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Case Study: Chesterstons Ales

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Increase in fees associated with origination, sale and serving mortgages ... Interest rate spread Bank One prior merger. 7/6/09. 11. Interest rate spread of ... – PowerPoint PPT presentation

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Title: Case Study: Chesterstons Ales


1
JPMorgan Chase Co. Presented by Piotr
Chorzewski 12-2-2004
2
Trends in profitability in 2003-2004
  • High return on assets 1.4
  • High return on equity 15.3 (highest since 93)

3
Factors which have impact on the profitability
  • Reduction in non-interest expenses
  • Significant reduction in provision on loan losses
  • Debt refinancing by households businesses
  • Increase in fees associated with origination,
    sale and serving mortgages
  • Fast growth in non-interest income
  • Bank holding company stocks outperformed SP 500

4
Banks vs. SP 500
5
Strategic benefits of the merger
  • Enhanced positions in retail financial services
  • More balanced business mix and greater
    geographical diversification
  • Enhanced opportunities for wholesale and other
    financial services businesses
  • Financial synergies (cost reduction)

6
Interest income and expense JP Morgan
7
Interest income and expense Bank One
8
Interest income spread
9
Interest rate spread JP Morgan prior merger
10
Interest rate spread Bank One prior merger
11
Interest rate spread of the merged company
12
Interest rate spread of the merged company
13
Interest Rate Spread
14
Non-Interest revenue
  • High volatility of different components

15
Non-Interest revenue
16
Non-Interest expenses
17
Scenario
  • Growth of Non-Interest revenue - 1.5
  • Constant growth of Interest Income spread 0.1613
  • Reduction of assets by 4 in 2005
  • Long term assets growth 1.5
  • Merger savings 3,000mln
  • Merger costs 2,200mln
  • Modest growth of the non-interest expenses 1.5
  • Provision on credit losses decrease annually 1
  • Current P/E 18.20

18
Income Statement - forecast
19
Sensitive analysis
  • Growth rate of Non-Interest Revenue

20
Sensitive analysis
  • Growth of Non-Interest Expenses

21
Sensitive analysis
  • Growth of interest income spread

22
Sensitive analysis
  • Growth of assets

23
Comparison
24
Comparison
25
Summary
  • Benefits of the merger
  • Growth of Interest rate spread, but still too low
  • Reduction of non-interest expenses
  • Growth of non-interest revenue
  • Quite low EPS High PE
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