Case 7 – JPMorgan Chase & Company (JPM) – 2018 – Teachers’ Note by Forest

R. David

Case Abstract

Headquartered in New York City, JPMorgan Chase (JPM) is one of the oldest financial
institutions in the world. JPM is the world’s sixth largest bank by total assets of over $2.6
trillion, and the second most valuable bank based in market capitalization. JPM offers services in
investment banking, financial services for consumers and small businesses, commercial banking,
financial transaction processing, and asset management. JPM has over 240,000 employees, with
operations in 60 countries worldwide. Based on total assets, JPM ranks first in banking industry
market share with about 14 percent, and second in total domestic deposits of about $1.8 billion.
JPM’s revenues have increased every year to almost $100 billion in 2017. JPM’s stock is one of
the 30 components of the Dow Jones Industrial Average. The hedge fund unit of JPM is one of
the largest hedge funds in the United States.
JPM operates under two principle brands, 1) JPMorgan and 2) Chase. The JPMorgan
brand focuses on large multinational corporations, governments, wealthy individuals, and
institutional investors. The Chase brand is further divided into two distinct segments: 1)
consumer business and 2) commercial banking business. The Chase consumer business includes
such businesses as traditional bank branches, ATMs, credit cards, home finance, retirement &
investing, merchant services, among others. The Chase commercial banking business includes
such areas as business credit, corporate client banking, commercial term lending, and community
development. The two JPM brands overlap so much in terms of regions and products that the
company does not report revenues/income by the two brands.

Vision Statement Analysis

Effective vision statements exhibit five characteristics that can be used as guidelines for
writing or evaluating vision statements. Any vision statement that scores a 5 out of 5 on these
characteristics is exemplary. In Chapter 2, this vision statement assessment technique is referred
to as “The 5 out of 5 Test.”

1. Clear: reveals type of industry and what firm strives to become

2. Futuristic: reveals what the firm strives to become or accomplish within 5 years
3. Concise: one sentence in length
4. Unique: reveals the firm’s competitive advantage
5. Inspiring: motivates readers to support the firm

As presented in the case, JPM’s actual vision statement is paraphrased as follows: “We
want to be the best financial services company in the world; our great heritage and excellent
platform allow this goal to be reached.” The vision statement is pretty good except that the words
heritage and platform are not that useful in the sense that being great in the past does not
guarantee success in the future, and most consumers will not know what the word platform
means in this context. Thus, arguably the vision statement is weak on four of the five
characteristics, with “concise” being the only characteristic met really well.

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 An improved vision statement for JPM could read as follows:

“Serving people and businesses, JPMorgan Chase & Co. strives to continue growing as the
global leader in financial services, especially investment banking, asset management, private
banking, private wealth management, and treasury & securities services.”

Mission Statement Analysis

The 10 desired characteristics of an effective mission statement are as follows:

1. Broad in scope; does not include monetary amounts, numbers, percentages, ratios, or
objectives
2. Concise; fewer than one hundred words in length
3. Inspiring
4. Identifies the utility of a firm’s products
5. Reveals that the firm is socially responsible
6. Reveals that the firm is environmentally responsible
7. Includes nine components: customers, products or services, markets, technology, concern for
survival/growth/profits, philosophy, distinctive competence, concern for public image,
concern for employees
8. Reconciliatory; resolves divergent views among stakeholders
9. Enduring but never cast in stone
10. Attracts customers; is written from a customer perspective

The 9 desired components of an effective mission statement are as follows:

1. Customers—Who are the firm’s present and potential customers?

2. Products or services—What are the firm’s major products or services?
3. Markets—Geographically, where does the firm compete?
4. Technology—Is the firm technologically current?
5. Concern for survival, growth, and profitability—Is the firm committed to growth and financial
soundness?
6. Philosophy—What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
7. Distinctive competence—What is the firm’s major competitive advantage?
8. Concern for public image—Is the firm responsive to social, community, and environmental
concerns?
9. Concern for employees—Are employees a valuable asset of the firm?

As indicated in the case, JPM’s actual mission statement is paraphrased as follows (and
critiqued by the authors with #’s referring to components):

“We are a worldwide leader in wholesale financial services (2), having clients that include
corporations, institutional investors, hedge funds, governments, and affluent individuals (1) in
more than 100 countries (3). Clients do business with JPM for its complete platform of financial
services combined with flawless execution (7).”

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 The critique indicates that the JPMorgan Chase mission statement lacks components # 4,
5, 6, 8, and 9. A proposed mission statement for JPMorgan Chase that includes the nine
components and meets the ten characteristics in less than 100 words total is provided below:

“We are a worldwide leader in financial services (2), having clients that include corporations,
institutional investors, hedge funds, governments, and affluent individuals (1) in more than 100
countries (3). Clients do business with JPM for its broad range of services combined with
flawless execution, technological advances, focus on integrity, contribution to communities, and
its dedicated, knowledgeable employees (4, 6, 7, 8, 9). We promise growth and financial
soundness for our shareholders (5).” (63 words)

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External Factor Evaluation (EFE) Matrix

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Competitive Profile Matrix

Financial Ratio Analysis

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Internal Factor Evaluation (IFE) Matrix

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Strength-Weakness-Opportunity-Threat (SWOT) Matrix

SO Strategies

1. Invest $5 billion in the Eastern USA to attract underserved government agencies and
universities (S1, O1, O5, O10).
2. Invest $5 billion to bolster the M&A business outside the USA (S2, O3, O7).
3. Continue to invest in technology, especially with new initiatives, such as opening new
accounts, mobile phone, and improved measures for clients to purchase stocks online (S4,
S5, S6, S7, S8, O1, O5, O8).
4. Open 200 new branches in the Eastern USA (S5, S6, O1, O6).

WO Strategies

1. Open 150 new lending centers that focus solely on lending to small businesses (W1, W2,
W5, O9).
2. Invest $5 billion in the Eastern USA to attract underserved government agencies and
universities (W1, W5, O1, O5, O10).
3. Invest $5 billion to bolster the M&A business outside the USA (W1, W4, O3, O7).
4. Remove duplicate titles across business units and from CEO Dimon’s title to create
clearer transparency, especially in light of possible deregulations within the industry
(W8, W9, O5).

ST Strategies

1. Continue the strategy of increasing the average pay of workers (S9, T8).
2. Invest $1 billion further in small business lending (S7, S8, T2).
3. Devote $100 million to ensuring payment platforms within the Commercial Banking
segment are secure (S3, T4).

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 4. Continue to invest in technology, especially with new initiatives, such as opening new
accounts, mobile phone, and improved measures for clients to purchase stocks online (S4,
S5, S6, S7, S8, T2, T5, T6).

WT Strategies

1. Invest $5 billion in the Eastern USA to attract underserved government agencies and
universities (W1, W5, T2, T3, T6).
2. Divest 30% of the M&A business (W1, W3, T1).
3. Invest $1 billion to bolster the credit card business focusing on themed cards that are tied
to stores, gas stations, universities, and similar organizations (W1, W2, W6, T5).
4. Invest $1 billion in India mainly devoted to underwriting of new Indian companies going
public (W7, T8, T9).

Strategic Position and Action Evaluation (SPACE) Analysis

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Boston Consulting Group (BCG) Matrix Analysis

1. Consumer & Community Banking

2. Corporate & Investment Banking
3. Commercial Banking
4. Asset & Wealth Management

Internal-External (IE) Matrix Analysis

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1. Consumer & Community Banking
2. Corporate & Investment Banking
3. Commercial Banking
4. Asset & Wealth Management

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Grand Strategy Matrix Analysis

Quantitative Strategic Planning Matrix (QSPM) Analysis

Strategy 1: Invest $5 billion to bolster the M&A business outside the USA.
Strategy 2: Invest $1 billion further in small business lending.

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Recommendations with Associated Costs

1. Invest $5 billion in the Eastern USA to attract underserved government agencies and
universities.
2. Invest $5 billion to bolster the M&A business outside the USA.
3. Open 200 new branches in the Eastern USA for a cost of $300 million.
4. Remove duplicate titles across business units and from CEO Dimon’s title to create
clearer transparency, especially in light of possible deregulations within the industry.
5. Invest $1 billion further in small business lending.

Total Costs = Rounded to $11 billion

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Organizational Chart Analysis

Chapter 7 presents 15 guidelines for developing an effective organizational chart, as

follows:

1. Instead of chairman of the board, make it chairperson of the board.

2. Make sure the board of directors reveals diversity in race, ethnicity, gender, and age.
3. Make sure the chair of the board is not also the CEO or president of the company.
4. Make sure the CEO of the firm does not also carry the title president.
5. Reserve the title president for the division heads of the firm.
6. Include a COO if divisions are large or geographically dispersed.
7. Make sure only presidents of divisions report to the COO.
8. Make sure functional executives such as CFO, CIO, CMO, CSO, R&D, CLO, CTO, and
HRM report to the CEO, not the COO.
9. Make sure every executive has one boss, so lines in the chart should be drawn accordingly,
assuring unity of command.
10. Make sure span of control is reasonable, probably no more than 10 persons reporting to any
other person.
11. Make sure diversity in race, ethnicity, gender, and age is well represented among corporate
executives.
12. Avoid a functional type structure for all but the smallest firms.
13. Decentralize, using some form of divisional structure, whenever possible.
14. Use an SBU type structure for large firms with more than 10 divisions.
15. Make sure executive titles match product names as best possible in division-by-product and
SBU-designated firms.

In January 2018, JPM appointed Daniel Pinto, CEO of its Corporate & Investment Bank,
and Gordon Smith, CEO of Consumer & Community Banking. They have been appointed co-
presidents and co-chief operating officers of the company, continuing to report to Jamie Dimon,
Chairman and CEO. Perhaps those appointments are part of a broader shift within JPM to a
strategic business unit (SBU type organizational structure whereby numerous by-product or by-
region executives report to Pinto and Smith).

Exhibit 1 - JPM’s Top Executives and Organizational Structure

1. Jamie Dimon, Chairman of the Board and CEO

2. Mary Callahan, Erdoes Asset and Wealth Management CEO
3. Douglas Petno, Commercial Banking CEO
4. Daniel Pinto, Corporate and Investment Bank CEO
5. Gordon Smith, Consumer and Community Banking CEO
6. Ashley Bacon, Chief Risk Officer
7. Lori Beer, Chief Information Officer
8. Stacey Friedman, General Counsel
9. Marianne Lake, CFO
10. Robin Leopold, Head of Human Resources

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 11. Peter Scher, Head of Corporate Responsibility
1

2 3 4 5 6 7 8 9 10 11

Author Suggestions to Improve the Organizational Chart Presented in the Case

1. #2, #3, #4, and #5 should all become Presidents of regions, such as President Northeast
USA, President Southeast USA, President Western USA, President Outside USA and all
report to new-to-be-hired COO. There is need to monitor and maximize each branch
office as a separate profit center, headed by a branch manager. This whole structure
should be a strategic business unit, (SBU) with the units being by-region, and numerous
state regional managers reporting to their respective SBU President.
2. Jamie Dimon should be either CEO or Chair of the Board, not both, so appoint a
replacement for the position he relinquishes. We suggest that he become Chair of the Board
and let #2, #3, #4, or #5 be CEO.
3. Change Chairman to Chair or Chairperson.
4. The new chart should look something like the following:

2 3 4 5 6 7

8 9 10 11

Note: #8 through 11 are the new regional Presidents reporting to the new COO (#4).

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Perceptual Map Analysis

Corporate Valuation Analysis (in millions)

EPS/EBIT Analysis (in millions)

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Projected Financial Statements (in millions)

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Notes:

1. Financed 100% through equity in projected year 2.

2. Property Plant & Equipment forecasted to increase $1 billion from our recommendations
all in projected year 2.

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Retained Earnings Table (in millions)

Projected Financial Ratio Analysis

Epilogue

JPM had a really strong, positive Q2 of 2018, as indicated below for each of its four
reporting segments:

1) Consumer and Community Banking (CCB) - Revenue was $12.5 billion, an increase of 10
percent. Net income was $3.4 billion, an increase of 53 percent. CCB revenue was $6.1 billion,
up 17 percent, due to higher net interest income as a result of higher deposit margins and growth.
Home Lending net revenue was $1.3 billion, down 6 percent. Card, Merchant Services & Auto
net revenue was $5.0 billion, up 6 percent.

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2) Corporate and Investment Banking (CIB) - Net income was $3.2 billion, an increase of 18
percent. Revenue was $9.9 billion, up 11 percent. Banking revenue was $3.5 billion, up 9
percent. Investment Banking revenue was $1.9 billion, up 13 percent. Treasury Services revenue
was $1.2 billion, up 12 percent, due to higher interest rates and growth in operating deposits.
Lending revenue was $321 million, down 14 percent. Markets & Investor Services revenue was
$6.5 billion, up 12 percent. Fixed Income Markets revenue was up 12 percent. Securities
Services revenue was $1.1 billion, up 12 percent.

3) Commercial Banking (CB) - Net income was $1.1 billion, an increase of 21 percent. Revenue
was $2.3 billion, up 11 percent.

4) Asset and Wealth Management (AWM) - Net income was $755 million, an increase of 21
percent. Revenue was $3.6 billion, an increase of 4 percent.

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