JP Morgan 4Q15 Earnings Call Notes

JPMorgan Chase’s (JPM) CEO Jamie Dimon on Q4 2015 Results

Jamie Dimon

We wish we could reserve more but the accounting rules dictate what you can and can’t do

“we try to be very conservative always and so we’re not trying to put up as little as possible. You know me, I’d put up more if I could but accounting rules dictate what you can do”

We’re not worried about the big oil companies, we’re more worried about the small ones

“We’re not worried about the big oil companies. These are mostly the smaller ones that you’re talking about these reserve increases on.”

Remember these are asset backed loans

“Remember, these are asset backed loans. A bankruptcy doesn’t necessarily mean your loan is bad; have to be a little bit careful.”

Banks have a responsibility to support clients in good times and bad

“There is also, Mike a philosophical thing a bank is supposed to be there for clients in good times and bad times. So it’s not a trading market where you try to support clients…If banks just completely pull out of markets every time something gets volatile and scary, you’ll be sinking companies left and right.”

Obviously credit is likely to get worse, we’re not forecasting a recession though

“you point out that credit card, Commercial Bank, middle market, large Corporate credit is as good as it’s ever been. Obviously, it’s going to get a little bit worse. I wouldn’t call it a cycle per se. If you have a recession you will see a normal cyclical increase in all those losses. We’re not forecasting a recession. We think the U.S. economy looks pretty good at this point.”

There are big winners and losers. It’s not the beginning of something bad

“The U.S. economy has been chugging along at 2% to 2.5% growth for better part of five years now. In the last two years it has created 5 million jobs. And when you look — if you look at the actual household formation, car sales, wage, people working, it still looks okay. Corporate credit is quite good. Small business formation, it’s not back to where it was but it’s quite good. Household formation is going up. So, obviously, market turmoil we all look at it every day but I’m not sure most of the 143 million Americans look at it that much who have jobs and you have a big change in the world out there. People are getting adjusted to China slowing down. When you have commodity prices go down like that there are big winners and losers. The oil companies are the losers. Consumers are the benefit. Brazil gets hurt. India benefits. South Korea benefits. Japan benefits. And those kind of terribly worse and hopefully this will all settle down. It’s not the beginning of something really bad.”

Haven’t seen bank loans repricing as credit market spreads have widened

“We’ve seen no real repricing in loans on the balance sheet. You have seen a little bit of it, people are getting other revenues to make up for their credit exposure.”

Marianne Lake

Oil prices would need to stay here for an extended period for reserve builds to be significant

“And has the outlook for oil has weakened, we would expect to see some additional reserve build in 2016 but prices would need to remain at this level for an extended period for them to be significant.”

Charge offs slightly higher in auto, but still below long term expectations

“on credit, in auto net charge-offs were 50 basis points and while higher, they were still below our long-term expectations and in card, the net charge-off rate was 242 basis points for the quarter, 251 for the year, and given our underwriting discipline, client selection and the improving economy we expect net charge-offs to stay at these levels in 2016.”

Debt underwriting fees down 43% y/y

“debt underwriting fees were down 43% from a record last year where we saw an unprecedented number of large fee events.”

Pipeline for M&A coming into ’16 was good, but volatility can dampen confidence some

“I would say that the pipeline coming into 2016 in M&A was good, solid, up in fact. Obviously, volatility can dampen the confidence of Boards and CEOs. Dialogs are pretty active and we think the types of deals that we’ll see in 2016 will look different. But I think in the first couple of weeks it’s not being particularly strong and we do need to see some of the stability come back I think for us to really see our conversions start to pick up.”

If oil stayed here for a long time reserve builds might be $750m

“we said last quarter, if oil reached $30 a barrel, here we are and stayed there for call it 18 months, you could expect to see reserve builds of up to $750 million and that assessment hasn’t fundamentally changed. So it is not the current market expectation that oil will flat line. It is the expectation right now that there will be a modest recovery. Based upon that we would expect to take some additional reserves but for them to be more modest, less significant.”

Not seeing down grades in other sectors besides energy, metals and mining

“energy, metals and mining, we’re watching very closely industries that could have knock on effects like industrials and transportation but we’re not seeing anything broadly in our portfolio right now. We’re just watching very closely, which is why — now, obviously, you can take our reserve build number and you can say it’s almost essentially all made up of oil and gas and metals and mining and behind the scenes we’ve had upgrades and down grades of a number of other different companies across sectors but nothing particularly thematic yet but we’re watching.”