Strategic Management of JP Morgan Chase - Term Paper Example

Client’s 13 August An Analysis of JP Morgan Chase Business environment is consistently changing, some changes bring unprecedentedchallenges and these challenges should be met in order to consistently keep doing well. The likes of AIG, Lehmann Brothers could not sustain during the period of recession and as an inevitable result of which suffered hefty losses. This paper will expansively present the strategic policies and the changes adapted by JP Morgan Chase in order to successfully face the modern day challenges. The oldest financial services in the world is without a doubt JP Morgan Chase, it has its presence in well over 60 countries. They are the leaders in investment banking, wealth management and a host of other services. The biggest change that ever took place in the history of the financial institutions was the merger with Bank One. This change primarily took place because the other banks like the Bank of America were almost ready to merge with other big banks like FleetBoston. This merger took place because the financial institutions came under increasing pressure during the time of recession. The announcement of this merger was made on 14 January 2004. The Wall Street reacted very positively because of this merger and the NASDAQ witnessed growth soon after the merger took place. This change took place because the two financial institutions wanted to downsize and cut the deadwood out. The aim was to save about $2.2 billion over three years and it was planned to eliminate as many as 10,000 people. This again goes to show how desperate even the biggest financial institutions were at the time of recession. Mergers and acquisitions were very common and these overtures were the initial signs which showed that almost all the big financial institutions were panicking. Volatile corporate banking was the major factor on which JP Morgan primarily functioned. “Wall Street analysts generally praised the merger, and investors climbed on board. Typically, the shares of the acquirer fall, reflecting the cost of the acquisition.” (JP Morgan Chase) The investors looked less enthusiastic with the deal between Bank of America and Fleet-Boston. This deal was for a whopping $48 billion. The shares of Fleet-Boston were driven up as a result of this deal because Bank of America offered 40% premium in this deal. The shares of Bank of America however came down and the investors lost a lot of money consequently. Big mergers take place because both the companies involved in the merger want to grow at a tremendous pace but this merger was not very useful for both the financial institutions. The collapse of WORLDCOM in the year 2005 signaled trouble for JP Morgan chase, the institution had to pay a whopping sum of $2 billion. This sum was paid to the different shareholders who had lost a lot of money as a result of the collapse of WORLDCOM. The company never disclosed their actual earnings and made the investors believe that there earning was far higher than the actual earning, JP Morgan Chase was also involved in putting across fake earnings, the investors were misguided and had to suffer losses. These losses were later fulfilled by Chase. “Initially J.P. Morgan denied any wrongdoing, asserting that even the company’s independent auditors could not uncover the fraud, but after Citigroup settled a similar case for $2.65 billion, J.P. Morgan reentered negotiations. Although J.P. Morgan’s settlement was considerable smaller than CitiGroup it represented a considerably higher percentage of the total possible settlement from the case.” (WorldCom) The revenue of the JP Morgan Chase group was severely threatened in the year 2002; the counter party risk was predominantly involved in their activities. The counter parties pass on the risk to other parties and this ultimately affects the profits. The credit rating of the bank changed from AA- to A+. The short term rating was also altered from A1+ to A1. This downgrade took away so many clients from JP Morgan Chase. This affected their business severely; the profits never remained the same. The credit rating was further downgraded and the profits again took a major hit. “Yes, J.P. Morgan Chase is in deep trouble. The banks basic strategy hasn’t worked. Its earnings are under pressure, and more credit downgrades will hurt the company’s ability to compete in all its businesses. A crisis at J.P. Morgan Chase would certainly hurt U.S. and probably global financial markets.” (Market Panic) The overdraft policies were changed by JP Morgan Chase in the year 2009; these policies were however implemented later. These policies were changed to compete with the other financial institutions and to provide the customers with better services. The overdraft policies were made clearer and simpler for the existing customers and this change was also brought about to attract new customers. The change in the over draft policies was a welcome change and the customers welcomed it with open arms. This change enabled customers to have enhanced control over their debit cards, they have had problems controlling and monitoring their debit cards so this change was an endeavor to fix all those reoccurring problems. The fees paid for these services, was also reduced and this was also done to attract new clients. This policy was quite sagacious which worked, it attracted new clients and the policy makers benefitted from the same. The maximum no of overdraft fees was also decreased from 6 to 3; this also had a great impact on the profit of the organization. “"We recognize the tremendous growth in our customers debit-card usage and were revamping our overdraft policies and posting order to be more consistent with the way they use their accounts today," said Charlie Scharf, head of Retail Financial Services at JPMorgan Chase. " (Revamp Overdraft Policies) The financial institution has made remarkable changes when it comes to helping out customers in debt. The mortgage modification helped several customers in the US, several mortgage centers were opened by JP Morgan to help people who are in trouble and who need attention. 27 Local centers were opened for people trapped in mortgage; several counselors were recruited who talked face to face with the clients. This was a great change brought about by Chase; it had a great impact on the goodwill of the organization. The shareholders acknowledged this change and appreciated it. The other investors also noticed this welcome change; this even had a slight impact on the value of their share in NASDAQ. This institution has helped over 725,000 families in avoiding foreclosure. This goes to show a lot about this financial institution. This can also be called and acknowledged as a business trick in order to attract investors. The introduction of Blueprint was an off the charts step taken by this institution. This enabled the customers of Chase to keep a track on the interest rate of their credit card. They could not control the interest rates levied on the credit cards. This change also reduced the balances of the existing and the new customers. This change again attracted a lot of new clients and was welcomed by the clients with open arms. These changes have been revolutionary and Chase has made many such changes that have been revolutionary and that have worked wonders for this great financial institution. On 25th June 2010 the stocks of almost all the major financial institution rose and this change took place because there was a significant bill passed by the congress. A key hurdle in financial regulatory reform had been passed by the congress and as a result of which the shares of Chase grew by leaps and bounds. The proposal proposed by the Senate and the house were reconciled, this legislation after being passed headed to the desk of the President Barrack Obama. This bill will very soon become a law and the financial institutions will benefit from this without a doubt. “Who has the most to gain from this? The firms that have weathered the storm, and can now continue operations without the cloud of impending change hanging over.” (Rise on News) The debt crisis in countries like Spain and Greece had really shaken up the stock prices of big financial institutions like Chase but after the passing of this bill everything looks good and the stock prices certainly reflected that. Some semblance of certainty has been restored by the passing of this bill and the financial institutions can certainly move forward with confidence. The shareholders of Chase need not worry; this bill will rescue them and their support in the oldest financial institute. Works Cited JP Morgan Chase (2004). Finance and Investment http://www.wharton.universia.net/index.cfm?fa=viewArticle&id=727&language=english (Accessed on 13 August 2011) Market Panic (2010). Jubak’s Journal http://moneycentral.msn.com/content/p31234.asp (Accessed on 13 August 2011) Revamp Overdraft Policies (2009). JP Morgan Chase and CO http://investor.shareholder.com/jpmorganchase/releasedetail.cfm?releaseid=410961 (Accessed on 13 August 2011) Rise on News (2010). JP Morgan Chase http://www.financenewsblog.com/2010/06/goldman-sachs-nyse-c-citigroup-nyse-c-and-jpmorgan-nyse-jpm-rise-on-news-of-financial-reform/ (Accessed on 13 August 2011) WorldCom (2009). Research on Corporations http://www.crocodyl.org/wiki/jp_morgan_chase_and_co (Accessed on 13 August 2011) Read More