JPMorgan Chase (JPM) Earnings Report: Q1 2016 Conference ... · JPMorgan Chase (JPM) Earnings Report: Q1 2016 Conference Call Transcript The following JPMorgan Chase conference call

CompanyName:JPMorganChase&CoCompanyTicker:JPMSector:FinancialIndustry:Banking

EventDescription:Q12016EarningsCallMarketCapasofEventDate:213.61BPriceasofEventDate:61.79

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

JPMorganChase(JPM)EarningsReport:Q12016ConferenceCallTranscriptThefollowingJPMorganChaseconferencecalltookplaceonApril13,2016,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

MarianneLake;JPMorganChase&Co.;CFOJamieDimon;JPMorganChase&Co.;Chairman&CEOJasonScott;JPMorganChase&Co.;InvestorRelationsSarahYoungwood;JPMorganChase&Co.;ConsumerBanking

OtherPart icipants

MatthewBurnell;WellsFargo;AnalystGlennSchorr;EvercoreISI;AnalystBetsyGraseck;MorganStanley;AnalystGerardCassidy;RBC;AnalystMichaelMayo;CLSA;AnalystBrianForan;AutonomousResearch;AnalystJohnMcDonald;Bernstein;AnalystErikaNajarian;BoAMerrillLynch;AnalystMattO 'Connor;DeutscheBank;AnalystJimMitchell;BuckinghamResearch;AnalystStevenChubak;NomuraSecuritiesCo.,Ltd.;AnalystBrennanHawken;UBS;AnalystEricWasserstrom;Guggenheim;AnalystPaulMiller;FBR;AnalystKenUsdin;Jefferies;AnalystChristopherWheeler;AtlanticEquities;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometoJPMorganChase'sfirst-quarter2016earningscall.

Thiscallisbeingrecorded.

(OperatorInstructions)

Wewillnowgolivetothepresentation.Pleasestandby.

Atthistime,IwouldliketoturnthecallovertoJPMorganChase'sChairmanandCEO,JamieDimon;andChiefFinancialOfficerMarianneLake.

Ms.Lake,pleasegoahead.

MarianneLake (CFO):




Thankyou,Operator.Goodmorning,everyone.

I'mgoingtotakeyouthroughtheearningspresentationwhichisavailableonourwebsite.Pleaserefertothedisclaimerregardingforward-lookingstatementsatthebackofthepresentation.

Startingonpage1.TheFirmreportednetincomeof$5.5billion,EPSof$1.35,andareturnontangiblecommonequityof12%on$24billionofrevenue.Anddespitethegeneralmarketbackdropandenergy,ourresultsthisquarterwerequitegood,andprettystraightforward.Consumersremainonsolidfooting,leadingtorobustgrowthinbusinessdriversandstrongfinancialperformance.InConsumerwesawdoubledigitgrowthindepositsyearonyear,healthyloangrowthacrossproductsdriving17%coreloangrowthfortheFirm,andhighsingledigitcardsalesvolumes.Thewholesalebusinessesperformedinline,orbetterthanexpectationsexpressedatInvestorDay,anddelivereddecentfinancialresultsinchallengingmarketswithsignificantvolatilityandglobalmacrouncertainty.

TheFirm'sresultsincludedonesignificantitem,[$713]millionofwholesalecreditcosts,ofwhich$529millionrelatedtooil&gasreservesand$162millioninmetalsandminingreserves,whichweregenerallyinlinewith[ourguidance].Butwealsoexperiencedsomecharge-offsthisquarterinthesesectorstotaling$48million,(technicaldifficulties)guidanceofupto$4.75billionofcharge-offsthisyear.

WhileoilpriceshaveimprovedsomewhatinMarch,theydoremainnearhistoricallylowlevelsandthemarketisnotexpectingtherecoverytobestrong.Furthernaturalgas,whichisameaningfulportionofourportfolio,doesremaindepressed.Wedon'tfeelthatcurrentpricesaresufficientto[spare]ameaningfulrestartofproduction.Andmanyofthecostreductionsandconservationactionsthathavebeentakenarenoteasilyandquicklyreversed.Therefore,theimpactofoilpricesissomewhatasymmetriconcreditcosts.

Reservesaremainspecific.They'rebasedondowngradesreflectingtheactualfinancialconditionandthe[crediting]positionofborrowers.Assuch,welikelywillseesomeincrementalreservebuildsfortherestoftheyear,buttheywillbeincreasinglysituationspecificandourabilitytoestimatethemwillimproveovertime.Howeverusingreasonablestressassumptions,ondraws,downgradesandconsideringspin-overeffectstocloselyrelatedcompanies,thoseincrementalreservescouldreach$500million,plusorminus,thisyearbutwithaveryhighdegreeofvariabilityaroundthatnumber.

Wecontinuetobelieveoverallourclientbaseisrelativelywellpositionedtoweatherthisdownturn.Andwewillbetheretosupportthemwheneverfeasible.Wealsomonitorforcontagion.Andasidefromexperiencingacoupleofmainspecificissuesinverycloselyrelatedcompaniesandobservingsomegeneralstressinoilregions,wearenotseeinganythingbroadbasedandwouldnotexpectlossestobesignificant.

Movingontopage2.Pausingonthispageforjustamoment,afewcommentsfromoverallrevenueandexpense.Wetoldyouthatthefirstratehike,togetherwithourstrongloangrowth,woulddrive2016NIIhigherby$2billion.Andthe$700millionincreaseinnetinterestincomeyearoveryearthatyouseehereisinlinewiththat.HoweversequentiallyNIIwasonlyupslightlyasexpected,giventheabsenceofcertainsecuritiesgainsthatwehadinthefourthquarter,aswellasdaycount.

Non-interestrevenuewasdown$1.5billionyearonyear,primarilydrivenbythemarketenvironmentinboththeCorporate&InvestmentBankaswellasAssetManagement,withthebiggestdriversbeinglowerIBCsandfixedincomemarketsrevenue.Inbothcaseversusaverystrongprioryear.Adjustedexpenseof$13.9billionwasdown2%yearonyearonlowerperformance-basedcompensationwhilecontinuingtoself-fundincrementalinvestmentsandgrowth.

Turningtopage3.TheFirm'sfullyphased-inadvancedfeeET1ratiowas11.7%,withstandardizedat11.9%.Theimprovementtobothratioswasdrivenprimarilybynetcapitalgeneration.Recallthatwe




endedtheyearwithverylowlevelsofinventory,andasexpectedwedidseethatreversewithourspotbalancesheetup$70billionquarteronquarterreflectinggrowthindepositsandanincreaseintradingassetsandsecurefinancingactivity.ThisalsodroveaslightincreaseinRWA,netofrun-offandmodelcalibration.

FirmSLRimprovedto6.6%.Andwereturned$3billionofnetcapitaltoshareholdersthisquarter,including$1.3billionofnetrepurchasesandcommondividendsof$0.44ashare.Lastly,theFeddidnotobjecttoa$1.9billionincreaseinourcapitalplan,givingincrementalcapacityforrepurchasesnextquarter.

Movingontopage4andConsumerandCommunityBanking.You'llnoticethatweconsolidatedConsumerintoonepage,andforyourreferencewe'veincludedtheoldpagesintheappendix.CCBgenerated$2.5billionofnetincomeandanROEof19%withstrengthacrossalllinesofbusiness.AndTNSjustannouncedthatforthefourthconsecutiveyearwearetheNumberOneconsumerretailbank,reflectingourabilitytoattract,satisfyandretaincustomers.Thefundamentalbusinessdriversremainstrong,withaverageloansup12%yearonyearandcoreloansup25%drivenbymortgageandautobutwithstrengthacrossproducts.Andwesawrecorddepositgrowthof$50billion,up10%.

Weaddedoveronemillionhouseholdssincelastyear.Andouractivemobilecustomerbasewasup19%.Revenueof$11.1billionwasup4%yearonyear,andup1%sequentiallyifyouexcludefromlastquarternearly$200millionfromtheSquareIPOandabranchsale.InConsumer&BusinessBankingrevenuewasup4%yearonyearreflectingthatrecorddepositgrowthImentioned,aswellashigheraccountandtransactionvolumes,andinvestmentrevenueup4%despitethechallengingenvironment.

Mortgagerevenueincreased7%onhigherMSRriskmanagementandstrongloangrowth,partiallyoffsetbylowerservicingrevenue.CardCommerceSolutionsandAutorevenuewasup[2%]onstrongautoloanandleasegrowth,8%growthincardsalesand12%inmerchantprocessingvolumes,allofwhichmorethanoffsettheimpactofcardrenegotiations.Expensewasdown2%yearonyearwithanoverheadratioimprovingto55%aswecontinuedtomakeprogressagainstourcommitments,morethanoffsetting$200millioninincrementalmarketingandautoleasegrowth.Finally,credittrendsintheConsumerbusinessescontinuetobefavorable.

Nowturningtopage5andtheCorporateandInvestmentBank.CIBreportednetincomeof$2billiononrevenueof$8.1billionandanROEof11%.Inbanking,IBrevenuewas$1.2billion,down24%yearonyeardrivenbylowerequityanddebtunderwritingfees,butinlinewiththemarketwhichwasdown27%.WecontinuetoranknumberoneinglobalIBCsandranknumberoneinthreeregions:NorthAmerica,EMEAandLatAm.

Itwasanotherstrongquarterforadvisory,up8%,versusawalletthatdeclined15%.Wegainedshare,rankingnumberone,aswebenefitedfromanumberofdealsthatwereannouncedin2015andclosedthisquarter.Equityunderwritingfeesweredown49%,inlinewiththemarket,asvolatilitykeptissuersonthesidelines.Wemaintainedournumberonerankgloballyandincreasedourlead.

Debtunderwritingfeesweredown35%.Andwhileweweredownmorethanthemarket,itcanbeexplainedbyatoughcomparisonwithseverallargeacquisitionfinancedealsinthefirstquarteroflastyear,aswellasbeingconflictedoutofseverallargedealsthisquarter.

IntermsoftheoutlookweexpectasequentialdeclineinM&Atobemorethanoffsetbyanincreaseindebtandequityunderwriting,iftherecentmarketimprovementscontinue.Treasuryservicesrevenuewasdown5%drivenbybusinesssimplification.Lendingrevenuewasdown31%primarilyreflectingmark-to-marketchangesonbothhedgesofaccrualloansandsecuritiesreceivedfromrestructuring.

Movingontomarkets.Marketsrevenuewas$5.2billionandwasdown11%yearonyear,reflectingdecent




performancegiventheenvironmentandespeciallyinlightofthestrengthinthe[first]quarterof2015wherewesawelevatedclientwalletandtrading,particularlyinJanuarylastyearparticularlyaroundtheSwissfrancevent.Infactifyouindulgeme,adjustingforouroutperformanceyearoveryearresultswouldhavebeendownbymidsingledigits.

Fixedincomerevenuewasdown13%.Thefirstcoupleofmonthsofthisquarter,asyouknow,werechallengingacrossmarkets,butissomestabilityreturnedinMarch.AndoverallIwouldcharacterizethequarterasseeingreasonablysolidclientactivity,butgiventhemarketbackdropitwasmoredifficulttomonetizeflows.Wesawbetterperformanceinratesandlowerperformanceacrossotherassetclasses.

Equitymarketsrevenuewasdown5%.Andalthoughflowsweresteady,idiosyncraticeventsandsharpmovesweretoughforourclients,bothonthewaydownandbackup.Asiaequitiescontinuedtooutperform,drivenbymarketvolatilityparticularlyinJapan.

Withrespecttothesecondquarter,therelativestabilitywesawinMarchhascontinuedintoAprilsofar;however,it'salsothecasethatmarketsarestillquiteilliquidincertainpartsandwillbepronetosomewhat[abrupt]corrections.Sowhileinvestorshavestartedtodeploycashandcapitalmarketsarewideopenforwellunderstoodnames,thereisstillremainingcautionformorechallengingissuers.

Althoughthere'sbeennoiseinthedataglobally,thereisanemergingbeliefthatit'sfundamentallybetterbutweneedtocontinuetoseenodownwardsurprises.Andassuch,weremainsomewhatcautiousaboutthesecondquarter.

Securityservicesrevenuewas$881million,inlinewithguidance.Creditadjustmentsandotherwasalossof$336million,mainlydrivenbyCVAonspreadwidening.Creditcostsof$459millionweredrivenbyreservebuildsforoilandgasandmetalsandmining,asdiscussedearlier.

Finally,expenseof$4.8billionwasdown15%yearonyeardrivenbylowerperformance-basedcompensationandlowerlegalexpense,withacomp-to-revenueratioforthequarterof32%.

Movingontopage6andCommercialBanking.TheCommercialBankgeneratednetincomeof$500milliononrevenueof$1.8billionandanROEof11%.Outsideofcreditcostsforoilandgasthefirstquarterwasverysolidperformance.

Revenuewasup4%yearonyear,drivenbyhigherloanbalancesanddepositnetinterestincomeoffsetbylowerIBrevenuesversusarecordlastyear.Expenseof$713millionwasup1%yearonyearanddown5%quarteronquarter,butinlinewithrecenttrendsifyouexcludetheimpairmenttakenonleasedcorporateaircraftlastquarter.

Wesawstronggrowthinourloanbookwithaverageloanbalancesup13%yearonyearand3%quarteronquarter,andwithportfoliospreadsrelativelyflatforacoupleofquartersnow.Ourcommercialrealestatebusinesscontinuedtoexceedtheindustrywithgrowthof18%yearonyearreflectingsuperiorexecutionwhilemaintainingcreditdiscipline.

InC&Iloanswereup9%yearonyeardrivenbyrobustoriginationsincorporateclientbanking.Finallyoncredit,weadded$300milliontoreserves,mostlyrelatedtooilandgas,butwecontinuedtoseeverylownetcharge-offs.

Movingontopage7,andAssetManagement.AssetManagementreportednetincomeof$587millionwitha30%pretaxmarginand25%ROE.

Revenueof$3billionwasdown1%yearonyeardrivenbyweakermarketsandlowerbrokeragerevenues.Excludingtheimpactofthesaleofanassetthisquarterwhichcontributed$150milliontotherevenuenumber,adjustedrevenueAUMandclientassetsweredowneachgenerallyinlinewithlower




markets.

Expenseof$2.1billionwasdown5%yearonyearlargelydrivenbylowerperformance-basedcompensation.Despitetheselowermarketswesawpositivelong-termflowsof$12billionthisquarterwithstrengthinfixedincomemulti-assetsandalternatives,andincludingthebenefitofalargemandatebeingpartiallyoffsetbyoutflowsinequityproductsgivenvolatility.

Ourlong-terminvestmentperformanceremainsstrong,with80%ofmutualfundAUMrankedinthefirstorsecondquartilesoverfiveyears.Loanbalancesof$110billionwereup7%yearonyear,withrecordmortgagebalancesup20%andsolidgrowthintraditionallending.

BeforeImoveon,asyou'reawaretheDepartmentofLaborissuedthefinalfiduciaryrulelastweek.It'salongandcomplexsetofrequirementsanddetailswillmatter.Itwilltaketimetofullydigest.

Onfirstreadtherearenosignificantnewprovisionsfromtheproposalthatwouldchangeourposition,whichisthatwe'vebeenafiduciaryforover150years.Andbasedonourcurrentadvisorybusinessweareconfidentinourabilitytoadjustandbesuccessful.Perhapsoneofthebiggestpositivesisthelongertimetoimplement,whichallowsustobeevenbetterprepared.

Skippingpage8,asweactuallyhavenothingsignificanttocalloutonCorporateandIwillmoveontotheoutlookonpage9.We'veincludedourguidancefromInvestorDayonthepage.It'sunchanged,soIwon'tgothroughit.Justtwonewpointstohighlight,forAssetManagement.Thefirst-quarterrevenuesadjustedforthe$150millionwerealittleover$2.8billion.Andassumingrelativelyconstructivemarketswewouldexpectthoserevenuesinthesecondquartertobeflattoup,buttobelessthan$3billion.Andobviouslyexpensewillalsobeflattoupinlinewiththoserevenuesonperformance-basedcompensation.

IntheCommercialBankweexpectrevenueswillbeupmodestlyoncontinuedloangrowth,butwealsoexpectexpensestoincreasetoabout$725millionasweaddbankersandexecuteonourtechnologyandproductinvestmentstrategies.Theupshotofwhichisweexpectpre-provisionnetrevenuefortheCommercialBanktoberelativelyinlinewiththefirstquarter.

BeforemovingtoQ&A,Iwanttomakeafewcommentsaboutthenewsthismorningregardinglivingwills.Obviouslyweweredisappointedwiththeconclusionreachedbythejointagenciesonourresolutionplan.Wehavetakenthisplanningprocessveryseriously,andwebelievewe'vemadesubstantialprogress.Havingsaidthat,themostimportantthingisweworkwithourregulatorstounderstandtheirfeedbackfullyandinmoredetail.Andwearefullycommittedtomeetingtheirexpectations.

Sowrappingup,despitechallengingmarketconditionswedeliveredreallyquitegoodperformanceinthequarterwithdiversificationallowingustoperformwellindifficultenvironmentsandbethereforourclients.Operator,youcanopenuptoQ&A.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

MatthewBurnell.

MatthewBurnell(Analyst-WellsFargo):

Goodmorning.Thanksfortakingmyquestions.Marianne,maybeacoupleofquestionsonenergy.




YounotedthattheprovisionwasslightlyaboveyourguidancethisquarterrelativetowhatyoumentionedyouthoughtitmightbeinlateFebruary.IguessI'mcuriousintermsofwhatyourexpectationsareintermsofyourguidancerelativetopotentialdraw-downs,particularlyinthe$10billionofhighyieldloansthatyouhaveundrawn?

Andwhatyourabilityistopotentiallymitigatepotentialdraw-downsbasedonthefinancialconditionofyourborrowers?

MarianneLake (CFO):

SothefirstthingI'dsayiswithrespecttooilandgas,obviouslyIthink$529millionisprettycloseto$500million,plusorminus.Sothatwasprettymuchinline.Butyouaresayingit'llbealittlebithigherwithmetalsandmining.Wewereexpectingcloseto$100millionandtherewereacoupleofextradowngradesthatcamethroughinthequarter,andthatkindoftimingisgoingtohappen.Itdoesn'tchangetheoverallsortofperspectiveforus.

Withrespecttodraws,whenIgavesomesortofindicativeguidanceaboutwhatyoumightexpecttoseepotentiallyintherestoftheyearintermsofreservebuild,wedotrytotakeintoconsiderationthelikelihoodthatwewillseeincrementaldraws.Andclearlywewillworkwithborrowerstotryandhelpthemsuchthatthatmaynotbenecessary,andinothercaseswecanreduceourexposureinredeterminationcases.Butwewillexpecttoseedrawsandthat'scontemplatedinourguidance.

AndIwanttomakesurethateveryoneunderstoodthatwetriedtobeverycomplete.Sothisisnotjustoilandgasandmetalsandmining,asthe[Mace]Codewouldsuggest.We'velookedatverycloselyrelatedcompaniesinshippingandmarinetransportationandthelike.Sowe'retryingtobeverycomplete.

JamieDimon (Chairman&CEO):

We'veyettotakealoss.

MarianneLake (CFO):

Wehavetakenacouple.Notverymuch.

MatthewBurnell(Analyst-WellsFargo):

Fairenough,thatmakessense.Butthatdovetailsnicelyactuallyintomyfollow-up.Intermsofthewholesalenon-accrualbalances,thoseareupabout$1.2billionquarteroverquarter.

Canyougiveusasenseastohowmuchofthatwasenergyandmetalsandmining?Andwerethereotherareasoftheportfoliothataddedtothat?Andwhat'syouroutlookforwholesalenon-accrualsoverthecourseofthenextcoupleofquarters?

MarianneLake (CFO):

Soofthe$1.2billion,$1billionwasacombinationofoilandgasandmetalandmining,sothevastmajorityandoutsideofthat,consistentwithmycommentsoncontagion,there'snotanysortofthematicothernoteworthythingtomentiontoyou.Andobviouslyaswecontinuetowatchthecycleplayoutoverthenextseveralquartersandreevaluatesomeclientsthatmaybeexperiencingstress,it'slikelythatwewillseesomemoreMPLs.

ButIgaveyoucontextaroundwhatwe'reexpectingtoseeintermsofreserve.Sotheywillgoup,butnottonumbersIwouldconsidertobelargeinthecontextofourwholesaleportfolio.

Operator :




GlennSchorrwithEvercoreISI.

GlennSchorr (Analyst-EvercoreISI):

Hi.Justonefollow-up.Whatwasthedrawn-onenergyfacilitiesthisquarter?Itdoesn'tseemtobetoobig,but--andthenrelatedtothat,what'sthereserveasapercentageofdrawncreditrightnow?

MarianneLake (CFO):

Thedrawsareabout$1.3billioninthequarter.Sosomebutnotexcessive.Andafterthereservesthatweputupinthefirstquarterthecoverageratiois6.3%.


Whatisitonbalanceandstuff?

MarianneLake (CFO):

Thatistheonbalancesheet.


Andthenmaybealittlebitofdifferentquestion.

MarianneLake (CFO):

SorryGlenn,justonthat6.3%,that'stheFirm.IfyoulookintheCommercialBank,obviouslyit'shigher.Soyou'vegotasortofadifferentportfoliomixintheCommercialBankversustheCIB.Soifit'ssomepartsofourportfolioit'scloserto9%or10%andinotherpartsit'slower.Sorry.Yoursecondquestion?


Iappreciatethat,andIthankyou.

Theotherquestionisongrowth.We'vebeenwaitingforalongtime,butyou'vebeenseeinggreatgrowthacrossalotofdifferentproducts.CREup18%andthecommercialbankC&Iup9%.

Atthisstageofthecycle,Iappreciatetheconsumer'sshowingalotofstrength.Isthereanygrowthwherewescratchourheadsandsaid,wowisthatgrowingtoomuch?Itsoundsfunnyformetobeaskingforlessgrowth,butjustcurioustogetyourthoughts.

MarianneLake (CFO):

It'saperfectlyreasonablequestion.AndobviouslywhenwelookatgrowthinCRE,orthecommercialrealestatebusiness,of18%it'sanobviousquestion,areyoudoingsomethingdifferent?Andtheansweris,nowe'renot.Wehaven'tchangedourgeographies,wehaven'tchangedourriskappetite.Itjustsimplyisthecasethatwehaveagoodprocessandwearecontinuingtofocusonoursortofcorecapabilitiesandourcorerisksegments.

Butwe'vebeenabletotakeadvantageoftheopportunitybecauseourprocessisbetter,andtoalesserdegree,butnonethelesstoadegree,giventhattheCMBSmarkethasbeensomewhatdisrupted.

Operator :

BetsyGraseckwithMorganStanley.

BetsyGraseck(Analyst-MorganStanley):




Hi,goodmorning.

MarianneLake (CFO):

Hi.


Ihaveaquestiononthelivingwills.Theindicationtodaywasthattherewerefourareasthatyouneededtoenhance.LiquiditywasoneofthoseandIwasalittlesurprisedtoseethat,giventhestrengthofyourliquiditybook.IguesswhatI'mwonderingis,doesthelivingwillsubmissionandthechangesthatyouhavetomakehaveanimpactonyourcurrentbusinessatall?

Inotherwords,doyouneedtobuildliquiditytomeettherequirementsthattheregulatorshave,orthisisinaobviouslyworsecasescenarioyou'dbuildatthattime?

MarianneLake (CFO):

SoBetsyobviously,withhavingonlyreceivedthespecificfeedbacklessthan24hoursagowestillhavetogetintotheanalysisphaseaboutwhatitallmeans.

Iwouldstartwithyouropeningcommentthatconsideringourliquidityyouweresurprised.Thisdoesn'tappeartobeastatementabouttheadequacyobviouslyofJPMorgan'sliquidity,whichisverysignificant,asyouknow.Butitreallyabouthowweanalyzeandthinkaboutthatatthemateriallegalentitylevelandtheinter-affiliatenatureofhowweformedourentity.SoIcan'ttellyouwithanyclarityexactlywhatwillberequiredaswegetintotheanalysis.Itwouldn'tbemycoreexpectationthatitwouldrequireustodoameaningfuloverallnewliquidityactions,butwehavetodothework.


Aswethinkabouttheimplicationsofthismorning'sannouncement,it'saroundyourplanningandproceduresasopposedtoalikelyimpactonthebusinessoperationstodayandtheresultsthatyoucangenerate,isthatareasonableconclusion?

MarianneLake (CFO):

Again,justbasedonourpreliminaryread,Ithinkthere'sgoingtobesignificantworktomeettheexpectationoftheregulators.Andourplanalreadyhadusdoingalotofworkaroundactualrealsimplificationoflegalentitiesandotherthings.SoIdon'tknowthattherearegoingtobesignificantchanges.It'snotmyprimaryexpectationthattherewouldbe,butwedoneedtohaveamomenttogothroughthedetails.


TheliquidityoftheCompanyisextraordinary.Wehave$400billionincentralbanksaroundtheworld,$300billionofAA-plusshortdurationsecurities,justabout$300billionofveryshort-termsecure--reallytopqualityrepoortypeofstufflikethat.Thetradingbookis$300billion,whichismostlyveryliquidkindofstuff.SotheliquidityoftheCompanyisextraordinary.

MarianneLake (CFO):

Iwouldsay,justagain,weneedtodotheworkandweneedtofigureoutobviouslywhattheresponsetothatwillbe.Butitisencouragingthatsometimeswe'refoundtobecredibleforlargesystemicfinancialinstitutions.Andiftheyhavebeenabletoadequatelyshowtheirpreparedness,we'reconfidentweshouldbeabletodothesame.Wejustneedtomakesurethatweunderstandthedetailsofwhatitis




thatwedon'thaveinourplantodaythatweneedtochange,andwe'recommittedtodoingit.

Operator :

GerardCassidywithRBC.

GerardCassidy(Analyst-RBC):

Thankyou.Goodmorning.Marianne,canyouexpanduponyourcommentsinyouropeningdialogueabouttheenergyexposure?You'renottooworriedaboutthecontagionrisk,butyoudidsaythereareacoupleofspecificissuesrelatingtosomeverycloselyrelatedcompanies.Canyougiveusmorecoloronwhatyou'rereferringto?

MarianneLake (CFO):

Yes,absolutely.SoIjustwanted--ifyouusedtheindustrycodesthewaythatyoucouldifyouwanttoexpandyourthinkingtojustwhatistechnicallyconsideredtobeanoilandgascompany,you'dmissouton,forexample,amarineshippingcompanythatalltheydoisshipoilandthereforetheirfinancialandtheirperformanceisgoingtobedirectlyrelatedtothehealthoftheenergysector.

Thosecompanieswehaveidentifiedthemspecifically,theyaremanagedwithinourenergyriskteam.Theyarenotmanagedbyadifferentteam.SoIwassimplysayingthatsomeofthecompaniesthatwearewatching,andinoneortwosmallcasesthathaveexperiencedsomestress,arenottraditionalenergycompanies.Buttheirconditionisdirectlyrelatedtooilandgas.


Thankyou.Andthenontheloangrowth,whichisobviouslyverystrong,whatareyourpeopleonthefrontlinessayingaboutcommercialrealestate?Arethereanychangesintermsofunderwritingmetricsthatyourfrontlinepeopleareseeingsincewearestartingtoseeincertainmarkets,likemultifamily,whichyouguyshavealreadyidentifiedassomeweakspots?Arethereanyotherunderwritingissuesthatarecroppingupnowthatyoudidn'tseethreemonthsagoorsixmonthsago?

MarianneLake (CFO):

Soobviouslynotforus.Iwouldsaythatit'scompetitive,astheC&Ispaceisverycompetitive.Commercialrealestateisalsocompetitive,butit'snotirrational.Andwearen'tseeing,oratleastwearenotseeingveryrationalproposalsonstructureandrisk.

Meanwhilewehaven'tchangedourriskappetite,wehaven'tchangedourunderwritingstandards.WecontinuetohavelowerLTVsandhigherdebtcoverageratios,prettyconsistentgeography.SospeakingforJPMorganspecifically,there'sbeennochangeinourunderwritingstandards.Infactifanythingsincethelastcrisis,obviouslythelastrecession,wetightenedourunderwritingstandardsandwe'vemovedawayfromsomeoftheriskiertypesofthatbusiness,sohomebuildersandalotofconstructionloanbusiness.

Operator :

MichaelMayowithCLSA.

MichaelMayo (Analyst-CLSA):

Hi.ThatwasaveryseriousCEOletteryouhadintheAnnualReport.Buttwoquestionsrelatedtothat.

Onewouldbeyou,Jamie,indicatethepotentialforhigherinterestrates,andjustlookingforsomemore




colorintowhyyouthinkthat'sthecaseandifyou'repreparingthebankforascenarioofhigherratesorifyou'rejusttryingtosetatoneatthetop,orperhapsbeacontrarian.IknowyougavesometechnicalfactorsintheCEOletter.

AndthenthesecondthingisjustthecontrastbetweenwhatyouhaveintheCEOletter,liquiditytradinggovernanceoversightwiththelivingwillletterthatcameouttoday.Andjustafollow-upontheearlierquestion,doyousimplyhavetowriteabetterresolutionplanormightyouhavetochangealittlebitthewayyoudobusiness?AnddoesthismakeyouhaveamoreconservativeCCARask?

MarianneLake (CFO):

Hey,Mike.I'llstartandthenJamiecanaddtoit.

Soontheinterestratepoint,thecolorsareprettyconsistentwithwhatwesaidovertime,whichiswehavethebeliefthattheUSeconomyiscontinuingtomoveintherightdirection,thattheconsumerisonsolidfooting,andthatdespitethenoiseinthedataandsomeofthevolatilityinthemarket,globalgrowthwillcontinuealbeitatamoderatepace.AndobviouslystabilityinthemarketsinMarchhascontinuedtohelpuswiththatthesis.SothatcoupledwiththefactthattheFedthemselves,whiletheyaredovishintheirnarrativesintheminutesandalsotheyare[dots]arecontinuingtotalkaboutgradualincreases,andthedebatearoundnegativerateshaskindofquieted.

Sowedon'tparticularlyruntheCompanywithaday-to-dayviewonwhat'sgoingtohappenwithinterestrates,wearepositionedforrisingrates,asyouknow,andhavebeen.ButwealsounderstandwhattheperformanceoftheCompanylookslikeiftherearenomoreraterises,orwhenwestressourportfoliosinlotsofdifferentways.

Sowearepositionedforrisingrates,itisourcentralcasethatwillhappen.Themarketispricinglessthanonehikeinthisyear.TheFeddotsaystwo.Ourresearchsaystwo.We'rejustgoingtohavetowaitandsee.

I'llalsostartandthenJamiecanjumpinonthelivingwillthing.Wehavetotakeitatfacevalueindiscussionswithourregulatorsthatweneedtomeettheirrequirements,whatevertheymaybe,alloftheruleswhetherit'scapital,whetherit'sliquidity,whetherit'sstresstesting,whetherit'sresolutionplans.Andifwedothatandsatisfythem,thenwecancontinuetooperatetheCompanythewaythatwethinkitisbestforourclientsandcommunitiesaroundtheworld.

Soatthispointweneedtoremediateandaddresstheissuesandthefeedbackthey'vegivenusandresubmitaplanforassessmentthatwehopewillbecredible.Andthat'scertainlywhatwewillcommittodo.Andthat'swhatwearefocusedon.

MichaelMayo (Analyst-CLSA):

WasthereanythingelsefromJamieonthat,becauseifyoucompareandcontrasttheCEOlettertowhattheregulatorsjustsaidaboutyouguys,it'snotcompletelyconsistent?


WellIdon'tthinkit'sinconsistent.We'retryingtomeetalltheregulations,alltherulesandalltherequirements.We'vebeendoingthatnowforfiveorsixyears.Whatisit,sixyearssinceDodd-Frankwaspassed.Theyhadtheirjobtodoandwehavetoconformtoit.

MarianneLake (CFO):

Iknowit'seasytosortofoverlookthequiteafewstatementswherethere'sanacknowledgmentthat




progresshasbeenmade.Andnoneofthefeedbackintheletternegatesthesignificantprogressacrosstheindustryoncapitalliquiditystresstesting.Soitisconsistent,butwehavemoreworktodoandwe'lldoit.


Ontheinterestratestuff,Iwasn'tpredictingit.I'msimplysayingIthinkthere'sachanceitwillbedifferentthanwhatpeopleexpect,anditwillbealittle--Isaidit'llgradualuntilit'ssudden.

Operator :

YournextquestionisfromthelineofBrianForanwithAutonomous.

BrianForan (Analyst-AutonomousResearch):

Hi,goodmorning.

MarianneLake (CFO):

Goodmorning.

BrianForan (Analyst-AutonomousResearch):

Iwonderontrading,youappreciatethatyoureportedfirstsoyouhaven'tseenthemarketyet.Buttwoquestionsaroundthewholethesis,thelastmanstandingversusrestructures.

One,doyouhaveanysenseofwhetheryourperformanceoverallandreallythickrepresentedmarketsharegainsornotthisquarter?Andthentwo,withsomeoftheguidancecomingoutoftheEuropeanbanksinparticularbeingverypoorandsomeoftherestructuringsmaybeacceleratingsteam,isthereanythoughtaroundcompandmaybeusingthatasalevertoimprovereturnsovertheremainderoftheyearandintonext?

MarianneLake (CFO):

Soobviouslywe'rethefirsttoreadout,andit'sverydifficultwhenyouthinkaboutperformancebecauseyoualsohavetothinkabouttherelativeperformanceinthecomparableperiodsandprioryearsandthelike.SoIwouldsaythatdownmid-singledigitsadjustedforwhatwewouldconsidertohavebeenoutperformancelastyearisreallyquitegoodperformance.

SoIdon'tknowthatwegainedshare,butIcertainlythinkweprotectedshare,anditmaydifferacrossthedifferentproductsets.ButIthinkingeneralwefeelprettygoodaboutourperformanceandwedon'tknowanythingtothecontrary.


I'djustaddthat$5billion-plusofsalesandtradinginaquarterlikethislookasgood,earningdecentreturns.Wehavegoodmargins.We'renotquitesureaboutshare,butitwas--Iwouldlookasquiteagoodperformance.Andtradinglosses,whilewe,wasitsixdaysyousaidtome?

MarianneLake (CFO):

Sixdays,yes.


Sixdays,therewas--like$40,000.Sothattheactualresultswerejust--that'sreallygood.Ilookatthat




asaveryhealthybusiness.

MarianneLake (CFO):

Andthenwithrespecttotherestructuringandwhetherthatpresentsopportunitiesforusbroadly[define],includingincompensationfor--wepayforperformanceandwepayrisk(inaudible)returns,andwe'renotlookingtotryandmakechangestowhatwe'vebeenveryconsistentaboutovertime.Andyoucanseeourcomp-to-revenueratioof32%thisquarterisinlinewiththeratiointhefirstquarteroflastyear,andinfactthefirstquarteroftheyearbefore.

Solower--obviouslyonlowerrevenues,butafairpayfortheperformance.Andobviouslyweintendtoinsurethatwearecompetitive,butwe'renotgoingtotakeanydirectactionsasaresultofthatintermsof(multiplespeakers)--


We'vealsogotsomebigdealsdoneneartheendofthequarterinWesternDigitaland[Newmar]Cable,whichispartofsalesandtrading.Wealsogot--wedidthis,Ithought,averycreativeChase,[whatIwouldcall],aChaseTrustinordertosecurethefirstrealsecuritizationinalongtimeinthemortgagebusiness,wedorevenuerisk-sharing,andIthinkit'squitegood.

Operator :

JohnMcDonaldwithBernstein.

JohnMcDonald (Analyst-Bernstein):

Hi.Justaquestiononexpenses.First,wasthereanylegalexpenseinthequarter?Andthenjustabroaderquestion,Marianne.

Aretheincrementalexpensesavesyou'regettingfromyourprogramsflowingthroughthebottomline,orisitsomeofitgettingreinvesting,likeinCCBInoticedtheheadcountisupalittlebitonpage11,justthelastcouplequarters?Isthatreflectlikereinvestmentofthecostsaves?Andthenjustonthelegalside,ifyouhadanythingthisquarter?Thanks.

MarianneLake (CFO):

Onlegal,thenumberis[circ]$0.Pretaxisactuallyslightlypositive.After-taxwedidsometrue-ups,assessmentsonpenalty.Soactuallynet/netabout$0thisquarter,whichI'lltakeitforthequarterbutitdoesn'tnecessarilypredictthefuture.

Intermsofexpenses,sowetalkedatInvestorDay,GordoninparticularbutalsoDaniel,thatwearecontinuingtoinvestinourbusinesses.Andacrosstheboardinfactaddingbankersandtechnologyanddigital,digitizing,etcetera.SowecontinuetodothatacrossthebusinessesandImentionedintheCCBpagethatthenetexpenses,albeitdown,includesself-funding$200millionofincrementalinvestmentsyearoveryearandgrowth.

ButyoudidnoticetheheadcountintheConsumerbusinessesisupslightly.Andthat'sacombinationoftheinvestmentswe'remakingintechnologyanddigital,that'sabout500oftheheadsandother1500isincreasingpart-timestaffinginthebranchessothatwehaveflexibilitytomakesurethatwehaveloadingattherighttimesofdayformakingsurethecustomerexperienceisgood.SoIwouldcharacterizeitallasveryconsistentandyes,wecontinuetoinvest.Andthatisinpartwhatyou'reseeingintheheadcountinCCB.





AndyousawnewcreditcardFreedomUnlimited1.5%back.We'redoingalotofstuffinChasePay.SotheStarbucksthing,weapplythetopdigitalside,andwecontinuetowinawardsintheConsumerBank.Sowe'llalwaysbeinvestingthere.

Operator :

ErikaNajarianwithBankofAmerica.

ErikaNajarian (Analyst-BoAMerrillLynch):

Yes,goodmorning.You'refieldingalotofquestionsonenergycreditquality.Buttakingastepback,giventhatthedelinquencystatisticsoutsideofenergystillremainfairlystable,couldyougiveusanoutlookforhowyouthinkcreditqualitytrendswillplayoutfortherestoftheyearifthebasecaseisslowgrowthintheUS?

MarianneLake (CFO):

Soitisourexpectationacrossboththeconsumerandthewholesalebusinessesoutsideofenergythatthecredittrendswillremainfavorable,orcreditwillberelativelybenign.We'renotexpectingtoseematerialincreases,exceptforthefactthatwearegrowingourloanportfolio.

SowhenwedidInvestorDaywetalkedaboutcharge-offsthisyearwillgoupyearonyear,andtheywillgouptopotentiallyashighas$4.75billion.Buthalfofthatwouldbeonthebackofthefactthatwearegrowingourportfolios.Soyou'djusthavenaturalsortofBAUlevelsofcharge-offfromthatandthentheotherhalfwouldbeonenergy.Sowe'renotexpectingorseeingatthispointanything,otherthangoodcreditqualityfortherestof2016,outsideoftheobvious.

ErikaNajarian (Analyst-BoAMerrillLynch):

Great.Andjustonemorefollow-upquestiononthelivingwill.CouldyouhelpusunderstandwhatyouthinktheregulatorsmeantintermsofiftheremediationisnotmetbyOctober1ofthisyearthattherecouldbemorestringentprudentialrequirements?Couldthatpossiblymeanhighercapitalorliquiditystandardsiftheexpectationsaren'tmetbyOctober?Iguesswealwaysthoughtofthelivingwillasmoreofacostissueratherthanafurthertaxonregulatoryratios.

MarianneLake (CFO):

SoIwillstartbysayingthatasyouknowourregulatorshaveextraordinarypowersoverawiderangeofrequirementsforusregardless,andmanywaysofinfluencingthoseandyou'refamiliarwithmostofthem.Itisabsolutelythecasethatasyoulookattheresolutionprocessthatthereareprovisionsthattalkaboutifremediationisnotsatisfactorywith,orcuredwithinatwo-yearperiod,thereare-there'sapossibilitythattheregulatorscouldjointlydecide,mayjointlydecide,totakeotheractionsthatcouldincludecapitalorliquidityorleverageoroperatingmodeldiscussions.Soobviouslytheydohavethosepowers.

Octoberisnotthatfaraway.We'regoingtodoourvery,verybesttomakesurethatweputourbestfootforwardandremediatetheissuesandthenwehaveanothersubmissioninJuly2017.Sonottosuggestthatwewon'tfullyremediatethemtotheverybestofourability,butthelivingwillprocessIexpecttocontinuetobesomewhatiterativeoverthenextseveralcycles,andwecontinuetopushourselvestoraisethebar.AndI'mcertainthatthebarwillcontinuetoberaisedonus,asitshould.

Operator :

MattO 'ConnorwithDeutscheBank.




MattO'Connor (Analyst-DeutscheBank):

Goodmorning.

MarianneLake (CFO):

Goodmorning,Matt.


IfIlookatthefirst-quarternetinterestincome,whichwasatleastbetterthanwhatIhad,goodNIM,andthinkaboutyourfull-yearoutlook.IfItakeitliterallyitimpliesflattishnetinterestincomedollarsfromhere.AndI'mjustwonderingifthat'stooliteralofaninterpretation,orifmaybetherearesomeoffsetstotheloangrowthfrom,say,lowerlong-termratesaswethinkabouttherestoftheyear?

MarianneLake (CFO):

Okay.Sowetalkedaboutthefactthatifthere'snochangeinratesandifwecontinuetogrowourloans,wewouldexpectourNIItogoupby$2billion.Soyou'reright,ifyoulookattherunraterightnowthatwouldberelativelyflatfromhere.

Ithinkinourfavor,becauseoftheeasingthat'sstillgoingonaroundtherestoftheworldandthesortofthedovishFedcomments,there'sbeenalowerre-pricejustintheindustrygenerally.Sothat'sinourfavorandwe'remuchmoresensitivetothefrontendofrates.Sowe'renotsuggestingthatthelongendofthecurvehasnoimpact,it'srelativelymodest.So$2billion,maybealittlemore.ThebiggestdriverofsignificantlyhigherNIIabovethatguidancewouldbeifwehadanotherhikeearlierthanDecember.


Andthenjustseparately,anycommentsontheTreasuriesrulingoninversionasyouthinkaboutM&A,kindofbroadlyspeakingfortheindustryandforyouguysspecifically?AndifyoucanframehowmuchthatdrivenyourM&Arevenuesinthepast,ortheindustry?Anycoloraroundthatwouldbehelpful.

MarianneLake (CFO):

SonotgoingtotalkspecificallyabouttheTreasuries'actions,otherthansayingthatwewouldsupportFedtaxreformingeneral.Withrespecttotheimpactonourbusiness,eitherhistoricallyorgoingforward,itwouldn'tbezeroanditwouldn'tbesignificant.

Operator :

JimMitchellwithBuckinghamResearch.

JimMitchell(Analyst-BuckinghamResearch):

Goodmorning.MaybewecouldtalkalittlebitaboutCCAR.I'vehadsomeinvestorsexpressconcernabouttheFed'sinclusionofnegativerates.Haveyoufoundthattobedifficultintermsofmodeling?Andoverall,Iguessgiventheimprovement--ontheflipside,giventheimprovementinyourcapitalratios,doyouthinkthatthere's--youshouldbeabletoseesomeimprovementorincreaseinCCARinto--nowthatyou'velookedatitforafewmonths?

MarianneLake (CFO):

Okay.SoobviouslyI'mnotgoingtobeabletotalkspecificallyaboutourplansthatwe'vesubmittedbecausewejustsubmittedthemandwehaven'thadanyfeedbackandtheyareconfidential,butIwill




tellyouthatobviouslynegativerates,itwasthefirsttimethishasbeeninthescenario.

It'snotthefirsttimewehavethoughtaboutit,anditisnotthefirsttimethatwe'veexperiencedit,andatleastinotherpartsoftheworldinEurope,Japanandelsewhere.Sowehavehadstrategicdiscussions,weunderstandbroadlywhatwethinkwewoulddoandwhatwouldhappentoourbalancesheet.Wecanmodelitandwecaneffectit.Sointhatsense,nowImeanobviously,we'llcontinuetoworkthatprocessthroughifitcontinuestobeafeatureofCCAR.

You'reabsolutelyrightthatyearoveryearourlaunchpointisahigherlevelofcapitalandourbalancesheetandourcreditqualitycontinuestoimprove,andourrisklevelshavenotmateriallychanged.Soasageneralmatterwewouldhope,andwe'vealsoadded[press].

Soasageneralmatterwewouldhopetohaveincrementalcapacitybutnothinginconsistentwithwhatwehavesaidexternally,whichisthattheBoardwouldlikeovertimetocontinuetohavethecapacitytopotentiallyincreasedividendsandthatwewouldlikelythecapacityto,withinareasonablerange,repurchaseourstock.Andthat'stheframeworkthatwehaveusedtosubmitourplan.

Operator :

YournextquestionisfromthelineofSteveChubakwithNomura.

StevenChubak(Analyst-NomuraSecuritiesCo.,Ltd.):

Hi,goodmorning.

MarianneLake (CFO):

Goodmorning.


SoMarianne,withintheAssetManagementsegmentyounotedthattherevenuesweredowninlinewiththemarket.Butifweisolatethefeeincomecomponentstoexcludesomeofthegainsyouhighlightedaswellasotherincome,therevenuesdeclinedbydoubledigitbothquarteronquarterandyearonyear,whichisabitmorepronouncedthanwhatwehadexpected.

AndIwashopingyoucouldspeaktomaybesomeofthefactorsoutsideofthemarketdeclinesthatmaybeimpactingrevenuesinthatbusiness,specificallywhatyou'reseeingintermsofretailengagementandmaybewhetheryou'veseenimprovementinsentimentnowthatthemarketshaverecoveredprettynicelyofftheFebruarytrough?

MarianneLake (CFO):

SoifIdothe--Idon'twanttousethewordcall,ifIadjustforthefullimpactoftheassetsalethatwasinthequarternotjustthe$150millioninthisquarterbutalsotherevenuesthatwerepresentwithrespecttothatinthefirstquarteroflastyear,myadjustedrevenuesaredownabout4%toamarketthatonaverage,whileIappreciatethatitrecoveredinMarch,butthemarketonaverageforthequarterwasdownaround5%.Sowewouldcharacterizethatasgenerallyinline.

Andsimilarlyifyoudoadjustmentsonthebalancesheetside,theAssetsUnderManagementandclientassets.SocertainlyyoucanspeaktoJasonafterwardsandreconcileournumberssothatwe'renotconfusingeachother.

I'msorrywhatwasthesecondpartofyourquestion?





Theretailengagement.

MarianneLake (CFO):

Retailengagement.SoretailengagementpickedupinMarch,asyouwouldexpect.Wesawpositiveflows.Weobviouslysawnegativeflowsforthequarterinequities,that'snotsurprising.Andthenwesawpositiveflows,particularlyinmulti-asset.Sowedidseesomereasonablyhealthierretailflowsinthequarter,butprimarilyinMarch,andsomewereoffsetbyoutflowsinequities.


Excellent.Thankyou.

MarianneLake (CFO):

Thankyou.

Operator :

YournextquestionisfromthelineofBrennanHawkenwithUBS.

BrennanHawken (Analyst-UBS):

Goodmorning,Marianne.QuickquestiononNIMhere.CanyoutalkabouthowsustainableyouthinktheNIMexpansionmightbeandwhetherornotthere'sanythingone-timeinthenumbersweshouldadjustfor?

MarianneLake (CFO):

Asluckwouldhaveit,inthisquarterthereisnothingone-timethatyouneedtoadjustfor.Lastquarterthereobviouslywas.SowewouldexpectthatourNIMshouldbestabletoimprovingoverthecourseof2016.Theextenttowhichitwouldimprove,obviouslydependinguponwhathappensintermofgradualrisingrates.


Okay,great.Thankyou.Andthenontheenergyexposuresintheloanbook,canyoucommentonmaybewhetherornotsomeoftheequitycapitalraisingthatwe'veseenintheenergyspacehasperhapstakensomeofthetailriskawayfromthatbook?Andthenisitpossiblealsotoupdateusonthecriticizedexposuresinoilandgas?Ibelieveinthe10Kitwassomewherearound$4.5billionatyearend?

MarianneLake (CFO):

Okay.Sowithrespecttoequitycapitalraises,Imeanobviouslytoadegreethatwouldbetrue,althoughthosecompaniesthatwereabletoaccesstheequitymarketsarenotthosethatareexperiencingthemoststress.Soobviouslyallotherthingsequalit'sapositive,butI'mnotnecessarilythinkingit'sgoingtotakesignificantsteamorthepressureoff.WithrespecttosecondpartofyourquestionI'msosorry?


TheC&C.

MarianneLake (CFO):




Jasonwillgetbacktoyou.I'msorry,Idon'thavetheanswer.


Noproblem.Thankssomuch.

Operator :

EricWasserstromwithGuggenheimSecurities.

EricWasserstrom(Analyst-Guggenheim):

Thanks.Marianne,canyoucommentonwhatcompetitiveconditionsarelikeinthecreditcardmarketcurrentlyandifthere'sbeenanychangearoundtheintensityofcompetitionforco-brandsandawards?AndIthinkJamieyoualludedtothelaunchofanewproduct.I'dlovetogetanupdateonyourinitialthoughtsabouthowit'sgoing.

MarianneLake (CFO):

Okay.Sono,nothinghaschangedinthecardcompetitivelandscape,includinginco-brands.It'sstillverycompetitive,albeitthatwesawalittlebitofdecelerationinsalesgrowthyearoveryearlastyearandwe'veseenthattrendbackpositivelyforusthisyear.

Sowefeelgoodaboutthatandwe'vebeenincreasingourmarketingspendandasJamiedidsay,welaunchedFreedomUnlimitedquiterecentlyandithasbeenquiterecent,butearlyfeedbackisverypositive.WithrespecttoFreedomwitha50%increasesinactivityandinterest,there'sgoingtobeadegreeofcannibalizationofotherproducts,wewouldexpectthat.Butsofar,sogood.Andwejustliketogiveourcustomerschoices.Anditsbeenfavorablyreceived.

EricWasserstrom(Analyst-Guggenheim):

Great,thankyou.Andonthe--autohasbeenabigareaoffocus,andyoutouchedonitcertainlyduringyourInvestorDay.Butonthemid-FICOrangeisthereanythinggoingon,onamacrolevel,thatwouldsuggestsomesignificantlikelihoodofcreditqualitydeterioration?

MarianneLake (CFO):

SotheManheimisdownslightly.Wecontinuetobelieveandexpectthatitwillcontinuetotrenddownwardsandso[alsoseeing]itwillcontinuetotrendupwards,justgivenwhereitistodayandalsotheamountofleasedinventorythatwillultimatelygointotheusedcarspaceoverthecourseofthenextseveralyears.Howeverthefundamentalsarestillgood,themarketisstillsolid.

Wehavepulledbackonsubprimeawhileago.It'sasmallpartofouroriginations.Sootherthanseeingsomedelinquenciestickup,asexpected,insomeoftheenergy-relatedstatesbutnotverysignificantly,there'snothingatthemomentthat'sontheburner.


Forus.Idothinkyou'llseeissuesinthemarket.

Operator :

PaulMillerwithFBR.

PaulMiller (Analyst-FBR):




Thankyouverymuch.InthemortgagebankingsegmentyouwrotedowntheMSRbyalmostaslike$0.9billion.Wasthereanyhedginggains?Icouldn'tfindtheminthedocuments,anyhedginggainstooffsetthat?

MarianneLake (CFO):

SotheMSRP&Lforthequarterwasapositive$124million,andtheyareacombinationofBAUandmaterialfactorsthataddeduptothat,andprobablyabouthalfofitwasacombinationofhedgeperformanceandthemarket.

PaulMiller (Analyst-FBR):

Andtheother.Andthenonthemortgagebankingside,haveyoubeenseeing--yousawtheMBAtodayreleasethatthepurchaseapplicationsarethehighsince2010orsomethinginthatorder.AreyouseeingtheSpringbuyingseason,especiallyonthepurchaseside,startingtopickup?

MarianneLake (CFO):

Yes,yes.Sopurchaseapplicationsareup30%,Ithink,yearonyear.Wecontinuetobepositivemomentuminthatspace,andweareseeingSpringactivitycontinuetoberobust,asexpected.

Operator :

KenUsdinwithJefferies.

KenUsdin (Analyst-Jefferies):

Hi,thanks.Goodmorning.Justtwoquickfollow-upsonthefeeside.Understandingthatmarketdependenceisbuiltintotheoutlooktogetthe$50billionoffeesfortheyear.I'mjustwondering,havewenowrun-ratedthecombinationofthebusinessrepositioning,thecardrevenuerunrate,andso--andthetoughnessofthisfirstquarter?Iguessthequestionisreally,whatarethethingsthatyouexpecttogetbetterfromthefirstquarteronthefeesideupsideofnormalseasonality?

MarianneLake (CFO):

Okay.Sointermsofrunrated,thetwobiggestdriversofthewalkthatwegaveatInvestorDaywerethecardco-brandrenegotiationsandthemortgagebankingnon-interestrevenue.Iwouldjustpointoutthatwhileweareseeingsomeoftheincrementalimpactofcardrenegotiation,thatwillplayoutoverthecourseoftheyear.Butonthepositiveside--andonthepositivesidemortgagebanking,justgivenwhererateswereoverthequarter,hasbeenpositiverelativetocentralexpectationswhenwedidInvestorDay.Sothosetwothingsareworthnoting.

Butweareseeingreallyquitegooddriversinnon-interestrevenuedriversacrosstheconsumerspacegenerally,indebitinvestments,infeesandaccounts,inthesortof4%,5%range,andsometimesintherangehigherthanthat.Sowearecontinuingtoseeexactlywhatweexpected,whichisthemajorityofourbusinesseswillcontinuetodelivermid-tohighsingledigitgrowth,andtheyseemsettodothat.

Thecardimpactwillbewhatitwillbe,andmortgageNIIwillendupdownyearoveryear,whetherit's$700millionor$600millionwe'llsee.Andsothebiggestdriverofwhattheendresultwillbeisgoingtobemarkets.

KenUsdin (Analyst-Jefferies):

Yes,okay.AndIknowit'sasmallerlineitem,butjustnoticingintheguideforsecurityservicestobeflatfromhere,there'salwayssomeseasonalityintheretoo.ButI'mjustwonderingifyoucouldjustgivea




commentaboutwhatyou'reseeinginthatbusinessandarethereanyincrementalchallengesthatleaveyouwithaflatoutlook?

MarianneLake (CFO):

Yes.Look,thebusinessisnotimmunetomarketseither.Soobviouslyasyoulookattheperformanceforthequarterourfeeshavebeenimpactedbylowassetlevels.Andwealsohavegotthetailimpactofsomebusinesssimplification,justgettingthetailofthatoutoftheperformance.Wearealsoseeingthebenefitofhigherrates.

SoI'dcharacterizethemajorityofthosenegativesonlowerfeesandsimplificationasbeingbehindus.Sothetrajectory,ifratescontinuetorise,wouldbeupwards.Butthat'swhywesaidmarketdependence.Wewerenotexpectingourperformancetogodownfromhere.Flattoup,butdependingonrates.

Operator :

ChristopherWheelerwithAtlanticEquities.

ChristopherWheeler (Analyst-AtlanticEquities):

Yes,goodmorning.Thequestionisalreadyonthecompensationratio.You'veobviouslydoneafantasticjobonthecostbase.Butoneoftheissuesthatstrikesmeisclearlywiththereducedrevenues,particularlyinthecapitalmarketsbusiness.Yourcompdownabout$400millioninthe--comparedtothefirstquarteroflastyear.

Obviouslywhatwe'veexperiencedgenerallyisyouholdingtheratiosteadyforthesecondorthirdquarterandthentoolingupwithalowerratiointhefourthquarter.SoI'mlookingattheestimateswehaveforrevenuesonawell-knownproviderofdata.We'vegotprettyflatrevenuesbeingforecastbypeoplelikeme,whetherwe'rerightorwrong.

Shouldwebethinkingabouthowyou'regoingtobuildabonuspoolonthe--againstthisbackgroundandwhetherweshouldbelookingatthinking--orthinkingthatyou'regoingtohaveto[retain]thecompratioataprettysimilarlevelthroughtheyear,ifindeedwedon'tseeanyuptickinrevenuesandtheyremainreasonablyflat?

MarianneLake (CFO):

So--


I'djustuse32%.

MarianneLake (CFO):

We'vegivenarange30%to35%.We'vebeenatthelowerendofthatrange.Whenweperformedverystronglywecoulddriftup.Ifweperformlessstrongly,wepayforperformanceandIthinkwedidagoodjobinthefirstquarter.


Wehaveamongthelowestratio.


Okay,thanks.





We'repayingourpeopleproperlyandwell.

MarianneLake (CFO):

Andconsistently.


ButI'mnot[be]talkingaboutthequalityoftheratio.I'minterestedin(inaudible)becauseclearlywhatwe'reseeingaremostlythis,andindeedinEurope,isthedifficultyofbuildingapoolwhenyouhavebeensousedtohavingaverystrongfirstquarter,obviouslymakesitquitedifficult.

Maybejustasafollow-upwhichisvaguelyrelated,couldIjustask,youtalkedearlieraboutwherethere'squestionaboutcompetitionandpickingupmarketshare,whichindeedyouclearlyhave.ButoneofthequestionsIperhapsjustwantedtoaskis,Iknowthatyou'vebeenpushinghardontheseequities,cashequitiesinparticular.

Mysenseisthatactuallyalotoftheplayers,includingtheEuropeanswhoaredoingmassivelystructural,areputtingmorecapitalintoequitiesonthebackofthefactthatit'salowercapitalbusinessandthereforetheythinktheycangethigherreturns.Andjustmaybethat'swhy[Nomura]pulledoutofEuropeanequitiesyesterday.Whatareyouseeingintheequityspaceinparticular,becauseI'mnotseeingasmuchsortofwithdrawalaswehavedoneinthefixedspace?

MarianneLake (CFO):

That'sveryfair.Andwe'vetalkedaboutitprettyoften,thatpeoplewhentheyrestructure,theyrestructureoutofthethingsthattheywerelessstrongat,lesscomfortableat,andinmanycasestheydoubledownwheretheycontinuetohavestrength.Andweareseeingthat.Andthat'swhatwemeanwhenwesaythere'salwayssomeonelefttofiercelycompeteineverypartofourbusiness,andequitiesisnoexception.It'snottheposterchildforthat.

However,theequitiesbusinesshereatJPMorgan,we'verebuiltourtechnologyplatform.Wehaverebuilttheprime--we'vebuilttheprimebrokerage,internationalcapabilities.Thetwoofthoseworkhandinglove.Andwehaveeveryopportunitytocontinuetogainshareandwin.


Andwe'vedoneverywellgainingshareinelectronictradingandtheprimebrokerhasbeenbuiltinAsiaandEuropewherewehadweaknesses.Soyou'veseenoursharegoupandweintendtowinit.Wehavetopnotchresearch,whichobviouslyhelpsdrivetheequitybusinesstoo.

Operator :

GerardCassidywithRBC.


Thankyou.Marianne,justasafollow-upIjustwanttomakesureIunderstoodyoucorrectly.Onthe$500millionofincrementalreservebuildforenergyfortheremainderoftheyear,that'sforthetotalofthefollowingninemonthsisthatcorrect?

MarianneLake (CFO):

That'scorrect.





Imean,giveortake.

MarianneLake (CFO):

Giveortake,andthat'sright.Obviousarethere'sahighdegreeofvariabilityaroundit.Ifwehadcompleteabilitytounderstanditwewouldleanintothosereserves.Butit'snamespecificandsituationspecific,itwouldevolveovertime.Wejustwantedtogiveyouanindicationthatthere'slikelytobesomemorecosts.Itcouldbeplusorminusquiteabitfromthatbecausewe'vehadtomakestressassumptionsinthere.But$500millionforninemonths,yes.


Okay,thankyou.AndthenIknowtherewastheenergyspecificsharednationalcreditexamthatthefirstquarterresultsfortheindustrywillreflectsimilartoyourown.Butwealsohavethetraditionalsharednationalcreditexamthat'sbeendonefor20-plusyears.Anycoloronhowthat'sgoing,thenormalsharednationalcreditexam?

MarianneLake (CFO):

Yes.NoGerard,I'mnotgoingtomakeanycommentsaboutSNC,excepttosaythateverythingthatweknowandawareofisreflectedinourresults.

Operator :

JohnMcDonaldwithBernstein.


Hi.Twoquickfollow-ups,Marianne.Gettingacouplequestionsaboutjustthemathontheenergyreserveratio.Ithinkyoumentioned6.3%.Justtobeclear,isthatthereserveforloans,over-fundedloans,andthenthere'sanadditionalreserveforunfundedcommitments?

MarianneLake (CFO):

Correct.Yes.


Okay,gotit.Andthendidyoutellusthesizeofyourenergycommitmentsandwhethertheychangedatallthisquarter?

MarianneLake (CFO):

Theychangedbyacoupleofbilliondollarsonasinglenamethatwelike,up.

Operator :

Andtherearenofurtherquestionsatthistime.

MarianneLake (CFO):

Thanksverymuch.





Wait.Beforeyouallgo.WeshouldsaygoodbyetoSarahYoungwoodwhogoesontoabiggerandbrighterjobasCFOoftheConsumerBank,andshedidanoutstandingjob.Andshe'ssucceededbyJason,who'sgoingtosayhirightnow.

JasonScott (InvestorRelations):

Hello,hi.


Socongratulations.Youguyshavedoneanoutstandingjob.

SarahYoungwood (ConsumerBanking):

Thankyou.

MarianneLake (CFO):

Thankyou,everyone.Inearlyforgot.

Operator :

Thankyouforjoiningtoday'sconferencecall.

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