Professional Documents
Culture Documents
3Q10 Earnings Presentation
3Q10 Earnings Presentation
3Q10
Asset Management had strong net inflows of $38B during the quarter; added over 300 client advisors and
brokers year-to-date
Tier 1 Common2 of $110.8B, or 9.5%; Credit reserves at $35.0B; loan loss coverage ratio at 5.12% of total
loans3
1 See note 1 on slide 22
2
1
See note 3 on slide 22
3 See note 2 on slide 22
3Q10 Financial results1
$ O/(U)
2
Investment Bank
Net Charge-off Rate3 0.25% 0.21% 4.86% Credit cost benefit of $142mm reflecting a
ALL / Loans 3 3.85% 3.98% 8.44% reduction in allowance largely related to net
4
ROE 13% 14% 23% repayments and loan sales
5 $99 $90 $143
VAR ($mm)
FINANCIAL RESULTS
EOP Equity $40.0 $40.0 $33.0 Expense of $3.7B down 13% YoY, primarily due to
1 Actual numbers for all periods, not over/under
lower performance-based compensation
2 2Q10 excludes payroll tax expense related to the U.K. Bank Payroll Tax on certain compensation
awarded from 12/9/2009 to 4/5/2010 to relevant banking employees, which is a non-GAAP financial
measure
3 Loans held-for-sale and loans at fair value were excluded when calculating the loan loss coverage
$33B, respectively
5 Average Trading and Credit Portfolio VAR at 95% confidence interval 3
Retail Financial Services
Net Interest Income 1,304 (9) (284) and a decline in mortgage loan yields
Noninterest Revenue 21 (31) 2 Credit costs of $1.2B on lower net charge-offs reflecting
Total Revenue $1,325 ($40) ($282) improved delinquency trends, and absence of reserve build
Credit Costs 1,197 (175) (2,361) Expense down 5% YoY
Expense 390 (15) (21)
Net Income ($148) $88 $1,300
1 Actual numbers for all periods, not over/under
2 Calculated based on average equity; average equity for 3Q10, 2Q10 and 3Q09 was $28B, $28B and $25B,
respectively
4
3 Calculated based on average equity; average equity for 3Q10, 2Q10 and 3Q09 was $18.3B, $18.3B and $15.2B,
respectively
Retail Financial Services — drivers
Retail Banking ($ in billions) Average deposits of $335.5B down 1% both YoY and QoQ:
3Q10 2Q10 3Q09 Deposit margin expansion YoY and QoQ reflects the portfolio shift
to wider spread deposit products
Key Statistics
Average Deposits $335.5 $337.8 $339.6 Branch production statistics:
Deposit Margin 3.08% 3.05% 2.99% Checking accounts up 6% YoY and 3% QoQ
Checking Accts (mm) 27.0 26.4 25.5
Credit card sales up 1% YoY and down 10% QoQ
# of Branches 5,192 5,159 5,126
Mortgage originations up 37% YoY and 14% QoQ
# of ATMs 15,815 15,654 15,038
Investment sales down 7% YoY and up 1% QoQ
Investment Sales ($mm) $5,798 $5,756 $6,243
Business Banking Originations $1.2 $1.2 $0.5 Business Banking originations up 91% YoY and down 8% QoQ
Avg Business Banking Loans $16.6 $16.7 $17.6
3Q10 2Q10 3Q09 Total Mortgage Banking & Other Consumer Lending originations of
Key Statistics $47.2B:
Mortgage Loan Originations $40.9 $32.2 $37.1 Mortgage loan originations up 10% YoY and 27% QoQ
3rd Party Mortgage Loans Svc'd $1,013 $1,055 $1,099 Auto originations down 12% YoY and up 5% QoQ:
Auto Originations $6.1 $5.8 $6.9
– Decrease YoY driven primarily by CARS program in prior year
Avg Loans $76.1 $77.8 $67.5
Auto $47.7 $47.5 $43.3 3rd party mortgage loans serviced down 8% YoY and 4% QoQ
1
Mortgage $13.6 $13.6 $8.9
Student Loans and Other $14.8 $16.7 $15.3
3Q10 2Q10 3Q09 Average loans decreased 12% YoY and 3% QoQ reflecting run-off in
Key Statistics the portfolios
ALL / Loans (excl. credit-impaired) 7.25% 7.01% 5.72%
2
Avg Home Equity Loans Owned $118.5 $122.0 $134.0
Avg Mortgage Loans Owned2 $115.0 $119.7 $131.1
1 Predominantly represents loans repurchased from Government National Mortgage Associated
(GNMA) pools, which are insured by U.S. government agencies
5
2 Includes purchased credit-impaired loans acquired as part of the WaMu transaction
Home Lending update
Financial Services, including $12.4B, $12.0B and $8.6B for 3Q10, 2Q10 and 3Q09, respectively,
No increase in the allowance for loan losses
of loans repurchased from GNMA pools that are insured by U.S. government agencies. These
loans are included in Mortgage Banking & Other Consumer Lending
during the quarter
3 Net charge-offs and nonperforming loans exclude loans repurchased from GNMA pools that are
FINANCIAL RESULTS
6
Card Services1
8
Treasury & Securities Services
$5.0B respectively
9
Asset Management
3 Calculated based on average equity; 3Q10, 2Q10 and 3Q09 average equity was $6.5B, $6.5B and
$7.0B, respectively
10
Corporate/Private Equity
11
Fortress balance sheet
$ in billions
Firmwide total credit reserves of $35.0B; loan loss coverage ratio of 5.12%3
Repurchased $2.2B and $2.6B of common stock in 3Q10 and YTD 2010, respectively
FINANCIAL RESULTS
financing of highly liquid, unencumbered securities (such as sovereigns, FDIC and government guaranteed, agency and agency MBS). In addition, the Global
Liquidity Reserve includes the firm’s borrowing capacity at the Federal Reserve Bank discount window and various other central banks and from various
Federal Home Loan Banks, which capacity is maintained by the firm having pledged collateral to all such banks. These amounts represent preliminary
estimates which may be revised in the firm’s 10Q for the period ending September 30, 2010
Note: Firmwide Level 3 assets are expected to be 6% of total firm assets at September 30, 2010
12
Outlook
Home Lending loss guidance: EOP outstandings for Chase (excluding WaMu) are
Quarterly losses could be: projected to decline by 15% or $21B YoY in 2010 to
– $1B for Home Equity $123B
– $0.4B for Prime Mortgage More than half of the decline in receivables is driven
– $0.4B for Subprime Mortgage by planned pullback in balance transfer offers
Receivables projected to bottom out in 3Q11 and end
NSF/OD policy changes:
the year in 2011 at $120B, reflecting a better mix of
Net income impact of $700mm +/-
customer
Full run-rate impact in 3Q
WaMu portfolio declined to $15B in 3Q10 from $20B at
year-end 2009, expected to decline to $10B by end of
Corporate/Private Equity
2011
Corporate quarterly net income expected to decline to
Chase and WaMu credit losses expected to continue to
$300mm+/-, subject to the size and duration of the
improve
investment securities portfolio
Chase losses expected to be approximately
7.50%+/- in 4Q10
13
We’re addressing the foreclosure affidavit issues
Issues have been identified relating to mortgage foreclosure affidavits, such as where:
Signers did not personally review the underlying loan files, but instead relied on the work of
others (who personally conducted reviews of the underlying loan files)
Affidavits were not properly notarized
Affidavits differ by jurisdiction, but in general the types of information attested to include the
following:
Name of borrower(s), property address, date of Note, borrower has defaulted and not cured
the default, amount of indebtedness
We are currently reviewing +/-115,000 loan files that are in the foreclosure process
We will re-file affidavits where appropriate
We have delayed foreclosure sales in these states and will re-initiate when appropriate
New processes are being put in place to ensure we fulfill all procedural requirements on a go-
forward basis
We take these matters very seriously and have dedicated significant resources to these efforts
FINANCIAL RESULTS
14
Our priority is foreclosure avoidance
Based on our processes and reviews to date, we believe underlying foreclosure decisions
were justified by the facts and circumstances
We are comfortable that our process between initial delinquency and foreclosure is robust
and we make every effort to avoid foreclosure
We begin contact at 15 days delinquent
We send numerous letters and make numerous calls to borrowers before foreclosure
referral
In 2009, we established a separate group to review loans before we take foreclosure
actions
Since January 2009, we have prevented 429,000 foreclosures through modifications,
short sales and other loss mitigation actions
By the time of foreclosure sale, on average borrowers are 14 months delinquent
The proper response if mistakes are found is to address them individually – which we will
do; avoiding further damage to an already weak housing market should be a priority
FINANCIAL RESULTS
15
Agenda
Page
Appendix 16
FINANCIAL RESULTS
16
Consumer credit — delinquency trends (Excl. purchased credit-impaired loans)
Home Equity delinquency trend ($ in millions) Prime Mortgage delinquency trend ($ in millions)
$3,900
$2,000
$2,600
$1,000
$1,300
$0 $0
Mar-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10
Subprime Mortgage delinquency trend ($ in millions) Card Services delinquency trend1,2 — Excl. WaMu ($ in millions)
$3,000 $5,900
$2,000 $4,600
$1,000 $3,300
$0 $2,000
Mar-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10 Mar-08 Aug-08 Mar-09 Aug-09 Mar-10 Sep-10
Prime Mortgage excludes held-for-sale, Asset Management and Government Insured loans
1 See note 1 on slide 22
2 “Payment holiday” in 2Q09 impacted 30+ day and 30-89 day delinquency trends in 3Q09
17
Firmwide coverage ratio remains strong
($ in millions)
Loan Loss Reserve/Total Loans1 Loan Loss Reserve Loan Loss Reserve/NPLs1
6.00% 500%
Nonperforming Loans
League table results For YTD September 30, 2010, JPM ranked:
YTD Sep 2010 2009
#1 in Global IB fees
Rank Share Rank Share
#1 in Global Debt, Equity & Equity-related
Based on fees:
#1 in Global Equity & Equity-related
1
Global IB fees #1 7.6% #1 9.0%
#1 in Global Long-term Debt
Based on volumes:
#2 in Global M&A Announced
Global Debt, Equity & Equity-related #1 7.4% #1 8.8%
#2 in Global Loan Syndications
US Debt, Equity & Equity-related #1 11.4% #1 14.8%
2
Global Equity & Equity-related #1 7.9% #1 11.6%
3
US Long-term Debt #1 11.1% #1 14.1%
4,5
US M&A Announced #3 22.8% #2 35.8%
Source: Dealogic
1 Global IB fees exclude money market, short term debt and shelf deals
2 Equity & Equity-related include rights offerings and Chinese A-Shares
3 Long-term Debt tables include investment grade, high yield, ABS, MBS, covered bonds,
supranational, sovereign and agency issuance; exclude money market, short term debt and U.S.
municipal securities
4 Global announced M&A is based upon transaction value at announcement; all other rankings are
based upon transaction proceeds, with full credit to each book manager/equal if joint. Because of
APPENDIX
joint assignments, market share of all participants will add up to more than 100%. Rankings reflect
the removal of any withdrawn transactions
5 US M&A represents any US involvement ranking
Note: Rankings for 9/30/2010 run as of 10/1/2010; 2009 represents Full Year
19
Foreclosure review process
On average 30,000 loans that are scheduled for sale are reviewed each month
APPENDIX
20
Delinquent loan facts
~20% of all loans in active foreclosure are non-owner occupied on the application
Around half of seriously delinquent loans have not gone to foreclosure of which:
~20% cured
~25% modified or short sale
Remainder in some form of Loss Mitigation
21
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 reported U.S. GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the business segments) on a FTE basis. Accordingly, revenue from tax-exempt securities and investments that
receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This non-GAAP financial measure allows
management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is
recorded within income tax expense. These adjustments have no impact on net income as reported by the Firm as a whole or by the lines of business.
Prior to January 1, 2010, the Firm’s managed-basis presentation also included certain reclassification adjustments that assumed credit card loans securitized by CS
remained on the balance sheet. Effective January 1, 2010, the Firm adopted new accounting guidance that amended the accounting for the transfer of financial assets
and the consolidation of VIEs. Additionally, the new guidance required the Firm to consolidate its Firm-sponsored credit card securitizations trusts. The income, expense
and credit costs associated with these securitization activities are now recorded in the 2010 Consolidated Statements of Income in the same classifications that were
previously used to report such items on a managed basis. As a result of the consolidation of the credit card securitization trusts, reported and managed basis relating to
credit card securitizations are comparable for periods beginning after January 1, 2010.
As noted above, the presentation in 2009 of CS results on a managed basis assumed that credit card loans that had been securitized and sold in accordance with U.S.
GAAP remained on the Consolidated Balance Sheets, and that the earnings on the securitized loans were classified in the same manner as the earnings on retained
loans recorded on the Consolidated Balance Sheets. JPMorgan had used this managed basis information to evaluate the credit performance and overall financial
performance of the entire managed credit card portfolio. Operations were funded and decisions were made about allocating resources, such as employees and capital,
based on managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the Consolidated Balance
Sheets and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships,
as the customers may continue to use their credit cards; accordingly, the customer’s credit performance affects both the securitized loans and the loans retained on the
Consolidated Balance Sheets. JPMorgan Chase believed that this managed-basis information was useful to investors, as it enabled them to understand both the credit
risks associated with the loans reported on the Consolidated Balance Sheets and the Firm’s retained interests in securitized loans.
2. The ratio for the allowance for loan losses to end-of-period loans excludes the following: loans accounted for at fair value and loans held-for-sale; purchased credit-
impaired loans; the allowance for loan losses related to purchased credit-impaired loans; and, loans from the Washington Mutual Master Trust, which were consolidated
on the Firm's balance sheet at fair value during the second quarter of 2009. Additionally, Real Estate Portfolios net charge-off rates exclude the impact of purchased
credit-impaired loans. The allowance for loan losses related to the purchased credit-impaired portfolio was $2.8 billion, $2.8 billion, and $1.1 billion at September 30,
2010, June 30, 2010, and September 30, 2009, respectively.
3. Tier 1 common capital ("Tier 1 common") is defined as Tier 1 capital less elements of capital not in the form of common equity – such as perpetual preferred stock,
noncontrolling interests in subsidiaries and trust preferred capital debt securities. Tier 1 common, a non-GAAP financial measure, is used by banking regulators,
investors and analysts to assess and compare the quality and composition of the Firm’s capital with the capital of other financial services companies. The Firm uses Tier
1 common along with the other capital measures to assess and monitor its capital position.
4. Tangible Common Equity ("TCE") is calculated, for all purposes, as common stockholders equity (i.e., total stockholders' equity less preferred stock) less identifiable
intangible assets (other than MSRs) and goodwill, net of related deferred tax liabilities. Return on tangible common equity, a non-GAAP financial ratio, measures the
Firm’s earnings as a percentage of TCE, and is in management’s view a meaningful measure to assess the Firm’s use of equity. The TCE measures used in this
presentation are not necessarily comparable to similarly titled measures provided by other firms due to differences in calculation methodologies.
APPENDIX
5. Headcount-related expense includes salary and benefits (excluding performance-based incentives), and other noncompensation costs related to employees.
22
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 uncertainties. Actual results
may differ from those set forth in the forward-looking statements. Factors that could cause JPMorgan
Chase’s actual results to differ materially from those described in the forward-looking statements can be
found in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2009 and
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010, each of
which has been filed with the Securities and Exchange Commission and is available on JPMorgan
Chase’s website (www.jpmorganchase.com) and on the Securities and Exchange Commission’s
website (www.sec.gov). JPMorgan Chase does not undertake to update the forward-looking statements
to reflect the impact of circumstances or events that may arise after the date of the forward-looking
statements.
APPENDIX
23