JP Morgan 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“we appreciate that the litigation expense of $9.2 billion is much more significant than you’ve been expecting. It’s much more significant that we expected until very recently.

The reality is that over the last few weeks, the environment’s become highly charged and very volatile. Things have been very fluid, and the situation escalated to the point where we’re facing very large premiums and penalties, the level of which has gone far beyond what we reasonably expected.”

“we didn’t, even a few weeks ago, reasonably expect things to have escalated to where they are now”

“mortgage banking net income was around $700 million, with an ROE of 14%. And the short story here is significantly lower production income, offsetting higher reserve releases.”

“In card…we saw a slight increase in average outstandings quarter on quarter…The net chargeoff rate has reached historic lows at 2.86%”

“The commercial real estate business continues to grow strongly…Multifamily fundamentals are very strong, and traditional commercial real estate is building momentum”

“However, in C&I, demand remains soft and competitive pressures high, the combination of which has continued to drive relatively flat C&I loans in the quarter”

“As expected, our firm-wide NIM, core NIM, and NII were relatively flat this quarter, and given market rates, we expect relatively flat NIM and NII in the near term. The firm is positioned to benefit from a higher rate environment, and we are starting to see that in our results.”

“we’re de-risking. We’re trying to meet new standards that we’ve set for ourselves and the regulators want us to set to reduce risk to our company, particularly on anti-money laundering.”

“500 people working on CCAR, 500 people working on resolution and recovery. We just turned in a, believe it or not, 100,000-page plan. We’ve added 5,000 people. And so this is a permanent investment. ”

“it’s important to point out that we do have to adjust to a new global financial architecture. It’s not just the [unintelligible], it’s really rules around the world.”

“It’s a board-level issue, and we want a fair and reasonable settlement if we can. And that’s all we can really say about it. It involves multiple agencies. So you can imagine the complexity.”

“We should point out when we do CCAR next year, effectively – it’s not the same for every quarter – it will be based on Basel III, which is a far more volatile number, because RWA moves around under stress with the Basel III as opposed to under Basel I.”

“We would love to reduce the uncertainty around this for ourselves and for you, but it’s very, very hard to do. So the way I look at it is it will probably be elevated the next year or two, not like we just went through, but it will necessarily be lumpy. So as we settle, as we negotiate, as we figure out – remember there are multiple agencies involved in every case now. So you saw in the CIO thing, that we paid four and maybe eventually five penalties, which we really did not expect. And so we just have to deal with it and deal with the reality as it is. It will abate over time, and the underlying power of the company you can see. I wish I could give you a better answer, but one day it won’t be a big number.”

“Obviously that’s true, Mike, because this is very painful for the company. So Bear Sterns, we did do quickly. We didn’t anticipate that we’d be paying anything for prior losses for Bear Sterns. I tell people, even at Bear Sterns, remember I think it was $80 billion of bonds were made good, which would have failed that day had they gone bankrupt.

And we did ask. We weren’t completely stupid. We did ask the SEC and only the SEC for would they please agree not to take enforcement actions against JPMorgan for things that happened at Bear, which of course they couldn’t do outright, but they did say they’d take in consideration the circumstances in which the transaction took place.

And in Wamu, we don’t believe we’re responsible, by contract. But that does not mean that people can’t come after you. So that was a little bit of a lesson learned, too.”

“I mean, obviously it’s very painful, for me, personally, because I agree with you, I don’t like losing money, obviously, for my shareholders. We put up, and Marianne’s been very clear, these are very tough numbers to estimate. It’s a heightened environment, multiple agencies are involved on often the same thing. We’re just trying to improve and get better and move on. Remember, these reserves relate to things that took place over multiple years. So it isn’t a one-year event. And we still didn’t lose money during the crisis.”

“CCAR will be, in our opinion, also another binding constraint over time.”

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