JPMorgan Chase & Co. (NYSE:JPM) Q1 2024 Earnings Call Transcript (2024)

JPMorgan Chase & Co. (NYSE:JPM) Q1 2024 Earnings Call Transcript April 12, 2024

JPMorgan Chase & Co. beats earnings expectations. Reported EPS is $4.63, expectations were $4.18. JPMorgan Chase & Co. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2024 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation, please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Jeremy Barnum: Thank you very much, and good morning, everyone. The presentation is available on our website and please refer to the disclaimer in the back. Starting on Page 1, the firm reported net income of $13.4 billion, EPS of $4.44 on revenue of $42.5 billion, and delivered an ROTCE of 21%. These results included a $725 million increase, the special assessment resulting from the FDIC's updated estimate of expected losses from the closures of the Silicon Valley Bank and Signature Bank. Touching on a couple of highlights, firmwide IB fees were up 18% year-on-year, reflecting particular strength in underwriting fees, and we have seen strong net inflows across AWM, as well as in the CCB Wealth Management business. On Page 2, we have some more detail.

This is the last quarter we'll discuss results excluding First Republic, given that going forward, First Republic results will naturally be included in the prior period, making year-on-year results comparable. For this quarter, First Republic contributed $1.7 billion of revenue, $806 million of expense, and $668 million of net income. Now, focusing on the firmwide results excluding First Republic, revenue of $40.9 billion was up $1.5 billion, or 4%, year-on-year. NII ex-Markets was up $736 million, or 4%, driven by the impact of balance sheet mix and higher rates, as well as higher revolving balances in Card, largely offset by deposit margin compression and lower deposit balances in CCB. NIR ex-Markets was up $1.2 billion, or 12%, driven by higher firmwide asset management and investment banking fees, as well as lower net investment and securities losses.

And Markets revenue was down $400 million, or 5%, year-on-year. Expenses of $22 billion were up $1.8 billion, or 9%, year-on-year, driven by higher compensation, including growth in employees, and the increase to the FDIC special assessment. And credit costs were $1.9 billion, reflecting net charge-offs of $2 billion and a net reserve release of $38 million. Net charge-offs were up $116 million, predominantly driven by Card. Onto balance sheet and capital on Page 3. We ended the quarter with a CET1 ratio of 15%, relatively flat versus the prior quarter, reflecting net income which was predominantly offset by higher RWA and capital distribution. This quarter's higher RWA is largely due to seasonal effects, including higher client activity in markets and higher risk rates on deferred tax assets partially offset by lower Card loans.

Now, let's go to our businesses, starting with CCB on Page 4. Consumers remain financially healthy, supported by a resilient labor market. While cash buffers have largely normalized, balances are still above pre-pandemic levels and wages are keeping pace with inflation. When looking at a stable cohort of customers, overall spend is in line with the prior year. Turning now to the financial results, excluding First Republic. CCB reported net income of $4.4 billion on revenue of $16.6 billion, which was up 1% year-on-year. In Banking and Wealth Management, revenue was down 4% year-on-year, reflecting lower NII on lower deposits, with average balances down 7% as our CD mix increased. Client investment assets were up 25% year-on-year, driven by market performance and strong net inflows.

In Home Lending, revenue was up 10% year-on-year, predominantly driven by higher NII and production revenue. Originations, while still modest, were up 10%. Moving to Card Services and Auto, revenue was up 8% year-on-year, driven by higher Card Services NII on higher revolving balances, partially offset by higher Card acquisition costs from new account growth and lower Auto lease income. Card outstandings were up 13% due to strong account acquisition and the continued normalization of revolve. And in Auto, originations were $8.9 billion, down 3%, while we maintained healthy margins and market share. Expenses of $8.8 billion were up 9% year-on-year, largely driven by field compensation and continued growth in technology and marketing. In terms of credit performance this quarter, credit costs were $1.9 billion, driven by net charge-offs, which were up $825 million year-on-year, predominantly due to continued normalization in Card.

The net reserve build was $45 million, reflecting a build in Card, largely offset by a release in Home Lending. Next, the Corporate and Investment Bank on Page 5. Before reporting CIB's results, I want to note that this will also be the last quarter we will report earnings for the CIB and CB as standalone segments. Between now and Investor Day, we will furnish an 8-K with historical results, including five quarters and two full years of history consistent, with the structure of the new Commercial and Investment Bank segment in line with the reorganization that was announced in January. Turning back to this quarter, CIB reported net income of $4.8 billion on revenue of $13.6 billion. Investment Banking revenue of $2 billion was up 27% year-on-year.

JPMorgan Chase & Co. (NYSE:JPM) Q1 2024 Earnings Call Transcript (1)

IB fees were up 21% year-on-year and we ranked number one with year-to-date wallet share of 9.1%. In advisory, fees were down 21%, driven by fewer large completed deals. Underwriting fees were up significantly, benefiting from improved market conditions, with debt up 58% and equity up 51%. In terms of the outlook, while we're encouraged by the level of capital markets activity we saw this quarter, we need to be mindful that some meaningful portion of that is likely pulling forward from later in the year. Similarly, while it was encouraging to see some positive momentum in announced M&A in the quarter, it remains to be seen whether that will continue and the advisory business still faces structural headwinds from the regulatory environment. Payments revenue was $2.4 billion, down 1% year-on-year, as deposit margin normalization and deposit-related client credits were largely offset by higher fee-based revenue and deposit balances.

Moving to Markets, total revenue was $8 billion, down 5% year-on-year. Fixed income was down 7%, driven by lower activity in rates and commodities compared to a strong prior-year quarter, partially offset by strong results in securitized products. Equity Markets was flat. Securities Services revenue of $1.2 billion was up 3% year-on-year. Expenses of $7.2 billion were down 4% year-on-year, predominantly driven by lower legal expense. Moving to the Commercial Bank on Page 6. Commercial Banking reported net income of $1.6 billion. Revenue of $3.6 billion was up 3% year-on-year, driven by higher non-interest revenue. Gross Investment Banking and Markets revenue of $913 million was up 4% year-on-year, with increased IB fees largely offset by lower Markets revenue compared to a strong prior-year quarter.

Payments revenue of $1.9 billion was down 2% year-on-year, driven by lower deposit margins and balances largely offset by fee growth net of higher deposit-related client credits. Expenses of $1.5 billion were up 13% year-on-year, predominantly driven by higher compensation, reflecting an increase in employees, including front office and technology investments, as well as higher volume-related expense. Average deposits were down 3% year-on-year, primarily driven by lower non-operating deposits, and down 1% quarter-on-quarter, reflecting seasonally lower balances. Loans were flat quarter-on-quarter. CNI loans were down 1%, reflecting muted demand for new loans as clients remain cautious, and CRE loans were flat as higher rates continue to have an impact on originations and payoff activity.

Finally, credit costs were a net benefit of $35 million, including a net reserve release of $101 million and net charge-offs of $66 million. Then to complete our lines of business, AWM on Page 7. Asset and Wealth Management reported net income of $1 billion with pre-tax margin of 28%. Revenue of $4.7 billion was down 1% year-on-year. Excluding net investment valuation gains in the prior year, revenue was up 5% driven by higher management fees on strong net inflows and higher average market levels, partially offset by lower NII due to deposit margin compression. Expenses of $3.4 billion were up 11% year-on-year, largely driven by higher compensation, including revenue-related compensation, continued growth in our private banking advisor teams, and the impact of the J.P. Morgan Asset Management China acquisition as well as higher distribution fees.

For the quarter, long-term net inflows were $34 billion led by equities and fixed income. AUM of $3.6 trillion was up 19% year-on-year, and client assets of $5.2 trillion were up 20% year-on-year, driven by higher market levels and continued net inflows. And finally, loans were down 1% quarter-on-quarter and deposits were flat. Turning to Corporate on Page 8. Corporate reported net income of $918 million. Revenue was $2.3 billion, up $1.3 billion year-on-year. NII was $2.5 billion, up $737 million year-on-year, driven by the impact of balance sheet mix and higher rates. And NIR was a net loss of $188 million. The current quarter included net investment securities losses of $366 million compared with net securities losses of $868 million in the prior-year quarter.

Expenses of $1 billion were up $889 million year-on-year, predominantly driven by the increase to the FDIC special assessment. To finish up, we have the outlook on Page 9. We now expect NII ex-Markets to be approximately $89 billion based on a forward curve that contained three rate cuts at quarter-end. Our total NII guidance remains approximately $90 billion, which implies a decrease in our Markets NII guidance from around $2 billion to around $1 billion. The primary driver of that reduction is balance sheet growth and mix shift in the Markets business. And as a reminder, changes in Markets NII are generally revenue neutral. Our outlook for adjusted expense is now about $91 billion, reflecting the increase to the FDIC special assessment I mentioned upfront.

And on credit, we continue to expect the 2024 Card net charge-off rate to be below 3.5%. Finally, you may have noticed that our effective tax rate has increased this quarter, and it will likely stay around 23% this year, absent discrete items, which can vary quite a bit. The driver of this change is the firm's adoption of the proportional amortization method for certain tax equity investments. Our managed rate is unchanged, and it should average about 3.5% above the effective tax rate. This is a smaller gap than we've previously observed, and we expect this approximate relationship to persist going forward, although the difference will continue to fluctuate as it has in the past. For the avoidance of doubt, these changes have no meaningful impact on expected annual net income.

We're just mentioning this to help with your models. So, to wrap up, we're pleased with another quarter of strong operating results, even as the journey towards NII normalization begins. While we remain confident in our ability to produce strong returns and manage risk across a range of scenarios, the economic, geopolitical, and regulatory uncertainties that we have been talking about for some time remain prominent, and we are focused on being prepared to navigate those challenges, as well as any others that may come our way. And with that, let's open up the line for Q&A.