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Managing Operational Risk & Governance Case Study Solutions
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As one of the world’s oldest, largest and well-known financial institutions, JPMorgan Chase & Co’s history goes all the way back to 1799 in New York City. The company’s many heritage firms include J.P. Morgan & Co, The Chase Manhattan Bank, Bank One, Manufacturers Hanover Trust Co, Chemical Bank, The First National Bank of Chicago, National Bank of Detroit, The Bear Stearns Companies Inc, Robert Fleming Holdings, Cazenove Group and the business acquired in the Washington Mutual transaction. From J.P. Morgan & Co, the company was renamed as J.P. Morgan Chase & Co after its merger with The Chase Manhattan Corporation in 2000. Four years later, it merged with Bank One Corporation, retaining the name JPMorgan Chase & Co.
JPMorgan Chase & Co provides global financial services and retail banking. The company provides services such as investment banking, treasury and securities services, asset management, private banking, card member services, commercial banking and home finance. JPMorgan Chase & Co serves business enterprises, institutions and individuals. JPMorgan Chase & Co is the largest bank holding company in the US and a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management.
The company operates through nearly 5,000 branches in about 40 states and Washington D.C. Its principal bank subsidiary is JPMorgan Chase Bank, National Association, a national banking association; while its principal non-bank subsidiary is J.P. Morgan Securities LLC, a US broker-dealer. Both of its subsidiaries operate nationally and overseas through branches, representative office and subsidiary foreign banks.
JPMorgan Chase & Co’s operations are divided into four major business segments: Consumer & Community Banking, Corporate & Investment Bank, Asset & Wealth Management and Commercial Banking. The company makes 55% of its revenue from interest income.
The Consumer & Community Banking business comprises the entirety of the company’s consumer business and accounts for over 40% of revenue. It offers consumer and business banking (including J.P. Morgan Wealth Management), home lending production and servicing, real estate portfolios, credit cards, auto loans and leases. The segment’s touch points include bank branches, ATMs, online, mobile and telephone.
JPMorgan Chase & Co’s other three segments all fall under the wholesale business category and are active in a vast number of areas such as investment banking, fixed income and equity markets, middle market banking, asset management and wealth management, among other things. With regards to total revenue, Corporate & Investment Banking brings in 40%, Asset & Wealth Management more than 10% and Commercial Banking less than 10%.
JPMorgan Chase & Co’s consumer loans account for more than 45% of loan portfolio.
Headquartered in New York, JPMorgan Chase & Co operates nearly 5,000 retail branches in about 40 states. North America accounts for over 75% of total sales; Europe, the Middle East and Africa, some 15% and Asia/Pacific and Latin America account for the remaining revenue.
JPMorgan Chase & Co has seen solid revenue growth in recent years, reflecting the strong US economy and solid consumer confidence levels.
Table 1. Financial Performance of JPMorgan Chase & Co
|12 Months Ending- JPMorgan Chase & Co (in Thousands of $)||Financial Year 2020||Financial Year 2021|
|Book Value of Equity||249,291,000.0||259,289,000.0|
|Net Revenue, Adjusted||119,543,000.0||121,649,000.0|
|Growth %, Year over Year||3.6||1.8|
|Operating Income, Adjusted||36,522,000.0||59,988,000.0|
|Net Income, Adjusted||28,290,850.0||46,839,540.0|
|Earnings Per Share, Adjusted||9.17||15.47|
|Growth %, Year over Year||-15.0||68.8|
|Tier 1 Common Equity %||13.10||13.00|
|Tier 1 Capital Ratio %||15.00||15.00|
|Total Capital Ratio %||17.30||16.80|
Based on the information provided and your own research on JPMorgan Chase & Co, answer all questions.
- Outline the operational risk events that JPMorgan Chase & Co has experienced over the last 5 years and clearly outline the financial and non-financial impact of these events on the bank and wider financial system. Your answer should not include a discussion on the $125m fine for communication breaches levied in December 2021.
- Critically evaluate why the culture and operations of investment banks (focusing on JPMorgan Chase & Co) seem to create significantly more operational risk events than other participants in financial services/markets.
- Based on the events identified in question (1) and your response to question (2), evaluate how JPMorgan Chase & Co could have prevented these risks and better managed the consequences of these risk events. Your answer must also include an assessment of governance structures and any recommendations on improvements needed to regulatory oversight.
- In December 2021, JPMorgan Chase & Co were fined $125m for communication Given the increasing use of technology and social media communications, critically evaluate the challenges this creates to firms operating within the financial services sector and specifically how JPMorgan Chase & Co should respond in addressing the issues outlined by the Securities and Exchange Commission (SEC) in the $125m fine.
To support your initial understanding of JPMorgan Chase & Co you are encouraged to review their website which can be found here: https://www.jpmorgan.com/about [Accessed: 31 January 2022].
The share price performance of JPMorgan Chase & Co can be found here: https://www.marketwatch.com/investing/stock/ipm [Accessed: 30 June 2022]. You are recommended to view it over the last 5 years.
It is important to note that as part of your preparation for writing this assignment you should undertake research of your own, drawing upon a wide range of objective sources.
- ipmorgan.com [Accessed: 31 January 2022]
- bloomberg.com [Accessed: 31 January 2022]
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