JP Morgan (
) 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 (
), Deutsche Bank (
), Goldman Sachs (
) and Morgan Stanley (
). 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
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
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
See our full estimates for JP Morgan here.