JP Morgan Chase Props Up Ailing Bear Stearns

Michael Nagle

Thesis

In this article, I will conduct a comparison among JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), and Wells Fargo & Company (WFC). The valuation of the three largest

TABLE OF ASSUMPTIONS
(Current data)
Equity Value 258,667.00
Debt Value 690,216.00
Cost of Debt 1.22%
Tax Rate 8.56%
10y Treasury 3.80%
Beta 1.22
Market Return 10.50%
Cost of Equity 11.97%
Net Income 30,503.00
Interest 8,433.84
Tax 2,612.00
D&A 1,954.00
Ebitda 43,502.84
D&A Margin 2.02%
Interest Expense Margin 8.72%
Revenue 96,772.0

CAPM
Risk-Free Rate 3.80%
Beta 1.22
Market Risk Premium 6.650%
Required Rate of Return 11.913%

Terminal Value Calculation
Assumptions
CAPM 11.91%
Growth Rate -2.98%
EV / EBITDA 6.53

Operating Assets -42,360.0
Book value 287,062.0
Operating Assets / Revenue -45.84%
Book Value / Revenue 296.64%

Revenue Operating Income Plus D&A Plus Interest
2023 $100,830.0 $29,330.0 $31,365.94 $40,153.44
2024 $100,800.0 $28,039.0 $30,074.33 $38,859.22
2025 $105,023.5 $33,463.9 $35,584.54 $44,737.52
2026 $109,424.0 $34,866.1 $37,075.53 $46,612.02
2027 $114,008.9 $36,327.0 $38,628.99 $48,565.06
2028 $118,785.8 $37,849.1 $40,247.55 $50,599.94
^Final EBITA^

TABLE OF ASSUMPTIONS
(Current data)
Equity Value 161,696.00
Debt Value 310,998.00
Cost of Debt 2.20%
Tax Rate 13.70%
10y Treasury 3.80%
Beta 1.21
Market Return 10.50%
Cost of Equity 11.91%
Net Income 18,356.00
Interest 6,832.73
Tax 2,514.00
D&A 6,014.00
Ebitda 33,716.73
D&A Margin 7.86%
Interest Expense Margin 8.93%
Revenue 76,492.0

Terminal Value Calculation
Assumptions
CAPM 11.85%
Growth Rate -0.12%
EV / EBITDA 7.38

CAPM
Risk-Free Rate 3.80%
Beta 1.21
Market Risk Premium 6.650%
Required Rate of Return 11.847%

Operating Assets -7,605.0
Book value 182,373.0
Operating Assets / Revenue -10.53%
Book Value / Revenue 238.42%

Revenue Operating Income Plus D&A Plus Interest
2023 $82,500.0 $20,971.0 $27,457.36 $34,826.77
2024 $80,860.0 $20,267.0 $26,624.42 $33,847.33
2025 $81,668.6 $19,924.5 $26,345.52 $33,640.66
2026 $82,485.3 $20,123.8 $26,608.97 $33,977.06
2027 $83,310.1 $20,325.0 $26,875.06 $34,316.83
2028 $84,143.2 $20,528.3 $27,143.81 $34,660.00
^Final EBITA^

TABLE OF ASSUMPTIONS
(Current data)
Equity Value 289,967.00
Debt Value 752,569.00
Cost of Debt 1.30%
Tax Rate 23.94%
10y Treasury 3.80%
Beta 1.1
Market Return 10.50%
Cost of Equity 11.17%
Net Income 51,253.00
Interest 9,778.91
Tax 12,270.00
D&A 5,846.00
Ebitda 79,147.91
D&A Margin 4.10%
Interest Expense Margin 6.87%
Revenue 142,431.0

Terminal Value Calculation
Assumptions
CAPM 11.12%
Growth Rate 0.34%
EV / EBITDA 9.72

CAPM
Risk-Free Rate 3.80%
Beta 1.1
Market Risk Premium 6.650%
Required Rate of Return 11.115%

Operating Assets -20,240.0
Book value 317,371.0
Operating Assets / Revenue -16.55%
Book Value / Revenue 222.82%

Revenue Operating Income Plus D&A Plus Interest
2023 $159,888.0 $61,478.0 $68,040.51 $79,017.97
2024 $159,660.0 $57,008.4 $63,561.58 $74,523.39
2025 $174,811.7 $81,811.5 $88,986.53 $100,988.61
2026 $191,401.4 $89,575.4 $97,431.36 $110,572.43
2027 $209,565.4 $98,076.1 $106,677.59 $121,065.75
2028 $229,453.1 $107,383.5 $116,801.30 $132,554.89

^Final EBITA^

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