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Products: JPMorgan Chase & Co. (JPM)

Sales & Trading(Sales & Trading)
Treasury & Securities Services(Treasury & Securities Services)
Advisory & Underwriting Services(Advisory & Underwriting Services)
Consumer & Community Banking(Consumer & Community Banking)
Commercial Banking(Commercial Banking)
Asset & Wealth Management(Asset & Wealth Management)
Corporate(Corporate)

Sales & Trading

What is being offered?

The sales and trading division of JPMorgan helps execute certain deal related transactions for corporate and commercial clients. The firm assists in making markets for institutional and high net worth clients. Investors can range from state and municipal pension plans to corporations and governments.

The firm assists in making markets for institutional and high net worth clients. The sales and trading division comprises of two areas

Equity – Equity income is primarily related to cash and derivatives activity. Products traded include common stock, ADR's, global depositary receipts and exchange traded funds (ETF)

Fixed Income, Currencies and Commodities (FICC). Products include Investment & Non Investment grade corporate debt, distressed debt, bank loans, commercial mortgage backed securities (CMBS), residential mortgage backed securities (RMBS), collateralized debt obligations (CDO), currencies, commodities (futures, forward, swaps and options)

Who are the clients?

The main clients are corporations, governments, and institutional investors such as pension funds and hedge funds

What customers care about?

Clients are primarily concerned with the ability of the financial intermediary to make markets quickly and provide structured and tailored solutions to fulfill the needs of the client. The Sales team works with customers in providing transaction ideas that provide clients the ability to make trading decisions

Competitors

The company's main competitors are other major investment banks such as Goldman Sachs and Morgan Stanley among others

JPMorgan Strengths

  1. Dominant market share
  • The firm executes approximately 2 million trades and buys and sells $2.5 trillion of cash and securities each day. On an average day, the firm holds more than $400 billion in securities to ensure client needs are met at all times

Sources of Income

Income in this division is primarily derived from fees associated with market making and structuring various financial products for clients. The division consists of the sales team whose job is to bring in volume by contacting institutions and high net worth clients to suggest trading ideas and the trading team which actually goes and executes those trades. Sales people make money by bringing in more volume while traders make money depending on the profitability of the trade they execute.

JPM's Equity Trading Portfolio

JPM's Equity Trading Portfolio represents the total fair value (market value) of equity trading assets held by the bank at the end of a period.

Banks hold trading assets primarily to facilitate transactions between other buyers and sellers (banks, investment funds, general public) at a profit and to realize gains associated with increases in the value of their trading assets.

JPM's Equity Trading Portfolio increased from $67 billion in 2005 to $95 billion in 2007 before falling to $87 billion in 2009 due to the economic crisis, as losses on the trading portfolio and risk aversion led to a decline in activity throughout the division. A surge in the equity market in 2010 helped the figure touch $140 billion only to fall to $105 billion in 2011. The figure slowly rose to $122 billion by the end of 2013, but fell to $100 billion by the end of 2015 due to a sharp reduction in equity valuation globally. The figure recovered slightly to $102 billion in 2016 before falling to $96 billion by the end of 2017.

Chart: JPM's Equity Trading Portfolio

JPM's Yield on Equity Securities

JPM's Yield on Equity Securities refers to the equity trading income generated as a percentage of the dollar value of the equity trading securities held by the bank.

The yield is attributable to two main factors:

  1. The volume of trading transactions handled by the bank and the profit per transaction
  2. Net gains or losses associated with changes in the fair value (market value) of trading assets held by the bank

JPM's Yield on Equity Securities swelled from under 3% in 2005 to 4.1% in 2007 before falling to under 3.9% in 2008 as the equity market tanked in the wake of the global economic downturn. Yields rebounded sharply in 2009 to peak at 5% before settling around 3.9% by 2013. A notable improvement in equity trading activity over subsequent years helped the figure jump to 5.6% over 2015-16 and further to 6% in 2017.

Chart: JPM's Yield on Equity Securities

JPM's FICC Trading Portfolio

JPM's FICC Trading Portfolio represents the total fair value (market value) of fixed-income, currencies and commodities (FICC) trading assets held by the bank at the end of a period. FICC trading assets consist of:

  • Government securities (bonds, sovereign debt, agency debt)
  • Corporate debt
  • Currencies
  • Commodities (gold, silver, copper, oil, etc.)
  • Derivatives (options to buy or sell other securities)
  • Securitized assets such as mortgage-backed securities

Banks hold trading assets primarily to facilitate transactions between other buyers and sellers (banks, investment funds, general public) at a profit and to realize gains associated with increases in the value of their trading assets.

JPM's FICC Trading Portfolio increased from $231 billion in 2005 to $417 billion in 2008 before falling to $324 billion in 2009 due to the economic crisis, as losses on the trading portfolio and risk aversion led to a decline in activity throughout the industry. A surge in debt market valuation helped the figure cross $350 billion in 2010, but slowing bond trading activity and tighter regulatory requirements forced the bank to slash the asset base to $243 billion by 2015. An improvement in market conditions helped this figure reach $286 billion by 2017.

Chart: JPM's FICC Trading Portfolio

JPM's Yield on FICC Trading Securities

JPM's Yield on FICC Trading Securities refers to the FICC trading income earned as a percentage of the dollar value of the FICC trading securities held by the bank. This income includes revenues derived from trading fixed-income assets (bonds), currencies and commodities (precious metals, oil, etc.)

The yield is attributable to two main factors:

  1. The volume of trading transactions handled by the bank and the profit per transaction
  2. Net gains or losses associated with changes in the fair value (market value) of FICC trading assets held by the bank

JPM's Yield on FICC Trading Securities fell from 3.2% in 2005-2006 to under 0.5% in 2008 primarily due to markdowns on mortgage-related exposures and $4.7 billion of markdowns on leverage-lending funded and unfunded commitments. Revenue was also impacted by additional losses related to Bear Stearns' positions. Yields rebounded sharply in 2009 and 2010 as market conditions improved and the firm recognized modest gains on legacy leveraged-lending and mortgage-related positions. Trading yields improved from 4.2% in 2010 to 4.7% in 2012. The figure jumped to 6.1% in 2013 because of a sharp reduction in the size of FICC trading assets towards the end of the year even as revenues remained upbeat. The yield remained around 5% over 2014-2015 before swelling to 5.65% in 2016. A sharp reduction in revenues for 2017 led the figure lower to 4.5%.

Chart: JPM's Yield on FICC Trading Securities

Treasury & Securities Services

What is being offered?

The Treasury & Securities (TSS) division provides cash management, custody, trade, wholesale cards and liquidity products to small and mid-sized companies, multinational corporations, financial institutions and government entities across the world. It is the third largest custodian in the world with $23 trillion in assets under custody. It partners with JPMorgan's Commercial Banking, Retail Banking and Asset Management businesses to serve clients firm wide.

The TSS operates through three main service lines: treasury services, investor services and institutional trust services. The treasury services business provides a variety of cash management products, trade finance and logistics solutions, wholesale card products and short term liquidity management tools. The investor services business provides custody, fund services, securities lending and performance measurement and execution services. The institutional trust services sub-division provides trustee, depository and administrative services for debt and equity issuers.

Who are the clients?

The main clients include small- and mid-sized companies, multinational corporations, financial institutions, and government entities.

What customers care about?

Customers care about fees charged for services provided which include cash management, trade services etc. In addition they care about speed of execution which largely depends on how global the bank and its subsidiaries who they do business with are.

Competitors

The Treasury Services division of JPMorgan competes with other custody banks such as Bank of New York Mellon, State Street and Citigroup (Global Transaction Services) among others

JPMorgan's strengths

  1. Strong Global Presence and dominant market player
  • The Treasury Services group of JPMorgan operates in more than 60 countries worldwide, serving more than 40,000 clients. It moves around nearly $10 trillion worth of cash transactions around the world for clients, and currently holds about $23 trillion worth of assets.

JPM's Treasury Client Balances

JPMorgan provides working capital management and treasury solutions to clients across the globe. JPM's Treasury Client Balances refers to the treasury management, short-term credit facilities and investing options that are used to generate a net interest income as well as non-interest income for the treasury division.

JPM's Treasury Client Balances within the Treasury & Securities Services division have grown steadily since 2005 as more corporate clients sought JPMorgan to provide treasury services to them. It increased from $229 billion in 2007 to $280 billion in 2008 due to increase client deposits as a result of weak economic conditions resulting in higher liability balances. This level decreased to $248 billion in 2009 due to lower demand for treasury related products before jumping to $417 billion by 2014. Weak market conditions in late 2015 and most of 2016 resulted in the figure falling to $376 billion. However, an increase in asset valuation helped client balances reach $409 billion in 2017.

Chart: JPM's Treasury Client Balances

JPMorgan's JPM's Treasury Services Fee % of Client Balances

JPM's Treasury Services Fee % of Client Balances represents the total income from treasury services as a percentage of client balances for the year.

JPMorgan's JPM's Treasury Services Fee % of Client Balances declined from 1.7% in 2005 to 1.3% in 2008 mainly due to an increase in deposits in 2008 as corporations parked their cash with the firm due to economic uncertainty. As the deposit base fluctuated over subsequent years, the figure first increased to almost 1.5% in 2009-2010 before falling to just 0.9% by 2015. The figure improved to over 1% by 2017.

Chart: JPMorgan's JPM's Treasury Services Fee % of Client Balances

Advisory & Underwriting Services

What is being offered?

JPMorgan is one of the world's largest investment banks with a history of client relationships and product capabilities. The company serves more than 20,000 clients including corporations, financial institutions, governments and institutional investors. The division offers a full host of products including advisory related and capital raising through debt and equity underwriting. Over the years, JPMorgan has consistently ranked among the top three global investment banks in terms of M&A advisory, equity underwriting as well as debt origination market share.

Who are the clients?

The main clients for the business are multinational corporations, banks and governments.

What customers care about?

  • Fees related to M&A, Equity and Debt underwriting
  • Experience of the team (Industry knowledge, Execution Capabilities)
  • Strong networks to private equity and hedge funds to provide liquidity
  • Country and regional reach & expertise

Competitors

The main competitors include bulge bracket banks like Goldman Sachs, Deutsche Bank, Morgan Stanley as well as smaller investment banks like Jefferies, Piper Jaffray

JPMorgan's strengths

  1. Strong presence in the financial industry
  • JPMorgan's dominance in the Investment Banking space can be highlighted by the fact that it raised nearly $178 billion of capital for banks and financial institutions during the financial crisis. This amounted to nearly 10% of the capital raised in 2009.
  1. Acquisitions and joint ventures improving outlook
  • The acquisition of Bear Stearns in 2008 helped increase JPMorgan's Investment Banking footprint across the globe. The firm is focusing on expanding coverage in key markets such as India, China, Brazil etc. by adding Investment Banking professionals and providing them with the support needed.

Sources of Income

The main sources of income are derived by the fees collected by various institutions leading the M&A, equity/debt underwriting. Fees are generally dependent on the type of deal (ex. an IPO commands higher fees vs a secondary offering), volume of deal (greater the volume the greater the fees), reputation of advisor or underwriter (ex. Goldman Sachs, Morgan Stanley command greater fees because of their reputation in the investment banking business).

Global Debt Origination Volume

Global Debt Origination Volume represents the total dollar value of debt issued annually. Such debt includes:

  • Corporate debt - corporations like IBM, Exxon Mobil. Can be investment grade or non-investment grade debt
  • Government agency debt - agencies like Fannie Mae, Sallie Mae, Freddie Mac
  • Sovereign debt - debt issued by countries like Argentina, Mexico, Greece
  • Asset-backed securitization - securitized assets such as credit card loans, auto loans and mortgages

The availability of cheap and easy credit boosted Global Debt Origination Volume by 17% from $6.1 trillion in 2005 to $7.1 trillion in 2006. However, the financial crisis from 2007 to 2009 led to debt origination volume declining sharply from $7.1 trillion in 2006 to a low of $4.3 trillion in 2008. Debt origination remained around $5 trillion in 2010 and 2011 before recovering sharply to reach $5.6 trillion in 2012. The figure increased further to $5.7 trillion by 2014, before falling to $5.3 trillion in 2015 due to weak global economic conditions. Strong recovery over subsequent years helped this figure cross $7.2 trillion by 2017.

Chart: Global Debt Origination Volume

JPM's Share of Global Debt Origination

Global Debt Origination Volume represents the total dollar value of debt issued annually. Such debt includes:

  • Corporate debt - corporations like IBM, Exxon Mobil. Can be investment grade or non-investment grade debt
  • Government agency debt - agencies like Fannie Mae, Sallie Mae, Freddie Mac
  • Sovereign debt - debt issued by countries like Argentina, Mexico, Greece
  • Asset-backed securitization - securitized assets such as credit card loans, auto loans and mortgages

The availability of cheap and easy credit boosted Global Debt Origination Volume by 17% from $6.1 trillion in 2005 to $7.1 trillion in 2006. However, the financial crisis from 2007 to 2009 led to debt origination volume declining sharply from $7.1 trillion in 2006 to a low of $4.3 trillion in 2008. Debt origination remained around $5 trillion in 2010 and 2011 before recovering sharply to reach $5.6 trillion in 2012. The figure increased further to $5.7 trillion by 2014, before falling to $5.3 trillion in 2015 due to weak global economic conditions. Strong recovery over subsequent years helped this figure cross $7.2 trillion by 2017.

Chart: JPM's Share of Global Debt Origination

JPM's Debt Origination Fees as % of Deal Volume

JPMorgan assists corporate, government-agency and sovereign clients in raising debt capital such as bonds and term loans. In return, the bank charges an origination fee that is assessed as a percentage of the value of the debt issued by its clients and is referred to as JPM's Debt Origination Fees as % of Deal Volume

The percentage fee earned by the bank can be lower than the total percentage fee paid by the debt-issuing company since the fees may be shared among multiple banks.

As there is no direct linear correlation between fees earned and the deal volume of debt origination, fees as a % of deal volume can vary from year to year. Historically this number has ranged between 0.5-0.6%, but the acquisition of Bear Sterns helped the figure remain around 0.8% over 2010-2017.

Chart: JPM's Debt Origination Fees as % of Deal Volume

Consumer & Community Banking

What is being offered?

The Retail Banking division of JPMorgan serves small businesses and consumers by providing traditional banking services to them through their various branch locations, ATM's, online banking etc. Customers have access to more than 5,100 bank branches and over 17,000 ATM's (2nd largest nationally) as well as online and mobile banking. The retail bank offers traditional savings accounts, money market savings accounts, CDs, IRAs and non-interest and interest-bearing checking accounts. The division provides a relatively stable source of funding which the firm uses to allocate to other divisions thereby earning a net interest spread. The revenue is allocated to the division depending on the interest rate and maturity of the deposits. The division also generates non-interest income through a variety of fees such as account service fees, insufficient funds fees, overdraft charges and ATM fees.

  1. Interest Income Earned on Loans (the money lent out)
  2. Loan Security - Unsecured loans (ex. student loans) tend to have higher net interest yields than other secured loans (eg. mortgages)
    • Type of Loan - Whether the loans extended by the bank are fixed or variable can have an impact on the interest income earned by the bank if interest rates change
    • Risk Free Rate - The rate of return on investments considered to be risk free influences the base level of the interest rate charged to borrowers. The rate of return on US Treasury Bills is commonly considered a benchmark for the risk free rate
    • Interest Expense on Borrowed Funds to Make Loans (the cost of deposits, debt and other funds)
    • Risk of Lender - Bank's own risk profile can influence the cost of attracting and retaining deposits as well as borrowing debt
    • Time Horizon of Borrowed Funds - Since bank's often borrow money for short-term maturities, the cost of borrowing is often lower (in the short-term) than it would be if the bank had borrowed funds with long-term maturities
  • Risk of Borrower - income and assets of individuals and businesses
    • US Federal Discount Rate and Federal Funds Rate - The discount rate represents the rate at which money can be borrowed from the US Federal Reserve. The Federal Funds Rate represents the rate at which depository institutions lend money to each other
  1. Interest Expense on Borrowed Funds to Make Loans (the cost of deposits, debt and other funds)
  • Risk of Lender - Bank's own risk profile can influence the cost of attracting and retaining deposits as well as borrowing debt
  • Time Horizon of Borrowed Funds - Since bank's often borrow money for short-term maturities, the cost of borrowing is often lower (in the short-term) than it would be if the bank had borrowed funds with long-term maturities
  • U.S. Federal Discount Rate and Federal Funds Rate - The discount rate represents the rate at which money can be borrowed from the US Federal Reserve. The Federal Funds Rate represents the rate at which depository institutions lend money to each other
  1. Average Loans Outstanding
  • Demand for Loans - Economic conditions generally dictate the demand for loans by individuals and corporations.
  • Credit Availability / Willingness to Lend - Banks usually restrict lending in the face on uncertain economic times as higher risks of default force banks to maintain higher a higher cash balance to offset the potential of greater losses.
  • Loan Losses - Loan losses have the impact of reducing loan balances as write-offs decrease the value of outstanding loan

Who are the clients?

The clients are consumers and small businesses who require account services to manage their day to cash activities. Apart from allocating the deposits to other divisions and earning a return on it, interest on loans is generated through student lending activities.

What customers care about?

Account Services

  • Return provided on the financial products offered (savings accounts, certificates of deposits etc)
  • Accessibility of branches and ATM's
  • Fees charged for services such as wire transfer fees, ATM fees and penalty fees

Loan Related- Interest rate on loans

  • Terms of loans (Minimum payments, Loan Payment Date)
  • Down payment required for loans
  • Loan application and processing fees

Competitors

The main competitors include large retail banks such as Bank of America, Wells Fargo, PNC and others

JPMorgan's strengths

  1. Washington Mutual acquisition boosted US presence
  • The acquisition of Washington Mutual (WaMu) helped increase JPMorgan's asset base by $264 billion and added WaMu's 2,200 branches, 5000 ATM's and 12.6 million checking accounts as wells as savings, mortgage and credit card accounts to JPMorgan. In addition it strengthened the firms market share in key markets such as California and Florida as well as New York, Texas, Illinois and Arizona.
  1. Large Deposit Base
  • JPMorgan has the largest deposit base in the U.S. In mid-2018, total deposits stood at well over $1.45 trillion. This strong base provides the firm with a continuous source of liquidity and funding.
  1. Leader in Auto Financing
  • In 2009, JPMorgan became the largest auto lender in the U.S, financing more than 1.1 million auto loans for consumers
  • Although Ally Financial and Wells Fargo have grown their auto lending business rapidly over recent years to grab the top 2 spots, JPMorgan remains a major player.

Sources of Income

The deposits business generates two primary sources of income for the bank.

  • A net interest spread is earned by investing the funding the bank receives through deposit activities and investing those in earning assets through client lending.
  • Deposits also generate fees such as account service fees, insufficient funds fees, overdraft charges and ATM fees
  • Non-interest income generated through lending-related fees for student and auto loans

JPM's Outstanding Mortgages

Represents the total dollar value of JPMorgan's outstanding mortgage portfolio.

JPM's Outstanding Mortgages grew rapidly from 2007 to 2008 owing to the boom in real-estate during the period. The figure swelled more than 50% in 2009 due to JPMorgan's acquisition of Washington Mutual, but with the economic downturn hitting real estate hard, the portfolio declined steadily to reach $183 billion by 2014. With run-offs in legacy mortgages dropping to negligible levels, the figure improved to $237 billion by 2017.

Chart: JPM's Outstanding Mortgages

JPM's Outstanding Credit Card Balances

Outstanding Credit Card Balances represent the average credit card balances outstanding on which JPMorgan is earning interest. It includes only held loans and not the securitized loans that were reported on a managed basis for the firm before 2010.

JPM's Outstanding Credit Card Balances increased steadily from $67 billion in 2005 to $87 billion in 2009, before jumping to $144 billion in 2010 thanks to the acquisition of Washington Mutual. But the economic downturn forced the bank to write-off delinquent loans. Customers have also worked towards reducing personal debt since then, because of which this figure fell to below $124 billion by 2013. Card loans have grown steadily over recent years, though, helping the figure reach $140 billion by 2017.

Chart: JPM's Outstanding Credit Card Balances

JPM's Other Consumer Loans Outstanding

JPM's Other Consumer Loans Outstanding represents the total dollar value of JPMorgan's outstanding portfolio of all loans besides mortgages and card loans.

JPM's Other Consumer Loans Outstanding grew steadily from 2006 to 2010 before stagnating at $80 billion between 2010 and 2013. An increase in auto loans helped the figure touch $95 billion by 2016 before pulling back slightly to $93 billion in 2017.

Chart: JPM's Other Consumer Loans Outstanding

JPMorgan's JPM's Net Interest Margin on Consumer Loans

Banks acquire funds from consumer deposits (checking, savings), by issuing bonds (corporate debt), or by borrowing from other banks or the government (U.S. federal funds), and incur interest expenses on these borrowed funds. They then use these funds to make loans and investments at higher rates of return. The difference between the interest income earned by the bank on money lent out and its interest expense on borrowed funds is the bank's net interest income. This net interest income, when expressed as a percentage of the funds/deposits used to generate the income, is referred to as the net interest yield percentage or the net interest spread percentage.

JPMorgan's JPM's Net Interest Margin on Consumer Loans was roughly around 5.8% over 2006-2008, but jumped to 6.5% in 2009 thanks to the acquisition of Washington Mutual. The figure increased to almost 7.4% by 2013 before the low interest rate environment resulted in a steady decline to below 6.5% by 2016. The Fed's ongoing rate hike helped the figure reach 6.8% in 2017.

Chart: JPMorgan's JPM's Net Interest Margin on Consumer Loans

Commercial Banking

What is being offered?

The Commercial Banking division of JPMorgan serves nearly 25,000 clients nationwide including corporations, municipalities, financial institutions and nonprofit entities with annual revenue ranging from $10 million to $2 billion. The services that are provided include corporate lending, treasury related, Investment Banking and asset management to meet the needs of the clients. The commercial banking group operates in fourteen of the top fifteen metropolitan areas and is divided into three main business segments : middle market banking, mid corporate banking and real estate banking.

Who are the clients?

Clients include multinationals, middle market and business banking companies, correspondent banks, commercial real estate firms and governments. Clients are supported throughout the world with most of the foreign concentration being in Europe.

What customers care about?

  • Level of interest rates on loans (the price of the loan)
  • Whether the loans are fixed or variable interest rates
  • Maturities of loans (length of time the money can be borrowed)
  • Service fees charged for managing assets, providing trade solutions etc.

Competitors

JPMorgan competes with several large banks including Citibank, Bank of America, HSBC and also smaller regional players.

JPMorgan's strengths

  1. Strong market position
  • JPMorgan consistently ranks among the country's top 3 commercial banks in terms of market position and lead share.

JPM's Commercial Loans Outstanding

This represents the total amount of outstanding loans for JPMorgan's commercial lending business.

JPM's Commercial Loans Outstanding grew from nearly $61 billion in 2007 to $82 billion in 2008 and $107 billion in 2009 representing an increase of 35% and 30% respectively. This was mainly due to the acquisition of Washington Mutual which led to an increase in liability balances. Total loans decreased to $97 billion in 2010 before improving to almost $200 billion by 2017.

Chart: JPM's Commercial Loans Outstanding

Asset & Wealth Management

What is being offered?

JPMorgan manages about $2.8 trillion worth of assets and is a global leader in investment and wealth management. Its clients include institutions, retail investors and high net worth individuals across the globe. The Asset Management group offers its clients global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity including money market instruments and bank deposits. It also provides trust and estate, banking and brokerage services to high net worth clients and retirement services to corporations and individuals. The division serves four distinct client companies through three businesses: institutions through JPMorgan Asset Management, ultra-high net worth clients through the private bank, high net worth clients through private client services and retail clients through JPMorgan Asset Management

The Asset Management professionals work towards advising institutions on how to strengthen pension plans for their employees, advising 401(k) participants on achieving a secure retirement, executing financial plans for family enterprises and business owners and providing the necessary research and market insight to financial advisors who guide millions of investors worldwide.

The Asset Management division of JPMorgan generates approximately 12% of the total firm revenues and offers very high returns to allocated capital.

Who are the clients?

The main clients include institutions, retail investors and high net worth individuals

What customers care about?

  1. Fees charged for Assets under Management
    • Asset managers primarily make revenue from fees charged as a percentage of assets under management. This fee could vary between institutions
  1. Track record of Performance
    • The stronger the past track record for investment returns, the higher the chances that clients will trust his judgment and provide him/her to manage their investments
  1. Stable and Investment Process
    • A strong and well organized investment process which puts emphasis not only on return but to manage client risk. One of the major factors to profitability is the ability of asset managers to better manage operational risk. Larger firms have better capabilities and information that enable them to manage risk more effectively which improves profitability.
  1. Differentiated Products
    • The focus for many investors will be on differentiated products. The ability for companies like JPMorgan to provide different products such as ETFs and a variety of asset classes increases the appeal for customers.

Competitors

Competition for this business comes from banks (Goldman Sachs, Credit Suisse), large independent asset managers (BlackRock, State Street), alternative investments players, and other small asset management firms.

JPMorgan's strengths

  1. Merger with Bear Stearns
    • On May 30th, 2008 JPMorgan Chase merged with Bear Stearns. The merger resulted in the addition of a new client segment called Bear Stearns Brokerage
  1. Strong position in the asset management space
    • JPMorgan's strength in the asset management industry can be highlighted by the following
    • Over recent years, JPMorgan Asset Management has consolidated its position as one of the largest managers of hedge funds
    • JPMorgan is one of the leading money market fund managers in the world, with roughly $450 billion in global liquidity assets on behalf of clients.
  1. Focus and investments in emerging economies driving strong results
    • Through the Global Real Assets group, JPMorgan invests in several infrastructure projects around the world such as in airports, hospitals, drinking facilities etc. as well as renewable energy (wind farms, electricity transmission and natural gas). The group has expanded its footprint in Asia over recent years.

Sources of Income

The two main sources of income are interest income that is derived from lending and non-interest income which consists of asset management revenue and client brokerage revenue. Asset management revenue is based on fees tied to the assets under management and client brokerage revenues are commissions generated for executing trades on behalf of clients.

JPM's Assets Under Management

Assets Under Management represents the amount of money (assets) for investment that JPMorgan manages on behalf of institutions and individuals. The bank manages this money through investments in stocks, bonds, commodities, real estate and other investment asset classes.

Changes in Assets Under Management are primarily attributable to two factors:

1. Inflows and outflows of client money to be managed

2. Gains or losses associated with the fair value (market value) of investments made by JPMorgan on behalf of its clients

JPM's Assets Under Management increased from $847 billion in 2005 to $1.19 trillion in 2007 due to strong performance which led to an increased amount of inflows. It declined in 2008 due to the effect of lower markets and outflows. This was partially offset by the addition of Bear Stearns assets under management in 2008. The asset base increased to $1.74 trillion by 2014 largely due to the effects of higher market valuations and inflows in fixed income and equity products, before falling slightly in 2015 due to weak equity market conditions. An improvement in valuation across asset classes helped the figure cross $2 trillion by the end of 2017.

Chart: JPM's Assets Under Management

Brokerage Assets and Deposits

This represents the total size of client assets held by JPMorgan's brokerage arm. The figure include assets that are financial advisor-directed and separately managed by third-party managers, as well as certain client-directed brokerage assets where the bank earns a fee for advisory and other services, but does not have investment discretion.

Brokerage Assets and Deposits has steadily grown over the years to increase from $302 billion in 2005 to a peak level of $745 billion in 2013 before falling to $643 billion in 2014 due to JPMorgan's sale of Retirement Plan Services. The figure fell further to $627 billion in 2015 due to a decline in market valuation of securities before jumping to $755 billion by the end of 2017.

Chart: Brokerage Assets and Deposits

JPM's Fees as % of Client Assets

JPMorgan assists institutions and individuals by managing the growth of their money through investments in stocks, bonds, commodities, real estate and other investment asset classes. In return of managing its client's money, the bank charges a fee based on the amount of money (assets) under management. 

JPM's Fees as % of Client Assets represents JPMorgan's annual asset management fee income earned as a percentage of total client assets (which includes assets under management as well as brokerage assets and deposits).

JPM's Fees as % of Client Assets decreased from 0.48% in 2007 to 0.37% in 2009 as economic weakness and poor performance led to a sharp decline in performance fees. Fees increased to 0.41% in 2010, and largely remained around that level till 2015. A shift in the industry towards cheaper passive funds dragged this figure lower to 0.34% by 2017.

Chart: JPM's Fees as % of Client Assets

Corporate

What is being offered?

The Corporate/Private equity division of JPMorgan comprises private equity, treasury, corporate staff units and expenses that are centrally managed. The corporate portfolio is used by the bank to manage its excess cash, collateral needs and interest rate exposure. It also includes the non-interest expenses associated with “All Other†for the various other divisions in the firm. Private Equity includes JPMorgan Partners and One Equity Partners businesses. The corporate staff units include central technology and operations, internal audit, executive office, finance, human resources, marketing and communications, office of the general counsel, corporate real estate and general services, risk management, and strategy and development. Other centrally managed expenses include the firm's occupancy and pension-related expenses, net of allocations to the business.

Sources of Income

The main sources of income in this division is from the firms own personal investments that it makes and any gains associated with it.

JPM's Treasury & CIO Revenues

JPM's Treasury & CIO Revenues represents the non-interest revenue that is generated primarily through the firms principal investments and gains/losses on any debt related securities the firm holds.

It also includes the "All Other" income that is generated across the bank's various divisions.

JPM's Treasury & CIO Revenues has fluctuated greatly historically depending on performance of the firm's principal investments and other hedging activities. The figure was -$3.5 billion in 2017.

Chart: JPM's Treasury & CIO Revenues

JPM's Private Equity & Other Corporate Revenues

Represents the revenues generated by JPMorgan's private equity business.

JPM's Private Equity & Other Corporate Revenues has historically been very volatile. The figure fell from $4 billion in 2007 to -$1 billion in 2008 as a result of the global economic downturn. The figure improved to $2 billion by 2013 as the global economy improved, before regulatory restrictions and poor market conditions brought this figure to roughly $300 million by 2016. The figure nudged higher to $574 million in 2017.

Chart: JPM's Private Equity & Other Corporate Revenues