JPMorgan Chase (JPM)
Q4 2012 Results Earnings Call
January 16, 2013 9:00 a.m. ET
Jamie Dimon - Chairman and CEO
Marianne Lake - CFO
Glenn Schoor - Nomura
Brennan Hawken - UBS
Betsey Graseck - Morgan Stanley
Erica Panella – Bank of America Merrill Lynch
Ed Najarian - ISI Group
John McDonald – Sanford Bernstein
Mike Mayo - CLSA
Moshe Orenbuch - Credit Suisse
Matt O’Connor - Deutsche Bank
Matt Burnell - Wells Fargo Securities
Gerard Cassidy - RBC
Christopher Wheeler - Mediobanca
Marty Mosby -Guggenheim
Jim Mitchell – Buckingham Research
Guy Moszkowski - Autonomous Research
Previous Statements by JPM
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Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s fourth quarter 2012 earnings call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand by.
At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO Jamie Dimon, and Chief Financial Officer Marianne Lake. Mr. Dimon, please go ahead.
Operator, thank you very much. Welcome, everybody, to our fourth quarter call. I just want to start by telling you that Doug Braunstein won’t be doing this call. I just want to thank him for his service to the company. I do want to remind people, despite of the fact that the [will] happened during that time, during that time [unintelligible] of that income is something we all are very proud of at this company and so, Doug, thank you for your service if you’re listening.
And we’ve still got Marianne here. Marianne, as some of you may know, Marianne has extensive experience in accounting numbers. She was the controller of the investment bank for several years, so she knows the investment banking wholesale side pretty good.
She was also CFO on the consumer side, so uniquely she’s got deep experience in both parts of the company. And so I’m going to turn it over to Marianne. We’re thrilled to have you here. So you can take it through the numbers and then we’ll take any and all time we need to answer your questions as usual.
[unintelligible], I think the numbers here are really good. I mean, look at the underlying detail of this company: third year, record income, 15% returns in general capital and growth in virtually every single business. We had some negatives like [unintelligible], stuff like that, which over time [reverse]. So Marianne, let me turn it over to you to take it through the details.
Thanks, Jamie. Good morning, everyone. This is Marianne. I’m going to take you through the presentation this morning which is available on our website and refer you to the display on the regarding forward-looking statement, which is at the back of the presentation.
And just before we turn to earnings, we also announced today the completion of the board review of CIO and the management task force report. Those reports are available on our website. So with that, we’ll turn to page one. The firm generated net income of $5.7 billion for the fourth quarter, or $1.39 a share, on revenue of $24.4 billion, up 10% year on year, and down 6% quarter on quarter.
And on the page, you see we had a few significant items for the quarter, and these [largely] offset each other, and we’ll go through them as we go through the presentation. But what you don’t see on the page is we also had a number of smaller items, many of which we’ll mention when we go through. For example, we made a contribution to our foundation and realized some securities gains this quarter. These smaller items also largely offset slightly to the negative.
So for the full year, we generated record net income of $21.3 billion, or $5.20 a share, on revenue of $100 billion, flat year over year. Return on tangible common equity was 15% for both the quarter and the year, and in fact, as Jamie said, this is the third consecutive year of both record net income and 15% return on tangible common equity.
And before I turn to the businesses, I would characterize the overall performance of the quarter as strong performance across our businesses and highlight four themes. First, the positive trends in market share that we’ve been seeing continued this quarter. Year over year, we saw strong continued deposit growth of 10%.
Mortgage origination volume is up 33%, and sales volume in card up 9%. Also, the number one ranking in global IDCs including record debt underwriting fees, record assets under custody in CIB, record revenue in commercial banking, and record revenue and AUM in asset management.
Second, we continued to see positive year over year loan growth. On a reported basis, the total loans for the company were up 1%, but excluding runoff portfolios, our core loan growth was 9%, with record loan balances in commercial banking up 14%, record business banking loan balances up 7%, and record asset management loan balances of $80 billion.
Third, strong credit performance continued in our wholesale portfolios, as well as in the core consumable portfolios, which have stabilized at low levels of chargeoff and delinquency. The real estate portfolios continue to show improvement as the housing market continues to recover, but losses are still high.
So finally, we continue to strengthen our capital position, and you can see that if you turn to page four, and I’ll take you there. We ended the year with Basel I and Basel III tier one common of $140 billion and we had strong Basel I and Basel III ratios of 11% and 8.7% respectively -- and to note, the estimate for Basel III of 8.7% includes the full impact of NPR as we understand it -- compared to 8.4% last quarter, and is approximately 150 basis points over last year on a comparable basis. The return on Basel I RWA was 1.9% for the quarter, ex-DVA.
And we added a few points to the bottom of the slide which we think are important, and we’ll spend some time at Investor Day going through our balance sheet in more detail. But just some salient points. You can see we have $450 billion of equity and long term debt; under $100 billion of short term debt, which is small relative to our $700 billion of cash, high-quality securities and secured financing; and finally deposits of $1.2 trillion, which fund our $700 billion of loans.
So turning on to the businesses, if you move to page five, consumer and community banking, this includes our consumer and business banking, mortgage banking, card, and auto businesses. There’s some stats here that show the strength of our consumer franchise. The combined consumer businesses generated $2 billion of net income for the quarter, on $12 billion of revenue.
We had the number-one ATM network and the number-two branch network, with 150 new branches this year; number two mortgage originator; and number-one card issuer in the U.S. And ended the year with over 100,000 Chase private clients in over 1,200 locations. And we have over 31 million active online and 12 million active mobile customers.
And just another thing that we’re particularly proud of this year is a new accomplishment. We achieved the number-one ranking in the American Customer Satisfaction Index survey, for customer satisfaction among large banks.
In the appendix, we included a page on Hurricane Sandy, which I won’t take you through, but it was amazing to see how our employees rallied to support our customers. And though the financial impact wasn’t significant to the firm, the impact we were able to have on our customers was significant.
So on to page six, consumer and business banking. You can see net income of $756 million on revenue of $4.3 billion, down 1% year on year and sequentially. We continue to see pressure on deposit margins, 12 basis points in the quarter and 32 year on year, which negatively impacts NII, but this continues to be largely offset by deposit growth.
We’re growing customer deposits at more than twice the industry average, $0.10 year-on-year. And also in December, we saw the lowest customer attrition rate we’ve seen in the last 10 years.
And if you take that together with the customer satisfaction results I mentioned earlier, it speaks to the great progress we’re making on the customer experience. We’re deepening relationships with average balances per account up, customer satisfaction up, transactions per debit card up, active online and mobile customers up.
And just two more revenue drivers this quarter – we had record business banking loan balances of $18.9 million with a strong pipeline and investment sales up almost 50% year-on-year with client investment assets up 15%.
And almost two-thirds of these sales are managed accounts that generate the strong recurring sort of revenues for this business.
Expenses were flat quarter-on-quarter and up slightly year-on-year driven by new branch builds.
Mortgage banking on Page 7, the overall net income for the term mortgage bank was $418 million, and there are a couple of significant items here this quarter, which I’ll take you through as we go through the results.
Moving up to the top end production, production pre-tax income of $789 million on strong originations of $51 million, up 33% year-on-year and 8% in the quarter, which reflected strong refi activity as well as an increase in correspondence.
And although margins remain elevated, we expected we did see compression this quarter versus the peaks of last quarter and we do expect them to continue to normalize into 2013.
Production expense this quarter includes a litigation expense which is a part of the significant item for mortgage-related matters that we had on Page 1.
Agency repurchase demands and the outstanding pipeline were both down significantly this quarter and [curates] improved driving low losses, which resulted in a net positive $53 million for the quarter.
[So on] servicing, net servicing results in the portfolio at the end of the fourth quarter include the impact of the acquisition of $70 billion of net life servicing. And just a reminder, it closed late in the quarter.
It’s high quality agency servicing with the added benefit of additional [unintelligible] opportunity for us.
Looking at servicing expense, you can see it includes the net charge for the IFR settlement of about $700 million, which is the balance of the significant item for mortgage-related matters.
And just finally on this page, real estate portfolios, you can see pre-tax income of $812 million including net charge-offs of $417 million. Charge-offs for the quarter were positively impacted by adjustments relating to Chapter 7 loans that we wrote down last quarter.
And if you back those adjustments out, charge-offs would have been about $520 million this quarter versus $600 last on an equipment basis and the improvement was driven by lower home equity delinquencies.
Looking at the whole year, we saw significant improvement in charge-offs driven by a 20% to 30% decline in delinquencies and, to a lesser extent, in [unintelligible] house prices.