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JPMorgan Chase & Co. Presented by Piotr Chorzewski 12-2-2004

JPMorgan Chase & Co. Presented by Piotr Chorzewski 12-2-2004. Trends in profitability in 2003-2004. High return on assets – 1.4% High return on equity – 15.3% (highest since ’93). Factors which have impact on the profitability. Reduction in non-interest expenses

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JPMorgan Chase & Co. Presented by Piotr Chorzewski 12-2-2004

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  1. JPMorgan Chase & Co. Presented by Piotr Chorzewski 12-2-2004

  2. Trends in profitability in 2003-2004 • High return on assets – 1.4% • High return on equity – 15.3% (highest since ’93)

  3. Factors which have impact on the profitability • Reduction in non-interest expenses • Significant reduction in provision on loan losses • Debt refinancing by households & businesses • Increase in fees associated with origination, sale and serving mortgages • Fast growth in non-interest income • Bank holding company stocks outperformed S&P 500

  4. Banks vs. S&P 500

  5. Strategic benefits of the merger • Enhanced positions in retail financial services • More balanced business mix and greater geographical diversification • Enhanced opportunities for wholesale and other financial services businesses • Financial synergies (cost reduction)

  6. Interest income and expense – JP Morgan

  7. Interest income and expense – Bank One

  8. Interest income spread

  9. Interest rate spread JP Morgan prior merger

  10. Interest rate spread Bank One prior merger

  11. Interest rate spread of the merged company

  12. Interest rate spread of the merged company

  13. Interest Rate Spread

  14. Non-Interest revenue • High volatility of different components

  15. Non-Interest revenue

  16. Non-Interest expenses

  17. Scenario • Growth of Non-Interest revenue - 1.5% • Constant growth of Interest Income spread 0.1613% • Reduction of assets by 4% in 2005 • Long term assets growth 1.5% • Merger savings 3,000mln • Merger costs 2,200mln • Modest growth of the non-interest expenses – 1.5% • Provision on credit losses decrease annually – 1% • Current P/E – 18.20

  18. Income Statement - forecast

  19. Sensitive analysis • Growth rate of Non-Interest Revenue

  20. Sensitive analysis • Growth of Non-Interest Expenses

  21. Sensitive analysis • Growth of interest income spread

  22. Sensitive analysis • Growth of assets

  23. JPM BAC C MER Industry Market Cap: 139.51B 191.17B 242.21B 53.08B 68.34B Employees: 93,453 177,986 253,000 49,300 90.04K Rev. Growth (ttm): 0.60% 6.50% 1.80% -1.80% 6.50% Revenue (ttm): 26.21B 39.17B 63.72B 29.61B 23.67B Net Income (ttm): 4.68B 13.01B 16.42B 4.45B 4.87B EPS (ttm): 2.152 3.674 3.153 4.426 3.15 PE (ttm): 18.20 12.88 14.80 12.91 14.37 PEG (ttm): 1.12 1.28 0.97 1.11 1.28 PS (ttm): 5.32 4.89 3.83 1.79 3.85 Comparison

  24. Comparison

  25. Sell Hold Buy Summary • Benefits of the merger • Growth of Interest rate spread, but still too low • Reduction of non-interest expenses • Growth of non-interest revenue • Quite low EPS & High PE

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