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pww.comJPMorgan Chase & Co., Q4 2023 Earnings Call, Jan 12, 2024 - NYSE:JPM

NYSE:JPM

Jeremy Barnum [Executive VP & CFO] 💬

Jeremy Barnum, the Executive Vice President and Chief Financial Officer of JPMorgan Chase & Co., provided a comprehensive overview of the company’s fourth quarter and full-year 2023 earnings, as well as an outlook for 2024. Below is a detailed summary of his statements:

Presentation

  • Fourth Quarter Results:
    • Net income: $9.3 billion
    • Earnings per share (EPS): $3.04
    • Revenue: $39.9 billion
    • Return on tangible common equity (ROTCE): 15%
    • Special assessment by the FDIC: $2.9 billion
    • Net investment securities losses in corporate: $743 million
    • First Republic contribution:
      • Revenue: $1.9 billion
      • Expense: $890 million
      • Net income: $647 million
    • Excluding First Republic:
      • Revenue: $38.1 billion (up 7% YoY)
      • NII (excluding Markets) up 11% YoY
      • NIR (excluding Markets) up 1%
      • Markets revenue up 2%
      • Expenses: $23.6 billion (up 24% YoY)
      • Current costs: $2.6 billion
        • Net charge-offs: $2.2 billion
        • Net reserve build: $474 million
  • Full Year Results:
    • Net income: $50 billion
    • EPS: $16.23
    • Revenue: $162 billion
    • ROTCE: 21%
  • Balance Sheet and Capital:
    • CET1 ratio: 15% (up 70 bps QoQ)
    • Organic capital generation continues, with a focus on building towards Basel III endgame requirements.

Business Segments

  • Consumer & Community Banking (CCB):
    • Total debit and credit card spend: up 7% YoY
    • Net income: $4.4 billion
    • Revenue: $17 billion (up 8% YoY)
    • Banking & Wealth Management revenue: up 6% YoY
    • Home Lending revenue: up $230 million
    • Card Services & Auto revenue: up 8% YoY
    • Expenses: $8.7 billion (up 10% YoY)
    • Credit costs: $2.2 billion
  • Corporate & Investment Bank (CIB):
    • Net income: $2.5 billion
    • Revenue: $11 billion
    • Investment Banking revenue: up 13% YoY
    • Payments revenue: up 10% YoY
    • Markets revenue: up 2% YoY
    • Securities Services revenue: up 3% YoY
    • Expenses: $6.8 billion (up 4% YoY)
    • Credit costs: $210 million
  • Commercial Bank:
    • Net income: $1.5 billion
    • Revenue: $3.7 billion (up 7% YoY)
    • Payments revenue: up 2% YoY
    • Gross Investment Banking and Markets revenue: up 32% YoY
    • Expenses: $1.4 billion (up 9% YoY)
    • Average deposits: down 6% YoY
    • Loans: down 1% QoQ
    • Credit costs: $269 million
  • Asset & Wealth Management (AWM):
    • Net income: $925 million
    • Pretax margin: 28%
    • Revenue: $4.7 billion (up 2% YoY)
    • Expenses: $3.4 billion (up 11% YoY)
    • Net long-term inflows: $12 billion for the quarter, $140 billion for the full year
    • AUM: $3.4 trillion (up 24% YoY)
    • Client assets: $5 trillion (up 24% YoY)
  • Corporate:
    • Net loss: $689 million
    • Revenue: $1.8 billion (up $597 million YoY)
    • NII: $2.5 billion (up $1.2 billion YoY)
    • Expenses: $3.4 billion (up $3 billion YoY)

Outlook for 2024

  • Net Interest Income (NII):
    • Expected NII ex-Markets: approximately $88 billion
    • Rate assumptions: follows the forward curve with 6 cuts
    • Deposit balances: expected to be modestly down
    • Loan growth: expected to continue in card but at a slower pace
    • Sequential quarterly declines in NII expected
  • Expenses:
    • Expected adjusted expense: about $90 billion
    • Volume and revenue-related growth: about $1 billion increase
    • Investment increase: comparable to the previous year
    • First Republic: modest increase in expenses with a lower exit run rate
  • Credit:
    • Expected card net charge-off rate: below 3.5%

Questions and Answers

  • Net Interest Income Sensitivity:
    • No updates to the $80 billion medium-term outlook.
    • Significant sequential declines in NII expected in 2024.
  • Stock Buybacks:
    • Plan to remain on a modest pace of buyback ($2 billion net buyback per quarter).
    • Uncertainty around regulatory proposals and SCB volatility.
  • Loan Loss Reserve Dynamics:
    • Weighted average unemployment rate assumption: 5.5%.
    • Macro outlook skewed slightly to the downside.
  • NII Sensitivity to Rate Cuts:
    • Empirical number for EAR: around $2 billion.
    • Asset sensitivity remains.
  • Deposit Repricing and Migration:
    • Lower rate environment takes pressure off deposit repricing.
    • Internal migration continues from checking and savings into CDs.
  • Consumer Resilience and Soft Landing:
    • Economic outlook includes a higher probability of a soft landing.
    • Consumers have normalized spending patterns.
    • Strong labor market supports consumer credit.
  • Multifamily Real Estate Exposure:
    • No bleed through from office to multifamily.
    • Portfolio focuses on affordable, supply-constrained markets.
  • Expense Guidance for 2024:
    • $90 billion in expenses includes an increase for Investment Banking.
  • Expense Increase Breakdown:
    • CCB: 8% increase, driven by branch strategy, marketing, and wealth strategy.
    • AWM: Adviser hiring and support.
    • Commercial Bank: Bankers hiring and support for new clients and loans.
    • CIB: Generic inflation, volume and revenue-related increases.
    • Technology: New products, features, customer platforms, and modernization.
  • AI Strategy:
    • AI strategy is a priority, with a focus on disciplined and commercial use cases.
    • Aim for increased productivity, especially for technology developers.
  • Rate Cut Assumptions:
    • Use the forward curve for outlook, assuming 6 rate cuts.
    • Deposit attrition expected, influenced by QT and RRP dynamics.
  • Capital Markets Rebound:
    • Healthy pipeline and supportive rate environment.
    • Challenges in converting IPOs due to post-launch performance.
    • Lower rates support DCM, but corporate behavior influences refinancing.
    • M&A faces regulatory headwinds but shows signs of pickup.
  • Corporate and Investment Demand:
    • Lower revolver utilization and muted demand.
    • Recovery depends on the softness of the landing.
  • Private Credit Competition:
    • Enhancements and new initiatives to compete with private credit providers.
    • Offer both traditional syndicated lending and unitranche structures.
  • First Republic NII Sensitivity:
    • Full-year contribution from First Republic in 2024.
    • Accelerated pull-to-par on some loans impacts NII.
    • Simplified by considering the EAR, which includes all First Republic assets and liabilities.

These points summarize the key aspects of Jeremy Barnum's presentation and responses during the Q4 2023 earnings call.

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