Uniform Bank Performance Report - Anderson School of Management

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One ratio used to calculate bank liquidity is the “Net Non‐Core Funding Dependence Ratio” (NNCFDR). This ratio measures the degree to which a bank funds long‐term assets with non‐core funding. Non‐core funding is funding that is sensitive to changes in interest rates such as large CDs, brokered deposits, and borrowed funds. A higher ratio means that the bank is reliant on funding from sources that may not be available during times of adverse change in markets or excessive financial stress. This is a useful ratio because not only does it take into account the liquid assets available to a bank, but also the quality of that liquidity. JPMC’s Net non‐core funding dependence ratio is 54.31 as of the second quarter of 2009. This number is down from 67.93 one year prior and 59.93 two years before. This means that JPMC is becoming less reliant on unreliable or volatile sources of funding. While this is a good sign, JPMC’s NNCFDR is disappointing compared to Bank of America whose NNCFDR has been in the in the low 40s through 2007 and 2008. JPMC’s ratio does however trump that of Citigroup, who has shown NNCFDRs of 83.42 and 92.14 in the second quarters of 2007 and 2008. The conclusion is that while it is not the most liquid of banks in its peer group, it still possesses adequate liquidity levels, and is showing improvement. Sensitivity to Market risk This is a significant factor to examine in the case of JPMorgan Chase & Co. The bank holds an excessive amount of assets and liabilities that are susceptible to changes in interest rates, currency values, and equity prices. These changes affect the value of many assets and liabilities, especially fixed income bonds, which gain or lose value relative to interest rates fluctuations. JPMC issues bonds as a large part of its financing, which adds to its sensitivity to market risk. This kind of risk is especially relevant in today’s economic environment. Due to the recovering state of the economy, the government is keeping the risk‐free rate very close to 0% to prevent further damage. This means that interest rates will eventually rise, causing JPMC’s bond rates to become less and less attractive relative to current interest rates. Another factor to consider is JPMC’s involvement in consumer debt through credit cards. As a large part of JPMC’s revenue comes from interest accrued on this debt, positive changes in interest rates could adversely affect the bank’s profits. Perhaps most disturbingly, JPMC’s enormous holdings of interest rate derivatives are some of the most volatile instruments in terms of Interest rate risk. These holdings actually outweigh the total capital position of the bank.
A figure to consider when examining exposure to these kinds of risks in a bank is the beta of its stock. The stock of a bank represents the market’s opinion of its future value, and generally considers all aspects of its operations. Therefore, beta is a good indication of the extent to which a bank is susceptible to market risk. JPMC’s stock (JPM) has a beta of 1.2. This means that the stock price moves in positive correlation to the market at a factor of 1.2. This factor leads us to believe that JPMC is not excessively exposed to market risk. Nonetheless, the bank will have to manage this risk carefully through the manipulation of credit card rates, leverage ratios, derivative exposures, and interest rate margins. Analysis Analysis and Conclusion All aspects of the above report must be taken into consideration when judging the overall financial health and future profitability of JPMorgan Chase & Co. This section will provide an overall analysis of crucial issues and their implications towards the financial health of JPMC. The acquisitions of Washington Mutual and Bear Stearns are very important factors to examine. With these acquisitions, JPMC attained billions of dollars worth of securitized assets and mortgage backed securities, many of which are still sitting on its balance sheet. These pose a major risk to the bank’s growth. Capital usually used to make loans is now being used to boost reserves for losses and writedowns on these assets. However, with these acquisitions, JPMC has also gained an enormous amount of market share in the financial services industry. Since the end of 2007 JPMC has seen an increase in total assets of 26.61%. This should prove valuable in the bank’s effort to maintain its place among the big four banks. Evidence of JPMC’s relatively stable position maintained throughout the crisis can be seen by its disinterest in accepting TARP funds from the government. The fact that JPMC seemed to have been better prepared for the crisis than its competitors, tells us that JPMC was able to use the current system, and possibly its weaknesses, to its advantage. Increased regulation in the financial system will likely have the effect of making the banking industry a more even playing field, thus inhibiting JPMC’s ability to use
Page 1 and 2: Uniform Bank Performance Report Ale
Page 3 and 4: Performance Analysis……………
Page 5 and 6: 1915: J.P. Morgan arranges the bigg
Page 7 and 8: out New York City, and rescued the
Page 9 and 10: 1991: Chemical Banking Corp. combin
Page 11 and 12: and successes. Each component of mo
Page 13 and 14: Management Key Biographies James S.
Page 15 and 16: James E. Staley, Chief Executive Of
Page 17 and 18: At JPMC, deposit accounts are part
Page 19 and 20: Commercial Banking The Commercial B
Page 21 and 22: In Q3, sub‐prime mortgages accoun
Page 23 and 24: esponsible spending while decreasin
Page 25 and 26: JPMC has Investment Banking branche
Page 27 and 28: illion loss. Shortly after the acqu
Page 29 and 30: een lost. The investment banking mo
Page 31 and 32: other in exchange for the guarantee
Page 33 and 34: Troubled Assets Relief Program (TAR
Page 35 and 36: publicly about the effectiveness of
Page 37 and 38: ($million) 6/30/09 12/31/08 6/30/08
Page 39 and 40: Performance Analysis As one of the
Page 41 and 42: Expense The interest expense for JP
Page 43 and 44: significant increase from the figur
Page 45 and 46: The return on assets ratio (ROA) se
Page 47 and 48: The net interest margin (NIM) is an
Page 49 and 50: 2009, shows significant exposure to
Page 51: JPMC’s net income ratio has been
Page 55 and 56: price of the company could increase
Page 57 and 58: Works Cited ACHIBUS. (2009, October
Page 59: Quinn, James. “JP Morgan Bags Bar

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