Bo(Kate) Dong, Stephen Proffer, Gleb Zarkh March 13, 2007 JPMorgan Chase

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP JP Morgan Chase  One of the oldest and most prestigious financial services firms in the world.  Headquartered in New York City, with assets of $1.3 trillion, JPMorgan Chase is currently the 3rd largest banking institution in US (Behind Citigroup & Bank of American)  Principle Bank subsidiaries: JPMorgan Chase Bank, National Association Chase Bank USA, National Association  Principal Non-Bank Subsidiaries: J.P. Morgan Securities Inc.

RCMP Chemical Banking Corp.  New York Chemical Manufacturing Company was founded in 1823 as a maker of various chemicals  In 1824, the company amended its charter to perform banking activities and created the Chemical Bank of New York  In 1996, the company acquired the Chase Manhattan Corporation and kept that name  In 2000, the company acquired J.P. Morgan & Co. and changed its name to J.P. Morgan Chase & Co.  JPMorgan Chase retains Chemical Bank's headquarters and stock history.

RCMP Chase Manhattan Bank  The Chase Manhattan Bank was formed upon the 1955 purchase of Chase National Bank (established in 1877) by the Bank of the Manhattan Company (established in 1799), the company's oldest predecessor institution. Led by David Rockefeller during the 1970s and the 1980s  Chase Manhattan was one of the largest and most prestigious banking concerns, with leadership positions in syndicated lending, treasury and securities services, credit cards, mortgages, and retail financial services  Weakened by the real estate collapse in the early 1990s, it was acquired by Chemical Bank in 1996

RCMP J.P. Morgan & Company  In 1895, Drexel, Morgan & Co. became J.P. Morgan & Co  It financed the formation of the United States Steel Corporation, which took over the business of Andrew Carnegie and others and was the world's first billion-dollar corporation  In 1892, the company began to finance the New York, New Haven and Hartford Railroad and led it through a series of acquisitions that made it the dominant railroad transporter  In the 1930s, JPMorgan was forced by the Glass- Steagall Act to choose either commercial banking or investment banking: JPMorgan chose to operate as a commercial bank

RCMP JPMorgan Chase  In 1990s and following amendments to the Glass- Steagall Act, JPMorgan Chase had turned itself into an investment bank too. It also offered private banking and private equity services.  Chase Manhattan acquired JPMorgan & Co. to form JPMorgan Chase & Co.  In 2004, JPMorgan Chase & Co. acquired Bank One  Bank One CEO Jamie Dimon becomes president, COO, and designated successor of current JPMorgan Chase CEO William B. Harrison

RCMP Bank One  Created 1998: Bank One of Ohio merge with First Chicago  Result of over 55 mergers  J.P. Morgan Chase- aggressive acquisition strategy

RCMP Businesses use the JPMorgan brand:  Investment Bank  Worldwide Securities Services  Private Bank  Asset Management  One Equity Partners  Private Client Services  Business under Chase brand:  (The U.S. consumer and commercial banking businesses serve customers under the Chase brand)  Credit card  Small business  Home finance  Auto and education finance  Insurance Business under 2 brands

RCMP Business Segments  Investment Bank  Retail Financial Services  Card Services  Commercial Banking  Treasury and Securities Services  Asset Management  Corporate

RCMP J.P. Morgan 2006 Annual Report, Pg. 35 Segment Breakdown

RCMP IBED Pg. 34/ Pg. 37 Investment Banking Market Share

RCMP IBED Pg. 36 Investment Banking Financials Flat Net Income Record fees

RCMP IBED Pg. 34/ Pg. 40 Retail Financial Services *Additional 339 Branches in New York Tri State (NY, NJ, CT) from Bank of New York Aquisition

RCMP IBED Pg. 38 Retail Services Financials Net Income down by 6% Weaker mortgage results

RCMP IBED Pg. 34/ Pg. 44 Card Services

RCMP IBED Pg. 43 Card Services Financials Net Income up 68% Fewer bankruptcy filings

RCMP IBED Pg. 34/Pg. 47 Commercial Banking

RCMP IBED Pg. 46 Commercial Banking Financials Net Income increase by 6%

RCMP IBED Pg. 34/ Pg. 49 Treasury & Securities Services

RCMP IBED Pg. 48 Treasury & Securities Financials Net Income increased 26% Driven by market value appreciation

RCMP IBED Pg. 34/ Pg. 51 Asset Management $ 1.3 Trillion under management

RCMP IBED Pg. 50 Asset Management Financials Net Income Increased 16% Driven by market appreciation

RCMP Corporate  Private Equity, Treasury, Corporate Staff units & expenses which are centrally managed

RCMP IBED Pg. 53 Corporate Financials Wider net interest spread Litigation expenses

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP Economics  Big Picture  Interest Rate

RCMP Big Picture Projection  Global and domestic GDP growth will remain flat or decline slightly  The U.S. economy showing some weakening because of a challenging housing market  Global economy doing relatively well because of robust activity in Asia and areas of the world that produce oil and raw materials.

RCMP U.S. Bureau of Economic Analysis. March 12, Big Picture(2)-- GDP

RCMP U.S. Bureau of Economic Analysis. March 12, Big Picture(3)-- Consumer deposits

RCMP Economics  Big Picture  Interest Rate

RCMP Interest rate (1)—Long-term interest rate  Longer-term interest rates have risen, contributing to increased borrowing costs for both households and businesses.  Long-term interest rates rose but were still moderate by historical standards, and credit spreads and risk premiums stayed narrow.

RCMP Bankrate.com. March 12, 2006 Interest rates (Mortgage)

RCMP Moneycafe.com. March 12,2006. Interest Rates (Prime)

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP Industry glance  Mergers and mega-mergers; top 10 U.S. banks control two-thirds of the lending market and deposits  Advises on corporate strategy and structure, raises capital, etc.  Make markets in financial instruments  Offers sophisticated risk management services  Sales and research across equity, debt, interest rate, foreign exchange and commodity markets  Provides equity and mezzanine capital financing to companies throughout the business development life cycle Sources: JP Morgan K

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP RCMP Portfolio History  Purchased on Oct. 6, 1999 as Bank One for 700 shares  Cost of position- $24,  Market value- $45, (+86.19%)  Currently own 924 shares

RCMP JPM on S&P 500

RCMP Comparable companies Source : Yahoo! Finance

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP Model assumptions  Step1:Calculation of Equity Cash Flow  Step2: Calculation of Cost of Equity  Step3:Calculation of ROE  Step4:Calculation of the Equity Value  Step5:Calcualtion of the Price per share

RCMP Step1:Calculation of Equity Cash Equity cash flow Net Income 13,932 13,444 15,424 17,129 14,624 -changes in equity 36,234 -5,545 19, , =equity cash flow - 22,303 18,989 -3,642 32,328 14,536

RCMP Step2: Calculation of Cost of Equity Cost of equity= Annualized rf=rf=5.25% β=0.67 rm=rm=12.00% ke=ke=9.77% source:

RCMP Step3:Calculation of ROE(1) *2006 Net income 4,414 8,470 14,440 Total Equity (including Goodwill) 105, , ,790 Goodwill 43,203 43,621 45,186 Total Equity (excluding Goodwill) 62,450 63,590 70,604 ROE including goodwill4.18%7.90%12.47% ROE excluding goodwill7.07%13.32%20.45%

RCMP Net income 13,932 13,444 15,424 17,129 14,624 Total Equity (including Goodwill) 118, , , , ,407 Goodwill 45,397 45,796 46,007 46,445 46,775 Total Equity (excluding Goodwill) 73,600 67,656 86,511 70,874 70,631 ROE including goodwill11.71%11.85%11.64%14.60%12.46% ROE excluding goodwill18.93%19.87%17.83%24.17%20.71% Step3:Calculation of ROE(2)

RCMP Step4:Calculation of the Equity Value Long-Term Growth Rate= 3.50% Year Terminal Value Net income 13,932 13,444 15,424 17,129 14,624 equity cash flow (22,303) 18,989 (3,642) 32,328 14,536 Distcount factor Terminal Value 239,859 PVs of Equity Cash Flow -20,317 15,758 -2,753 22,264 8, ,483 Total Enterprise Value= 174,555

RCMP Step5:Calcualtion of the Price per share Total enterprise value over 174,555 Shares outstanding3, % =Price Per Share % 45.38

RCMP Outline  History  Macroeconomic view  Industry glance  Past performance  Financial analysis  Recommendation

RCMP Recommendation for JPM  Hold 924 shares of JP Morgan Chase -JPM owned a strong management and stable strategy -JPM continued focus on their retail banking division -JPM reduced the non-interest expenses, especially the operating expenses

RCMP RCMP: Gleb Zarkh Stephen Proffer Bo (Kate) Dong March 12, 2006