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JPMorgan Chase & Co. Presentation for RCMP December 6, 2005 By Kristoffer Inton Agenda History Macroeconomic view Industry glance Past performance Business line review Financial analysis Recommendation History Chase Manhattan

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jpmorgan chase co

JPMorgan Chase & Co.

Presentation for RCMP

December 6, 2005

By Kristoffer Inton

agenda
Agenda
  • History
  • Macroeconomic view
  • Industry glance
  • Past performance
  • Business line review
  • Financial analysis
  • Recommendation
chase manhattan

History

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

jp morgan

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

jpmorgan chase

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

macroeconomic view

Macroeconomic view

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
industry glance

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
rcmp portfolio history

Past performance

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
business groups

Business line review

Business groups
  • Investment Banking
  • Retail Financial Services
  • Card Services
  • Commercial Banking
  • Treasury & Securities Services
  • Asset & Wealth Management
jpmorgan chase brands

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
benefits of the merger

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

investment bank

Business line review

Investment Bank
  • Platform includes corporate strategy and structure advising, equity and debt capital raising, risk management, research, proprietary investing and trading
retail financial services

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
card services

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.
commercial banking

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
treasury securities services

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
asset wealth management

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
corporate

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
things to watch for in 2005 2006

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)
model assumptions

Financial analysis

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
considerations

Recommendation

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 for jpm
Recommendation for JPM
  • Hold 924 shares of JP Morgan Chase
    • Merger benefits being realized
    • Strong business outlook for non-interest revenue businesses
    • Company focused on reducing costs