, we are optimistic andconfident regarding the outlook for our investment banking business.


20 Mergers & Acquisitions

Despite last year’s unfavorable market developments, JPMorgan maintainedits traditional position as a leading provider of mergers and acquisitionsadvisory services for the German market. The number and, more impor-tantly, volume of M&A transactions in 2001 remained well below theprevious year’s record levels. Our advisory services business was alsoaffected by this market downturn. Nevertheless, JPMorgan again actively participated as a financial advisor in the planning and imple-mentation of major transactions last year.

Working closely with the bank’s globally organized industry and productgroups, JPMorgan offers German and international clients widely recog-nized, first-class strategic advisory expertise in all major economic sectors. This expertise applies to both German and cross-border trans-actions. Last year, JPMorgan provided assistance on major transactionsin the financial services, telecommunications, energy and chemicalsindustries.

Mergers & Acquisitions

From left to right:Christian Stroop,Olaf Hartmann,

Philipp Rose,Roland Schmidt.

IFR AWARDS

No. 1 European cross border M&A

No. 2 European M&A


Mergers & Acquisitions 21

Last year, we successfully completed several telecommunications sectortransactions that began in 2000, such as the sale of the German andSwiss telecommunications interests of E.ON AG. JPMorgan also helpedleading German corporations pursue their international expansion. Forexample,we helped EnBW AG acquire an equity interest in the Spanishutility Hidroelectrica del Cantabrico S.A. and accompanied DeutscheTelekom AG for its acquisition of a majority interest in Croatia’s HrvatskiTelecom.

The bank’s widely acknowledged product expertise in investment bankingalso distinguishes the “new” JPMorgan Chase in Germany. This year, ourgoal is to provide clients with first-rate, innovative strategic advice andfinancing concepts based on closer cooperation with our expertsthroughout the investment banking unit. We are confident that we willbe able to maintain and further strengthen JPMorgan’s positioning as aleading M&A advisory institution in Germany, even at a time when theoutlook for the overall economy and capital markets remain uncertain.


Equity Sales

Despite the volatility in equity markets, 2001 was a very good year forJPMorgan.The prestigious IFR Magazine named the bank “DerivativesHouse of the Year” for the third straight year. In addition, we rankedthird for lead-managed convertible bonds in Europe. This distinctionenabled the bank to receive the IFR award as “European Equity-Linked House of the Year”.

In Germany, JPMorgan made a significant investment in its equity distri-bution platform last year.The bank moved its entire equity sales forceresponsible for German clients to the Frankfurt office. Our globalequity sales team covers all markets in the United States, Europe,Japan and the rest of Asia. The team is aligned regionally instead ofby product. Thus in Germany we have one team with one goal: todeliver the highest quality service to our clients.

22 Equity Sales

From left to right:Jörg Prüßmeier,

Sandra Egerer,Axel Jester.

IFR AWARDS

European Equity-LinkedHouse of the Year

Derivatives House of the Year


In the fourth quarter of 2001, JPMorgan announced another major initia-tive. The bank will consolidate its cash equity and equity distributionplatforms to create one-flow business for facilitating client trades.This group will include cash equity trading, equity derivative trading,futures and options and program trading. We are currently buildingup our equity sales trading team to enable our institutional clients totake full advantage of the power of this new platform.

JPMorgan remains committed to the German equity market. We are oneof the top three firms providing research on German companiesaccording to the Finance Directors of German companies polled inthe 2001 Reuters Survey. Our research is pan-European, sector-based,but it also extends to the small- and mid-cap companies in key sec-tors that can be seen as the stars of tomorrow.

Our goal is clear. JPMorgan intends to build a top three global equitiesbusiness within five years. Germany is the biggest growth market forequities in Europe, driven by the reform of the pension system andthe rise of an equity culture here. These trends will play out over thenext 10 years. This year, JPMorgan will invest in additional personneland resources in order to provide our German clients with the bestinvestment research and market execution.

Equity Sales 23


Our Fixed Income business continues to focus on assisting German andAustrian institutional investors. This division’s success can be attrib-uted in part to our exceptionally broad client base made up of banks,fund companies and insurers. Also, the local presence of ourFrankfurt-based sales teams and our close working relationships withJPMorgan’s global trading and product structuring network play akey role.

JPMorgan serves institutional clients as a business and trading partneron a wide range of fixed-income and primary- and secondary-marketproducts. Among them are international government bonds and syn-dicated corporate issues as well as customized structured productsand so-called alternative investments, which are typically sold toinstitutional investors through private placements.

Among last year’s successful corporate bond issues was the July euro-bond on behalf of Deutsche Telekom. This EUR 8 billion bond issuewith several tranches was one of the largest corporate issues evercompleted. We also placed benchmark-type bonds for Bosch andDaimlerChrysler.The demand generated by our institutional clients ineach case was a decisive factor for the global placement success.Over the long term, however, the bank’s placement success with insti-

24 Fixed Income

Fixed Income

From left to right:Frank Wagnitz,

Klaus Bollmann,Christian Neske.

IFR AWARDS

Derivatives House of the Year

Credit Derivatives House of the Year 2001

Interest Rate Derivatives House of the Year 2001


Fixed Income 25

tutional investors depends on its credible commitment to providesecondary-market support. In this respect, the investment bank’strading division worked together with local Fixed Income sales teamsto ensure a liquid market in corporate bonds for institutionalinvestors. Thus in 2001, JPMorgan was once again among the pre-ferred and dependable trading partners for German institutionalinvestors in the pricing of secondary-market corporate bonds.

Our structured products and alternative investments benefited from theunfavorable financial market environment last year. Underper-forming equity markets and persistent low fixed-income yieldscaused many institutional investors to seek out higher yields thanthose offered by money market instruments and bonds, as well asproducts whose performance is less dependent upon traditionaltypes of investments. Apart from considerations about capital marketfluctuations over the medium term, many institutional investors alsorecognize the need for greater diversity in their asset allocations andto invest in non-traditional segments. Last year, JPMorgan’s FixedIncome division reported that the earnings contribution from thesenon-traditional product segments increased. These products includ-ed investments such as synthetic credit portfolios, classically man-aged collateralized debt obligations and guaranteed capital umbrel-la fund products of alternative asset classes. Here again, the Frankfurtsales team’s proximity to our institutional investor clients and itsdetailed understanding of their competitive environment and specif-ic needs is key. Perhaps the most important factor is the investmentbank’s research, structuring and trading capacity in the area of creditand interest rate derivatives, which are increasingly an integral part ofstructured products. The awards bestowed upon our parent compa-ny by IFR Magazine – “Derivatives House of the Year 2001”, “CreditDerivatives House of the Year 2001” and “Interest Rate DerivativesHouse of the Year 2001” – underscore and confirm the assessment ofour clients, who again last year chose us as their preferred businessand trading partner for complex product solutions.

For 2002, the Fixed Income division expects further strong gains in busi-ness activity, notably in the credit segment. Many German andAustrian institutional investors are actively restructuring their portfo-lios to give greater weighting to credit products. This restructuringapplies to both their existing portfolio inventories as well as newinvestments. These trends provide additional opportunities for cor-porate bonds and structured products. We expect that the demandfor customized solutions in these segments will increase, andJPMorgan is a natural business partner thanks to our experience andknow-how.


26 JPMorgan Fleming Asset Management

JPMorgan Fleming Asset Management is the central asset manager withinthe new JPMorgan Chase group. Worldwide, we manage close toEUR 600 billion on behalf of our clients. In the United States, we are theleading asset manager for institutional and individual investors. We alsorank among the leading international managers of Japanese assets andare the largest asset manager in Asia. In JPMorgan Fleming, we have oneof the most widely recognized trade names in the international distri-bution of financial services.

In Germany, JPMorgan Fleming Asset Management is active in both theinstitutional and retail funds businesses. For institutional clients, wefocus mainly on Spezialfonds, but also manage third-party fundsthrough sub-advisory mandates. In Frankfurt, we manage mainly equity,mixed and bond portfolios. For specialized portfolios such as emergingmarket debt or high-yield bonds, we take advantage of the expertise inour offices in London, New York and other financial centers around the

JPMorgan Fleming Asset Management

From left to right:Martina Reichl,

Susanne Otto,Peter Schwicht.

AWARDS

Standard & Poor's Fund Managerof the Year Awards 2001:

Best Fund Management Group –3 years and 5 years

Lipper "Leaders Group of the Year 2001":Best Mixed Asset Group


JPMorgan Fleming Asset Management 27

world. With all our mandates, however, the client relationship is man-aged locally in proximity to the client. This approach ensures that theclient’s local investment profile receives appropriate consideration.Through regular investment committee meetings and continuous clientcontacts, we provide investors with information on historical trends andtheir current portfolio status while consulting with them to determine afuture investment strategy.

The retail fund business is centered on the distribution of more than 80investment funds incorporated in Luxembourg and registered for sale inGermany. Our distribution channels focus on selected intermediariessuch as banks, asset managers, insurance companies and independentfinancial advisors. Our extensive product range includes all asset cate-gories and investment regions as well as specific investment styles andsectors. We are thus positioned to provide targeted coverage for allclient needs. For equity funds, we offer two proven investment methods.Fixed income funds are managed globally using a single method. Webelieve the continuity of the respective investment methods is key toour long-term success. Furthermore, we continuously review and adjustour asset allocation model as part of our active fund management strat-egy. Risk management is always an important part of this strategy. Ouroverall goal is to provide above-average yields over the long term for aquantifiable risk level.

Last year was marked by the overall market consolidation both in the insti-tutional and retail fund sectors. As a result of the market volatility,our clients dramatically altered their investment behavior. Many choseto increase their exposure to bonds at the expense of equities,which reflected growing risk aversion. At the same time, increased inter-national diversification strategies and investments in corporate andhigh-yield bonds increased, as investors sought to optimize theirreturns. Overall business trends were very satisfactory, given the difficultmarket conditions.


For 2002, we expect continued growth in our institutional business. Weare positioned to cater specifically to the extensive demands of ourclients through our global resources as well as the wide range ofavailable portfolio investment orientations and strategies. We arelooking to use flexible and innovative solutions to offset the effects ofregulatory and fiscal changes, which we expect will have consider-able influence on the markets in the years ahead.

We also view the outlook for our retail funds business favorably.Investment funds now play an important role in the development ofhousehold savings. On average in the last five years, investment fundshave accounted for a third of total investments. The ongoing debateover social security will open up the market for new distributionchannels as well as structured retirement and investment products.With our focus on key clients in these areas,we are ideally positionedto secure a greater share of this market in the future.

28 JPMorgan Fleming Asset Management



Balance Sheet 38

Income Statement 39

Notes to Financial Statements 40

Audit Opinion 50


Business Units 52

Financial Statements


2001 Management Report2001 TrendsLast year, Germany’s economic climate deteriorated. Although the advan-

tages of a relatively weak euro remained in place, the country’s pooreconomic performance worsened after the events of September 11.Real gross domestic product increased by a meager 0.6% in 2001.This sluggish economic growth carried over to this year, leaving theunemployment rate near 10%. Inflation, which stood at 1.7% at year-end, is not expected to subside in the near future, thus casting doubton a further decrease in key interest rates. Lastly, the equity marketdownturn and high taxes will in all likelihood continue to dampenconsumer spending.

Industry consolidation in the German banking industry continues apace.Overcapacity in the branch networks, continued pressure on marginsin the lending business and a growing number of insolvencies haveheightened merger pressures, which will remain acute in Germanyand the rest of Europe. Overall, investment banking revenues areshrinking as a result of the unfavorable equity market trends andM&A sector developments.

In 2001, J.P. Morgan AG recorded break-even earnings. The bank’s activi-ties focus on transaction processing such as euro clearing, cash man-agement, marketing for U.S. dollar clearing and securities custody aswell as commercial lending. The bank also pursues relationship man-agement by providing advisory services to corporate clients andfinancial institutions in the region.

The bank continued to expand its euro clearing operations. Currently, itranks among the leading providers of payments services in Europe.The volume remains sustained at a high level and euro clearing willremain a core business in the years ahead. Applications of cash man-agement models for corporate clients were gradually expanded.

The securities custody business, which is the bank’s second-leading activ-ity, recorded further growth. Last year, numerous new clients wereadded. With the upcoming social security reforms and related devel-opment of investment funds, the importance of the securities cus-tody business will continue to grow.

30 Management Report


The lending business provides services to large German corporations.Thanks to its conservative credit analysis, the bank’s lending businesssuccessfully avoided several notable corporate insolvencies. Foreigncountry risks were addressed through appropriate write-downs. Thebank’s share of foreign business is relatively insignificant comparedto its total business volume. As a result of the merger, corporatefinance and other investment banking activities are handled by sisterinstitutions.

MergerOn September 13, 2000, The Chase Manhattan Corporation and

J.P. Morgan & Co. Incorporated announced their merger plans. OnDecember 29, 2000, the holding companies in New York were mergedto become J.P. Morgan Chase & Co. The banking subsidiaries merged on November 10, 2001. At that time, Chase Manhattan Bank AG wasreincorporated as J.P. Morgan AG. No operational changes were madewith regard to the bank’s payments, securities custody and lendingbusinesses. In the near future, however, advisory services for corporateclients and financial institutions will be handled by sister companies inFrankfurt.The bank incurred extraordinary expenses related to person-nel restructuring costs.

AssetsBusiness volumeLast year, the bank’s total business volume, consisting of total assets and

contingent liabilities, fell by EUR 31.3 million from EUR 7,309.5 millionto EUR 7,278.2 million. At the same time, total assets increased by EUR 27.6 million from EUR 7,140.7 million to EUR 7,168.3 million.



Lending businessThe bank’s loan volume at end-2001 totaled EUR 6,321.2 million, down

from EUR 6,702.7 million, and broke down as follows:

Interbank placings EUR 5,496.3 millionCommercial and industrial loans EUR 715.0 millionGuarantees EUR 109.9 million

The total volume of currency and derivative transactions had a nominalvalue of EUR 462.4 million, or a total credit exposure of EUR 24.6 mil-lion, of which EUR 17.2 million was related to currency transactions,EUR 6.3 million to interest rate transactions and EUR 1.1 million toother price risks.

Securities businessTreasury bills totaling more than EUR 497.9 million were purchased as

short-term investments for cash.

The amount of debt and other fixed-income securities fell by EUR 169.5million to EUR 359.3 million in 2001. The bulk of these securities arepart of a securities lending business.

Equities and other non-fixed-income securities were valued at the lowerof cost or market. Last year, this position increased by EUR 20.1 millionfrom EUR 47.2 million to EUR 67.3 million.

EquityThe book value of the equity including appropriated profit totaled EUR

143.4 million.The EUR 1.0 million increase resulted from a contributionto complete the approved increase in subscribed capital to EUR 60million and includes this contribution.

Equity consists of EUR 59.0 million in subscribed capital, EUR 53.7 millionin capital reserves and EUR 29.7 million in profit reserves. EUR 26.1 mil-lion exists in the form of profit participation rights. Based on the year-end financial statements, the bank’s liable capital under section 10 ofthe German Banking Act (KWG) amounted to EUR 224.5 million andrepresented 3.13% of total assets on December 31, 2001.



Financial positionThird-party depositsThird-party deposits decreased last year by EUR 403.8 million to EUR

6,510.8 million, as bank deposits fell by EUR 815.6 million to EUR4,923.0 million and customer deposits rose by EUR 411.9 million toEUR 1,587.8 million.

Certificated liabilities increased to EUR 404.0 million through the issuanceof loans in the amount of EUR 0.6 million the previous year.

LiquidityAt year-end, the bank had a liquidity ratio of 1.86.Liquidity was assured at all

times during the year. The Treasury bills are fully eligible for refinancingwith the German central bank. The debt securities from the securitieslending business can also be refinanced with the German central bankto obtain liquidity.

In addition, JPMorgan Chase Bank, London, has pledged a substantial vol-ume of securities, which are safekept by Deutsche Bundesbank, andother refinancing sources exist within the JPMorgan Group.

ProfitabilityOperating income improved relative to the previous year.

Net interest income increased from EUR 32.6 million to EUR 35.7 million.This increase was due to the steady decline in interest rates in 2001,which reduced short-term refinancing costs.

Fees and commissions received rose by EUR 0.3 million to EUR 50.8 mil-lion. Despite the unfavorable market developments, the investmentbanking business once again generated satisfactory earnings as it didthe previous year. Because fee and commission expenses alsoincreased, net fee and commission income fell slightly from EUR 45.0million to EUR 44.6 million.

Other operating income increased from EUR 4.4 million to EUR 8.4 millionlast year as a result of services provided on behalf of the consolidatedgroup.



Total administrative expenses fell from EUR 61.2 million to EUR 57.5 mil-lion. This EUR 3.7 million decrease reflects the first cost savingsachieved under a cost reduction plan implemented in the corporateadministration.

Expenses from write-downs and loan loss provisions on receivables andcertain securities totaled EUR 24.7 million and resulted mainly fromsubstantial reserve allocations for the lending business.

Extraordinary expenses include all known restructuring costs for whichappropriate reserves were established.

A fiscal entity was established with the bank’s shareholder, J.P. MorganBeteiligungs- und Verwaltungsgesellschaft mbH, Frankfurt am Main.

In 2002, net interest income is expected to remain unchanged. Net fee andcommission income and administrative expenses are expected todecline.

Risk management and exposureThe bank’s risk management system receives high priority and applies

across all businesses. It covers credit risks and all other types of marketand operational risks. the entire Management Board is responsible forrisk management, which consists of identifying and quantifying risksin all the various businesses and implementing appropriate solutionsto monitor and control them. The bank protects itself against lossesand ensures smooth-functioning operations at all times through aninternal, computer-assisted audit system, completely separate riskcontrol units, daily valuations and reconciliations, strictly regulatedauthorizations and, lastly, contingency planning.

Credit risksAlong with the mandatory review accorded every credit issued, borrowers

are ranked on a scale of 1 to 10. The JPMorgan Group also conductsperiodic country reviews using the same scale. Borrowers neverreceive a higher rating than that of the country in which they arebased. Credit equivalents for off-balance-sheet transactions are deter-mined using the replacement value plus an add-on to cover futuredefault risk, which is based on a 97.5% probability of the historicalprice volatility. Separate software is used to make these calculations.



Each exposure is reviewed at least once per year. Limit excesses are moni-tored daily. Limits are also established for settlement risk.

Special provisions for loan loss reserves were established for impaired ornon-performing loans. Loss reserves were also made for country risks,when the country risk’s classification falls between 6 and 10. Generalprovisions for loan loss reserves were taken based on average defaultrates over the past five years, with a further provision added to that.

The risk-weighted assets pursuant to Principle I break down as follows:

EUR millions 12/31/01 12/31/00

Balance sheet assets 1,373 1,547Contingent liabilities and loan commitments 117 136Derivatives 7 7Market risk positions 1 1Risk-weighted assets 1,498 1,691

Liable capital pursuant to section 10 of the German Banking Law (KWG) 199.4 188.2Liable capital as a percent of risk-weighted assets 13.3% 11.1%

Total credit volume broken down by country (excluding accrued interest)

EUR millions 12/31/01 12/31/00

OECD countries 6,802 7,167Non-OECD countries 552 254

of which:secured 511 130unsecured 42 124

Liquidity riskA cash management group was created for the purpose of daily liquidity

management for the euro clearing business. This group allocates pay-ment flows to the respective clearing systems and reports the liquidi-ty shortfall or surplus.

A daily maturity report on all balance sheet and currency transactions isprovided for Treasury. No call risks exist.



Market riskJPMorgan Group has implemented separate, global software systems to

manage the various market risks. Risk positions are assessed daily andcompliance is assured through these systems.

Interest rate risksAll trading book transactions are assessed daily at market rates, which are

used to determine the value at risk (VAR). The VAR represents thepotential loss on any one day with a 99% probability. At year-end, thetrading portfolio’s VAR was nil.

A daily VAR is also calculated for non-trading book transactions, whichinclude those of JPMorgan Chase Bank – Frankfurt Branch, althoughtheir interest rate risk is immaterial.The highest VAR for these positionslast year totaled U.S.-$ 0.4 million. At year-end, their VAR stood at U.S.-$ 0.1 million.

Currency risksThe bank does not have any currency trading activities. For foreign cur-

rency transactions on the balance sheet, limits are established forpositions in all currencies.

Operating risksEmergency offices exist in a separate building. The data centers in

Bournemouth, England and Wilmington and Somerset in the UnitedStates also have back-up facilities in a geographically removed loca-tion. Contingency planning is in place for a work stoppage. All emer-gency facilities are tested regularly.

Ample provisions for loan loss reserves have been made for all recogniza-ble credit risks. Market risk positions exist only to a limited degree.Thebank has made comprehensive preparations for all other risks. Thebank’s risk exposure is not likely to harm future business develop-ments.



Outlook for 2002Business developments in the current year are satisfactory. The clearing

business is sustained at a high level and the securities custody busi-ness also continues to perform well. Several large contracts are cur-rently being negotiated, and are expected to be successfully complet-ed.The lending business remains slightly down after allowing for con-servative valuation principles. J.P. Morgan AG was not involved in anyof the large, highly publicized corporate insolvencies in Germany lastyear.

This year, the bank has issued debt securities to refinance foreign loans.The bank will likely issue additional debt securities before the end of2002.



38 Balance Sheet

Assets (EUR thousands) Notes 2001 2000

Liquid Funds 1 23,563 3,748Treasury bills and certificates eligible for refinancing with the central bank 2 497,911 0Interbank Placings 3 5,496,343 6,235,034Commercial and Industrial Loans 4 715,028 298,873Debt Securities and other Fixed-Income Securities 5 359,324 528,774Equities and other non-Fixed-Income Securities 67,279 47,155Investments 6 262 250Tangible Fixed Assets 7 5,141 5,911Other Assets 3,428 20,929Prepaid and Deferred Expenses 44 17Total Assets 7,168,323 7,140,691

Liabilities and Equity (EUR thousands) Notes 2001 2000

Liabilities to Banks 8 4,922,961 5,738,625Liabilities to Customers 9 1,587,836 1,175,949Certificated Liabilities 10 404,015 607Other Liabilities 9,236 3,973Deferred Income 66 99Accrued Expenses 11 74,716 52,967Profit Participation Rights 12 26,076 26,076Equity 13 143,417 142,395Total Liabilities and Equity 7,168,323 7,140,691

Contingent Liabilities 14 109,883 168,838Other Commitments 15 108,734 122,698

Balance Sheetof J.P. Morgan AG, Frankfurt am Main, as of December 31, 2001


Income Statement 39

Income StatementJ.P. Morgan AG, Frankfurt am Main, for the period January 1, 2001 through December 31, 2001

EUR thousands Notes 2001 2000

Interest Income 16 240,266 204,408 Interest Expenses 204,563 171,780

35,703 32,628 Income from Investments 59 140 Commission Income 50,762 50,494 Commission Expenses 6,132 5,460

44,630 45,034 Net Income from Financial Operations 551 1,946 Other Operating Income 8,372 4,437 General Administrative Expenses 17 57,510 61,250 Amortization and Depreciation of Intangible andTangible Fixed Assets 1,452 1,550 Other Operating Expenses 1,507 72 Expenses from Write-Downs of Certain Securities and Loan Loss Provisions as well as Increases in Reserves for Credit Business 24,697 13,713 Income from Write-Backs of Certain Securities and Dissolution of Reserves for Credit Business – –

18 -24,697 -13,713 Write-Downs of and Provisions against Investments, Shares of Affi liated Companies and Securities held to Maturity – –Results from Normal Operations 4,149 7,600 Extraordinary Result 19 -1,745 - 7,596 Corporate Tax 2,350 –Other Taxes, if not included under “Other Operating Expenses” 54 4

20 -2,404 -4 Profi ts transferred as a Result of a Profi t-Transfer or a Partial-Profi t-Transfer Agreement – –Net Income – –Transfers to Profi t Reserves:to Other Profi t Reserves – – Unappropriated Profit – –


40 Notes to the Financial Statements

General RemarkThe balance sheet and income statement formats are consistent with

those of the previous year, as are the accounting and valuationmethods.

Foreign Currency ConversionForeign currency receivables and liabilities were converted using the ref-

erence exchange rates determined by the European Central Bank onthe balance sheet date.

Unsettled currency forward contracts were valued according to the for-ward rate on the balance sheet date. Profits on a currency conversionwere only booked insofar as they did not exceed the settlement ofexpenses related to covering a position in the same currency.

Profits and losses stemming from the conversion of foreign currencypositions separately covered by forward contracts were accountedfor in the income statement and the net result was entered under„Other Assets” on the balance sheet.

Balance sheet positions in foreign currencies are valued as separatelycovered transactions as long as they are clearly hedged using cur-rency forward contracts. The separate coverage is documented foraccounting purposes through the booking of an internal currencytransaction.

Other Valuation MethodsLiquid assets are entered at face value.

Receivables due from banks and customers are entered using the lowerof face value or acquisition cost plus accrued interest minus deferreddiscount. Individual loss reserves have been made for doubtfulreceivables because of country risk or receivables otherwise indefault, and were deducted from the “Receivables” position on thebalance sheet.

Special loss reserves have been made for doubtful contingent receiv-ables from banks and customers because of country risk or contin-gent receivables otherwise doubtful, and are reported under“Accrued Expenses.” General loss reserves for loan losses andrecourse claims were established using the average default rate ofthe past five years, with the amount deducted from “Receivables” orreported under “Accrued Expenses.”

Notes to Financial Statementsof J.P. Morgan AG, Frankfurt am Main, for the period January 1, 2001 through December 31, 2001


Notes to the Financial Statements 41

Treasury bills were valued at cost plus deferred discount. Differentialamounts between the purchase price and higher face value are pro-rated over the remaining term period.

Bonds and other fixed-income securities were valued conservatively usingthe lower of acquisition cost or face value plus accrued interest, mar-ket price on the balance sheet date or their appraised value. Bondsheld by a securities lending business were valued using the price ofthe day they were borrowed.

Equities and other non-fixed-income securities were valued at the lowerof cost or market.

Investments in other companies were entered at the lower of acquisitioncost or appraised value.

Tangible fixed assets were valued at their acquisition cost minus sched-uled straight-line depreciation. Low-value fixed assets are fully ex-pensed in accordance with section 6, paragraph 2 of the Income TaxLaw (EStG).

Other assets were valued according to the principle of lower of cost ormarket.

Costs and income were reported using the accrual method and attributedto the respective balance sheet entries.

Liabilities were reported according to the amount repayable.

Pension reserves were established on the basis of an actuarial expert opin-ion conforming to the provisions of section 6a of the Income Tax Law(EStG). The reserve level was determined using the 1998 Heubeckactuarial tables.

Appropriate reserves were set up for contingent liabilities and impendinglosses related to unsettled transactions.

Interest from interest rate swaps was accrued on a pro rata basis andentered as receivables or liabilities, whereby the interest rate claimswere netted out against interest rate obligations resulting from thesame transaction. The interest rate swaps were recorded using theirnet present value, in which future payment streams are discountedagainst market interest rates as of the balance sheet date, and theresults netted out for each swap. There was no need to establishreserves for unrealized net losses. Unrealized losses from hedgingtransactions, which are covered by balance sheet assets, and unreal-ized losses in the bank’s trading portfolio, which are covered by corre-sponding unrealized profits from the interest portion of currencyswaps, were not recorded in the income statement.



(1) Liquid FundsEUR thousands 12/31/01 12/31/00

Cash 12 12Balances held with Central Banks 23,551 3,736of which:held with Deutsche Bundesbank 23,551 3,736

23,563 3,748

(2) Treasury bonds and certificates eligible for refinancing with the central bankEUR thousands 12/31/01 12/31/00

Treasury bills and non-interest-bearing Treasury orders and other similar Treasury debt instruments 497,911 0of which:eligible as collateral with the Deutsche Bundesbank 497,911 0

(3) Interbank PlacingsEUR thousands 12/31/01 12/31/00

Due on demand 4,629,838 4,855,441With a remaining Term or Notice Period of

– up to 3 months 829,125 1,347,469– more than 3 months up to1 year 29,516 18,318– more than 1 year up to 5 years 6,148 11,714– more than 5 years 1,716 2,092

866,505 1,379,5935,496,343 6,235,034

of which:Due from Affi liated Banks 4,259,745 5,846,662

(4) Commercial and Industrial LoansEUR thousands 12/31/01 12/31/00

With Undetermined Term 61,956 74,138Other Claims with a Term orNotice Period of

– up to 3 months 51,397 42,745– more than 3 months up to1 year 22,401 19,539– more than 1 year up to 5 years 496,135 106,022– more than 5 years 83,139 56,429

715,028 298,873of which:Due from Affi liated Companies 69,004 28,261

Notes to Financial Statements of J.P. Morgan AG, Frankfurt am Main, for 2001



(5) Debt Securities and other Fixed-Income SecuritiesEUR thousands 12/31/01 12/31/00

Debt Securities and otherFixed-Income Securities: 359,324 528,774

of which:Due the following year 350,910 499,183

Bonds and Debt Securities– Issued by Public Bodies 350,910 511,189

of which: eligible as collateral withDeutsche Bundesbank 350,910 511,189– Issued by other Borrowers 8,414 17,585of which: eligible as collateral withDeutsche Bundesbank 0 0

Marketable securities:listed 350,910 511,189unlisted 8,414 17,585

(6) InvestmentsEUR thousands 12/31/01 12/31/00

Investments 262 250of which:Banks 89 89

Marketable securitieslisted 133 0unlisted 0 0

(7) Changes in Fixed Assets

Acquisition Cost/ Depreciation andCost of Production Write-Downs Book Value

Balance Additions Disposals Accumu- Current Balance BalanceEUR thousands 1/1/01 lated Year 12/31/01 12/31/00

Tangible Fixed Assets 9,972 907 1,051 4,687 1,367 5,141 5,911Investments inOther Companies 345 1,761 1,749 95 0 262 250

The complete inventory of tangible fixed assets relates to office equipment, furniture and fixtures.



(8) Liabilities to BanksEUR thousands 12/31/01 12/31/00

Due on Demand 2,698,344 4,000,437With a remaining Term or Notice Period of

– up to 3 months 1,558,537 1,085,384– more than 3 months up to1 year 567,372 523,437– more than 1 year up to 5 years 95,221 82,929– more than 5 years 3,487 46,438

2,224,617 1,738,1884,922,961 5,738,625

of which:Due to Affiliated Banks 4,239,144 4,627,336

(9) Liabilities to CustomersEUR thousands 12/31/01 12/31/00

Due on Demand 1,478,887 979,746With a remaining Term orNotice Period of

– up to 3 months 98,563 194,233– more than 3 months up to1 year 96 917– more than 1 year up to 5 years 289 586– more than 5 years 10,000 467

108,948 196,2031,587,835 1,175,949

of which:Due to Affiliated Companies 438,412 80,864

(10) Certificated LiabilitiesEUR thousands 12/31/01 12/31/00

Debentures issued 404,015 0Other Certificated Liabilities with aremaining Term or Notice Period of

– up to 3 months 0 571– more than 3 months up to1 year 0 36– more than 1 year up to 5 years 0 0– more than 5 years 0 0

0 607404,015 607

of which:Own Acceptances and PromissoryNotes Outstanding 0 607



(11) Accrued ExpensesEUR thousands 12/31/01 12/31/00

Accrued Expenses for Pensions and Similar Liabilities 57,231 41,820Accrued Tax Expenses 2,400 0Other Accrued Expenses 15,085 11,147

74,716 52,967

(12) Profit Participation RightsEUR thousands 12/31/01 12/31/00

J.P. Morgan Beteiligungs- und Verwaltungsgesellschaft mbH,Frankfurt am Main 26,076 26,076

26,076 26,076

(13) EquityEUR thousands 12/31/01 12/31/00

Contributions to complete the approved capital increase 1,023 0Subscribed capital 59,029 59,029Capital Reserves 53,686 53,686Profit Reserves

– legal reserves 5,903 5,903– other profit reserves 23,777 23,777

143,418 142,395

Subscribed capitalAs of December 31, 2000, the subscribed capital consisted of 11,545

shares, each with a nominal value of DM 10,000. Pursuant to theExtraordinary Shareholders’ Meeting of November 27, 2001, the sub-scribed capital was reallocated such that an individual share certificatereplaced each share with a nominal value of DM 10,000. In addition,the former subscribed capital of DM 115,450,000 was converted toEUR 59,028,647.68 in accordance with section 4 of the EuropeanUnion Stock Corporation Law (EG AktG).

The Extraordinary Shareholders’ Meeting also approved a EUR 966,239.32capital increase in exchange for cash contributions, thereby increasingthe subscribed capital from EUR 59,028,647.68 to EUR 59,994,887through the issue of 189 registered shares at a price of EUR 5,113. Thecapital increase was not entered into the commercial register as of thebalance sheet date. Because it was not yet entered, the contributionswere reported as “contributions for the completion of the approvedcapital increase”. The Extraordinary Shareholders’ Meeting resolved toimplement a further capital increase in exchange for in-kind contribu-tions in the amount of EUR 5,113.



On the date the capital increase is entered into the Commercial Register,the subscribed capital will total EUR 60,000,000, divided into 11,735individual share certificates.

Changes in Capital Reserves Balance Balance

EUR thousands 12/31/00 Increase Withdrawal 12/31/01

53,686 0 0 53,686

Changes in Profit ReservesBalance Balance

EUR thousands 12/31/00 Increase Withdrawal 12/31/01

Legal Reserves 5,903 0 0 5,903Other Profit Reserves 23,777 0 0 23,777

29,680 0 0 29,680

Foreign Currency Assets and LiabilitiesEUR thousands 12/31/01 12/31/00

Assets 1,412,745 1,305,703Liabilities 1,410,985 3,862,620

(14) Contingent LiabilitiesEUR thousands 12/31/01 12/31/00

Liabilities from Guarantees andIndemnity Agreements 109,883 168,838

109,883 168,838

(15) Other CommitmentsEUR thousands 12/31/01 12/31/00

Irrevocable Lines of Credit Granted 108,734 122,698108,734 122,698



(16) Interest IncomeEUR thousands 12/31/01 12/31/00

Loans and Money Market Transactions 236,584 193,869Fixed-Income Securities and Debt Register Claims 3,682 10,539

240,266 204,408

(17) General Administrative ExpensesEUR thousands 12/31/01 12/31/00

Personnel Expenses– Wages and Salaries 19,475 18,438– Social Security Contributions,Pensions and Welfare Expenses 5,952 6,918

of which:Pensions 3,914 4,669

25,427 25,356Other Administrative Expenses 32,083 35,894

57,510 61,250

(18) Provisions for RisksEUR thousands 12/31/01 12/31/00

Loans -25,840 -14,434Securities from Liquidity Reserve 1,143 721

-24,697 -13,713

(19) Extraordinary ResultEUR thousands 12/31/01 12/31/00

extraordinary income 9,540 0extraordinary expenses -11,285 -7,596

-1,745 -7,596

The extraordinary income resulted from a lower value of pension reservesacquired as part of a split-off from J.P. Morgan Holding DeutschlandGmbH and revalued in accordance with section 6a of the Income TaxLaw (EstG) as well as a back payment that arose from a previous merg-er.The extraordinary expenses include personnel and other expensesrelated to restructuring measures related to the merger between TheChase Manhattan Corporation and J.P.Morgan & Co. Incorporated.

(20) Tax expensesTax expenses involve mainly liabilities from previous years.

Notes to Income Statementof J.P. Morgan AG, Frankfurt am Main, for 2001



The following forward contracts were unsettled as of the reporting date:– Currency forwards– Interest rate swaps– Cross currency swaps– Interest rate options– Total Return Swap

The bulk of the forward currency agreements serve to hedge against currency fluctuations. A significant portion of interest rate forwardagreements involve closed positions, in which the bank serves as inter-mediary. A portion of the interest rate transactions serve to hedgeagainst interest rate fluctuations. The total return swap served tohedge against market risk.

Relations to Affiliated CompaniesThe consolidated financial statement for the largest and smallest consoli-

dated groups are put together by J.P. Morgan Chase & Co., New York. Itis available from us. A subordination and profit-transfer agreementexists with the shareholder, J.P. Morgan Beteiligungs- und Verwaltungs-gesellschaft mbH. A dependent company report, as stipulated by sec-tion 312 of the German Stock Corporation Law (AktG) is therefore notrequired.

Other Financial CommitmentsOn account of the holding in the Liquiditätskonsortialbank GmbH, contin-

gent liabilities to put up further capital under section 26 of the Law onLimited Liability Companies (GmbH-Gesetz), existed in the amount ofEUR 600,000 as of the reporting date, as did joint liability obligationsunder section 5, paragraph 2 of the articles of incorporation.

The bank is a member of the Federation of German Banking Industry(Bundesverband Deutscher Banken e.V.) and its deposit guaranty fund(Einlagensicherungsfonds).

EmployeesWe employed, on an annual average, 221 employees.

Officers (Handlungsbevollmächtigte) 65 Commercial Clerks 103 Authorized Officers (Prokuristen) 53 Total 221

Total Compensation to Managers and DirectorsManagement Board Compensation totaled EUR thousands 1,747Supervisory Board Compensation totaled EUR thousands 3

Miscellaneous Notes


Loans to Managers and DirectorsManagement Board EUR thousands 343Supervisory Board EUR thousands 0

Total Compensation to Former Managers and Directors and Their Surviving DependentsWe paid EUR 148,000 to former Management Board members and their

surviving dependents. Pension reserves for them totaled EUR2,819,000 on December 31, 2001.

Management BoardRainer Gebbe, Banker Chief Executive OfficerGünther Himpich, Banker (until Februay 28, 2001)Arnulf Manhold, BankerSylvia Seignette, Banker

Supervisory BoardMark S. Garvin, Managing Director Chairman

Senior Country Officer, JPMorgan Great BritainStephen F. Wilder, Senior Vice President Deputy Chairman

Treasury Services, JPMorgan EuropeCarl H. Schneppensiefer, Banker (employee representative)

Frankfurt am Main, May 2002

J.P. Morgan AGFrankfurt am Main

Management Board

Rainer Gebbe Arnulf Manhold Sylvia Seignette



50 Audit Opinion

We audited the financial statements, accounts and Management Report ofJ.P. Morgan AG for the period January 1, 2001 through December 31,2001. Under German commercial law and in accordance with the com-pany’s by-laws, it is the Management Board’s duty to prepare theaccounts, financial statements and Management Report. Our task is torender an opinion based on our audit of the financial statements,accounts and Management Report.

We performed our audit in accordance with section 317 of the GermanCommercial Code (HGB) and generally accepted accounting principlesestablished by the German Institute of Financial Accountants (IDW).Under these principles, the audit is to be planned and implemented insuch a way as to identify with sufficient probability any errors and mis-representations that would affect the true and fair view of the compa-ny’s net worth, financial position and profitability as contained in thefinancial statements prepared in accordance with generally acceptedaccounting principles and in the Management Report. The audit pro-cedures are determined by taking into account the company’s opera-tions, the economic and legal environment and likely areas for poten-tial errors.The audit relies mainly on random sampling to verify theefficacy of internal controls as well as accuracy of the information pre-sented in the accounts, financial statements and Management Report.The audit opinion covers the accounting methods and significant esti-mates made by the Management Board as well as the overall presen-tation of the financial statements and Management Report. Webelieve that our audit forms a sufficiently secure basis for rendering anopinion.

Our audit raised no objections.

We believe that the financial statements prepared in accordance withgenerally accepted accounting principles present a true and fair viewof the company’s net worth, financial position and profitability. TheManagement Report accurately portrays the company’s situation andidentifies future risks.

Frankfurt am Main, May 15, 2002

PricewaterhouseCoopers GmbHAuditing Firm

(Funke) (Atton)Auditor Auditor

Audit Opinion



The Supervisory Board supervised the Management Board throughoutthe year on the basis of written and oral reports and discharged itsduties according to the law. Important matters of business policy wereexamined by the Supervisory Board and reviewed by theManagement Board.

The Supervisory Board met twice to discuss the bank’s economic situa-tion, strategy, integration within the consolidated Group and the gen-eral business environment. In particular, the Supervisory Board wasinformed of the default risks in the lending business and market risksin the Treasury business. The Supervisory Board was also informed ofoperational risks related to euro-clearing and securities custody. Themergers with Robert Fleming and JPMorgan were completed onJanuary 1 and November 10, 2001, respectively. Aside from the namechange to J.P. Morgan AG, these mergers had little impact on thebank’s business activities during the year. The Supervisory Board wasregularly informed about the mergers by the Management Board.

On February 28, 2001, Günther Himpich retired from the ManagementBoard. A new Management Board plan for dividing up responsibilitieswas approved.

The year-end Financial Statements and the Management Report for 2001as well as relevant accounting records have been examined by theduly appointed auditing firm of PricewaterhouseCoopers GmbH,Frankfurt am Main.

The auditing firm issued an unqualified opinion.

The results of an audit carried out by the Supervisory Board confirm theyear-end Financial Statements and the Management Report. TheFinancial Statements as of December 31, 2001 and the ManagementReport have been approved by the Supervisory Board.

The Annual Report is herewith determined.

The Supervisory Board would like to express its thanks to theManagement Board and to all employees for their performance andcommitment.

The Supervisory Board, June 7, 2002

Mark S. GarvinChairman

Supervisory Board Report


52 Business Units

J.P. Morgan AG

Management Board

Corporate FinanceInvestor ServicesAsset-ManagementInstitutional Clients/Global Cash ManagementEuro-ClearingLeasingTrade e-SolutionsBerlin Office

JPMorgan Chase BankFrankfurt Branch

General Manager

J.P. Morgan Securities Ltd.Frankfurt Branch

General ManagerEquity Sales

J.P. Morgan Leasing GmbH Frankfurt Office

Berlin Office

General Manager

J.P. Morgan FlemingInvestment GmbH

General Managers

J.P. Morgan FlemingFonds Marketing GmbH

General Managers

J.P. Morgan PartnersDeutschland GmbH

General Manager

Business Unitsof the JPMorgan Group in Germany

60284 Frankfurt am Main Street Address:Grüneburgweg 260322 Frankfurt am Main

Rainer Gebbe (Chief Executive Officer)Arnulf ManholdPeter SchwichtRainer GebbeArnulf ManholdPeter SchwichtCarolyn Weiss

Paula BlaskovicManfred NeureutherAnil Walia

Unter den Linden 1210117 Berlin

Andreas Graf von Hardenberg

60284 Frankfurt am Main Street Address:Börsenstraße 2-460313 Frankfurt am Main

Rainer GebbeJohn Jetter

60284 Frankfurt am MainStreet Address:Börsenstraße 2-460313 Frankfurt am Main

David ScullyDavid Scully

Grüneburgweg 260322 Frankfurt am MainUnter den Linden 1210117 Berlin

Rainer Gebbe


Jens SchmittMartina Reichl


Peter SchwichtSusanne OttoBernhard Klocke

Kardinal-Faulhaber-Str. 1080333 München

Georg Stratenwerth

TelephoneTelefax

(0 69) 71 58-0(0 69) 71 58-22 09

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on

AcknowledgementsPublisher J.P. Morgan AG

Frankfurt am Main

Layout and Design Schoeller GmbH Corporate CommunicationsHamburg

Lithography repro 69Hamburg

Printer Druckhaus ArnsRemscheid

Photos Marco Moog Hamburg

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