- Tier 1 capital ratio was 9.1% at June 30, 2008 (estimated), 8.3% at March 31, 2008, and 8.4% at June 30, 2007.
- Closed the acquisition of The Bear Stearns Companies Inc. on May 30, 2008. The agreement called for each share of Bear Stearns common stock to be exchanged for 0.21753 shares of JPMorgan Chase common stock.
- Headcount of 195,594 grew 15,930 since June 30, 2007, predominantly reflecting the Bear Stearns acquisition.
Key questions from the second quarter earnings call conducted by JPMorgan Chase & Co. on July 17, 2008.
Glenn Schorr (UBS): You mentioned in the comments that Bear was a drag on the Investment Bank. Can you talk about the strength in investment banking and then in FIC trading on JPMorgan versus Bear?
Michael J. Cavanagh: Drag means that just for the month of June, the Bear Stearns ongoing activities contributed somewhat to the marks we took in leveraged loans and mortgages as well as we basically have taken on expenses ahead of revenues, so there is drag after tax related to that. All that is saying is the $400 million of after-tax profits in our Investment Bank could have been a couple of hundred million higher had it not been for including the Bear Stearns results in the second quarter. As we said, those results are going to trend to the positive. Beginning in the second half of the year, they will be incrementally positive. As we said, the areas of strength, as you would expect, strong results in rates, currencies, emerging markets, credit trading, so some areas with standout performance.
Glenn Schorr (UBS): What is the breakdown between JPMorgan and Bear''s contribution to the FIC line in the quarter?
James Dimon: There was almost no contribution to FIC in Bear in this quarter.
Glenn Schorr (UBS): How would you balance your outlook commentary which is realistic and how you grow in terms of growth in Cards and Retail at a time when credit is starting to break down?
James Dimon: When you look at the growth numbers in Retail, the revenues are up 15%, and almost all categories are growing. Deposit accounts, investments - our mortgage share is up to 11%, and while right now that is not profitable, I would have hopes that that will be far more profitable down the road. That is just opening branches and hiring salespeople and doing the things you always do. Some of the credit costs are a sunk cost at this point. In Card spend is up 7%. We are gaining share in consumer and small business, albeit sales themselves are down. We are continuing to invest in marketing in that business just like any other business. We are not going to stop doing that because you have credit losses.
Guy Moszkowski (Merrill Lynch): You are looking at initially $11 or $12 billion of book value in Bear Stearns, and you pay $1 billion and change for that. You try to work down to the extraordinary gain of zero, within all of these transaction-related costs that add up to the difference between what their capital initially was and the lack of the gain or negative goodwill. How much of these transaction-related costs are essentially reserved, hung up on the balance sheet, which over time, if not used, could work their way into earnings?
James Dimon: There are some reserves for litigation and taxes and things like that, but those are best estimates in the ordinary course now. They will be changed over time if the expectations change, and most of the severance and real estate and stuff like that is actual cost. We know the cost at this point. All the things related to the balance sheet, de-risking, deleveraging, conforming accounting, think of that as gone.
Michael J. Cavanagh: Those operating losses are already spent.
Guy Moszkowski (Merrill Lynch): De-risking and deleveraging costs essentially are realized losses on disposition of the portfolio. Is that correct?
James Dimon: Realized or just marked down.
Guy Moszkowski (Merrill Lynch):
Is some portion of this essentially like traditional purchase accounting?
James Dimon: No.
Guy Moszkowski (Merrill Lynch): You have lowered the guidance on the home equity the loss rate side by year end. What trend lines are giving you more comfort there?
James Dimon: That number has come down a couple hundred million, but the expected loss of the subprime and prime is up by a couple hundred million, so it is a wash in our eyes. It is just that you look at the latest numbers of delinquencies and roll rates, people go from 30 days to 60 days to 90 days, it looks like it might be lower than it was before. It is early. We do not know. It is June, and a lot of people could argue there is some seasonality in that, but it is a ray of sunshine.
Guy Moszkowski (Merrill Lynch): You made a point about actively hedging some of the various mortgage exposures. What your monoline exposure looks like there and are any of your actions this quarter including any write-downs to that?
James Dimon: There were no write-downs this quarter to monoline. There may have been some modest marks or something like that. I want to point out we have only showed the gross exposures. Some are hedged and some are not hedged because we have always acknowledged that there are risks on both sides of that, and there is no real perfect hedge. Some things like Alt-A can not be hedged. For JPMorgan alone, unless there is an actual default, the risks are not high. We took on some additional risk from Bear Stearns. I would still make that statement, that the risks, you are talking about, unless there is a major default of one of the major ones they are not that high. There could be marks up or down a couple hundred million dollars, but we are relying more than we used to on the monolines for some of the things because Bear Stearns had some, but it is not a major thing for us.
Guy Moszkowski (Merrill Lynch): In the Investment Bank comp ratio seems high, especially given that your result was strong, even with your charges. Your year-over-year fixed income results were modestly down. What is driving that that is not recurring and where we ought to think about that ratio for the full year?
James Dimon: That ratio is high, and it was a healthy reserve relative to results. Ongoing, it should look more normal, and it is just reflective of how we think we need to pay people, etc., but it was a healthy addition this quarter. We do not want our people getting depressed, put it that way. We want to keep morale up.
|
