Industry and firm profile- MBA course paper


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The objective of this document is to study a particular industry and a firm within that industry. This document describes the Financial Services Industry and JP Morgan bank.

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Industry and firm profile- MBA course paper

  1. 1. INDUSTRY & FIRM PROFILE <br /> Girish S<br />INDUSTRY- FINANCIAL SERVICES<br /><ul><li>Description and primary activities</li></ul>I have chosen the Financial Services Industry as I want to be an expert in this industry. This industry is primarily broken into smaller sectors:<br /><ul><li>Retail Banking
  2. 2. Commercial banking
  3. 3. Investment Banking (Capital Markets)
  4. 4. Insurance</li></ul>Retail Banking refers to banking that provides services to consumers (individuals) and not corporations. Services include:<br /><ul><li>Savings and Current account
  5. 5. Mortgages and Certificate of Deposit
  6. 6. Personal Loans
  7. 7. Debit and Credit Cards
  8. 8. Foreign Exchange Services such as Remittances</li></ul>Commercial Banking refers to banking that provides services to proprietorship, partnership firms and corporations. Services include:<br /><ul><li>Commercial Lending/Financing includes Overdraft, Asset-Based Lending (secured and unsecured)
  9. 9. Cash Management and Treasury Management
  10. 10. Real Estate Finance
  11. 11. Payroll Solutions for the employees
  12. 12. The total revenue for Banking sector within the industry is 570.9 bn$, profit is 52 bn$. The </li></ul>Investment Banking (Capital Markets) refers to banking that provides services to firms/government to raise capital through primary (e.g Initial Public Offer) and secondary markets (e.g NYSE). <br /><ul><li>Issuance of securities (Bonds and equities)
  13. 13. Mutual and Hedge Funds
  14. 14. Mergers and Acquisition</li></ul>Insurance refers to products that provide services that hedges risk with respect to events causing damage to life, property etc.<br /><ul><li>Health Insurance
  15. 15. Motor Insurance
  16. 16. Size, Structure, and Composition
  17. 17. Data as per 2011Retail and Commercial BankingInvestment BankingRevenue570.9 bn $44.6 bn$Profit52.0 bn$6.8 bn$Top LeadersBank of America-11.8%Wells Fargo- 11.3%JP Morgan Chase- 7.7%Citigroup- 5% Goldman Sachs Group- 18.3%J.P Morgan Chase- 15.9%Bank of America- 14.6%Morgan Stanley- 14.6%Product and services segmentationDeposits- 58%Mortgages- 16%Business Lending- 15%Home Equity Loans- 5%Fixed Interest- 62%Equity Trading Commissions-15%Underwriting- 15%Finance Advisory Services- 8%</li></ul>Source: IBIS world report<br /><ul><li>Industry Trend</li></ul>The industry landscape has changed greatly during the five years to 2011 and will likely continue changing through 2016. Because of the subprime crisis and the recession, the industry has contracted, and the four largest commercial banks have increased their market share. From 2006 to 2011, the number of companies is expected to decline at an average rate of 1.3% annually to total 6,455. In the next five years, increased government regulation is forecast to dramatically change the business model of banks.<br />During the five years to 2016, industry revenue will be much less volatile than in the previous five years. Commercial banks will continue to benefit from the government's Troubled Asset Relief Program. These "too big to fail" banks will grow deposits at a faster rate than smaller savings institutions, whose reputations were badly damaged by the significant number of bank failures that occurred between 2007 and 2009. As a result, revenue is forecast to increase at an average rate of 5.5% annually to total $747.0 billion through 2016.<br />Source: IBIS world Report<br /> <br /><ul><li>Technology in Financial Services Industry</li></ul>A CEO of a large bank compared the financial services industry to the airline industry from the technology perspective. In his words, “IT in retail banking plays the same role that engines play to the airline industry”.<br />As per IBIS report, the largest number of assignments i.e 26% are in the Financial Services Industry. Federal and State projects come in second place with 15% of projects assigned to it.<br />In the Financial Services Industry, technology is not just an “add-on” but is a revenue driver. In an age wherein clients require faster transaction processing time and improved risk management, technology is the answer to all their problems.<br /><ul><li>Technology Trends</li></ul>There is a fundamental shift in the industry wherein the value of raw data is considered valuable. The reason for this significant shift in perception is that new technological innovations are empowering us to slice, dice, process, manage and correlate data in ways that give it exponentially greater value in the eyes of our clients, allowing them to make more informed investment decisions than ever before.<br /><ul><li>Forward looking analytics will be helpful to clients in terms of making better decisions.
  18. 18. The change in regulatory policies by the Federal due to the economic recession has exposed the weaknesses in the reporting system of financial institutions. Better reporting, data warehousing and mining would be of importance to these firms.
  19. 19. Innovative technology such as Cloud Computing is being implemented in the industry.
  20. 20. Operating in a cloud environment brings a range of client benefits, from automation and capacity on demand, to accelerated time to market, real-time data infrastructure and strengthened client service. Cloud environments are also advanced platforms for product and service innovation, including custom analytics and data, as well as risk and control,
  21. 21. Performance, compliance and advisory services. Importantly, working in a private cloud environment also ensures data security.
  22. 22. Mobile banking is being used by the industry wherein smartphone applications enable clients to deposit check through the phone without the need of visiting a branch/ATM (example JP Morgan, PNC Bank).
  23. 23. Due to cost pressures, purchase of new systems would be less common. Rather, reuse of the information technology present- software, data and processes would be a general trend.
  24. 24. Integration of systems would be a common phenomenon rather than “buy v/s build” dilemma that involves a lot of time and effort.
  25. 25. Source: Evolving role of Technology in Financial Services
  26. 26. Technology leaders in the Industry
  27. 27. Since technology is one of the major drivers of the business, the banks with the largest market share are the ones that are the leaders in technology.
  28. 28. JP Morgan Chase is known as “The Bank of Technology”. It spends more on technology than technology firms. Not only has the bank had great technology systems and infrastructure to support internal business processes but also has great mobile banking presence. It was one of the first bank to launch the mobile application “QuickDeposit” and “QuickPay”. The technology enables Chase's online banking customers who have downloaded the Chase Mobile banking app to deposit physical checks into their bank accounts by simply taking pictures of the front and back of checks with their iPhones. "QuickPay is a peer-to-peer payments capability with which users can send or receive money to or from anyone using only a valid e-mail address. </li></ul>FIRM PROFILE- JP MORGAN<br /><ul><li>Size, Structure and Activities</li></ul>I have chosen JP Morgan as the firm to research on because it is the global leader in financial services. It offers all of the services under one umbrella- Retail & Commercial Banking and Investment Banking services. <br />JPMorgan Chase & Co., a financial holding company incorporated under Delaware law in 1968, is a leading global financial services firm and one of the largest banking institutions in the United States of America (“U.S.”), with $2.1 trillion in assets, $176.1 billion in stockholders’ equity and operations in more than 60 countries as of December 31, 2010. The Firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and many of the world’s most prominent corporate, institutional and government clients. <br />JPMorgan Chase’s activities are organized, for management reporting purposes, into six business segments, as well as Corporate/Private Equity. The Firm’s wholesale businesses comprise the Investment Bank, Commercial Banking, Treasury & Securities Services and Asset Management segments. The Firm’s consumer businesses comprise the Retail Financial Services and Card Services segments. A description of the Firm’s business segments, and the products and services they provide to their respective client bases, follows. <br />Investment Bank <br />J.P. Morgan is one of the world’s leading investment banks, with deep client relationships and broad product capabilities. The clients of the Investment Bank (“IB”) are corporations, financial institutions, governments and institutional investors. The Firm offers a full range of investment banking products and services in all major capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, sophisticated risk management, market-making in cash securities and derivative instruments, prime brokerage, and research. <br />Retail Financial Services <br />Retail Financial Services (“RFS”) serves consumers and businesses through personal service at bank branches and through ATMs, online banking and telephone banking, as well as through auto dealerships and school financial-aid offices. Customers can use more than 5,200 bank branches (third-largest nationally) and 16,100 ATMs (second-largest nationally), as well as online and mobile banking around the clock. More than 28,900 branch salespeople assist customers with checking and savings accounts, mortgages, home equity and business loans, and investments across the 23-state footprint from New York and Florida to California. Consumers also can obtain loans through more than 16,200 auto dealerships and 2,200 schools and universities nationwide. <br />Card Services <br />Card Services (“CS”) is one of the nation’s largest credit card issuers, with over $137 billion in loans and over 90 million open accounts. Customers used Chase cards to meet $313 billion of their spending needs in 2010. Through its merchant acquiring business, Chase Paymentech Solutions, CS is a global leader in payment processing and merchant acquiring. <br />Commercial Banking <br />Commercial Banking (“CB”) delivers extensive industry knowledge, local expertise and dedicated service to nearly 24,000 clients nationally, including corporations, municipalities, financial institutions and not-for-profit entities with annual revenue generally ranging from $10 million to $2 billion, and nearly 35,000 real estate investors/owners. CB partners with the Firm’s other businesses to provide comprehensive solutions, including lending, treasury services, investment banking and asset management to meet its clients’ domestic and international financial needs. <br />Treasury & Securities Services <br />Treasury & Securities Services (“TSS”) is a global leader in transaction, investment and information services. TSS is one of the world’s largest cash management providers and a leading global custodian. Treasury Services (“TS”) provides cash management, trade, wholesale card and liquidity products and services to small- and mid-sized <br />Asset Management <br />Asset Management (“AM”), with assets under supervision of $1.8 trillion, is a global leader in investment and wealth management. AM clients include institutions, retail investors and high-net-worth individuals in every major market throughout the world. AM offers global investment management in equities, fixed income, real estate, hedge funds, private equity and liquidity products, including money-market instruments and bank deposits. AM also provides trust and estate, banking and brokerage services to high-net-worth clients, and retirement services for corporations and individuals. The majority of AM’s client assets are in actively managed portfolios. <br />Key Leaders<br /> <br />            Name     Positions and offices           James Dimon         Chairman of the Board since December 31, 2006, and President and Chief Executive Officer since December 31, 2005.             Frank J. Bisignano         Chief Administrative Officer.             Douglas L. Braunstein         Chief Financial Officer since June 2010.             Austin Adams         Chief Information Officer             Stephen M. Cutler         General Counsel since February 2007.             John L. Donnelly         Director of Human Resources since January 2009.             Ina R. Drew         Chief Investment Officer.             Mary Callahan Erdoes         Chief Executive Officer of Asset Management since September 2009, prior to which she had been Chief Executive Officer of Private Banking.             Samuel Todd Maclin         Chief Executive Officer of Commercial Banking.             Jay Mandelbaum         Head of Strategy and Business Development.             Heidi Miller         President of International since June 2010 prior to which she had been Chief Executive Officer of Treasury & Securities Services.             Charles W. Scharf         Chief Executive Officer of Retail Financial Services.             Gordon A. Smith         Chief Executive Officer of Card Services since June 2007.             James E. Staley         Chief Executive Officer of the Investment Bank since September 2009,.             Barry L. Zubrow         Chief Risk Officer since November 2007. <br /><ul><li>Trends & Issues
  29. 29. The financial services industry is highly competitive, and JPMorgan Chase’s inability to compete successfully may adversely affect its results of operations. </li></ul>Technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions and other companies to provide electronic and Internet-based financial solutions, including electronic securities trading. The Firm’s businesses generally compete on the basis of the quality and variety of the Firm’s products and services, transaction execution, innovation, reputation and price. Ongoing or increased competition in any one or all of these areas may put downward pressure on prices for the Firm’s products and services or may cause the Firm to lose market share.<br /><ul><li>JPMorgan Chase’s results of operations have been, and may continue to be, adversely affected by U.S. and international financial market and economic conditions.
  30. 30. If JPMorgan Chase does not effectively manage its liquidity, its business could suffer.
  31. 31. JPMorgan Chase operates within a highly regulated industry and the Firm’s business and results are significantly affected by the laws and regulations to which it is subject, including recently-adopted legislation and regulations. JPMorgan Chase’s commodities activities are subject to extensive regulation, potential catastrophic events and environmental risks and regulation that may expose the Firm to significant cost and liability.
  32. 32. The financial condition of JPMorgan Chase’s customers, clients and counterparties, including other financial institutions, could adversely affect the Firm .
  33. 33. Concentration of credit and market risk could increase the potential for significant losses.
  34. 34. JPMorgan Chase’s framework for managing risks may not be effective in mitigating risk and loss to the Firm.
  35. 35. JPMorgan Chase’s operations are subject to risk of loss from unfavorable economic, monetary, political, legal and other developments in the United States and around the world. </li></ul>Source: JP Morgan Annual Report 2010<br /><ul><li>Information systems in JP Morgan (Trends, Issues, Vendors)</li></ul>Technology is given utmost priority at the bank. Most of the transactions are processed electronically with minimal human intervention. The technology within the bank is aligned with the business groups (as stated above).<br />Yet, in the bank, quite a few systems are legacy and based on mainframe technology and the bank is focusing on either integration or putting up a new system in place of the legacy systems.<br />Also, since the bank has gone through quite a number of merger and acquisitions, for example the merger of Bank One and JP Morgan Chase, the information technology has been integrated with the other acquired/merged entities. A lot of integration projects haven’t been fully completed thus leading to a lot of work being done manually. <br />Key vendors in the bank are :<br /><ul><li>Oracle- ERP and databases in the system are oracle based.
  36. 36. Sub Guard- Financial systems for certain businesses
  37. 37. Large vendors that supply SAN and NAS storage</li></ul>Industry regulations are primarily governed by the Federal Reserve Board in the USA. Recent Regulations at the industry level have forced the bank to modify systems. These modifications are turning out be very expensive for the bank because these systems are handled by vendors.<br />