JP Morgan Tops League Tables in 2010, Little Impact to its Stock

By Trefis Team,

Shutterstock photo

JP Morgan ( JPM ) was recently crowned as the top investment bank in 2010 by Dealogic bringing in $5.2 billion in fees ahead of its competitors such as Bank of America ( BAC ), Deutsche Bank ( DB ), Goldman Sachs ( GS ) and Morgan Stanley ( MS ). This is a coveted title as banks strive for and measure themselves by their league tables standings throughout the year. While this adds to bragging rights for JP Morgan, this contribution of investment banking is small to JP Morgan and so has little impact on the stock.

We estimate that investment banking division accounts for 6% of $48 Trefis price estimate for JP Morgan which is about 14% above the current market price.

JP Morgan is one of the most balanced bank among the top US banks that we have coverage for and have the most diverse revenue lines. According to our analysis, none of its business segment accounts for more than 20% of its stock value.

Retail Banking - 20% of the stock price

The largest business segment for JP Morgan is retail banking which accounts for 20% of its stock price. Through retail banking, JP Morgan serves small businesses and consumers by providing traditional banking services to them through their various branch locations, ATM's, online banking etc. This is a low beta business based on deposits and interest earned on deposits. The stability of the retail banking business helped JP Morgan during the financial crisis as it did not pursue exotic products like asset backed securities as much as its peers did and consequently was in better shape to rebound post crisis.

We estimate that the retail banking business of JP Morgan will grow as the average deposits held by JP Morgan grows from $340 billion in 2009 to $411 by 2013 and then trend higher in the subsequent years.

Investment Banking - 6% of the stock price

Through its investment banking business, JP Morgan offers a host of products including advisory related and capital raising through debt and equity underwriting. An important driver for this segment is JP Morgan's market share of debt origination globally.

We forecast the market share to remain stable at about 9% but it could go up to 12% given its reputation as the top investment bank globally. However, this wont move JP Morgan's stock much as the size of investment banking division is small compared to the whole bank. The upside to our price estimate for JP Morgan's stock is limited.

In summary, while investment banking is an important part of JP Morgan's business and being crowned as the top investment bank certainly helps to build reputation, it wont necessarily move the stock.

See our full estimates for JP Morgan here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: BAC , DB , GS , JPM , MS

More from Trefis




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by