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pww.comJPMorgan Chase & Co., Q2 2010 Earnings Call, Jul 15, 2010 - NYSE:JPM

NYSE:JPM

James Dimon [Chairman & CEO] 💬

James Dimon, the Chairman & CEO of JPMorgan Chase & Co., made several comments during the Q2 2010 Earnings Call. Here is a detailed summary of his statements:

Opening Remarks

  • Praise for Mike Cavanagh: He commended Mike Cavanagh for his excellent work in investor relations, especially during challenging times.
  • Introduction of Doug Braunstein: Introduced Doug Braunstein, the new CFO, praising his talent and experience in Investment Banking.

Response to Questions

  1. Regarding Declining Losses and Delinquencies

    • Foreclosure Concerns: Addressed concerns about delayed foreclosures and stated that the company tries to account for such delays in its loss forecasts.
    • Charge-offs: Confirmed that charge-offs include loans delayed in foreclosure and acknowledged a slight backlog due to foreclosures but emphasized that the level is already high and not expected to double.

  2. Reps and Warranties Issue

    • Subpoena from FHFA: Confirmed receiving a subpoena for information, which was sent to major broker dealers, and mentioned the existence of a repurchase reserve.
    • Reserve Status: Indicated that the reserve remains high and that there are reasons to believe it might start decreasing by early next year.

  3. Regulatory Changes Impacting Overdraft and Card Act

    • Overdraft and Card Act Impact: Noted that the impact assessments are static and that there will likely be some mitigation over time through repricing to spread the cost of services.

  4. Net Interest Income (NIM) Pressure

    • Declining NIM: Explained that the decline in NIM is partly due to volume declines across consumer portfolios.
    • Corporate Line: Mentioned that the corporate line is trending down due to NIM coming down as the portfolio is repositioned.

  5. Capital Management

    • Stock Buybacks: Highlighted the significance of starting stock buybacks, indicating the company's value investing approach and its commitment to managing the capital base.
    • Regulatory Impact on Dividends: Stated that the company is cautious about reinstating dividends until there is more clarity on regulatory requirements and economic conditions improve.

  6. Impact of Regulatory Reforms

    • Uncertainty Around Basel III: Noted that while the company is well-capitalized, there is a need for more regulatory clarity around Basel III and other regulations.
    • Capital Certainty: Emphasized the importance of achieving capital certainty before increasing the dividend or making other capital decisions.

  7. Derivatives Business Impact

    • Regulatory Impact: Indicated that the impact of regulatory reforms on the derivatives business is complex and phased over time, making it difficult to quantify the exact effects on revenues, margins, and volumes.

  8. Non-U.S. Expansion

    • International Strategy: Discussed plans to expand globally, particularly in Investment Banking, Asset Management, and Treasury & Securities Services, by adding more bankers, products, and services.

  9. Investment Bank Performance

    • Competition: Acknowledged losing a little bit of market share in some areas but emphasized the importance of fighting for market share incrementally.

  10. Fixed Income Trading

    • Quarterly Performance: Mentioned that credit and rates were not as good in the quarter, and there were losses in commodities trading.

  11. Expenses

    • Litigation Costs: Noted that higher litigation costs contributed to the increase in expenses.
    • Investments in Growth: Mentioned investments in growth, such as adding people and branches, and higher costs associated with defaults and foreclosed assets.

  12. Capital Management and Return to Shareholders

    • Stock Buybacks: Explained the rationale behind stock buybacks, emphasizing the company's value investing approach.
    • Dividend Reinstatement: Indicated that the company aims to reinstate the dividend permanently but requires clarity on regulatory requirements and economic conditions.

  13. Credit Card Guidance

    • Reserve Releases: Provided a simplified explanation of how reserve releases relate to charge-off ratios and delinquency trends.

  14. Loan Demand

    • Middle Market Trends: Observed that middle market loans have stabilized, indicating healthy credit conditions.

  15. Regulatory Impact on Fees

    • Checking Account Pricing: Commented on the lag in checking account pricing changes compared to credit card repricings, attributing it to the complexity of assessing the impact of regulatory changes.

  16. Loan Loss Provision

    • Normalization of Provisions: Addressed the normalization of provisions, noting that the company is cautious about mortgage lending and aims to protect itself.

  17. Solicitations and Loan Portfolio Balances

    • Marketing Efforts: Discussed the launch of new credit card products and marketing efforts to support them.
    • Portfolio Balances: Explained that balances are expected to continue running off until mid-2011 due to factors like the runoff of the WaMu portfolio and changes in lending practices.

  18. Consumer Protection and Fee Adjustments

    • Fee Adjustments: Emphasized the need to adjust business models to maintain profitability, using the analogy of adjusting prices in a restaurant.
    • Customer Focus: Highlighted the importance of offering good consumer products and services while earning a fair profit.

  19. Loan Underwriting Standards

    • Easing Standards: Confirmed that underwriting standards are easing in response to competition, particularly in pricing.
    • Risk Management: Stressed the importance of maintaining standards to ensure reasonable returns.

  20. Opportunities and Challenges

    • Challenges: Cited dealing with regulatory changes and uncertainties as a significant challenge.
    • Opportunities: Mentioned the strength of all businesses and the company's focus on expanding capabilities and serving clients.

Closing Remarks

  • Summary of Growth Plans: Referenced the detailed growth plans outlined in the Chairman's Letter, emphasizing the company's commitment to growing every business.

Throughout the call, James Dimon provided detailed responses to analysts' questions, addressing a wide range of topics including credit quality, regulatory impacts, capital management, and strategic initiatives.

Michael J. Cavanagh [Former Co-Chief Executive Officer of Corporate & Investment Bank] 💬

During the JPMorgan Chase & Co. second quarter 2010 earnings call, Michael J. Cavanagh, the Former Co-Chief Executive Officer of Corporate & Investment Bank, provided the following remarks and insights:

  1. Introduction and Farewell:

    • This is his last earnings call as he transitions from his role.
    • He thanked the finance team for their support and welcomed Doug Braunstein, the incoming CFO.

  2. Second Quarter Highlights:

    • Reported a net income of $4.8 billion, with earnings per share of $1.09 on revenues of approximately $26 billion.
    • Notable items:
      • A reduction in loan loss allowance of about $1.5 billion ($0.36 after-tax), attributed to loan paydowns, sales, and lower current losses leading to lower estimates for future losses.
      • A booking of $550 million after-tax related to the U.K. bonus tax, mostly impacting the Investment Bank's compensation line.

  3. Investment Bank Performance:

    • Profits of $1.4 billion.
    • Revenues of $6.3 billion, with $1.4 billion from Investment Banking fees (down from a capital-issuance heavy previous quarter).
    • Fixed Income Markets revenues of $3.6 billion, down from the previous quarter and year, mainly due to declines in Credit Markets, Rates, and Commodities areas.
    • Equity Markets revenues of $1 billion, including $200 million from DVA (debit valuation adjustments).

  4. Retail Banking:

    • Healthy trends in the growth of the deposit-taking business and Retail branches, with stabilization and growth in deposits.
    • Total loan originations of $38 billion, contributing to the $156 billion across the company.
    • Profits of $914 million in Retail Banking.
    • Profits of $364 million in Mortgage Banking and Other Consumer Lending, with a drag from loan repurchase expenses and reserving.
    • Losses of $236 million in Real Estate portfolios, driven by credit costs.

  5. Card Services:

    • Profits of $343 million.
    • A $1.5 billion pretax reduction in loan loss reserves.
    • Charge-off rate of 9.02% for the Chase portfolio, an improvement from the previous quarter.
    • Revenue of $4.2 billion, down year-over-year and quarter-over-quarter, due to lower outstandings, sales, and charge-offs, as well as the impact of the CARD Act legislation.

  6. Commercial Bank, TSS, and Asset Management:

    • Commercial Bank: Profits of $693 million, including a $400 million reserve release. Revenues of $1.5 billion, with end-of-period loans and leases of $96 billion, flat compared to the previous quarter.
    • Treasury & Securities Services (TSS): Profits of $292 million, with revenues pressured by low rates but benefited seasonally from securities lending.
    • Asset Management: Profits of $391 million, with strong assets under management and revenues related to investment performance. Outflows in low-risk liquidity products partially offset by inflows into longer-term bond and equity funds.

  7. Corporate and Private Equity:

    • Corporate segment: Profits of $642 million, including a level of securities gains from the investment portfolio and higher litigation expenses.
    • Private Equity: Modest activity with $75 million of revenues and $11 million of after-tax profits.

  8. Capital Strength:

    • Tier 1 Capital and Tier 1 Common Capital grew to $131 billion and $104 billion, respectively, helping to drive strong capital ratios of 12.1% and 9.6%.

  9. Outlook:

    • Home Lending: Expected quarterly losses to run at or below $1 billion for Home Equity, $400 million for Prime Mortgage, and $400 million for Subprime Mortgage.
    • Overdraft Fees: Updated estimate of the net income impact to $700 million plus or minus.
    • Credit Card: Declining balances due to the runoff of the WaMu portfolio and legacy low-yield balances.
    • CARD Act: Total impact estimated at $750 million plus or minus.
    • Corporate: Expected profits to trend towards $300 million plus or minus.

  10. Regulatory Reform:

    • Acknowledged the positive aspects of pending regulations, such as higher capital and liquidity requirements, resolution authority, and systemic risk oversight.
    • Highlighted challenges, including uncertainties in the regulatory landscape, the need for global coordination, and potential unknown consequences for business activities and clients.
    • Emphasized the company's focus on understanding the implications for clients and implementing regulations thoughtfully.

  11. Responses to Analyst Questions:

    • Addressed concerns about declines in losses and delinquencies, foreclosure backlogs, and the impact of regulatory changes on revenues and capital management.
    • Provided insights into the outlook for net interest income, capital levels, and the potential for stock buybacks.
    • Discussed the impact of regulatory reforms on the derivatives business and the company's approach to managing in a potentially deflationary environment.

Michael J. Cavanagh's remarks covered a wide range of topics, providing detailed insights into the company's financial performance, strategic outlook, and response to regulatory changes.

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