Real Client Managed Portfolio Memorandum

ANALYST: Steve Proffer, Bo (Kate) Dong, Gleb Zarkh

SUBJECT: JP Morgan Chase & Co.

DATE: March 13, 2007

Current Position

RCMP currently holds 924 shares of JP Morgan Chase & Co. (JPM). As of the close on March 11, 2007, JPM was trading at $48.84 for a total market value in our portfolio of $45,128.16. Since purchasing 700 Bank One shares in October of 1999, this stock has appreciated 86.19% for an unrealized gain of $20,890.72.

Current Issues

·  FY 2006 showed increased revenues driven by investment banking, trading activity, and retail banking activities

·  Loan and deposit spreads are likely to experience continued compression due to the interest rate and competitive environments.

·  JPM has shown continued focus on retail banking division by acquiring Bank of New York’s 339 branches

Recommendation: Hold

Discussion

A calculation of equity cash flow analysis indicates that JPM stock is slightly undervalued in the market. Using realistic estimates, the intrinsic value of a share of JPM is $50.42±10%. The decision to hold JPM results from their continued focus on their retail banking division. While they are subject to economic conditions, we believe the company will better adjust to contractions in the economy from maintaining this focus. The major risks facing JPM looking forward are a decrease in loan and deposit spreads increased interest rates that may adversely affect their credit card services division, which they have expanded in 2006 by acquiring two companies. Additionally, the investment banking, asset management, private equity, and mortgage divisions of the company may see revenue declines for 2007 as the economy slows. JPM’s liquidity is critical to its ability to operate its businesses, grow and be profitable. A reduction to their liquidity could therefore have a negative effect on the company. Potential conditions that could negatively affect the Firm’s liquidity include diminished access to capital markets, unforeseen cash or capital requirements and an inability to sell assets.