This section of this Form 10-Q provides management's discussion and analysis ("MD&A") of the financial condition and results of operations of JPMorgan Chase. See the Glossary of terms on pages 77-78 for a definition of terms used throughout this Form 10-Q. The MD&A included in this Form 10-Q contains statements that are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause JPMorgan Chase's results to differ materially from those described in the forward-looking statements can be found in the JPMorgan Chase 2004 Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission and available at the Securities and Exchange Commission's Internet site (http://www.sec.gov).

INTRODUCTION
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States, with $1.2 trillion in assets, $105 billion in stockholders' equity and operations in more than 50 countries. The Firm is a leader in investment banking, financial services for consumers and businesses, financial transaction processing, investment management, private banking and private equity. JPMorgan Chase serves more than 90 million customers, including consumers nationwide and many of the world's most prominent wholesale clients.

JPMorgan Chase's principal bank subsidiaries are JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank"), a national banking association with branches in 17 states; and Chase Bank USA, National Association, a national bank headquartered in Delaware that is the Firm's credit card issuing bank. JPMorgan Chase's principal nonbank subsidiary is J.P. Morgan Securities Inc. ("JPMSI"), its U.S. investment banking firm.

The headquarters for JPMorgan Chase is in New York City. The retail banking business, which includes the consumer banking, small business banking and consumer lending activities (with the exception of credit card), is headquartered in Chicago. Chicago also serves as the headquarters for the commercial banking business.

JPMorgan Chase's activities are organized, for management reporting purposes, into six business segments, as well as Corporate. The Firm's wholesale businesses are comprised of the Investment Bank, Commercial Banking, Treasury & Securities Services, and Asset & Wealth Management. The Firm's consumer businesses are comprised of Retail Financial Services and Card Services. A description of the Firm's business segments, and the products and services they provide to their respective client bases, follows:

Investment Bank
JPMorgan Chase is one of the world's leading investment banks, as evidenced by the breadth of its client relationships and product capabilities. The Investment Bank ("IB") has extensive relationships with corporations, financial institutions, governments and institutional investors worldwide. The Firm provides a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital raising in equity and debt markets, sophisticated risk management, and market-making in cash securities and derivative instruments. The IB also commits the Firm's own capital to proprietary investing and trading activities.

Retail Financial Services
Retail Financial Services ("RFS") includes Home Finance, Consumer & Small Business Banking, Auto & Education Finance and Insurance. Through this group of businesses, the Firm provides consumers and small businesses with a broad range of financial products and services including deposits, investments, loans and insurance. Home Finance is a leading provider of consumer real estate loan products and is one of the largest originators and servicers of home mortgages. Consumer & Small Business Banking offers one of the largest branch networks in the United States, covering 17 states with 2,517 branches and 6,687 automated teller machines. Auto & Education Finance is the largest bank originator of automobile loans as well as a top provider of loans for college students. Through its Insurance operations, the Firm sells and underwrites an extensive range of financial protection products and investment alternatives, including life insurance, annuities and debt protection products.

Card Services
Card Services ("CS") is the largest issuer of general purpose credit cards in the United States, with approximately 94 million cards in circulation, and is the largest merchant acquirer. CS offers a wide variety of products to satisfy the needs of its cardmembers, including cards issued on behalf of many well-known partners, such as major airlines, hotels, universities, retailers and other financial institutions.

Commercial Banking
Commercial Banking ("CB") serves more than 25,000 corporations, municipalities, financial institutions and not-for-profit entities, with annual revenues generally ranging from $10 million to $2 billion. A local market presence and a strong customer service model, coupled with a focus on risk management, provide a solid infrastructure for CB to provide the Firm's complete product set - lending, treasury services, investment banking and investment management - to both corporate clients and their executives. CB's clients benefit greatly from the Firm's extensive branch network and often use the Firm exclusively to meet their financial services needs.

Treasury & Securities Services
Treasury & Securities Services ("TSS") is a global leader in providing transaction, investment and information services to support the needs of corporations, issuers and institutional investors worldwide. TSS is the largest cash management provider in the world and the leading global custodian. The Treasury Services ("TS") business provides clients with a broad range of capabilities, including U.S. dollar and multi-currency clearing, ACH, trade, and short-term liquidity and working capital tools. The Investor Services ("IS") business provides a wide range of capabilities, including custody, funds services, securities lending, and performance measurement and execution products. The Institutional Trust Services ("ITS") business provides trustee, depository and administrative services for debt and equity issuers. Treasury Services partners with the Commercial Banking, Consumer & Small Business Banking and Asset & Wealth Management segments to serve clients firmwide. As a result, certain Treasury Services revenues are included in other segments' results. On April 18, 2005, TSS announced that it combined its investor and issuer services capabilities under the name Worldwide Securities Services. The integrated franchise brought together the former Investor Services and Institutional Trust Services businesses, and will provide custody and investor services as well as securities clearance and trust services to clients globally.

Asset & Wealth Management
Asset & Wealth Management ("AWM") provides investment management to retail and institutional investors, financial intermediaries and high-net-worth families and individuals globally. For retail investors, AWM provides investment management products and services, including a global mutual fund franchise, retirement plan administration and brokerage services. AWM delivers investment management to institutional investors across all asset classes. The Private Bank and Private Client Services businesses provide integrated wealth management services to ultra-high-net-worth and high-net-worth clients, respectively.

MERGER WITH BANK ONE CORPORATION
Bank One Corporation's ("Bank One") results of operations were included in the Firm's results beginning July 1, 2004. Therefore, results of operations for the three months ended March 31, 2005, reflect three months of operations of the combined Firm, while the results of operations for the three months ended March 31, 2004, reflect the operations of heritage JPMorgan Chase only.

Management expects that, as a result of the Merger, cost savings of approximately $3.0 billion (pre-tax) will be achieved by the end of 2007; approximately two-thirds of the savings are anticipated to be realized by the end of 2005. During the first quarter of 2005, approximately $380 million of merger savings were realized, which is an annualized run rate of $1.5 billion. Management currently expects one-time merger costs to combine the operations of JPMorgan Chase and Bank One to range from approximately $4.0 billion to $4.5 billion (pre-tax). Of these costs, approximately $1.0 billion, specifically related to Bank One, were accounted for as purchase accounting adjustments and were recorded as an increase to goodwill in 2004. Of the approximately $3.0 billion to $3.5 billion in remaining Merger-related costs, $145 million (pre-tax) were incurred during the first quarter of 2005, and $1.4 billion (pre-tax) were incurred in 2004; these costs have been charged to income. Additional merger costs of approximately $1.3 billion (pre-tax) are expected to be incurred in 2005, and the remaining costs are expected to be incurred in 2006. These estimated Merger-related charges will result from actions taken with respect to both JPMorgan Chase's and Bank One's operations, facilities and employees. The charges will be recorded based on the nature and timing of these integration actions.

OTHER BUSINESS EVENTS

Cazenove
On February 28, 2005, JPMorgan Chase and Cazenove Group plc ("Cazenove") formed a joint venture partnership which combined Cazenove's investment banking business and JPMorgan Chase's United Kingdom-based investment banking business in order to provide investment banking services in the United Kingdom and Ireland. The new company is called JPMorgan Cazenove Holdings.

JPMorgan Partners
On March 1, 2005, the Firm announced that the management team of JPMorgan Partners, LLC, a private equity unit of the Firm, will become independent when it completes the investment of the current $6.5 billion Global Fund, which it advises. The independent management team intends to raise a new fund as a successor to the Global Fund. JPMorgan Chase has committed to invest 24.9% of the limited partnership interests, up to $1 billion, in the new fund.

WorldCom litigation settlement
On March 17, 2005, JPMorgan Chase settled, for $2.0 billion (pre-tax), the WorldCom, Inc. class action litigation. In connection with the settlement, JPMorgan Chase increased its Litigation reserve by $900 million (pre-tax).

Vastera
On April 1, 2005, JPMorgan Chase acquired Vastera, a provider of global trade management solutions, for approximately $129 million. Vastera's business was combined with the Logistics and Trade Services businesses of TSS's Treasury Services unit. Vastera automates trade management processes associated with the physical movement of goods internationally; the acquisition enables Treasury Services to offer management of information and processes in support of physical goods movement, together with financial settlement.

EXECUTIVE OVERVIEW
This overview of management's discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a more complete understanding of events, trends, uncertainties, liquidity, capital resources and critical accounting estimates affecting the Firm and its various lines of business, this Form 10-Q should be read in its entirety.

Business overview
The Firm reported net income for the first quarter of 2005 of $2.3 billion, or $0.63 per share, compared with $1.9 billion, or $0.92 per share, in the first quarter of 2004. Return on common equity for the quarter was 9%. Results included $648 million of after-tax charges, or $0.18 per share, which included a litigation reserve charge of $558 million and Merger costs of $90 million. Excluding these charges, operating earnings were $2.9 billion, or $0.81 per share, and return on common equity was 11%. Operating earnings represent business results without merger-related costs and the litigation reserve charge.

In the first quarter of 2005, both the global and U.S. economies continued to expand although the pace of growth slowed later in the quarter. The U.S. economy experienced a continued rise in short-term interest rates, driven by two quarter-point increases in the federal funds rate, from 2.25% to 2.75%. This led to continued yield curve flattening, as long-term interest rates were relatively stable. Equity markets, both domestic and international, enjoyed positive returns versus the prior-quarter and prior-year. However, equity markets did weaken noticeably late in the quarter. The U.S. consumer sector showed positive trends during the first quarter, but spending growth appeared to be moderating following strong gains in the second half of 2004. New hiring and income gains offset higher energy prices.

On an operating basis, net income in each of the Firm's business segments, in comparison to 2004, was affected significantly by the Merger. The following discussion highlights factors, other than the Merger, that affected operating results.

Investment Banking revenues benefited from increased investment banking fees, with strength in debt underwriting, advisory and equity underwriting. Offsetting this improved performance were lower net interest income and slightly lower trading revenues, compared to record results in the prior year. The reduction in the allowance for credit losses was primarily related to the improved quality of the loan portfolio, resulting from turnover in the mix of the loan portfolio towards higher-rated clients and from net recoveries. Higher expenses were related to performance-based compensation accruals.

Retail Financial Services revenues benefited from higher net interest income due to wider deposit spreads, growth in deposit balances and growth in retained home equity loan balances, partially offset by several loan portfolio sales. Revenues also benefited from improved MSR asset risk management results and secondary marketing activities in Home Finance. Partially offsetting these benefits was a decrease in revenue due to lower prime mortgage originations and a write-down related to the transfer of auto loans to held-for-sale. The provision for credit losses benefited from improving credit quality in all portfolios and reductions in the allowance for credit losses reflecting the sale of recreational vehicle loans and the transfer of auto loans to held-for-sale. Expenses decreased due to merger-related savings and ongoing efficiency improvements, partially offset by continued expansion of the retail distribution network and a charge related to the dissolution of a student loan joint venture.

Card Services revenue benefited from higher loan balances, which resulted in higher net interest income. Additionally, higher customer charge volume generated increased interchange income. Partially offsetting these revenue improvements were volume-driven increases in payments to partners and higher reward payments. The provision for credit losses benefited from lower net charge-offs reflecting lower bankruptcies and delinquencies, partially offset by additions to the allowance for loan losses related to growth in on-balance sheet loans. Expenses benefited from lower compensation and processing costs, which were partially offset by increased marketing spend.

Commercial Banking revenues benefited from wider spreads on increased liability balances. These benefits were partially offset by lower fees in lieu of compensating balances and lower gains on the sale of assets acquired in the satisfaction of debt. Credit quality remained strong, allowing the provision for credit losses to be a slight net benefit. Expenses increased due to higher Treasury Services product-unit costs.

Treasury & Securities Services revenues benefited from wider spreads on increased liability balances, growth in assets under custody and broad-based growth in product revenues. These benefits were partially offset by lower service charges on deposits. Expenses increased due to compensation and technology-related costs, but were partially offset by higher product-unit costs charged to other lines of business.

Asset & Wealth Management revenues were positively affected by the acquisition of a majority interest in Highbridge Capital Management, net asset inflows, global equity market appreciation and deposit growth. Provision for credit losses improved due to lower charge-offs, and expenses increased due to Highbridge and higher performance-based compensation.

Performance in the Corporate segment was negatively affected by securities losses related to the repositioning of the investment securities portfolio. Private Equity results were strong and included two large gains.

The Firm's balance sheet remains strong, with total stockholders' equity of $105 billion and a Tier 1 capital ratio at March 31, 2005 of 8.6%. The Firm repurchased $1.3 billion, or 36 million shares, of common stock during the quarter.

Business outlook
The Investment Bank entered 2005 with a strong pipeline for advisory and underwriting business and, at March 31, 2005, the pipeline remained at these levels. In addition, the Investment Bank continues to focus on growing its client-driven trading business, although overall trading revenues are difficult to predict and can be volatile from period to period. Trading revenues have historically been seasonally stronger in the first quarter, and trading conditions have been less favorable in April. Compared with 2004, the Investment Bank expects a reduction in credit portfolio revenues, as both net interest income on loans and gains from workouts are likely to decrease.

Card Services expects to maintain a relatively stable net interest margin with loan repricing opportunities offset by higher funding costs. Marketing spend is also expected to increase from the first quarter level. Within Retail Financial Services, net interest income will be negatively affected by recent loan portfolio sales. Home Finance will continue to be affected by the market-driven decline in mortgage originations and the volatility of MSR risk management revenues. Consumer & Small Business Banking expects continued growth in core deposits and associated revenue, partially offset by ongoing investments in the branch distribution network. New branch openings are expected to accelerate during the remainder of the year.

The revenue outlook for the Private Equity business is directly related to the strength of equity market conditions. Given the large gains in the first quarter, it is expected that the level of quarterly gains for the remainder of the year will be in the range of $150 million to $200 million, although results can be volatile from quarter to quarter.

It is expected that, over time, the provision for credit losses will return to a more normal level for the wholesale businesses. The consumer provision for credit losses should reflect generally stable credit quality, increased balances and the lack of allowance reductions related to portfolio sales. The Firm plans to begin implementing new minimum-payment rules in the Card Services business during the third quarter of 2005 that will result in higher required payments from some customers. It is anticipated that this may increase delinquency and net charge-off rates in 2006. The magnitude of the impact is currently being assessed. The Firm expects the level of bankruptcy filings to accelerate prior to the October effective date of the bankruptcy legislation signed into law on April 20, 2005. Bankruptcy filings subsequent to the October effective date are expected to normalize.

Expenses in the first quarter, excluding performance-based compensation, were down because merger-related saves and other efficiencies more than offset incremental spending and increased expenses related to acquisitions. Expenses, excluding performance-based compensation, are expected to increase in the second quarter over the first quarter by approximately $200 million to $250 million. This increase is expected to include $200 million to $250 million of incremental spending related to technology, marketing and distribution network expansion and $70 million of acquisition-related expenses, partially offset by $60 million of incremental merger saves. For the full year, expenses, excluding performance-based compensation, are expected to be essentially flat to 2004, as increases related to acquisitions and incremental spending are expected to be offset by incremental merger saves.

CONSOLIDATED RESULTS OF OPERATIONS

The following section provides a discussion of JPMorgan Chase's consolidated results of operations on a reported basis. Factors that are primarily related to a single business segment are discussed in more detail within that business segment. For a discussion of the Critical accounting estimates used by the Firm that affect the Consolidated results of operations, see pages 52-53 of this Form 10-Q, and pages 77-79 of the JPMorgan Chase 2004 Annual Report.

The following table presents the components of Total net revenue:

   Three months ended March 31,(a) (in millions)          2005        2004       Change

   Investment banking fees                            $    993     $   692           43 %
   Trading revenue                                       1,859       1,720            8
   Lending & deposit related fees                          820         414           98
   Asset management, administration and commissions      2,455       1,771           39
   Securities/private equity gains (losses)                (45 )       432           NM
   Mortgage fees and related income                        405         259           56
   Credit card income                                    1,734         605          187
   Other income                                            201         132           52

   Noninterest revenue                                   8,422       6,025           40
   Net interest income                                   5,225       2,986           75

   Total net revenue                                  $ 13,647     $ 9,011           51 %

(a) 2005 reflects the combined Firm's results, while 2004 reflects the results of heritage JPMorgan Chase only.

Total net revenues, at $13.6 billion, rose by $4.6 billion, or 51%, primarily due to the Merger, which affected most revenue categories. Additional factors that contributed to the revenue growth were significantly higher Investment banking fees, reflecting continued strong levels of advisory and underwriting activities with particular strength in Europe; higher Asset management, administration and commissions, which benefited from an increase in the value of assets under management, supervision and custody, the result of global equity market appreciation, net asset inflows and an acquisition; private equity gains, driven by two large transactions; and consumer-related revenues stemming from stronger demand for credit products, higher credit card charge volume and growth in deposit levels. Partially offsetting these increases were securities losses on Treasury's investment portfolio, the result of repositioning the investment portfolio; and, in RFS, lower prime mortgage originations and write-downs of auto loans that were transferred to the held-for-sale portfolio. The discussion that follows highlights factors other than the Merger that affected the comparison of the results of the three months ended March 31, 2005 and 2004.

The increase in Investment banking fees reflected continued strong levels of debt underwriting, advisory and equity underwriting. Investment banking fees from European deals more than doubled from last year. Higher Trading revenue was driven by strong client activity and portfolio management performance in the credit and interest rate markets across most major asset classes, partially offset by lower equity revenue from lower portfolio management results. For a further discussion of Investment banking fees and Trading revenue, which are primarily recorded in the IB, see the IB segment results on pages 14-16 of this Form 10-Q.

Lending & deposit related fees rose due to the Merger, but the increase was partially offset by lower fees in lieu of compensating balances as a result of rising interest rates. Throughout 2004 and the first quarter of 2005, deposit balances grew. For a further discussion on deposits, see page 35 of this Form 10-Q.

The increase in Asset management, administration and commissions was attributable to global equity market appreciation, net asset inflows and growth in custody, securities lending and trust products, including collateralized debt obligation ("CDO") administration. In addition, asset management and administration fees rose as a result of the acquisition of a majority interest in Highbridge Capital Management in the fourth quarter of 2004. For additional information on these fees and commissions, see the segment discussions for AWM on pages 29-32, TSS on pages 27-29 and RFS on pages 17-23 of this Form 10-Q.

Securities/private equity gains (losses) were affected by securities losses of $822 million, primarily related to Treasury's repositioning of the investment portfolio to manage exposure to rising interest rates and Private equity gains of $777 million. The increase in Private equity gains of $471 million from the prior year was primarily due to two large transactions. For a further discussion of Securities/private equity gains (losses) , which are primarily recorded in the Firm's Treasury and Private Equity businesses, see the Corporate segment discussion on pages 32-34 of this Form 10-Q.

The increase in Mortgage fees and related income reflected an increase in risk management results related to the mortgage servicing rights ("MSRs") asset and secondary marketing activities. These increases were offset in part by a reduction in revenue related to lower prime mortgage originations. Mortgage fees and related income excludes the impact of NII and AFS securities gains related to home mortgage activities. For a discussion of Mortgage fees and related income, which is primarily recorded in RFS's Home Finance business, see the Home Finance discussion on pages 18-20 of this Form 10-Q.

Credit card income increased due to higher charge volume, which resulted in increased interchange income, partially offset by higher volume-driven payments to partners and rewards expense. For a further discussion of Credit card income, see CS's segment results on pages 23-25 of this Form 10-Q.

The increase in Other income reflected higher net results from corporate and bank-owned life insurance policies, higher gains on sales of securities from loan workouts, and a gain on the sale of RFS's recreational vehicle loan portfolio. These gains were offset in part by write-downs related to auto loans that were transferred to the held-for-sale portfolio in RFS.

Net interest income was also favorably affected by growth in consumer and wholesale deposit balances and spreads; higher consumer loans outstanding; the acquisition of a private-label portfolio in CS; and a $40 million charge taken in the first quarter of 2004 related to auto lease residuals. These increases were partially offset by lower wholesale loan balances and spreads, and the absence of the $4 billion manufactured home loan portfolio that was sold in late . . .