bo( kate ) dong, stephen proffer, gleb zarkh march 13, 2007
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JPMorgan Chase. Bo( Kate ) Dong, Stephen Proffer, Gleb Zarkh March 13, 2007. Outline. History Macroeconomic view Industry glance Past performance Financial analysis Recommendation. Outline. History Macroeconomic view Industry glance Past performance Financial analysis - PowerPoint PPT PresentationTRANSCRIPT
Bo(Kate) Dong, Stephen Proffer, Gleb Zarkh
March 13, 2007
JPMorgan Chase
RCMP
Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
RCMP
Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
RCMP
JP Morgan Chase
One of the oldest and most prestigious financial services firms in the world.
Headquartered in New York City, with assets of $1.3 trillion, JPMorgan Chase is currently the 3rd largest banking institution in US (Behind Citigroup & Bank of American)
Principle Bank subsidiaries: JPMorgan Chase Bank, National Association Chase Bank USA, National Association
Principal Non-Bank Subsidiaries: J.P. Morgan Securities Inc.
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Chemical Banking Corp.
New York Chemical Manufacturing Company was founded in 1823 as a maker of various chemicals
In 1824, the company amended its charter to perform banking activities and created the Chemical Bank of New York
In 1996, the company acquired the Chase Manhattan Corporation and kept that name
In 2000, the company acquired J.P. Morgan & Co. and changed its name to J.P. Morgan Chase & Co.
JPMorgan Chase retains Chemical Bank's headquarters and stock history.
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Chase Manhattan Bank
The Chase Manhattan Bank was formed upon the 1955 purchase of Chase National Bank (established in 1877) by the Bank of the Manhattan Company (established in 1799), the company's oldest predecessor institution. Led by David Rockefeller during the 1970s and the 1980s
Chase Manhattan was one of the largest and most prestigious banking concerns, with leadership positions in syndicated lending, treasury and securities services, credit cards, mortgages, and retail financial services
Weakened by the real estate collapse in the early 1990s, it was acquired by Chemical Bank in 1996
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J.P. Morgan & Company
In 1895, Drexel, Morgan & Co. became J.P. Morgan & Co
It financed the formation of the United States Steel Corporation, which took over the business of Andrew Carnegie and others and was the world's first billion-dollar corporation
In 1892, the company began to finance the New York, New Haven and Hartford Railroad and led it through a series of acquisitions that made it the dominant railroad transporter
In the 1930s, JPMorgan was forced by the Glass-Steagall Act to choose either commercial banking or investment banking: JPMorgan chose to operate as a commercial bank
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JPMorgan Chase
In 1990s and following amendments to the Glass-Steagall Act, JPMorgan Chase had turned itself into an investment bank too. It also offered private banking and private equity services.
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
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Bank One
Created 1998: Bank One of Ohio merge with First Chicago
Result of over 55 mergers
J.P. Morgan Chase- aggressive acquisition strategy
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Businesses use the JPMorgan brand: Investment Bank Worldwide Securities Services Private Bank Asset Management One Equity Partners Private Client Services
Business under Chase brand: (The U.S. consumer and commercial banking businesses serve customers
under the Chase brand) Credit card Small business Home finance Auto and education finance Insurance
Business under 2 brands
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Business Segments
Investment Bank Retail Financial Services Card Services Commercial Banking Treasury and Securities Services Asset Management Corporate
J.P. Morgan 2006 Annual Report, Pg. 35
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Segment Breakdown
IBED Pg. 34/ Pg. 37 RCMP
Investment Banking Market Share
IBED Pg. 36 RCMP
Investment Banking Financials
Flat Net Income
Record fees
IBED Pg. 34/ Pg. 40 RCMP
Retail Financial Services
*Additional 339 Branches in New York Tri State (NY, NJ, CT) from Bank of New York Aquisition
IBED Pg. 38 RCMP
Retail Services Financials
Net Income down by 6%
Weaker mortgage results
IBED Pg. 34/ Pg. 44 RCMP
Card Services
IBED Pg. 43 RCMP
Card Services Financials
Net Income up 68%
Fewer bankruptcy filings
IBED Pg. 34/Pg. 47 RCMP
Commercial Banking
IBED Pg. 46 RCMP
Commercial Banking Financials
Net Income increase by 6%
IBED Pg. 34/ Pg. 49 RCMP
Treasury & Securities Services
IBED Pg. 48 RCMP
Treasury & Securities Financials
Net Income increased 26%
Driven by market value appreciation
IBED Pg. 34/ Pg. 51 RCMP
Asset Management
$ 1.3 Trillion under management
IBED Pg. 50 RCMP
Asset Management Financials
Net Income Increased 16%
Driven by market appreciation
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Corporate
Private Equity, Treasury, Corporate Staff units & expenses which are centrally managed
IBED Pg. 53 RCMP
Corporate Financials
Wider net interest spread
Litigation expenses
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Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
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Economics
Big Picture
Interest Rate
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Big Picture Projection
Global and domestic GDP growth will remain flat or decline slightly
The U.S. economy showing some weakening because of a challenging housing market
Global economy doing relatively well because of robust activity in Asia and areas of the world that produce oil and raw materials.
U.S. Bureau of Economic Analysis. March 12, 2006. <http://www.bea.gov/briefrm/gdp.htm>
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Big Picture(2)-- GDP
U.S. Bureau of Economic Analysis. March 12, 2006. <http://www.bea.gov/briefrm/saving.htm>
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Big Picture(3)-- Consumer deposits
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Economics
Big Picture
Interest Rate
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Interest rate (1)—Long-term interest rate
Longer-term interest rates have risen, contributing to increased borrowing costs for both households and businesses.
Long-term interest rates rose but were still moderate by historical standards, and credit spreads and risk premiums stayed narrow.
Bankrate.com. March 12, 2006 <http://bankrate.com/brm/graphs/graph_trend.asp>
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Interest rates (Mortgage)
Moneycafe.com. March 12,2006. <http://bankrate.com/brm/graphs/graph_trend.asp>
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Interest Rates (Prime)
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Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
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Industry glance
Mergers and mega-mergers; top 10 U.S. banks control two-thirds of the lending market and deposits
Advises on corporate strategy and structure, raises capital, etc.
Make markets in financial instruments Offers sophisticated risk management services Sales and research across equity, debt, interest
rate, foreign exchange and commodity markets Provides equity and mezzanine capital financing
to companies throughout the business development life cycle
Sources: JP Morgan 2006 10 K
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Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
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RCMP Portfolio History
Purchased on Oct. 6, 1999 as Bank One for 700 shares
Cost of position- $24,237.45
Market value- $45,128.16 (+86.19%)
Currently own 924 shares
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JPM on S&P 500
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Comparable companies
JPM BAC C WFC IndustryMarket Cap 162.45B 236.61B 249.52B 119.9B 1,142BRevenue (ttm) 56.29B 63.14B 79.78B 32.65BNet income (ttm) 12.61B 19.44B 21.03B 8.23BEPS (ttm) 3.532 4.344 4.646 2.42PE (ttm) 13.26 12.13 10.93 14.68 13PEG (5 year expected) 1.28 1.26 1.18 1.42PS (ttm) 2.91 3.75 3.11 3.67Price 46.83$ 52.69$ 50.78$ 35.53$
Source : Yahoo! Finance
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Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
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Model assumptions
Step1:Calculation of Equity Cash Flow
Step2: Calculation of Cost of Equity Step3:Calculation of ROE Step4:Calculation of the Equity
Value Step5:Calcualtion of the Price per
share
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Step1:Calculation of Equity Cash
Equity cash flow 2007 2008 2009 2010 2011
Net Income
13,932
13,444
15,424
17,129
14,624
- changes in equity
36,234 -5,545
19,066 -
15,199 88
= equity cash flow -
22,303
18,989 -3,642
32,328
14,536
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Step2: Calculation of Cost of Equity
Cost of equity=
Annualized
rf= 5.25%
β= 0.67
rm= 12.00%
ke= 9.77%
source:http://finance.yahoo.com/q/ks?s=JPM
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Step3:Calculation of ROE(1)
2004 2005* 2006
Net income 4,414 8,470 14,440
Total Equity (including Goodwill) 105,653 107,211 115,790
Goodwill 43,203 43,621 45,186
Total Equity (excluding Goodwill) 62,450 63,590 70,604
ROE including goodwill 4.18% 7.90% 12.47%
ROE excluding goodwill 7.07% 13.32% 20.45%
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2007 2008 2009 2010 2011
Net income 13,932
13,444
15,424
17,129
14,624
Total Equity (including Goodwill)
118,997
113,452
132,518
117,319
117,407
Goodwill 45,397
45,796
46,007
46,445
46,775
Total Equity (excluding Goodwill)
73,600
67,656
86,511
70,874
70,631
ROE including goodwill 11.71% 11.85% 11.64% 14.60% 12.46%
ROE excluding goodwill 18.93% 19.87% 17.83% 24.17% 20.71%
Step3:Calculation of ROE(2)
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Step4:Calculation of the Equity Value
Long-Term Growth Rate=3.50%
Year 1 2 3 4 5
2007 2008 2009 2010 2011 Terminal Value
Net income 13,932 13,444 15,424 17,129 14,624
equity cash flow (22,303) 18,989 (3,642) 32,328 14,536
Distcount factor 0.911 0.830 0.756 0.689 0.627 0.627
Terminal Value 239,859
PVs of Equity Cash Flow -20,317 15,758 -2,753 22,264 8,206 150,483
Total Enterprise Value= 174,555
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Step5:Calcualtion of the Price per share
Total enterprise value over 174,555
Shares outstanding 3,462
+ 10% 55.47
=Price Per Share 50.42
- 10% 45.38
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Outline
History Macroeconomic view Industry glance Past performance Financial analysis Recommendation
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Recommendation for JPM
Hold 924 shares of JP Morgan Chase -JPM owned a strong management
and stable strategy -JPM continued focus on their retail banking division -JPM reduced the non-interest
expenses, especially the operating expenses
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RCMP:
Gleb ZarkhEmail: [email protected]
Stephen ProfferEmail: [email protected]
Bo (Kate) DongEmail :[email protected]
March 12, 2006