JPMorgan Chase & Co. (JPM)
Q2 2010 Earnings Call Transcript
July 18, 2010, 4:30 p.m. ET

Executives

Jamie Dimon - Chairman and Chief Executive Officer
Douglas Braunstein - Chief Financial Officer
Michael Cavanagh - CEO of Treasury & Securities Services

Analysts

Guy Moszkowski - Bank of America Merrill Lynch
Matthews O’Connor - Deutsche Bank
John McDonald - Sanford Bernstein
Betsy Graseck - Morgan Stanley
Meredith Whitney - Meredith Whitney Advisory
Mike Mayo - CLSA
Jason Goldberg - Barclays Capital
Chris Kotowski - Oppenheimer & Co.
Jim Mitchell - Buckingham Research
David Konrad - KBW
Ed Najarian - ISI Group
Moshe Orenbuch - Credit Suisse
Ron Mandel - GIC
Matt Burnell - Wells Fargo & Company
Carole Berger - Soleil Group
Gerard Cassidy - RBC

Presentation

Operator

Good Morning, ladies and gentlemen and welcome to the JPMorgan Chase’s & Co., Second Quarter 2010 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 will like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon, Chief Financial Officer Douglas Braunstein and Michael Cavanagh, CEO of Treasury & Securities Services. Mr. Dimon, please go ahead.

Jamie Dimon

Great. Thank you very much and folks, thank you for getting up these early hours. It has been a long time I guess. I just want to open real quickly to take Michael Cavanagh as last turn doing the Investor Relations call. So it is kind of a - but I want you all to know what a great job we think he has done in a large financial company in a very tough time in only respect getting numbers making sure we have got do things right, actually these cozy things of maintaining good relation with all of you so my congratulations up to Mike. I am excited about his new challenge and you will be still here in front of me in the future, just not on this call and I also welcome Douglas Braunstein, I don’t know how many of you know him but you will have plenty of time to get to him in the future. Previously he has been running the investment banking USA division including the bankers and equity debt to related capital markets and extraordinarily talented individual and he has obviously been to this process not less than two weeks so - to listen to have of course but I know he looks forward to see you and I know he will be a great CFO of JPMorgan Chase so I will now hand the call back over to Mike and when he is done we will be taking there some questions.

Douglas Braunstein

Thanks Jamie and I as well say thanks to the entire finance team at JPMorgan Chase. They did great for me and they are going to do great job for Doug and welcome Doug and congrats from me as well. So I am going to start and go through the usual slide deck that we have got here so if you start on Page 1 here on second quarter highlights, as you are seeing there in the 4.8 billion after tax earnings per share were $ 1.09 and revenue is about $ 26 billion in the quarter so we flag for the two big significant items and most of the rest of the stuff we are getting to watch your self out throughout the rest of the numbers but two big items, reduction to loan loss - balance of about a billion five or 36 cents after tax. I will cover this upfront once it is really coming out in three places throughout the firm. First is in the Investment Bank were we had about $ 350 million pretax, a reserve release that is really the same reason as the last quarter loan pay downs and loan sales putting up reserves. In the credit card business then you will see the lower current losses leading to a lower estimate subsequent losses and that leads to a reduction of reserves of about a billion five there and then finally in our commercial bank about 400 million pretax of reserve release which is just related to the periodic but normal requirements to our credit loss estimates in that business so those three places are what is driving me reduction to loan loss loans we still end the quarter with $ 37 billion on loan loss reserves and more than 5% on loan loss coverage. So we feel in very good shape on that score.

The other item is the U.K. bonus tax. We booked about $ 550 million after tax mostly running to the comp lines or often into the composition line mostly in our investment bank those two items together about 22 cents worth of net positive earnings of about 87 cents away from that. Broad characterization of those results is that most of our businesses perform pretty solidly as you see when we go through the numbers and a particular note is the decline in levels of actual charge-off losses in our consumer businesses both retail and credit card from prior quarters. Capital strength continues to be very, very strong, strong balance sheet continues I will get to that towards the end.

Now flipping on slide two, I am just going to skip everything I have said and now I will just go to the investment bank on slide three.

There you see a circled number profits of $ 1.4 billion in the investment bank I have already commented on the credit cost line which was done during the reserve release starting with revenues you see total revenues of $ 6.3 billion in the quarter three investment bank so starting with investment banking fees as you can see in for your self that we continue to be number one rank here to date in investment banking fee revenue and that amount to $ 1.4 billion for the quarter which is down from a very strong and capital issue is very heavy quarter in the prior year.

Moving to the market businesses, generally speaking we are back to the pre-crisis level for spreads and actually bind with lower levels of client activities of as a general matter throughout the quarter on average is the broad back drop but specifically in fixed income markets you see we had revenues of $ 3.6 billion down from last quarter in last year and that is the main areas for those declines from prior periods that was in credit market businesses rates and commodities areas included in the fixed income revenues of $ 3.6 billion about 400 million positive of benefits from DVA or credit spread typing on structure notes. Next in equity markets a billion dollars revenue and that included $ 200 million of DVA not much more that really highlight there nor in credit portfolio revenues just on expenses $ 4.5 billion remember that includes the UK bonus tax when you back that out the comps revenue ratio in the quarter was about 37%. So I flip through the investment bank.

Moving on to retail page four gives you what drives the P&L that we are going to see on the next slide. I will just say retail banking in the top portion of the page the - taking business retail branches you can read these through your self but you continue to see healthy underlying trends in the growth of the business whether it is stabilization growth in deposits remember we have been running of high cost deposits so the net growth here we are so good about and continued growth and other underlying trends. Middle of the page, other consumer lending and mortgage banking originations, total of about $ 38 billion worth of loan originations in the quarter that is part of a $ 156 billion of loan originations across the whole business including middle market small business in the broader company, so we continue to be originating credit for our clients at very good levels.

I will talk about real estate portfolios at the bottom in a second. If you flip to slide five you have the P&L for the retail business. I will walk you down the circled numbers on the left so in total retail the sum of all of this division made a 1.42 billion of net income in the quarter.

Moving down to the next circled box you see the retail banking side - just commented on the prior page earned $ 914 million in the quarter. I will let you read the commentary in the press release to the right here it is pretty straight forward of what is going on in the business and help you trends there. The next piece is the ongoing production origination of mortgage loans and other consumer lending including auto and there you see we had profits circled of $ 364 million. Again, I will let you read what is going on there and just point out that the $ 2 billion of revenues in that space continue to have a drag on it of loan or repurchase reserve level expense and reserving that - revenue there. That is little higher than it was last quarter flourished to over in fourth quarter last year but continues to be in our level of expectations but obviously continued on certainty to how that continues to progress.