JP Morgan Chase Financial Analysis - Case Study Example

JP MORGAN CHASE FINANCIAL ANALYSIS Student’s Name Course Tutor Institution Date of submission JP Morgan Chase Financial Analysis Introduction JP Morgan Chase & Co is a multinational banking institution based in New York. According to Globaldata (2015), this bank ranks is the largest in the US, the sixth largest bank in the world, and the sixth largest company in the whole world based on assets’ valuation. Notably, its assets are valued at $2.6 trillion. The bank’s hedge fund, as McDonald (2014) noted, is the second largest in the US. Such projections are based on the composite rankings and analysis of financial performances and positions. Ideally, they highlight JPM as an astute financial performer that dominates in most of its productive fields (JP Morgan Chase & Co. 2014, 4). This paper is an analysis of the company’s financial position. To idealize this objective, it expounds on the company’s current situation, its prospects, as well as the risks that are faced by the company. 1. Financial Performance JPM financial reports for the fiscal year of Jan-Dec 2014 (FY2014) indicated an interest income of US$51,531 million. This is a 2.8% decrease from the interest income that was reported for FY2013. The report further indicate that the company’s FY2014 net interest income compounded after the provision of the losses was US$40, 531 million (JP Morgan Chase & Co. 2014, 2). This is also a reduction on the previous indication of $43,094 million for FY2013. Other than that, there was a recorded net margin of 42.2%. In FY2013, however, the net margin was 33.*%. According to Globaldata (2015), these projections are the ideal determinants in illustrating the financial performances of an enterprise. In this instance, they illustrate a slight fall in productivity and performance, a factor that is credited to the drop in the values of currencies across the globe. Considering that other banks suffered the effects of the drop in the values of the currencies in greater scales as compared to JPM, it is, therefore, commendable that JPM still managed a remarkable performance (JP Morgan Chase & Co. 2014, 2). JPM’s Balance Sheet As had been noted earlier, JPM registered a total value of $2.6 trillion in worth of assets, an improvement compared to the FY2013’s $2.4 trillion. Besides, its net liability for FY2014 was $2.3 trillion while its Stockholder equity was $232 million. In FY2013, the company had a net liability of $2.2 trillion and Stockholder equity of $211 million (JP Morgan Chase & Co. 2014, 2). The snippet below is an illustration of some of these performances as reported by the bank: Source (JP Morgan Chase & Co. 2014, 3) Global Income Funds The fund was incepted in 2011 and while there are no fund charges and expenses, its performances since inception stand at 38.56%. The dividend amount as of 2015 was 1.42 while quarterly dividend yield was 1.19%. The dividend’s annualized value was 4.85%, a value that has been remarkably growing since the turn of the year 2015 in which it was recorded at 4.3%. This global income fund has enhanced the realization of a primary objective of investing in income generating securities through the instruments of financial derivatives (JP Morgan Chase & Co. 2014, 2). 2. JPM’s Prospects JPM has devised a strategy that is targeted at the realization of growth, continued dominion, and the creation of a podium that can enhanced and sustain productive performances despite the storms in the global economic markets. Through the strategy, it targets private clients, small businesses, integration of its corporate and investments banks, and retail banking. Besides, it targets to realize a competitive strategy for exploiting the ideals of the re-stabilizing economies. Globaldata (2015) cited that JPM’s growth is always targeted at making acquisitions and investments in rich and under exploited avenues. For instance, the company has idealized a strategy that should position it as a beneficiary of cyber security. This ideally highlights its targets for expanding and gaining clients from the Silicon Valley, both as private clients and in the corporate world. The question is, can the bank realize all these strategies? In the publication Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase, McDonald (2014) explored the prospects of the second decade of the new century. He cited that the decade is defined by industrial dynamics that lead to more growth. Besides, the continuing international peace provides another podium that can be explored by JPM to effectively position itself as the most dominant bank in the globe. An integration of these prospects, industrialization and peace, should ideally see the company overcome economic enigmas the kind that it managed to overcome in 2008/09 and 2012/14. 3. The Risks Faced by JPM According to a treasury report that was released in Feb 2015, JPM stands as the bank with the largest potential to wreak havoc on the US’ financial system. This projection defines the risks that are faced by the company in its operatives. One of the risks that are constantly faced by the enterprise lies in its continued acquisition of other assets and enterprises. Though this measure is often targeted at profitability, it threatens to negate the company’s growth potential. JP Morgan Chase Bank (2014, 5) stated that since the turn of the new millennium, making acquisitions is very risky as resuscitating a collapsing company is always hard especially in the fall of economic problems. McDonald (2014) noted that most of the companies that are often sold for acquisitions are companies faced with the threats of collapsing or with unprofitability. Remolding such enterprises in demanding times is often a challenge, as resources have to be allocated for other purposes. That implies that acquisitions can affect a company’s ability to survive an economic enigma. Such economic enigmas, notably, have become far too common since the turn of the new millennium. Notable occurrences include the 2008/09 global depression and the 2014/15 dip in the values of the global currencies. Risk Management JPM uses a risk management strategy that involves risk reduction. In this method of management, it creates precepts that limit the occurrence of the risks (JP Morgan Chase & Co. 2014, 4). For instance, other than those making acquisitions based on the potential of the prospected enterprise, the bank often considers the economic factors that may define the next three- five years. A lucid illustration lies in the statements released by the bank earlier in the year when it stated that as opposed to making acquisitions, it would strategize to acquire more clients as it prepares for a reduction in its financial performances for the next few years. This prediction is based on the economic trends that are more inclined toward recession. 4. Competitive Challenges Basel III Norms and Capital Requirements The Basel Committee on Banking Supervision (BCBS) showed these illustrations. The main objective for creating these precepts was to protect banks from possible meltdowns. The norms, as were illustrated by Globaldata (2015), require banks to hold increased volumes of quality capital, to have more liquid assets, and to limit all aspects that define leverage. Though these projections may seem productive from the facet, they limit the amount of cash that a bank can have at hand, a factor that affects their lending potential. Considering the high number of clients that it has that often seek loans, this projection hampers JPM’s competitive ability on the global scale. McDonald (2014) highlighted that not all banks will suffer from the norms and some will benefit from others incapacitation to use their resources. The Enigma and Risks that come from Compliance Costs JPM’s expansion to several markets across the globe has affected the bank in several measures. That is because some of the markets to which it has moved are underdeveloped and have regulatory regimes that, besides being less predictable, are less established. The other definitive factor in such nations is that their economies are less volatile. Some of these countries often experience economic disruptions, currency fluctuations, negative growth, and high inflation rates. These occurrences often lead to the creation and implementation of policies that restrict the business environments. This factor has, in several occasions, affected the bank’s capacity to keep up with the precepts of dynamism and competition. JP Morgan Chase Bank (2014, 2) stated that it makes its susceptible to losses, a factor that weakens its financial reserve. Intense Competition The banking market is characterized by competition based on innovation, price, reputation, transaction execution, and product and service variety. Ideally, there are banks, brokerage firms, hedge funds, insurance companies, private equity firms, mutual fund companies, and mortgage-banking companies amongst others, that have managed to effect some of the measures illustrated above better that JPM has already managed (JP Morgan Chase & Co. 2014, 4). That implies that the competitive scale is tilted in various aspects. Keeping up with this magnitude of competition requires the use of astute measures that can effectively sustain the growth and development of the company amidst the challenges. How effectively has the company realized such a competitive strategy? While it can be deduced that its position as the sixth largest bank in the whole world is a measure of its productivity, JPM has ideally fallen short of competition in some parts of the globe. McDonald (2014) particularly noted that the company has not had as much success in Asia and Africa as it has had in Europe and the Americas. Ideally, this is down to the competitive factors that have been illustrated above. 5. Strategies JPM’s growth-centric strategy is targeted at the acquisition of private and corporate clients as a measure of ensuring that it overcomes the effects of the receding economies. Other than that, it targets to acquire small businesses as clients in a scheme that will see its dominion in the average markets as well (JP Morgan Chase & Co. 2014, 4). This will also guarantee a larger financial berth as compared to rivals hence an improved ability to compete against the types of institutions that were illustrated in the section defining the competition in its markets. Other than that, the bank has idealized a strategy through which it will integrate its corporate and investment banks. This will also ensure that its operations are more centralized. Notably, this kind of integration will enhance the bank’s use of resources as a competitive strategy. References List JP Morgan Chase Bank. (2014). Consolidated Financial Statements. https://www.jpmorgan.com/jpmpdf/1320694329412.pdf Globaldata. (2015). JPMorgan Chase & Co. - Financial and Strategic Analysis Review. http://callisto.ggsrv.com/imgsrv/FastFetch/UBER1/788618_GDFS30560FSA JP Morgan Chase & Co. (2014). Annual Report and Proxy. http://investor.shareholder.com/jpmorganchase/annual.cfm JP Morgan Chase & Co. (2014). Solid Strategy and Future Outlook. https://www.jpmorganchase.com/corporate/annual-report/2014/ar-solid-strategy.htm McDonald, D. (2014). Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase. Read More