JPMorgan Chase & Co. (JPM)
Q2 2011 Earnings Call Transcript
July 14, 2011 9:00 a.m. ET

Executives

Douglas L. Braunstein – Chief Financial Officer
Jamie Dimon – Chairman and Chief Executive Officer

Analysts

Glenn Schorr – Nomura Securities International, Inc.
John McDonald – Sanford C. Bernstein
Betsy Graseck – Morgan Stanley
Jason Goldberg – Barclays Capital
Guy Moszkowski – Bank of America/Merrill Lynch
Moshe Orenbuch – Credit Suisse
Paul Miller – FBR Capital Markets
Michael Mayo – Caylon Securities
David Hilder – Susquehanna Financial Group
Matthew O’Connor – Deutsche Bank
Jeffery Harte – Sandler O’Neill
James Mitchell – Buckingham Research
Meredith Whitney – Meredith Whitney Advisory Group LLC
Edward Najarian – ISI Group
Gerard Cassidy – RBC Capital
Ronald Mandle – GIC
Matthew Burnell – Wells Fargo Securities, LLC
Christopher Kotowski – Oppenheimer & Co.
William Tanona – UBS
Michael Holton – The Boston Company

Presentation

Operator

Good morning, ladies and gentlemen, welcome to the JPMorgan Chase’s Second Quarter 2011 Earnings Conference Call. This call is being recorded. Your lines have been placed on mute throughout the duration of the call. We will now go live to the presentation. Please stand by. 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 L. Braunstein

Thanks, operator. I’m going to walk you through the earnings presentation. It’s available on the website. We’ll take questions after walking through the presentation and please refer to the disclaimer regarding forward-looking statements at the back of the presentation. So with that let’s turn to page one.

For the quarter, we generated net income of 5.4 billion, $1.27 a share on 27.4 billion in revenues. We’re highlighting several significant items in the quarter. They’re included in the numbers for the lines of business throughout the presentation but I’ll walk through them quickly. First, as we’ve done in previous quarters, we’re noting significant loan loss reserve releases. This quarter we have a $0.15 per share increase in earnings from a reduction in card services, allowance for loan losses.

We are identifying a $0.12 per share increase in earnings from securities gains in the investment portfolio and corporate. Third, you’ll see a $0.15 per share decrease in earnings related to incremental expected costs for foreclosure related matters and I’ll talk about that later. And then finally, a $0.19 per share decrease in earnings from additional litigation reserves predominantly for mortgage-related matters and that runs through corporate.

We ended the quarter with significant Tier 1 common, $121 billion. We continue to maintain strong Basel I and B III ratios of 10.1% and 7.6% pro forma respectively and these capital ratios also incorporate the impact of the repurchase of $3.5 billion worth of JPMorgan shares in the quarter.

You’ll also see ROE in the quarter was 12%; our return on tangible common equity of 17% and those two numbers are circled on the next page. And then broadly speaking, we did have solid performance across the lines of business, but there were two positive trends for Credit.

First, we are reporting positive loan growth across each of our wholesale businesses, total loan growth in wholesale, $32 billion year-over-year or 15% and $12.5 billion or 5% increased on the quarter. And then second, we’re continuing to show improvement in our consumer credit trends, but I’ll talk about those in specifics.

So with that, when we turn to page three, which is the Investment Bank, you see circled net income of 2.1 billion, that’s on revenues of 7.3 billion with strong IB fees in the quarter of 1.9 billion, that’s up 37% in year-on-year. We continue to be ranked number one in fees, but it still remains a highly competitive marketplace.

We demonstrated particularly strong results in our advisory and equities revenues this quarter and for those that like to look at the league tables, they’re in the back on page 19. We had solid market revenues of 5.5 billion, up 20% year-on-year, down 17% quarter on quarter from the first quarter which is seasonally strong.

4.3 billion in revenues in fixed income and this generally represented consistent client flows across all of our businesses in fixed income despite the difficult macroeconomic environment. 1.2 billion in revenues in equities, very good results particularly given the volume declines in the cash market and the overall volatility, prime services continued to grow this quarter and we launched our International Equity Prime Brokerage platform in Europe, we expect to do the same in Asia in the first quarter of 2012.

Credit costs, you see a $180 million reduction in the allowance for loan losses, that’s largely related to net repayments and you see non-accrual loans declined to 1.7 billion this quarter. Just remember, we do expect credit costs to normalize going forward. Expenses in the quarter are 4.3 billion in the Investment Bank, down 4% year-on-year and you see comp-to-revenue ratios of 35%.

We continue to expect to maintain a 35% to 40% comp to revenue range for the full year. And the final note is you did see modest loan growth in the IB balances up 3% quarter on quarter. Some of that growth is driven by the build out in our loan book associated with the Global Corporate Bank and on the international side revenues grew for the first six months of this year 11% from the first six months or first half of last year.