JPMorgan-and-Chase-Buy-Proposal Alexandros Marios Kotsonis 2016

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JP MORGAN COMPANY NAME DATE JP MORGAN 28 October 2016 We initiate the unbias analysis of JPMorgan Chase & Co. after choosing it out of a selection of competitor bank for the Investment Club in partnership with Silvertree Capital.

Transcript of JPMorgan-and-Chase-Buy-Proposal Alexandros Marios Kotsonis 2016

Page 1: JPMorgan-and-Chase-Buy-Proposal Alexandros Marios Kotsonis 2016

JP MORGAN

COMPANY NAME DATE

JP MORGAN 28 October 2016

We initiate the unbias analysis of JPMorgan Chase & Co. after choosing it out of a selection of competitor bank for the Investment Club in partnership with Silvertree Capital.

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Overview

Sector x JPMorgan Chase & Co. is listed under the Financial: Banks on the Financial Times.

Company History x JPMorgan is one of the world’s oldest largest and best-known financial institutions, founded in 1799,

JPMorgan Chase & Co is built on the foundation of 1,000+ institutions which have come together over the years to form the company today.

x There have been a number of key Mergers and Acquisitions that have shaped JPMorgan & Chase Co. as we know it today, these include:

o 1991 Æ Manufacturers Hanover Corp merger with Chemical Banking Corp under name Chemical Banking Corp

o 1995 Æ First Chicago Corp. merger with NBD Bancorp to form First Chicago NBD o 1996 Æ The Chase Manhattan Corp merger with Chemical Banking Corp under name Chase

Manhattan Corp. Creating the largest bank holding company in the US o 1998 Æ Banc One Corp. merger with First Chicago NBD, under the name of Bank One Corp. Bank

One became the World’s largest Visa Credit card issuer. o 2000 Æ J.P. Morgan & Co Inc merger with The Chase Manhattan Corp. thus completing the

combination of four of the oldest money centre banking institutions in New York City into one firm under the name of: J.P. Morgan Chase & Co.

o 2004 Æ Bank One Corp merger with J.P. Morgan Chase & Co. Uniting investment and commercial banking skills of JP with the consumer banking strengths of Bank One.

o 2008 Æ JPMorgan Chase & Co acquisition of the Bear Steams Companies Inc. strengthening its capabilities across a broad range of businesses.

o 2008 Æ Acquired deposits, assets and certain liabilities of Washington Mutual’s banking operations Æ Locations reach of 42% of the US population.

o 2010 Æ J. P. Morgan acquired full ownership of its U.K joint venture J.P. Morgan Cazenove, one of Britain's premier investment banks.

Company Breakdown x JP Morgan offers a large selection of products and services, offered for a diverse group of clients such as;

Corporates, individuals, governments and institutions. Their services consists of; Investment banking (IB), markets & investor research, treasury services, investment management, private banking, wealth management and commercial banking.

x The investment banking (IB) services for both corporations and institutions, where they in general offer strategic advice, capital raising and risk management expertise.

x In detail their investment banking unit is covered across many different industries and consists of; M&A services for corporations and institutions, strategic advice, capital raising, risk management expertise and corporate finance advisory. Also, their investment banking unit offers services in origination, equity capital markets and debt capital markets.

x In markets and investors services, JP Morgan offers their clients services in; Research, proprietary pricing data and analytics, and trade execution across numerous assets. Including; Commodities, FX, Equities etc.

x Treasury services, are solutions regarding all transaction functions such as; providing Cash Management,

liquidity, trade and escrow solutions. Solutions include; Liquidity Management, Payments & FX, Receivables Management, Trade and Escrow.

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x Investment Management, is offered for individuals, advisors and institutions. Where clients can benefit from providing strategies and expertise for investment decisions across numerous asset classes. JP Morgan also offers more traditional banking services in:

x Commercial Banking, where services include; Real-estate banking, Credit and financing, treasury services, global banking.

x Furthermore, JP Morgan offers tailored banking solutions for individuals in the form of private banking and wealth management

Key Products and Services that JPMorgan Chase & Co. offer include:

x Consumer & Community Banking (Performance; ROE 16%) o Consumer & Business Banking, Mortgage Banking o Card Commerce Solutions & Auto

x Corporate & Investment Banking (Performance; ROE 17%) o Investment Banking o Treasury Services o Lending o Fixed Income o Equity Markets o Securities Services

x Commercial Banking (Performance; ROE 18%) o Middle Market Banking o Corporate Client Banking o Commercial Term Lending o Real Estate Banking

x Asset Management (Performance; ROE 24%) o Global Investment Management o Global Wealth Management

Ownership x Major Shareholders of JPMorgan Chase & Co. include:

Name JPM Shares

Held % Total

Shares Held Relevant companies owned by shareholder

Vanguard Group Inc

229,636,598 6.36

JPMorgan Chase and Co Wells Fargo & Co

Bank America Corp Citigroup INC

Goldman Sachs Group inc Morgan Stanley

State Street Corp 150,659,066 4.17

JPMorgan Chase and Co Wells Fargo & Co

Bank America Corp Citigroup INC

Morgan Stanley Goldman Sachs Group inc

Capital World Investors

109,635,004 3.04

JPMorgan Chase and Co Wells Fargo & Co

Goldman Sachs Group inc Capital One

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x JPMorgan and Chase’s largest shareholders all have shares in other large banking companies that offer investment banking services implying a potential market expertise in financial institutions.

CEO x Jamie Dimon has extensive experience within the Banking Industry; x Prior to his appointment as CEO and chairman of he was President and COO of JPMorgan Chase, Chairman

and CEO of Bank One (Acquired by JPM) and held a wide range of executive roles at Citigroup, the Travelers Group, Commercial Credit Company and American Express Company.

x Jamie Dimon became the CEO of JPMorgan Chase in 2005 and Chairman of the Board in the following year. x Jamie Dimon was a Class A board member of the Federal Reserve Bank of New York from 2008-2013 until his

term ended x With his wealth of experience it is safe to assume that Jamie Dimon is familiar coping with the high

expectations of large investors and understands the opportunities and challenges associated with running a huge financial institution; and although the nature of the business lends itself to occasional poor judgment, it can be argued that Mr Dimon is a very suitable candidate for the job.

Citigroup BlackRock Fund

Advisors 108,421,683 3.00

JPMorgan Chase and Co Wells Fargo & Co

Bank America Corp Fidelity

Management and Research Company

79,149,460 2.19

JPMorgan Chase and Co Wells Fargo & Co

Goldman Sachs Group inc Capital One

Wellington Management Company LLP

68,522,209 1.90

Wells Fargo & Co JPMorgan Chase and Co

Bank America Corp Citigroup Inc

T. Rowe Price Associates, Inc.

60,244,434 1.67

Morgan Stanley JPMorgan Chase and Co

Wells Fargo & Co Bank of America Corp

Northern Trust Investments N A

49,733,999 1.38

JPMorgan Chase and Co Wells Fargo & Co

Citigroup Bank America Corp

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12 Month Share Price Information

White Æ JPM US Equity

Green Æ GS US Equity

Pink Æ HSBA LN Equity

Red Æ BARC LN Equity

Orange Æ MS US Equity

Blue Æ BAC US Equity

Grey Æ C US Equity

Market Cap

As we can see from these results JP Morgan’s market cap is at 247.38bn USD, which is at an all, time high. Its market cap is forecasted to continue increasing according to JP Morgan’s CFO in the Q3 videoconference. Compared to its competitors it’s largely in the lead. If we look at JP Morgan’s biggest rival which is bank of America and Citigroup which have similar market share. However JPM market cap is 77bn USD and 103bn USD greater than bank of America and Citigroup respectably. This figure is appealing to shareholders and investors as this reduces the risk of investing into JP Morgan.

Company Market Cap (US Dollars) Barclays 31.04bn

Morgan Stanley 63.93bn

Goldman Sachs 70.82bn

Citigroup 144.02bn

HSBC 152.69bn

Bank of America 170.11bn

JP Morgan 247.38bn

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Normal Market Size x On average, over the past 90 trading days 14.77 Million JPMorgan & Chase were traded.

Company 90 Day Average Daily Volume

Shares Outstanding

JPMorgan & Chase 14.77 Million 3.612 Billion Bank Of America Corp 88.60 Million 10.205 Billion

Wells Fargo & Company 24.3 Million 5.046 Billion CitiGroup 19.72 Million 2.905 Billion

Goldman Sachs 2.94 Million 405.462 Million Morgan Stanley 13.20 Million 1.912 Billion Deutsche Bank 8.19 Million 1.379 Billion

x JPMorgan & Chase Co. is in the middle of the pack in regards to trading volume amongst its competitors

therefore indicating that it has a lower market liquidity than its competitors, however, it’s lower trading volume in comparison to its closer rivals Wells Fargo and bank of America Corp may be reflective of the number of outstanding shares for each company. JPMorgan and Chase has less thus a potential reason for the lower Average Daily volume.

x Another point worth considering is that a Lower Average Daily volume may indicate that traders view JPMorgan & Chase as more of a buy and hold stock than its competitors – less trade volume stemming from the fact that those who own the stock are less willing to sell.

Market Analysis

Main Competitors x Goldman Sachs x Morgan Stanley x Citigroup x Wells Fargo and Company x Deutsche Bank x Bank of America Corporation

*Formulated taking into account key products and services and Market Cap data

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Customer Base x Revenue from Business segments are determined by presence of willing and able customers thus revenue

data can indicate customer base.

Business Segment

Total Net Revenue (millions, $)

2015 2014 2013

Consumer & Business Banking: x Consumer Banking / Chase Wealth

Management x Business Banking

17983 (103%)

18226 (105%)

17412 (100%)

Consumer & Community Mortgage Banking: x Mortgage Production x Mortgage Servicing x Real Estate Portfolios

6817 (67%)

7826 (76%)

10236 (100%)

Consumer and Community Card, Commerce Solutions & Auto:

x Card Services x Credit Card x Commerce Solutions x Auto & Student 19020

(101%) 18316 (97%)

18889 (100%)

Corporate and Investment Banking: x Investment Banking x Treasury Services x Lending

Markets & Investor Services: x Fixed Income Markets x Equity Markets x Securities Services x Credit Adjustments & Other

33542 (97%)

34595 (100%)

34712 (100%)

Commercial Banking: x Middle Market Banking x Corporate Client Banking x Commercial Term Lending x Real Estate Banking

6885 (97%)

6882 (97%)

7092 (100%)

Asset Management: x Global Investment Management x Global Wealth Management

12119 (106%)

12028 (105%)

11405 (100%)

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x The above table summarizes the key business drivers and areas where the customer base and/or customer activity is moving in the positive direction for JPMorgan Chase & Co. x JPMorgan’s number of active online consumer banking customers has increased by 8% each year for the past two years. x The number of active mobile customers has increased by 45% since 2013 (20% last year alone) x The two metrics stated above emphasize the growing customer base and potential consumer preference for online, mobile and electronic consumer banking services. This coincides with the decrease in the number of branches ATM’s.

Geographic Analysis x JP Morgan currently operates in around 100 countries

around the globe which is greater than its closest competitors Citigroup (~95) Bank of America Corp (>35) and Wells Fargo (~30).

x It generates a huge network effect as it serves both local institutions in their particular country and the same institutions and corporations elsewhere. In addition to this JP Morgan often serves any multinationals when they then enter these international countries.

x With head offices in 23/50 states in the US, 6 European countries, 5 Latin American Countries, 2 Asian countries and The United Arab Emirates, JPMorgan Chase can be argued to have a strong physical global presence

x While the majority of JPMorgan Chase’s revenue still comes from the US (around ¾) Almost a quarter of JP Morgan and Chase’s Revenue comes from outside of the US this proportion has stayed fairly constant since 2013 fluctuating between 23.8-25.4% emphasizing the stability of JPMorgan’s business outside of the US.

x Citigroup receives around 50% of its revenue from outside of the US, however, JPMorgan & Chase still generates a greater total of revenue than Citigroup within Europe / Middle East /Africa - 45% higher than Citigroup in 2015.

x JPMorgan and Chase’s closest rival Bank of America Group only receives around 13% of its revenue from outside the US, thus it can be argued that JP Morgan is better poised to withstand any local stress within the US and take advantage of emerging markets.

x Another one of JPMorgan’s rivals Wells Fargo poorly reports its revenue generated from overseas; it is estimated that only 2% of its revenue comes from international business thus JPMorgan Chase is better poised to take advantage of emerging markets.

Geographical Revenue data for JPMorgan Chase and competitors (in millions $): 2013 2014 2015

JPMorgan Chase

Europe/ Middle East and Africa 15585 16013 14206 Asia and Pacific 6168 6083 6151 Latin America and the Caribbean 2251 2047 1923 North America 73363 70969 71263 Total 97367 95112 93543 Goldman Sachs Europe/ Middle East and Africa 8828 9057 8981 Asia and Pacific 5520 5409 5637 Americas 19858 20062 19202 Total 34206 34528 33820 Morgan Stanley Europe/ Middle East and Africa 4542 4772 5353 Asia and Pacific 4593 4363 4722 Americas 23358 25140 25080 Total 32493 34275 35155 Citigroup Europe/ Middle East and Africa 10061 9415 9799 Asia and Pacific 15083 14487 14017 Latin America and the Caribbean 13251 12558 11241 North America 31232 32609 32553 Total 76724 77219 76354 Wells Fargo Non-Us Unable to find Data, estimated 2%

of revenue from International Business North America

Total 83,780 84,347 86,057 Deutsche Bank Europe/ Middle East and Africa 21090 20198 20894 Asia and Pacific 3868 3884 4434 Americas 7477 8108 8227 Total 31915 31949 33525 Bank Of America Corp Europe/ Middle East and Africa 6353 6409 6081 Asia and Pacific 4442 3605 3524 Latin America and the Caribbean 1535 1273 1243 North America 76612 72960 71659 Total 88942 84247 82507 Table formulated from annual reports and investor relations of all banks and http://blogs.wsj.com/moneybeat/2015/04/13/a-look-at-wells-fargos-overseas-expansion/

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Demographic Analysis

Business Segment Revenue Data for JPMorgan Chase and competitors (in millions $)

(consolidated totals)

Company 2015 2014 2013

JPMorgan Chase

Consumer & Community

Banking 43820 44368 46537

Corporate and Investment Bank 33542 34595 34712 Commercial Banking 6885 6882 7092 Asset Management 12119 12028 11405 Corporate 267 12 22 Total 93543 95112 97367 Goldman Sachs Investment banking 7027 6464 6004 Investment management 5868 5748 5194 Commissions and fees 3320 3316 3255 Market Making 9523 8365 9368 Other Principal transactions 5018 6588 6993 Total 33820 34528 34206 Morgan Stanley Institutional Securities 17953 16,871 15,519 Wealth Management 15,100 14,888 14,143 Investment Management 2,315 2,712 3,059 Intersegment Eliminations 213 196 228 Total 35155 34275 32493 Citigroup Global Consumer banking 33862 36017 36305 Institutional Clients Group –

Investment banking // Markets

and securities services

33748 33052 33322

Corporate / Other 907 301 322 CitiHoldings – Consumer Loans,

Consumer portfolios,

institutional businesses,

portfolios of assets.

7837 7849 6775

Total 76354 77219 76724 Wells Fargo Community Banking 49341 48158 47679 Wholesale Banking 25904 25398 25847 Wealth and investment 15777 15269 14330 Other 4965 4478 4076 Total 86,057 84,347 83,780 Deutsche Bank Corporate Banking and

Securities 14219 13629 13400

Private and Business Clients 8911 9565 9395 Global Transaction Banking 4616 4119 4025 Deutsche Asset and Wealth

Management 5408 4704 4718

Non-Core Operations Unit 401 172 896 Total 33525 31949 31915 Bank Of America Corp Consumer Banking 30618 30809 31932 Global Wealth and Investment

Management 18001 18404 17790

Global Banking 16919 17607 17436 Global Markets 15067 16188 15458 Legacy Assets & Servicing 3430 2676 4424 All Other 619 568 2761 Total 82507 84247 88942

Table formulated from annual reports and investor relations of all banks

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Overall Investment Banking Fees:

x JPMorgan Chase is ranked number 1 for Global Investment Banking Fees and has been ranked #1 consistently, followed by Goldman Sachs (#2), Bank of America Merrill Lynch (#3), Morgan Stanley (#4) and Citi (#5).

x Investment Banking fees have fallen across the board in comparison to last year over the first 3 quarters, however, JPMorgan has seen the lowest drop in fees in comparison to the other Top 10 investment banks; thus implying that JPMorgan’s competitors are more affected by the decreasing money spent on Investment Banking than JPMorgan.

Mergers and Acquisitions:

x While Goldman Sachs leads the Top banks in Fees for Mergers and Acquisitions it has seen a 15% decrease in comparison to last year in the first three quarters whereas JPMorgan & Chase has seen a 12% increase in the same time period thus showing positive signs for JPMorgan’s future market share in Mergers and Acquisitions. JPMorgan’s next closest competitors Morgan Stanley and Bank of America also saw decreases of 7% and 25% respectively.

Equity:

x JPMorgan leads in Equity Fees, followed by Morgan Stanley and Goldman Sachs which are both above $120+ million dollars behind and have seen greater decreases in fees at 36% and 44% respectively whereas JPMorgan and Chase has seen a smaller decrease at 23% in fees, again emphasizing JPMorgan’s resilience and ability to cope with declines in Investment Banking fees.

Bonds:

x JPMorgan currently leads in Bonds Fees followed by Bank of America and Citi, and, although it has seen a decrease in fees in comparison to the same period last year its closest competitor Bank of America has also seen a small decrease.

Loans:

x JPMorgan is safely second in Loan Fees from the first 3 quarters of 2016 leading Citi by $114.93 Million.

Consumer Banking:

x JPMorgan and Chase generates more revenue than two of its closest competitors through consumer banking; 43% more than Bank of America Corp and 29% more than Citigroup. Although its revenue from this segment has decreased by 1% over the past year Citigroup’s revenue from this segment has also decreased by 6% in addition to Bank of America Corporation by 1% of the same time period. Wells Fargo’s revenue from consumer banking may have increased by 2% over the same time period and generated 13% more than JPMorgan & Chase, However, the recent Scandal in which Wells Fargo employees created 2 million accounts for customers without their permission could work in the favour of JPMorgan & Chase.

x In Wells Fargo’s 3rd Quarter Earnings report it was revealed that applications for new checking accounts dropped by 25% since last September. Research conducted by Cg42 since the scandal found that of the Wells Fargo customers they surveyed, 14% had made the decision to switch banks and 30% were actively exploring alternatives. They also suggested that JPMorgan and chase would profit from the scandal as their national presence make them a viable alternative with a projected 0.7 billion increase in revenue as a result. Wells Fargo’s revenue is projected to decrease by $4 billion in total over the next 12-18 months with a total of $8 billion at risk.

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Market Specific Conditions

Strengths Weaknesses

Brexit x Short term increases in trading revenue post Brexit result

with 10x normal Trading levels and hence 10x commissions. x Potential for other days of increased trade volume with

announcements on advancements in the Brexit situation.

Asian Investment Banking x Asia Investment Bank fees up 15% in 2016 compared to a

20% drop in the US despite Low Deal Fee Culture. x M&A boom in China.

AT & T acquisition of Time Warner x AT&T has agreed to acquire Time Warner, the owner of

HBO, CNN and Warner Brothers for $85.4bn. The deal will reshape the global media and telecoms landscape JP Morgan and BML are working on the financing of the

transaction.

Low Deal Fee Culture in Asia x Difficulty making money in Asia due to Low Deal Fee

Culture

Opportunities Threats

Wealth Creation in Emerging Markets especially Asia x There is an opportunity for global wealth and investment

management within Asia. x Asia’s wealth is growing 4.2% more quickly in comparison

to the global average of 7.2%. x Asia is home to 4.7 million of the world rich people, holding

$15.8 trillion. x It is estimated that a fair proportion of Asia’s wealth is not

being professionally managed Æ Gap in the market?

FinTech x Advances in Trading Algorithms and Electronic Trading. x Goldman Sachs pushing a computer programme which

allows investors to trade in the US corporate bond market.

Brexit x Operations shift to cheaper locations outside of the UK,

with overseas banks befitting from lower costs outside of London.

Brexit x Necessity to relocate as Britain may potentially no longer

be the ‘passport’ to sell financial products and services within the EU that it previously was.

x Uncertainty and cost of reallocation may affect operations of US banks who have a base in the UK.

x Regulation approvals and permissions are needed to relocate within Europe, these could take 2-3 months to put together and a further 6 months in order to receive approval for an investment bank or brokerage or 9 months for a retail bank (in normal times).

x The slow process of relocation due increased regulator workload and therefore longer time to receive approvals and permissions is a threat.

Cyber-Risk

x Ability to prevent and recover for attacks x Cyber Insurance for attacks?

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Key Financial Analysis Accounting Ratios

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr)/ EPS predicted 1.81 1.46 1.41 1.48 1.45 1.4 1.39 MS

3.96 4.48 5.2 4.34 5.29 6 5.83 B10.17 10.55 10.98 8.63 9.82 10.2 9.87 MS74.48 64.17 61.48 57.34 55.55 65.43 N/A B12.1 12.3 12.6 11.9 11.6 13.5 13.9 B

12.58 12.89 12.1 12.08 12.14 10.62 10.89 MS59.36 64.35 66.2 72.42 63.76 62.35 N/A B

0.76 0.8 0.86 0.7 0.81 0.91 0.89 MS8.23 6.42 7.51 9.3 10.97 11.94 12.86 B

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr) 2.48 3.13 2.87 2.61 2.59 2.65 2.78 MS

13.18 4.51 14.13 15.46 17.07 12.14 15.46 B11.5 3.65 20.66 10.98 11.15 7.47 6.24 MS34.6 30.93 35.23 41.73 42.64 38.91 N/A B

16 13.8 16.7 16.7 13.8 13.5 13.6 B12.95 13.72 13.5 12.79 11.63 11.4 11.91 MS65.04 76.59 64.93 63.17 61.42 71.91 N/A B

0.88 0.27 0.78 0.84 0.91 0.65 0.54 MS11.52 14.03 8.25 10.2 10.75 10.26 11.2 B

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr) 2.34 1.82 1.28 1.11 1.11 0.98 0.98 MS

3.54 3.63 2.44 4.35 2.2 5.4 4.7 B6.71 6.48 4.13 7.02 3.37 8.02 6.68 MS

80.48 77.95 72.85 71.38 74.84 71.08 N/A B12.91 13.55 14.06 13.6 11.45 13.49 14.2 B11.73 10.56 10 9.52 9.21 8.44 8.55 MS55.82 66.25 73.58 64.43 72.33 58.08 N/A B

0.56 0.58 0.4 0.72 0.36 0.91 0.77 MS12.6 6.75 8.59 11.79 11.41 8.92 9.76 B

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr) 2.12 1.76 1.26 1.14 1.08 1.01 0.95 MS

-0.37 0.01 0.25 0.9 0.36 1.31 1.46 B-1.77 0.04 1.28 4.61 1.71 6.29 5.51 MS96.54 90.99 83.89 83.95 79.92 76.04 N/A B11.24 12.4 12.89 12.44 13.1 11.3 12.4 B

10.7 10.06 10.13 9.58 9.39 9.17 9.04 MS74.61 85.01 85.59 77.07 88.25 68.56 N/A B-0.16 0.13 0.47 0.18 0.68 0.6 MS10.67 19.93 9.28 11.6 12.95 11.61 12.14 B

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr) 4.26 3.39 3.06 2.68 2.54 2.41 2.35 MS

2.63 1.23 -0.02 1.36 1.6 2.9 2.67 B8.49 3.82 -0.05 4.31 4.94 8.56 6.09 MS

23.71 21.45 26.01 37.15 36.77 38.34 N/A B16.1 16.6 17.7 15.7 14.1 17.4 18.9 B

16.96 12.39 12.89 13.28 12.35 11.64 11.91 MS79.2 80.07 97.88 85.19 88.94 74.46 N/A B0.46 0.27 0.33 0.39 0.71 0.5 MS

11.52 9.93 15.4 25.04 12.17 13.27 B

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr) 1.21 1.02 0.29 0.16 0.64 0.12 0.11 MS

0.72 0.91 0.74 0.84 0.69 0.64 0.58 B9.54 10.96 8.4 9.08 7.35 6.64 5.14 MS79.7 76.4 75.65 73.88 73.08 72.43 N/A B12.1 11.5 13.4 12 12.5 13.9 14.1 B

16.62 16.1 15.36 14.69 13.83 12.78 13.64 MS55.22 57.48 62.82 59.64 67.35 66.5 N/A B

0.55 0.67 0.53 0.6 0.52 0.5 0.38 MS13.91 8.28 14.2 13.06 13.74 12.15 15.5 B

2010 2011 2012 2013 2014 2015 2016 Q3 ( latest Qtr) 0.56 2.78 2.68 1.57 0.36 0.36 0.36 MS

0.26 0.22 -0.05 0.04 -0.01 -0.02 0.11 B7.26 5.65 -1.91 0.99 -0.21 -0.54 -1.31 MS

127.34 120.9 112.49 102.2 101.29 96.63 N/A B13.5 12.9 13.2 11.3 13 14.7 14.6 B

29.29 28.13 27.81 23.69 22.8 18.73 21.5 MS63.73 70.25 84.02 78.65 80.79 81.23 N/A B

0.25 0.2 -0.07 0.04 -0.01 -0.03 -0.06 MS8.72 7.22 71.57 BP/E

Efficiency ratio Return on Assets

P/E

Debt/equityWorking capital

Quick ratio Earnings per share ( EPS) GAAP actual

Capital Ratios ( tier 1) Leverage ratio

Return on AssetsP/E

Goldman Sachs

Return on Equity

Earnings per share ( EPS) GAAP actual Return on Equity

Loan Deposit ratio Capital Ratios ( tier 1)

Leverage ratio

JP Morgan%

Debt/equityWorking capital

Quick ratio

Loan Deposit ratio Capital Ratios ( tier 1)

Leverage ratio

Capital Ratios ( tier 1)

Efficiency ratio

Return on AssetsP/E

Citi Bank Debt/equity

Working capital Quick ratio

Earnings per share ( EPS) GAAP actual

Working capital Quick ratio

Earnings per share ( EPS) GAAP actual Return on Equity

Loan Deposit ratio

Loan Deposit ratio

Leverage ratio Efficiency ratio

Return on AssetsP/E

Debt/equityHSBC

Working capital Quick ratio

Earnings per share ( EPS) GAAP actual Return on Equity

Leverage ratio Efficiency ratio

Return on AssetsP/E

Debt/equityMorgan Stanley

Quick ratio Earnings per share ( EPS) GAAP actual

Return on Equity Loan Deposit ratio

Capital Ratios ( tier 1)

Bank of AmericaDebt/equity

Working capital

Return on Equity Loan Deposit ratio

Capital Ratios ( tier 1) Leverage ratio Efficiency ratio

Return on Assets

Working capital Quick ratio

Earnings per share ( EPS) GAAP actual Return on Equity

Loan Deposit ratio Capital Ratios ( tier 1)

Leverage ratio Efficiency ratio

Efficiency ratio Return on Assets

P/E

BarclaysDebt/equity

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The return on equity as shown above shows that JP Morgan has the highest ROE for Q3 2016 at 9.87%. This means that it is being more efficient in comparison to its rivals since it is making more profit than the other firms whilst having either the same or lower equity. Therefore JP Morgan is currently the most efficient with its money and how it generates profits. This therefore is an advantage and therefore is a bullish point.

The above graphs shows that clearly Goldman Sachs has the highest profitability per share, offering at one-point, earnings per share of 17.07%, a huge dividend payment for shareholders. JP Morgan stands way below that at currently 6%, its highest EPS in the last 5 years. Therefore this shows maybe JP Morgan is currently underperforming in comparison to Goldman Sachs, or JP Morgan are retaining most of their profit rather than giving it out through dividends.

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In terms of leverage ratios, JP Morgan is on par with most banks, apart from Barclays who currently have the highest leverage ratio of 21.5%. JP Morgan has a leverage ratio of 10.89% in 2016 Q3.

Return on Assets means how much income can be generated from the assets used. As shown in the above graph, JP Morgan uses its assets more efficiently than the other firms since it has the highest return on assets for 2016 Q3 of 89%. JP Morgan had a slight dip in 2016 Q3 from 91% to 89%, a small figure compared to other firms such as Morgan Stanley and Citi Group who combined had a drop of 35% in ROA. So this goes to show that the assets JP Morgan have are quality assets and furthermore JP Morgan know how to use them to generate earnings.

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The loan to deposit ratio shows total amount of loans divided by total amount of deposits. Banks such as JP Morgan and investors use this to see if they are liquid enough to pay off unforeseen debts. Since banks loan money to make money, they may be short of money if an unforeseen debt is incurred. Therefore if their L/D ratio is high, it means that they have loaned a lot of money and it makes them susceptible to bankruptcy, giving higher risk. JP Morgan in 2015 has an L/D of 65.43%, showing that they have loaned money to gain profit, but then also have deposits of 34.57%. This shows that they are clearly going for slightly higher risk to make money, but also have enough deposits to likely be able to pay off unforeseen debts.

Tier 1 Capital ratio is also another ratio that must be considered in order to see if JP Morgan has an advantage over the other firms listed. Having a higher capital ratio means more capital is available in comparison to risk-weighted assets. A % over 6% means a company is well capitalized and therefore has a lower risk of going bankrupt. As shown above JP Morgan have a capital ratio of 13.9%, this is a very good figure and is twice the capital needed to be well capitalized. However, it has not got the most capital like Morgan Stanley, but clearly JP Morgan are making higher profits due to their higher risk, therefore this could be seen as both bullish and bearish. Since they may not have a huge amount of capital compared to Morgan Stanley however they may be giving out loans and taking risks to make money.

Price earnings ratio is also a very important ratio to include since it incorporates both the price of the share and the earnings per share. Dividing Price per share by earnings per share will give a figure that will help investors make decisions in which stock they buy. For example one stock may be $10 and have an EPS of $1, and another stock may also be $10 but have earnings of $2. The shares are the same price but one earns more. The P/E of share 1 is 10 and share 2 is 5. Therefore share 2 is better since more money can be gained. The graph shows

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above that the best P/E is HSBC, since more money can be gained per share in comparison to JP Morgan and the rest of the firms. Therefore a better buy could be HSBC in the long term since it has a better P/E.

Debt equity ratio is the amount of debt to equity a company will have. For example a company may have $20 million debts and $10 million equity, therefore there debt equity is 2. Anything above 2 is considered a risky investment since debt is at least double the company’s equity. The above graph shows that JP Morgan’s debt equity is currently at 1.39 in 2016 Q3. This shows they are not so risky as a business like Goldman Sachs, who currently has debt equity of 2.78. This therefore makes JP Morgan more investable since they have a lower probability of bankruptcy.

Price earnings ratio is also a very important ratio to include since it incorporates both the price of the share and the earnings per share. Dividing Price per share by earnings per share will give a figure that will help investors make decisions in which stock they buy. For example one stock may be $10 and have an EPS of $1, and another stock may also be $10 but have an earning of $2. The shares are the same price but one earns more. The P/E of share 1 is 10 and share 2 is 5. Therefore share 2 is better since more money can be gained. The graph shows above that the best P/E is HSBC, since more money can be gained per share in comparison to JP Morgan and the rest of the firms. Therefore a better buy could be HSBC in the long term since it has a better P/E.

0

5

10

15

20

25

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P/E

JPM

GS

CITI

BAC

MS

HSBC

BARC

00.5

11.5

22.5

33.5

44.5

Debt/Equity

JPM

GS

CITI

BAC

MS

HSBC

BARC

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Debt equity ratio is the amount of debt to equity a company will have. For example a company may have $20 million debts and $10 million equity, therefore there debt equity is 2. Anything above 2 is considered a risky investment since debt is at least double the company’s equity. The above graph shows that JP Morgan’s debt equity is currently at 1.39 in 2016 Q3. This shows they are not so risky as a business like Goldman Sachs, who currently has debt equity of 2.78. This therefore makes JP Morgan more investable since they have a lower probability of bankruptcy.

CCA Comparable company analysis (CCA) is a method used to assess the value of a company using the metrics of other businesses of similar size in the same industry. Comparable company analysis assumes that similar companies will have similar valuation multiples, such as EV/Revenues. In this CCA model we will calculate JP Morgan Chase & Co. (USA) multiples and compare them with relevant peers.

First of all, for the “comparable company analysis 2016” has been established a peer group with possible competitors of similar financial firms of similar size in the banking sector and mainly USA region. The aim of CCA is to help the investors to be able to compare JP Morgan Chase & Co. to its competitors such as HSBC plc., Barclays plc., Bank of America Corp, Morgan Stanley, Citigroup and Goldman Sachs group on a relative basis.

By using P/E ratio, EV/Revenues ratio and Price/book ratio we can determine JP Morgan Chase & Co’s relative performance compared to its peers. In stock trading, one of the most widely used multiples is the price-earnings ratio (P/E ratio) which is popular in part due to its wide availability and to the importance ascribed to earnings per share as a value driver.

In essence, the price-earnings ratio of JP Morgan Chase Co which is 10,57x indicates that the investor can expect to invest 10,57$ in JP Morgan Chase & Co. in order to receive one dollar of that company’s earnings. P/E ratio is sometimes referred to as the multiple because it shows that investors are willing to pay 10, 57$ per dollar of current earnings. Thus, JPM has the 6th lowest P/E ratio compared to its peers with the average P/E ratio is equal to 12,01x. Actually, as the P/E ratio of JP Morgan is lower than the P/E mean of its competitors. In this case a low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends. However, the highest P/E in CCA 2016 belongs to HSBC plc. and is equal to 14,14x suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. In CCA 2016 Barclays plc. has been excluded shown as N/A, due to the net clean income (Q3 2016 - billion in $) is negative. Finally, the implied share price using relative P/E analysis is from a minimum of $61, 96 to a maximum of 89, 41. Currently JPM is trading at 68, 49 at a lower end of the scale. If ever falls below $62 then it would be definitely a buy because the JPM’s share would be undervalued. However, the usefulness of P/E ratios is lessened by the fact that earnings per share is subject to distortions from differences in accounting rules and capital structures between companies.

EV/R is one of numerous fundamental indicators that investors use to determine whether a stock is priced well. It tells us how much bigger the EV is than revenue. In JP Morgan Chase & Co.’s peer group including itself all banks present negative EV/R ratio except from Bank of America which has a positive one (EV/R is equal to 2,07x) and this means that EV is more than 2 times bigger that its revenues. Obviously higher the ratio the more expensive the company is and investor needs to spend more money in order to buy Bank of America’s stock. In all other peers groups, mainly JPM has a higher EV/R ratio (-1,93x) than the mean value of EV/R ratio (-3,46) but still JPM’s EV/R ratio remains negative which probably can be explained due to its very high amount of cash so as it has negative Enterprise Value. Thus, JPM’ share price can be potentially undervalued. As a final point, EV/Revenue ratio the closer to zero in this case JPM has a negative EV/R ratio and assume that it is unlikely JPM faces intense competition as it is one of the biggest banks in USA banking sector.

So, JPM has more equity compared with its peer competitors. This can be confirmed by its market cap, which is the biggest in our peer analysis (market cap is equal to $247,38 billion). Thus, investors are much more confident and have a stronger sentiment that JPM will be a more secure investment option for the long-run. Moreover, Bank of America has a positive EV/R, this can be explained as BAC has not much cash or less equity relative to its competitors. The market actually shows that BAC is overvalued relative to its competitors.

The price-to-book ratio (P/B Ratio) is a ratio used to compare a stock's market value to its book value. The P/B ratio reflects the value that market participants attach to a company's equity relative to its book value of equity. A stock's

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market value is a forward-looking metric that reflects a company's future cash flows. The book value of equity is an accounting measure that is based on the historic cost principle, and reflects past issuances of equity, augmented by any profits or losses, and reduced by dividends and share buybacks. So, in this case JP Morgan has P/B ratio 1,09x but technically is 1 indicating a potentially undervalued stock or fair priced. However, because JPM’ P/B ration is above mean (0,75x) probably its peer group has more undervalued stock. However, JP Morgan’ s P/B ratio should not be used as a single evaluation of a stock because, while a low P/B can indeed reveal an undervalued stock, it can also indicate a company with serious underlying problems. A weakness in a P/B evaluation is that it fails to factor in things such as future earnings prospects or intangible assets.

To sum up, it is necessary to take seriously into account the possible advantage and limitations of the ratios of CCA 2016. Multiples have some advantages such as multiples are robust tools that can provide useful information about relative value. Moreover, their very simplicity and ease of calculation makes multiples an appealing and user-friendly method of assessing value. However, it is vital to consider carefully CCA 2016’s possible limitations and assumptions such as a multiple represents a snapshot of where a firm is at a point in time, but fails to capture the dynamic environment of banking sector. In addition, multiples are primarily used to make comparisons of relative value but it is important to understand that each financial firm can use different accounting policies, which can result in diverging multiples. Finally, multiples are based on historic data or near-term forecasts. This, valuations based on multiples will therefore fail to capture differences in projected performance over the longer term.

To sum up, relative valuation models provide a ballpark measure of valuation that can be used to help analysts gauge the true value of a company. To conclude, according to the fundamental analysis, P/E and EV/R ratios shows a bullish argument which supports the view that JP Morgan Chase&Co.’s stock price is potentially undervalued while P/B ratio analysis indicates a bearish argument that the JPM’s stock price is maybe undervalued or fair priced relative to its peers. Finally, P/B ratio analysis shows a positive sign because it shows confidence at the market for JPM and this scenario reinforces by the high financial performance of JPM such as high earnings and growth rate in revenues. Consequently, market believes that JPM Morgan is fairly priced compared with its peers but this also shows that investors will pay higher price under the expectation that in the long term will get higher cash flow returns as a more secure investment option.

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JPMorgan Strategy Analysis

Business Strategy Chief executive James Dimon and his top lieutenants have put together several strategies. Ideas and actions range from new spending on FinTech to cutting costs on technology that keeps the bank running. Reducing fix and operating costs will reducing the running costs of the business therefore increasing the company’s profits putting JP Morgan in a comfortable place against its top competitors.

Specifically JP Morgan plans to increase its technology spending to $9.4bn from $9.2bn, which is an increase of 200million USD. “While working to allocate about 40% of that budget to new investments and technologies, up from 30% currently” said Matt Zames, the bank’s chief operating officer.

Theses are some of the ways that the bank will start slimming its spending:

1. Location strategy- The bulk of its technology employees are now centered in 13 hubs across the world, from Bournemouth, England, to Delaware to Tampa, Fla. The bank introduced hub scorecards in early 2015 to measure how those sites are performing on matters including recruiting, training, retention and diversity

2. Reducing legacy applications: Known internally as “kill the tail,” the bank has cut the number of applications it uses by 13% in 2015, with a goal to cut about 25% of its apps, Mr Zames said.

3. Consistency: The bank is driving toward more consistency across its technology. Tech production issues have dropped by about 65% in 2015 from 2013.

Some ways of spending on new technology:

1. Digital: Heavy investments here, from the Chase mobile app to ATMs that do 60% of the functions for the company, with the goal of 90% by the end of 2017. For JP Morgan digital investment is one of the key factors for its success.

2. Analytics: They want to better target and connect potential customers across the bank, from its Chase retail platform to the investment bank. For instance, it is using a sales prospecting tool with its equity capital markets and commercial banking clients to identify future clients through machine learning algorithms examining public data for companies. It is rolling this out with the debt capital markets team this year. Chief administrative officer at J.P. Morgan’s corporate and investment bank said this. In the commercial bank, the engine will identify more than 10,000 new prospects. It was rolled out in 15 markets in 2015.

JPM’s business principles

Certain principles are so fundamental to the success of JP Morgan and the types of different strategies that helps the business be the best. The details will be explained below. If they can adhere to these principles they will reach their goal of becoming the best financial services company in the world.

Aspire to be the best

x They develop a world-class franchise in every business they operate in x Client-driven, so they can get exactly what they want quickly and effectively. Also consistently delivering the best

products and services in the most cost-effective way possible. x Innovate, test and learn x Create powerful brands that carry a commitment of quality and integrity

Execute flawlessly

x Demand and maintain strong financial discipline x Create and maintain a strong balance sheet x Design and maintain the best systems and operations

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x Eliminate waste and bureaucracy x Maintain a strong system of internal governance and controls x Measure performance through a complete and balanced scorecard

Build a great and winning culture

x Operate with the highest standards of integrity x Train and retain great managers x Be open and honest with everyone e.g. colleagues, shareholders and communities x Get incentives right x Foster an environment of respect and inclusiveness x Give back to our communities

x Net revenue on a reported basis totaled $24.7 billion, $24.4 billion, and $22.8 billion for the third quarter of 2016, second quarter of 2016, and third quarter of 2015, respectively.

x Net income was $6.3 billion, a decrease of 8%. x Net revenue was $25.5 billion, up 8%. x Net interest income was $11.9 billion, up 6% (primarily driven by loan growth and the net impact of higher

rate)

x Net income was $2.2 billion, a decrease of 16%. x Net revenue was $11.3 billion, up 4% over the prior year. x Consumer & Business banking net revenue was $4.7 billion, up 4%, reflecting strong deposit growth, partially

offset by spread compression. x Mortgage banking net revenue was $1.9 billion, up 21%, driven by higher MSR risk management results, higher

JPMorgan Chase & Co. News Release 3 production margins, and portfolio growth.

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x Net income was $2.9 billion, up $1.4 billion, reflecting higher net revenue and lower legal expense. x Banking revenue was $2.9 billion, up 6%, driven by higher Investment Banking revenue, up 14%, reflecting higher

debt and equity underwriting fees as well as higher advisory fees. x The business continued to rank #1 in Global Investment Banking fees. x Treasury Services revenue was $917 million, up 2%. x Lending revenue was $283 million, down 15%. x Markets & Investor Services revenue was $6.5 billion, up 21%, driven by higher x Markets revenue, up 33%. x Fixed Income Markets revenue was up 48% reflecting broad based strength across products.

Expansion in the Asian region

There has been talk for a while now of a major expansion of JP Morgan into the Asian sector. This sector has been booming recently with china’s economy having GDP growth of over 13%. India, japan and Russia are now also on the rise. Moving into emerging markets and getting in early will be hugely beneficial for JP Morgan. Establishing a base and getting consumer satisfaction and getting them to know the business so that consumers will be loyal and remain customers of JP Morgan, brand image. Forecasts have shown that expanding into Asia could increase revenue by at least 25%, within just a few years of being established.

However, Asia’s diverse nature presents both types of organizations with a range of challenges in terms of structuring and optimizing their financial processes and business models. Many corporations and financial institutions have spent much of the past three years dealing with a challenging global business environment. In the case of many developed economies, these uncertainties appearto be with us for some time to come, which is prompting many to lookto emerging markets in Asia for their future growth prospects and profitability. For instance, a recent McKinsey survey revealed that37% of executives expected more than a quarter of their profits or revenues to come from emerging markets over the next five years. On the corporate side, U.S. and European multinationals facing limited growth in their existing markets, as well as Asian multinationals wishing to break out of saturated home markets or accelerate their growth internationally, are looking for new opportunities in Asia. In the case of financial institutions, regional banks from developed economies, as well as indigenous Asian banks, are looking to support their corporate clients’ expansion across Asia.

Growth Strategy JP Morgan presents strong performance in each of its businesses despite the continuation of reasonably challenging conditions. Firstly, according to the financial results firm reported net income of $6.3 billion in 3Q for 2016 with earning per share ratio $1.58 and also return on tangible common equity of 13% on $25.5 billion of revenue. JP Morgan reported markets revenue increased by 33% for third quarter in the CIB. More specifically, revenue of $25.5 billion was up $2 billion year-on-year or up 8% and non-interest revenue was up $1.3 billion driven by strong performance in the Commercial International Bank. Moreover, consumer deposit growth up 11% and net reserve release in wholesale for oil and gas of about $50 million. In addition, core loans, net interest income was up $700 million and is trending for the full year to be above the $2.5 billion guided last quarter. Finally, adjusted expense of $14.5 billion was up $500 million both year-on-year and quarter-on-quarter due to notable expense items in consumer and increase in Federal Deposit Insurance Corporation surcharge and higher marketing expenses. So, net income was $6.3 billion and while down 8% year-on-year but benefits from most notably significant tax benefit. Thus, if you adjust for tax, legal expenses and credit reserves, net income is up over $800 million year-on-year.

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3Q16 financial results

In addition, capital and leverage ratios were broadly flat quarter-on-quarter with the CET1 ratio of 11.9%, as net capital generation was offset by strong loan and commitment growth. In terms of total assets (EOP) closes $2.5 trillion due to principally a result of strong deposit growth. JP Morgan returned $3.8 billion of net capital to shareholders including $2.1 billion of net repurchases and common dividends of $0.48 a share.

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Consumer and Community banking

x Consumer and community banking generated $2.2 billion of net income and ROE of 16% ((Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its management team) is managing the equity that shareholders have contributed to the company.)) Net income ÷ shareholders’ equity

x Record deposit growth more than twice the industry average, up 11% year-on-year. x Core loan growth remained strong at 19%. And while it’s primarily driven by mortgage, we also saw 14%

growth in auto, 9% in business banking and 7% in card loans. x Revenue of $11.3 billion was up 4% year-on-year. x Consumer and business banking revenue was also up 4% on the back of strong deposit growth. x Mortgage revenue was up 21% on higher MSR x Finally, the credit environment remains favourable. In cards, we built $200 million of reserve this quarter,

reflecting growth in the portfolio including newer vintages which have a higher loss rate than the portfolio average, And in auto, we built $25 million of reserves on the back of high quality loan growth

Corporate and investment bank

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x CIB of $9.5 billion, up 16% year-on-year was the best reported performance for a third quarter and included the highest IB fees on record for third quarter too, up 15% with strong market performance across the board, revenues up 33%.

x Expense was down 20% year-on-year on lower legal costs x Business delivered a pretty clean $2.9 billion of net income and a 17% ROE this quarter. x We ranked number one in wallet globally and in North America and EMEA and we also ranked number one on a

number of deals basis for overall ECM and IPOs. x Markets revenue of $5.7 billion was up 33% year-on-year. x Fixed income revenue was up 48% compared to a weaker third quarter last year. x Rates was a standout in terms of performance this quarter as markets stayed active post Brexit with good client

flow, as well as anticipation of an uncertainty around central bank actions. x credit and securitized products came back from a weak prior period with a recovery in the energy sector and

central bank actions motivating clients to put money to work

Commercial banking

x Net income of $778 million on revenue of $1.9 billion and an ROE of 18%. x Revenue was up 14% year-on-year, driven by a trifecta of NII on loan growth, higher deposit spreads, as well as

higher IB revenues. x We’ve added over a 100 net new bankers, opened seven new offices and further built out our specialized industry

coverage. And we’ve added nearly 600 new relationships in middle market this year. x CRE loans grew 19%, reflecting strong originations in both commercial term lending and real estate banking.

Asset management

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Asset management reported net income of $557 million with a 29% pre-tax margin and an ROE of 24%.

JPM Stock Vs S&P 500 Index

To begin with, JP Morgan Chase stock performance: The JP Morgan Chase stock charts shows stock trend against the S&P 500 index. JP Morgan Chase stock price has gone up by 8.39% in the last 1 year versus the S&P 500 index which has returned 4.32%.The price earnings ratio is a valuation ratio which indicates how much an investor is willing to pay for every dollar of earnings. JPM P/E ratio is 9.9 as of Oct 21, 2016. A high growth company usually has a high PE ratio as investors are expecting high earnings growth in the future. The PE ratio is calculated as the market value per share (or stock price) divided by the earnings per share.

So in this case, If a company were currently trading at a multiple (P/E) of 9.9, the interpretation is that an investor is willing to pay $9.9 for $1 of current earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. A low P/E can indicate either that a company may currently be undervalued or that the company is doing exceptionally well relative to its past trends.) Basically, JPM has the 5th lower P/E ratio compared with other competitive banks after they are following Morgan Stanley and Citibank.

JP Morgan Chase Revenue Chart

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Topline or revenue is the income that a company generates by sales of its products or services for a given period. Investors look for stocks whose revenue is growing Quarter on Quarter (or QOQ) or Year over Year (or YOY) as it indicates that the company is growing. JPM saw an increase of revenue by 1.1% from 2016-Q2 to 2016-Q3.

JP Morgan Chase Earning Chart- for 3 years

JP Morgan Chase earnings per share: A company’s earnings per share or EPS is the portion of its net income or profits allocated to each outstanding share of its common stock. Our chart on earnings per share shows the Eps for the last three years, and is a useful measure of profitability, and should be used while doing JP Morgan Chase stock analysis. JP Morgan Chase's EPS registered 1.58M of common stock in the latest quarter of 2016-Q3.

JP Morgan Chase Net Income Chart-for 3 years

JP Morgan Chase Net Income: A company’s net income or bottom line is the firm’s total income after subtracting the cost involved in creating the product or service (COGS), expenses, and taxes for a given accounting period. It is also called as net profit and is a line item in the income statement of a company’s financials. JPM saw an increase of net income by 1.39% from 2016-Q2 to 2016-Q3.

Growth strategy with looking at M&A

Five years of consistent growth and steady recovery in the U.S. is supplying buyers with the confidence to seek out acquisitions as they face sluggish organic revenue growth and limited operating margin improvements. Furthermore,

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in the fourth quarter of 2015, businesses were sitting on more than $6 trillion in accumulated cash reserves globally.

Healthcare and Telecommunications, Media & Technology (TMT) may again be the leading sectors for transactions, partially benefiting from a “domino effect” where corporates that were inactive in 2015 seek to replicate peer deal success and related advantages. Amongst less active industries, commodity-related sectors affected by overcapacity such as Oil & Gas and Mining could benefit from consolidation, although activity is likely to be dependent on whether a clearer, more sustainable consensus emerges on commodity prices.

Source: J.P. Morgan, Dealogic as of January 8, 2016; M&A as a % of GDP is rounded to the nearest whole number

What we can determine from this graph is the overview on the global M&A activity that has shown key determinants and effects on helping to boost grown within JP Morgan. In 1996 the M&A was about 3% of the GDP and just over a trillion on the overall global M&A deal value. Whereas throughout the years we have seen substantial growth in both sectors, peaking in 2007, then slumping after the recession during 2008-2012. However recovering quickly with a M&A global value deal of 5 trillion. The M&A in terms of GDP is also on the increase.

2015 was marked by many mega-sized transactions that led to a record year, 2016 may see a rise in volumes supported by a greater number of deals. With the possibility of renewed and diversified activity from private equity players, and new regions facing agitation from activist investors, 2016 may prove to be another exciting year in M&A.

2016 key themes

x Supportive deal environment continues: Dealmakers will benefit from factors supportive to M&A, and businesses may take up numerous deals in a “domino effect” after observing successful peer transactions in 2015. It may also be a year with new areas of activity, such as those in commodity-related sectors

x Balanced mix will characterize activity: Confident CEOs are armed with $6 trillion to pursue growth as well as defensive combinations to enhance scale and fortify balance sheets weakened by commodity prices. Additionally, private equity funds may increase their activity to deploy substantial available equity

x Cross-border transactions will provide a significant source of value creation: As corporations seek external growth, businesses are increasingly turning to cross-border transactions

x Activist investors will continue to seek expansion: Activists are eyeing new geographies outside of North America, increasingly Europe, the Middle East and Africa (EMEA) and Japan

4 Expected Trends for 2017

1. Supportive deal environment continues in 2016

A greater number of deals and new sectors may underpin increased M&A activity in 2016. Dealmakers will benefit from supportive factors that helped drive 2015 M&A to its highest levels, though more numerous and smaller transactions and new sectors may see the biggest uptick in 2016.

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x Acquirers should continue to aim for positive market reactions, but bring greater discipline to deal terms and logic as investors exercise more discretion when reacting to deal announcements

x Commodity-related sectors and Financial Institutions may see a rebound in activity in 2016 x Asian outbound M&A will remain a significant factor in global transactions going forward as the region's

businesses look West for new sources of growth and value-add products and services for a rising middle-class

2. A ‘balanced mix’ of deal activity will characterize 2016 The need to support slowly recovering earnings, match peers that have already benefited from transaction activity, deploy significant cash reserves and overall boardroom confidence will help drive acquisitions. Deals will also be driven by defensive combinations as corporate leaders seek opportunities to bolster their growth profile and/or enhance expansion. Five years of stable growth has proven to chief executives that the post-recession recovery isn’t fleeting, and armed with a massive cash reserve, corporate leaders have the means and confidence to pursue acquisitions or to optimize their portfolio through corporate clarity actions.

x $6 trillion in cash reserves held at the end of 2015 provides corporate leaders the firepower to make acquisitions to improve earnings and consider hostile actions to deploy cash before they come under pressure to return it to shareholders

x Chief executives may also use 2016 to spin off and divest assets to achieve greater earnings growth and corporate clarity

x Private equity funds may play a more significant role in the year as private equity 'dry powder'—capital available for investment purposes—nears records 3. Cross-border transactions will continue to provide a significant source of value creation as corporations seek external growth in the global economy, businesses are increasingly turning to cross-border transactions as an avenue for value creation.

x Desire for higher growth markets, greater value-add products and services, and attractive valuation opportunities are driving increases in outbound activity across regions

x Europe may attract more inbound activity as there is better visibility around the return of growth to the region which may not be fully reflected in market prices

x Strong levels of Asian outbound activity are likely to continue

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4. Activist investors will continue to seek expansion Activism will continue to have a significant impact during 2016. With confidence built on U.S. successes, activists may begin initiating campaigns in new geographies, notably EMEA and gradually Japan. In addition to activist funds, traditional institutional investors are now engaging more forcefully with the senior management and boards of the companies in which they invest and are contributing to the same activism effect. With the U.S. and Canadian markets already quite active, many funds are turning to new regions for fresh investment opportunities, particularly EMEA and steadily Japan. While activism may be slower to gain a foothold in Western Europe, activist investors will continue to seek opportunities for geographic expansion as the region becomes more stable and predictable following several years of uncertainty. Activists are also beginning to make headlines across Asia with campaigns directed at companies controlled by family offices and corporate monoliths, after critically seeing a string of activity in Japan in recent years.

x Assets under management at activist hedge funds reached $122.9 billion in the fourth quarter of 2015 x Activism is internationalizing just as shareholder bases are, and Japanese corporates may prove the next

geographic frontier x Structural and regulatory distinctions may cast activism in different guises, but investor activism is extending

its international reach

Source: JPM Morgan 2016 M&A global outlook report

https://www.jpmorgan.com/global/insights/maglobaloutlook Executing the growth strategy Summary key points:

x Made great progress in executing their long-term growth strategy. They are building with patience and discipline, hiring great bankers, picking the best clients and selectively expanding our loan portfolios.

x Expanded there specialised industry model, they have 15 key dedicated industry teams working with more than 9,000 clients and covering 12,000 prospects.

x JP Morgan’s clients clearly benefit from their sector-specific knowledge and focused coverage; as a result they’ve seen meaningful gains in market share across these important segments. 2015 marked the sixth year of their Middle Market expansion strategy. Through this effort, they’ve added nearly 2,000 clients, and in 2015, they generated record revenue of $351 million across there expansion markets.

x In the new regions mentioned above they are building organically which means, banker by banker, client by client, which is essentially creating a nice-sized bank from scratch, ending 2015 with nearly $11 billion of loans and over $8 billion in deposits.

x Last year (2015) new offices opened in Fresno, California; Greenville, South Carolina; Hartford, Connecticut; and Wilmington, Delaware.

x JP Morgan believe that there building a commercial real estate business that is differentiated from our competitors. “Our franchise consists of three well-coordinated businesses: Commercial Term Lending, Real Estate Banking and Community Development Banking. Together, our real estate teams originated $32 billion in loans in 2015, up 28% from the prior year. As the industry moves through the real estate cycle, we believe we can continue to grow our portfolio safely by adding high- quality clients in large, established markets.” Source: JP Morgan annual report 2015.

x They see real opportunities to capture additional market share in targeted geographic areas while maintaining our credit and pricing discipline. E.g. expanding in regions in Africa and Asia.

x In 2015, the CDB team financed nearly 100 projects that created more than 10,000 units of affordable housing. “One in particular, the Alice Griffith Community, located on Candlestick Point in San Francisco, started its fourth phase of construction that will bring much needed affordable housing and amenities to the

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area. The effort not only replaces a troubled public housing complex but also creates new affordable units that will be linked with services, schools and access to jobs.” Source: JP Morgan annual report 2015

Strategic Alliances x Strategic alliances are important for any industry in order to access different parts of another industry, lower

risk of entry into new markets and share knowledge, expertise and capital. x Here is a table of JP Morgan’s partners and their individual sectors:

x There are many partnerships that JP Morgan have with different sectors as shown above, clearly there are ones more important that other and therefore will need analysing.

x The banking and finance sector which includes firms such as Merrill Lynch and China trust commercial bank are virtually same sector businesses as JP Morgan. Therefore why would competitors be Partners? Firstly it means capital assets can be shared e.g. computers, software etc. Furthermore experience and knowledge of both companies can improve its productivity and therefore profitability. Therefore combining these key skills each firm has improves its ability to predict and compete.

x Advertising and Marketing is also another key area of partnership for JP Morgan. They are known as an investment bank but clearly want to be as commercial as a bank such as HSBC. Therefore advertising is a key part in attracting customers, therefore having a partnership with advertising companies means better rates and better insight into what advertising actually works.

x Software and software development is also a key aspect for JP Morgan. Most of their work would be done through special software’s that allow them to trade, invest and do many other things. Therefore having an alliance with firms such as IBM and Microsoft means that they can get the highest quality software from these firms. Furthermore they can advertise through Facebook through Facebook exchange, which uses online data to look at recent browsing searches. So for example Banking or bank accounts may be searched online, it may then pop up as a remarketing add on Facebook. This type of advertising enforces the banks probability of being viewed.

x Consumer services, travel agencies and services are also another key area for JP Morgan. This is because JP Morgan have many clients and employees who need to travel for either business or leisure purposes. Therefore having partners who are an airline industry means possibly cheaper flights, possible priority flights and means no need to purchase or create their own airline firm.

x Telecommunications and telephony & wireless are also another important alliance to have. This is because connection to other firms and clients is crucial. Therefore having alliances with a huge firm such as BT means high quality telecoms, cheaper services and access to information in the market that could benefit JP Morgan.

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Bullish Arguments Technical Analysis: Overview Analysis - Daily Chart

11th of December 2013 – 24th of October 2016

Above is the JP Morgan Chase & Co share price over 2.5 years, using a daily chart. We are utilising three indicators for our analysis; EMAS (25, 50, 100), RSI and primary indicators (support, resistance and trend lines).

We have identified two major support levels (H1 $66.18 & H2 $67.5), two major resistance levels (H3 $68.46 & H4 $70) and the current trend line since the Brexit vote.

The RSI (Relative Strength Index) is utilised for buy and sell signals, as shown with the highlighted circles. Circle 2.A on the RSI chart, shows a buy signal, when the RSI enters the oversold area (30%) and exits it, corresponding to the circle 1.A on the price chart.

Also, sell signals are used, in our case for a potential exit of our trade, as shown with circles 2.B on the RSI chart and 1.B on the price chart.

Bullish Arguments:

We can see on the 8th of February, JP Morgan’s stock price has appreciated in price, up until the Brexit vote on the 23rd of June 2016. Since the Brexit Vote, where the stock price depreciated in value, JP Morgan has fared well. Appreciating from a price of $57.58 to today’s price of $67.88, clearly following a trend since the national referendum.

Recommended price of JP Morgan is a price target of $70 dollars per share, because it is a major big value resistance level and it is very close to the all-time high of $70.63. Assuming, that the market will push through resistance level H3 ($68.46), which it has already done.

All the EMAs (Exponential Moving Average) are showing reaffirming the positive momentum, with all respective EMAs spread out, with the 25 EMA closest to price, 50 EMA next closest and the 100 EMA furthest away from price.

RSI is in the overbought zone of 70% level, which should raise slight concern, however it is in harmony with the market, as it is in an upward movement (which is drawn with a trend line in the RSI chart). The RSI is also not showing any divergence with the market, for a potential sell signal. Thus, the RSI does not raise enough concern to, to prepare for a potential bearish move.

Thus, the longer-term view on the daily chart suggests that JP Morgan Chase & Co. is continuing its current price movement, with potential price volatility due to retracement towards the current trend line.

Macro - Analysis

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Research states that Democratic leaders show higher potential for stock markets rather than republicans as shown in the table below (Table 1). This can be further enforced since JP Morgan, Morgan Stanley, Goldman Sachs and Citi group have all supported Hilary Clinton, showing they have faith that a democratic president will improve the stock market, as shown in table 2. Donald trump on the other hand, only has 1 investment company, RHS investments, shown in table 3.

Table 1; Performance of stock market and elected party Reference: http://www.forbes.com/sites/peterlazaroff/2016/07/26/democrats-vs-republicans-who-is-better-for-the-stock-market/#158b18b35bfb

Table 2; List of contributors to Hillary Clinton Campaign Reference: https://www.opensecrets.org/politicians/contrib.php?cid=N00000019&cycle=Career

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Table 3; Donald Trump Contributors Reference: https://www.opensecrets.org/pres16/cont Proposed Execution (Buy) of Trade: Part of Bullish Argument Execution Analysis & Short-Term Analysis – 4h Chart

Execution (4h)

22nd of June 2016 – 24th of October 2016

Above is the JP Morgan Chase & Co share price over 9 months, using a four-hourly chart. We are utilising three indicators for our execution analysis; EMAS (25, 50, 100), RSI and primary indicators (support, resistance and trend lines).

We have identified two support levels (H1 $66.18 & H2 $67.17), one resistance level (H3 $68.46) and the current trend line since the Brexit vote. Take note of the highest price $69.01 of the last 9 months, which would be used as a resistance level. If the market breaks this price level, the market would be sure to continue its upward trend (with confirmation with other indicators).

These levels are only used for short-term horizon, as we are intending to hold the stock for a longer term, we will be utilising the levels from the previous overview analysis.

Execution:

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Below is the procedure of the execution

1) Look for a retracement towards the trend line. a. As highlighted in circle 1.C

i. Expect the EMAs to cross downwards as shown in 1.B and the RSI moving downward with the market towards the RSI’s trending line and the 30% level.

2) A counter trend line will be possible to draw. a. As in 1.A

3) Wait for the market to break the Counter trend line. a. As in 1.A

4) With confirmation with EMAs crossing each other upwards (25 EMA crossing the 50 EMA from below upwards).

a. As in 1.B 5) Execute trade on the close of the price, when the market has broken the counter trend line.

The stop-loss will be at the support line H1 (concededly at the same price as the 100 EMA).

Beware, to take care, that the market does not break through the major trend line, when waiting for the market to break your counter trend line. If the market breaks the major trend line, this may be a sign of the market turning to a bearish market.

Dividends and forecasts

Dividends- Dividends for JPMorgan Chase & Co have been up on the rise every year from 2011. In 2015 JP reported a dividend of 1.72 USD, which represents a 8.86% increase over last. The 28 analysts covering the company expected dividends of 1.88 USD for the upcoming fiscal year, an increase of 9.13%. Theses analysts have given accurate forecasts from 2011 to 2015, therefore these forecasts for 2017 are looking bright. Currently dividend prices are at 2.81% 1.92$ so pretty high, however not as much as other banks getting around 3$

Forecasts- the forecasts state that share price will increase by highs of 15.3%, bringing the share value up to 70.99$ and by meds of 7.3% brining the share value up to 73.50$. These numbers and forecasts have been given by 28 analysts offering 12 month price targets for JPMorgan Chase & Co.

Bearish Arguments Technical Analysis

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11th of December 2013 – 24th of October 2016

We can see on the 8th of February, JP Morgan’s stock price has appreciated in price, up until the Brexit vote on the 23rd of June 2016. Since the Brexit Vote, where the stock price depreciated in value, JP Morgan has fared well. Appreciating from a price of $57.58 to today’s price of $67.88, clearly following a trend since the national referendum.

Recommended price of JP Morgan is a price target of $70 dollars per share, because it is a major big value resistance level and it is very close to the all-time high of $70.63. Assuming, that the market will push through resistance level H3 ($68.46), which it has already done.

All the EMAs (Exponential Moving Average) are showing reaffirming the positive momentum, with all respective EMAs spread out, with the 25 EMA closest to price, 50 EMA next closest and the 100 EMA furthest away from price.

RSI is in the overbought zone of 70% level, which should raise slight concern, however it is in harmony with the market, as it is in an upward movement (which is drawn with a trend line in the RSI chart). The RSI is also not showing any divergence with the market, for a potential sell signal. Thus, the RSI does not raise enough concern to, to prepare for a potential bearish move.

Thus, the longer-term view on the daily chart suggests that JP Morgan Chase & Co. is continuing its current price movement, with potential price volatility due to retracement towards the current trend line.

Macro Analysis JP Morgan is an overall strong firm, which has high potential and many advantages over its rivals. However, everything has its negatives and therefore it is also important to consider these when making an investment.

Firstly JP Morgan is clearly the strongest competitor in its sector. It has the highest net income for 2015 at $24.44 billion, compared to Goldman Sachs at $6.08 billion and Morgan Stanley at $6.13 billion. However, it seems that it is not competition that is going to affect JP Morgan but either JP Morgan itself or external economic impacts such as Brexit. Lawsuits such as the Lehman brothers have pay-outs of $1.42 billion as well as other lawsuits for JP Morgan also accumulating to similar amounts. This is money thrown away for issues such as prostitution and other illegal activities.

Economic impacts such as Brexit have also had an impact on JP Morgan, clearly affecting there share price and fees due to uncertainty in the markets. The next economic event being the US elections could also be a bearish point for JP Morgan, so is now the time to invest?

UK interest rates may also have a negative effect on JP Morgan’s lending profits. This is because the UK base rate is 0.25% whereas the US base rate is 0.5%. Therefore, big firms with huge transactions may prefer to go for the cheaper option of the UK. Especially when the exchange rate for £ to $ is falling, currently at 1.22. This would be beneficial since for example a US firm could borrow £1 million and exchange that at the current rate of $1.22 million. With a falling exchange rate, next month, the rate could be 1.10, therefore the US firm could keep $0.12 million and only need to give back $1.10 million plus small interest to clear the debt.

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Furthermore, there is speculation of a rise in interest rate for the US by the Federal Reserve; therefore, this would furthermore disadvantage JP in comparison with the UK.

Reference: (Interest Rates)

http://www.afr.com/news/special-reports/forex/slow-pace-of-us-interest-rate-rises-to-continue-20161020-gs7gah

Proposed Exit Strategy Exit (4h - Chart)

22nd of June 2016 – 24th of October 2016

Via a technical point of view we would exit the trade when the market breaks the current trend line, with confirmation of the EMAs crossing each other in a downward movement and the RSI showing either; divergence, breaking its trend line or exiting the overbought 70% level.

This Buy Proposal was initiated by _________________ The relevant research was carried out by _____________________ The proposal was presented by ____________________ # of Votes for: # of Votes against:

DECISION REASON

*To be competed after discussion of proposal at an ordinary meeting Secretary: (Name of Secretary)