Sustainability Issues of JP Morgan Resulted in Financial Crisis - Assignment Example

?J.P.Morgan Topic: Reasons and Expectations behind Taking Sustainability Measures by J P Morgan Chase & Co. To Maintain Its Leadership Position in the Industry Table of Contents J.P.Morgan 1 Table of Contents 2 1.0 Introduction 3 1.1Terms of Reference 3 2.0 Procedure 4 3.0 Findings 4 3.1 Socio-Political Issues faced by J.P. Morgan 4 3.2 The Impact of an Emerging Investment Model 5 3.3 Brand Image 5 3.4 Other Broad Issues 6 6 3.5 Issues Associated with Lawsuits 6 3.7 Sustainability Issues Resulted in Financial Crisis 8 3.8 Losses Faced by J.P. Morgan 9 3.9 SWOT Analysis of J.P. Morgan 10 3.9.1 Strenngths 10 3.9.2 Weaknesses 10 3.9.3 Opportunities 10 3.9.4 Threats 10 4.0 Recommendations 12 5.0 Conclusion 12 6.0 References 13 1.0 Introduction J.P. Morgan & Co. is an investment and commercial banking organisation which is primarily based in the United States. It was established by J. Pierpont Morgan and was generally known as Morgan or the House of Morgan. In the current day context, J.P. Morgan is a part of the JPMorgan Chase. This firm is considered to be the direct forerunners of two of the major banking organisations namely Morgan Stanley and JPMorgan Chase in the context of the United States and on a global scale. In the year 2000, J.P. Morgan was obtained by Chase Manhattan Bank and they formed into a new organisation i.e. JPMorgan Chase & Co. In the current day context, J.P. Morgan brand is utilised for the purpose of marketing definite JPMorgan Chase wholesale deals which include asset management, investment banking along with commercial banking. In order to create efficiency, the company was found to restore its business operations in the year 2008. However, presently, the supremacy of J.P. Morgan is under risk as the organisation is facing certain issues relating to the maintenance of sustainability in the business (Alef, 2009; Chernow, 2001). 1.1 Terms of Reference The primary purpose of the report will be to analyse the current socio-political issues faced by the company. In order to analyse the current position of the company in a better way, it will also include a brief SWOT analysis to deliver a clear cut picture. Moreover, the reasons and expectations behind taking sustainability measures by the organisation would be ascertained and certain recommendations would be provided to the company so that it is able to maintain its leadership position. 2.0 Procedure In order to conduct a comprehensive analysis, secondary sources will be utilised to understand the current business strategies and expectations of the company. The information will be sourced by way of reviewing valuable secondary sources such as news articles, journals and books among others. The main reason behind using secondary sources is to minimise time along with associated costs. 3.0 Findings 3.1 Socio-Political Issues faced by J.P. Morgan In relation to the socio-political issues, it has been found that the company faced certain difficulties in this respect. Based on the current scenario, it has been determined that the company has been facing issues pertaining to the financial matters. Additionally, the company has been found to face other issues which are mainly related to the financial aspects. It has been observed that the Federal Housing Finance Agency (FHFA) was looking for a US$6 billion fine from JPMorgan above mortgage claims that came into play as a result of the financial crisis. Moreover, it has been reported that the financial crisis may take up such a bad turn that the company may end up paying high amount of debts. In this similar context, it has been learnt that the range of fines may increase to a very high level that may amount to US$500 and US$600 million which the company may end up paying to the controller of credits (Perlberg & Roche, 2013; Ameresekere, 2012). Furthermore, other socio-political issues seem to take up a different picture. It has been analysed that the company engaged in certain marketing activities that were not quite apt for its sustainability perspective. It has been accused of wrongdoing in the functions of lending of security. The company was charged for noncompliance of the regulations in the functions of lending and borrowing from the public. A thorough analysis of the secondary sources helped in finding that the company had to deal with issues pertaining to other legal problems related to fixation of energy prices. All these socio-political issues combined proved to render great deal of implications which impacted the overall operations of the company. The organisation also had to face greater implications as it became subjected to lawsuits from the National Credit Union Administration (Rexrode & Gordon, 2013). 3.2 The Impact of an Emerging Investment Model In relation to the introduction of an emerging investment model i.e. Impact Investing, the company had to face varied amount of issues pertaining to a number of critical aspects related to investment patterns of the company. It had to face numerous issues that impacted its operational functions. The company’s primary motive behind introducing the new investment model was to provide different investment options to the consumers but this plan did not seem to work out at all. In fact, it made the company to downsize its operations (Levine & Emerson, 2011). 3.3 Brand Image All of these instances gave birth to the creation of negativity towards the overall brand. This factor proved to be very much drastic for the company as it did not have the opportunity to become sustainable in the environment. These factors also led to the deterioration of the company’s operational activities as well (Kapferer, 2004). 3.4 Other Broad Issues Sovereign Deleveraging: It has been found that the company was unable to comply with all the aspects associated with sovereign deleveraging. Real Exchange Rate Adjustment: The organisation has been found to complete these formalities in several countries but its operations were not followed in diverse foreign nations (Murphy, 2013). Bank Deleveraging: In relation to the progress made by major banks throughout the world, the concerned company did not seem to keep up with the developmental phase (Murphy, 2013). Structural Reform: JP Morgan has been found to follow the structural reforms but no such major efforts relating to structural reforms were noticed (Murphy, 2013). Political Reform: In relation to the facet of political reform, the company was not found to be engaged in major political reforms and mass development (Murphy, 2013). Thus, it has been observed that the company has largely assumed certain complications related to its operational activities. This has significantly impacted the sustainability of the organisation in terms of establishing its leadership position. 3.5 Issues Associated with Lawsuits JP Morgan did not seem to dealing with a single problem. It has been charged and investigated a number of times. High amount of fines had been imposed on the organisation which ranged upto US$5.8 billion because of its alleged involvement and exploitation of electricity markets. As a result, the company also had to deal with high amount of losses that came into play because of its involvement in faulty assurance of credit derivatives. As mentioned in the above sections, JP Morgan has been subjected to lawsuits as well (Gongloff, 2012). 3.6 Consolidated Statement of Income Source: (JPMorgan Chase & Co, 2013). The above consolidated statement of income of the company shows a decrease in the level of income since the year 2010 till the end of the year 2012. The interest income of the company in the year 2010 was US$63,782 million. Correspondingly, the subsequent year, the figure reduced to US$61,293 million. The company even suffered greater amount of losses when the figure went down to as low as US$56,063 in the year 2012. This showed that the organisation was unable to make its business sustainable. Correspondingly, these similar instances got repeated in case of net interest income of the company. It has been analysed that its net interest income stood at US$51,001 million in the year 2010. This figure got reduced to US$47,689 million in the year 2011. It even got further reduced to as low as US$44,910 million in 2012. These unusual decreases showed even greater amount of implications as it affected the overall revenue structure of the company. It has been noted that the total net revenue of the company in the year 2010 was US$102,694 million. In the next year itself, it showed a decrease having measured at US$97,234 million. The year 2012 witnessed even greater amount of decrease which stood at US$97, 031 million. On the other hand, the company also faced issues pertaining to high rates of expenses. It has been noticed that the total noninterest expenses of the company stood at US$61,196 million in 2010. The figure rose to US$ 62,911 million in the next year i.e. 2011. Even greater amount of expenses were incurred by the company as the figure rose as high as US$64,729 million in the year 2012. Based on such reports, it has been analysed that the company was by no means operating in a profitable way instead it was incurring more and more expenses. These factors certainly acted as a key reason behind taking sustainability measures by JP Morgan as its cost of operations driven by expenditures certainly emerged as matter of concern (JPMorgan Chase & Co, 2013; Lessambo, 2013). 3.7 Sustainability Issues Resulted in Financial Crisis Source: (Langley & Futzpatrick, 2013). Based on the above cited diagram, it can be apparently analysed that J.P. Morgan faced high extent of financial crisis as compared to its big rivals. Multinational banks such as Citigroup and Bank of America which are the major rivals of the concerned company did not incur expenses as high as J.P. Morgan during the period of 2008-2012. Its expenses stood at US$17.7 billion which was higher than that of its competitors (Langley & Futzpatrick, 2013). 3.8 Losses Faced by J.P. Morgan In the recent years, J.P. Morgan has had to undergo huge amount of legal losses that drastically impacted the overall operations of the company. In relation to this aspect, a diagram representing the exact amount of losses incurred by the company is shown below: Source: (Langley & Futzpatrick, 2013). The above diagram highlights that the company faced losses which were higher than that of its leading competitors. During the period ranging from 2011-2013, the company was subjected to face a loss of US$6.8 billion (Langley & Futzpatrick, 2013). 3.9 SWOT Analysis of J.P. Morgan 3.9.1 Strenngths JP Morgan is able to maintain strong franchise performance along with brands in various business segements. The company is said to have a fair amount of liquidity postion. It has also been found that JP Morgan was having grounds for future growth which is a very positive factor (DuBrin, 2012). 3.9.2 Weaknesses Continued amount of credit losses impacted the profitability of the business to a very large extent. Additionally, JP Morgan was also facing issues relating to slow rate of improvement in the quality of its assets. It was also found be less competitive as compared to its competitors (DuBrin, 2012). 3.9.3 Opportunities There are high amount of possibilities for JP Morgan to grow in the United States market. It can strive to create a strong hold in the overall credit card market which can lead to the improvement of the market share along with its brand image. It also has future scopes of growth in the international markets (DuBrin, 2012). 3.9.4 Threats Continued negative publicity impacting the brand image can prove to be a major threat for the company. In addition, the competitors of the company are also a major threat which can negatively impact the sustainability of the company (DuBrin, 2012). 4.0 Recommendations Based on the current condition of the company, it has been analysed that its operational efficiency is very limited which is negatively affecting its sustainability. In relation to other evaluations, it is recommended that JP Morgan needs to revise its operational facilities. It also needs to create value in its assets by way of channelizing the needs and demands of the consumers. This would prove to provide a great aid in improving the sustainability of the company. In addition, the company can also go for analysing the competitive strategies of its competitors. This would facilitate the company in designing its own sustainable strategies. Additionally, these comprehensive strategies would certainly facilitate the company to maintain its leadership position in the industry. 5.0 Conclusion Based on the overall analysis of the report, it has been analysed that JP Morgan had been facing a number of socio-political issues which took a toll on the overall sustainability of the company. It has also been realised that the company’s financial position was not fair. Its operational expenses were much higher than that of its competitors. In addition, the company has also been subjected to losses that stood at US$6.8 billion in the period of 2011-2013. Moreover, certain lingering legal issues and subsequent financial losses have put a question mark on the sustainability of the company in the industrial sector. Thus, it requires ascertaining a clear focus on future strategic direction by addressing the prevalent question marks so that it can emerge again as a star organisation in future. 6.0 References Alef, D., 2009. J. P. Morgan: America's Greatest Banker. Titans of Fortune Publishing. Ameresekere, N. S., 2012. Socio-Political Realities Hilton Hotel Fiasco and Ad Hominem Legislation Expropriation Law: Fraud on the State and the People! Lame Duck Political Leaders ? Abuse of Legislative Process ! Judicial Independence and Bias? AuthorHouse. Chernow, R., 2001. The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. Grove Press. DuBrin, A. J., 2012. Leadership: Research Findings, Practice, and Skills, 7th ed. Cengage Learning. Gongloff, M., 2012. JPMorgan Chase's 11 Biggest Problems. [Online] Available at: http://www.huffingtonpost.com/2012/08/10/jpmorgan-chase-lawsuits-probes_n_1764194.html [Accessed November 16, 2013]. Kapferer, J. N., 2004. The New Strategic Brand Management: Creating and Sustaining Brand Equity Long Term. Kogan Page Publishers. Langley, M. & Futzpatrick, D., 2013. Embattled J.P. Morgan Bulks up Oversight. [Online] Available at: http://online.wsj.com/news/articles/SB10001424127887324755104579071304170686532 [Accessed November 16, 2013]. Lessambo, F., 2013. The International Banking System: Capital Adequacy, Core Businesses and Risk Management. Palgrave Macmillan. Levine, A. B., & Emerson, J., 2011. Impact Investing: Transforming How We Make Money While Making a Difference. John Wiley & Sons. Murphy, R., 2013. JP Morgan wants Europe to be rid of social rights, democracy, employee rights and the right to protest. [Online] Available at: http://www.leftfootforward.org/2013/06/jp-morgan-wants-europe-to-be-rid-of-social-rights-democracy-and-employee-rights/ [Accessed November 16, 2013]. Perlberg, S. & Roche, J. L., 2013. Here's a Rundown of all of JPMorgan's Mounting Legal Headaches. [Online] Available at: http://www.businessinsider.in/Heres-A-Rundown-Of-All-Of-JPMorgans-Mounting-Legal-Headaches/articleshow/22124052.cms [Accessed November 16, 2013]. Rexrode, C. & Gordon, M., 2013. JP Morgan Chase's List of Legal Challenges. USA Today. [Online] Available at: http://www.usatoday.com/story/money/business/2013/08/13/jpmorgan-chase-list-legal-challenges/2647279/ [Accessed November 16, 2013]. Read More