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JPMorgan Chase & Co. (JPM)
Q4 2010 Earnings Call Transcript
January 14, 2011 9:00 am ET
Doug Braunstein – CFO
Jamie Dimon – Chairman and CEO
John McDonald – Sanford Bernstein
Betsy Graseck – Morgan Stanley
Guy Moszkowski – Bank of America -Merrill Lynch
Glenn Schorr – Nomura
Mike Mayo – CLSA
Moshe Orenbuch – Credit Suisse
Jason Goldberg – Barclays Capital
Paul Miller – FBR Capital Markets
Matt O'Connor – Deutsche Bank
Matthew Burnell – Wells Fargo Securities
Edward Najarian – ISI Group
David Konrad – KBW
David Hilder – Susquehanna
Chris Kotowski – Oppenheimer
Richard Bove – Rochdale Securities
Jeffery Harte – Sandler O'Neill
Carole Berger – Soleil
Previous Statements by JPM
» JP Morgan Chase & Co. CEO Discusses Q3 2010 Results - Earnings Call Transcript
» JPMorgan Chase & Co. Q2 2010 Earnings Call Transcript
» JP Morgan Chase & Co. Q1 2010 Earnings Call Transcript
At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Doug Braunstein. Mr. Braunstein, please go ahead.
Thanks, operator. I am going to take everybody through the earnings presentation. It's available on the website as you know and we'll take questions after the presentation, and kindly take a note of the slide in the back of the presentation regarding forward-looking statements.
With that, let me start on page one. We generated $4.8 billion of net income in the quarter, $1.12 per share. That’s on revenues of $26.7 billion. For the full year, you see we generated $17.4 billion in net income. That’s up 48% over last year; $3.96 per share, and revenues slightly under $105 billion. Our full year return on tangible common equity was 15%.
We are highlighting a number of significant items in the quarter. It has not had reaction in the quarter, but I just want to walk through these quickly and make sure we have clarity around them.
The first is we added a net increase in RFS to loan loss allowances of what equates to $0.14 a share reduction in earnings, and just quickly that $930 million pretax does not include a one-time adjustment, I'll talk about when we get to home lending of $632 million release of reserves that correspond to an increase in net charge-offs, which is basically awash [ph], but I'll get into more detail later on that.
Card, we reduced our loan loss allowances by what equates to $0.30 a share increase in earnings. We also took an increase in litigation reserve predominantly mortgage related that reduced earnings $0.22 a share. And additionally, at the end we recognized the $1.2 billion pretax or $0.18 a share after-tax gain in corporate, and that's largely related to the repositioning of our securities portfolio, and in addition that's going to have a negative impact on NII in successive quarters.
Broadly speaking very solid performance across most of the businesses, but I will talk about each of those in turn, and then finally just a note on our common ratios. Tier 1 common ended the year at $115 billion. We had very strong Basel I Tier 1 common ratio of 9.8%, and you see here our estimated Basel III ratio of 7%, which as you know is the minimum requirement for Jan 1, 2019.
This is Jamie for one second. So Doug, I just want to reiterate a lot of you raised the question that reserves came down by $2 billion. On this page, you see them coming down by approximately $1 billion, and the difference is $600 million, which we have accelerated charge-offs, which are already recognized in reserves, and reserves are taken down, and then there's other $400 million, which is all various – obviously all related type stuff. There is a little confusion out there about where that came from, but the $600 million, obviously is a timing difference. It didn’t affect income. Charge-offs were accelerated, reserves were taken down.
So, with that I think we’ve covered much of page two and three, so let me dive into the Investment Bank on page four. You see circled net income of $1.5 billion, that's on revenues of $6.2 billion in the quarter. IB fees of $1.8 billion. We continue to be ranked number one in fees, but it is an increasingly competitive market, and you see that in the results. The results also reflect the record in debt underwriting for the quarter, as well as for full year 2010, and also record investment banking fees in Asia for 2010.
The league table results you’ll see on page 20 in the back, revenue of $4 billion in fixed income and equities. That’s up 8% year-over-year, it’s down modestly quarter-on-quarter, and that’s largely based on continued solid client flows and normalized trading spreads.
One quick note on DVA [ph], which was effectively flat for the quarter; fixed income markets excluding DVA would have been down $377 million quarter-on-quarter, essentially flat year-over-year. Equity markets excluding DVA would have been down $141 million quarter-on-quarter, flat year-over-year, and that really reflects the negative impact of DVA to revenues in the third quarter.
Credit cost here a benefit of $271 million, so that’s part of that $2 billion allowance that you saw in total. That largely reflects a reduction in loan loss allowance related to net repayments and loan sales.
Expenses in the quarter of $4.2 billion, that's up significantly year-over-year, that's primarily due to higher performance-based compensation year-over-year. The comp to revenue ratio for the quarter is 30%, and there is also an increase in our non-comp expense and that includes litigation reserves taken in the quarter. Full year, if you look at comp to revenue ratio, it's 35% excluding the U.K. bonus tax, and that's largely consistent with our prior guidance of 35% to 40%. It's up from 33% in full year 2009, in part because of higher headcount, and going forward, we really expect full year comp to revenue ratios to continue to be in that range of 35% to 40%.
Final number circled here on the bottom of the page, end-of-period loans of $56.9 billion. That's up 6% quarter-on-quarter and we're beginning to see that new business activity build, and as a result of that, some increasing demand in loans as the market for credit and the economy generally pick up.
Page five, Retail Banking. This is the consolidated results for the fourth quarter; $708 million of net income on $8.5 billion of revenue, and I'm going to review each of the segments in detail on the following pages.
So, if you turn to page six, you see Retail Banking net income of $954 million. That's on revenues of $4.4 billion. Revenues were down 2% year-over-year and that largely reflects lower deposit related fees, full year impact of NSF/OD fee changes, and that's offset by our continuing build out of the retail branch footprint. Deposit growth was 3% year-over-year. Checking accounts were up 6% year-over-year, investment sales up 4% year-over-year, and as you know, we built 154 new branches, 70% of those branches are in California and Florida.
You'll note here by the way credit costs here include a loan loss allowance reserve release of a $100 million in Business Banking, again, part of that $2 billion number.
Mortgage Banking & Other Consumer Lending, you see circled, net income of $577 million. That’s on $2.8 billion of total revenue. Revenue here reflects strong Mortgage Banking origination revenues, higher production volumes, almost $51 billion in the quarter. $56 billion in total originations and you also had improved margins year-over-year.
We’re separating out now repurchase expense. You see that number of $349 million, and remember that’s a contra-revenue item. That number is down $300 million year-over-year. It’s down a $1 billion quarter-on-quarter, and that’s largely the absence of reserve builds, but we end the year in RFS with a total repurchase reserve of $3 billion.