Bank Leverage Ratio
John McDonald – Sanford Bernstein: Marianne, I was wondering, if you could – do you have any sense that you could give us to where you stand on the leverage ratio at the bank level today relative to the 6% requirement?
Marianne Lake – CFO: So, we don’t disclose the bank leverage ratio, but it is lower than the holding Company. So, we would have a further way to go. We’ve said we intend to be compliant at the holding Company level by the beginning of 2015, and work on bank compliance shortly thereafter.
John McDonald – Sanford Bernstein: So, shortly thereafter maybe within a quarter or two? Can you give us any feel there just to get a sense of?
Marianne Lake – CFO: Obviously the rules are fairly new, and still a proposal and not final, so there’s work to do before they get finalized. We are working through all of the things we need to do to comply. I would say we would aim to be compliant by the end of 2015, but we need to go do more detailed plans, and we’ll get back to you with more specifics.
John McDonald – Sanford Bernstein: You mentioned the mitigation you can do at the holding Company. Is there mitigation you can also do to help specifically the bank level ratio in terms of maybe assets that could be shifted to the parent or equity that could go from the hold Company to the sub and things like that?
Marianne Lake – CFO: Yes. All of those things could be considered and would be considered…
John McDonald – Sanford Bernstein: Then, on the liquidity ratio, why have you decided to run with this level of cushion to LCR, and why the acceleration in getting there now, anything driving that in particular?
Marianne Lake – CFO: So, in terms of the cushion, while it’s not scientific, there is a volatility in that number inherent in exiting deposit flows. So we do see some things in deposit flows, particularly wholesale flows and that could span the quarter and drive the ratio up or down some. So it’s prudent to run a ratio above 100% and/or round about this level. And just in terms of acceleration, we just wanted to get there more quickly. The opportunity presented itself though nothing more than that.
John McDonald – Sanford Bernstein: Could you give us some of the assumptions behind your outlook for stable net interest margin and modest net interest income growth in the back half of the year, just in terms of maybe what your assuming on rates in loan growth and what are puts and takes in your outlook ?
Marianne Lake – CFO: So this is a great question, John, because as you alluded to in the question is a large number of moving parts in terms of the forecast, including points of view on rates which as you know have been choppy over the last several weeks. So, we’ve based our projections on modest loan growth and on our understanding of the employee credit cards and they could change also deposit flows as you’ve seen have been very, very strong. So we accelerated our LCR compliance back to the majority of the NIM compression we were previously expecting and guiding you to forward and consequently we expect to be more stable with some loan yield compression being offset by lower cost of debt.
John McDonald – Sanford Bernstein: Then finally, I’m not sure if I saw it in here or not but can you remind us how much you benefit from higher rates and which rates in particular are most helpful for you, if you can go in between kind of a 10 year and kind of shorter base rates?
Marianne Lake – CFO: So I’ll just give you two data points, and then you can maybe go and have a look at them. I think in the Q, we disclosed a couple of things. The first is a bit of a sweetener, which says that over 12 months, it would deliver about $900 million of additional NII. And it’s not exactly what we’ve seen but it’s – 10-year going up 100 basis points, I am sorry. That is not exactly what we have seen but it’s the closest thing to what we are seeing right now. And then the other thing we disclosed is on (indiscernible) shifted 100 basis points. So if you saw short rates go up too, and that would deliver just over $2 billion over 12 months. Don’t forget that recurs, but it takes time to build up to that.
Jamie Dimon – Chairman and CEO: That’s interest rates only, not mortgage volume, Investment Banking volume. That’s just isolating interest rates only, assuming the Company invests the way we are planning to.
John McDonald – Sanford Bernstein: Then that’s the current numbers, that’s last Q, or that’s as of right now?
Marianne Lake – CFO: Those were the numbers from the last Q, and they are not meaningfully changed right now.
John McDonald – Sanford Bernstein: Last thing for me, on reserve release, how can we gauge, if it is possible at all, how long this can go on for? Are there any base metrics that you think you can’t go below that we can kind of look at as a percent of loans or a percent of normalized charge-offs? Any help you can give us to kind of gauge how much might be left on reserve release front?
Marianne Lake – CFO: Yes. So John, I would point you to – and I can’t remember the page, so I apologize, but we put a page in investor day that talked about what we thought through the cycle charge-off rates were for each of our businesses. So what I would do is take NCI loans and a reserve balance at the end of the period of $3.3 billion, take a look at that page and figure out what a more normal sort of charge-off rate and therefore reserve balance would be, and that will be in large part our reduction over the course of the next several quarters. So we expect it to be a journey to get to that level throughout 2014…
Jamie Dimon – Chairman and CEO: So this is wholesale, kind of where we should be, we shouldn’t expect much different. Credit cards, maybe a little bit more, but then the hundreds of millions and on mortgage, I think we said at investor day, eventually it will be a 1 billion to 1.5 billion in a couple of years. KPI, if we have home improvement, we may see some reductions in PCI loan loss reserves, purchase credit reserve.
John McDonald – Sanford Bernstein: You haven’t done that yet in terms of taking the PCI out yet, right?
Jamie Dimon – Chairman and CEO: No.
Marianne Lake – CFO: No, we haven’t done that yet, John, but the reserve release we took in (NYSE:NCI) was driven in large part by lower severity, so it was discontinued. You might see some of that.
Brennan Hawken – UBS: So another quick question on leverage. Could you help me understand why it takes until the first quarter of 2015 for the bank holding company to add this 30 basis points necessary to the leverage ratio? It looks like what you laid out put you kind of well above that earlier.
Marianne Lake – CFO: So, Brennan, we’re not – I guess, what we laid on the page was an illustration, and you’re absolutely right. What it shows you is that we ought to be able to close that much more quickly, so that might very well be what happened. We just aren’t going to come out now with a target of achieving it over the course of the next one or two quarters, because we have other objectives including the continuation of being able to have some capital distribution to you guys that we want to be able to decide when we do (indiscernible) at the end of the year…
Jamie Dimon – Chairman and CEO: We will be able to do it pretty quickly when we know what it actually is. I don’t want to start making actions that affect customers way in advance (not) knowing the real final rules.
Marianne Lake – CFO: But what you took away from the page was absolutely right. Closing that gap should not be difficult and could be more quick than this, but we wanted to be cautious.
Brennan Hawken – UBS: Was there a change in the securities portfolio during the quarter? Maybe could you give us an update on where that duration stands?
Marianne Lake – CFO: So we’re not going to slow the duration, but there was some changes in the portfolio as we moved out of non-eligible into eligible security to LCR and also maintain more cash. So there wasn’t change. We also, as you saw, are making gains on sale we were doing that.
Brennan Hawken – UBS: So would the bias be to assume that it would be towards shorter?
Jamie Dimon – Chairman and CEO: No.
Marianne Lake – CFO: No…
Jamie Dimon – Chairman and CEO: When rates go up, certain mortgages lengthen, and a whole bunch of different things take place. But in general, the portfolio is several year duration, and a couple of year duration, AA+, and obviously it changes over time, so it manages shared exposures.
Brennan Hawken – UBS: Then just a quick follow up on John’s question. Is it generally right, given what you guys have disclosed, and you guys just verified, and what we’ve seen in rates, if we assume that rates kind of stay where they’re at, that you would get about 75% of that $900 million in additional NII in 2014, if we kind of stay status quo to where we are now?
Marianne Lake – CFO: Yes. That’s not a bad assumption.
Brennan Hawken – UBS: Then last one, just trying to think about maybe the potential to avoid some of the really big distraction that we saw this quarter around what is sort of becoming an annual event at the shareholder vote. Have you guys considered maybe articulating some kind of plan or a blueprint, or a map or what have you, to get people comfortable with the future state of CEO/Chairman roles way down the line when there is sort of a secession that is in place?
Jamie Dimon – Chairman and CEO: We’re not going to say what Board deliberations are, but the Board obviously has talked to shareholders about a bunch of ideas. Also, we think we have some of the best corporate governance out there, including trying to get important separation of chairman and CEO, that the Board should make decisions based on the circumstances at the time. They know the Company, the strategy, the people. That the Board always meets without the CEO, the Board in total sets the agenda, the Board is completely engaged in CEO compensation, the Board can hire and fire the CEO at will. Those practices are somewhere in our charters, some are not, but hopefully it won’t be the distraction it was last year.
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