J P Morgan Chase & Co (JPM)

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JPMorgan Chase & Co. (JPM)

Q1 2011 Earnings Call

April 13, 2011 9:00 am ET

Executives

James Dimon - Chairman, Chief Executive Officer, Member of Stock Committee, Member of Executive Committee and Member of Operating Committee

Douglas Braunstein - Chief Financial Officer and Chairman of Investment Committee

Analysts

Jason Goldberg - Barclays Capital

Matthew Burnell - Wells Fargo Securities, LLC

Ron Mandle - GIC

John McDonald - Sanford C. Bernstein & Co., Inc.

Ed Najarian - ISI Group Inc.

Jeff Harte - Sandler O’Neil and Partners

James Mitchell - Goldman Sachs

Betsy Graseck - Morgan Stanley

Guy Moszkowski - BofA Merrill Lynch

Moshe Orenbuch - Crédit Suisse AG

Christoph Kotowski - Oppenheimer & Co. Inc.

Gerard Cassidy - RBC Capital Markets, LLC

Glenn Schorr - Nomura Securities Co. Ltd.

Matthew O'Connor - Deutsche Bank AG

Michael Mayo - Credit Agricole Securities (USA) Inc.

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2011 Earnings Call. [Operator Instructions] 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.

Douglas Braunstein

Thanks, operator. It's Doug here. I'm going to be taking you through the earnings presentation. It's available on our website as you know. We'll take questions after walking through the presentation.

And with that, let's turn to Page 1. For the quarter, we generated net income of $5.6 billion, $1.28 a share, and that was on revenues of $25.8 billion. As we've done historically, we're highlighting several significant items in the quarter right up front. I'm going to try and cover them in some detail here, but they are included in the numbers for the lines of business.

First item is a $0.29 per share increase in earnings and that comes from a reduction in the Credit Card services allowance for loan losses. I'll talk you through the specifics of net charge-offs and our delinquency rates when we get to Credit Card later on.

Second item is a $0.16 per share decrease in earnings. That's from a fair value adjustment to our MSR servicing asset. And this adjustment really represents the impact of the actual and our anticipated increases in servicing costs, including the compliance with our anticipated requirements that are going to be imposed through the OCC and Fed through a consent order that we anticipate receiving later today.

The third item is a $0.10 per share decrease in earnings and expected cost for foreclosure-related matters, and these costs are really our best current estimate for affidavit-related delays as well as certain legal expenses. We don't view these costs as one-rate expenses, but to be clear, there could be further costs around this matter before we're finished.

We ended the quarter with Tier 1 Common of $120 billion, strong Basel I and Basel III ratios of 10% and 7.3%, respectively. You see those on the page, an increase of about 20 basis points quarter-over-quarter. You'll also see on the next page, ROE of 13%, ROTCE of 18%, also strong results. And broadly speaking, we had solid performance across our businesses, but I'll dive into those.

I've covered all the items on Page 2, so if you skip to Page 3, we'll start talking about the Investment Bank. Circled net income here on the page of $2.4 billion, that's on revenues of $8.2 billion. Investment banking fees in the quarter were $1.8 billion, up 23% year-on-year. We continue to be ranked #1, but it remains a very highly competitive market. Results this quarter reflect record debt underwriting fees, and if you go to Page 19, you can see our League table results.

Markets revenues this quarter, $6.6 billion. That really reflects very strong client-based revenues, and we've generated, in part, through the volatility that we experienced in the first quarter in the markets and us helping our clients manage through that volatility. While these numbers are slightly down from a record first quarter 2010, still very strong results.

$5.2 billion of revenue, you see on the page in fixed income. There was strong performance across all of our asset classes there: rates, FX, credit, securitized products and strong performance in commodities; $1.4 billion in revenues and equities this year, and that also represented strong performance across cash derivatives and prime services. DVA for the quarter relate to the structured notes both in fixed income and equities, it was not a material number, it was a positive $20 million. And it really didn't change quarter-on-quarter performance.

You'll see here, CPG reported a revenue loss of $190 million. And just a reminder, there's three items in that number. Typically, NII and fees on retained loans are going to be about $200 million, plus or minus on a quarter. And then you have the market impact of hedges on the loan book, which were negative this quarter and the impact of CVA and DVA, which were also negative in the quarter, and that led to the result.

Credit cost $429 million benefit and that really reflects the reduction in loan loss allowances, largely related to loan sales and net repayments. And just a reminder again here, as we approach a more normalized credit environment, this item is going to return to being an expense item on an ongoing basis.

Expenses in the quarter, you see, were $5 billion, up 4% year-on-year. That's really due to higher performance-based compensation, and that's partially been offset by lower non-comp expense.

Comp to revenue ratio, you'll see on the page, is 40% this quarter. And just a reminder, it's going to vary slightly quarter-on-quarter based on business mix, but we continue to expect our full year guidance to be consistent with what we shared with you at the end of the fourth quarter, which is 35% to 40%.

One final note here, you see the loan balances in the Investment Bank up 2% modestly, and you'll see that uptick to the extent that we continue to have active participation in the investment banking market, particularly the Strategic Advisory business, and you'll see that in an uptick in our loan balances.

With that, I'll turn to Page 4. RFS, just a moment on this page, this is a consolidated view. RFS for the quarter lost $208 million on $6.3 billion worth of revenue. And let me jump into the details really on Page 5.

At the top, retail banking had solid performance. Net income of a little under $900 million on revenues of $4.4 billion. Revenue was up modestly year-over-year, and that was net of an impact of lower deposit-related fees. There were some key drivers on the prior page. I'd highlight the positive growth of 4% year-over-year.

Read the rest of this transcript for free on seekingalpha.com