JP Morgan 4Q13 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.

If you adjust out significant items, JPM trading for about 10x

“reported net income of nearly $18 billion, or $4.35 a share, on revenue of approximately $100 billion, and a return on tangible common equity reported of 11%. Again, if you adjusted for all reported significant items in the year, we would have earned net income of over $23 billion, $5.70 a share, and a return on tangible common equity of 15%.”

No material impact from Volcker rule

“we believe that the firm will be materially compliant across our businesses with the rule. We have work to do to get there, but we don’t expect any material impact to our results.”

Expansion in California/Florida complete

“On our retail branch network, we’ve completed building out our key expansion markets, including California and Florida, and have reached leadership positions in each of our key markets.”

mortgage revenue down 15%

“[mortgage] Revenues in the quarter were down 15% on lower application volumes, down 23%, and from a mix perspective, nearly 60% of loans were purchased loans this quarter, up from a little over 20% the same time last year.”

I don’t totally understand this FVA stuff, but important to note/research further

“Turning to page 11, and coming back to the FVA adjustment, we’re recording a $1.5 billion loss as a result of implementing a funding valuation, or an FVA, framework for our OTC derivatives and structured notes this quarter, reflecting and industry migration towards incorporating the lifetime cost or benefit of unsecured funding into valuations.”

“In very simple terms, you can think of FVA, which represents a funding spread over LIBOR, as having the effect of present valuing market funding costs into the value of derivative receivables today. These funding costs otherwise would have affected net income over the life of the derivatives.”

“Going forward, FVA will be incorporated into day one valuation of derivatives and implementing FVA should have the effect of significantly reducing our sensitivity to funding spreads going forward. We’ll continue to refine FVA as the framework matures within the industry.”

tokens coming to credit card purchases

“I think you’re going to see both. You’re going to see chip and PIN in all cards, and then a lot of online type of transactions you’re going to see tokenization. They both are very very good technologies to protect consumers and companies from fraud.”

A huge amount of liquidity

“If you look at the balance sheet today, we have almost $350 billion at central banks, mostly the Fed, another $350 billion of very high quality investment securities. And those two things combined equal our loans of $700 billion. So the company is very, very liquid.”

optimistic about loan growth

“We didn’t use the word cautiously optimistic, we’re using the word optimistic, because we are actually optimistic. You have a U.S. economy starting to grow. You will see loan growth and volume growth across all of these businesses. We are actually optimistic about the U.S. economy in particular.”

Investment Bank is hardest business to forecast in short run

“the hardest business to get a handle on is CIB in terms of the short run. But what we see is investors still have to buy and sell securities. Corporations have ECM and DCM. And you can predict the rolloff, etc. The backlogs are pretty good. You saw a tremendous amount of IPOs in 2013. You saw a lot of debt financings. You’ve already seen a bunch of M&A earlier this year.”

“we feel very good about the business, and one of these days, it’s going to boom. And you can guess just like I can guess when that might happen, but it will happen one day.”

Q: If Fed stops paying IOER does that change how much you keep there?

“Sure. I mean, you know, change either that, or how you reimburse clients for deposits, and obviously it will go into how you price and run your business. We’re not expecting that to happen, but obviously we would do that. And you have other alternatives. You might invest some of that money elsewhere”

“it’s also important to point out that a large portion of that $350 billion are deposits or cash that we would consider to be client nonoperational deposits. And as a result, we don’t give ourselves any liquidity value for those.”

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