Interest Rates and Saving Rates - Case Study Example

Academia -Research d 30th November 09 Topic: ANALYSIS OF FTSE 350 COMPANY JP MORGAN PESTEL analysis JP Morgan a FTSE 350 companybuilt it strong brand equity in the global financial market through positioning its financial service very strongly in the market. The firm is a leader in investment banking, financial services for consumers, small, business and commercial banking, financial transaction processing, asset, management and private equity. The financial business of JP Morgan can be analysed on the basis of PESTEL with reference to US and UK economy. PESTEL Analysis 1.Political factors: These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide To what extent does it believe in subsidising firms The main political factors that can have major impact on the financial business of J P Morgan are Basel II Regulations, Sarbanes-Oxley Act, and New Regulations for Mutual Funds. These laws are meant to regulate the financial markets in US. 2 Economic: Interest rates and saving rates have deeper impacts on financial business of any economy. In US the important economic factors to be noted are: Impact of Federal interest rate hikes may deter investment because it costs more to borrow. Interest rates in USA remained in between 4%-5% in 2009. Strong dollar may make exporting more difficult because it may raise the price in terms of foreign currency. Declining personal savings rate.In September 2005, the personal saving rate as a percentage of disposable income was negative implying US consumers spent more than 100% of their monthly income. 3. Social Factors determine the way the society in groups behaves because of cultural factors. In US Increasing minority Population, increasing retiree Population, have their impact on the financial behaviour of the US saving and expenditure rate and ways. Customer Loyalty is very much determining sustenance of a business for long. J P Morgan has built this customer loyalty by strong brand equity.. 4. Technological Factors: The fast changing financial world of US and UK such as highly computerised service, online banking, insurance and IT integration of lending institutions have sizeable impact on the financial services of JP Morgan. 5. Ecological: Every business today is responsible for maintaining the ecological balance directly or indirectly. J P Morgan is active in taking up and investing in environmental projects to carry out this responsibility 6.Legal framework of US, UK and other countries where J P Morgan function has undergone fundamental changes on account of introduction of stringent law after sub-prime lending debacle having impact on the financial services of the company. Impact of insurance industry after deregulations has strong effect on the business operation US Financial Services Industry: An Analysis www.researchandmarkets.com/.../us_financial_services_industry_an_analysis.pdf SWOT analysis is to make a long list of every factor that defines the company's situation. JP Morgan as financial global company has several strength that sustained the company against tough competition. Strengths JP Morgan is a leading global financial brand with recorded revenues of $71,372 million during the fiscal year ended December 2007, an increase of 15.1% over 2006. The operating profit of the company was $22,805 million during the fiscal year 2007, an increase of 14.7% over 2006. The net profit was $15,365 million during the fiscal year 2007, an increase of 6.4% over 2006. They have extensive retail distribution network, high quality asset investments and Capital strength. Weaknesses Sub-prime exposure in the US and UK shook the entire financial world. Several months before the U.S. sub-prime mortgage crisis surfaced, JP Morgan had detected accumulated such sub- prime risks associated with mortgage securities. The company dumped those risky assets and could avoid being trapped deeper. Opportunities J P Morgan diversified in banking and brokerage global investments. It has entered in the Asset management market. It has achieved high growth te credit card market and growth in commercial banking industry Threats Several new banking regulations in the US and Europe that have been enacted for regulating the financial sector put pressure on JP Morgan also. US market is week now having impact on lending. Several new entrants with financial strength is entering the global market to grab the market share of JP Morgan. There are several start up companies offering many innovative products to attract customers. Competition is from strong rivals such as Fidelity Investments, the Vanguard Group Wells Fargo, State Street Corporation are real threat to the current position of JP Morgan. Kotlar, Philips, Marketing Management 2005 chapter on SWOT ( PRMinds) http://online.h-l.co.uk/content/chart-graphic/store/690286E7.png Valuation Metrics JPMorgan Fleming American Investment Trust plc Ordinary 25p Shares (JAM) Sell : 661.00p|Buy : 667.50p|up19.50p on 18th Nov.09 Accounts 2004 2005 2006 2007 2008 Attributable Profit m 4.14 3.47 4.88 4.60 4.85 Norm EPS p 8.20 7.78 11.28 10.70 11.36 DPS p 7.50 7.50 8.00 11.00 11.00 Total Assets m 340.82 359.00 362.11 372.23 349.04 Total Current Assets m 15.10 22.65 14.13 38.00 3.53 Creditors Short-term m 5.09 0.34 0.46 1.06 4.80 Creditors Long-term m 49.61 49.64 49.67 49.70 50.56 Net Borrowings m -3.54 -13.84 -1.35 -23.75 -2.90 Shareholders Funds m 286.12 309.02 311.99 321.47 293.68 APS p 607.60 710.70 720.90 752.40 687.40 Ratios Current Previous ROE % 1.65 1.43 Payout Rate % 96.83 10.70 Asset Gearing p 117.00 118.00 Discount p 4.50 7.70 Dividend Yield % 1.80 1.90 Values shown are the return on investment if 100 was invested one, five or ten years ago. Comparative Years 1 Year 5 Year 10 Year Gross Asset Price 108.79 119.73 97.81 Gross Asset NAV 107.54 113.30 90.14 Total Return Price 110.80 129.40 110.00 Total Return NAV 109.40 121.70 100.50 Total Return Sector - - - Total Return Sector NAV Company Summary Earnings per Share Basic 11.36 p 10.70 p 11.28 p n/a n/a Diluted 11.36 p 10.70 p 11.28 p n/a n/a Adjusted 11.36 p 10.70 p 11.28 p n/a n/a Dividend per Share 11.00 p 11.00 p 11.00 p 8.00 p 7.50 p The graph shows the performance of the share of J P Morgan American Investment Trust in 2009. After touching the bottom on 9th March 09 the share price had peaked on 14th October 09. At present it is close on 661-667 p sell and buy rates. Earning per share of the stock is 11.36 in 2008 year ending, 10.70 in 2007 year ending and 11.28 in 2006 year ending. ROE is 1.65% in 2008 and 1.43% in 20 07. The norm EPS is 11.36P in 2008 and 10.70p in 2007. The trend is indicative of a good future in 2009 and 2010 though it is not a sure indication. I will advice the investors to take a calculated risk and enter in to the stock by now in the falling market to real good return in 2010 when thestock will try to touch a new peak. (Company summary) Bibliograph Company Summary - JPMorgan American Investment Trust PLC (LSE:JAM ... www.hemscott.com > Companies > Company Search Financial Overview - JP Morgan American Investment Trust PLC (LSE:JAM) JP Morgan Results- Miracle or Mirage www.iamthewitness.com/JP%20Morgan%202009%20Q3%20-%20Miracle%20or%20Mirage.pdf - JP Morgan profits jump 36pc in second quarter - Telegraph telegraph.co.uk/.../JP-Morgan-profits-jump-36pc-in-second-quarter.html JP MORGAN CHASE CO Share Price Chart | JPM | | Yahoo! Finance UK uk.finance.yahoo.com/q/bcs=JPM JPM Interview: JP Morgan Chase survives crisis by prudential risk .. www.tradingmarkets.com/.site/news/.../2278280/ JPMorgan Chase & Co. - Free Writing Prospectus - Filing under . apps.shareholder.com/sec/viewerContent.aspxcompanyid=ONE http://www.aarkstore.com/reports/JP-Morgan-Chase-Co-SWOT-Analysis-23043.html PRMinds - JP Morgan Chase & Co - SWOT Analysis www.prminds.com/pressrelease.phpid=10937 www.yahoofinance.com http://online.h-l.co.uk/content/chart-graphic/store/690286E7.png Kotlar, Philips, Marketing Management 2005 chapter on SWOT ( PRMinds) http://online.h-l.co.uk/content/chart-graphic/store/690286E7.png Read More