JPMorgan’s Diversified Business Model Should Help Revenues Cross $120 Billion By 2021

September 19th, 2019 by Trefis Team
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JPM: JP Morgan Chase logo
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JP Morgan Chase

JPMorgan Chase (NYSE:JPM) is a diversified financial services institution with operations spread cross the world. It provides consumer banking, commercial banking, credit & debit cards, investment banking, treasury, wealth management and sales & trading services to clients. Its end users include multinational corporations, institutional investors, governments, retail customers, high net worth individuals, banks etc. JPMorgan’s business model faces stiff challenges and competition from offerings by its global competitors such as: Bank of America, BlackRock, Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo and State Street.

Trefis details the key components of JPMorgan’s Revenues in an interactive dashboard, along with our forecast for the next three years. While revenues have grown at an average annual rate of 7% – from $95.7 billion in 2016 to $109 billion in 2018 – the growth rate would slow down over the next three years. We expect the revenues to increase by 10% from $109 billion in 2018 to $120.33 billion by 2021, mainly driven by growth in Consumer & Community Banking segment. You can make changes to our forecast for individual revenue streams in the dashboard to arrive at your own forecast for JPMorgan’s Revenues. Additionally, you can see more Trefis data for financial companies here.

[A] Corporate & Investment Banking revenues are expected to drop by 3% in 2019

  • This segment includes Investment Banking (financial advisory and underwriting), Sales & Trading, and Treasury & Security Services (cash management, custody, trade, wholesale cards and liquidity products).
  • Although the segment revenues have grown by 3% over the last three years – from $35.2 billion in 2016 to $36.4 billion in 2018, we expect it to decrease in 2019 due to negative market conditions and lower trading as well as capital raising activity.
  • Thereafter, it is expected to grow at an average annual rate of 3% and cross $37.3 billion by 2021.
  • Advisory & underwriting services have grown 16% from $6.4 billion in 2016 to $7.5 billion in 2018. However, we expect it to decrease to $7.3 billion in 2019 due to decline in global M&A activity and equity underwriting deals.
  • JPMorgan is the market leader in FICC (Fixed Income, Currency & Commodity) trading, which constitutes a bulk of its Sales & Trading revenues. As a result of this dependence, the recent slump in bond trading activity is expected to reduce its trading revenues by 4% y-o-y in 2019.
  • Further, we expect Treasury & Security revenues to record a slight growth in the current year.
  • Notably, each of the three sub-segments is expected to grow over 2020-2021.
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[B] Consumer & Community Banking is expected to cross $58.1 billion by 2021.

  • The Retail Banking division of JPMorgan serves small businesses and consumers by providing traditional banking services to them through their various branch locations, ATM’s, online banking etc.
  • This segment has contributed more than 46% of total revenues over the last three years. It has grown 16% over the last three years – from $44.9 billion in 2016 to $52.1 billion in 2018.
  • We expect the segment to grow at an average annual rate of 4% and cross $58.1 billion by 2021, mainly driven by growth in outstanding card loans and other consumer loans.

[C] Commercial Banking would grow by 15% over the next three years – from $9.1 billion in 2018 to $10.4 billion by 2021.

  • This segment provides corporate lending, treasury-related and asset management services.
  • Although the segment is on a growth trajectory, we expect the growth rate to slow down over the coming years as a slowdown in economic activity will weigh on the demand for commercial lending.

[D] Asset & Wealth Management have grown 17% over the last three years – from $12 billion in 2016 to $14.1 billion in 2018.

  • This segment offers global investment management, banking, brokerage and retirement services to corporations and high net-worth individuals.
  • We expect the revenues to remain unchanged over the next two years, before recording a slight growth in 2021. This could be attributed to negative market conditions and lower consumer activity levels in 2019.
  • Overall, the revenues are expected to cross $14.2 billion by 2021.

 [E] Corporate/Private Equity segment doesn’t have a significant impact on JPMorgan’s revenues.

  • This comprises private equity, treasury, corporate staff units and expenses of JPMorgan that are centrally managed.
  • We expect the segment revenues to increase from $-2.6 billion in 2018 to $0.2 billion by 2021.

Trefis estimates JPMorgan’s stock (shows cash and valuation analysis) to have a fair value of $123, which is 5% higher than the current market price. Our price estimate incorporates changes to our forecast based on latest JPMorgan’s earnings.

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