JP Morgan’s JV Approval in China Positions Stock for Upside

January 12th, 2011 by Trefis Team
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JP Morgan Chase

JP Morgan (NYSE:JPM) is one of the leading global financial services company. The firm has an asset base of nearly $2 trillion and serves customers in more than 60 countries. Its main competitors include Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), Deutsche Bank (NYSE:DB) and Morgan Stanley (NYSE:MS).

JP Morgan recently received approval from Chinese regulators for a joint venture that will allow it to underwrite stocks and bonds in mainland China. JP Morgan could previously underwrite deals in Hong Kong, but the approval now allows access to mainland China where some of its competitors like UBS (NYSE:UBS) and Goldman Sachs already offer clients the opportunity to raise capital. JP Morgan will have a 33% stake in the joint venture with Shenzhen-based First Capital Securities Co. [1]

Investment banking accounts for almost 6% of the $48 Trefis price estimate for JP Morgan’s stock. Our price estimate stands about 8% above the current market price.

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JP Morgan derives most of its revenues from its retail banking operations in the U.S. – only 20% of its revenues come from outside of the U.S., substantially lower than competitor Citigroup (NYSE:C) which generates more than 50% of its revenue abroad. The recent joint venture approval will aid JP Morgan’s initiative to increase its foothold in Asia, where the firm already maintains partnerships including its JV with China International Fund Management Co. Asia-Pacific represents 14% of JP Morgan’s global institutional business, but the firm is reportedly targeting a pickup towards 20%. [1]

 

Strong Investment Banking Performance by JP Morgan in 2010

JP Morgan offers a full range of investment banking services to its clients and emerged as the top investment bank in 2010, with investment banking revenues of $5.2 billion and a market share of nearly 8%. Roughly 52% of total investment banking industry revenues came from the American region, where JP Morgan maintains a strong presence. [2] JP Morgan also ranked 2nd in the Asian-Pacific region according to Dealogic (as quoted by The Wall Street Journal). [1]

With the growing presence in China, JP Morgan will look to increase its share in the global equity underwriting market. We currently estimate that JP Morgan’s market share will remain stable at 8% during our forecast period. However, given the company’s efforts to capture share of the growing Chinese market, there could be upside to our forecasts and $48 price estimate for JP Morgan stock. We note that our price estimate already implies a roughly 8% premium to market price.

To see the impact of various trends in JP Morgan’s equity underwriting market share on its stock value, drag the trend line in the modifiable chart above.

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You can see the complete $48 Trefis Price estimate for JP Morgan’s stock here.

Notes:
  1. JP Morgan: China is Key, WSJ [↩] [↩] [↩]
  2. Dealogic: I-Banking Revenues, The Middle Market [↩]