JP Morgan Chase & Co.

American Multinational Banking and Financial Services

Holding Company

JPMorgan Chase

Presented By: Deep Bhattacharyya

7 May 2018

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Financial Performance:

I. Components of Analysis

- It is essential to evaluate the financial strength and overall health of JP Morgan

Chase through the acronym CAMELS which is an international rating system

that bank supervisory authorities use in order to rate financial institutions

(Investopedia). The six factors that are combined to create a rating are: capital

adequacy, asset quality, management, earnings, liquidity, and sensitivity.

Together these components and the ratios within them provide a clear and

organized understanding of how a finical institution is doing.

II. Capital Adequacy

- Banks primarily make money by lending money at rates higher than the cost of

the original money that they lend. Having said this, it is important to evaluate a

bank on the basis of how much money it has. More specifically, the capital

adequacy ratio or CAR is a percentage of a bank's risk weighted credit exposures.

The capital adequacy ratio takes into account two types of capital. Tier one

capital and tier two capital. Tier one capital is the capital that is permanently and

easily available to cushion losses that a bank may incur without it completely

shutting down. Usually, it consists of shareholders' equity and retained earnings.

Tier two capital is supplementary capital that is usually not as reliable as tier one

capital and consists of revaluation reserves, hybrid capital instruments and

subordinated term debt, general loan-loss reserves, and undisclosed reserves

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 (Investopedia). JP Morgan Chase currently has a CAR of 15.7% which shows

that the bank is in a very strong state to back up all of its deposits and stay

solvent which is where a bank must be to be considered healthy. Currently, in the

United States, Banks must remain above 8 percent. Finally, another important

factor to consider is the debt to asset ratio. In 2016, JPMorgan Chase had a debt

to asset ratio of 0.8980 and then in 2017, they had a ratio of 0.8999. What this

means for JP Morgan Chase is that 90% of the assets are financed with debt and

10% are financed with equity. This is fairly risky but also common for banks.

According to Investopedia, “a debt/equity ratio of 1.5 or lower is considered

good, and ratios higher than 2 are considered less favorable.” A ratio that is

significantly higher suggests that a bank might be following a very aggressive

growth strategy making it very risky and easier to incur losses. Since JP Morgan

has a balanced debt to asset ratio it suggests that the bank is in a stable position

for themselves and their investors.

III. Asset Quality

- The asset quality of a bank is another important factor about the bank because it

highlights the quality of an institution’s loans and directly correlates to its

earnings. Currently, JP Morgan Chase’s diversified portfolio of leveraged loans

through both in primary and secondary bank loan market ensures the return on

their loans and maintains a strong hold on their assets. Another factor that also

plays a strong role in marinating the quality of their loans is the fact that they use

an aggregate risk analysis which strengthens their potential to avoid losses on

loans. This is done every quarter by a sector of the management team.

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 IV. Management

- The structure of the bank is highly regulated which leads it to be highly efficient

and effective in meeting its performance objectives and standards set by the bank.

JPMorgan Chase’s current CEO is James Dimon. JPMorgan Chase has a

management structure that revolves around two main bodies: a management

structure and board of directors. The management structure sees the company’s

day to day operations, while the Board altogether is responsible for the oversight

of the managing committee on behalf of the Firm's stockholders. This is a highly

structured set-up since there are several committees that work independently

from the board, but also reports and advises the board during meetings. For

example, Board committees consist of the following: Audit Committee, Public

Responsibility Committee, Compensation & Management Development

Committee, Corporate Governance & Nominating Committee, Risk Policy

Committee. Each of these committees are then compromised of 2-4 independent

directors to ensure the committee is staying on top of their agenda (Reuters). The

company is structured this way two main reasons. The first being ensuring

transparency and accountability for every single operation that takes. This is done

to minimize any fraudulent or suspicious actives. The second reason is to keep

things running as efficiently as possible so that the company can capitalize on

every single major opportunity.

VII. Earnings

- Banks must remain competitive in order to maintain their financial position and

continue to add capital to itself. Therefore, it is important to realize that banks,

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 like any other business, strive to make profits. A financial institution earnings are

often determined by looking at factors such as “the company's growth, stability,

valuation allowances, net interest margin, net worth level and the quality of the

company's existing assets” (Investopedia). Additionally, three very apparent

ratios that help paint a clearer picture are the profit percentage, return on assets,

and return on equity ratios. JP Morgan Chase currently in its most recent quarter

had a profit percentage of 31.22% suggesting that they are doing extremely well.

Additionally, this also means that approximately 30 cents of every dollar of

revenue is a profit for the company and because the company has been able to

maintain this profit percentage over the last 8 quarters it shows how stable their

earnings are. Next JPMorgan Chase had a 0.66% return on assets ratio as of the

last quarter of 2017. This suggests that the for every dollar of debt and equity the

JP Morgan takes on, it can return 60 cents in net profit. Lastly, JP Morgan Chase

has 5.88% ROA as the last quarter in 2017. This, once again, emphasizes how

well JP Morgan is doing because it means that for every $1 of shareholders'

equity last JP Morgan generated 0.58 cents of profit per dollar.

VII. Liquidity

JP Morgan Chase is an extremely liquid financial institution. Liquidity means

how fast a financial institution can convert its assets into cash. As of this year, JP

Morgan Chase has global access program allowing its clients, both individuals

and business, to easily liquidate their assets for cash. The reason the bank prides

itself on being so liquid is that it manages over one trillion dollars in assets. This

is more than any other institution in the industry. Additionally, it also 304 billion

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 dollars in the Money Market which further goes to show how easily it can

liquidate. Being liquid is critical for a bank because without its clients don't have

access to cash making it very difficult for them to complete certain transactions

VII. Sensitivity

Sensitivity focuses on how risk exposures can affect financial institutions. JP

Morgan deals with this concept unlike any other financial institution in the

industry. They have an extremely strong 10-15 year future potential analysis that

is conducted every year. This secures and insulates against future risk and

reaffirms their stability as a financial institution.

Current Events:

I. Plans of Expansion

- One of JP Morgan Chase’s newest pursuits is to build a brand new headquarters

in Midtown Manhattan. Just recently, the company purchased air rights for $240

million from the owners of the Grand Central Terminal. There are two key

reasons why JP Morgan Chase is looking to take on this project. The first reason

is to upgrade from its current headquarters which is outdated and does not have

the resources to accommodate the large amount of employees JP Morgan is

looking to hire. The second reason JP Morgan Chase is moving its headquarters

is to help the city and its residents. $42 Million Dollars from the project will be

given to the city to improve the district’s streets, sidewalks and pedestrian plazas.

James Dimon, the CEO of JP Morgan Chase, stated, “We are recommitting

ourselves to New York City while also ensuring that we operate in a highly

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 efficient and world-class environment for the 21st century” (Bagli). This goes to

show how JP Morgan Chase is constantly looking to improve and grow while

also trying to help others around them.

II. Support Minority-Owned Small Businesses

- As of this year, JP Morgan Chase announced a major program called Ascend

2020. The bank plans to inject $2.5 million into the program supporting minority-

owned small businesses over the next three years. The primary reason that JP

Morgan Chase is pursuing this endeavor is to help minority business owners

while at the same time limit and curb wealth gap which can significantly damage

the economy. For example, Dimon and other executives pointed out that white-

owned small business has revenue 1.5 times larger than their minority

counterparts which serves as a serious problem in maintaining a stable economy.

Although this invite is a part of the CSR agenda, the bank also wants to

incentivize and create more entrepreneurs of color who are often faced with

difficult financial situations.

Sustainability:

I. JP Morgan Chase teams up with GE

- One of the biggest sustainability initiatives JP Morgan Chase is pursuing is to

team up with General Electric in order to limit their own internal energy

consumption as well as make a global effect. The companies' goals are to reduce

both energy and water consumption in order to make the world a better place for

themselves and their consumers. More specifically, the bank will install led

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 lights, limit electricity usage, and cut down on air travel for their employees.

They are also planning on reaching their long-term goal of reducing greenhouse

gas emissions by 50 percent below 2005 levels by 2020 (Summerville).

Additionally, this will also help JP Morgan Chase in the future since it will

“…reduce their branch energy expense by around 15 percent and save about

$200 million over 10 years” (Summerville). Lastly, the companies are also trying to

develop an app that will reduce water consumption by 20 percent. All these

initiatives highlight how strongly JP Morgan Chase is committed to making the

world a cleaner and more dynamic place for sustainable business.

II. Support Women Entrepreneurs of Color in Tech

- Just like helping minority small business owners find their footing in the

financial world, JP Morgan has made it an objective within their CSR report to

provide a $1 million investment. One of the main reasons the JP Morgan Chase is

going after this goal is because women of color are the fastest growing segment

of entrepreneurs in the United States (JP Morgan Chase Co.). The company plans

to diversify the million-dollar investment by breaking into five hundred thousand

dollar investments to two strongly established organizations: DIDTechnology

Inc. and the iNTENT Manifesto. More specifically, Dimon spoke out on the issue

by saying, “Women of color have not had equal access to the resources they need

to be successful in business,” said Jamie Dimon, Chairman and CEO, “My hope

is that our investment continues to help unlock doors for Black and Hispanic

women entrepreneurs to grow and showcase their tech startups to get ahead once

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 and for all” (JP Morgan Chase Co.) JP Morgan Chase is truly highlighting their

commitment to corporate social responsibility by going after this cause.

Conclusion:

As a financial analyst, I would strongly urge you to invest in JP Morgan Chase Co. as a

strong long-term investment if you have the money to do so since the current share price is

around a hundred seven dollars per share. The company has been able to remain extremely stable

over the last couple years, avoid major scandals, diversify their risks, and maintain consistent

returns for their investors. JP Morgan Chase also has an excellent management structure which is

why the bank is able to diversify their aggressive goals while also being stable and dependable.

Finally, after factoring in the current opportunities the bank is looking to capitalize on coupled

with their strong commitment corporate responsibility the decision becomes fairly easy leaving

any investor with only one conclusion: to invest.

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 Works Cited

Bagli, Charles V. “With $240 Million Deal, Floodgates Open for Air Rights in Midtown East.”

The New York Times, The New York Times, 2 Mar. 2018,

www.nytimes.com/2018/03/02/nyregion/jp-morgan-chase-midtown-east-air-

rights.html?rref=collection timestopic/Morgan, J. P., Chase &

Company&action=click&contentCollection=business®ion=stream&module=stream_unit

&version=latest&contentPlacement=5&pgtype=collection.

“CAMELS Rating System.” Investopedia, Investopedia, 24 Jan. 2018,

www.investopedia.com/terms/c/camelrating.asp.

“Investing in Opportunity | 2017 Corporate Responsibility Report JPMorgan Chase & Co.”

JPMorgan Chase & Co., JPMorgan Chase & Co., 2017,

reports.jpmorganchase.com/corporate-responsibility/2017/cr-2017-home.htm.

Maverick, J.B. “What Debt to Equity Ratio Is Common for a Bank?” Investopedia, Investopedia, 25

May 2015, www.investopedia.com/ask/answers/052515/what-debt-equity-

ratio-common-bank.asp.

Summerville, Abigail. “JPMorgan Partners with GE's Current to Reach Lofty Environmental Goals.”

CNBC, CNBC, 28 June 2017, www.cnbc.com/2017/06/27/jpmorgan-partners-with-ges-

current-to-reach-lofty-environmental-goals.html.

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 Entity and Industry Analysis Check List

♦ I have carefully read the assignment and followed the instructions given.

♦ I have reviewed the entire paper and corrected all errors I found.

♦ I have identified the source of every piece of information in the paper at the point the information
appears with an appropriate citation and inclusion in the bibliography.

♦ I have identified every direct quotation by enclosing it in quotation marks, and I have
appropriately cited the source and included it in the bibliography.

♦ I alone wrote all the language in this paper that is not enclosed in quotation marks.

♦ I am familiar with the College’s policy concerning academic honesty and have followed it in
every way with respect to this assignment.

Entity J.P.Morgan Chase & Co.

Signature Deep Bhattacharyya

Date 7 May 2018

* This checklist is a modified version of a checklist originally developed by Professor Gottschang

and modified by Professor Rask.

Grading
Spreadsheet for horizontal/vertical analyses and ratios _________20 points

Written summary of financial performance _________12 points

Current events (a minimum of two sources) _________20 points

Social justice/sustainability _________20 points

Conclusion _________8 points

Appropriate sources and citations _________10 points

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Writing is error-free, fluid, well organized and interesting _________ 5 points

Formatting _________ 5 points

Total ________100 points

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