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Someone recently posted on JPM. Here is another point of view. Please
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John
------------------ Reply Separator --------------------
Originally From: jcappello1@xxxxxxxxxxx
Subject: ~ Salomon Smith Barney
Date: 10/22/2002 10:00pm
~ Salomon Smith Barney
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S a l o m o n S m i t h B a r n e y R e s e a r c h
JPM: A Closer Look At Risks Illustrates Value In JPM
Shares
Jp Morgan Chase & Co(JPM)
Rating: 1H
As of 10/22/2002
Last Changed 09/07/2002
Salomon Smith Barney ~ October 17, 2002
Printable PDF Version
See last pages for Important Disclosures
JP Morgan Chase (JPM)
JPM: A Closer Look At Risks 1H (Outperform,
High Risk)
Illustrates Value In JPM Shares Stock ratings are relative to
analyst's
industry coverage universe
Mkt Cap:
$36,287.4 mil.
October 17, 2002 SUMMARY
* The only relevant analysis re JPM is the
downside to
BANKS book. Our analysis shows that a conservative
but
Ruchi Madan reasonable downside to tangible book is $15.24
(vs
+1-212-816-1946 $16.37 now) and that even in a very extreme
case, it
ruchi.madan@xxxxxxxx could be as low at $14-15, implying JPM's
current
Matthew O'Connor, valuation is irrational, in our opinion.
CFA * We discuss risk in derivatives, credit, and
private
+1-212-816-1717 equity.
* Management has begun to restructure the inv bkg
Prashant Bhatia, CFA business to adapt to the new environment and
improve
+1-212-816-1644 the profitability of JPM. We expect additional
announcements in coming qtrs. Mgmt noted that
an addl
2,200 headcount reduction will result in $700m
cost
reductions in 2003 ($0.23).
* 3Q trends were as previewed--C&I credit costs
were
high, trading revs were depressed & retail
trends were
strong. Core earnings should remain under
pressure
NT, 4Q EPS should rebound as credit costs and
trading
normalize.
* We rate the US Banking Industry as Market
Weight.
FUNDAMENTALS
P/E (12/02E) 10.7x
P/E (12/03E) 7.6x
TEV/EBITDA (12/02E) NA
TEV/EBITDA (12/03E) NA
Book Value/Share (12/02E) NA
Price/Book Value NA
Dividend/Yield (12/02E) $1.36/7.4%
Revenue (12/02E) NA mil.
Proj. Long-Term EPS Growth 10%
ROE (12/02E) NA
Long-Term Debt to Capital(a) NA
JPM is in the S&P 500(R) Index.
(a) Data as of most recent quarter
SHARE DATA RECOMMENDATION
Price (10/15/02) $18.29 Current Rating
1H
52-Week Range $40.38-$15.45 Prior Rating
1H
Shares Outstanding(a) 1,984.0 mil. Current Target Price
$30.00
Convertible No Previous Target Price
$30.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q
Full Year
12/01A Actual $0.70A $0.33A $0.51A $0.12A
$1.66A
12/02E Current $0.57A $0.58A $0.16A $0.40E
$1.71E
Previous $0.57A $0.58A $0.10E $0.40E
$1.65E
12/03E Current NA NA NA NA
$2.40E
Previous NA NA NA NA
$2.40E
12/04E Current NA NA NA
NA NA
Previous NA NA NA
NA NA
First Call Consensus EPS: 12/02E $1.71; 12/03E $2.64; 12/04E NA
OPINION
JPM reported 3Q-operating EPS of $0.16 vs our reduced estimate of
$0.10 and
consensus of $0.07. JPM also announced headcount reductions of 2,200
in the
investment bank for which there will be a $450m severance cost ($300m
of it
in 4Q), which is expected to result in $700m in annual cost savings
($0.23/share) beginning in 2003. Results were mostly in line with the
preannouncement (ie high commercial credit costs, weak trading,
strong retail
results) and management provided more detail on credit risk, which we
discuss
in greater detail.
Given JPM's very depressed valuation and all the worries about
additional
hits to capital, the only relevant analysis, in our opinion, is a
review of
potential hits to capital to get comfortable with downside. We
believe that
most investors agree that there's tremendous EPS leverage once the
environment improves, but we need to first get comfortable with
downside.
WHAT ARE INVESTORS WORRIED ABOUT?
We've heard many concerns about JPM over the past several months, but
the
ones we view as most worthy of a discussion are credit risk, risk of
private
equity writedowns, and legal risk. In Exhibit 1, we provide an
analysis of
JPM's book value considering continued depressed earnings as well as
capital
hits related to these three factors. This analysis shows that a
conservative
estimate of downside to tangible book value is about $15.24. We're
not ruling
out that JPM doesn't trade below tangible book, but we would view
that as
temporary.
As we explain below, we've assumed losses beyond what is already in
our
estimate of $1.3b related to private equity and $1.5b of credit
(bringing
total commercial credit costs to more than $2.5b in 2003 vs a likely
$1.8b in
2002 including the large 3Q hit which included $570m of reserve
build), and
we've assumed a $1b hit from the surety bond. Assuming continued
depressed
earnings, this implies a year end 2003 book value of $15.24. Even if
we
assume another $2b hit, the tangible book value would still be $14-
15.
Considering that brokers are trading at about 1.7X tangible book, we
believe
this analysis shows that the fear in JPM shares is irrational.
Exhibit 1: JPM Book Value Reconciliation ($m, except per share
amounts)
9/30/2002 Actual comments
Total SH equity 43,437
Preferred equity (1,009)
Intangibles (9,756) excludes MSRs
Tangible eq 32,672
Book value per share $21.26
Tangible BV per share $16.37
Year end 2002E
9/30/2002 common eq 42,428
4Q02 net income 802 assumes $0.40 EPS
Merger charges (228) per management guidance
Dividend (679) assumes $0.34 per share
Year-end equity 42,324
Year-end tangible eq 31,559
Book value per share $21.20
Tangible BV per share $15.81
Year end 2003E
1/1/2003 equity 42,324
2003 NI 4,012 assumes $0.50 per quarter
Enron surety bond chg (650) assumes $1b PT
Credit charge (975) assumes $1.5b PT
Private equity (813) assumes $1.25b PT
Dividend (2,714) assumes $0.34 per share
Year-end equity 41,184
Year-end tangible eq 30,419
Book value per share $20.63
Tangible BV per share $15.24
Source: SSB and JPM.
Derivatives
Another irrational fear is the fear of large derivative losses. The
large
majority of the derivative business at JPM is driven by interest rate
swaps.
JPM's role is that of a market maker, not a risk taker, implying that
the
risk in the business is mostly credit-related and the large majority
of
counterparties are investment grade (mostly financial services
companies).
The derivative market has been tested in periods of financial system
strain
(such as the past year and during the LTCM crisis), and we can't
remember
hearing about any major losses. The credit derivative market has also
functioned exceptionally well during the current credit cycle, (with
Enron-
related credit derivatives paying off as expected). The market is
deep,
liquid, and highly functional. And again, JPM is not in the business
as a
risk-taker, it's a market maker and a user of credit derivatives for
protection. Investors don't feel like they can rely on this, but we
believe
investors should take at least some comfort in knowing that JPM is a
highly-
regulated company and the Fed likely regularly reviews its derivatives
positions.
Credit Risk
We don't believe that the large telecom-related credit actions in 3Q
reflect
slow recognition of credit issues at JPM. JPM took $1.4b of
commercial
credit costs in 3Q, of which $570m was a reserve build. This implies
that
commercial write-offs were $540m higher than in 2Q. We believe this
increase
is explained by developments in two specific credits early in
September. We
estimate that JPM had about $400m exposure to Genuity and Mobilcom.
Genuity
was a loan that was backed by Verizon and Mobilcom was supported by
France
Telecom (which is partly owned by the French govt). Verizon and
France
Telecom both suddenly withdrew support for these loans, causing JPM
and other
banks to take losses. Management also noted that it "took a harsh
view on
the current reality" of the telecom exposures and implied that it
looked
forward several quarters and recognized other potential problems.
Lots of additional credit information was provided. JPM has provided
a lot
of detail on its telecom, cable, and energy exposures. In our Sept
29 note,
we provided our best guess about which specific loans each bank is
holding in
these three sectors as well as some information to help investors
gauge the
risk in specific loans. Management also provided data on migration of
criticized exposures (defined roughly as companies w/debt rated CCC
or below)
exposures which showed that all of the credit issues are concentrated
in
telecom, cable, and merchant energy and that the rest of the
portfolio is
performing well. Total criticized exposures rose $4.6b to $16.7b and
there
was a $7b increase in criticized exposures in these three sectors.
* Telecom. JPM disclosed that it has $8.8b of telecom credit
assets (ie
loans), of which $4.2b is investment grade, $2.9b is non-
criticized
noninvestment grade, $1b is criticized but performing, and
$752m is
nonperforming. It was also disclosed that JPM has additional
commitments of $9.4b (down from $11.5b at yr end) of which
$5.9b are
investment grade, $2b are non-investment grade, and $1.5b are
criticized. So how do we determine how much risk is in this
portfolio? Management noted that it does not view this
portfolio as
high risk pointing to the fact that these companies have
survived a
very difficult period which indicates that most of them have
the
ability to survive. While it's a good point, this is probably
not
going to convince investors given the heightened uncertainty
surrounding telecom. We discuss how we'd conservatively size
up the
risk. Note that we have not included the potential offsetting
impact
of $20b of credit derivatives that JPM has against its own
book. We
believe that at least $5b of these credit derivatives are
against
telecom exposures.
Investment grade telecom looks ok. First, we would assume that
investment grade telecom is fine (this could change, but if we
look at
the list of remaining investment grade telecom and reference
which
loans we believe JPM has the greatest exposure to, the risk
appears to
be low: Deutsche Telecom, Verizon, NTT, Telecom Italia,
Telstra
(Australian co, AA rated), France Telecom, AT&T, Cellco
(Verizon and
Vodafone jv, A+ rated), Vodafone, Bouygues Telecom (French co,
A
rated, stock down only 25% this yr), Nokia, Cingular Wireless,
etc.
We've conservatively assumed a 50% loss on all criticized. So,
excluding investment grade telecom leaves loans and
commitments of
$8.1b. Of this, $752m is already on NPA and dealt with (mgmt
noted
that telecom NPAs are carried at 30% of face value). This
leaves
$7.3b of noninvestment grade telecom exposures, of which $2.4
is
criticized (of which $1b is drawn). In our reconciliation of
telecom
credits, we were only able to identify about $4b of
noninvestment
credits. We believe this is because JPM is defining its
telecom
exposures very broadly (since it includes "other companies
with an
interdependence upon the telecommunications sector"), we
couldn't pick
up private companies, and we may have missed some European
companies
that are subs of non-telecom companies. What we can say about
the $4b
that we were able to reconcile is that a high percentage of it
appears
to be secured and the list is not filled with worthless
companies.
That said, to be conservative, we'll assume losses of 50% on
the
criticized $2.4b, or $1.2b.
* Cable. Management confirmed our view that US cable company
exposure
is very well secured and not really an issue. Unlike other US
banks,
JPM has significant European cable exposures, which are
generally
secured, but the security may be less solid that on loans to US
companies. JPM disclosed that it has total cable loans of
$3.7b and
another $1.7b of commitments, or a total $5.4b exposure. Of
this,
$1.9b is investment grade. The high percentage of
noninvestment grade
is just characteristic of the leveraged US cable industry. We
estimate that of the $5.4b of exposure, at least $2b in foreign
noninvestment grade. Management disclosed that $394m of cable
credits
are already on nonperforming, leaving $1.7b criticized, but
performing. While there may be losses on this, we don't
believe it
makes sense to assume a very high loss content considering the
positive results of recent restructurings on credits like NTL
on which
banks were made whole, and others like Telewest that are
underway now.
But, again, to be conservative, we'll assume 30% losses on
criticized,
or $520m.
* Merchant Energy. Management noted that if there's an increase
in NPAs
in 4Q, it's likely to be from this sector. We believe this
comment
likely reflects the recent default by Allegheny and potential
default
by TXU. We estimate JPM's exposure to these defaults is about
$400m.
JPM disclosed that it has loans to merchant energy companies
of $2.2b
and another $4b in commitments, or $6.2b of exposure. Of
these, $3.5b
are to investment grade companies and $2.7b are to
noninvestment grade
companies. Of this, only $170m is already nonperforming, and
$1.4b is
criticized. Our research shows that many merchant energy
loans are
secured, but many are not. We'll assume 50% losses on the
$1.4b of
criticized, or $700m.
* Total losses assumed in our analysis. The total of our
assumed losses
from each of these sectors is $2.4b. In our 2003 EPS
estimate, we
already assume more than $1b in commercial credit losses.
Therefore,
in Exhibit 1, we assume an additional $1.5b in potential
losses to
measure the impact on the book value.
Risk Of Private Equity Write-Downs
Investors believe that large additional private equity writedowns are
necessary and have been unwilling to believe management's view that
the
portfolio is properly valued. We believe management has not provided
enough
information to the investment community to illustrate why it's so
confident
that additional large charges aren't necessary. So, we've taken a
crack at
it with limited information and several assumptions (see Exhibit 2).
We
believe the key issue that investors have not focused on is how much
in
writedowns JPM has already taken in the non-public portfolio, which we
estimate at $3.2b from 1999-present.
We've broken out the analysis of required writedowns for investments
made
pre-1999, 1999-2000, and 2001-2002. In Exhibit 2, we show that we've
estimated that the carrying value of investments made pre-1999 are
$4.7b
(including heritage JPM) and that the required writedown on these is
about
half of the S&P decline of 45% (which seems reasonably conservative
considering that these investments are carried at lower of cost or
market).
For the 1999-2000 vintage, we have split the analysis for TMT and non-
TMT
investments, and have assumed writedowns of 75% for TMT and 50% for
non-TMT.
We've assumed 10% losses on investments made in 2001 and none on 2002
investments. This all implies required writedowns of $4.4b (vs $3.2b
already
taken).
In arriving at our estimate of how much has already been written down
over
the past several years, we have summed up each quarter's writedown of
the
non-public portfolio (we may be off a bit here, but not likely by a
very
meaningful amount). We estimate total writedowns of $2.4b since
1Q01, about
$600m in 2000 (based on mgmt's comment that the regular qtrly
writedowns are
about $150m), and about $200m in 1999.
Our estimates and conservative assumptions imply required writedowns
of $4.2b
vs already-taken writedowns of $3.2b, implying additional writedowns
of about
$1.25b. We believe some of our assumptions are quite conservative;
for
instance, we have included fund investments in this analysis since we
couldn't separate these investments (and writedowns) historically.
But since
most of JPM's fund investments are LBO funds, the loss assumptions
we've made
are not very reasonable. We'll update our analysis as the company
discloses
additional information. We would also point out that while this
business has
been a major drag in recent years, it provided cash gains of $8b to
the
company in 1996-2001.
In Exhibit 3, we provide the most recent breakout of the private
equity
portfolio.
Exhibit 2: Our Estimate Of Potential Additional VC Writedowns
$ M Assume Assumptions
d
losses
Esti
mate
vint
age
of
rema
inin
g
port
foli
o
pre- 4,657 1,048 22.5% loss content, (half the decline in S&P
500)
1999
inve
stme
nts
1999 5,346
-200
0
inve
stme
nts
1999 2,500 1,875 75% loss content
-200
0
TMT
inve
stme
nts
1999 2,846 1,423 50% loss content
-200
0
non
TMT
inve
stme
nts
2001 1,700 90 10% loss content on '00 investments
-to
date
Tota 4,436
l
expe
cted
writ
edow
ns
Tota 4,436
l
expe
cted
writ
edow
ns
Tota 3,189
l
writ
edow
ns
sinc
e
2000
Actu 2,389
al
writ
edow
ns
sinc
e
1Q01
Esti 600
mate
d
2000
writ
edow
ns
Esti 200
mate
d
1999
writ
edow
ns
Diff (1,24
eren 7)
ce
of
expe
cted
vs
writ
edow
ns
to
date
Source: SSB and JPM.
Exhibit 3: Estimated JPMP Portfolio By Industry
$M Carrying value
Private fund investments 1,831
Direct investments (public and private) 5,694
telecom
323
technology
769
media
257
industrial growth
1,920
consumer retail & services
1,040
life
sciences 720
financial
services 640
real
estate 400
Source: JPM and SSB estimates.
Legal Risk
While we believe that JPM may have a strong case against insurance
companies
on the surety bond issue, we have assumed a loss on the entire $1b.
MANAGEMENTS' ACTIONS ON THE INVESTMENT BANK ARE VERY MEANINGFUL AND
THERE'S
PROBABLY MORE TO COME
JPM (and others) are in the strange position of having to reduce
capacity in
investment banking just as structural changes in the business are
underway.
It's an especially interesting issue for JPM because it was still in
the
building phase in the equities businesses, and its cash equities
business was
likely not profitable. We believe this resulted in JPM reconsidering
its
desire to invest to build the cash equities business, and it is
clearly
rethinking what it will take to participate in this business. As has
been
discussed by many, it's possible that the business will be more
capital
driven than research driven, and JPM has reduced its desire to build
out the
infrastructure. Management seems committed to its equity derivative
and
convertibles business.
In addition to less investment in research and sales, management
reconsidered
its infrastructure in certain geographies and relationship teams.
These
actions are expected to result in headcount reductions of 2,200 on a
base of
16,000 in investment banking. These headcount reductions are
expected to
produce annual cost reductions of $700m next year (or $0.23/share).
Management is clearly reviewing other options and we expect further
restructuring of the businesses in coming quarters. Management has
noted
that it is conducting a 5-quarter review of its outlook and will
consider all
options to improve operating results.
3Q EARNINGS REVIEW
3Q operating EPS was $0.16 vs our estimate of $0.10. It's hard to
say what
the core number was considering the many moving pieces including very
high
credit costs, depressed trading results, high mortgage hedges,
severance,
etc. Looking at 4Q, there should be some rebound in EPS as credit
costs and
trading normalize.
Credit. NPAs rose 27% and commercial NPLs rose 43% (about $1b). As
management noted at the time of its preannouncement, it "took a harsh
view of
the current reality" in moving loans to NPA and adding reserves.
Consumer
NPLs rose about $60m or 13%. Credit costs were $2.1b, of which $1.4b
was
commercial. Of this, $570m was reserve build. Consumer credit
quality was
good. Card losses declined 82bp to 5.51% and delinquencies appear to
be
stable.
As expected, all market sensitive revenues were weak. As expected,
trading
was weak, and included losses in the equities business. Investment
banking
fees were down 31% to $545m, driven by a $200m decline in u/w and a
$50m
decline in M&A. Investment management revenues were down only 5% (or
$38m)
to $91m. Private equity fees were a negative $299m, with $120m in
mark to
market losses, $290m in writedowns and $111m in realized gains.
Securities
gains were $578m, with $112m related to a mortgage hedge.
While trading revenues should rebound, management noted that M&A and
u/w
pipelines are below June 30 levels.
Consumer trends were strong across the board. Consumer earnings rose
$113m
or 16% unannualized vs 2Q, driven by mortgage and card. Mortgage
earnings
were up $125m to $393m and benefited from the environment. Card
earnings
were up $67m to $246 as a result of a 12% annualized increase in
receivables
and lower credit costs. Management noted that mortgage earnings were
about
$250m above the core run rate (mostly due to a mortgage hedge).
Treasury had record earnings of $212m, up 22% vs 2Q. Earnings rose
about
$40m, but there appears to be a $50m gain on a sale of an investment.
VALUATION & RISKS
Valuation
We have derived our JPM target price of $30 based on our DCF-based
valuation
model---which assumes a 5.75% yield on the ten-year Treasury note, an
above-
average risk profile, a 16% ROE, and a 10.3% perpetuity growth rate
based on
JPM's business mix, location and execution ability. While our target
price
assumes a large 70%+ upside vs current levels, we believe earnings
leverage
to an improved economy and capital market environment at JPM is
likely to be
meaningful. Our target price assumes JPM trades about in line with
the
banking sector P/E (on a depressed earnings level) and at about a 10%
discount vs the brokers. On a price/book basis, our target price
assumes JPM
trades at about a 10% discount to the bank group and a 20% discount
vs the
brokers.
Risks
We believe there are several risks to JPM reaching our $30 target
price. A
prolonged and sharp decline in global capital markets activity and
asset
valuations would likely negatively impact earnings and JPM shares
given its
heavy reliance on capital markets-related businesses (particularly
private
equity and investment banking). Separately, with respect to the U.S.
economy, we have assumed that the economy expands by 2-3% in 2003,
with
growth accelerating throughout the year. If economic growth is
meaningfully
below our expectations, credit costs may be meaningfully higher than
we
expect. Other risks include litigation risks associated with lending
and
investment banking relationships. Lastly, JP Morgan is currently
involved in
a lawsuit in which it is suing several insurance companies for a
payment on a
surety bond (insurance) related to Enron. If JP Morgan losses the
lawsuit,
or if it settles with the insurance companies, there could be a
charge of as
much as $1b that is not included in our estimate.
ANALYST CERTIFICATION
I, Ruchi Madan, hereby certify that the views expressed in this
research
report accurately reflect my personal views about the subject company
(ies)
and its (their) securities. I also certify that I have not been, am
not, and
will not be receiving direct or indirect compensation in exchange for
expressing the specific recommendation(s) in this report.
Ratings and Target Price History
Analyst: Ruchi Madan
------------------------------------------
Target Closing
Price Price
Date Rating (USD) (USD)
------------------------------------------
4 Oct 00 *1M *75.00 45.56
18 Oct 00 1M 75.00 36.88
28 Nov 00 1M *65.00 38.00
18 Jan 01 1M *75.00 51.44
12 Feb 01 1M *70.00 52.55
2 Apr 01 1M *65.00 44.60
13 Jul 01 1M *60.00 42.55
6 Sep 01 1M *50.00 36.94
5 Dec 01 1M *60.00 39.02
17 Jan 02 1M *50.00 36.85
17 Jul 02 1M *45.00 28.14
6 Sep 02 Stock rating system changed
6 Sep 02 *1H *40.00 23.91
9 Sep 02 1H *37.00 23.59
13 Oct 02 1H *30.00 16.88
------------------------------------------
*Indicates change.
Chart current as of 15 October 2002
See "Important Disclosures" at the end of this report for
a description of the firm's current and former rating systems
IMPORTANT DISCLOSURES
Ruchi Madan holds a long position in the shares of JP Morgan Chase. A
junior
member of Ruchi Madan's team holds a long position in the shares of
JP Morgan
Chase.
Salomon Smith Barney or its affiliates beneficially owns 1% or more
of any
class of common equity securities of JP Morgan Chase.
Within the past 12 months, Salomon Smith Barney or its affiliates has
acted
as manager or co-manager of a public offering of securities of JP
Morgan
Chase.
Salomon Smith Barney or its affiliates has received compensation for
investment banking services provided within the past 12 months from
JP Morgan
Chase.
Salomon Smith Barney or its affiliates expects to receive or intends
to seek,
within the next three months, compensation for investment banking
services
from JP Morgan Chase.
Analysts' compensation is determined based upon activities and
services
intended to benefit the investor clients of Salomon Smith Barney and
its
affiliates ("the Firm"). Like all Firm employees, analysts receive
compensation that is impacted by overall firm profitability, which
includes
revenues from, among other business units, the Private Client
Division,
Institutional Equities, and Investment Banking.
The Firm and its affiliates, including Citigroup Inc., provide a vast
array
of financial services in addition to investment banking, including
among
others corporate banking, to a large number of corporations globally.
The
reader should assume that SSB or its affiliates receive compensation
for
those services from such corporations.
For securities recommended in this report in which the Firm is not a
market
maker, the Firm usually provides bids and offers and may act as
principal in
connection with such transactions.
Salomon Smith Barney Equity Research Ratings
Distribution
Data current as of 30 September 2002 Outperform In-line
Underperform
SSB Global Equity Research Coverage (2916) 36%
39% 25%
% of companies in each rating category that 48%
47% 38%
are investment banking clients
Banks -- North America (49) 35%
45% 20%
% of companies in each rating category that 76%
64% 70%
are investment banking clients
For purposes of NASD/NYSE ratings-distribution-disclosure rules, our
Outperform rating most closely corresponds to a buy recommendation;
our In-
line rating most closely corresponds to a hold/neutral rating; and our
Underperform rating most closely corresponds to a sell rating.
Because our
ratings are based on the relative attractiveness of a security within
an
industry or analyst-coverage area, however, Outperform, In-line, and
Underperform cannot be directly equated to buy, hold/neutral, and sell
categories. Accordingly, your decision to buy or sell a security
should be
based upon your personal investment objectives and only after
evaluating the
stock's expected relative performance and risk.
Guide To Investment Ratings: Stock ratings are based upon expected
performance over the next 12 to 18 months relative to the analyst's
industry
coverage universe. An Outperform (1) rating indicates that we expect
the
stock to outperform the analyst's industry coverage universe over the
coming
12-18 months. An In-line (2) rating indicates that we expect the
stock to
perform approximately in line with the analyst's coverage universe. An
Underperform (3) rating indicates that we expect the stock to
underperform
the analyst's coverage universe. In emerging markets, the same ratings
classifications are used, but the stocks are rated based upon expected
performance relative to the primary market index in the region or
country.
Our complementary Risk rating system takes into account
predictability of
financial results and stock price volatility. L (Low Risk): high
predictability of financial results and low volatility; M (Medium
Risk):
moderate predictability of financial results and moderate volatility;
H (High
Risk): low predictability of financial results and high volatility; S
(Speculative): exceptionally low predictability of financial results
and
highest risk and volatility. In addition, in the major markets our
Industry
rating system is based on each analyst's evaluation of their industry
coverage relative to the primary market index in their region. The
industry
ratings are Overweight: we expect this industry to perform better
than the
primary index for the region in the next 12-18 months; Marketweight:
we
expect the industry to perform approximately in line with the primary
index
for the region in the next 12-18 months; and Underweight: we expect
the
industry to perform worse than the primary market index for the
region in the
next 12-18 months.
Prior to September 9, 2002, the Firm's stock rating system was based
upon the
expected total return over the next 12 to 18 months. The total return
required for a given rating depended on the degree of risk in a stock
(the
higher the risk, the higher the required return). A Buy (1) rating
indicated
an expected total return ranging from +15% or greater for a low-risk
stock to
+30% or greater for a speculative stock. An Outperform (2) rating
indicated
an expected total return ranging from +5% to +15% (low-risk) to +10%
to +30%
(speculative). A Neutral (3) rating indicated an expected total return
ranging from -5% to +5% (low-risk) to -10% to +10% (speculative). An
Underperform (4) rating indicated an expected total return ranging
from -5%
to -15% (low-risk) to -10% to -20% (speculative). A Sell (5) rating
indicated
an expected total return ranging from -15% or worse (low-risk) to -
20% or
worse (speculative). The Risk ratings were the same as in the current
system.
Securities recommended, offered, or sold by SSB: (i) are not insured
by the
Federal Deposit Insurance Corporation; (ii) are not deposits or other
obligations of any insured depository institution (including
Citibank); and
(iii) are subject to investment risks, including the possible loss of
the
principal amount invested. Although information has been obtained
from and is
based upon sources SSB believes to be reliable, we do not guarantee
its
accuracy and it may be incomplete or condensed. All opinions and
estimates
constitute SSB's judgment as of the date of the report and are
subject to
change without notice. This report is for informational purposes only
and is
not intended as an offer or solicitation for the purchase or sale of a
security.
Investing in non-U.S. securities, including ADRs, may entail certain
risks.
The securities of non-U.S. issuers may not be registered with, nor be
subject
to the reporting requirements of the U.S. Securities and Exchange
Commission.
There may be limited information available on foreign securities.
Foreign
companies are generally not subject to uniform audit and reporting
standards,
practices and requirements comparable to those in the U.S. Securities
of some
foreign companies may be less liquid and their prices more volatile
than
securities of comparable U.S. companies. In addition, exchange rate
movements
may have an adverse effect on the value of an investment in a foreign
stock
and its corresponding dividend payment for U.S. investors. Net
dividends to
ADR investors are estimated, using withholding tax rates conventions,
deemed
accurate, but investors are urged to consult their tax advisor for
exact
dividend computations. Investors who have received this report from
the Firm
may be prohibited in certain states from purchasing securities
mentioned in
this report from the Firm. Please ask your Financial Consultant for
additional details.
This report is distributed in the United Kingdom by Salomon Brothers
International Limited. This material is directed exclusively at market
professional and institutional investor customers and is not for
distribution
to private customers, as defined by the rules of the Financial
Services
Authority, who should not rely on this material. Moreover, any
investment or
service to which the material may relate will not be made available
to such
private customers. This material may relate to investments or
services of a
person outside of the United Kingdom or to other matters which are not
regulated by the Financial Services Authority and further details as
to where
this may be the case are available upon request in respect of this
material.
If this publication is being made available in certain provinces of
Canada by
Salomon Smith Barney Canada Inc. ("SSB Canada"), SSB Canada has
approved this
publication. If this report was prepared by SSB and distributed in
Japan by
Nikko Salomon Smith Barney Limited, it is being so distributed under
license.
This report is made available in Australia through Salomon Smith
Barney
Australia Securities Pty Ltd (ABN 64 003 114 832), a Licensed
Securities
Dealer, and in New Zealand through Salomon Smith Barney New Zealand
Limited,
a member firm of the New Zealand Stock Exchange. This report does not
take
into account the investment objectives, financial situation or
particular
needs of any particular person. Investors should obtain advice based
on their
own individual circumstances before making an investment decision.
Salomon
Smith Barney Securities (Proprietary) Limited is incorporated in the
Republic
of South Africa (company registration number 2000/025866/07) and its
registered office is at Citibank Plaza, 145 West Street (corner Maude
Street), Sandown, Sandton, 2196, Republic of South Africa. The
investments
and services contained herein are not available to private customers
in South
Africa. This publication is made available in Singapore through
Salomon Smith
Barney Singapore Pte Ltd, a licensed Dealer and Investment Advisor.
For
purposes of this report, "SSB" includes the aforementioned companies.
Salomon Smith Barney is a registered service mark of Salomon Smith
Barney
Inc. Schroders is a trademark of Schroders Holdings plc and is used
under
license. Nikko is a service mark of Nikko Cordial Corporation. (c)
Salomon
Smith Barney Inc., 2002. All rights reserved. Any unauthorized use,
duplication, redistribution or disclosure is prohibited by law and
will
result in prosecution.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
JPM Research Disclosure
Important disclaimers regarding Salomon Smith Barney
research.
The prices and information for any security shown on this
page may differ from the prices and information for that security on
other sections of the site.
The research ratings and commentary shown on this site
are as of their original publication date. Salomon Smith Barney is
under no obligation to update such information to reflect
circumstances that may occur after such a date, and such information
may differ from previously published ratings and commentary.
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