Credit Analysis of Jp Morgan

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Credit Rating ————————————————————————— 3

Risk Default and Downgrade risk ————————————————— 5

Analysis of capacity to repay

1. Industry Trends ————————————————————— 7
2. The regulatory environment ———————————————— 8
3. Basic operating and competitive position ———————————9
4. Financial position and sources of liquidity ——————————  9
5. Company structure ———————————————————  10
6. Parent company support agreements ————————————   11
7. Special event risk ————————————————————12

Traditional Ratio Analysis

1. Profitability Ratios ——————————————————  13

2. Debt and coverage analysis ——————————————— 13

1. Short-term solvency ratios —————————————  14
2. Capitalization ratios ————————————————15
3. Coverage tests —————————————————— 15

3. Cash flow analysis ——————————————————  16

Analysis of collateral —————————————————————  17

Analysis of Covenants —————————————————————18

Character of the Corporation ——————————————————  19

Corporate Governance —————————————————————22

Special Considerations for High-Yield Corporate Bonds ———————  23

Formulate Inputs for Portfolio Construction ———————————— 24

Summary —————————————————————————   26

Appendix A ————————————————————————   27

Appendix B ————————————————————————   29

        Works Cited ———————————————————— 37

Credit Rating

JPMorgan Chase & Co. was founded in 1799 and is based in New York, New York, which is a financial services firm. It operates through four segments: Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset Management:

• The Consumer & Community Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions; in addition, residential mortgages and home equity loans, as well as provides credit cards, payment services, payment processing services, auto & student loans.
• The Corporate & Investment Bank segment provides investment banking, market-making, prime brokerage, treasury & securities products.
• The Commercial Banking segment offers financial solutions, including lending, treasury, investment banking, and asset management to corporations, municipalities, financial institutions, and nonprofit entities, as well as finances real estate investors and owners. It also caters to banks, thrifts, also credit unions; residential and multi-family lenders; insurance underwriters and brokers; alternative investment funds and broker dealers.
• The Asset Management segment provides investment & wealth management services across various asset classes, such as equities, fixed income, alternatives, & money market funds; multi-asset investment management services; retirement services. The company through its Financial Institutions Group, provides treasury services, including cash management & letters of credit to domestic & international payments; syndicated & leveraged financing; custody & fund administration; equity & debt capital markets; mergers & acquisitions advisory; structured financing; foreign exchange, interest rate, and commodity derivatives; investment management and private banking services. (Yahoo. Finance)

        The JP Morgan’s credit rating is A3, which is provided by Moody’s on February 9, 2016. (Figure 1) For Q4 of 2015, JP Morgan reported to a 13% increase in pretax profit to $7.4 billion. This translates to a pretax return on Basel III risk-weighted assets (RWAs) of 198 basis points. After-tax return on GAAP assets (ROA) was 90 basis points and return on equity was 9%. (Moody’s)

        JPMorgan disclosed that its operational RWAs increased by $25 billion in the second quarter. “The $400 billion of such assets is 24% of the company’s total, up from 6% in 2010,” says the news outlet. The $400 billion “translates to about $38 billion of capital, more than twice what JPMorgan has to hold for market volatility.” To be fair, Bank of America and Citigroup also had to increase their operational RWAs in the second quarter, BoA by $26 billion and Citi by $56 billion. (Bloomberg)

        Furthermore, JPMorgan’s Q4 2015 earnings of $1.32 per share did not disappoint investors as the figure depicted a 10.9% improvement over the year-ago period, which had seen lower-than-usual earning of $1.19. However, earnings in the reported quarter reflected the impact of tough market conditions. Also, the company’s adjusted expenses (excluding corporate litigation and foreclosure-related costs) of $56.0 billion in 2015 were below the target of $56.5 billion achieved in 2014. (Zacks)

Risk Default and Downgrade risk

                In 2014 JP Morgan’s Cash and Cash equivalents was $728,111 million,         compared to $703,938 million in 2013, and $471,833 million in 2012. Net Receivable         also increased from $60,933 million in 2012, to $65,160 million and $70,079 million in         2013, 2014, respectively. (Figure 2) In 2013, JP Morgan have increasingly strong         capital         ratios. From the annual report, on the capital chart below that under Basel I, JP         Morgan’s Tier 1 Common has gone from 7.0% to 10.7% from 2007–2013, and our new         Basel III ratio has gone from 5.0% to 9.5% over that same time period.  (Figure 3)