In yet another incident that highlights the increasing vulnerability of banks to cyber attacks, JPMorgan Chase (NYSE:JPM) admitted that hackers accessed personal information of about 465,000 UCard prepaid cardholders by breaking into its card network this July.  As is mandated by the law, the diversified banking giant is notifying the cardholders potentially affected as the breach. Thankfully, the leaked data does not include critical information like birth dates, social security numbers and email addresses.
Banks around the globe have been quite free with their technology-related expenses to ensure that they can provide customers with convenient banking solutions online while safeguarding their personal information. But the fact that cyber attacks on banks’ systems has also grown at a steady pace — with the banks not being able to thwart some major attacks over recent years — indicating that more needs to be done in this sphere.
We maintain our $60 price estimate for JPMorgan’s shares, which is about 5% ahead of current market prices.
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JPMorgan reportedly discovered the data breach in September and spent the next two months fixing the underlying issue and determining the extent of damage from the incident. The review showed that 465,000 customers were potentially affected, or less than 2% of the 25 million pre-paid UCard holders. The UCard is largely used by corporates and government agencies as an alternative to issuing salary/reimbursement checks.
So how does this incident impact JPMorgan? The bank is offering the cardholders affected free credit-monitoring services for a year, but given that the problem was contained to a large extent, this in itself will have negligible effect on JPMorgan’s bottom line. What actually will matter is the likely increase in the bank’s IT spending over coming months to ensure that such an event is not repeated in the future. It must be mentioned here that JPMorgan’s technology, communications & equipment expense have steadily increased over the last two years from exactly $1.2 billion in Q1 2011 to $1.36 billion for each of the last four quarters — a 13% jump within eight quarters. The impact of additional expenses under this head on JPMorgan’s share value can be understood by making changes to the chart below, which shows the total non-interest expenses of the bank’s card business represented as a percentage of total revenues.
- JPMorgan warns 465,000 card users on data loss after cyber attack, Reuters, Dec 5 2013 [↩]