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M c I n t i r e I n v e s t m e n t I n s t i t u t e 1
McIntire Investment Institute At the University of Virginia
JP Morgan
Prepared by Andrew Kouri| 13 October 2011
NYSE: JPM $30.70
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
2
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
3
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Overview
• One of the oldest banks in US • Today operate in 60 countries • Dow 30 Component • Market Cap: $119B • Performance throughout 2007-2008 • CEO ex-Citigroup’s Jamie Dimon
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Company Overview Key Data Acquisition Fruition Segments 1,2 Segments 3,4 Segments 5,6
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Key Data
• P/E: 6.7 • PEG: .77 • Price/Book: .68 • Institutional Ownership: 73% • Short %: 1.4%
• Beta: 1.4 • 52 Week High $48.36 • 52 Week Low $27.85 • EBITDA: $8.12B
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Company Overview Key Data Acquisition Fruition Segments 1,2 Segments 3,4 Segments 5,6
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Acquisition Fruition
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Company Overview Key Data Acquisition Fruition Segments 1,2 Segments 3,4 Segments 5,6
JP Morgan Chase
Chase Manhattan
Bank
Chemical Bank
Many Others…
Chase Manhattan
Bank
JP Morgan & Co
J.P. Morgan & Co
Guaranty Trust of NY
WaMu
Many Others…
Bear Stearns
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Segments
Investment Bank
• Net Income: $6.6B or 38% of profit
• Advisory • Debt & Underwriting • Market-Making and Trading • Corporate Lending • Research
Retail Financial Services
• Net Income: $2.53B or 14.5% of profit
• Retail Banking – Consumer and Business Loans
• Mortgages • Auto Loans • Student Loans • Real Estate Portfolio
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Company Overview Key Data Acquisition Fruition Segments 1,2 Segments 3,4 Segments 5,6
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Segments
Card Services
• Net Income: $2.07B or 12% of profit
• Credit Cards • Merchant Acquiring
Commercial Banking
• Net Income: $2.08B or 12% of profit
• Middle Market Banking • Commercial Term Lending • Mid-Corporate Banking • Real Estate Banking
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Company Overview Key Data Acquisition Fruition Segments 1,2 Segments 3,4 Segments 5,6
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Segments Treasury & Securities
Services
• Net Income: $1.08B or 6.2% of profit
• Treasury Services • Worldwide Securities
Services
Asset Management
• Net Income: $1.71B or 10% of profit
• Private Banking • Investment management at
the institutional level as well as retail level.
• Highbridge
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Company Overview Key Data Acquisition Fruition Segments 1,2 Segments 3,4 Segments 5,6
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
10
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
11
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Tumult: Past Problems
• TARP “Scarlet Letter” • Interest Rates Near Zero • Euro • Fed’s Balance Sheet Expanding
– Moral hazard
• Socialization • Huge Inefficiencies
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Current Problems
• Dexia • ECB Interest Rate? • Tightening Regulation
– Dodd-Frank
• PIIGS • Unrecognized losses hidden from balance sheets
– FDIC Balance Sheet
• Persistent Unemployment
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
International Dependence
• I thought this was a US Company? – 17% of Revenue from Europe – 21% of Assets – JPM Could (and probably will) lose $3B after tax due
to “extremely bad outcomes in all these countries.” • Although they may not have much Greek exposure, still
exposed throughout the broader economy • Banking very “Macro-Economic”
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
17
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
18
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Theses
1. Good Management
and Consistent Growth
2. Industry Oversold from EuroFears
3. The Best for the price of the
Rest
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
1. Good Management
and Consistent Growth
2. Industry Oversold from
EuroFears
3. The Best for the price of the Rest
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Management
• Jamie Dimon, CEO
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A company with a History of shareholder-friendly actions
“Morganization”
Has been JPM CEO since 2004
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Acquisitions
• Acquisitions -> Growth • Picked at the remnants from the 2007-08
massacre • “WaMu has suffered huge losses but still boasts
a strong deposit base and a network of 2,239 branches that bigger banks would have paid dearly for when times were good.” (WSJ)
• West Coast Exposure • $1.9B for deposits and branches
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Growth
• Misperception: Can’t/Not Growing – Prudence throughout tougher times
• Adding 3 Million new customers every year in retail banking
• In 2010 opened 174 new branches, hiring more than 3,400 bankers
• iBanking ROE 17% on $40B of capital. • Card Services: Net income $2.1B compared with a net
loss of $2.2B in 2009.
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Commercial Banking Growth
• In 2010 – Record Revenue of $6 billion, record earnings of $2.1 billion and an ROE of 26% – “California, Washington, Oregon, Florida and Georgia represent
attractive new growth markets for us. With over 250 dedicated resources in place, this expansion is well under way and has the potential to generate more than $1 billion in additional revenue for Commercial Banking” (Annual Report)
• Revenue up 6% from last year and balances up 31% (mrq)
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Theses
1. Good Management
and Consistent Growth
2. Industry Oversold from EuroFears
3. The Best for the price of the
Rest
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
1. Good Management and
Consistent Growth
2. Industry Oversold from
EuroFears
3. The Best for the price of the
Rest
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
EuroFear
• What is it? • Why does it affect JPM? • What needs to happen to clear it up?
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Misperceptions
• We won’t recover • Home prices will stagnate • Unemployment will remain high for the next
four years
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Analyst Opinion: Rick Mace, Fidelity Investments
• Euro is the main source of the problem • Need to be able to control interest rates on a
per-country basis. • Just as US taxpayers don’t want to bail out
irresponsible banks, Germans don’t want to bail out Greece.
• Liabilities hang over the world, all financial institutions linked.
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Analyst Opinion: Burl Capital
• FDIC Premiums are going up, yet interest rates stuck at zero.
• BAC’s insolvency burden flows to JPM • Financial Markets intertwined: ¼ of all loans
minted in US wind up somewhere on EU balance sheets
• Dodd-Frank and new regulations may be why stock appears cheap.
• Banks are too big to operate efficiently 32
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Theses
1. Good Management
and Consistent Growth
2. Industry Oversold from EuroFears
3. The Best for the price of the
Rest
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
1. Good Management
and Consistent Growth
2. Industry Oversold from EuroFears
3. The Best for the price of the Rest
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M c I n t i r e I n v e s t m e n t I n s t i t u t e 35
Company P/E ROE Profit Margin Dividend Yield (ttm)
JP Morgan 6.1 11.6% 21.8% 3.2%
Deutsche Bank 12.4 5.84% 8.9% 2.8%
BAC n/a -6.73% -21% .64%
Citi 8.05 6% 15.6% .15%
US Bank 11.68 13% 27.4% 2%
Goldman 9.45 10.93% 22% 1.46%
to
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Customer Satisfaction
• Doesn’t matter!
• But, JPM is still trying to brand its franchise as best it can.
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
41
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
42
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Macro
• EuroZone bailout plan to be announced “by the end of October”
• New Government Regulations not yet realized • Bank of America • ECB Interest Cut
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Micro
• Earnings Call Today • 10-K, end of year earnings growth • Stock buyback
– Money slowly flowing in through hedge funds – Analyst Opinion (1.7) – Insider Trends
• Watch dividend
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
45
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
Presentation Agenda
46
Company Overview
Industry Overview
Thesis
Catalysts
Risks
M c I n t i r e I n v e s t m e n t I n s t i t u t e
“They are not Wells Fargo when it comes to retail banking. They are not American Express when it comes to credit cards. They are not BlackRock
when it comes to asset management,” said Michael Mayo of Credit Agricole Securities. “And
JPMorgan is not Goldman Sachs in emerging markets.”
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Basil III
• New regulations can cause inefficiencies on ROE
• Best House in a Bad Neighborhood • Dimon has mentioned that JPM does not
“support” the new standards as they inhibit growth.
• We need to see how they play out
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
PIIGS
• 21% exposure to Europe • $20B exposure net collateral and hedges • $3B in losses (more?)
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Lawsuits
• Will remain a decent cost for the foreseeable future – Sealink’s Mortgage Backed Security Suit – Lehman’s $8.6B siphoning suit – Wells Fargo (small suit) – $1B in fees (mrq) – Etc.
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M c I n t i r e I n v e s t m e n t I n s t i t u t e
Recommendation
• Based on the results from today, I recommend – Waiting for stock to drop ~5% after other banks
report. – If JPM rebounds 7-10% on strong volume over the
course of a few days, initiate position.
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