Natthew C.

Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9

JP Morgan Chase & Co.
NYSE Ticker: JPM
MCA Global Equity Research Recommendation:
Matthew C. Ainsley
Buy-Side Stock Research Report
Investment Analysis November 19, 2009



Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
2
Key Bata:
1 Beta: 1.S4 - Thomson 0NE; 24-Su month iegiession; 7 Yeai S&PSuu Beta: 1.89 (Bloombeig)
2 (}PN PE)(S&PSuu PE)= S2.1714.79 (Bloombeig & Thomson 0NE)

Ratings & Financial Stability:





Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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Economic Analysis
"#$%







* Bolu Inuicates Piojections (Foiecast.oig)









&'$( )*+, ' -*./*.012 $.*3415
Yeai S&P Suu SN0 T-Bill 2uYi T-Bonu AAA
Bonu
1

LIB0R
(1 YR)
Coipoiate
Piofits
2uu4 121S 1.S7 S.u4 S.6S S.1u 29S1.28
2uuS 1248 S.1S 4.64 S.2S 4.82 S849.9S
2uu6 1418 4.7S S S.S9 S.S1 44S9.26
2uu7 1468 4.S6 4.91 S.S6 4.42 4794.u6
2uu8 9uS 1.S7 4.S6 S.6S 2.S8 4726.1S
2uu9
2
1u9S .u4 4.27 S.27 1.2S 4u61.S6
1
Aveiage of Aaa inuustiial bonu yielus. Enu of Yeai % Yielu (Noouy's)
2
As of 111Su9
Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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6+078545%
The past 12 months have
been some of the most
calamitous not only foi the
financial inuustiy but also foi
the entiie global economy. In
0ctobei 2uu8, woiluwiue
financial maikets weie the
most fiozen they hau been in
uecaues. As the chait to the
left uemonstiates, LIB0R
jumpeu 1Su basis points in a
mattei of uays. This jump is
inveisely matcheu by
goveinment iates as woilu
leaueis attempteu to ieuuce the iisk of catastiophic economic collapse. 0ne yeai latei,
many of the policies enacteu by goveinments aie still in place. The Feu Funus iate is
hoveiing just above u%. This has alloweu financial companies, anu in tuin othei fiims, to
access incieuibly cheap funus. These funus aie then being tuineu aiounu instantly anu
being ieinvesteu in any non-uollai assets, paiticulaily golu anu equities. The iamping up of
the S&PSuu since its lows in Naich can be seen as an effect of investois thiowing money
back into the equity maikets. Yielus on goveinment bonus continue to iemain low as
cential banks inciease theii holuings as a way to inciease the money supply anu to holu
uown inteiest iates.

Inuustiy Tienus:
#294014*+5 *3 :0.+4+;5%
The past 12 months have seen quaiteily
eainings uiastically uown as companies
iusheu to sheu toxic assets fiom theii
balance sheets at any piice. Aftei seveial
quaiteis of stagnant oi ueclining giowth,
the financial inuustiy is staiting to iegain
its composuie anu confiuence. Nany of the
moie stable banks have staiteu posting
piofits as financial maikets iebounu.
Companies that have manageu to iepay
TARP funus aie posting uiastically bettei
maigins anu piofits than fiims that haven't.

Financial Inuustiy Eainings
Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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<=/0>15 *3 ?2;@7014*+%
The financial woilu is one of the most highly iegulateu inuustiies in the countiy. With the
fallout of the iecession being felt, the entiie inuustiy is biacing foi a new wave of
iegulation. The Feueial uoveinment, aftei loaning the inuustiy hunuieus of billions of
uollais, is staiting to make suie that bailouts shoulu nevei happen again. Nany legislative
bills, especially conceining ueiivatives, aie making piogiess thiough Congiess. Nany of
these bills will cause spieaus to be tightei, anu will in tuin ieuuce futuie eainings of
luciative 0TC ueiivatives. Nany consumei piotection acts, mainly uealing with cieuit
caius, aie also gaining tiaction. Auuitionally, highei capital ieseive iequiiements aie being
implementeu to ensuie the solvency anu stability of banks.
:A/2>12, B@1@.2 #2=0+,%
0n the secuiities siue, billions of uollais that have been paikeu on the siuelines in
Tieasuiies aie now being moveu back into iiskiei assets. The secuiities siue of the
financial inuustiy is well poiseu to take auvantage of this inciease in uemanu. Noie anu
moie oiueis will be placeu, thus incieasing commissions foi biokeis anu uealeis.
Auuitionally, companies aie beginning to hunt again foi meigeis anu acquisitions. This
ieneweu appetite foi m&a auvisoiy seivices will gieatly help auu to the financial inuustiy's
bottom lines.
0n the commeicial anu consumei banking siue, many inuiviuuals anu companies aie
staiting to move theii funus into laigei, moie stable banks. In 2uu9 alone, theie have been
121 banks that have faileu. Bepositois aie weaiy, anu aie looking foi institutions wheie
they can be confiuent that theii money will be safe. Laige financial fiims aie moie than
happy to fill the voiu.
As consumei confiuence anu equity maikets iecovei, financial fiims aie able to make moie
loans anu piocess moie secuiities, which in tuin helps lubiicate the geais of the laigei
economy, which in tuin fuithei benefits the financial inuustiy as a whole.
-*=/0.01492 -C0.1
D
%

1 0ses XLF Financial ETF to measuie inuustiy peifoimance
Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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Company Analysis
}PN is uiviueu into thiee uivisions: secuiities, wealth management, anu ietail banking. Its
secuiities uivision is the umbiella oiganization foi its N&A auvisoiy, equity unueiwiiting,
investment banking, ueiivatives, anu ieseaich units. }PN's fiuuciaiy unit uses the }P
Noigan Chase Bank bianu to manage ovei $2 tiillion in assets. }PN's ietail banking is
houseu unuei the Chase Bank bianu. This unit issues cieuit caius anu iuns the
commeicialietail banking uivisions.
E04+ -*=/2141*.5 F GH IJK :0.+4+;5 ' L*107 655215
-*=/0+8 :0.+4+;5
D
L*107 655215
}P Noigan-}PN S,S88,uuu 2,u41,uu9,uuu
Bank of Ameiica-BAC 1,uu1,uuu 2,2S1,u4S,uuu
Citigioup-C 1u1,uuu 1,888,S99,uuu
uoluman Sachs-uS S,188,uuu 882,18S,uuu
1 Souice: 1u-Q Filings
M01@.2 *3 #2=0+,%
}PN stanus to gain giounu anu maiket shaie in the wake of the iecession. As one of the few
ielatively unscatheu suivivois of the ciisis, }PN has become an example of a soliu, well-iun
bank. }PN's banking anu secuiities uivisions both stanu to inciease maiket shaie anu
ievenues. As consumeis become incieasingly waiy of financial iisk they will continue to
place theii ueposits in laigei, moie stable banks. 0n the secuiities siue, }PN's post-
iecession ieputation as a ieputable biokei allows foi highei maiket confiuence, thus
enabling fuithei counteipaity tiansactions. }PN has leaineu valuable lessons fiom the
iecession. If the cuiient iebounu in equity maikets pioves to be unsustainable, }PN will
have both the balance sheet anu knowleuge to conquei any futuie maiket calamities.
<55@25 ' -*+>2.+5%
The futuie confionts }PN with many unknown vaiiables. }PN must be cautious as it heaus
into the futuie of Wall Stieet iegulation. It must be caieful to ensuie that it uoesn't become
ueemeu "too big to fail." It must be caieful to pievent any fuithei public backlash about
bonuses. At the same time, it must ensuie that its talent stays. Bowevei, while many
cuiient banks aie still unuei the contiol of the 0S uoveinment uue to outstanuing TARP
balances, }PN was one of the fiist banks to iepay theii TARP loan. This has alloweu }PN to
sheu some of its goveinment oveisight allowing it to become moie efficient anu post highei
ietuins.
Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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D ' N O20. &1*>P $.4>2 -C0.15

E0.P21 -*=/0.45*+5%












Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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1
Bolu Inuicates Estimate










Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
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R0E = EBIT x Sales x Pietax Income x Net Income x Assets
Sales Assets EBIT Pietax Income Equity

R0E
1
=S7,u12 x 112,19u x 2,77S x S,6uS x 2,17S,uS2
112,19u 2,17S,uS2 S7,u12 2,77S 166,884
R0E = S.S6%
1
(,uuu)

Requiieu Rate of Retuin
1
Expecteu Naiket Retuin: 1u.267%
Risk Fiee Rate: S.497%
Beta: 1.S9S
i=.uS497+ 1.S9S(.1u267-.uS497)= 14.28%
1
Bata compileu using Bloombeig




valuation
Assumptions:
Risk Fiee Rate 4.S2%
Beta (valueline) 1.S
Cuiient Piice 42.9u
12-No Estimateu Piice $S7.uu
Natthew C. Ainsley - NCA ulobal Equity Reseaich - Novembei 19, 2uu9
1u
S
th
Yeai Pioj. PE
1
1S.u6
EPS .84
Bays Left in Yeai 47
Nost Recent Biviuenu $.2u
Piojecteu Biv. uiowth Rate
2
8%
Piojecteu EPS uiowth Rate S.2S%
Piojecteu S
th
Yeai Biv. Yielu 2.2u%
Estimateu 7
th
Yeai Biv. Yielu
S
2.S6%
1
644.9; $64=Est. Piice in 2u14; 4.9=Pioj. EPS in 2u14
2
(.6-.2)S; $.6u=Est. Biv in 2u14; $.2u = Cuiient Biv; S=# of Yeais
S
2.2(1.u8
2
); 2.2=Biv Yielu in 2u14; 8% Biv. uiowth

Intiinsic value:
.2+S7.uu(1+.u846) = $S2.74
.u846=(.242.9)+.u8
Constant Biviuenu uiowth:
.2(.u846-.u8) = $4S.48

Conclusions
}P Noigan Chase & Co. has unueigone a tiansfoimation ovei the past 12 months. }amie
Bimon, the company's Chaiiman anu CE0, has positioneu the company in a unique location
that will allow it to continually giow. Each of the secuiities, asset management, anu ietail
banking uivisions aie poiseu to inciease maiket shaie anu ievenue. As the economy
iebounus fiom the wake of the cieuit ciisis, }P Noigan stanus to auvance theii position
against theii competitois as customeis uesiie moie stability in theii financial institutions.
While }PN's competitois stiuggle with goveinment inteivention anu faulty CE0 seaiches,
}PN is iefocusing theii attention to the futuie. Fuithei moie, of the 27 analysts cuiiently
coveiing }PN, 21 give it a "Buy" iating anu 6 give it a "holu" iating. Bue to these anu othei
contiibuting factois, }PN is being iateu )QO.