JP Morgan 1Q14 Earnings Call Note

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

A clean quarter!

“Of note, you will see that we didn’t disclose any significant items this quarter on the front page of the presentation. There were items in the quarter that we consider non-core or non-recurring, each individually didn’t rise to the level of being disclosed on the front page and importantly, the net of all such items across businesses was not significant to the firm’s reported results.”

“To be clear, this means that our reported net income of $5.3 billion is very close to being a core performance number, which we consider a solid result given the challenging environment for those markets and mortgage.”

Optimistic that improved trends will continue

“We’re also seeing improved banking productivity. So although some challenges remain in the environment, pipeline is strong and at the highest levels since 2012 and utilization rates have stabilized. So we are cautiously optimistic that improved lending trends will continue in 2014.”

Mortgage production -68% y/y weather impact and tight inventory

“We’re seeing tight housing inventory in some markets and the purchase market was affected adversely by the severe weather. This led to a challenging quarter to the mortgage business with production of $17 billion, down 27% quarter-over-quarter and 68% over last year.”

Released some repurchase reserves due to improvement in actual cure rates

“Mortgage production also benefited from a repurchase reserve release. Repurchases for the quarter was positive $128 million principally driven by a significant improvement in actual and projected cure rates for the remaining repurchase risks.”

Credit environment remains benign

“The credit environment continues to be benign and we believe our exposure to Russia is manageable. We are totally reserved based on what we know today and we are closely monitoring the situation.”

Nice to put legal expenses behind us

“And as I said earlier, no significant legal expense to report for the quarter. It obviously is good to have a quarter with such a small number and perhaps puts such large issues behind us. However, I want to remind you that we still expect legal expenses to be lumpy quarter-over-quarter for the next couple of years as we work through remaining issues.”

Haven’t grown credit because staying disciplined

“In C&I, you’re right, the industry was up slightly, we were not. It’s a continuation of the things we talked about which is a combination of current selection of being very disciplined on credit, so not chasing growth at the cost of liberal credit structures and overly aggressive pricing, and also the fact that we continue to see some of our criticized and classified loans be refinanced away from us. So, we are just going to hold the line on discipline. We are seeing the ongoing aggressive investing environment on both credit terms and pricing, and we will do every rational and sensible deal we can do but we are not going to chase growth at the expense of discipline.”

Not seeing impact on credit card spending from weather

“So the sales volume obviously seasonally goes down quarter-over-quarter. I don’t think that we have perceived there’s been a significant impact from weather on card sales in the first quarter. For us, our sales were up 10% year-over-year, so pretty strong. No, I wouldn’t attribute anything to the weather.”

Expecting mortgages to be negative y/y in 2Q even though positive seasonality

“I told you that we are expecting second quarter to be negative. You are going to have higher revenues because seasonally you have higher volumes, but obviously its market depends.”

Hopeful that mortage markets get to 1 Trillion for the year

“we will be hopeful that the market would be above the $1 trillion for the full year, maybe not as high as $1.2 trillion”

Sources of tightness in the mortgage market

“if you are jumbo you get loan, if you are GSE you get loans, but almost all the other stuff in between, anything with any hereon it like you had a credit problem, if you are earning self-report income. So a lot of people have overlaid, it being tougher than it required the FHA, GSE or the own rules because the reps and warranties, et cetera, and I don’t know when that’s going to go away. It’s not getting worse. It’s just kind of sitting there and probably holding back a little bit the purchase market.”

Litigation risk has not affected our standing with customers

“Our market shares are up in credit card, consumer, deposits, that sounds very good. So I would completely separate out this litigation stuff.”

“Clients go with their feet and they seem to be coming to our branches and our bankers.”

Trading business will grow over time, this isn’t secular decline

“there are certain things which were secular. People gotten out of — I’m not talking about as per se, but people gotten out of or reduced dramatically credit hybrids, certain exotic derivatives, set cetera. I think there maybe additional secular change but it’s not the whole business.”

“I don’t look at the $5 billion in markets revenue and cry in my soup, I think it’s pretty good business. And we’ve been very consistent in performance. The numbers driven by technology, research, scales, ideas, of course, order flows and last year, we didn’t even have one trading day loss, which I consider truly spectacular.”

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