Preliminary Transcript

PRELIMINARY TRANSCRIPT
JPM - Q3 2009 JPMorgan Chase & Co. Earnings Conference Call

Event Date/Time: Oct. 14. 2009 / 1:00PM GMT
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Oct. 14. 2009 / 1:00PM, JPM - Q3 2009 JPMorgan Chase & Co. Earnings Conference Call
TRANSCRIPT
TRANSCRIPT
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Unknown Speaker*
) Good morning and welcome to JPMorgan Chase third quarter 2009 earnings conference call.
I will now turn the call over to Mike Cavanagh, CFO of JPMorgan Chase.
Unknown Speaker*
Great.
Good morning everybody.
Thanks for joining Jamie and I. We will go through the usual slide presentation available on the web.
I refer you to Slide 20 which give the usual forward-looking comments disclaim for you to read.
With that let us get started on the results on Slide 1. The highlights here.
So we had $3.6 billion in net income in quarter.
That's earnings per share of $0.82 on $28.8 billion.
I won't spend too much time talking about where the results came from here because we will go through it business by business
but it was great strength in the investment bank, and strong performance in the asset management commercial bank and Retail
Banking businesses as well as very strong results in our corporate investment portfolio.
The backdrop again though is a credit costs remain elevate.
You will see that that on various degrees of flattening and charge offs or slowing pace of increases but nonetheless continue
to be at high levels.
We added $2 billion to the credit reserves though to bring the total credit reserves to $31.5 billion which is a strong number
both for the firm and each line of business I will point that out as we go through.
Overall reserve to loans for the firm up 5.3%.
Capital very proud of the capital level of the Company.
Tier 1 common through the retention of those earnings through $100 billion to 101 with a tier 1 ratio of 8.2% and a tier 1 capital
ri show of 8.2%.
Obviously very, very strong capital levels.
Slide 2 has everything I just described on it. I will skip that and take us to Slide 3, the investment bank.
Here let's walk through the results in the investment bank.
You see the circled number the net income of $1.9 billion on revenues of a $7.5 billion for the business overall.
I will just make one clarifying statement up front that a couple of the items you have been focused on in the past together had
an immaterial impact on the overall profit, the combination of two items, one is the tightening of credit spreads, a spread on
JPMorgan's name and counterparty spread that's known together netted together for a modest net anything tiff and then we
had gains of approximately $400 million, mostly realized on those legacy leverage lending exam morgue an positions mostly
leveraged loans.
Moving through, putting that aside let's move through the underlying real dynamics of the business.
So investment bank feline $1.7 billion, up a bit year-over-year and off some from the record quarter that we had last quarter,
second quarter, where we booked something like 2.2 billion of investment banking fees.
We maintained the number one year-to-date rankings across the major capital rate and categories, so the investmentbacking
franchise is doing quite well and continues to do so. With fixed income market, revenues of $5 billion, and that obviously had
has the gains on leveraged loans bringing the total value now carried on the books down to a market value of $2.2 billion or r
carried at less than $0.40 on the dollar.
That's a 26% reduction from last quarter.
So, we are are likely not to be talking about that anymore from this stage.
And then, strong performance across most of the other products really in the fixed income markets area.
Equity markets similar story, $941 million worth of revenues in equity markets particular strength on going in the prime services
segment there.
The last thing I will comment on in the investment bank is credit costs.
You can see the credit costs of $379 million, over on the left, and the explanation there is that is charge offs of $750 million
partially offset by release in allowance related to particular loans that got marked down many the quarter for which we held
our marks in the form of reserves, just a geography swing leaving us with well marked on a net basis between reserves and
marks on those loans.
But that was a release of 371 to get you to the 379 net number.
Overall though, leaves us with 8.44% of reserve to loans there.
Moving on to retail financial services, on the next slide, some of the drivers here, top half of the page is the deposit taking side,
the retail bank.
Here as we said I will point you to the circled number, average deposits $339.6 billion, up obviously versus a year ago given
Washington mutual transaction this time a year ago and declined as expected by about $8 billion from last quarter, as we have
let high-rate, high-cost mutual CDs, one year CDs are rolling off mostly in the third and fourth quarter coming up. Everything
else in the branch production side we still have underlying good growth in the Retail Banking franchise, inclusive of what mu
and away from WAMU, with the last conversion happening in a couple of weeks here.
So everything healthy and on track in the retail bank, Consumer Lending side down at the bottom of the page.
Total firm-wide originations accredit about $140 billion in the quarter and 46 billion of that is what you see down in the bottom
of this page in the retail side.
That's 37 billion or so of mortgage loan originations about flat year-over-year and down a bit quarter-over-quarter.
Remember the real dynamic is our exit of the brokered channel in the past 12 months helping drive some of those numbers
replaced by activities more directly originated by ourselves.
And then, auto originations you see about $7 billion of auto originations, we have done well in terms of market share in that
business in the prime side and particular strength this quarter with the cash for clunkers program.
So moving to the next slide, Slide 5 for the income statement for retail financial services, we will just take this in two pieces so
if you see in the middle of the left-hand side, the retail bank on revenues of ability $4.6 billion, up substantially from year ago
given Washington mutual in particular, we had profits of $1.043 billion in the quarter.
So very profitable business in Retail Banking consistent from last quarter.
Then the other side of RFS is Consumer Lending at the bottom of the page, and driven by the very high level of credit costs that
I will go through in the next slide of $3.8 billion which includes some additions about 1.4 addition to loan loss reserves, we
ended up having an aftertax loss of about $1 billion in Consumer Lending.
So moving to the slide on the credit portfolios in home lending, let me just talk through that for a second.
So here, Slide 6, I will start on the upper left with the commentary here.
As we said last quarter, and then a month ago at a conference, we continue to see initial signs of stability in the consumer, early
bucket delinquency trends, but we are not ready to declare that's a sustained trend but it is continuing to be what we actually
observe.
Another overall comment is that as far as the impact of foreclosures moratorium, the trial mods which have been very active
in doing, and just the overall extension of processing of REO through the courts, those things are obviously having an affect on
overall delinquency and stats but we are doing everything we can to stay on top of the income statement taking recognizing
losses through charge offs and adding to reserves without regard for the impact that those factors would be causing in the
overall delinquency.
So with that moving over to the left hand side you see the actual charge offs in the circle there, that totals up to 2.1 wl dollars
this quarter across these three portfolios.
So charge offs themselves actually stable quarter other quarter but obviously at a very high level which is driving the business
to the aftertax losses we saw.
On the right hand side then N outlook, I won't go through these piece by piece but it is unchanged.
Looking ahead to what we see, we are not changing any of these numbers and obviously whether we advance to these levels
is going to be a function of whether some of the early bucket delinquency trends that we described continue or not.
Then the final important point on the purchase credit impaired loans we acquired from Washington mutual will be about $150
billion or so that we wrote down by $30 billion through SOPO 33 at the time we did the transaction, overall, that portfolio is
behaving in aggregate as we expected.
But we measure impairment at sub portfolio levels for purposes of accounting impairments, and so as we look at the prime
portfolio, not option arms just the prime mortgage portfolio, we see some weakness.
We obviously measure that in terms of expected lifetime losses on that portfolio, and have added $1.1 billion, that is put on the
books in the form of a loan loss reserve as opposed to an incremental mark.
So that is 1.4 billion, 1.1 billion of the 1.4 billion loan loss addition in Consumer Lending in the quarter.
So with that, moving on to card services, on Slide 7, you see as expected, and unfortunately, a loss of $700 million in the quarter.
That is fully driven by the continued elevated credit costs, high credit costs in the quarter, basically coming in consistent with
what we talked about last quarter, so the charge off rates on the Chase portfolio, the legacy Chase portfolio versus opposed to
the run off, WAMU, Chase portfolio 9.41% charge off rate circled there at the bottom of left up from 897 last quarter trending
toward the 10% plus or minus we talked about last time for where we would head by the end of the year, and we bolstered
reserves here by about $600 million.
On the revenue side, the dynamics here we continue to see, in the outstandings circled that $144 billion trending lower from
the year ago and last quarter, and that is the factors we have talked about before, backing away from balance transfer business
on our part in the marketing side, together with lower actual consumer spend on their cards, lower charge volume as well as
the charge offs all driving outstandings down which puts pressure on revenues and then the other piece is sales volume, it is
sales you see $78.9 billion, excluding balance transfers that number is down 6%. It is down year-over-year but we are holding
or own and doing well in terms of share spend but the overall market we believe is the factor driving the 6% year-over-year
decline, and that obviously factors into the revenue side.
So that together with the credit costs gets you to the loss in the business, obviously high level of stress on the lo losses in the
Washington mutual portfolio.
So losses in this business we exexpect to continue as we said through next year, no different from what we said before there.
On the commercial banking business, Page 8 you see profits of $341 million, up 9% year-over-year.
Continued good dynamics in business.
Credit trends are up bet revenues are up year-over-year, largely due to the impact of Washington mutual but at $1.5 billion,
that along with very good expense management gives us the earnings power to absorb a normalized credit environment.
So you can see on the credit cost line, total 355 million of credit costs, that is on higher charge offs you see circled down on the
left, 111 basis points of charge off rates for the business, up year-over-year and quarter-over-quarter, but consistent with what
we have talked about in this kipped of economy these portfolios credit is going to normalize.
We end the quarter with more than 3, at 3% reserve to loans which we think is very well reserved for business.
Next on treasury and security services Slide 9 profits of $302 million which is down both year-over-year and quarter-over-quarter,
liability balances are down, the revenue down 8% with the big driver being in security service, the custody and investor services
business, that's abasing levels of activity in securities lending business, together with overall lower liability balances and WSS,
TS got a little on the revenue side and that drives the overall profit number about $300 million in the business.
Net income up year-over-year 23% on revenues of $2.1 billion, which are up 6% year-over-year, and you can see the spread
across the various businesses, private bank institutional and so forth.
Really, continue to do well in the business here.
Assets under management $1.3 trillion, that is all the market level impacts on the business together with nice positive inflows
of $113 billion for the past year and continued inflows of $34 billion in the past quarter.
And investment performance continues to be strong and that of course is the necessary ingredient, in this business.
So overall, things continue to be doing well in the asset management business.
And then lastly, on the income statement, is the corporate segment, I will spend a minute on this, Page 11, so breaking it up
into the pieces you see in the box in the upper left, the income box, so net income of $88 million in private equity, that's on
revenues of $155 million, the first time we've had some positive valuations in private equity in a little while.
The next line is important.
That's corporate, that's everything else inclusive of the Treasure treasury business.
Here $3.1 billion of net income, couple of pieces there, that are noteworthy, one is not interest revenues, of $900 million of tax
related to trading gains in the investment port follow owe.
I think of that as positions we own that aren't available for sale accounting.
On those we had a separate increase in the OCI accounts of about $3.7 billion aftertack in the quarter but this is what runs
through the P&L because it is mark to mark.
That $900 million is obviously a very strong number in the quarter and secondarily it would benefit the net interest income on
the larger AFS portfolio which is appropriate given where we are in the balance sheet demand for clients as well as the lower
interest rate environment.
So what I will say here is that obviously the $1.3 billion is number, we see that coming down in the next quarter or two and
beyond that it will drift lower as we get to the middle and next year.
Of course that is subject to the volatility of one-time items but that's the dynamicsover corporate.
Capital on Page 12 you see again up front we have $101 billion of tier 1 common capital, that is 127 of tier 1 capital, up strongly
versus last quarter, and for the point I made about the improvements in OCI tangible capital is up even more to the $3.7 billion
aftertax improvement in the AFS portfolio which we still have.
Capital ratios at 10.2 and 8.2, we think are very, very strong.
And on top of that, obviously the great strength of the earnings power of the Company and 31.5 billion of reserves.
So let me now just wrap up the quarter, and talk about outlook on Slide 13. So just to make a few points, much of this is familiar
to you but we are seeing great, great results in the markets businesses, and we don't know when but we would make the point
that revenues in the market side fixed income equities, we would expect to normalize over time as conditions in the markets
and customer activity levels stabilize.
We don't know when but that's just a point we would make about the strength of the results in the investment bank looking
backwards.
A very strong first three quarters of the year.
On the retail financial services side, nothing different here.
We have covered this and it is unchanged.
Obviously the Consumer Lending business will remain under pressure, and a maker so long as credit costs remain at these kind
of levels.
On the credit cards services side let me just say that the outlook for as we now look into say what we can see into the early part
maybe the middle of 2010, we take Chase portfolio, of plus or minus 10.5%, highly dependent after that on where the economy
goes but that's as far as we can see.
And just in terms of noise in the numbers, in the swing between the fourth quarter and the first quarter, as a payment holiday
we will earlier in the year runs through the loss bucket.
So that will actually depress fourth quarter, but to 9% plus or minus and we will get 11% plus or minus but the dynamic as a
true core number.
WAMU losses as I said nothing different here, trending higher and continued pressure on the level of outstanding translate
intuse the picture that the card business losses money for the foreseeable future on a quarterly basis.
Commercial bank, nothing different about our commentary here, we expect credit to continue to weaken but we feel very
strongly reserves in the businesses position quite well and healthy.
Unchanged commentary on treasury and security services and asset management.
Private equity we don't know it will be a volatile line.
We have $6 billion of capital we hope to make a return on but we can't predict quarterly results and corporate is as I just described,
500 million plus or minus subject to one-time items in the next quarter at least maybe two.
And the final comment is if the economy weakens from here we could need to do additional reserving or likely to do additional
reserving if the economy actually weakens from where we are currently running.
So finishing the quarter now just hitting quickly before we go to Q&A.
On the capital planning side, just worth making the comment that obviously the 8.2 and 10.2 capital ratios are very strong . we
think there's a lot of die lag about potential for changes in regulatory expectations in terms of capital and liquidity.
Our point would be we feel prepared to handle whatever comes along but details are to follow on that.
And then the dividend comment, no different from what I said a month ago at a conference which is that it is a board decision
and when we are confident that the economy doesn't have another potential leg down, which looks like to us, in all likely hood
a peaking and then decline in our credit costs, charge offs coming down as well as external factors then as an external factor,
at that stage we would likely make a significant, in the range of $0.75 to $1 per year from the $0.20 level we are currently at.
And then from that point forward we feel comfortable with our 30 to 40% pay out rate of normalized earnings and that move
could come some time in the early part of 2010 but that requires the economy to stabilize as we talked about earlier.
Update, obviously you saw us in some of the treasury department statements making significant strides in modifying mortgages.
We think that's the right thing to do and are engaged, 262,000 mortgages modified, early days to tell how successful those
actions will be. The only point I would make is that it is not a delayed negative void P&L impact for us. We are staying on top of
as I said earlier, the credit and credit costs impact we belief of having the modification program at the level it is at. On overdraft
fee, again, we are doing the right thing for the customer, we think given where how they're behaving and how usage of debit
cards has evolved.
It's the right thing to do. It will cost us money.
With e don't know and don't have final rules from the Government on what they expect the industry to do, but if nothing else
were to change, E IE consumer behavior which it likely will, we can see that cost us 500 million plus or minus after tax in the
retail business.
But again, that's a pretty simple number, we don't have all of the other impacts that likely come along to say that with a great
degree of conviction.
Finally despite -- very active on the credit card products side.
We think we have a great business, when you look out several years despite the near-term pressures and our eye is on that
prize.
So we are focused on delivering better and new products.
You saw it in term of the new card we rolled out in the quarter and the marketing behind that together with new small business
products and as well the blueprint service to help our clients manage their borrowing better that was highlighted in the ad in
the papers today.
So we feel very good about an example of how we are investing in all of our businesses despite again the challenging times
and ternings power that's placed and the capital strength allows us to do that.
With that that's all I wanted to say up front.
I am sure there's questions that you want to ask us beyond that.
So with that I will turn it over to Q&A.
+++ q-and-a first thing I want to do is make sure that I correctly balance if what I think was a cautious tone on credit and reserve
building in the Press Release, the comment by Jamie that, you know we really haven't seen the stabilization, whatever stabilization
we have seen last long enough to be confident that it is lasting.
With on the other hand, the comment that I think you might have made to the press this morning and forgive me if I didn't get
it right you still think the ends me if I didn't get it right you still think the ends of the reserve building period is near and I want
to understand the thinking that goes into all of those comment.
Unknown Speaker*
the point is that subject to the economy stabilizing and these trends continuing, which we just don't know, that is the point.
If that were true, we are getting near end of reserve building but we don't know and we have to remain cautious about what
does happen from here.
If things worsen we may need to do more reserve actions and that's the message not really different from last quarter actually.
Unknown Speaker*
Okay.
Fair enough.
And in terms of the gains that you saw, as you pointed out both through the P&L and the corporate side, and the AOCI swing,
which was pretty significant, can you give us a sense for how much of that might have been actual realized gains?
Unknown Speaker*
The preponderance of it is unrealized, Guy.
Unknown Speaker*
Okay.
Unknown Speaker*
Obviously all of the AO, there was a few hundred million dollars of gains that were realized related to the AFS portfolio and the
rest, you know were unrealized values.
Unknown Speaker*
Then another question, just on the WSS unit, that you referred to, I am just wondering if you can give us a little more color on
what's driving the contraction in those spreads there.
Unknown Speaker*
It is largely customer activity levels and change in appetite on products but that's unbusiness where we will have to look and
see where the rest of the industry performs when we see some other results to get a firm conclusion there.
Unknown Speaker*
Okay.
Thanks.
One final question on cards you note that the managed margin actually bumped up by I guess close the a percentage point to
about 910 basis points.
Are you still looking for the regulatory changes that kicked in to cost you ultimately about .5 billion.
That was the number you had outlined.
Unknown Speaker*
Our last number was .5 to 750 million aftertax plus or minus obviously and again all other things staying the same which we
don't know and it is hard to see given everything else going on in credit.
Unknown Speaker*
This is Jamie.
Let me give you a little card.
The card business is going through a substantial adjustment.
We know that we have visibility to early losses next year.
So we know we will lose a lot of money next year on card and it could be north of a billion dollars the first and second quarter.
That number will probably only start coming down as you see unemployment and charge offs come down.
And the stuff is, we think it will cost that kind of number but it does relate to how everything else in the marketplace reacts,
you have to do a better job up front and you have to do, if you want to maintain a clients, a better job I will call it marketing,
rewards, services things like that.
So what we are doing in the card business is looking past 2010 and have asked the people in the card business to build new
products, great new products clear and simple marketing, to do what we are on a competitive advantage on the card side,
brand side, refill distribution, because people are going to cut back credit, subprime in places they can't manage the risks
properly but it will be great coming out of that.
You won't see the results until 201 #, 2012.
Unknown Speaker*
Great.
Thank you very much.
Unknown Speaker*
Your next question comes from Glenn shore with UBS.
Unknown Speaker*
Thank you.
First one is to Mike.
Curious about interest rate positioning.
The thing that brought the question is if you look at Corr consolidated average balance sheet, the yield on your long-term debt
came down 51 basis point this is quarter.
It is only 209 basis points, and I am just curious if we are looking at a net yield or do you have a significant amount of floating
rate debt?
It is 270 billion strong but it is amazingly low number helping to support basically the net interest margin.
So I am curious on how you're positioned in this incredibly low rate environment.
Unknown Speaker*
I guess what we can follow up afterwards on the debt, the debt question, generally looking ahead, we and holding aside the
investment bank, and what we do in the invest portfolio which we have been open about, the rest of the businesses will run at
relatively stable dollar margin spreads,s being actual run off, and general stability in the rest of the portfolios.
On a dollars and margin and close to the same in percentage but the real dynamics there typically run through the investment
portfolio and bank.
Unknown Speaker*
Okay.
And you said you want to follow up on the long-term debt one.
Unknown Speaker*
Sure.
Unknown Speaker*
Yep.
Unknown Speaker*
Okay.
Maybe while we have Jamie there, too.
10
Look, you both commented on some of the regulatory changes that are coming but I am just curious on the ones you might
think could have the most impact because cards had a legitimate impact but between the formation of the, and the potential
changes, are those the two that are front and center given your comments on how you feel that your capital ratio is already?
Unknown Speaker*
Well, capital is a little different because you are reading around the world people talking about higher capital liquidity and
market and risk and size and God knows what and changes in carrying all of thavment we have very well positioned for all of
that.
We have plenty of capital.
We have numbered the amount of tier 1 common that was requireed in the test and all of that.
So, but you are right, the two main regulatory issues kind of front and center derivatives and we really don't know how it is
going to turn out.
We hope it turns out in a rationally way.
We have been proponents of getting derivatives into clearinghouse but we don't they they should have forced into an exchange.
There should be room for over the counter with proper, you always read about they don't have capital, they're not regulated
and all of that is just untrue.
Over the counter derivatives if you were doing it through a brokered dealer which is regulated by the FCC and fed, have capital
requirements and reporting requirements and we think it is important that that business be allowed to exist to service customers
properly.
We don't know how it is going to turn out yet.
That could have a material impact on the business, and on a lot of f companies in America.
That is what changed the way people do business in the area.
The consumer protection agency again, that everything acts like that is a given that will happen someway.
Streamline, strengthen our spaghetti regulatory system and instead we are making it more complicated which over time will
be more damaging to our country than not damaging.
We have in favor of consumer protection, we just don't they that's the way to do it. If you have to have an agency, the most
important aspect, the long-term health of the business will be if you have proper federal re. You should draw a scenario where
every stated has own rules and requirements and disclosure, how are you going run call center, you know, the disclosure form
for documents will be longer and more confusing, litigation will be higher thavment will be paid for by the customer.
Anything like that would be paid for by the customer, and so we don't know how it is going to turn out yet.
Unknown Speaker*
I have more faith on the derivatives side, too.
11
Mike, maybe last question, just a quick one.
I know it is an involved question, but can you comment impact of falling dollar on the balance sheet and.
Does it do much or you run much of a hedge.
Unknown Speaker*
Nope, not a material thing.
So we can carry that if you want off line.
Unknown Speaker*
No worries.
Thank you much.
Unknown Speaker*
Your next question comes from John McDonald with Stanford Bernstein.
Unknown Speaker*
Hey Mike, you continue to buy security this is quarter, can you give us a high level philosophy approach to building the securities
book when loan growth for the industry is obviously not there and how do you think about the rate risk associated with the
growing investment book?
Unknown Speaker*
Balance sheet, in the investment port foal owe is portfolio, but it is true that over time you buildup that portfolio, we wish to
make money.
We are a profit enterprise.
We do disclose the 10-K, I don't know the numbers today but it is going to show that for 100 basis point one-time move in the
curves it will cost us a billion dollars.
We don't look at it in that simplistic way.
We look at a whole bunch of different scenarios to make sure the Company is, that will show we have a mismatch of $100 billion
that's simplistic.
We move that quickly so you shouldn't assume it will stay in a position like that but we make other decision, when to buy
mortgages, other scenarios, so we don't take a tremendous amount of risk.
12
We did see an opportunity in the last six months to put on good spreads and the people in the investment office were allowed
to go in some creating because you were being paid an awful lot of noun do it. Remember that's what we are here for not just
to be simplistic and Mike said that number over time will come down because the capital will probably be used elsewhere.
Unknown Speaker*
Okay.
And kind of related.
Unknown Speaker*
Remember you don't lose it all because of the capital doesn't go away.
You still get to do something else.
Unknown Speaker*
and on the same kind of philosophy, hedging the MSR as the bias on rates is up, that same investment office has an integrated
view about how you are hedging the MSR.
Unknown Speaker*
The MSR as you know generally is short duration, short volatility and short mortgage which is mortgage spreads against slots
or treasuries, and you know, the general premise in your head against those things.
Even when you're hedged you are going to have a lot of volatility because remember you are hedging against the model.
You will have some volatility.
There are occasions when we use the MSR to take the position you want to take on mortgage basis volatility or duration.
And the question is what's the cheapest way to do it. The folks in investment have the authority to do that but for the most part
you are hedged.
Unknown Speaker*
It is integrated with the portfolio.
Unknown Speaker*
Okay.
In card, any idea what the impact of payment holiday and deferrals have on delinquencies, is the payment holiday something
you would do again potentially.
13
Unknown Speaker*
No, we are not going to do it again.
I don't think allowed to do it anymore.
It will reduce the charge off rate by 50 or 75 basis points and increase it by 150 or 75 in the first quarter, and obviously, we think
it is net present value positive but we probably won't do something like that again.
A bunch of other numbers get affected.
Unknown Speaker*
beyond that there are other modification discussions and deferrals and reaging going on in card r?
Unknown Speaker*
Standard.
It is obviously more because you have more things and work out more problems. And the recovery rates are 5%, not 15. So
there are other things happening in card.
Card is having a tough time but like I said we will take this opportunity to build a great business.
Unknown Speaker*
Last question, the WAMU, should that help the net interest nare gin at some point going forward.
Unknown Speaker*
You did see on the are retail slide a few basis point improvement as high cost debt rolls off.
Unknown Speaker*
Very high rates on those.
Unknown Speaker*
Okay.
So that is helping in your deposit margin.
Unknown Speaker*
exactly.
14
Unknown Speaker*
Okay.
And last question on the cost savings from WAMU, where are you on the realization of that.
Unknown Speaker*
WAMU cost saiings.
Unknown Speaker*
On track.
It will all be done like I said the final conversion and those will be in the run rate as we exit this year.
Unknown Speaker*
Thanks, guys.
Unknown Speaker*
Yep.
Unknown Speaker*
Your next question comes from the line of Morgan Stanley.
Unknown Speaker*
Hi. Thanks.
A couple of questions, one on the NSF changes you made and you you think through managing the business for that.
I thought when you bought WAMU one opportunity was to raise the -- I am not sure if you are making these changes ahead of
cross sale improving for if there's another opportunity for you to morph the business line to get to the ROEs you were hoping
with the change you are making.
Unknown Speaker*
I don't get your question totally, Betsy.
Unknown Speaker*
Coming down version right.
15
Unknown Speaker*
Right.
Unknown Speaker*
When you bought WAMU you indicated you expected to do that given California, and you were making up for that ahead of
time with cross sales increasing.
Have you gotten to the cross sale piece, part, or target that helps you reduce NSF?
Unknown Speaker*
Yeah, the reason, remember one thing we do a merger you have to merge the products.
So you have a change in the products and how they're being used.
We've also had a change in customers, so you are seeing both of those taking place in the WAMP branchs and the cross sale is
doing what we expect to do, we are adding the people in the branches, the marketing, and I think we are kind of.
Unknown Speaker*
With the conversions we will get the new products in. That's on track as it was be Bank of New York and Chase before that on
the introducing introu products and think of what happens as on fee side is independent but we are doing both, we are doing
both the right way.
Unknown Speaker*
So I mean the NSF changes that you are making now, you know, should have an impact on the ROE in business or any offset.
Unknown Speaker*
The real changes we are making that we announced will be some time in the first quarter, where we, we are going to allow, to
have opt-in, and a new set of products and no more than three a day and a whole bunch of different things, that's the detail
being designed now, think of those as a first quarter item.
Unknown Speaker*
And so are there any offsets to that in the business model?
Unknown Speaker*
I personally don't think there will be a lot but it is not, it might give you a static number, $500 million plus or minus but it is not
static, new things and can you, if everyone else does it can you change your pricing a little bit.
So my guess is get back some but not all of it.
16
Unknown Speaker*
Did you test it before you came out with the numbers.
Unknown Speaker*
No we are testing some of that, but the answer is to.
Unknown Speaker*
Okay.
And then, warrants just how do we think about that process, and how that is going to be involved.
Unknown Speaker*
It is in the hands of the Government.
So, obviously, we are awaiting, you know, what they choose to do, I think they're just trying to get their process, you know down
to be a universal one, and hopefully they get that rolled out but the ball is in their court.
Unknown Speaker*
It doesn't affect your company at all.
Unknown Speaker*
I guess two other quick things one on trust business, where, how do you think about the normalized earnings for the trust
business?
I know back in a couple of years back you had target ROEs and pretax margins and it seems like TSS is running way below.
What your goals had been.
Unknown Speaker*
I think, I think our goal is exactly the same as it was before, and a 35% margin.
Unknown Speaker*
Yeah, 30 to 35 pretax margin.
We have put more capital.
So it is a different ROE but 31 last.
17
There's nothing wrong with that pretax margin over time.
Unknown Speaker*
You get there with what, spreads normalizing.
Unknown Speaker*
That and growth.
Unknown Speaker*
And growth.
Just lastly on normalized earnings for the overall company, how you to think through what your franchise should be generating
over time?
Unknown Speaker*
We are not giving you a forecast.
We would expect only these levels on a normalized basis necessarily, and that corporate line is going to come down from 3.3
to 800 to 500 over time depending on the decisions we make, and you know, cards we don't know yet.
So, you all, we see a lot of the normalized earnings and all over the place.
But if you want to think ahead on the Company a little bit, with over $32 billion of reserves, whether that number goes up a
little bit or whatever, you know when things normized and 2011, 2012 come down, so you know you have that, and not be
earnings but you know these other things will go, some will go from losing to making money, the underlying is very powerful.
That's what we try to build all the time, more branches, bankers clients to drive that number in 2012.
Unknown Speaker*
Okay.
Cool.
Thanks.
Unknown Speaker*
Your next question comes from the line of Mike myowith CLSA.
Unknown Speaker*
Good morning.
18
Unknown Speaker*
You mentioned can $500 million was it after tax or pretax and is that the total amount of your overdraft fees.
Unknown Speaker*
It is after tax just an estimate of what the change might do a very static number.
Maybe we will try to get more information but it is a very rough estimate because we know you will be asking.
Unknown Speaker*
That's simply related to the overdraft fees.
Unknown Speaker*
The changes in the policies in general, yes.
Unknown Speaker*
Okay.
And loans were down about 5% linked quarter 16% year-over-year.
Is that supply or demand, what are some of the ins and outs there?
Unknown Speaker*
So, you know, consumer portfolios, with the you have run off portfolios from Washington mutual and large in retail, and obviously
some tight ing of underwriting standards in those businesses generally.
So expect that at the origination levels, that for a period of time here, we are going to have downward pressure on those
balances.
We're in the business of making loans against our underwriting standards today.
So it is active supply, meeting demand on that score, on the commercial side, commercial bank you have seen a little further
down, this quarter, and that is you know more, it is a little bit of everything but it is more demand clearly because we see
extended credit lines utilized at the lowest levels of all time.
You can see a swing in those numbers as soon as confidence returns in our commercial clients and they have some use for that
money.
Unknown Speaker*
Have you seen any tick up.
19
Unknown Speaker*
The corporate investment bank it is all, it is mostly corporations going to the market and paying down their loans.
So, the loans after 909 days, and 60 million.
Unknown Speaker*
Can you give any more color on your trade which can is greater than people expected.
It is flattish link quarter but your trading assets are down and bar is down.
So is all of your trading benefit, or what's going on there.
Unknown Speaker*
Remember, a good one point measure but going down because you drop off the more volatile time periods but the trading is
drawn across most areas, there's a lot of client zplo spreads are still higher than they were at the bottom.
So, coming down but a lot of good client business and some good train around that.
Unknown Speaker*
Last question, this is the first phone call since you had the change in the management of the investment bank, and clearly your
investment bank is doing well.
So the question is this a good time to change the management when everything seems to be going right?
Unknown Speaker*
I guess you don't necessarily make management changes for the next 5 to 10 years because you think you are having a good
quarter or a bad quarter or something like that.
In fact very often you get caught doing it at the wrong time, won't look exprieght you just try to figure out what the right thing
to do for long-term health of the Company.
So I don't think it relates at all to whether you are having a good year or a bad one.
Unknown Speaker*
All right.
Thank you.
Unknown Speaker*
Your next question cops from the line of Meredith Whitney with Meredith Whitney advisory group.
20
Unknown Speaker*
Good morning.
I have two questions.
My first is on the supplement page 16. It toshings about some of the changes that you made in term of inputs for your valuation
on your mortgage business and I wanted to know if you could talk give more color to the input, how things have changed you
made within the fourth quarter of 2008, how you market, it looks as if California might have turned down again.
Unknown Speaker*
Yeah.
So I guess the way to look at it, the model is always being adjusted.
And it is, you are always updating it for home prices, housing turnover, prepayment models, and you do that at a very detailed
level.
Do it differently for 4.5% mortgage, 5.5 or lower high LT expr stuff like that.
That is just updating constantly and some times those model changes always will have a benefit and some times all have
negative.
Unknown Speaker*
I know.
I appreciate how that is constructed I Jury just wanted to get more color is there anything in the US market you see differently
on a regional basis or is it rates-driven.
Unknown Speaker*
No, I think it was mostly lower housing turnover and lower prepayment rates.
Unknown Speaker*
Okay.
Unknown Speaker*
The number we also -- to continue regardless of the model.
Unknown Speaker*
Okay.
21
Would you comment ton California housing market.
Unknown Speaker*
On the housing ma?
Unknown Speaker*
Yeah.
Unknown Speaker*
You know the data as well as we do. You have seen again the numbers, and of course to get to them, you can always question
them.
But in lampton marks in America of the major MSAs you have seen a stabilization in fact an increase in the last couple of months,
call it stabilization of home prices.
That was more true for lower priced than higher priced but also happens in places where price is down dramatically, and
obviously still bad, parts of California we are seeing some improvement.
We see that improvement a high percent of sales and foreclose yours aren't as high of a percent.
So I would agree with you there's a lot of distortion in that number but all things being equal it is a good fact not a bad fact.
Unknown Speaker*
Okay.
All right.
Then just one point of clarification, Mike when you talked about the commercial portfolio, and the 111 basis points of charge
off I was unclear as to where you thought that I was going to go.
Unknown Speaker*
Trending a little higher.
Remember it is, so it is same message, our reserves are probably good but you probably have continued pressure on charge
offs.
Unknown Speaker*
Okay.
22
Unknown Speaker*
One great thing about that business going back to the old days when 60 or 70% of the revenues were loan relateed and now
it is more like 40 or maybe even less percent.
Now we have a commercial bank with a very good return in a very tough time.
Unknown Speaker*
Right.
Unknown Speaker*
And they have done a heel of a job controlling their credit losss and of course we know that in tough environments they are
going to get worse but they have been far better than you might have expected, even up until now in this type of environment.
Unknown Speaker*
Well positioned too.
Unknown Speaker*
As you know we have very careful in commercial real estate.
That $12 billion the losses are 2.3% expect those to go up. We just don't think a dramatic impact on the Company.
Unknown Speaker*
Would you comment more broadly than the last question on timing of commercial real estate when you have, this has been
waiting when it affects the industry, if you have any derivative exposure meaning derivative to someone else's real estate
exposure and just comment more broadly on that.
Unknown Speaker*
We have lending exposure if I just mention commercial bank, some in the investment bank but we wouldn't put those in a
material kind of category, what makes us that nervous, and commercial real estate, the values have already dropped and it is
going be recognized over the next couple of years in people's P&L write downs and can't refinance properties and stuff like
that.
So, we believe you will see several hundred position smaller regional based banks go not make it and but there's also going to
be a lot of capital eventually coming through, the real estate business when people try to recapitalize, at good cap rates.
Unknown Speaker*
Okay.
23
Unknown Speaker*
It could be an opportunity for us not a negative over time.
Unknown Speaker*
Got it. Thanks so much.
Unknown Speaker*
Our next question comes from the line of Jason Goldberg with Barclays capital.
Unknown Speaker*
Thank you.
I was hoping just to flush out some comments with respect to delinquency trends in home lending, can you talk to stabilization
on Slide 17 on, in the slide deck, it looks like all of those lines are going up and it can be the discrepancy between percentage,
delinquencies, come down maybe you can talk to that and also if you can expand in terms of what impact or quantify, are having
on overall mortgage delinquencies.
Unknown Speaker*
Right.
Clearly on the overall 30 plus you get the distortion.
I won't try to take that number down too much.
You see those, in percentage terms on 17 you do see those affects rolling through.
On a dollar basis it is stabilization that we are seeing across those portfolios and again it is port folios coming down.
Unknown Speaker*
So in, this is coming in front end going down for the first time stabilization and those deteriorate over time.
We try to adjust on the delinquency side, we keep all mortgage modification in delinquencies through the trial process.
That's actually driven up our delinquencies not down and remember if you estimate what that number was, something like
20%.
Unknown Speaker*
Yes, 20 to 30% higher depending on portfolio.
24
Unknown Speaker*
Thank you.
And then with respect to, you mentioned reserve leases in the investment bank, is attributable to mark up and it'd flows through
that line or just more clarification on that.
Unknown Speaker*
That's in the credit N the total provisioning line, we took $750 million worth of charge downs, so carrying value of loans written
down by $750 million, but a loan by loan basis, many of those loans entered the quarter already having reserves up against
them.
So on a net of reserves basis they were already on average carried at $0.60 on the dollar.
We like on a particular hypothetical.
We like $0.60 on the dollar and we have a charge off.
We charge the carrying value down by 40-cents and release the $0.40 of reserves we had.
That's all running through the credit cost line, a release of allowance for loan losses.
Unknown Speaker*
Okay.
And then just lastly, I mean, and you know, obviously the market have been extremely, you know wide and I am sure this quarter
benefited from that but I guess it feels like it may be narrowing at the point, terms of how that has trended and at what pace
and how that plays out?
Unknown Speaker*
It is different for every single product.
It is hard to say but a benchmark with one before crisis it got as high as 6. And has come back to 2. But it is really different for
every product.
One may be unnaturally low and never come back to 1 but the competitors are back which is a good thing for the industry, you
know, it is much more competition today and people competing in the flow and reducing spread.
Unknown Speaker*
great.
Thank you.
25
Unknown Speaker*
Your next question comes from the line of David with --
Unknown Speaker*
Good morning.
Guys, I don't know if you have noticed but you were starting to get the pay criticism thing really heating up again in the press
and I don't suspect that it is necessarily going to go away as these bonus numbers, you know kind of pile up through the quarters.
How is, how does this affect your thoughts on if there's more controversy and political pressure, how will that affect your
discretionary decisions on pay as you head into the you know final quarter of the year.
Unknown Speaker*
Let me just talk to big picture, if you look at the FSA has spoken about, the financial stability board.
We don't yet have the fed, the fed or the treasury put out their own guidelines but most of those are global.
If you at the pay policies of JPMorgan Chase we have followed them.
We don't have parachutes or special severance packages we pay in deferred comp and stock which is. We had call back and
things like that.
We already asked the senior people of the Company, the operating committee to keep their stock they get issued to them as
long as they have their job so they become substantial shareholders over time.
We looked at long-term sustained performance realizing that the -- boats and thinking sinkhole we have looked at the contribution
people make to building a great franchise at JPMorgan and that includes regrout couthing how they treat clients, not just
financial results.
We maintain those standards and we think have done it right and fair.
Industries have to pay for performance and we have committed to treating each individual, each individual properly.
Unknown Speaker*
Great.
I know r probably tired of this question but you have mentioned you have a preference for share repurchases over dividends
and you go out of your way to mention the dividend outlook, and I didn't hear anything about buy backs.
Unknown Speaker*
I just mentioned one thing about comp because it hasn't been.
We also call back the operating committee for any reason.
26
So, dividend we want to give clarity.
Obviously shareholder going into a break environment with the potential it will get even worse the first goal became to protect
the Company but once we are convinced that is gone we want to reestablish the dividend.
That's on opportunistic thing, when it is cheap or the best thing to do and not when it is expensive or better uses for capital.
Unknown Speaker*
It will be unrelated to dividend because dividend is a long-term decision to make for shareholders.
Unknown Speaker*
Great.
Unknown Speaker*
Your next question comes from the line of mash.
Unknown Speaker*
I know that as we look at the overall numbers they can be confusing as to the any pointing to the economic outlook but as you
get the data kind of first-hand from people that are running the businesses that are dealing with small business, smaller
businesses, mid size and consumer, what does it tell you about the economic outlook?
Unknown Speaker*
You know, look we are not, what we see, you actually all see pretty much what we see, and there seems to be the ability in the
environment, in terms of consumer spending, confidence, in terms of delinquencies a little bit of improvement in home price.
Those are actual data, and you know that can be forming the base of a recovery or not but we are not going to spend a lot of
time guessing about that.
The only thing anecdotally is that business, small business, middle market, large corporate, the kind of poise and waiting to see
the recovery is taking hold, they have plans, substantial plans and growth plans, to me it would be a good sign if that's true
because maybe, you know, people get a little more comfortable and make more investments in the future.
Unknown Speaker*
You made a lot of announcement in new products in the card business, recently, can you talk about how atbressive you are
willing to be given your competitors and businesses you see where you can do the same sort of thing?
Unknown Speaker*
To get our own model, the own products and services and make sure we adjust to any laws and approximate things like that.
27
But if we have that right we could be very aggressive in the markets side.
We are willing to make investments in our business once we are convinced it is real.
So our marketing budget so far for 2010 in card is up by several hundred million dollars it is not down but we will spend that
money when we feel we will get a good return on it.
Unknown Speaker*
Are there other businesses like that you see a competitive return here.
Unknown Speaker*
Every business, investment bank is macing investments in Asia and broker and systems, and you know commercial bank is
building you know, the best coast, California, Atlanta, Washington, Florida because of the WAMU acquisition, and -- in the
branches.
TSS credit cards getting product, asset management is, bankers, and so almost everywhere, the underlying growth, bankers,
branches, systems, products that was still going and we have never stopped.
Unknown Speaker*
Next question.
Unknown Speaker*
) Okay.
Your next question comes from the line of Ed with ISI group.
Unknown Speaker*
Good morning.
My questions have been asked and answered.
Unknown Speaker*
Thanks, Ed.
Unknown Speaker*
your next question comes from the line of Nancy bush with NAB research.
28
Unknown Speaker*
Good morning guys.
A couple of questions.
On the loan loss reserve, could you just clarify if you build a reserve, and find let's say in 2010 oar 2011 that you don't need a
substantial portion of it will it be available to repay trait into earnings because I have heard both views from various regulators.
Unknown Speaker*
The answer is currently yes.
Unknown Speaker*
Okay.
Secondly, the mortgage mod, can you tell us, you know, has the process smoothed at this point?
What the pipeline looks like and how long do you think itself going be to get that pipeline fulfilled.
Unknown Speaker*
Growing pains in these processes.
So we have beenbeen active.
One thing it is just still early to see how effective people are in making their payments which is obviously one important thing
but the other issue there is just people complying with all of the terms of what is required under the Governments guidelines
in terms of amount exam types of documentation before it can be declared.
So there's still I would call it growing pains in the process a little early to say it is stabilize and worked through.
A lot of energy going into it adding a lot of people to it us and across the industry.
Unknown Speaker*
Mike, do you see this as something that's going to be permanent in the business, is this a pressure that will g other with or is
this something you guys have to live with to some deagree or another permanantly.
Unknown Speaker*
The right way to look at it is it is so large the problem in housing today we certainly hope they're nothing like this ever again.
We have always had work out the department, the Rio department, and it is just, it is just a prime delinquency, that is ten times
what you would have are expected, ten times expect in almost any environment.
29
So it will come down to a much more normal thing eventually and you will have delinquency and charge offs and foreclosure
that is are just much smaller than they are today.
It will never be this, probably never be this big again in our lifetime.
Unknown Speaker*
Okay.
Unknown Speaker*
That adds, that sort of leads into the final question, on the 1.1 billion addition to the allowance for prime mortgage in the
purchase portfolio, in looking at that was that unemployment, underwriting, can you add any color to that.
Unknown Speaker*
It is no different than the same factors that drove through from originally subprime into our own prime portfolio, you know
causing dynamics that look the same in terms of weakness in prime.
It is home price declines, and stress of unemployment, even reaching up into a prime segment to put stress on losses.
Unknown Speaker*
Okay.
Thank you.
Unknown Speaker*
Yep.
Unknown Speaker*
Your next question comes from the line of Chris with Oppenheimer.
Unknown Speaker*
My questions have been asked and answered.
Thank you.
Unknown Speaker*
Thank you, Chris.
30
Unknown Speaker*
Your next question comes from the line of Bill -- I'm sorry, Ron.
Unknown Speaker*
Anyway, in regard to the 1.1 billion is there any carry overwhere you haven't changed your guidance?
I am just wondering what the difference is.
Unknown Speaker*
No, it is no difference.
Our guidance is I think 600 million of quarterly losses or 5 and 6 on that slide for prime consistent with what we were, we said
before.
Unknown Speaker*
Right.
Right.
I know it is consistent I am just wondering why the difference.
Unknown Speaker*
Why there was a change in one and not in the other.
Unknown Speaker*
No, no particular explanation on that one m they're just different portfolios and we have been watching them and looking at
them differently between the two.
Unknown Speaker*
Okay.
if you exclude the 1.1 billion which hopefully, you know, totally not recurring, then your only other may Joe reserve was in the
portfolio.
Two things really to that.
Number one if the loan loss is down in the portfolio because of the holiday you mentioned and then up again next year, you
know, is this reserve build now for next year, so there shouldn't with any further reserve building in the portfolio.
31
Unknown Speaker*
I am wondering how to think about those factors.
Unknown Speaker*
Again, it really related to remember in general on the oversimplify this, in general you're forecasting forward assumption what
your losses are and that's where your 12 months or 9 months plus the stress.
That's where your reserve is. The hope is that what you said is true, but for that to be true you would have to see a little
improvement in charge offs.
If they stay where they are, yeah reserves you will have too much.
Unknown Speaker*
Right.
So I guess where I was going it seems like there shouldn't be much reserve building going forward because it is nonrecurring.
Unknown Speaker*
We hope you're right.
Unknown Speaker*
And then, the last question is related to the reserve I think you said Jamie in answer to an earlier question, that's the probably
normalized charge during the 12 to $15 billion area, and under -- go ahead.
Unknown Speaker*
I was just saying that the 32 billion will come down a local lot.
Unknown Speaker*
That's reserves too.
Unknown Speaker*
Criticisms of this whole thing is that a lot of the policies are all procyclical.
So Ned of reserves to 32s it is going way back down again in a predictable once you see improvements.
Unknown Speaker*
We don't know where the level is going to bottom out but we hope it isless procyclical l to that point in the cycle anyway.
32
Unknown Speaker*
Right.
And you mentioned that right now, the undercurrent accounting you could bring it down.
Do you see any changes on the regulatory that would change your ability to bring down the reserve.
Unknown Speaker*
Change loan loss not be procyclical.
Unknown Speaker*
We would all like that but we are just --
Unknown Speaker*
You all back down loan loss reserve additions and so would I. We are not fooling anyone with these things.
So I hi there might be some more rational changes.
If they do it might lead to higher on average reserves.
Unknown Speaker*
Less volatility.
Unknown Speaker*
That would be fine with us.
Unknown Speaker*
Yes.
Unknown Speaker*
All right.
Thanks very much.
Unknown Speaker*
Your next question comes from the line of David Conrad with KBW.
33
Unknown Speaker*
Good morning.
Just a quick follow up question on mortgage banking, you had the negative revenue if the mortgage production line item just
want a little more color if you could on warranty reserve I am sure that was impacted in the number and itself.
Unknown Speaker*
That was, you know going back to the point of making sure we are taking the P&L impact early of some of these problems,
getting our, our repurchase reserves fully caught up and consistent across our portfolios was several hundred million dollar
impact in the quarter.
It won't run at that high level, both repurchase reserve.
It will still be something though.
Unknown Speaker*
Thank you.
Unknown Speaker*
Your next question comes from the line of Matthew with Wells-Fargo.
Unknown Speaker*
Most of my questions have been asked and answer t but an administrative question.
What were your trouble debt restructurings at the end of the third quarter?
You usually put those in your 10-K but I am wondering if you have that information as of September 30th and if you do what
are your expectations for those balances going forward?
Unknown Speaker*
I believe it is going to be flattish to where it was.
But you will see that in Q. That's a little bit of a function of you need more time for things to move into that categorization,
something like six months af the, after the reserve is after the restructuring is on the books and performing then it will move.
But we can follow up with you off line on that one.
Unknown Speaker*
Great.
34
Thanks very much.
Unknown Speaker*
Your next question comes from the line of Matt O'Connor with Deutsche bank.
Unknown Speaker*
Good morning.
If we look out the next year or so and continue to get this rebound in the economy and market.
You are going to have a come by nation of both very strong capital, which you talked about with respect to dividends and buy
back but also very, very strong liquidity.
I guess I just wonder how you think about using those two from an offensive point of view because that's the all think about
normalized earnings many years out there's a lot to happen between now and then.
Does it mean you will have very strong loan growth at some point?
Does it mean your deposit rates can be much lower than others, you have so much liquidity.
How do you think about that eventually working through the income statement over time?
Unknown Speaker*
You know, different than anything we said already, we have long had a, a management philosophy of running a company across
all of these businesses that very strong liquidity and taptal thinking of it as a strategic impair tiff.
Not thinking about the, you know, where you could run your returns if you lightened up on that.
We are not going to. We can always run these businesses for a good return, with that kind of approach, if we do everything
right with the kind of franchises we have.
So really what that translates into is just the investments that you referred to earlier, the consistent, that advantage is that we
don't get distracted and continue investing in growth across all of our businesses through thick and then thin.
When things are thin often is the best time.
That's why we are doing things to injict growth and hopefully see that two, three five years across all of these businesses.
That's where it tra translate intuse P&L.
Unknown Speaker*
Separately on page 12 you reiterated by about 40 basis points, has there been any talk about pushing that out or changing the
application and two if we continue to get credit stabilizing or improving is there an opportunity to use reserves you currently
have versus having to increase which is the 40 basis points drag.
35
Unknown Speaker*
You are cutting out but in terms of the FAS 166, 167 is expected to generate first in 2010. That's when we expected obviously
until it is, until that data is here, the authorities could just design to delay but that's not our expectation, point is for us it is very
manual at these, at these ratios.
Unknown Speaker*
Okay.
Thank you.
Unknown Speaker*
Yep.
Unknown Speaker*
There are no further questions at this time.
Unknown Speaker*
Great.
Well, thank you, everybody.
We appreciate your dialing in. Look forward to next quarter.
Bye.
Unknown Speaker*
Thank you for participating in today's conference.
You may now disconnect.
36
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JPM - Q3 2009 JPMorgan Chase & Co. Earnings Conference Call

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Good morning everybody.

So we had $3.6 billion in net income in quarter.

That's earnings per share of $0.82 on $28.8 billion.

The backdrop again though is a credit costs remain elevate.

Overall reserve to loans for the firm up 5.3%.

Capital very proud of the capital level of the Company.

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Obviously very, very strong capital levels.

Here let's walk through the results in the investment bank.

That's a 26% reduction from last quarter.

Overall though, leaves us with 8.44% of reserve to loans there.

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So very profitable business in Retail Banking consistent from last quarter.

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Continued good dynamics in business.

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Really, continue to do well in the business here.

So overall, things continue to be doing well in the asset management business.

The next line is important.

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A very strong first three quarters of the year.

On the retail financial services side, nothing different here.

We have covered this and it is unchanged.

Unchanged commentary on treasury and security services and asset management.

Private equity we don't know it will be a volatile line.

So finishing the quarter now just hitting quickly before we go to Q&A.

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It's the right thing to do. It will cost us money.

Finally despite -- very active on the credit card products side.

So we are focused on delivering better and new products.

With that that's all I wanted to say up front.

I am sure there's questions that you want to ask us beyond that.

So with that I will turn it over to Q&A.

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That was the number you had outlined.

Let me give you a little card.

The card business is going through a substantial adjustment.

We know that we have visibility to early losses next year.

You won't see the results until 201 #, 2012.

Thank you very much.

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First one is to Mike.

Curious about interest rate positioning.

So I am curious on how you're positioned in this incredibly low rate environment.

Maybe while we have Jamie there, too.

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We have plenty of capital.

We hope it turns out in a rationally way.

We don't know how it is going to turn out yet.

That is what changed the way people do business in the area.

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Mike, maybe last question, just a quick one.

Does it do much or you run much of a hedge.

So we can carry that if you want off line.

Thank you much.

We are a profit enterprise.

We don't look at it in that simplistic way.

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And kind of related.