Jp Morgan Chase & Co. · NYSE:JPM
Jp Morgan Chase & — Barclays Global Financial Services Conference 2010
54 slides from Jp Morgan Chase &'s conference presentation, Sep 15, 2010
Slide 1: Barclays Global Financial Services Conference
Exhibit 99.1 Jamie Dimon, Chairman and Chief Executive Officer September 14, 2010 Barclays Global Financial Services Conference
Slide 2: Agenda
Agenda I. Exceptional franchises Fortress balance sheet Capital generation II. Issues facing JPM, the industry and global economy Basel III Capital proposals Hierarchy of capital usage III. Key investor topics Basel III Liquidity proposals Regulatory reform impact Interest rate positioning – Banking
Slide 3: JPM's fundamentals remain extremely strong
JPM’s fundamentals remain extremely strong Excellent client franchises and businesses Excellent client franchises and Each standalone business has a top 1, 2 or 3 position businesses Unparalleled client relationships in 100+ countries Culture of innovation; new products and programs launched during
Slide 4: Agenda
Agenda Page Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 Appendix 42 3
Slide 5: Market leading exceptional franchises
Market leading exceptional franchises Commercial Banking Treasury & Securities Services Asset Management ROE of 35% is best in peer group ROE of 18% consistent with peer group Pretax margin of 32% is second highest and ROE of 24% is highest in peer Only bank in peer group with a loan-to- Top tier pl
Slide 6: Global Corporate Bank
Global Corporate Bank Joint-Venture between IB and TSS to manage/better serve global corporate Opportunity banking relationships with ~2,300 of the world’s largest global companies Significant TS international growth opportunity Targeting ~10% international share of wallet by 2014 Material growth op
Slide 7: Significant competitive advantage from cross-sell collaboration
Significant competitive advantage created and benefit to franchise value from cross-sell collaboration IB – TSS IB – AM Global Corporate Bank: enhance international Institutional AM: capabilities to meet global clients needs Liquidity solutions Integrated Prime Custody services for asset Long-term a
Slide 8: Retail branches are invaluable to the rest of our Franchise
Retail branches are invaluable to the rest of our Franchise Commercial Banking Card Services ~25mm transactions done by CB clients in 2009 at ~1.5mm cards sold through branches branches ~40% of RFS customers have a Card ~40% CB customers used a branch teller in relationship 4Q09 Significant uplift (
Slide 9: Market leading franchises – Investment Bank
Market leading franchises – Investment Bank 2 Global Markets Market leader for Global IB Fees, ranking #1 for the past two years JPM Rank Share% Improved Equity Underwriting rank from #7 in 2001 to #1 in 1H10 2001 5 9.9 Ranked #1 2010 All-America Fixed Income Research team by 2002 7 9.2 Institutiona
Slide 10: Market leading franchises – Investment Bank
Market leading franchises – Investment Bank US Equity, Equity-related and Debt Rank 1989 1999 2009 1 Merrill Lynch Salomon Smith Barney JPMorgan 2 Goldman Sachs Merrill Lynch Bank of America Merrill Lynch 3 First Boston Goldman Sachs Citi 4 Salomon Morgan Stanley Barclays 5 Morgan Stanley Lehman Bro
Slide 11: Market leading franchises – Retail Banking competitive position
Market leading franchises – Retail Banking competitive position 2009 net income $3.9B - up 24% annually since 2005; 15% organic Net income Branch / ATM Added over 13,000 Personal Bankers since 2005 - annual growth rate distribution of 26%; 14% organic Branch network of 5,159 up 2,518 branches from 2
Slide 12: Retail Banking competitive position (cont.'d.)
Market leading franchises – Retail Banking competitive position (cont.’d.) Serving our Strong checking account growth - 28% annually since 2005; 12% organic customers Average deposits of $336B - annual growth rate of 16% since 2005; 7% organic Total households served of 22.8mm, up 13.6mm since 2007
Slide 13: Sales production has increased steadily over the past six years
Sales production has increased steadily over the past six years… Sales Production (in units) per branch – hChase DDAs Convenience Products Savings Credit Cards Investments & Loans 1,200 2Q10 vs. 2Q05 % Change 1,100 (28)% 41% 1,000 900 17% 800 700 600 525% 94% 500 400 300 200 28% 100 0 2Q05 2Q06 2Q07
Slide 14: Retail Financial Services – factors impacting revenue and growth
Real Estate portfolios — simulated balance run-off & NII (Average balances, $ in billions) Retail Financial Services – factors impacting revenue and growth Revenue currently adversely impacted by portfolio run-off and repurchase expense Real Estate Portfolios expected to make a positive contribution
Slide 15: Market leading franchises — Card Services
Market leading franchises — Card Services Annualized spend per open account – AXP vs. Chase Affluent Chase is #1 Visa credit card issuer AXP US Card¹ Chase Affluent² Over 50mm customers receive a credit card $14,000 $13,503 statement from Chase each month $12,862 $13,000 Our affluent portfolio, thou
Slide 16: Card Services – reduction in EOP outstandings
Card Services – reduction in EOP outstandings – lower revenue, higher quality Chase (excluding WaMu) EOP outstandings ($ in billions) Core balances Balance transfers $144 $150 $125 $21 $123 $120 $10 $9 $90 $60 $123 $113 $116 $30 $0 12/31/09 Est. 12/31/10 Est. 12/31/11 WaMu portfolio declined to $16B
Slide 17: Agenda
Agenda Page Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 Appendix 42 16
Slide 18: Industry is facing multiple regulatory, market and other issues
Industry is facing multiple regulatory, market and other issues Regulation Market Other Capital, Liquidity, Basel III Ongoing issues in the mortgage Revenue growth opportunities Trust preferred securities market Portfolio run-off Dividend, stock buyback Home prices International expansion Basel III
Slide 19: Strengthened but not simplified
Strengthened but not simplified Dotted line indicates authority to request information, but no examination authority. Green indicates new agency or State Regulatory new powers and authority Financial Stability Oversight Council Authorities and AG’s Power to enforce rules Identify risks to the financ
Slide 20: Multiple regulatory and market issues (and not just in U.S.)
Multiple regulatory and market issues (and not just in U.S.) Dodd-Frank legislation rulemaking summary One-time Reports Topic & Section Rulemaking / Studies Periodic Reports TOTAL Financial Stability (Title I) 35 8 5 48 Orderly Liquidation (Title II) 14 12 2 28 Private Fund Investment Advisers (Titl
Slide 21: JPM remains supportive of safe and sound regulatory reform
JPM remains supportive of safe and sound regulatory reform Much regulatory reform was needed – financial industry and global economy are better for it. However, some was ill-conceived and there are unknown, unintended consequences Industry capital and liquidity were too low – we need to get it right
Slide 22: Agenda
Agenda Page Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 Appendix 42 21
Slide 23: Regulatory reform impact – Banking activity restrictions (Volcker)
Regulatory reform impact – Banking activity restrictions (Volcker) Law does not limit the growth of our client businesses, market-making activities or ability to serve our clients Can continue to sponsor client-only hedge funds (i.e., Highbridge) 3% limitation for seed capital — consistent with curr
Slide 24: Regulatory reform impact – Derivatives
Regulatory reform impact – Derivatives Clearing and Swap Execution Facility (SEF) Always supported moving standardized and liquid swaps to clearinghouses Revenue impact of $1B+/-, potentially positive offsets May create significant liquidity and margin requirements for clients Overall capital impact
Slide 25: Home lending credit trends – Net credit losses and loan loss reserve levels
Home lending credit trends – Net credit losses and loan loss reserve levels Current loss guidance – at the current rate of delinquency and loss severity, quarterly losses could be: Home equity $1B Prime mortgage $400mm Subprime mortgage $400mm Rate of improvement slowed and delinquencies flattened i
Slide 26: Home lending credit trends (cont.'d.)
Home lending credit trends – Net credit losses and loan loss reserve levels (cont.’d.) Performance of loans modified after trial periods is still not certain as a large number of these modifications were completed in the last six months Early indications are that performance is better than that expe
Slide 27: Repurchase risk
Repurchase risk Repurchase demands elevated at $1B+ per quarter; demands driven by 2006-2008 vintages (~90%) and third-party originated (~40%) Demands lag loans reaching 90 DPD by 12-20 months - delinquency improvements have not yet flowed through to demand activity; demands expected to remain eleva
Slide 28: Regulatory reform impact – Reg E, debit interchange and BCFP
Regulatory reform impact – Reg E, debit interchange and BCFP All industries decide what to charge for services and what to provide for free Pricing should be relative to the value provided, not just the costs incurred Pricing of specific products and services need to cover broader fixed costs relate
Slide 29: Fortress balance sheet as of 2Q10
Fortress balance sheet as of 2Q10 Strong capital base – Tier 1 Common of $108B or 9.6% High quality capital and very high level of reserves ($36.7B), loan loss coverage of 5.34% Large deposit base – ~$900B. Stable source of funding – retail and wholesale – geographic Low reliance on short term unsec
Slide 30: We have significant capital generation
We have significant capital generation Illustrative “stress” case based on analyst projections ¹,²,³ Analyst and “stressed” analystprojections ($ in billions) Analyst Projections "Stressed" Analyst Projections $22.5 $24.5 $19.0 $15.5 Net ~$10 ~$12 ~$14 ~$15 Income 2010 2011 2012 2013 Analyst Project
Slide 31: Basel III capital summary as of 2Q10
Basel III capital summary as of 2Q10 Tougher standard and Tougher capital standards (which we always believed in) higher More restrictive capital definitions (e.g., deductions) calibration Higher risk-weighted assets (e.g., CVA, Market Risk) Higher required capital Basel I: 4% Tier 1 Common standard
Slide 32: JPM estimated capital levels under Basel III
JPM estimated capital levels under Basel III are well in excess of Basel I standards Estimated projections as of 2Q10 Capital ($ in billions) RWA ($ in trillions) $123 $109 $1.5 $1.4 $108 $1.1 Basel I 2Q10 Basel III 4Q10 Basel III 4Q11 Basel I 2Q10 Basel III 4Q10 Basel III 4Q11 Includes known action
Slide 33: Hierarchy of capital usage
Hierarchy of capital usage We intend to restore the dividend Ultimately return to dividend payout ratio of 30-40% of normalized earnings (pending tax rule changes) Initial increase is not likely to hit payout ratio, but would be material Subject to final analysis of Basel III in November and regulat
Slide 34: Implications of Basel III liquidity proposal – Liquidity Coverage Ratio
Implications of Basel III liquidity proposal – Liquidity Coverage Ratio Preliminary view of JPM Liquidity Coverage Ratio (LCR) - Estimate based on 2Q10 balances for illustrative purposes ($B) Items included in LCR Comments $72B: Cash & Central Bank reserves Example of items not included in LCR 100%
Slide 35: Potential levers to meet proposed Basel III LCR requirements
Potential levers to meet proposed Basel III LCR requirements Known actions: Business evolution Reduction in size of IB (~$8B) & CIO portfolios (~$2B) – estimated notional impact by end of 2011 RFS loan run-off (~$80B) & reduction in size of PE (~$2B) – estimated notional impact by end of 2013 Raise
Slide 36: Potential market pricing changes due to Basel III liquidity constraints
Potential market pricing changes due to Basel III liquidity constraints Annual pricing impact on client¹ - Illustrative example ($ in 000’s) Incremental Funding Cost to Client Characteristics of Facility Actual Cost to Client JPM to be LCR neutral ² A / A2 Large Corporate 3 Year Revolver (CP Backsto
Slide 37: Basel III industry implications
Basel III industry implications Overall okay; but will cause some capital shortfall for banks Basel III Capital RWA needs to be done fairly across global banks Basel III Appropriate to do right; likely some changes to come Liquidity Either way JPM will be fine Could create additional funding costs a
Slide 38: Firm interest rate positioning — NIM by line of business
Firm interest rate positioning — NIM by line of business Firm benefits from immediate +100 bps parallel rate shock by +$947mm over the next 12 months Firm benefits from higher long term rates (steeper yield curve) and slightly negative to rising short-term rates (flatter yield curve) If rates remain
Slide 39: Agenda
Agenda Page Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 Appendix 42 38
Slide 40: Outlook
Outlook Investment Bank Trading environment has been stable Card Services Chase and WaMu credit losses expected to continue to improve Chase losses of approximately 8.00%+/- in 3Q10 vs. 9.02% in 2Q10 Total net income impact from the CARD Act, including recent legislative reasonable and proportional
Slide 41: Commitment to drive economic recovery
Commitment to drive economic recovery Providing capital, financing and liquidity: annualized 1H10 of $1.4T, up 3% and up 6% vs. 2009 and 2008, respectively 1H10 small business lending of $4.7B up 35% vs. 1H09 Remain committed to 2010 originations target of $10B for small business lending On track to
Slide 42: JPM's fundamentals remain extremely strong
JPM’s fundamentals remain extremely strong Excellent client franchises and businesses Excellent client Each standalone business has a top 1, 2 or 3 position franchises and businesses Unparalleled client relationships in 100+ countries Culture of innovation; new products and programs launched during
Slide 43: Agenda
Agenda Page Exceptional franchises 3 Issues facing JPM, the industry and global economy 16 Key investor topics 21 Summary remarks 38 Appendix 42 42
Slide 44: Financial results
Financial results Firmwide results ( $ in millions) $O/(U) 1H10 1H09 1H09 1 Revenue (FTE) $53,785 $54,631 ($846) 1 Credit Costs 10,373 19,755 (9,381) Expense 30,755 26,893 3,863 Reported Net Income $8,121 $4,862 $3,259 Reported EPS $1.83 $0.68 $1.15 2 ROE 10% 6% 2,3 ROTCE 15% 9% Net income by line o
Slide 45: Market leading franchises – Retail Banking growth drivers
Market leading franchises – Retail Banking growth drivers Checking accounts (# in 000s) Average deposits ($ in billions) hChase WaMu hChase WaMu CAGR 28% (hChase 12%) CAGR 16% (hChase 7%) 341 338 26,351 24,499 25,712 245 190 207 175 9,995 10,839 8,793 2005 2006 2007 2008 2009 2Q10 2005 2006 2007 200
Slide 46: Market leading franchises – Retail Banking growth drivers
Market leading franchises – Retail Banking growth drivers Total households (# in 000s) Households with direct deposit (# in 000’s) hChase WaMu (data not available until 2009) hChase WaMu (data not available until 2009) CAGR 38% (hChase 9%) CAGR 34% (hChase 16%) 22,541 22,838 10,860 11,364 5,852 10,2
Slide 47: Market leading franchises – Retail Banking growth drivers
Market leading franchises – Retail Banking growth drivers Households with active online bill pay (# in 000’s) Alerts (# in millions) hChase WaMu (data not available until 2009) CAGR 46% (hChase 30%) CAGR 82% 155.3 3,752 135.2 3,266 124.5 103.1 83.9 1,685 73.6 1,022 1,279 Jan-07 Jan-08 Jan-09 Dec-09
Slide 48: Consumer credit — delinquency trends
Consumer credit — delinquency trends (Excl. purchased credit-impaired loans) March 2008 – August 2010 Home Equity delinquency trend ($ in millions) Prime Mortgage delinquency trend ($ in millions) $4,000 30+ day delinquencies 30 – 150 day delinquencies $6,500 30+ day delinquencies 30 – 150 day delin
Slide 49: Consumer credit — Home lending delinquency trends
Consumer credit — Home lending delinquency trends (Excl. purchased credit-impaired loans) December 2009 – August 2010 Home Equity delinquency trend ($ in millions) Prime Mortgage delinquency trend ($ in millions) $3,000 $2,500 30 – 150 day delinquencies 30 – 150 day delinquencies $2,500 $2,000 $2,00
Slide 50: Home lending delinquency trends (Purchased credit-impaired loans)
Consumer credit — Home lending delinquency trends (Purchased credit-impaired loans) September 2008 – August 2010 Home Equity delinquency trend ($ in millions) Prime Mortgage delinquency trend ($ in millions) 30+ day delinquencies 30 – 150 day delinquencies 30+ day delinquencies 30 – 150 day delinque
Slide 51: Home lending delinquency trends (Purchased credit-impaired loans)
Consumer credit — Home lending delinquency trends (Purchased credit-impaired loans) December 2009 – August 2010 Home Equity delinquency trend ($ in millions) Prime Mortgage delinquency trend ($ in millions) $3,000 $2,500 30 – 150 day delinquencies 30 – 150 day delinquencies $2,500 $2,000 $2,000 $1,5
Slide 52: Coverage ratio remains strong
Coverage ratio remains strong ($ in millions) 1 1 Loan Loss Reserve/Total Loans Loan Loss Reserve Loan Loss Reserve/NPLs 6.00% Nonperforming Loans 500% 5.00% 400% 31,602 35,836 30,633 38,186 4.00% 29,072 300% 27,381 3.00% 200% 23,164 19,052 2.00% 13,246 100% 14,785 17,767 17,564 17,050 16,179 8,953
Slide 53: Notes on non-GAAP financial measures
Notes on non-GAAP financial measures 1. In addition to analyzing the Firm’s results on a reported basis, management reviews the Firm’s results and the results of the lines of business on a “managed” basis, which is a non-GAAP financial measure. The Firm’s definition of managed basis starts with the
Slide 54: Forward-looking statements
Forward-looking statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase’s management and are subject to significant risks and unc
J P Morgan Chase & — Barclays Global Financial Services Conference 2010 on 6ix