JPMorgan Chase

1
JPMorgan Chase Co.

• Presentation for RCMP
• December 6, 2005
• By Kristoffer Inton

2
Agenda

• History
• Macroeconomic view
• Industry glance
• Past performance
• Business line review
• Financial analysis
• Recommendation

3
Chase Manhattan
History

• 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 Hoovers Online
4
JP Morgan
History

• 1864- Junius Spencer Morgan gained control of
  George Peabodys 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. Morgans 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 Hoovers Online
5
JPMorgan Chase
History

• 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 Hoovers Online
6
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 MA
  activity

7
Industry glance
Macroeconomic view

• 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

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RCMP Portfolio History
Past performance

• 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

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52 week range 32.92 39.91
Past performance
10
JPM outperformed in last 3 months
Past performance
11
Business groups
Business line review

• Investment Banking
• Retail Financial Services
• Card Services
• Commercial Banking
• Treasury Securities Services
• Asset Wealth Management

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JPMorgan Chase brands
Business line review

• 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

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Benefits of the merger
Business line review

• 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
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Investment Bank
Business line review

• Platform includes corporate strategy and
  structure advising, equity and debt capital
  raising, risk management, research, proprietary
  investing and trading

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Retail Financial Services
Business line review

• 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

16
Card Services
Business line review

• 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.

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Commercial Banking
Business line review

• More than 25,000 clients including corporations,
  municipalities, financial institutions, and
  non-profit organizations
• 50 billion in average loans
• 66 billion in average deposits

18
Treasury Securities Services
Business line review

• 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

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Asset Wealth Management
Business line review

• Provide investment and wealth management services
  to financial advisors and their clients
• Four key business segments- Institutional,
  Retail, Private Bank, and Private Client Services

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Corporate
Business line review

• 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

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Things to watch for in 2005/2006
Business line review

• 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)

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Comparable companies
Financial analysis
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Model assumptions
Financial analysis

• 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
  -gt 5)
• Slowing growth rates of Total Non-Interest
  Expenses to capture benefits of merger

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Sensitivity Analysis
Financial analysis
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Considerations
Recommendation

• 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

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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