JPMorgan Chase Analysis Project_WC

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  • JPMORGAN CHASE & CO.

    ANALYSIS Financial Markets and Institutions (FIN 320-01)

    Final Project

    Wyatt A. Chartrand

    Rita Redko

    Steve Celeste

    Abdulkadir Askar

    Fall 2015

  • Chartrand, Redko, Celeste, and Askar 1

    Introduction:

    As one of the oldest and largest financial institutions in the world, JPMorgan Chase &

    Co. (JPM) serves millions of consumers around the world. Headquartered in New York City and

    operating primarily in the United States, JPMorgan Chase also services some of the worlds most

    prominent corporate, institutional, and government clients. Throughout its history, JPMorgan

    Chase and its predecessors have been serial acquirers, merging with peers and competitive firms

    to reach the global scale of what is now the largest bank in the United States, and the world's

    sixth largest bank by total assets. JPMorgan Chase was established as the result of the

    combination of several large U.S. banking companies in 1996 and prior, including Chase

    Manhattan Bank, J.P. Morgan & Co., Bank One, Bear Stearns and Washington Mutual. The

    company and name JPMorgan Chase was formalized in 2000 (JPMorgan Chase). JPMorgan

    Chase has integrated these acquisitions into their model as an integrated universal bank, the

    result of which has been a full-service portfolio of banking products and services available to a

    variety of clients. As we look at JPMorgan Chase, we see four main business segments of the

    firm that operate and offer a wide variety of financial services to a comprehensive range of

    clients around the globe. As a large multinational bank, JPMorgan Chase is faced with different

    types of risks. We look at not only how these risks are measured, but also how JPMorgan Chase

    typically protects itself from them. Given the history of fraudulent cases and illegal acts by

    similar firms, we will also be looking at a number of institutions, both foreign and domestic, that

    oversee and regulate JPMorgan Chase and its subsidiary firms (JPMorgan Chase).

  • Chartrand, Redko, Celeste, and Askar 2

    Business Segments:

    On a broad scale, JPMorgan Chase has four operating segmentsconsumer and

    community banking, corporate and investment banking, commercial banking, and asset

    management. The largest of the four, contributing 46% to the company's total revenues, is

    consumer and community banking, with corporate and investment banking coming in second

    with 34% in revenues. Asset management and commercial banking contribute 12% and 7%

    respectively (King, 2015). In 2012 JPMorgan Chase chase took a substantial step forward by

    combining Chases three key retail businesses: consumer and business banking, mortgage

    banking, and Card, merchant services and auto finance into one franchiseconsumer and

    community banking. This branch serves consumers and businesses through personal service

    such as ATMs, online, mobile, and telephone banking. Consumer and Business

    Banking provides deposit and investment products and services to consumers and small

    businesses are offered lending, deposit, and cash management. Within credit card services,

    credit cards are issued to consumers and small businesses to provide payment services to the

    corporate and public sector. This subsection also offers clients auto and student loan

    services. Lastly, mortgage banking includes mortgage orientation and portfolios made up of

    residential mortgages and home equity loans (Annual Report 2014).

    Another key segment of JPMorgan Chase is its corporate and investment banking

    sector. Here the firm strives to deliver strategic advice and solutions including raising capital,

    risk management and underwriting. This segment is broken up into two main

    components: banking services and markets and investor services. The first offers a full range of

    investment banking products including raising capital in equity and debt markets as well as loan

    origination. This service also includes treasury services, which is composed of transaction

  • Chartrand, Redko, Celeste, and Askar 3

    services dealing with cash management and liquidity solutions. On the other hand, the markets

    and investors services segment is a global market maker offering myriad risk management

    solutions, and also includes the securities services business which oversees the lending products

    that are sold to investment funds and insurance companies (Annual Report 2014).

    When it comes to commercial banking the company aims to deliver extensive industry

    knowledge, local expertise, and dedicated service to both U.S and international clients. Overall,

    the firm provides comprehensive financial solutions that deal with lending, investment banking,

    and asset management (Annual Report 2014). This segment is further divided into four primary

    client segments: middle market banking (covering corporate, municipal, and nonprofit clients,

    with annual revenue generally ranging from between $20 million and $500 million), corporate

    client banking (covering clients with annual revenue generally ranging from between $500

    million to $2 billion and focuses on clients that have broader investment banking needs),

    commercial term lending (providing term financing to real estate investors), and real estate

    banking (providing full-service banking to investors and developers). This segment seeks to

    further differentiate the companys service and capabilities to continue to improve in the future

    by increasing the client base and building deeper client relationships (Annual Report 2014).

    The asset management division offers investment management across all major

    asset classes, including equities, fixed income securities, multi-asset solutions, and alternative

    investments (See Appendix Graphic 1). While there are a variety of clients, the majority of asset

    management client assets are in actively managed portfolios (Annual Report 2014). There are

    two distinct lines of service within asset managementglobal investment management, which

    provides investment services on a global scale like active risk-budgeting strategies. The second

    is global wealth management that focuses on investment advice and investment management as

  • Chartrand, Redko, Celeste, and Askar 4

    well as specialty wealth advisory services. JP Morgan Chase prides themselves on the unique

    combination of the two (See Appendix Graphic 2). Furthermore, the client segments within

    asset management can be broken down into private banking, including high and ultra-high net

    worth individuals, institutional, including corporate and public institutions, and finally retail

    clients which are composed of financial intermediaries and individual investors.

    These business segments have a global footprint comparable in scale to JPMorgan

    Chases largest institutional clients and the geographic diversity of their smallest retail

    clients. The firm operates in more than 60 countries with a primary focus in North

    American. However, given JPMorgan Chases size, the scale of operations in each smaller

    foreign market remains large. In 2014, JPMorgan Chase recorded more than $34 billion in

    revenue, 50% of which was acquired from consumers and clients outside of the United

    States. Of this $17 billion in international revenue, 66% was derived from the EMEA region

    (Europe, Middle East, and Africa), representing a market where JPMorgan Chases business is

    mature and well-known. 27% was generated from the Asian region and the last 7% came from

    the Latin American region, a place where management perceives their ability to grow and

    develop the JPMorgan Chase brand may be the greatest (Annual Report 2014). Most revenues

    from international markets are being generated through the corporate and investment banking

    and asset management business segments of JPMorgan Chase.

    Risk Management:

    JP Morgans total assets and total liabilities both increased from December 31, 2013 by

    157.4 billion and 136.6 billion, respectively. The assets for the period ending December, 2014

    totaled $2,573,126 (See Appendix Graphic 4). These assets included cash and fees from banks

    and deposits with banks, federal funds sold, and securities purchased under resale agreements.

  • Chartrand, Redko, Celeste, and Askar 5

    Cash items on a banks balance sheet generally are composed of reserves, cash items in process

    of collection, and deposits at other banks (Mishkin 402). Assets also included are trading assets,

    which were driven by client market making activities in corporate and investment banking.

    Additionally, securities made up a big chunk at $348,004, and these are generally made up of

    debt instruments because banks are not allowed to hold stock (Mishkin 402). Other assets that

    played a role in JPMorgan Chases bank statements were loans and allowance for loan

    losses. These are a reflection of probable credit losses that arise in the consumer and wholesale

    loan portfolios. These losses are estimated using statistical analyses. Moreover, accrued interest

    in accounts receivables was a direct result of market making activities and security sales.

    Additionally, there are other assets listed that can be the result of physical capital as well as

    private equ