JPMorgan Chase & Co. Presentation for RCMP December 6, 2005 By Kristoffer Inton
Dec 16, 2015
Agenda
History Macroeconomic view Industry glance Past performance Business line review Financial analysis Recommendation
Chase Manhattan
1799- The Manhattan Company formed as a water provider, but also participates in banking
1824- The New York Chemical Manufacturing Company formed to manufacture chemicals, but expands into banking and changes its name to Chemical Bank of New York
1877- John Thompson formed Chase National 1955- Chase National merged with Bank of
Manhattan to form Chase Manhattan 1996- Chemical Bank acquired Chase Manhattan and
begins operating under the Chase Manhattan brand name
* Courtesy of Hoover’s Online
History
JP Morgan
1864- Junius Spencer Morgan gained control of George Peabody’s London bank and renamed it J.S. Morgan & Co.
1862- His son, J. Pierpont Morgan started his own firm in New York
1890- Following J.S. Morgan’s death, his son united the two banks under J.P. Morgan & Co.
1933- Glass-Steagall Act forced the company to split into the commercial bank (J.P. Morgan) and the securities company (Morgan Stanley)
* Courtesy of Hoover’s Online
History
JPMorgan Chase
2001- Chase Manhattan acquired JPMorgan & Co. to form JPMorgan Chase & Co.
In 2004, JPMorgan Chase & Co. acquired Bank One
Bank One CEO Jamie Dimon becomes president, COO, and designated successor of current JPMorgan Chase CEO William B. Harrison
* Courtesy of Hoover’s Online
History
Macroeconomic view
Margin compression- a flattening yield curve eats away at the interest rate spread that banks profit on
Change in bankruptcy laws- led to a spike in bankruptcy before changes took effect
Excess cash has led to companies increasing dividends, buying back shares, and increasing M&A activity
Macroeconomic view
Industry glance
Mergers and mega-mergers; top 10 U.S. banks control two-thirds of the lending market and deposits
Large mergers formed extremely big banks (more than $1 trillion in assets)
Smaller banks competing on service focus Although online customer access is
critical, many customers still prefer human interaction
Firms prefer less costly internet and debit transactions over in-branch visits and check and credit card transactions
Macroeconomic view
RCMP Portfolio History
Purchased on Oct. 6, 1999 as Bank One for 700 shares
Cost of position- $24,237.45
Market value- $35,897.40 (+48.11%)
Currently own 924 shares
Past performance
Business groups
Investment Banking Retail Financial Services Card Services Commercial Banking Treasury & Securities Services Asset & Wealth Management
Business line review
JPMorgan Chase brands
•Investment Bank
•Treasury & Security Services
•Asset & Wealth Management
•Investment management
•Private Bank
•Private Client Services
•Commercial Banking
•Card Services
•Retail Financial Services
•Shifting focus to a re-energized Chase brand name
•Utilize the trustworthiness of the Chase name and the momentum of the Bank One name
Business line review
Benefits of the merger
Cost savings of $400 million Headcount decreased by 6,500 (4%)
On target of total expense reduction of $3 billion by 2007
Increased number of distribution channels Coordinated branding and marketing Efficiencies of scale Broader product and service offering
*as of July 1, 2004
Business line review
Investment Bank
Platform includes corporate strategy and structure advising, equity and debt capital raising, risk management, research, proprietary investing and trading
Business line review
Retail Financial Services
Serves individuals and small businesses with products such as checking and savings accounts, mortgage and home equity loans, small business loans, credit cards, investments, and insurance
2,500 bank branches 225 mortgage offices
Business line review
Card Services
Over 94 million cards issued with over $282 billion in 2004 charge volume
Over 850 credit card partnerships with well-known brands such as AARP, Amazon.com, United Airlines, etc.
Business line review
Commercial Banking
More than 25,000 clients including corporations, municipalities, financial institutions, and non-profit organizations
$50 billion in average loans $66 billion in average deposits
Business line review
Treasury & Securities Services
Provides transaction, investment, and information services to support CFOs, treasurers, issuers, and institutional investors
Three business lines- Treasury Services, Investor Services, and Institutional Trust Services
Business line review
Asset & Wealth Management
Provide investment and wealth management services to financial advisors and their clients
Four key business segments- Institutional, Retail, Private Bank, and Private Client Services
Business line review
Corporate
Private Equity- invest in leveraged buyouts, growth equity, and venture capital for the firm
Treasury- manage structural interest rate risk and investment portfolio of the firm
Corporate staff support- provide centralized support services
Business line review
Things to watch for in 2005/2006
Approximately $2 billion in cost savings at the end of 2005
Reduction in private equity exposure Jamie Dimon takes over as CEO in January
2006 Increased cost-cutting measurements (i.e.
shift of back-office duties of investment bank to India)
Business line review
Comparable companies
Financial analysis
JPM BAC C Industry
Market Cap 135.94B 186.47B 247.13B 918B
Employees 160,968 175,742 287,000
Revenue (ttm) 50.27B 54.17B 82.08B
Net income (ttm) 7.43B 16.95B 20.91B
EPS (ttm) 2.08 4.15 4.41
PE (ttm) 18.67 11.18 11.09 12.8
PEG (5 year expected) 1.33 1.19 1.22
PS (ttm) 2.71 3.42 3.01
Model assumptions
Calculated 2005 using previous 3 quarters and estimating for 4th quarter by using management outlook and quarter-over-quarter growth rates
Provision for credit losses as a % of loan balance
Conservative net interest income growth rates (8% -> 5%)
Slowing growth rates of Total Non-Interest Expenses to capture benefits of merger
Financial analysis
Sensitivity Analysis
EPS: F2005 F2006 F2007 F2008 F2009 F2010
Diluted earnings per share 2.56 3.10 4.25 4.77 5.00 5.25
Financial analysis
Source of P/E P/E F2005 F2006 F2007 F2008 F2009 F2010
Citigroup 11.09 $ 28.40 $ 34.38 $ 47.16 $ 52.91 $ 55.45 $ 58.22
Bank of America 11.18 $ 28.64 $ 34.66 $ 47.54 $ 53.34 $ 55.90 $ 58.70
Industry 12.8 $ 32.78 $ 39.68 $ 54.43 $ 61.07 $ 64.00 $ 67.20
Sector 14.24 $ 36.47 $ 44.15 $ 60.55 $ 67.94 $ 71.20 $ 74.76
16 $ 40.98 $ 49.60 $ 68.04 $ 76.34 $ 80.00 $ 84.00
JP Morgan 18.67 $ 47.82 $ 57.88 $ 79.39 $ 89.07 $ 93.35 $ 98.02
Considerations
Positive Benefits of merger beginning to take effect Company focused on cutting costs to
compensate for low margin business
Negative Company feeling the pressure of flattened
yield curve Portfolio has heavy weighting in banking
industry Cyclical business, depends heavily on health of
economy
Recommendation