http:\/\/investor.shareholder.com\/jpmorganchase\/presentations.cfm<\/a> <\/strong><\/p>\nOn investor sentiment<\/u><\/strong><\/p>\n\u201cBanks have clouds them: litigation, foreclosure, AGs, G-SIFI charges, SIFI charges, liquidity ratios. Some of the stuff is global. Those are pretty big clouds. There\u2019s no arguing with that. So if you\u2019re an investor, you\u2019re going to look at it and say there is a lot of uncertainty. Some of those may affect products. They affect pricing. You\u2019ve got the Durbin amendment. It\u2019s possible some of it will affect the underlying model. I don\u2019t think it\u2019s going to affect the underlying model<\/strong>. I think that when we wake up in the morning two years from now, consumers, small business, middle market will still be going to banks and large corporate for ECM, DCM, advice, investments, buying securities. Products and pricing will change. Levers will change. Certain things will change. <\/strong><\/em><\/p>\nThese clouds \u2013 so it is there. I understand that. If you are an investor, it\u2019s kind of bad. The clouds will lift. You know exactly what the final derivatives are, the Durbin rule or the G-SIFI rule; you know if there are changes in liquidity ratios. By the time all those clouds lift, all things being equal, you\u2019ll have banks that make a lot of money and the stocks will be a lot higher.<\/strong><\/em><\/p>\nAnd so you as investors have got to decide when am I going to buy?… <\/em>And we told the world we\u2019re going to buy back $3 billion at a minimum because that\u2019s we issue, obviously we\u2019re buying back at a much faster pace than that<\/strong>.\u201d<\/em><\/p>\nOn the potential for sector consolidation<\/u><\/strong><\/p>\n\u201cI do think there will be M&A in the United States. There are still too many banks. There\u2019s still too much capacity. There\u2019s still too many \u2013 so there will be more, not the big banks, but the next size down, buying other companies; MOEs, small banks within regions consolidating. <\/strong>That\u2019s\u00a0<\/em>going to be going on for about 20 years. And you\u2019re going to have foreign banks buying here\u2026\u00a0 But I think you\u2019re going to see some try to get into other forms of business in the United States. And they have huge market caps now, so they can afford to buy companies.\u201d<\/em><\/p>\nOn the operating environment<\/u><\/strong><\/p>\n\u201c\u2026 the underlying dynamics are pretty good, pretty broad based, and getting stronger, not weaker<\/strong>. Corporate America is less leveraged than in almost 50 years, more cash, still great companies, good profits. Middle market companies and small business, credit is getting better. That\u2019s existing loans. Credit coming in the door is very good. Charge-offs are going down. Loans are going up<\/strong>. The consumer is far stronger than it was two or three years ago. They\u2019re spending the way they were spending three years ago, but they\u2019re saving 5% now versus dis-saving 5%. And wage growth means that it\u2019s possible that it\u2019s sustainable. And we see credit card spending as being sustainable.<\/em><\/p>\nThe rest of the world is still growing. Europe is muddling through its sovereign crisis. China is still growing. India is still growing. There are tons of what I consider unused monetary policy out there and excess cash. And so look, I know the sentiment. I know the latest set of numbers. I\u2019m not sure that that\u2019s going to stop the economy from growing.\u201d<\/em><\/p>\nOn housing<\/u><\/strong><\/p>\n\u201c\u2026 I would say the leading indicators aren\u2019t that bad. Affordability is at an all-time high. It\u2019s cheaper to buy than to rent. Prices are going down. We expect that to continue. The number of homes for sale is going down. Foreclosures, the new inventory of foreclosures will be lower in 12 months than it is today, not higher. Okay, so all that backlog, we\u2019re in the worst part now, and it\u2019s working through<\/strong>. That\u2019s another quarter or two<\/strong>\u2026 And also the mix of distressed sales are very high. Distressed sales are 30% below non-distressed sales. And so obviously, prices go down when the mix is going up. But in a lot of markets, non-distressed sales actually are up prices, not down. So I think when the economy recovers, housing will get stronger. It will surprise people 12 months from now<\/strong>.\u201d<\/em><\/p>\nOn the slippage in home prices<\/u><\/strong><\/p>\n\u201cThat category is virtually irrelevant personally<\/em><\/strong>, but there\u2019s a little more slippage because you still have a very high level of distressed inventory hitting the market, not more than it was last quarter. And it will probably be this number or a little bit higher this quarter and next quarter, but then it\u2019s going to trend down. So I think you\u2019ll similarly see this weakness for a little bit, but then hopefully it will level off. <\/em><\/p>\nPeople have houses, folks. It\u2019s going to happen, I could tell you this as sure as the sun is going to come up tomorrow. There will be a point where home prices start to go up <\/strong>a little bit. And people are going to want to upgrade their homes, buy a home, move in, and the sentiment will be it\u2019s over. Now is the time to buy, and credit is loosening up for mortgages, not tightening up. So it\u2019s possible that will happen before we all expect it, because everyone has the same sentiment at the same time. So to me, if the economy grows, it will happen sooner than you think<\/strong>.\u201d<\/em><\/p>\n\u201cWe expect home prices go down<\/em><\/strong>. So they\u2019re not current or exact numbers, but we expect another 3% to 5% or 6%.<\/strong> We do it by region and all that. So I don\u2019t think it\u2019s terrible. <\/strong>But I think it is driven by a high amount of distress right now. And we know the amount of distress is going to come down, not go up. It may go up in the next month, next quarter. But I\u2019m talking about over the next 18 months, it is going to come down. <\/em><\/p>\nSo 5.5 million homes are being sold a year. There are 3 million more Americans a year. We destroy more homes than we build. Normal household formation is 1.5 million a year. We have been forming 500,000 households a year now\u2026 \u00a0And so people when they get a little more comfortable, people will start buying homes again, and this is just going to take a little bit of time. So we\u2019re in the worst of it right now. If we have a real another recession, no, then I think you will have another leg down. That\u2019s normal in a recession. We don\u2019t expect another recession<\/strong>. I can\u2019t promise that.\u201d <\/em><\/p>\nOn credit quality<\/u><\/strong><\/p>\n\u201cLarge corporate credit is back to very good levels. Middle market credit is back to pretty good levels. Credit card, our own portfolio we\u2019ve told the world — I think the Chase portfolio of loans, the number is close to 10%. This quarter, the quarter now that ended, we told you that we expect it to be around 5.5%. Sometime \u2013 early indicators are midyear next year 4.5%, so it\u2019s trending down. 4.5% would be a complete norm. Auto credit is very good. Small business credit is getting stronger\u2026 The trend is to lower delinquencies, and the front end of the stuff is down. Charge-offs are half of what they were a year ago in housing. So you\u2019ve seen the worst<\/strong>. And that, of course, is how long it is going to take to repair. I think the next real mover of that will be the economy; jobs and real growth, not underlying dynamics of the creditors themselves.\u201d<\/em><\/p>\nOn Europe<\/u><\/strong><\/p>\n\u201cI don\u2019t think it\u2019s a big concern for U.S. banks<\/strong>. So we\u2019ve had a fairly consistent so far correct prognosis that they are going to muddle through. That is the best option, the one that they pick. I wish they did it. I wish it wasn\u2019t a muddle through. I wish they\u2019d simply solve the issues. But every time one of these things pops up, the ECB, the ESF, IMF, someone comes up to fix their problem and put it off over time, it is the best option because the other options are actually worse\u2026 It\u2019s like a game of Monte, except in the one case, you\u2019ll be fixing it after a crisis.<\/em><\/p>\nAnd so I think the right \u2013 I think some of these things are going to have to be restructured\u2026 I don\u2019t think Greece is going to take down Europe. Greece has $500 billion of debt. Even if you write off $250 billion. It\u2019s a drop in the bucket for Europe<\/strong>. It may not be a drop in the bucket for all the banks that have to bear big portions of that<\/strong>. So typically they\u2019re thinking \u2013 if you listen to politicians, they are devoted to making this European Union, which is I think one of the greatest human achievements and endeavors of all time. It has flaws. They\u2019re devoted to making it work. <\/em><\/p>\nWe\u2019ve been dealing with these countries for 75 or 100 years. We\u2019re not backing out. You can\u2019t run a business, and say okay, nice knowing you, Italy or all these companies\u2026<\/em><\/p>\n\u2026 remember, in a lot of these crises, the corporates did fine.<\/strong> Go back to all these other crises. We\u2019ll be there for a long time. These countries aren\u2019t going away. So we\u2019re willing to take that risk that includes billions if there\u2019s a terrible outcome in those five countries. But I don\u2019t think it will remotely get to Spain or Italy. I think Spain is fine. <\/strong>So I think you are really talking about Greece, Ireland, and Portugal, and Ireland and Portugal in total less than Greece. So I think it is solvable. It\u2019s just going to take a lot of political willpower to get it done<\/strong>.\u201d<\/em><\/p>\nOn growing organically<\/u><\/strong><\/p>\n\u201cWe\u2019re growing branches. We\u2019re growing checking accounts<\/strong>. We\u2019re putting a lot more salespeople in the branches. I think year over year it\u2019s up almost 4,000. We\u2019re growing Commercial Bank. Think of the territory of WaMu California, Florida, et cetera. We\u2019re building a commercial bank. They didn\u2019t have one. And we\u2019re building small business. That means hiring bankers, credit, implementation officers, risk systems take time. But those two businesses alone on the WaMu footprint are over $100 billion a year call it five to seven years out. So of course we should do that. That\u2019s a no brainer. <\/em><\/p>\nInternational expansion is almost the same.<\/em><\/strong> Think of it as, if we serve a huge multinational and we serve, we do TSS or loans or trade finance, and we do it in 12 of the 40 markets we operate in, and we can add 10 or 12 of the other 40, why wouldn\u2019t we do it? We already have all the overhead. We\u2019re just adding location cost. So we\u2019re going to add probably $200 million of location costs and services, but the margin is going to be \u2013 the incremental margins are huge<\/strong>. So I call it the network effect. You spend $5 billion and you\u2019ve got to spend $200 million to increase your network by 20%, you\u2019re actually spending close to $5 billion of that 20%. And so that\u2019s all we\u2019re doing. We\u2019re adding bankers, branches, and products to serve the multinationals where they want to be served.\u201d \u00a0<\/em><\/p>\nOn higher mortgage expenses (including litigation)<\/u><\/strong><\/p>\n\u201cLet me separate mortgage, the charge-offs $1.1 billion. And I think the mortgage reserves are something like\u2026 $4 billion a year<\/strong>. Reserves are $15 billion. That $4 billion and now I\u2019m going to add in all the other extra costs. I think there\u2019s almost another $1.5 billion, foreclosure expense, REO expense<\/strong>, all the extra people we have doing modifications, call it $5.5 billion a year, $15 billion in reserves. Eventually, that $5.5 can be zero<\/strong>. I don\u2019t know if it\u2019s going to be level for a while then come down, which is what it may be. We\u2019re cautious, but it\u2019s going to go to zero or close, to maybe $0.5 billion. And the $15 billion will also go to zero<\/strong>. We can get it back. And I can\u2019t give you the exact timing of that. I wish I could. Will they totally offset each other? But at one point, there are going to be four or five accountants that will be hitting the expenses, charges against the reserves not really the reserve space. We want to be really, really cautious for obvious reasons. \u00a0<\/em><\/p>\nThe second one is litigation. We\u2019ve had lumpy litigation<\/strong>. You\u2019ve seen $1 billion this quarter and $2 billion that quarter. And I think last year totalled $7 billion, something like that.<\/strong> Unfortunately, we\u2019re still going to have some of that. We\u2019ve got a lot of litigation. I\u2019ll call it the detritus of the storm across a broad spectrum of things. We\u2019re pretty conservative reservers. We\u2019re looking at what we should be doing. What are we going to do? Which ones are we going to fight? Which ones do we think are reasonable claims, but they\u2019re going to be lumpy for a while. I know it\u2019s disappointing for people who are forecasting. That\u2019s the way it is. A lot <\/strong><\/em>of that is mortgage related, <\/em><\/strong>but we\u2019re going to put up reserves for litigation reserves related to private label stuff. There are going to be litigation going on for a long time<\/strong>. I wish I could give you a certain answer, but I would say the same thing. Whatever that ultimately is, we still have the $15 billion in reserves<\/strong>. So eventually this will all be over. We\u2019ve paid a price. We\u2019ve paid our penalties, but the underlying number, actually they\u2019re doing pretty well. And those numbers over time will get better, not worse.\u201d<\/strong><\/em><\/p>\nOn regulatory capital rule changes <\/u><\/strong><\/p>\n\u201cJPMorgan always ran with probably twice what other people had. And we are \u2013 I would consider us one of the most liquid banks on the planet. And so we went through the crisis with capital at 7%, and it never went down. We did a real stress test. A real-life stress test, it never went down tells me we have plenty<\/strong>. Through the forward-looking stress test it doesn\u2019t go out in any quarter.<\/em><\/p>\nThe 7% is now 10%… I just think it\u2019s too much. You could argue \u2013 now if you say I never want a bank to go bankrupt, don\u2019t make a loan. So I believe in the concept we should get rid of \u201cToo Big to Fail.\u201d That\u2019s what the Resolution Authority was for. I just think it\u2019s just too much of one point. I think people should be really thoughtful about how much. If all people are going to say now too much is too much and this can never happen again, well fine. And when you\u2019re out of capital, it will have ramifications. And people pay for credit, with banks holding the balance sheets.\u201d <\/em><\/p>\nOn uncertainty regarding regulatory capital rules<\/u><\/strong><\/p>\n\u201cThe regulators then in a non-political environment should go up to decide and restudy it. And if they really come back and think that 10% is the right number, in three years they can go back to banks and say we really thought about it. Here are some numbers and we\u2019d like to go to 10%, and we\u2019ll work with you to give you some time. The reason I would have done that is to help the global recovery. Get rid of the uncertainty, get capital higher, help the global recovery. Leaving all this additional uncertainty out there to me is why the negative hanging over the global economy<\/strong>. It is one of the reasons you had these slowdown\u2026\u201d\u00a0 <\/strong><\/em><\/p>\nOn differences in regulatory capital, calculation of risk-weighted assets between countries<\/u><\/strong><\/p>\n\u201cBut we should be really thoughtful; like why can covered bonds in Europe account for 100% liquidity as an asset, but Ginnie Mae\u2019s can\u2019t. And I can go through millions of examples of types of things I think is unbalanced. But we want them to get it right. We\u2019ve given the regulators all their thoughts, all their feedback. Now their attitude is never again, never again, never again; you\u2019re going to end up with 10% capital for banks like us<\/strong>.\u201d <\/em><\/p>\n\u201cYes, I\u2019m not really worried about it because the regulators have said<\/strong>, I believe them that they are going to have a college of supervisors, whatever, to make sure that that\u2019s fairly done<\/strong>. It will still be political. You\u2019re still going to see some countries working with your banks to keep it lower and some countries make it higher. It just should be taken in consideration in the first couple years where you\u2019re going to have huge differences in capital and RWA.<\/em><\/p>\nSo I\u2019d take them at their word. They\u2019re going to figure something out that makes that a little more balanced.<\/em><\/strong> But it not just us \u2013 it\u2019s trust preferreds. Some nations can have trust preferreds, some can\u2019t. Some nations got different derivative trading rules and some can\u2019t, market making rules. It\u2019s all these rules \u2013 if they\u2019re cumulatively all against a JPMorgan, that\u2019s not so good. I don\u2019t think that\u2019s going to happen, by the way. But in the back of my mind, we have to make sure we protect our company from a playing field which is really tilted against JPMorgan being a global competitor.\u201d<\/em><\/p>\nOn the impact of capital levels on product pricing<\/u><\/strong><\/p>\n\u201cWe\u2019re still going to price in the marketplace at the competitive capital ratio. That\u2019s what we\u2019re going to do. <\/strong>And because we have so much capital, you\u2019d probably leave more money with us because it\u2019s a little bit safer. Our cost of borrowing will probably go down relative to a bank holding 7%.\u201d<\/em><\/p>\nOn changes in liquidity rules<\/u><\/strong><\/p>\n\u201cAnd then liquidity, the LCR <\/em>[Liquidity Coverage Ratio] shows us as not having enough liquidity. Now we could fix it overnight, so I\u2019m not really worried about it<\/strong>.\u201d<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"Last week, Jamie Dimon, the famously blunt CEO of JPMorgan Chase attended the Sanford Bernstein Strategic Directions conference in New York. The format was a one hour Q&A session. Given the negative sentiment around U.S. banks, we thought it useful to highlight comments from arguably the country\u2019s most important and influential banker.<\/p>\n","protected":false},"author":10,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_custom_body_class":"","_custom_post_class":"","content-type":""},"categories":[5,7],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/posts\/4030"}],"collection":[{"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/comments?post=4030"}],"version-history":[{"count":0,"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/posts\/4030\/revisions"}],"wp:attachment":[{"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/media?parent=4030"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/categories?post=4030"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hamilton.fundzen.com\/wp-json\/wp\/v2\/tags?post=4030"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}