JP Morgan 1Q16 Earnings Call Notes

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Marianne Lake

Will see continued reserve builds this year

“While oil prices have improved somewhat in March, they do remain near historically low levels and the market is not expecting the recovery to be strong. Further natural gas, which is a meaningful portion of our portfolio, does remain depressed. We don’t feel that current prices are sufficient to spur a meaningful restart of production and many of the cost reductions and conservation actions that have been taken are not easily and quickly reversed. Therefore, the impact of oil prices is somewhat asymmetric on credit costs. Reserves are name-specific. They’re based on downgrades reflecting the actual financial condition and liquidity position of borrowers. As such, we likely will see some incremental reserve build for the rest of the year, but they will be increasingly situation specific, and our ability to estimate them will improve over time.”

Markets are still quite illiquid in certain parts

“With respect to the second quarter, the relative stability we saw in March has continued into April so far. However, it’s also the case that markets are still quite illiquid in certain parts and will be prone to somewhat abrupt corrections. So while investors have started to deploy cash and capital markets are wide open for well-understood names, there is still remaining caution for more challenging issuers. Although there has been noise in the data globally, there is an emerging belief that it’s fundamentally better but we need to continue to see no downside surprises. And as such, we remain somewhat cautious about the second quarter.”

Commercial loan space is competitive but not irrational

“The C&I space is very competitive. Commercial real estate is also competitive, but it’s not irrational and we aren’t seeing, or at least we are not seeing very irrational proposals on structure and risk. ”

We are still positioned for rising rates

“We are positioned for rising rates, as you know, and have been, but we also understand what the performance of the company looks like if there are no more rate rises or when we stress our portfolios in lots of different ways. So we are positioned for rising rates. It is our central case that that will happen. The market is pricing less than one hike in this year. The Fed dots say two. Our research says two. We’re just going to have to wait and see.”

Expecting credit to remain favorable

“it is our expectation across both the Consumer and the Wholesale businesses outside of energy that the credit trends will remain favorable, credit will be relatively benign. We’re not expecting to see material increases except for the fact that we’re growing our loan portfolios. So when we did Investor Day we talked about charge-offs this year will go up year on year and they’ll go up to potentially as high as $4.75 billion and about half of that would be on the back of the fact that we’re growing our portfolios”