J P Morgan Chase & Co (JPM)

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JPMorgan Chase & Co. (JPM)

Q3 2012 Earnings Call

October 12, 2012 8:30 AM ET

Executives

Doug Braunstein – CFO

Jamie Dimon – Chairman and CEO

Analysts

Glenn Schorr – Nomura

Betsy Graseck – Morgan Stanley

Ed Najarian – ISI Group

Brennan Hawken – UBS

Moshe Orenbuch – Credit Suisse

Matt O’Connor– Deutsche Bank

Mike Mayo – CLSA

Matt Burnell – Wells Fargo

Erica Panella – Bank of America

Paul Miller – FBR

David Konrad – KBW

Christoph Kotowski – Oppenheimer

Jim Mitchell – Buckingham Research

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to JPMorgan Chase Third Quarter 2012 Earnings Conference 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 standby.

At this time I would like to turn the call over to JPMorgan’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Doug Braunstein. Mr. Braunstein, please go ahead.

Doug Braunstein

Thanks, operator, and good morning, everyone. I’m going to take you through the earnings presentation which as you know is available at our website and if you refer to the disclaimer regarding forward-looking statements in the back of the presentation, I will kick us off on Page 1.

We generated record net income of $5.7 billion, that’s on record EPS of $1.40 per share for the quarter. That came on revenue of $25.9 billion, up 6% year-on-year, 13% quarter-on-quarter. Our return on tangible common equity was 16% for the quarter and in the back you will see a return on Basel 1 risk-weighted assets was 1.7% for the quarter.

We characterize the business across all of our lines of business has strong performance this quarter and I want to quickly highlight upfront a few contributing factors we’re going to talk about as we go through the presentation. First, we really had positive franchise trends in market share that we have been talking about for several quarters as we continue to invest in our businesses.

We maintained our #1 rank in year-to-date global ID fees, we had record deposits in CDB, record production revenue in the mortgage bank, sales volume of 11%, increase in Card, record revenue in the commercial bank, record assets under custody in TS&S.

Secondly, we saw positive year-over-year loan growth, although modest decline quarter-on-quarter; and that is despite the fact that we continue to experience the runoff from our various consumer portfolios we’ve talked about. On a reported basis, total loans for the company were up 4% year-on-year; and if you look at core loan growth excluding the runoff portfolios, on a comparable basis to the presentation I did at the investor day, core loan growth was up 10% year-on-year. We have record loan balances in the CB up 15%, record business banking loan balances in CDB up 8%, record asset management loan balances of $75 billion.

Third theme you’ll see is credit. We continue to see the same core trends in the past couple of quarters; consumer loan losses still very high by historical standards, continue to improve in both our real estate portfolios as well as Card and losses continue to remain very low in the wholesale side.

And then the last theme is strong capital generation for the company. We ended the quarter with a Tier 1 common of 135 billion, that’s up 5 billion quarter-on-quarter, strong Basel 1 and Basel III ratios of 10.4% and 8.4% respectively. That estimate for Basel III of the 8.4% is post NPR and it compares to the 7.9% we recorded last quarter. I would also note we continue to work with the regulators on the implementation of the Basel 2.5 rules that were recently announced. And that’s going to allow us to continue to refine our estimates as we go forward.

Finally, you see as we always do put a number of significant items up front here for the quarter. I’m going to discuss these where relevant in the financials, but I also do want to remind you that there are, in addition to these larger items, there are always positives and negatives that run through the P&L. So for example, we didn’t highlight the 200 million negative of DVA because it wasn’t significant enough for us to highlight up front, despite the fact I just did.

If you move on to the businesses on Page 3 in the Investment Bank, we have circled net income of $1.6 billion for the third quarter. That’s on revenues of $6.3 billion. If you take out the DVA, it was $6.5 billion in revenue for the quarter. That’s up 45% year-on-year, 8% sequentially, $1.7 billion of net income and return on equity of 17%. IB fees for the quarter of $1.4 billion were up almost 40% year-on-year. We had particular strength this quarter in the debt issuance activity; given the favorable rate environment our clients are taking advantage of funding both going long and increasing their funding capacity.

Markets revenues of $4.8 billion were up 24% year-on-year, 5% quarter-on-quarter. Very favorable performance in Fixed Income, up 33% year-on-year, 7% quarter-on-quarter. And we saw broad-based strength across the Fixed Income product set and particular improvement in our credit-related products this quarter.

Included in Fixed Income for the quarter, and going forward on a P&L basis, was the impact of the synthetic credit portfolio that we transferred to the IB at the very beginning of the third quarter; and I want to highlight three items here about the synthetic credit portfolio. The first is the IB did book a modest loss this quarter in the position, that’s included in the $3.7 billion of revenues in Fixed Income. We did continue to reduce risk in that position this quarter. And you’ll also see the IB bar for the quarter was $122 million; that did reflect the addition of the synthetic credit portfolio as well as a model change we implemented this quarter and then a reduction of the diversification benefits for this quarter as well.

If you look at equity, markets revenue of $1 billion, essentially flat year-on-year. Cash volumes continue to remain a challenge but it was offset by good results in equity derivatives as well as our Prime Services business. Last comment on the IB, if you look at the comp to revenue ratio x DVA, 32% for the quarter, 34% year-to-date.

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