JPMorgan Chase & Co.

Presentation for RCMPDecember 6, 2005By Kristoffer Inton

Agenda

History Macroeconomic view Industry glance Past performance Business line review Financial analysis Recommendation

Chase Manhattan

1799- The Manhattan Company formed as a water provider, but also participates in banking

1824- The New York Chemical Manufacturing Company formed to manufacture chemicals, but expands into banking and changes its name to Chemical Bank of New York

1877- John Thompson formed Chase National 1955- Chase National merged with Bank of

Manhattan to form Chase Manhattan 1996- Chemical Bank acquired Chase Manhattan and

begins operating under the Chase Manhattan brand name

* Courtesy of Hoover’s Online

History

JP Morgan

1864- Junius Spencer Morgan gained control of George Peabody’s London bank and renamed it J.S. Morgan & Co.

1862- His son, J. Pierpont Morgan started his own firm in New York

1890- Following J.S. Morgan’s death, his son united the two banks under J.P. Morgan & Co.

1933- Glass-Steagall Act forced the company to split into the commercial bank (J.P. Morgan) and the securities company (Morgan Stanley)

* Courtesy of Hoover’s Online

History

JPMorgan Chase

2001- 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

* Courtesy of Hoover’s Online

History

Macroeconomic view

Margin compression- a flattening yield curve eats away at the interest rate spread that banks profit on

Change in bankruptcy laws- led to a spike in bankruptcy before changes took effect

Excess cash has led to companies increasing dividends, buying back shares, and increasing M&A activity

Macroeconomic view

Industry glance

Mergers and mega-mergers; top 10 U.S. banks control two-thirds of the lending market and deposits

Large mergers formed extremely big banks (more than $1 trillion in assets)

Smaller banks competing on service focus Although online customer access is

critical, many customers still prefer human interaction

Firms prefer less costly internet and debit transactions over in-branch visits and check and credit card transactions

Macroeconomic view

RCMP Portfolio History

Purchased on Oct. 6, 1999 as Bank One for 700 shares

Cost of position- $24,237.45

Market value- $35,897.40 (+48.11%)

Currently own 924 shares

Past performance

52 week range: 32.92 – 39.91

Past performance

JPM outperformed in last 3 months

Past performance

Business groups

Investment Banking Retail Financial Services Card Services Commercial Banking Treasury & Securities Services Asset & Wealth Management

Business line review

JPMorgan Chase brands

•Investment Bank

•Treasury & Security Services

•Asset & Wealth Management

•Investment management

•Private Bank

•Private Client Services

•Commercial Banking

•Card Services

•Retail Financial Services

•Shifting focus to a re-energized Chase brand name

•Utilize the trustworthiness of the Chase name and the momentum of the Bank One name

Business line review

Benefits of the merger

Cost savings of $400 million Headcount decreased by 6,500 (4%)

On target of total expense reduction of $3 billion by 2007

Increased number of distribution channels Coordinated branding and marketing Efficiencies of scale Broader product and service offering

*as of July 1, 2004

Business line review

Investment Bank

Platform includes corporate strategy and structure advising, equity and debt capital raising, risk management, research, proprietary investing and trading

Business line review

Retail Financial Services

Serves individuals and small businesses with products such as checking and savings accounts, mortgage and home equity loans, small business loans, credit cards, investments, and insurance

2,500 bank branches 225 mortgage offices

Business line review

Card Services

Over 94 million cards issued with over $282 billion in 2004 charge volume

Over 850 credit card partnerships with well-known brands such as AARP, Amazon.com, United Airlines, etc.

Business line review

Commercial Banking

More than 25,000 clients including corporations, municipalities, financial institutions, and non-profit organizations

$50 billion in average loans $66 billion in average deposits

Business line review

Treasury & Securities Services

Provides transaction, investment, and information services to support CFOs, treasurers, issuers, and institutional investors

Three business lines- Treasury Services, Investor Services, and Institutional Trust Services

Business line review

Asset & Wealth Management

Provide investment and wealth management services to financial advisors and their clients

Four key business segments- Institutional, Retail, Private Bank, and Private Client Services

Business line review

Corporate

Private Equity- invest in leveraged buyouts, growth equity, and venture capital for the firm

Treasury- manage structural interest rate risk and investment portfolio of the firm

Corporate staff support- provide centralized support services

Business line review

Things to watch for in 2005/2006

Approximately $2 billion in cost savings at the end of 2005

Reduction in private equity exposure Jamie Dimon takes over as CEO in January

2006 Increased cost-cutting measurements (i.e.

shift of back-office duties of investment bank to India)

Business line review

Comparable companies

Financial analysis

JPM BAC C Industry

Market Cap 135.94B 186.47B 247.13B 918B

Employees 160,968 175,742 287,000

Revenue (ttm) 50.27B 54.17B 82.08B

Net income (ttm) 7.43B 16.95B 20.91B

EPS (ttm) 2.08 4.15 4.41

PE (ttm) 18.67 11.18 11.09 12.8

PEG (5 year expected) 1.33 1.19 1.22

PS (ttm) 2.71 3.42 3.01

Model assumptions

Calculated 2005 using previous 3 quarters and estimating for 4th quarter by using management outlook and quarter-over-quarter growth rates

Provision for credit losses as a % of loan balance

Conservative net interest income growth rates (8% -> 5%)

Slowing growth rates of Total Non-Interest Expenses to capture benefits of merger

Financial analysis

Sensitivity Analysis

EPS: F2005 F2006 F2007 F2008 F2009 F2010

Diluted earnings per share 2.56 3.10 4.25 4.77 5.00 5.25

Financial analysis

Source of P/E P/E F2005 F2006 F2007 F2008 F2009 F2010

Citigroup 11.09 $ 28.40 $ 34.38 $ 47.16 $ 52.91 $ 55.45 $ 58.22

Bank of America 11.18 $ 28.64 $ 34.66 $ 47.54 $ 53.34 $ 55.90 $ 58.70

Industry 12.8 $ 32.78 $ 39.68 $ 54.43 $ 61.07 $ 64.00 $ 67.20

Sector 14.24 $ 36.47 $ 44.15 $ 60.55 $ 67.94 $ 71.20 $ 74.76

16 $ 40.98 $ 49.60 $ 68.04 $ 76.34 $ 80.00 $ 84.00

JP Morgan 18.67 $ 47.82 $ 57.88 $ 79.39 $ 89.07 $ 93.35 $ 98.02

Considerations

Positive Benefits of merger beginning to take effect Company focused on cutting costs to

compensate for low margin business

Negative Company feeling the pressure of flattened

yield curve Portfolio has heavy weighting in banking

industry Cyclical business, depends heavily on health of

economy

Recommendation

Recommendation for JPM

Hold 924 shares of JP Morgan Chase Merger benefits being realized

Strong business outlook for non-interest revenue businesses

Company focused on reducing costs