Executing business simplification
J.P. Morgan (JPM) is trying to simplify its businesses. The aim is to reduce risk and focus resources on its key businesses. Some of the businesses it’s selling seemed promising originally but aren’t really working for the company. Others don’t fit the new regulatory environment or are relatively insignificant in terms of size.
Key business exits
The chart above lists the bank’s business simplification efforts so far. Here are some of its key business exits:
- One Equity Partners – One Equity Partners is a leading private equity firm. Its spin-off was motivated by J.P. Morgan’s emphasis on its client businesses. Another motivating factor was that the bank’s clients include a few leading private equity firms, and the bank didn’t want to compete directly with them.
- physical commodities business – Many banks have exited or scaled down commodities market participation including Morgan Stanley (MS), Deutsche Bank, Royal Bank of Scotland, and UBS, among others. Deteriorating commodities markets, newer regulatory norms requiring better capital deployment by banks, and regulatory concerns about oversight and control of commodities operations are driving these exits.
- student loan origination – Several large US banks exited the student loan market after the government’s decision to grant loans directly to the students. For example, Bank of America (BAC) and Citigroup (C) both exited private student lending. Wells Fargo (WFC) is the only one of the “big four” banks still active in this market.
- mortgage banking products – These were simplified and reduced from 37 to 18. The objective was to reduce complexities and associated risks. Mortgage banking products are considered to be the chief culprits in precipitating the financial crisis.
Politically Exposed Persons relationships
In an effort to clean up its reputation, the bank exited ~8,000 client relationships in business and commercial banking and ~5,500 foreign Politically Exposed Persons, or PEP, relationships. The term PEP generally includes current or former senior foreign political figures, their immediate family, and their close associates. PEPs typically present a higher risk of involvement in bribery and corruption by virtue of their position and influence.
J.P. Morgan forms ~1.2% of the iShares Core S&P 500 ETF (IVV).