J P Morgan Chase & Co (JPM)

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JPMorgan Chase & Co. (JPM)

December 07, 2011 12:25 pm ET

Executives

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

Analysts

Ron Mandle

Unknown Analyst

Richard Ramsden - Goldman Sachs Group Inc., Research Division

Presentation

Richard Ramsden - Goldman Sachs Group Inc., Research Division

So next up we have Jamie Dimon from JPMorgan. Obviously, he needs no introduction. Jamie has helped build JPMorgan into one of the most successful financial companies in the world today, and he has delivered on his strategy in a variety of very challenging market environments. To give us his thoughts on 2012 and beyond, as well as to talk about the JPMorgan story in particular, it's a great deal of pleasure to have Jamie Dimon here. Thanks.

James Dimon

Richard, thank you very much, and welcome, everybody. Today, I have 39 pages, which I'm going to cover in 25 minutes to leave plenty of time for Q&A. So a lot of the information in these pages is really for you to have and read at your leisure.

Let me just start with this, this interesting landscape, which is not just about JPMorgan, but a lot of investors come to me all the time, they say, "You know, why you buy a bank stock?" You've got regulatory: Durbin derivatives, Volcker, capital G-SIFI, another 240 rules coming; mortgage-related issues, including putbacks from litigation; European exposures, which are obviously scaring people; an interesting environment which is not conducive to earnings spread, that Investment Banking profitability may be forever changed and obviously economy and loan growth themselves are not doing right. But I hope you feel, when you get through this, like I do. I think the opportunities in the future is just as good in the past. And I'm going to try to answer -- I'm sorry. I'm going to try to answer each and every one of the questions that are on this pages that are important. But I always look at the view from the point of view of the customers, consumers, Middle Market, large companies, investors are still going to need a banker or trader to give him equity, debt, capital or mortgage research advice, et cetera. And there will be huge growth over the next 10 years, so I'll give you, actually, some numbers on it. And obviously, there's always new technology, new products et cetera.

JPMorgan has had real underlying growth. I won't go to the franchises. I'm not trying to sell you stock here because we're going to be buying some. But I think these are great franchises. And we've had real growth. In fact, I'm thinking about the next time we do a press release, the earnings, instead of saying, the earnings of JPMorgan are X, Y or Z, I'm going to do something the press doesn't write about, small business lending up 70%, like this headline, "We hired 4,000, "Almost 4,000 investors here", "Middle Market lending up 18% year-to-date." Those are the numbers. And deposits were up in almost in single business.

We -- I'm going to take you through specific growth opportunities that we have, and we have this battle ship balance sheet. Okay, plenty of capital under almost any measure. I'm going to give you a few comments later on CCAR, et cetera. We have huge benefits from diversification, from funding, and we're going to spend a lot of time in 2012, necessarily focused on just building the businesses and navigating through the regulatory issues we got to deal with, but they're not all negatives. We just got to get through them in a very intelligent way. When I say navigate, what that really means is we're going be -- we're going to deal with every asset, every liability, every risk-weighted asset, we'll manage this stuff to a detail that I think will shock people, including some regulators.

I'm going to give you a quick overview of growth opportunities, talk about regulatory issues, then the -- our topics that I think were the ones you guys all mention in your research reports, and then a few comments in the fourth quarter looking forward.

This page, Page 4 just shows you at the bottom that things we're not going to talk about. So we're not going to talk about -- we're building commodities business. Investment bank is growing in emerging markets. Asset management, we bought a company called Gávea, or growing asset management, I'm not going to talk about those, but determine only ones at the top. They're usually initiatives we've disclosed before in the past, and these are the ones that I'm going to do particular quickly.

Branch build, we've mentioned to shareholders are going to grow maybe 250 or 300 branches a year, we're going to cut that back a little bit, not a lot, so call it 175, we're still studying this. The principal reason for that is that there's been a lot of regulatory change. Durbin and so many things simply make certain branches unprofitable. So it's not that we're going to stop. We're going to redesign. Some will be smaller. We've got to -- we have to meet our CCRA requirements. We're going to bring in more technology, but the fact is these branches still earn a lot of money. The breakeven to earning a profit is about 3 years. The average branch when it's fully mature makes $1 million, and it's also critical for credit cards, small business, mortgage and middle market and private banking. You can't build those businesses without branches. So when we look at the value of the branch system, it's still very high, it's going to change a little bit and we're going to modify a little bit how we grow them.

Next page is our economics of retail banking. I think the most important about retail banking is it costs us about $300 to $350 to deliver a checking account. Remember for that, you'd get some great services, mostly free. This is something that the Durbin Amendment didn't quite understand. Those free services are 24/7 call centers, free fraud protection for the most part, online bill pay, checks, credit cards, ATMs, all these services. Debit cards are free to consumer, access to branches and advice et cetera. What happened here is that we lost $1 billion of revenue, and we're going to have modify a little bit how we price these products. We're not going to charge for the debit card. We didn't think it was the right thing to do, but obviously, we have to modify the package a little bit to get paid fairly on these products and services.

We don't think we're going to get back all the debit -- Durbin stuff right away, okay? Because it's hard to do unlike some of the things you have in a credit card, but over time, we're going to do a better job in sales and service, probably have different standards to get to free, more -- make more deposits, et cetera. Remember, only about 15% to 30% of the checking accounts don't already have free. So you have to look at different segments and how you're going to price it, et cetera. Maybe one of the points to keep in mind is we're making less money. We're telling you, going forward, a little bit of NIM, this spread. We're not going to change the business because of that, because we kind of expected it'll normalize over many years. So the franchise has huge value and I can see all of it in profit in 2012 and 2013. And obviously, in the retail business we have to be compliant with all the new demands of the CFPB, which we'll be trying to do.

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