J P Morgan Chase (JPM)

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See all 4 Bulls Reasons Bulls: Reasons To Buy Bear Stearns Acquisition 100% agree Bear Stearns Acquisition Acquisitions: JPMorgan (JPM) is only paying $10/share for Bear Stearns stock. This is the same company that was trading north of $150/share a year ago and was still being sold for more than $50/ share on Friday morning - the same day that Bear Stearns was telling... read more View or Edit Reason 1 votes 100% agree JP Morgan Gains M &A Business 0% agree JP Morgan Gains M &A Business JPMorgan, the biggest U.S. bank by market value, climbed three spots to second place among global merger advisers, after tightened credit markets snuffed out a boom in leveraged buyouts, according to data compiled by Bloomberg. ``Right now, credit access is everything,... read more View or Edit Reason 0 votes 0% agree BankOne merger working 0% agree BankOne merger working Since merging with Bank One in 2004, JPMorgan Chase's returns have been steadily increasing. The merger helped JPMorgan diversify to cover all aspects of the financial market, which has boosted its market share and earnings. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Retail banking isn't as good as it used to be 0% agree Retail banking isn't as good as it used to be The acquisition of Bank of New York, including a great deal of debt, exacerbates the problems facing the struggling retail financial services business. Chase's existing retail branches have been underperforming in several markets already, and adding additional branches is extremely risky. View or Edit Reason 0 votes 0% agree Subprime and interest rates pose key risks 0% agree Subprime and interest rates pose key risks The weak housing market is unlikely to change in the near future, with a flat or even inverted yield curve indicating uncertainty about the future of interest rates in the U.S. and the subprime mortgage lending market contributing to the depressed mortgage banking business. View or Edit Reason 0 votes 0% agree Highly exposed to risk and market volatility 0% agree Highly exposed to risk and market volatility JPMorgan's investment bank has been undertaking an increasing amount of risk in order to improve profits per dollar. This increasing exposure to market volatility has the potential to result in severe losses if the market takes a severe hit. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion This is a great overview of the company - you clearly got a better grasp of the financial service... more [Dismiss] [Done] See All Suggestions

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JPMorgan Chase & Co. (NYSE: JPM) is one of the largest financial institutions in the United States. Its main services include the provision of credit cards and loans and other financial services to both commercial and individual customers in addition to the underwriting of new debt and equity issuance through its investment banking division. Together, these three businesses comprised almost 75% of JPMorgan Chase's $71.3B in 2007 revenue. The firm has a significant amount of international exposure, with operations in over 50 countries and clients in every major financial market in the world.

During the past several years, JPMorgan Chase & Co. has undergone several significant changes. In 2004, the firm merged with Chicago-based Bank One. Jamie Dimon, former CEO of Bank One, took over as COO during the merger, and took over as CEO and Chairman in 2006. Also in 2006, JPMorgan Chase announced plans to trade its corporate trust business in exchange for Bank of New York Co.'s retail and small business banking network. This transaction gave Chase greater exposure to customers in New York, New Jersey, and Connecticut and allowed JPMorgan Chase to consolidate its operations to boost efficiency and cut costs. On March 16, 2008, JPMorgan announced that it was buying Bear Stearns Companies (BSC) for $2 per share, though afterward it raised the price to $10 per share in response to the reactions of Bear's shareholders. The deal was approved by Bear shareholders on May 29, 2008, making the acquisition official and ending Bear's 85 years as an independent firm.^[1]

With its restructuring nearly complete, JPMorgan Chase is pursuing several strategies for long-term growth. The investment bank is focusing on expanding its operations in emerging markets, especially in Asia, through a combination of organic growth of existing branches and new joint ventures and partnerships. Chase Card Services, JPMorgan's credit card division, has been aggressively pursuing the expansion of their private-label card business through partnerships with a variety of retailers. This growth, combined with Chase's targeted advertising campaigns to expand their client base to include students, minorities, and small businesses, should help JPMorgan gain market share in the credit card industry. JPMorgan Chase's performance has been relatively strong thus far; however, if market conditions continue to deteriorate, JPMorgan's business may suffer.

[edit] Business Model

2007 Income by Line of Business, in millions USD

[edit] Wholesale Businesses

[edit] Investment Banking

Accounting for 20% of JPMorgan Chase's net income and earning $3.1 billion net income in 2007, the investment bank is the largest of the firm's operations. The investment bank is employed by clients running the gamut from large corporations to governments to financial institutions. JPMorgan offers a wide range of financial services, including risk management, corporate advising, trading and market-making (enabling transactions between buyers and sellers of cash securities and derivatives), capital raising in equity and debt markets, and research. The investment bank is also responsible for investing and trading with the firm's own capital.

Both net revenue and net income from the investment bank in 2007 declined from 2006, due mostly to large writedowns on its subprime-related holdings and generally difficult conditions in global credit markets. The firm's other investment banking operations fared well, with the division earning record fees for its advisory and equity underwriting services. The acquisition of Bear Stearns in May of 2008 will add to JP Morgan's existing investment banking operations.

[edit] Commercial Banking

Commercial banking is a small but strong component of Chase's business, serving over 30,000 clients across the U.S. This division provides a range of banking services to corporations, government agencies, non-profits, and other financial institutions. Comprising only 7% of the firm's income, the commercial bank has earned record profits in both 2006 and 2007. In 2007, the record net revenue was due to an increase in the division's loan balances and an increase in deposit-related fees. Commercial Banking did increase its provision for credit losses for the year due to market conditions and overall lower credit quality, but this was not enough to offset the segment's otherwise strong performance.

[edit] Treasury & Securities Services

Treasury Services provides cash management, trading, and other services to corporations, financial institutions, and government entities. Securities Services holds, values, and clears securities, cash, and alternative investments for investors and broker-dealers, essentially facilitating transactions on stock markets across the world. In 2007, this division made record profits of $1.4 billion on record net revenue of $6.9 billion.^[4] Increased usage of its products and services by clients, growth in the volume of electronic transactions, and larger loan balances all contributed to the segment's performance in 2007, though there was a slight compression in its spread.

[edit] Asset Management

JPMorgan's asset management division provides retail investors, institutions, and high-net-worth individuals worldwide with investment and wealth management. The division's products and services include management of equities, hedge funds, real estate, fixed income, and private equity investments, as well as trust and estate services for its high-net-worth clients. Asset Management is the United States' largest hedge fund manager, with funds valued at $45 billion.^[5] The Asset Management business supervises a total of $1.6 trillion and accounted for 13% of the firm's total profits for 2007. In 2007, the segment earned record-high profits of $1.96 billion as a result of increased assets under management and higher fees revenue.

[edit] Consumer Businesses

[edit] Credit Card Services

Chase Card Services, JPMorgan's brand for its credit card services business, is the second-largest domestic issuer of Mastercard (MA) and Visa (V) cards, with a total of 155 million of its cards in circulation. Chase manages more than $157 billion in loans for customers ranging from individual consumers to small businesses. Chase Card Services has recently focused on expanding its network of private-label cards, which are cards issued by a specific retailer and are accepted only by the issuing retailer. Chase's current partners include BP (BP), Circuit City (CC), and Kohl's (KSS). Chase also issues cards jointly with various organizations, including Walt Disney Company (DIS), AARP, Marriott (MAR), Sony (SNE), and Amazon.com (AMZN). Private-label cards, while they offer better growth opportunities than traditional bank-issued cards, typically experience higher rates of delinquency, which adds additional risk to Chase's private-label expansion.

Card services accounted for 19% of JPMorgan Chase's net income in 2007, totaling $2.9 billion. Though net revenue increased by 3% over 2006, net income declined for 2007 due to higher provisions for credit losses.

[edit] Retail Financial Services

JPMorgan Chase's retail bank accounted for 20% of the firm's earnings in 2007, earning $3 billion. Chase has the second-largest deposit base in the U.S., and has the largest market share in large cities like Chicago and New York, with the acquisition of Bank of New York's operations. The firm also operates the third-largest ATM network in the United States and the nation's fourth-largest branch network.

The division's net income fell in 2007, despite an increase in total revenue driven by higher mortgage-servicing fees, deposit-related fees, and deposit balances. Large provisions for loan losses more than offset the increase in revenue as JP Morgan Chase set aside more money to cover losses on subprime mortgages and other home-equity loans. The division also benefited from the U.S. Federal Reserve's interest rate cuts in 2007 and 2008, which resulted in a wider interest rate spread on the loans the firm makes to customers, though even this did not offset the potential losses on loan defaults.

[edit] Trends and Forces

[edit] Housing Market

With the slowdown of the housing boom, U.S. residential real estate prices have been growing more slowly or even declining. As of mid-2008, the economy was experiencing the "home equity effect," where declining home values lead homeowners to consider themselves as less wealthy than before. As a result, consumers spend and consume less, which could have repercussions for several of JPMorgan Chase's businesses. Declining credit card usage and fewer personal loans would impact the company's credit card and retail banking divisions, while falling home prices could hurt its mortgage business as well as decrease the value of holdings in the Asset Management and Investment Banking divisions.

[edit] General Economic Growth

Global gross domestic product increased by an estimated 4.9% over the course of 2007.^[6] As the world economy continues to expand, consumers and firms have more wealth to spend and invest, which translates into increased revenue for JPMorgan Chase. In 2008, however, the International Monetary Fund (IMF) expects relatively poor conditions in the U.S. economy to put a drag on global GDP growth, which would mean lower revenues for JP Morgan Chase both on the domestic and the international levels.^[7]

[edit] Interest Rates

The Federal Reserve increased the federal funds rate from 4.25% to 5.25% early in 2006, which put upward pressure on interest rates. This had the effect of slowing economic growth and lowering inflation, which partially offset the effects of strong economic expansion (discussed above). Higher interest rates tend to discourage consumer spending and investment.

As the economy began to slow near the end of 2007, the Fed began cutting its interest rate target, down to 3.00% by the end of January 2008. The rate cuts were intended to stimulate the faltering economy and boost consumer spending, but have had mixed results as the market, and the financials sector, remain highly volatile.

[edit] Bear Stearns Buyout

In March of 2008, JPMorgan announced its intention to acquire troubled investment bank Bear Stearns Companies (BSC) for $2.32 per share, significantly less than its closing price of around $30 on the previous trading day. This sent Bear Stearns shareholders into an uproar, which eventually led JP Morgan to raise its offer to about $10 per share, more than four times the original bid. The takeover was approved by shareholders on May 29, 2008. JP Morgan hopes to take advantage of Bear's name and customer relationships to augment its existing investment banking operations. Bear's private equity unit will be spun off, however, as an independent company. JP Morgan will retain a $1 billion stake in Bear Stearns Merchant Banking, which manages about $5 billion.^[8]

[edit] Competitors

Global M&A Market Share for the first nine months of 2007^[9]

JP Morgan Chase & Co. ranked third among the large US money center banks in terms of assets and second in terms of net revenue for the year 2007.

J.P. Morgan's loans to deposits are among the lowerst in the industry.

J.P. Morgan has the lowest NIM

Chase Card Services makes JPMorgan Chase the top Visa and Mastercard issuer in the United States in 2006, in terms of outstanding balances and market share.

JPMorgan also has a large share of total domestic deposits. As of March 31, 2008, JPMorgan Chase was ranked second, behind Bank of America (BAC); however, JPM has maintained its lead over Wells Fargo (WFC), Wachovia (WB), and other firms.

 J P Morgan Chase

	Select All  |  Select None Metrics Principal Transactions Commissions Pre-Tax Income Number of Financial Advisors Compensation & Benefits Mortgage & Asset Backed Securities Completed Merger & Acquisitions Operating Income Investment Banking Revenue Managed Accounts & Fee Based Revenues Daily Value at Risk Announced Mergers & Acquisitions Net Income Cancel

	Select All  |  Select None Companies Merrill Lynch (MER) Morgan Stanley (MS) Citigroup (C) J P Morgan Chase (JPM) Bear Stearns Companies (BSC) Cowen Group (COWN) Deutsche Bank AG (DB) Diamond Hill Investment Group (DHIL) Friedman, Billings, Ramsey Group (FBR) Gabelli Asset Management (GBL) GFI Group (GFIG) Greenhill (GHL) Investment Technology Group (ITG) Jefferies Group (JEF) Kent Financial Services (KENT) LaBranche (LAB) Ladenburg Thalmann Financial Services (LTS) Knight Capital Group (NITE) Nomura Holdings Inc ADR (NMR) Oppenheimer Holdings (OPY) Paulson Capital (PLCC) Raymond James Financial (RJF) Stifel Financial (SF) Siebert Financial (SIEB) SWS Group (SWS) Thomas Weisel Partners Group (TWPG) UBS AG (UBS) Waddell & Reed Financial (WDR) Legg Mason (LM) Bank of America (BAC) KBW (KBW) Goldman Sachs Group (GS) Lehman Brothers (LEH) Cancel

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Company	Data From	Managed Accounts & Fee Based Revenues	Daily Value at Risk	Announced Mergers & Acquisitions	Net Income
Bank of America (BAC)	2006	$4.46B[12]	$41.3M[13]	Add	$21.1B[14]
Bear Stearns Companies (BSC)	2006	$524M[15]	$28.6M[16]	Add	$2.05B[16]
Goldman Sachs Group (GS)	2007	Add	Add	$1.49T[17]	Add
J P Morgan Chase (JPM)	2007	$14.4B[18]	$106M[19]	Add	$15.4B[20]
Morgan Stanley (MS)	2006	$6.46B[21]	$60M[22]	Add	$7.47B[21]

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[edit] References

1. ↑ Bear's Final Moment: An Apology and No Lack of Ire - WSJ.com
2. ↑ JPMorgan Chase & Co. Annual Report 2007 - page 3
3. ↑ JPMorgan Chase & Co (JPM.N) Financial Statements | Stocks | Reuters.com
4. ↑ JPMorgan Chase & Co. Annual Report 2007, page 24
5. ↑ JPMorgan Chase & Co. Annual Report 2007, page 25
6. ↑ IMF World Economic Outlook (WEO) - Housing and the Business Cycle, April 2008
7. ↑ IMF says 2008 global GDP growth to slow to 4.1% on U.S. downturn
8. ↑ JP Morgan Spinning Off Bear Stearns Private Equity Unit
9. ↑ WSJ.com - M&A Bubble Bursts
10. ↑ Reuters.com 2007 Income Statements and Balance Sheets for BAC, C, JPM, WB, and WFC
11. ↑ Calculated using each firm's domestic deposits as a share of total domestic deposits from FDIC ID Key Statistics (as of March 31, 2008)
12. ↑ BAC,2006,10-K,Item-8,PG-102
13. ↑ BAC,2006,10-K,Table-28,PG-75
14. ↑ BAC,2006,10-K,Table 5,PG-21
15. ↑ BSC,2006,10-K,Exhibit-13,PG-79
16. ↑ ^{16.0 16.1} BSC,2006,10-K,Exhibit-13,PG-31
17. ↑ EDGAR
18. ↑ JPM,2007,10-K,Item-6,Page-31
19. ↑ JPM,2007,10-K,Item-8,Page-91
20. ↑ JPM,2007,10-K,Item-6,Page-26
21. ↑ ^{21.0 21.1} MS,2006,10-K,Item-6,PG-32
22. ↑ MS,2006,10-K,Item-7,PG-98