) is one the largest and most diversified banks in the U.S.,
and offers services such as retail banking, commercial banking,
asset management, investment banking, consumer lending and credit
cards. Its main competitors include Bank of America (
), Goldman Sachs (
), Deutsche Bank (
) and Morgan Stanley (MS).
We have a
price estimate of $48.87 on JPMorgan's
stock, which is about 5% above the current market price.
J.P. Morgan Asset Management recently decided to cut fees on one
of its equity funds in the U.K. to attract cost conscious customers
who have hesitated to reenter the market due to high management
fees. The fund will be the U.K.'s first low-cost, actively managed
fund that will aim to catch some of the flows going to passive
vehicles like ETFs or index funds that merely track an index.
The fund has an annual management charge of 0.25% and a fixed
expense of 0.15% for all investors which was previously 1% for
retail investors and 0.6% for institutional investors. The new fund
has scrapped an initial charge of 3.5%, which was levied on retail
customers but has introduced a 10% performance fees on any return
above the FTSE All-share index. The total charges will not exceed
55 basis points including performance and management fees
Decline in Fees as a % of Assets
The decline in fees could be the result of high competition, or
overcapacity some would say, in the asset management space and also
because investors are reluctant to pay higher fees for actively
managed funds that fared poorly during the financial crisis.
The growth in low-cost, alternative products such as ETF's has
put pricing pressure on the industry and could reduce asset
management fees going forward. We currently estimate that fees as a
percent of asset under management will remain stable at its current
level of 0.4% but rising competition and the introduction of more
low-cost investment products could cause the fees as a percent of
asset to trend below our current estimates.
Increase in Total Asset Under Management to Offset the
Decline in Fees
We believe that in a low interest rate environment and as
confidence recovers, investors will look to invest in the asset
management industry in order to earn a greater return than what
they can currently earn in bank accounts. This shift in asset
allocation could produce trillions of dollars of new inflows in the
coming years, which would present an opportunity for large asset
managers to gross assets.
We estimate that total asset under management will increase from
$1.84 trillion in 2010 to about $2.15 trillion by
2013. Low-cost investment products will boost JPMorgan's total
asset under management, and it could rise to $2.45 trillion by 2013
which will offset the decline in JPMorgan's stock price due to a
decline in fees.
See our estimates for JPMorgan.