JPMorgan Chase & Co Earnings Call Insights: Housing Market Outlook and Stock Buyback
Housing Market Outlook
Glenn Schorr – Nomura Securities: So, over time, we’ve talked back and forth about housing improving and you were right and it is improving, but curious if you have any metrics for us on say, what’s built into the reserve models and what kind of sensitivity we get (indiscernible), let’s just say hypothetically housing improves 5% in 2013 and again in ’14. I don’t know if you can put metrics around it, but…
Jamie Dimon – Chairman and CEO: We obviously have to make some assumptions going forward in house prices and they are not different than assumptions you would see in most other (public vacation) et cetera. Right now, they have a modest increase in home prices in 2013 and ’14. I’ll stick with just those two years. But if it was 5% better than that, which is possible, they would run through our books in lower charge-offs and lower reserves and just as a rule of thumb, $500 million for one year. It’s a very rough rule of thumb.
Glenn Schorr – Nomura Securities: From what I understand on CCAR this year, they are going to be – the Fed is going to be taking a closer look at internal stress testing and all the procedures that go around that, and I think we are going to get to see that you are going to be disclosing some of those results. I’m not front-running what we are going to see. I’m just curious in general are we going to see that at the same time or we’re going to see that on a lag basis and what you plan on disclosing?
Jamie Dimon – Chairman and CEO: No, we are required under Dodd-Frank to disclose our stress test. Remember, we do – in March – we do it almost immediately after the Fed’s report. Remember, we do hundreds, the Fed is four. So, we look at multiple kind of stress testing. We are going to try to give you a full view of how we look at the Company under stress. I should point out that a lot of you did it yourselves in the past. You were pretty accurate, some of you.
Glenn Schorr – Nomura Securities: Jamie, maybe the last one on the things related to the orderly liquidation authority. I know we haven’t seen the white paper yet, but there’s been a lot of back and forth and I’m not a believer that we are going to get the worst case scenario that some of the people at the FDIC thought about. But long story short is, as ironic as it is, every bank has spent the last couple of years reducing their sub debt, because Basel III doesn’t count at now shocker, we are going to have to issue some more, because (LLA) is going to want it. Just curious on how much prep you can do ahead of that and what your expectations are over in terms of the phase and if that’s going to be impactful in the near-term?
Jamie Dimon – Chairman and CEO: Just to give you a view, we have $200 billion of equity and $250 billion of unsecured debt; that’s $450 billion. That’s a lot of capital before anyone else bears a loss. It’s not clear to me that it’s subordinated versus just unsecured, and it would take time to develop those markets. If a bank has 50-50 or obviously a change in the nature a little bit over time, so we’ll take time to develop. But I think we’re working with the authorities to get it right, to do the analysis right, to have the right numbers; I think you have a little time before someone says; it has to be this amount. Remember, we’ve got Basel I, Basel II, Basel III, OLA, LCR, NSF, and this one. And we’re going to be accommodating all of them. Just it will take a little bit of time. I do want to point out that we fully intend in 2013 – late 2013 to be a 9.5% Basel III, and to be fully compliant with LCR…
Brennan Hawken – UBS: So, you all are about to start buying back stock here in the first quarter, and the share price is at about $45. Ironically, this is the price point historically where there’s been an indication of some price sensitivity. So, maybe I was hoping for an update on your thinking on that front.
Jamie Dimon – Chairman and CEO: Well, we had done – given you some numbers in our Annual Report last year (by words) and no-brainer buyback stock which I’d say is tangible book value. Tangible book value is now 38 or 39, so which has gone up – what is it, $4 this year, almost $5 this year. So, we still think if you here cut earnings and by stock at these prices, probably it’s still a good deal. We got permission to buy back $3 billion in the first quarter. Obviously, it’s going to be a little price-sensitive and then CCAR will set – will become buyback for the next four quarters after that…
Brennan Hawken – UBS: Yeah. No, I think so. So, basically, we can look at the tangible book value growth versus the last comments and imply from there?
Jamie Dimon – Chairman and CEO: You can do the same numbers at today’s prices. Discount – if you want to be conservative, discount earnings, buyback stock at the end of a two or three-year period, high earnings per share and higher intangible book value per share even at these prices. It seems like a pretty good deal to me. Particularly, we have a good company. And you are not going to need the capital down the road – I’m not talking about for one year, but down the road…
Brennan Hawken – UBS: Then the $100 million to $150 million that’s coming out of your legacy cost, is that part of that $500 million per quarter that you all have highlighted in the past, or is that in addition to that?
Marianne Lake – CFO: You should – yeah think about it as all-in and we’re expecting our run rate in the future to be, I think, $300 million to $350 million as I said, excluding the items we talked about including IFR; we’re at $725 million. We got ways to go but it’s coming down, so think about it as in there.
Brennan Hawken – UBS: Then, the comp ratio in CIB is down this year, or I should say maybe full year 2012, about 2.5 percentage points from your prior. How should we think about the comp ratio in the IB on a going-forward basis? I mean have we hit a structural shift here?
Jamie Dimon – Chairman and CEO: Well, I think, let me just put our first (stop) there. Our comp rate was 33%. If you buy the way, if you added back some of the bonuses paid to corporate that don’t trouble us, comp in IB would be like 35%. We think that (indiscernible) numbers is kind of an ongoing run rate. We have formulas. We don’t pay out necessarily by the formula, but we have formulas that a capital adjusted, risk-adjusted, et cetera, et cetera that’s what really guides it. It’s not – so, it is really – I’ve done in much more detail levels, I know bouncing around that 35%. I should point out that again we feel good that our ROE in the Investment Bank was 17% this year. It was 16% to 17% last year and the year before and we’re paying our people fair and well. I feel good about that. That’s a good thing. That’s a good business model to have something like that…
Brennan Hawken – UBS: Sure. But probably on the whole upward comp pressure across the street competitively is probably nowhere near as it had been. So, improvements and increased cost leverage is probably decently sustainable won’t you say?
Jamie Dimon – Chairman and CEO: Yeah, I think that’s probably true, but other firms have ratios, 50%, 55%. Ours is already fairly low. We want to win in the business. We are going to be competitive in compensation and obviously that we’ll adjust over time as competition changes.
Brennan Hawken – UBS: Then last one from me. As we start to move forward towards the central clearing of swaps here late in the first quarter of ’13, do you maybe have an updated view of what this transition might mean for JPMorgan’s FIC business or your capital markets revenues for 2013?
Jamie Dimon – Chairman and CEO: On our Investor Day we’ll try to give you a better view of that. So, there are clearly some negatives and we don’t know all the rules. There are also some positives. So, we’re in a position between custody and clearing and our brokerage businesses to provide some of the services for investors they can allocate capital property, transform the collateral and serve them better. So, let the rules come out. Obviously, it’s going to affect our revenues a bit, but there will be opportunities there too.
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