Release Date: July 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- JPMorgan Chase & Co (JPM, Financial) reported a net income of $18.1 billion, with an EPS of $6.12 on revenue of $51 billion.
- Investment Banking (IB) fees were up 50% year on year and 17% quarter on quarter.
- Market revenue increased by 10% year on year.
- The firm saw strong customer acquisition across checking accounts and cards, with a record number of first-time investors.
- Asset and Wealth Management (AWM) reported net inflows of $52 billion, with AUM up 15% year on year.
Negative Points
- Expenses increased by $2.9 billion or 14% year on year, driven by compensation and growth in employees.
- Credit costs were $3.1 billion, reflecting net charge-offs of $2.2 billion and a net reserve build of $821 million.
- Deposit margin compression and lower deposit balances partially offset revenue gains.
- The firm continues to face headwinds in deposit balances and migration from non-interest-bearing to interest-bearing accounts.
- Loan demand remains muted outside of the card segment, with commercial real estate (CRE) activity suppressed by higher rates.
Q & A Highlights
Q: Given some indications that the Fed is considering favorable revisions to both Basel III Endgame and the GSIB surcharge calculations, could these revisions support a higher normalized ROTCE at the firm versus the 17% target? How might this impact your appetite for buybacks?
A: Jeremy Barnum, CFO: It's hard to imagine a scenario where these revisions would lead to an upward revision on ROTCE. Most outcomes involve expansions of the denominator. We remain comfortable with the current amount of excess capital and view it as earnings in store. Our capital hierarchy remains unchanged: growing the business, sustainable dividend, and buybacks.
Q: Given some moderation in repricing pressures and resilient deposit balances, do you see the potential for NII normalizing higher? Where do you think that level could ultimately stabilize?
A: Jeremy Barnum, CFO: We still think there are net headwinds to deposit balances. It's too early to call the end of the over-earning narrative. The main difference in our current guidance is the change in the Fed outlook. We remain focused on running the place, recognizing some amount of over-earning.
Q: Can you give an update on the stress capital buffer and the dialogue with the Fed regarding the calculation due to OCI?
A: Jeremy Barnum, CFO: We believe the amount of OCI gain looks intuitively high. Adjusting that would result in a slightly higher stress capital buffer. The larger point is the volatility in the year-on-year change in the stress capital buffer for many firms, making it hard to manage the capital of the bank.
Q: How are you thinking about the various options for capital returns, including special dividends and buybacks?
A: Jeremy Barnum, CFO: Special dividends are not our preference. We focus on deploying capital into organic or inorganic growth, maintaining a sustainable dividend, and buybacks. Jamie has been clear about considering price and valuation in buybacks.
Q: Where do you feel the environment is relative to the potential in investment banking, and what is the dialogue across the three main bucket areas?
A: Jeremy Barnum, CFO: Dialogue and engagement are elevated in ECM and M&A. However, DCM still reflects pull-forward activity, and ECM is not as booming as expected due to various factors. The regulatory overhang in advisory remains.
Q: What are you noticing in terms of delinquency stabilization on the credit card side?
A: Jeremy Barnum, CFO: There's not much to see; it's normalization, not deterioration. We see subtle evidence of weakness in lower-income segments, consistent with the economic environment.
Q: Can you elaborate on the progress and activity in private credit and asset-backed finance?
A: Jeremy Barnum, CFO: The private credit space is quieter, with money chasing fewer deals. There's a convergence between direct lending and syndicated lending. On asset-backed finance, I haven't heard much about that trend.
Q: How are you thinking about extending duration given the current high rates and excess liquidity?
A: Jeremy Barnum, CFO: We've added a little duration over the last couple of quarters. We aim to be relatively balanced on rate sensitivity. Extending duration doesn't mean locking in high rates due to the inverted yield curve.
Q: Can you elaborate on the math behind the ROTCE being too high at 20% and more normalized at 17%?
A: Jeremy Barnum, CFO: One source of headwinds is normalization of NII due to higher deposit costs and yield curve effects. Expenses will grow in a slightly flatter revenue environment. The expansion of the denominator due to Basel III Endgame is also a factor.
Q: What would cause you to end the over-earning narrative?
A: Jeremy Barnum, CFO: One thing would be if our annual returns were closer to 17%. The single most important piece is the deposit margin, which is well above historical norms.
Q: How do you determine the amount of buybacks each quarter?
A: Jeremy Barnum, CFO: We don't guide on buybacks and prefer the right to change at any time. We think it makes sense to do some buybacks when generating capital. The $4.9 billion buyback this quarter was due to liquidating Visa proceeds.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
