jpmorgan chase (jpm) earnings report: q1 2016 conference ... · jpmorgan chase (jpm) earnings...
TRANSCRIPT
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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JPMorganChase(JPM)EarningsReport:Q12016ConferenceCallTranscriptThefollowingJPMorganChaseconferencecalltookplaceonApril13,2016,08:30AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
MarianneLake;JPMorganChase&Co.;CFOJamieDimon;JPMorganChase&Co.;Chairman&CEOJasonScott;JPMorganChase&Co.;InvestorRelationsSarahYoungwood;JPMorganChase&Co.;ConsumerBanking
OtherPart icipants
MatthewBurnell;WellsFargo;AnalystGlennSchorr;EvercoreISI;AnalystBetsyGraseck;MorganStanley;AnalystGerardCassidy;RBC;AnalystMichaelMayo;CLSA;AnalystBrianForan;AutonomousResearch;AnalystJohnMcDonald;Bernstein;AnalystErikaNajarian;BoAMerrillLynch;AnalystMattO 'Connor;DeutscheBank;AnalystJimMitchell;BuckinghamResearch;AnalystStevenChubak;NomuraSecuritiesCo.,Ltd.;AnalystBrennanHawken;UBS;AnalystEricWasserstrom;Guggenheim;AnalystPaulMiller;FBR;AnalystKenUsdin;Jefferies;AnalystChristopherWheeler;AtlanticEquities;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometoJPMorganChase'sfirst-quarter2016earningscall.
Thiscallisbeingrecorded.
(OperatorInstructions)
Wewillnowgolivetothepresentation.Pleasestandby.
Atthistime,IwouldliketoturnthecallovertoJPMorganChase'sChairmanandCEO,JamieDimon;andChiefFinancialOfficerMarianneLake.
Ms.Lake,pleasegoahead.
MarianneLake (CFO):
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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Thankyou,Operator.Goodmorning,everyone.
I'mgoingtotakeyouthroughtheearningspresentationwhichisavailableonourwebsite.Pleaserefertothedisclaimerregardingforward-lookingstatementsatthebackofthepresentation.
Startingonpage1.TheFirmreportednetincomeof$5.5billion,EPSof$1.35,andareturnontangiblecommonequityof12%on$24billionofrevenue.Anddespitethegeneralmarketbackdropandenergy,ourresultsthisquarterwerequitegood,andprettystraightforward.Consumersremainonsolidfooting,leadingtorobustgrowthinbusinessdriversandstrongfinancialperformance.InConsumerwesawdoubledigitgrowthindepositsyearonyear,healthyloangrowthacrossproductsdriving17%coreloangrowthfortheFirm,andhighsingledigitcardsalesvolumes.Thewholesalebusinessesperformedinline,orbetterthanexpectationsexpressedatInvestorDay,anddelivereddecentfinancialresultsinchallengingmarketswithsignificantvolatilityandglobalmacrouncertainty.
TheFirm'sresultsincludedonesignificantitem,[$713]millionofwholesalecreditcosts,ofwhich$529millionrelatedtooil&gasreservesand$162millioninmetalsandminingreserves,whichweregenerallyinlinewith[ourguidance].Butwealsoexperiencedsomecharge-offsthisquarterinthesesectorstotaling$48million,(technicaldifficulties)guidanceofupto$4.75billionofcharge-offsthisyear.
WhileoilpriceshaveimprovedsomewhatinMarch,theydoremainnearhistoricallylowlevelsandthemarketisnotexpectingtherecoverytobestrong.Furthernaturalgas,whichisameaningfulportionofourportfolio,doesremaindepressed.Wedon'tfeelthatcurrentpricesaresufficientto[spare]ameaningfulrestartofproduction.Andmanyofthecostreductionsandconservationactionsthathavebeentakenarenoteasilyandquicklyreversed.Therefore,theimpactofoilpricesissomewhatasymmetriconcreditcosts.
Reservesaremainspecific.They'rebasedondowngradesreflectingtheactualfinancialconditionandthe[crediting]positionofborrowers.Assuch,welikelywillseesomeincrementalreservebuildsfortherestoftheyear,buttheywillbeincreasinglysituationspecificandourabilitytoestimatethemwillimproveovertime.Howeverusingreasonablestressassumptions,ondraws,downgradesandconsideringspin-overeffectstocloselyrelatedcompanies,thoseincrementalreservescouldreach$500million,plusorminus,thisyearbutwithaveryhighdegreeofvariabilityaroundthatnumber.
Wecontinuetobelieveoverallourclientbaseisrelativelywellpositionedtoweatherthisdownturn.Andwewillbetheretosupportthemwheneverfeasible.Wealsomonitorforcontagion.Andasidefromexperiencingacoupleofmainspecificissuesinverycloselyrelatedcompaniesandobservingsomegeneralstressinoilregions,wearenotseeinganythingbroadbasedandwouldnotexpectlossestobesignificant.
Movingontopage2.Pausingonthispageforjustamoment,afewcommentsfromoverallrevenueandexpense.Wetoldyouthatthefirstratehike,togetherwithourstrongloangrowth,woulddrive2016NIIhigherby$2billion.Andthe$700millionincreaseinnetinterestincomeyearoveryearthatyouseehereisinlinewiththat.HoweversequentiallyNIIwasonlyupslightlyasexpected,giventheabsenceofcertainsecuritiesgainsthatwehadinthefourthquarter,aswellasdaycount.
Non-interestrevenuewasdown$1.5billionyearonyear,primarilydrivenbythemarketenvironmentinboththeCorporate&InvestmentBankaswellasAssetManagement,withthebiggestdriversbeinglowerIBCsandfixedincomemarketsrevenue.Inbothcaseversusaverystrongprioryear.Adjustedexpenseof$13.9billionwasdown2%yearonyearonlowerperformance-basedcompensationwhilecontinuingtoself-fundincrementalinvestmentsandgrowth.
Turningtopage3.TheFirm'sfullyphased-inadvancedfeeET1ratiowas11.7%,withstandardizedat11.9%.Theimprovementtobothratioswasdrivenprimarilybynetcapitalgeneration.Recallthatwe
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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endedtheyearwithverylowlevelsofinventory,andasexpectedwedidseethatreversewithourspotbalancesheetup$70billionquarteronquarterreflectinggrowthindepositsandanincreaseintradingassetsandsecurefinancingactivity.ThisalsodroveaslightincreaseinRWA,netofrun-offandmodelcalibration.
FirmSLRimprovedto6.6%.Andwereturned$3billionofnetcapitaltoshareholdersthisquarter,including$1.3billionofnetrepurchasesandcommondividendsof$0.44ashare.Lastly,theFeddidnotobjecttoa$1.9billionincreaseinourcapitalplan,givingincrementalcapacityforrepurchasesnextquarter.
Movingontopage4andConsumerandCommunityBanking.You'llnoticethatweconsolidatedConsumerintoonepage,andforyourreferencewe'veincludedtheoldpagesintheappendix.CCBgenerated$2.5billionofnetincomeandanROEof19%withstrengthacrossalllinesofbusiness.AndTNSjustannouncedthatforthefourthconsecutiveyearwearetheNumberOneconsumerretailbank,reflectingourabilitytoattract,satisfyandretaincustomers.Thefundamentalbusinessdriversremainstrong,withaverageloansup12%yearonyearandcoreloansup25%drivenbymortgageandautobutwithstrengthacrossproducts.Andwesawrecorddepositgrowthof$50billion,up10%.
Weaddedoveronemillionhouseholdssincelastyear.Andouractivemobilecustomerbasewasup19%.Revenueof$11.1billionwasup4%yearonyear,andup1%sequentiallyifyouexcludefromlastquarternearly$200millionfromtheSquareIPOandabranchsale.InConsumer&BusinessBankingrevenuewasup4%yearonyearreflectingthatrecorddepositgrowthImentioned,aswellashigheraccountandtransactionvolumes,andinvestmentrevenueup4%despitethechallengingenvironment.
Mortgagerevenueincreased7%onhigherMSRriskmanagementandstrongloangrowth,partiallyoffsetbylowerservicingrevenue.CardCommerceSolutionsandAutorevenuewasup[2%]onstrongautoloanandleasegrowth,8%growthincardsalesand12%inmerchantprocessingvolumes,allofwhichmorethanoffsettheimpactofcardrenegotiations.Expensewasdown2%yearonyearwithanoverheadratioimprovingto55%aswecontinuedtomakeprogressagainstourcommitments,morethanoffsetting$200millioninincrementalmarketingandautoleasegrowth.Finally,credittrendsintheConsumerbusinessescontinuetobefavorable.
Nowturningtopage5andtheCorporateandInvestmentBank.CIBreportednetincomeof$2billiononrevenueof$8.1billionandanROEof11%.Inbanking,IBrevenuewas$1.2billion,down24%yearonyeardrivenbylowerequityanddebtunderwritingfees,butinlinewiththemarketwhichwasdown27%.WecontinuetoranknumberoneinglobalIBCsandranknumberoneinthreeregions:NorthAmerica,EMEAandLatAm.
Itwasanotherstrongquarterforadvisory,up8%,versusawalletthatdeclined15%.Wegainedshare,rankingnumberone,aswebenefitedfromanumberofdealsthatwereannouncedin2015andclosedthisquarter.Equityunderwritingfeesweredown49%,inlinewiththemarket,asvolatilitykeptissuersonthesidelines.Wemaintainedournumberonerankgloballyandincreasedourlead.
Debtunderwritingfeesweredown35%.Andwhileweweredownmorethanthemarket,itcanbeexplainedbyatoughcomparisonwithseverallargeacquisitionfinancedealsinthefirstquarteroflastyear,aswellasbeingconflictedoutofseverallargedealsthisquarter.
IntermsoftheoutlookweexpectasequentialdeclineinM&Atobemorethanoffsetbyanincreaseindebtandequityunderwriting,iftherecentmarketimprovementscontinue.Treasuryservicesrevenuewasdown5%drivenbybusinesssimplification.Lendingrevenuewasdown31%primarilyreflectingmark-to-marketchangesonbothhedgesofaccrualloansandsecuritiesreceivedfromrestructuring.
Movingontomarkets.Marketsrevenuewas$5.2billionandwasdown11%yearonyear,reflectingdecent
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
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performancegiventheenvironmentandespeciallyinlightofthestrengthinthe[first]quarterof2015wherewesawelevatedclientwalletandtrading,particularlyinJanuarylastyearparticularlyaroundtheSwissfrancevent.Infactifyouindulgeme,adjustingforouroutperformanceyearoveryearresultswouldhavebeendownbymidsingledigits.
Fixedincomerevenuewasdown13%.Thefirstcoupleofmonthsofthisquarter,asyouknow,werechallengingacrossmarkets,butissomestabilityreturnedinMarch.AndoverallIwouldcharacterizethequarterasseeingreasonablysolidclientactivity,butgiventhemarketbackdropitwasmoredifficulttomonetizeflows.Wesawbetterperformanceinratesandlowerperformanceacrossotherassetclasses.
Equitymarketsrevenuewasdown5%.Andalthoughflowsweresteady,idiosyncraticeventsandsharpmovesweretoughforourclients,bothonthewaydownandbackup.Asiaequitiescontinuedtooutperform,drivenbymarketvolatilityparticularlyinJapan.
Withrespecttothesecondquarter,therelativestabilitywesawinMarchhascontinuedintoAprilsofar;however,it'salsothecasethatmarketsarestillquiteilliquidincertainpartsandwillbepronetosomewhat[abrupt]corrections.Sowhileinvestorshavestartedtodeploycashandcapitalmarketsarewideopenforwellunderstoodnames,thereisstillremainingcautionformorechallengingissuers.
Althoughthere'sbeennoiseinthedataglobally,thereisanemergingbeliefthatit'sfundamentallybetterbutweneedtocontinuetoseenodownwardsurprises.Andassuch,weremainsomewhatcautiousaboutthesecondquarter.
Securityservicesrevenuewas$881million,inlinewithguidance.Creditadjustmentsandotherwasalossof$336million,mainlydrivenbyCVAonspreadwidening.Creditcostsof$459millionweredrivenbyreservebuildsforoilandgasandmetalsandmining,asdiscussedearlier.
Finally,expenseof$4.8billionwasdown15%yearonyeardrivenbylowerperformance-basedcompensationandlowerlegalexpense,withacomp-to-revenueratioforthequarterof32%.
Movingontopage6andCommercialBanking.TheCommercialBankgeneratednetincomeof$500milliononrevenueof$1.8billionandanROEof11%.Outsideofcreditcostsforoilandgasthefirstquarterwasverysolidperformance.
Revenuewasup4%yearonyear,drivenbyhigherloanbalancesanddepositnetinterestincomeoffsetbylowerIBrevenuesversusarecordlastyear.Expenseof$713millionwasup1%yearonyearanddown5%quarteronquarter,butinlinewithrecenttrendsifyouexcludetheimpairmenttakenonleasedcorporateaircraftlastquarter.
Wesawstronggrowthinourloanbookwithaverageloanbalancesup13%yearonyearand3%quarteronquarter,andwithportfoliospreadsrelativelyflatforacoupleofquartersnow.Ourcommercialrealestatebusinesscontinuedtoexceedtheindustrywithgrowthof18%yearonyearreflectingsuperiorexecutionwhilemaintainingcreditdiscipline.
InC&Iloanswereup9%yearonyeardrivenbyrobustoriginationsincorporateclientbanking.Finallyoncredit,weadded$300milliontoreserves,mostlyrelatedtooilandgas,butwecontinuedtoseeverylownetcharge-offs.
Movingontopage7,andAssetManagement.AssetManagementreportednetincomeof$587millionwitha30%pretaxmarginand25%ROE.
Revenueof$3billionwasdown1%yearonyeardrivenbyweakermarketsandlowerbrokeragerevenues.Excludingtheimpactofthesaleofanassetthisquarterwhichcontributed$150milliontotherevenuenumber,adjustedrevenueAUMandclientassetsweredowneachgenerallyinlinewithlower
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
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markets.
Expenseof$2.1billionwasdown5%yearonyearlargelydrivenbylowerperformance-basedcompensation.Despitetheselowermarketswesawpositivelong-termflowsof$12billionthisquarterwithstrengthinfixedincomemulti-assetsandalternatives,andincludingthebenefitofalargemandatebeingpartiallyoffsetbyoutflowsinequityproductsgivenvolatility.
Ourlong-terminvestmentperformanceremainsstrong,with80%ofmutualfundAUMrankedinthefirstorsecondquartilesoverfiveyears.Loanbalancesof$110billionwereup7%yearonyear,withrecordmortgagebalancesup20%andsolidgrowthintraditionallending.
BeforeImoveon,asyou'reawaretheDepartmentofLaborissuedthefinalfiduciaryrulelastweek.It'salongandcomplexsetofrequirementsanddetailswillmatter.Itwilltaketimetofullydigest.
Onfirstreadtherearenosignificantnewprovisionsfromtheproposalthatwouldchangeourposition,whichisthatwe'vebeenafiduciaryforover150years.Andbasedonourcurrentadvisorybusinessweareconfidentinourabilitytoadjustandbesuccessful.Perhapsoneofthebiggestpositivesisthelongertimetoimplement,whichallowsustobeevenbetterprepared.
Skippingpage8,asweactuallyhavenothingsignificanttocalloutonCorporateandIwillmoveontotheoutlookonpage9.We'veincludedourguidancefromInvestorDayonthepage.It'sunchanged,soIwon'tgothroughit.Justtwonewpointstohighlight,forAssetManagement.Thefirst-quarterrevenuesadjustedforthe$150millionwerealittleover$2.8billion.Andassumingrelativelyconstructivemarketswewouldexpectthoserevenuesinthesecondquartertobeflattoup,buttobelessthan$3billion.Andobviouslyexpensewillalsobeflattoupinlinewiththoserevenuesonperformance-basedcompensation.
IntheCommercialBankweexpectrevenueswillbeupmodestlyoncontinuedloangrowth,butwealsoexpectexpensestoincreasetoabout$725millionasweaddbankersandexecuteonourtechnologyandproductinvestmentstrategies.Theupshotofwhichisweexpectpre-provisionnetrevenuefortheCommercialBanktoberelativelyinlinewiththefirstquarter.
BeforemovingtoQ&A,Iwanttomakeafewcommentsaboutthenewsthismorningregardinglivingwills.Obviouslyweweredisappointedwiththeconclusionreachedbythejointagenciesonourresolutionplan.Wehavetakenthisplanningprocessveryseriously,andwebelievewe'vemadesubstantialprogress.Havingsaidthat,themostimportantthingisweworkwithourregulatorstounderstandtheirfeedbackfullyandinmoredetail.Andwearefullycommittedtomeetingtheirexpectations.
Sowrappingup,despitechallengingmarketconditionswedeliveredreallyquitegoodperformanceinthequarterwithdiversificationallowingustoperformwellindifficultenvironmentsandbethereforourclients.Operator,youcanopenuptoQ&A.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
MatthewBurnell.
MatthewBurnell(Analyst-WellsFargo):
Goodmorning.Thanksfortakingmyquestions.Marianne,maybeacoupleofquestionsonenergy.
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
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YounotedthattheprovisionwasslightlyaboveyourguidancethisquarterrelativetowhatyoumentionedyouthoughtitmightbeinlateFebruary.IguessI'mcuriousintermsofwhatyourexpectationsareintermsofyourguidancerelativetopotentialdraw-downs,particularlyinthe$10billionofhighyieldloansthatyouhaveundrawn?
Andwhatyourabilityistopotentiallymitigatepotentialdraw-downsbasedonthefinancialconditionofyourborrowers?
MarianneLake (CFO):
SothefirstthingI'dsayiswithrespecttooilandgas,obviouslyIthink$529millionisprettycloseto$500million,plusorminus.Sothatwasprettymuchinline.Butyouaresayingit'llbealittlebithigherwithmetalsandmining.Wewereexpectingcloseto$100millionandtherewereacoupleofextradowngradesthatcamethroughinthequarter,andthatkindoftimingisgoingtohappen.Itdoesn'tchangetheoverallsortofperspectiveforus.
Withrespecttodraws,whenIgavesomesortofindicativeguidanceaboutwhatyoumightexpecttoseepotentiallyintherestoftheyearintermsofreservebuild,wedotrytotakeintoconsiderationthelikelihoodthatwewillseeincrementaldraws.Andclearlywewillworkwithborrowerstotryandhelpthemsuchthatthatmaynotbenecessary,andinothercaseswecanreduceourexposureinredeterminationcases.Butwewillexpecttoseedrawsandthat'scontemplatedinourguidance.
AndIwanttomakesurethateveryoneunderstoodthatwetriedtobeverycomplete.Sothisisnotjustoilandgasandmetalsandmining,asthe[Mace]Codewouldsuggest.We'velookedatverycloselyrelatedcompaniesinshippingandmarinetransportationandthelike.Sowe'retryingtobeverycomplete.
JamieDimon (Chairman&CEO):
We'veyettotakealoss.
MarianneLake (CFO):
Wehavetakenacouple.Notverymuch.
MatthewBurnell(Analyst-WellsFargo):
Fairenough,thatmakessense.Butthatdovetailsnicelyactuallyintomyfollow-up.Intermsofthewholesalenon-accrualbalances,thoseareupabout$1.2billionquarteroverquarter.
Canyougiveusasenseastohowmuchofthatwasenergyandmetalsandmining?Andwerethereotherareasoftheportfoliothataddedtothat?Andwhat'syouroutlookforwholesalenon-accrualsoverthecourseofthenextcoupleofquarters?
MarianneLake (CFO):
Soofthe$1.2billion,$1billionwasacombinationofoilandgasandmetalandmining,sothevastmajorityandoutsideofthat,consistentwithmycommentsoncontagion,there'snotanysortofthematicothernoteworthythingtomentiontoyou.Andobviouslyaswecontinuetowatchthecycleplayoutoverthenextseveralquartersandreevaluatesomeclientsthatmaybeexperiencingstress,it'slikelythatwewillseesomemoreMPLs.
ButIgaveyoucontextaroundwhatwe'reexpectingtoseeintermsofreserve.Sotheywillgoup,butnottonumbersIwouldconsidertobelargeinthecontextofourwholesaleportfolio.
Operator :
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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GlennSchorrwithEvercoreISI.
GlennSchorr (Analyst-EvercoreISI):
Hi.Justonefollow-up.Whatwasthedrawn-onenergyfacilitiesthisquarter?Itdoesn'tseemtobetoobig,but--andthenrelatedtothat,what'sthereserveasapercentageofdrawncreditrightnow?
MarianneLake (CFO):
Thedrawsareabout$1.3billioninthequarter.Sosomebutnotexcessive.Andafterthereservesthatweputupinthefirstquarterthecoverageratiois6.3%.
JamieDimon (Chairman&CEO):
Whatisitonbalanceandstuff?
MarianneLake (CFO):
Thatistheonbalancesheet.
GlennSchorr (Analyst-EvercoreISI):
Andthenmaybealittlebitofdifferentquestion.
MarianneLake (CFO):
SorryGlenn,justonthat6.3%,that'stheFirm.IfyoulookintheCommercialBank,obviouslyit'shigher.Soyou'vegotasortofadifferentportfoliomixintheCommercialBankversustheCIB.Soifit'ssomepartsofourportfolioit'scloserto9%or10%andinotherpartsit'slower.Sorry.Yoursecondquestion?
GlennSchorr (Analyst-EvercoreISI):
Iappreciatethat,andIthankyou.
Theotherquestionisongrowth.We'vebeenwaitingforalongtime,butyou'vebeenseeinggreatgrowthacrossalotofdifferentproducts.CREup18%andthecommercialbankC&Iup9%.
Atthisstageofthecycle,Iappreciatetheconsumer'sshowingalotofstrength.Isthereanygrowthwherewescratchourheadsandsaid,wowisthatgrowingtoomuch?Itsoundsfunnyformetobeaskingforlessgrowth,butjustcurioustogetyourthoughts.
MarianneLake (CFO):
It'saperfectlyreasonablequestion.AndobviouslywhenwelookatgrowthinCRE,orthecommercialrealestatebusiness,of18%it'sanobviousquestion,areyoudoingsomethingdifferent?Andtheansweris,nowe'renot.Wehaven'tchangedourgeographies,wehaven'tchangedourriskappetite.Itjustsimplyisthecasethatwehaveagoodprocessandwearecontinuingtofocusonoursortofcorecapabilitiesandourcorerisksegments.
Butwe'vebeenabletotakeadvantageoftheopportunitybecauseourprocessisbetter,andtoalesserdegree,butnonethelesstoadegree,giventhattheCMBSmarkethasbeensomewhatdisrupted.
Operator :
BetsyGraseckwithMorganStanley.
BetsyGraseck(Analyst-MorganStanley):
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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Hi,goodmorning.
MarianneLake (CFO):
Hi.
BetsyGraseck(Analyst-MorganStanley):
Ihaveaquestiononthelivingwills.Theindicationtodaywasthattherewerefourareasthatyouneededtoenhance.LiquiditywasoneofthoseandIwasalittlesurprisedtoseethat,giventhestrengthofyourliquiditybook.IguesswhatI'mwonderingis,doesthelivingwillsubmissionandthechangesthatyouhavetomakehaveanimpactonyourcurrentbusinessatall?
Inotherwords,doyouneedtobuildliquiditytomeettherequirementsthattheregulatorshave,orthisisinaobviouslyworsecasescenarioyou'dbuildatthattime?
MarianneLake (CFO):
SoBetsyobviously,withhavingonlyreceivedthespecificfeedbacklessthan24hoursagowestillhavetogetintotheanalysisphaseaboutwhatitallmeans.
Iwouldstartwithyouropeningcommentthatconsideringourliquidityyouweresurprised.Thisdoesn'tappeartobeastatementabouttheadequacyobviouslyofJPMorgan'sliquidity,whichisverysignificant,asyouknow.Butitreallyabouthowweanalyzeandthinkaboutthatatthemateriallegalentitylevelandtheinter-affiliatenatureofhowweformedourentity.SoIcan'ttellyouwithanyclarityexactlywhatwillberequiredaswegetintotheanalysis.Itwouldn'tbemycoreexpectationthatitwouldrequireustodoameaningfuloverallnewliquidityactions,butwehavetodothework.
BetsyGraseck(Analyst-MorganStanley):
Aswethinkabouttheimplicationsofthismorning'sannouncement,it'saroundyourplanningandproceduresasopposedtoalikelyimpactonthebusinessoperationstodayandtheresultsthatyoucangenerate,isthatareasonableconclusion?
MarianneLake (CFO):
Again,justbasedonourpreliminaryread,Ithinkthere'sgoingtobesignificantworktomeettheexpectationoftheregulators.Andourplanalreadyhadusdoingalotofworkaroundactualrealsimplificationoflegalentitiesandotherthings.SoIdon'tknowthattherearegoingtobesignificantchanges.It'snotmyprimaryexpectationthattherewouldbe,butwedoneedtohaveamomenttogothroughthedetails.
JamieDimon (Chairman&CEO):
TheliquidityoftheCompanyisextraordinary.Wehave$400billionincentralbanksaroundtheworld,$300billionofAA-plusshortdurationsecurities,justabout$300billionofveryshort-termsecure--reallytopqualityrepoortypeofstufflikethat.Thetradingbookis$300billion,whichismostlyveryliquidkindofstuff.SotheliquidityoftheCompanyisextraordinary.
MarianneLake (CFO):
Iwouldsay,justagain,weneedtodotheworkandweneedtofigureoutobviouslywhattheresponsetothatwillbe.Butitisencouragingthatsometimeswe'refoundtobecredibleforlargesystemicfinancialinstitutions.Andiftheyhavebeenabletoadequatelyshowtheirpreparedness,we'reconfidentweshouldbeabletodothesame.Wejustneedtomakesurethatweunderstandthedetailsofwhatitis
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thatwedon'thaveinourplantodaythatweneedtochange,andwe'recommittedtodoingit.
Operator :
GerardCassidywithRBC.
GerardCassidy(Analyst-RBC):
Thankyou.Goodmorning.Marianne,canyouexpanduponyourcommentsinyouropeningdialogueabouttheenergyexposure?You'renottooworriedaboutthecontagionrisk,butyoudidsaythereareacoupleofspecificissuesrelatingtosomeverycloselyrelatedcompanies.Canyougiveusmorecoloronwhatyou'rereferringto?
MarianneLake (CFO):
Yes,absolutely.SoIjustwanted--ifyouusedtheindustrycodesthewaythatyoucouldifyouwanttoexpandyourthinkingtojustwhatistechnicallyconsideredtobeanoilandgascompany,you'dmissouton,forexample,amarineshippingcompanythatalltheydoisshipoilandthereforetheirfinancialandtheirperformanceisgoingtobedirectlyrelatedtothehealthoftheenergysector.
Thosecompanieswehaveidentifiedthemspecifically,theyaremanagedwithinourenergyriskteam.Theyarenotmanagedbyadifferentteam.SoIwassimplysayingthatsomeofthecompaniesthatwearewatching,andinoneortwosmallcasesthathaveexperiencedsomestress,arenottraditionalenergycompanies.Buttheirconditionisdirectlyrelatedtooilandgas.
GerardCassidy(Analyst-RBC):
Thankyou.Andthenontheloangrowth,whichisobviouslyverystrong,whatareyourpeopleonthefrontlinessayingaboutcommercialrealestate?Arethereanychangesintermsofunderwritingmetricsthatyourfrontlinepeopleareseeingsincewearestartingtoseeincertainmarkets,likemultifamily,whichyouguyshavealreadyidentifiedassomeweakspots?Arethereanyotherunderwritingissuesthatarecroppingupnowthatyoudidn'tseethreemonthsagoorsixmonthsago?
MarianneLake (CFO):
Soobviouslynotforus.Iwouldsaythatit'scompetitive,astheC&Ispaceisverycompetitive.Commercialrealestateisalsocompetitive,butit'snotirrational.Andwearen'tseeing,oratleastwearenotseeingveryrationalproposalsonstructureandrisk.
Meanwhilewehaven'tchangedourriskappetite,wehaven'tchangedourunderwritingstandards.WecontinuetohavelowerLTVsandhigherdebtcoverageratios,prettyconsistentgeography.SospeakingforJPMorganspecifically,there'sbeennochangeinourunderwritingstandards.Infactifanythingsincethelastcrisis,obviouslythelastrecession,wetightenedourunderwritingstandardsandwe'vemovedawayfromsomeoftheriskiertypesofthatbusiness,sohomebuildersandalotofconstructionloanbusiness.
Operator :
MichaelMayowithCLSA.
MichaelMayo (Analyst-CLSA):
Hi.ThatwasaveryseriousCEOletteryouhadintheAnnualReport.Buttwoquestionsrelatedtothat.
Onewouldbeyou,Jamie,indicatethepotentialforhigherinterestrates,andjustlookingforsomemore
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colorintowhyyouthinkthat'sthecaseandifyou'repreparingthebankforascenarioofhigherratesorifyou'rejusttryingtosetatoneatthetop,orperhapsbeacontrarian.IknowyougavesometechnicalfactorsintheCEOletter.
AndthenthesecondthingisjustthecontrastbetweenwhatyouhaveintheCEOletter,liquiditytradinggovernanceoversightwiththelivingwillletterthatcameouttoday.Andjustafollow-upontheearlierquestion,doyousimplyhavetowriteabetterresolutionplanormightyouhavetochangealittlebitthewayyoudobusiness?AnddoesthismakeyouhaveamoreconservativeCCARask?
MarianneLake (CFO):
Hey,Mike.I'llstartandthenJamiecanaddtoit.
Soontheinterestratepoint,thecolorsareprettyconsistentwithwhatwesaidovertime,whichiswehavethebeliefthattheUSeconomyiscontinuingtomoveintherightdirection,thattheconsumerisonsolidfooting,andthatdespitethenoiseinthedataandsomeofthevolatilityinthemarket,globalgrowthwillcontinuealbeitatamoderatepace.AndobviouslystabilityinthemarketsinMarchhascontinuedtohelpuswiththatthesis.SothatcoupledwiththefactthattheFedthemselves,whiletheyaredovishintheirnarrativesintheminutesandalsotheyare[dots]arecontinuingtotalkaboutgradualincreases,andthedebatearoundnegativerateshaskindofquieted.
Sowedon'tparticularlyruntheCompanywithaday-to-dayviewonwhat'sgoingtohappenwithinterestrates,wearepositionedforrisingrates,asyouknow,andhavebeen.ButwealsounderstandwhattheperformanceoftheCompanylookslikeiftherearenomoreraterises,orwhenwestressourportfoliosinlotsofdifferentways.
Sowearepositionedforrisingrates,itisourcentralcasethatwillhappen.Themarketispricinglessthanonehikeinthisyear.TheFeddotsaystwo.Ourresearchsaystwo.We'rejustgoingtohavetowaitandsee.
I'llalsostartandthenJamiecanjumpinonthelivingwillthing.Wehavetotakeitatfacevalueindiscussionswithourregulatorsthatweneedtomeettheirrequirements,whatevertheymaybe,alloftheruleswhetherit'scapital,whetherit'sliquidity,whetherit'sstresstesting,whetherit'sresolutionplans.Andifwedothatandsatisfythem,thenwecancontinuetooperatetheCompanythewaythatwethinkitisbestforourclientsandcommunitiesaroundtheworld.
Soatthispointweneedtoremediateandaddresstheissuesandthefeedbackthey'vegivenusandresubmitaplanforassessmentthatwehopewillbecredible.Andthat'scertainlywhatwewillcommittodo.Andthat'swhatwearefocusedon.
MichaelMayo (Analyst-CLSA):
WasthereanythingelsefromJamieonthat,becauseifyoucompareandcontrasttheCEOlettertowhattheregulatorsjustsaidaboutyouguys,it'snotcompletelyconsistent?
JamieDimon (Chairman&CEO):
WellIdon'tthinkit'sinconsistent.We'retryingtomeetalltheregulations,alltherulesandalltherequirements.We'vebeendoingthatnowforfiveorsixyears.Whatisit,sixyearssinceDodd-Frankwaspassed.Theyhadtheirjobtodoandwehavetoconformtoit.
MarianneLake (CFO):
Iknowit'seasytosortofoverlookthequiteafewstatementswherethere'sanacknowledgmentthat
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progresshasbeenmade.Andnoneofthefeedbackintheletternegatesthesignificantprogressacrosstheindustryoncapitalliquiditystresstesting.Soitisconsistent,butwehavemoreworktodoandwe'lldoit.
JamieDimon (Chairman&CEO):
Ontheinterestratestuff,Iwasn'tpredictingit.I'msimplysayingIthinkthere'sachanceitwillbedifferentthanwhatpeopleexpect,anditwillbealittle--Isaidit'llgradualuntilit'ssudden.
Operator :
YournextquestionisfromthelineofBrianForanwithAutonomous.
BrianForan (Analyst-AutonomousResearch):
Hi,goodmorning.
MarianneLake (CFO):
Goodmorning.
BrianForan (Analyst-AutonomousResearch):
Iwonderontrading,youappreciatethatyoureportedfirstsoyouhaven'tseenthemarketyet.Buttwoquestionsaroundthewholethesis,thelastmanstandingversusrestructures.
One,doyouhaveanysenseofwhetheryourperformanceoverallandreallythickrepresentedmarketsharegainsornotthisquarter?Andthentwo,withsomeoftheguidancecomingoutoftheEuropeanbanksinparticularbeingverypoorandsomeoftherestructuringsmaybeacceleratingsteam,isthereanythoughtaroundcompandmaybeusingthatasalevertoimprovereturnsovertheremainderoftheyearandintonext?
MarianneLake (CFO):
Soobviouslywe'rethefirsttoreadout,andit'sverydifficultwhenyouthinkaboutperformancebecauseyoualsohavetothinkabouttherelativeperformanceinthecomparableperiodsandprioryearsandthelike.SoIwouldsaythatdownmid-singledigitsadjustedforwhatwewouldconsidertohavebeenoutperformancelastyearisreallyquitegoodperformance.
SoIdon'tknowthatwegainedshare,butIcertainlythinkweprotectedshare,anditmaydifferacrossthedifferentproductsets.ButIthinkingeneralwefeelprettygoodaboutourperformanceandwedon'tknowanythingtothecontrary.
JamieDimon (Chairman&CEO):
I'djustaddthat$5billion-plusofsalesandtradinginaquarterlikethislookasgood,earningdecentreturns.Wehavegoodmargins.We'renotquitesureaboutshare,butitwas--Iwouldlookasquiteagoodperformance.Andtradinglosses,whilewe,wasitsixdaysyousaidtome?
MarianneLake (CFO):
Sixdays,yes.
JamieDimon (Chairman&CEO):
Sixdays,therewas--like$40,000.Sothattheactualresultswerejust--that'sreallygood.Ilookatthat
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asaveryhealthybusiness.
MarianneLake (CFO):
Andthenwithrespecttotherestructuringandwhetherthatpresentsopportunitiesforusbroadly[define],includingincompensationfor--wepayforperformanceandwepayrisk(inaudible)returns,andwe'renotlookingtotryandmakechangestowhatwe'vebeenveryconsistentaboutovertime.Andyoucanseeourcomp-to-revenueratioof32%thisquarterisinlinewiththeratiointhefirstquarteroflastyear,andinfactthefirstquarteroftheyearbefore.
Solower--obviouslyonlowerrevenues,butafairpayfortheperformance.Andobviouslyweintendtoinsurethatwearecompetitive,butwe'renotgoingtotakeanydirectactionsasaresultofthatintermsof(multiplespeakers)--
JamieDimon (Chairman&CEO):
We'vealsogotsomebigdealsdoneneartheendofthequarterinWesternDigitaland[Newmar]Cable,whichispartofsalesandtrading.Wealsogot--wedidthis,Ithought,averycreativeChase,[whatIwouldcall],aChaseTrustinordertosecurethefirstrealsecuritizationinalongtimeinthemortgagebusiness,wedorevenuerisk-sharing,andIthinkit'squitegood.
Operator :
JohnMcDonaldwithBernstein.
JohnMcDonald (Analyst-Bernstein):
Hi.Justaquestiononexpenses.First,wasthereanylegalexpenseinthequarter?Andthenjustabroaderquestion,Marianne.
Aretheincrementalexpensesavesyou'regettingfromyourprogramsflowingthroughthebottomline,orisitsomeofitgettingreinvesting,likeinCCBInoticedtheheadcountisupalittlebitonpage11,justthelastcouplequarters?Isthatreflectlikereinvestmentofthecostsaves?Andthenjustonthelegalside,ifyouhadanythingthisquarter?Thanks.
MarianneLake (CFO):
Onlegal,thenumberis[circ]$0.Pretaxisactuallyslightlypositive.After-taxwedidsometrue-ups,assessmentsonpenalty.Soactuallynet/netabout$0thisquarter,whichI'lltakeitforthequarterbutitdoesn'tnecessarilypredictthefuture.
Intermsofexpenses,sowetalkedatInvestorDay,GordoninparticularbutalsoDaniel,thatwearecontinuingtoinvestinourbusinesses.Andacrosstheboardinfactaddingbankersandtechnologyanddigital,digitizing,etcetera.SowecontinuetodothatacrossthebusinessesandImentionedintheCCBpagethatthenetexpenses,albeitdown,includesself-funding$200millionofincrementalinvestmentsyearoveryearandgrowth.
ButyoudidnoticetheheadcountintheConsumerbusinessesisupslightly.Andthat'sacombinationoftheinvestmentswe'remakingintechnologyanddigital,that'sabout500oftheheadsandother1500isincreasingpart-timestaffinginthebranchessothatwehaveflexibilitytomakesurethatwehaveloadingattherighttimesofdayformakingsurethecustomerexperienceisgood.SoIwouldcharacterizeitallasveryconsistentandyes,wecontinuetoinvest.Andthatisinpartwhatyou'reseeingintheheadcountinCCB.
JamieDimon (Chairman&CEO):
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AndyousawnewcreditcardFreedomUnlimited1.5%back.We'redoingalotofstuffinChasePay.SotheStarbucksthing,weapplythetopdigitalside,andwecontinuetowinawardsintheConsumerBank.Sowe'llalwaysbeinvestingthere.
Operator :
ErikaNajarianwithBankofAmerica.
ErikaNajarian (Analyst-BoAMerrillLynch):
Yes,goodmorning.You'refieldingalotofquestionsonenergycreditquality.Buttakingastepback,giventhatthedelinquencystatisticsoutsideofenergystillremainfairlystable,couldyougiveusanoutlookforhowyouthinkcreditqualitytrendswillplayoutfortherestoftheyearifthebasecaseisslowgrowthintheUS?
MarianneLake (CFO):
Soitisourexpectationacrossboththeconsumerandthewholesalebusinessesoutsideofenergythatthecredittrendswillremainfavorable,orcreditwillberelativelybenign.We'renotexpectingtoseematerialincreases,exceptforthefactthatwearegrowingourloanportfolio.
SowhenwedidInvestorDaywetalkedaboutcharge-offsthisyearwillgoupyearonyear,andtheywillgouptopotentiallyashighas$4.75billion.Buthalfofthatwouldbeonthebackofthefactthatwearegrowingourportfolios.Soyou'djusthavenaturalsortofBAUlevelsofcharge-offfromthatandthentheotherhalfwouldbeonenergy.Sowe'renotexpectingorseeingatthispointanything,otherthangoodcreditqualityfortherestof2016,outsideoftheobvious.
ErikaNajarian (Analyst-BoAMerrillLynch):
Great.Andjustonemorefollow-upquestiononthelivingwill.CouldyouhelpusunderstandwhatyouthinktheregulatorsmeantintermsofiftheremediationisnotmetbyOctober1ofthisyearthattherecouldbemorestringentprudentialrequirements?Couldthatpossiblymeanhighercapitalorliquiditystandardsiftheexpectationsaren'tmetbyOctober?Iguesswealwaysthoughtofthelivingwillasmoreofacostissueratherthanafurthertaxonregulatoryratios.
MarianneLake (CFO):
SoIwillstartbysayingthatasyouknowourregulatorshaveextraordinarypowersoverawiderangeofrequirementsforusregardless,andmanywaysofinfluencingthoseandyou'refamiliarwithmostofthem.Itisabsolutelythecasethatasyoulookattheresolutionprocessthatthereareprovisionsthattalkaboutifremediationisnotsatisfactorywith,orcuredwithinatwo-yearperiod,thereare-there'sapossibilitythattheregulatorscouldjointlydecide,mayjointlydecide,totakeotheractionsthatcouldincludecapitalorliquidityorleverageoroperatingmodeldiscussions.Soobviouslytheydohavethosepowers.
Octoberisnotthatfaraway.We'regoingtodoourvery,verybesttomakesurethatweputourbestfootforwardandremediatetheissuesandthenwehaveanothersubmissioninJuly2017.Sonottosuggestthatwewon'tfullyremediatethemtotheverybestofourability,butthelivingwillprocessIexpecttocontinuetobesomewhatiterativeoverthenextseveralcycles,andwecontinuetopushourselvestoraisethebar.AndI'mcertainthatthebarwillcontinuetoberaisedonus,asitshould.
Operator :
MattO 'ConnorwithDeutscheBank.
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MattO'Connor (Analyst-DeutscheBank):
Goodmorning.
MarianneLake (CFO):
Goodmorning,Matt.
MattO'Connor (Analyst-DeutscheBank):
IfIlookatthefirst-quarternetinterestincome,whichwasatleastbetterthanwhatIhad,goodNIM,andthinkaboutyourfull-yearoutlook.IfItakeitliterallyitimpliesflattishnetinterestincomedollarsfromhere.AndI'mjustwonderingifthat'stooliteralofaninterpretation,orifmaybetherearesomeoffsetstotheloangrowthfrom,say,lowerlong-termratesaswethinkabouttherestoftheyear?
MarianneLake (CFO):
Okay.Sowetalkedaboutthefactthatifthere'snochangeinratesandifwecontinuetogrowourloans,wewouldexpectourNIItogoupby$2billion.Soyou'reright,ifyoulookattherunraterightnowthatwouldberelativelyflatfromhere.
Ithinkinourfavor,becauseoftheeasingthat'sstillgoingonaroundtherestoftheworldandthesortofthedovishFedcomments,there'sbeenalowerre-pricejustintheindustrygenerally.Sothat'sinourfavorandwe'remuchmoresensitivetothefrontendofrates.Sowe'renotsuggestingthatthelongendofthecurvehasnoimpact,it'srelativelymodest.So$2billion,maybealittlemore.ThebiggestdriverofsignificantlyhigherNIIabovethatguidancewouldbeifwehadanotherhikeearlierthanDecember.
MattO'Connor (Analyst-DeutscheBank):
Andthenjustseparately,anycommentsontheTreasuriesrulingoninversionasyouthinkaboutM&A,kindofbroadlyspeakingfortheindustryandforyouguysspecifically?AndifyoucanframehowmuchthatdrivenyourM&Arevenuesinthepast,ortheindustry?Anycoloraroundthatwouldbehelpful.
MarianneLake (CFO):
SonotgoingtotalkspecificallyabouttheTreasuries'actions,otherthansayingthatwewouldsupportFedtaxreformingeneral.Withrespecttotheimpactonourbusiness,eitherhistoricallyorgoingforward,itwouldn'tbezeroanditwouldn'tbesignificant.
Operator :
JimMitchellwithBuckinghamResearch.
JimMitchell(Analyst-BuckinghamResearch):
Goodmorning.MaybewecouldtalkalittlebitaboutCCAR.I'vehadsomeinvestorsexpressconcernabouttheFed'sinclusionofnegativerates.Haveyoufoundthattobedifficultintermsofmodeling?Andoverall,Iguessgiventheimprovement--ontheflipside,giventheimprovementinyourcapitalratios,doyouthinkthatthere's--youshouldbeabletoseesomeimprovementorincreaseinCCARinto--nowthatyou'velookedatitforafewmonths?
MarianneLake (CFO):
Okay.SoobviouslyI'mnotgoingtobeabletotalkspecificallyaboutourplansthatwe'vesubmittedbecausewejustsubmittedthemandwehaven'thadanyfeedbackandtheyareconfidential,butIwill
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tellyouthatobviouslynegativerates,itwasthefirsttimethishasbeeninthescenario.
It'snotthefirsttimewehavethoughtaboutit,anditisnotthefirsttimethatwe'veexperiencedit,andatleastinotherpartsoftheworldinEurope,Japanandelsewhere.Sowehavehadstrategicdiscussions,weunderstandbroadlywhatwethinkwewoulddoandwhatwouldhappentoourbalancesheet.Wecanmodelitandwecaneffectit.Sointhatsense,nowImeanobviously,we'llcontinuetoworkthatprocessthroughifitcontinuestobeafeatureofCCAR.
You'reabsolutelyrightthatyearoveryearourlaunchpointisahigherlevelofcapitalandourbalancesheetandourcreditqualitycontinuestoimprove,andourrisklevelshavenotmateriallychanged.Soasageneralmatterwewouldhope,andwe'vealsoadded[press].
Soasageneralmatterwewouldhopetohaveincrementalcapacitybutnothinginconsistentwithwhatwehavesaidexternally,whichisthattheBoardwouldlikeovertimetocontinuetohavethecapacitytopotentiallyincreasedividendsandthatwewouldlikelythecapacityto,withinareasonablerange,repurchaseourstock.Andthat'stheframeworkthatwehaveusedtosubmitourplan.
Operator :
YournextquestionisfromthelineofSteveChubakwithNomura.
StevenChubak(Analyst-NomuraSecuritiesCo.,Ltd.):
Hi,goodmorning.
MarianneLake (CFO):
Goodmorning.
StevenChubak(Analyst-NomuraSecuritiesCo.,Ltd.):
SoMarianne,withintheAssetManagementsegmentyounotedthattherevenuesweredowninlinewiththemarket.Butifweisolatethefeeincomecomponentstoexcludesomeofthegainsyouhighlightedaswellasotherincome,therevenuesdeclinedbydoubledigitbothquarteronquarterandyearonyear,whichisabitmorepronouncedthanwhatwehadexpected.
AndIwashopingyoucouldspeaktomaybesomeofthefactorsoutsideofthemarketdeclinesthatmaybeimpactingrevenuesinthatbusiness,specificallywhatyou'reseeingintermsofretailengagementandmaybewhetheryou'veseenimprovementinsentimentnowthatthemarketshaverecoveredprettynicelyofftheFebruarytrough?
MarianneLake (CFO):
SoifIdothe--Idon'twanttousethewordcall,ifIadjustforthefullimpactoftheassetsalethatwasinthequarternotjustthe$150millioninthisquarterbutalsotherevenuesthatwerepresentwithrespecttothatinthefirstquarteroflastyear,myadjustedrevenuesaredownabout4%toamarketthatonaverage,whileIappreciatethatitrecoveredinMarch,butthemarketonaverageforthequarterwasdownaround5%.Sowewouldcharacterizethatasgenerallyinline.
Andsimilarlyifyoudoadjustmentsonthebalancesheetside,theAssetsUnderManagementandclientassets.SocertainlyyoucanspeaktoJasonafterwardsandreconcileournumberssothatwe'renotconfusingeachother.
I'msorrywhatwasthesecondpartofyourquestion?
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StevenChubak(Analyst-NomuraSecuritiesCo.,Ltd.):
Theretailengagement.
MarianneLake (CFO):
Retailengagement.SoretailengagementpickedupinMarch,asyouwouldexpect.Wesawpositiveflows.Weobviouslysawnegativeflowsforthequarterinequities,that'snotsurprising.Andthenwesawpositiveflows,particularlyinmulti-asset.Sowedidseesomereasonablyhealthierretailflowsinthequarter,butprimarilyinMarch,andsomewereoffsetbyoutflowsinequities.
StevenChubak(Analyst-NomuraSecuritiesCo.,Ltd.):
Excellent.Thankyou.
MarianneLake (CFO):
Thankyou.
Operator :
YournextquestionisfromthelineofBrennanHawkenwithUBS.
BrennanHawken (Analyst-UBS):
Goodmorning,Marianne.QuickquestiononNIMhere.CanyoutalkabouthowsustainableyouthinktheNIMexpansionmightbeandwhetherornotthere'sanythingone-timeinthenumbersweshouldadjustfor?
MarianneLake (CFO):
Asluckwouldhaveit,inthisquarterthereisnothingone-timethatyouneedtoadjustfor.Lastquarterthereobviouslywas.SowewouldexpectthatourNIMshouldbestabletoimprovingoverthecourseof2016.Theextenttowhichitwouldimprove,obviouslydependinguponwhathappensintermofgradualrisingrates.
BrennanHawken (Analyst-UBS):
Okay,great.Thankyou.Andthenontheenergyexposuresintheloanbook,canyoucommentonmaybewhetherornotsomeoftheequitycapitalraisingthatwe'veseenintheenergyspacehasperhapstakensomeofthetailriskawayfromthatbook?Andthenisitpossiblealsotoupdateusonthecriticizedexposuresinoilandgas?Ibelieveinthe10Kitwassomewherearound$4.5billionatyearend?
MarianneLake (CFO):
Okay.Sowithrespecttoequitycapitalraises,Imeanobviouslytoadegreethatwouldbetrue,althoughthosecompaniesthatwereabletoaccesstheequitymarketsarenotthosethatareexperiencingthemoststress.Soobviouslyallotherthingsequalit'sapositive,butI'mnotnecessarilythinkingit'sgoingtotakesignificantsteamorthepressureoff.WithrespecttosecondpartofyourquestionI'msosorry?
JamieDimon (Chairman&CEO):
TheC&C.
MarianneLake (CFO):
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Jasonwillgetbacktoyou.I'msorry,Idon'thavetheanswer.
BrennanHawken (Analyst-UBS):
Noproblem.Thankssomuch.
Operator :
EricWasserstromwithGuggenheimSecurities.
EricWasserstrom(Analyst-Guggenheim):
Thanks.Marianne,canyoucommentonwhatcompetitiveconditionsarelikeinthecreditcardmarketcurrentlyandifthere'sbeenanychangearoundtheintensityofcompetitionforco-brandsandawards?AndIthinkJamieyoualludedtothelaunchofanewproduct.I'dlovetogetanupdateonyourinitialthoughtsabouthowit'sgoing.
MarianneLake (CFO):
Okay.Sono,nothinghaschangedinthecardcompetitivelandscape,includinginco-brands.It'sstillverycompetitive,albeitthatwesawalittlebitofdecelerationinsalesgrowthyearoveryearlastyearandwe'veseenthattrendbackpositivelyforusthisyear.
Sowefeelgoodaboutthatandwe'vebeenincreasingourmarketingspendandasJamiedidsay,welaunchedFreedomUnlimitedquiterecentlyandithasbeenquiterecent,butearlyfeedbackisverypositive.WithrespecttoFreedomwitha50%increasesinactivityandinterest,there'sgoingtobeadegreeofcannibalizationofotherproducts,wewouldexpectthat.Butsofar,sogood.Andwejustliketogiveourcustomerschoices.Anditsbeenfavorablyreceived.
EricWasserstrom(Analyst-Guggenheim):
Great,thankyou.Andonthe--autohasbeenabigareaoffocus,andyoutouchedonitcertainlyduringyourInvestorDay.Butonthemid-FICOrangeisthereanythinggoingon,onamacrolevel,thatwouldsuggestsomesignificantlikelihoodofcreditqualitydeterioration?
MarianneLake (CFO):
SotheManheimisdownslightly.Wecontinuetobelieveandexpectthatitwillcontinuetotrenddownwardsandso[alsoseeing]itwillcontinuetotrendupwards,justgivenwhereitistodayandalsotheamountofleasedinventorythatwillultimatelygointotheusedcarspaceoverthecourseofthenextseveralyears.Howeverthefundamentalsarestillgood,themarketisstillsolid.
Wehavepulledbackonsubprimeawhileago.It'sasmallpartofouroriginations.Sootherthanseeingsomedelinquenciestickup,asexpected,insomeoftheenergy-relatedstatesbutnotverysignificantly,there'snothingatthemomentthat'sontheburner.
JamieDimon (Chairman&CEO):
Forus.Idothinkyou'llseeissuesinthemarket.
Operator :
PaulMillerwithFBR.
PaulMiller (Analyst-FBR):
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Thankyouverymuch.InthemortgagebankingsegmentyouwrotedowntheMSRbyalmostaslike$0.9billion.Wasthereanyhedginggains?Icouldn'tfindtheminthedocuments,anyhedginggainstooffsetthat?
MarianneLake (CFO):
SotheMSRP&Lforthequarterwasapositive$124million,andtheyareacombinationofBAUandmaterialfactorsthataddeduptothat,andprobablyabouthalfofitwasacombinationofhedgeperformanceandthemarket.
PaulMiller (Analyst-FBR):
Andtheother.Andthenonthemortgagebankingside,haveyoubeenseeing--yousawtheMBAtodayreleasethatthepurchaseapplicationsarethehighsince2010orsomethinginthatorder.AreyouseeingtheSpringbuyingseason,especiallyonthepurchaseside,startingtopickup?
MarianneLake (CFO):
Yes,yes.Sopurchaseapplicationsareup30%,Ithink,yearonyear.Wecontinuetobepositivemomentuminthatspace,andweareseeingSpringactivitycontinuetoberobust,asexpected.
Operator :
KenUsdinwithJefferies.
KenUsdin (Analyst-Jefferies):
Hi,thanks.Goodmorning.Justtwoquickfollow-upsonthefeeside.Understandingthatmarketdependenceisbuiltintotheoutlooktogetthe$50billionoffeesfortheyear.I'mjustwondering,havewenowrun-ratedthecombinationofthebusinessrepositioning,thecardrevenuerunrate,andso--andthetoughnessofthisfirstquarter?Iguessthequestionisreally,whatarethethingsthatyouexpecttogetbetterfromthefirstquarteronthefeesideupsideofnormalseasonality?
MarianneLake (CFO):
Okay.Sointermsofrunrated,thetwobiggestdriversofthewalkthatwegaveatInvestorDaywerethecardco-brandrenegotiationsandthemortgagebankingnon-interestrevenue.Iwouldjustpointoutthatwhileweareseeingsomeoftheincrementalimpactofcardrenegotiation,thatwillplayoutoverthecourseoftheyear.Butonthepositiveside--andonthepositivesidemortgagebanking,justgivenwhererateswereoverthequarter,hasbeenpositiverelativetocentralexpectationswhenwedidInvestorDay.Sothosetwothingsareworthnoting.
Butweareseeingreallyquitegooddriversinnon-interestrevenuedriversacrosstheconsumerspacegenerally,indebitinvestments,infeesandaccounts,inthesortof4%,5%range,andsometimesintherangehigherthanthat.Sowearecontinuingtoseeexactlywhatweexpected,whichisthemajorityofourbusinesseswillcontinuetodelivermid-tohighsingledigitgrowth,andtheyseemsettodothat.
Thecardimpactwillbewhatitwillbe,andmortgageNIIwillendupdownyearoveryear,whetherit's$700millionor$600millionwe'llsee.Andsothebiggestdriverofwhattheendresultwillbeisgoingtobemarkets.
KenUsdin (Analyst-Jefferies):
Yes,okay.AndIknowit'sasmallerlineitem,butjustnoticingintheguideforsecurityservicestobeflatfromhere,there'salwayssomeseasonalityintheretoo.ButI'mjustwonderingifyoucouldjustgivea
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commentaboutwhatyou'reseeinginthatbusinessandarethereanyincrementalchallengesthatleaveyouwithaflatoutlook?
MarianneLake (CFO):
Yes.Look,thebusinessisnotimmunetomarketseither.Soobviouslyasyoulookattheperformanceforthequarterourfeeshavebeenimpactedbylowassetlevels.Andwealsohavegotthetailimpactofsomebusinesssimplification,justgettingthetailofthatoutoftheperformance.Wearealsoseeingthebenefitofhigherrates.
SoI'dcharacterizethemajorityofthosenegativesonlowerfeesandsimplificationasbeingbehindus.Sothetrajectory,ifratescontinuetorise,wouldbeupwards.Butthat'swhywesaidmarketdependence.Wewerenotexpectingourperformancetogodownfromhere.Flattoup,butdependingonrates.
Operator :
ChristopherWheelerwithAtlanticEquities.
ChristopherWheeler (Analyst-AtlanticEquities):
Yes,goodmorning.Thequestionisalreadyonthecompensationratio.You'veobviouslydoneafantasticjobonthecostbase.Butoneoftheissuesthatstrikesmeisclearlywiththereducedrevenues,particularlyinthecapitalmarketsbusiness.Yourcompdownabout$400millioninthe--comparedtothefirstquarteroflastyear.
Obviouslywhatwe'veexperiencedgenerallyisyouholdingtheratiosteadyforthesecondorthirdquarterandthentoolingupwithalowerratiointhefourthquarter.SoI'mlookingattheestimateswehaveforrevenuesonawell-knownproviderofdata.We'vegotprettyflatrevenuesbeingforecastbypeoplelikeme,whetherwe'rerightorwrong.
Shouldwebethinkingabouthowyou'regoingtobuildabonuspoolonthe--againstthisbackgroundandwhetherweshouldbelookingatthinking--orthinkingthatyou'regoingtohaveto[retain]thecompratioataprettysimilarlevelthroughtheyear,ifindeedwedon'tseeanyuptickinrevenuesandtheyremainreasonablyflat?
MarianneLake (CFO):
So--
JamieDimon (Chairman&CEO):
I'djustuse32%.
MarianneLake (CFO):
We'vegivenarange30%to35%.We'vebeenatthelowerendofthatrange.Whenweperformedverystronglywecoulddriftup.Ifweperformlessstrongly,wepayforperformanceandIthinkwedidagoodjobinthefirstquarter.
JamieDimon (Chairman&CEO):
Wehaveamongthelowestratio.
ChristopherWheeler (Analyst-AtlanticEquities):
Okay,thanks.
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
©2014TheStreet,Inc.Al l R ightsReserved Page20of22
JamieDimon (Chairman&CEO):
We'repayingourpeopleproperlyandwell.
MarianneLake (CFO):
Andconsistently.
ChristopherWheeler (Analyst-AtlanticEquities):
ButI'mnot[be]talkingaboutthequalityoftheratio.I'minterestedin(inaudible)becauseclearlywhatwe'reseeingaremostlythis,andindeedinEurope,isthedifficultyofbuildingapoolwhenyouhavebeensousedtohavingaverystrongfirstquarter,obviouslymakesitquitedifficult.
Maybejustasafollow-upwhichisvaguelyrelated,couldIjustask,youtalkedearlieraboutwherethere'squestionaboutcompetitionandpickingupmarketshare,whichindeedyouclearlyhave.ButoneofthequestionsIperhapsjustwantedtoaskis,Iknowthatyou'vebeenpushinghardontheseequities,cashequitiesinparticular.
Mysenseisthatactuallyalotoftheplayers,includingtheEuropeanswhoaredoingmassivelystructural,areputtingmorecapitalintoequitiesonthebackofthefactthatit'salowercapitalbusinessandthereforetheythinktheycangethigherreturns.Andjustmaybethat'swhy[Nomura]pulledoutofEuropeanequitiesyesterday.Whatareyouseeingintheequityspaceinparticular,becauseI'mnotseeingasmuchsortofwithdrawalaswehavedoneinthefixedspace?
MarianneLake (CFO):
That'sveryfair.Andwe'vetalkedaboutitprettyoften,thatpeoplewhentheyrestructure,theyrestructureoutofthethingsthattheywerelessstrongat,lesscomfortableat,andinmanycasestheydoubledownwheretheycontinuetohavestrength.Andweareseeingthat.Andthat'swhatwemeanwhenwesaythere'salwayssomeonelefttofiercelycompeteineverypartofourbusiness,andequitiesisnoexception.It'snottheposterchildforthat.
However,theequitiesbusinesshereatJPMorgan,we'verebuiltourtechnologyplatform.Wehaverebuilttheprime--we'vebuilttheprimebrokerage,internationalcapabilities.Thetwoofthoseworkhandinglove.Andwehaveeveryopportunitytocontinuetogainshareandwin.
JamieDimon (Chairman&CEO):
Andwe'vedoneverywellgainingshareinelectronictradingandtheprimebrokerhasbeenbuiltinAsiaandEuropewherewehadweaknesses.Soyou'veseenoursharegoupandweintendtowinit.Wehavetopnotchresearch,whichobviouslyhelpsdrivetheequitybusinesstoo.
Operator :
GerardCassidywithRBC.
GerardCassidy(Analyst-RBC):
Thankyou.Marianne,justasafollow-upIjustwanttomakesureIunderstoodyoucorrectly.Onthe$500millionofincrementalreservebuildforenergyfortheremainderoftheyear,that'sforthetotalofthefollowingninemonthsisthatcorrect?
MarianneLake (CFO):
That'scorrect.
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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GerardCassidy(Analyst-RBC):
Imean,giveortake.
MarianneLake (CFO):
Giveortake,andthat'sright.Obviousarethere'sahighdegreeofvariabilityaroundit.Ifwehadcompleteabilitytounderstanditwewouldleanintothosereserves.Butit'snamespecificandsituationspecific,itwouldevolveovertime.Wejustwantedtogiveyouanindicationthatthere'slikelytobesomemorecosts.Itcouldbeplusorminusquiteabitfromthatbecausewe'vehadtomakestressassumptionsinthere.But$500millionforninemonths,yes.
GerardCassidy(Analyst-RBC):
Okay,thankyou.AndthenIknowtherewastheenergyspecificsharednationalcreditexamthatthefirstquarterresultsfortheindustrywillreflectsimilartoyourown.Butwealsohavethetraditionalsharednationalcreditexamthat'sbeendonefor20-plusyears.Anycoloronhowthat'sgoing,thenormalsharednationalcreditexam?
MarianneLake (CFO):
Yes.NoGerard,I'mnotgoingtomakeanycommentsaboutSNC,excepttosaythateverythingthatweknowandawareofisreflectedinourresults.
Operator :
JohnMcDonaldwithBernstein.
JohnMcDonald (Analyst-Bernstein):
Hi.Twoquickfollow-ups,Marianne.Gettingacouplequestionsaboutjustthemathontheenergyreserveratio.Ithinkyoumentioned6.3%.Justtobeclear,isthatthereserveforloans,over-fundedloans,andthenthere'sanadditionalreserveforunfundedcommitments?
MarianneLake (CFO):
Correct.Yes.
JohnMcDonald (Analyst-Bernstein):
Okay,gotit.Andthendidyoutellusthesizeofyourenergycommitmentsandwhethertheychangedatallthisquarter?
MarianneLake (CFO):
Theychangedbyacoupleofbilliondollarsonasinglenamethatwelike,up.
Operator :
Andtherearenofurtherquestionsatthistime.
MarianneLake (CFO):
Thanksverymuch.
JamieDimon (Chairman&CEO):
CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking
EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79
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Wait.Beforeyouallgo.WeshouldsaygoodbyetoSarahYoungwoodwhogoesontoabiggerandbrighterjobasCFOoftheConsumerBank,andshedidanoutstandingjob.Andshe'ssucceededbyJason,who'sgoingtosayhirightnow.
JasonScott (InvestorRelations):
Hello,hi.
JamieDimon (Chairman&CEO):
Socongratulations.Youguyshavedoneanoutstandingjob.
SarahYoungwood (ConsumerBanking):
Thankyou.
MarianneLake (CFO):
Thankyou,everyone.Inearlyforgot.
Operator :
Thankyouforjoiningtoday'sconferencecall.
Allrightsreserved(c)2014TheStreet,Inc.
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