JP Morgan Chase & Co.

stand by we are about to begin good morning ladies and gentlemen welcome to JP Morgan Chase's first quarter 2019 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 JP Morgan Chase's chairman and CEO Jamie Dimon and Chief Financial Officer Mary Ann Lake. Ms. Lake, please go ahead.

Thank you, Operator. Good morning, everybody. I'm going to take you through the earnings presentation, which is available on our website. Please refer to the disclaimer at the back of the presentation. Starting on page one, the firm reported record net income of $9.2 billion, an ETF of $2.65, and record revenue of nearly $30 billion, with a return on tangible common equity of 19%. The results this quarter were strong and broad-based. Highlights include poor loan growth XCIB is 5%, with loan trends continuing to progress as expected. Credit performance remains strong across businesses. We saw record client investment assets in consumer of over $300 billion and record new money flows this quarter. And double-digit growth in both card sales and merchant processing volumes, up 10% and 13% respectively. We ranked number one in global IB fees and gained meaningful share, with share well above 9% this quarter. In the commercial bank, we had record growth IB revenue. In assets and wealth management, record AUM and client assets. And the firm delivered another quarter of strong, positive operating leverage. Turning to page two, and talking in some more detail about the third quarter. Revenue of $29.9 billion, was up $1.3 billion, or 5% year-on-year, driven by net interest income, which was up $1.1 billion, or 8%, on higher rates as well as balance sheet growth and mix. Non-interest revenue was up slightly, as reported, but excluding fair value gains on the implementation of a new accounting standard last year, NIR would have been up 5%, reflecting auto lease growth and strong investment banking fees And while market revenue was lower, there were other items more than offsetting. Expense of $16.4 billion was up 2%, relating to continued investments we're making in technology, real estate, marketing, and front office. Partly offset by a reduction in FDIC charges of a little over $200 million. Credit remains favorable across both consumer and wholesale. Credit costs of $1.5 billion were up $330 million year-on-year, driven by changes in wholesale reserves. In consumer, charge-offs were in line with expectations, and there were no changes to reserves this quarter. In wholesale, we had about $180 million of credit costs, driven by reserve bills on select C&I client downgrades, and recall that there was a net release last year related to energy. Once again, these downgrades were idiosyncratic. It was a handful of names and across sectors. Net reserve bills of this order of magnitude are extremely modest, given the size of our portfolios, and we are not seeing signs of deterioration. Moving on to page three and balance sheet and capital. We ended the quarter with a CET1 ratio of 12.1%, up modestly from last quarter. With the benefit of strong earnings, and AOCI gains given rallying rates, being partially offset by slightly higher risk-weighted assets. RWA is up, primarily due to higher counterparty credit on trading activity, but most of leaders' quarter being offset by lower loans across businesses on a spot basis. Quarter-on-quarter loans were down in home lending as a result of a loan sale transaction, in the CIB as a result of a large syndication, and in card and asset wealth management seasonally. Also on the page, total assets are up over $100 billion quarter-on-quarter, principally driven by higher CIB trading assets, in part a normalization from lower levels at the end of the year given market conditions. Lower end-of-period loans are partially offset by Treasury balances, including higher securities. In the quarter, the firm distributed $7.4 billion of capital to shareholders, including $4.7 billion of share repurchases. And last week, we submitted our 2019 CCAR capital plan to the Federal Reserve. Moving to consumer and community banking on page four. CCB generated net income of $4 billion and an ROE of 30%, with consumers remaining strong and confident. All loans were up 4% here year-on-year, driven by home lending and card both up 6%, and business banking up 3%. The profits grew 3% in line with our expectations, and we believe we continue to outperform. Client investment assets were up 13%, driven by record new money flows, reflecting growth across physical and digital channels, including new invest. We also announced plans to open 90 branches this year in new markets. Revenue of $13.8 billion was up 9%, Consumer and business banking revenue up 15% on higher deposit NII driven by continued margin expansion. Home lending revenue was down 11% driven by net servicing revenue on both lower operating revenue and MSR. But notably while volumes are down, production revenue is up nicely year on year on discipline pricing. And car, merchant services and auto revenue was up 9%. driven by higher card NII on loan growth and margin expansion, and higher auto lease volumes. Expense of $7.2 billion was up 4%, driven by investments in the business and auto lease depreciation, partly offset by expense efficiencies and lower FDIC charges. On credit, net charge-offs were flat, as lower charge-offs in home lending and auto were offset by higher charge-offs in card on loan growth. Charge-off rates were down year on year across lending portfolios. Now turning to page five and the Corporate Investment Bank. CIB reported net income of $3.3 billion and an ROE of 16% on strong revenue performance of nearly $10 billion. For the quarter, IB revenue of $1.7 billion was up 10% year-on-year. And outside of an accounting nuance, all of advisory, DCM, and total ID fees would have been records for a first quarter. Advisory fees were up 12% in a market that was down, benefiting from a number of large deals closing this quarter. We ranked number one in announced dollar volumes and gained nearly 100 basis points of wallet share. Debt underwriting fees were up 21%, also outperforming a market that was down. driven by large acquisition financing deals and our continued strong lead-left positions in leveraged finance. We maintained our number one rank and gained well over 100 basis points of share. And equity underwriting fees were down 23%, but in the market down more, as a combination of the government shutdown, uncertainty around Brexit, and residual impacts from December volatility weighed on issuance activity across the regions in the first quarter. But already in the second quarter, we've seen a major recovery in U.S. IPO volumes back to normalized levels, and we are benefiting from our leadership in the technology and healthcare sectors, which again dominate the calendar. Moving to markets, total revenue was $5.5 billion, down 17% reported, or down 10%, adjusted for the impact of the accounting standard last year that I referred to. Big picture, On a year-on-year basis, we're challenged by a tough comparison. Backdrop in the first quarter of 2018 was supportive, clients were active, and we saw broad-based strength in performance, with a clear record in equities last year. In contrast, this quarter started relatively slowly, and overhanging uncertainties kept clients on the sidelines, despite a recovered and more stable environment. So with that in mind, I would characterize the results as solid, and a little better than we thought at Investor Day just a few weeks ago. largely due to a better second half of March. And for what it's worked so far, the environment in April feels generally constructive, but it's too early to draw any conclusions in terms of P&L. Fixed income markets revenue was down 8% adjusted, driven by lower activity, particularly in rates and in currencies and emerging markets, which normalized following a strong high year. However, we did see relative strength in credit trading on strong flow, as well as in commodities. Equities revenue was down 13% adjusted, speaking more to the record prior year quarter than this quarter's performance, which was still generally strong across products. Although derivatives got off to a somewhat slower start, cash in particular nearly matched last year's exceptional results. Treasury services revenue was $1.1 billion, up 3% year-on-year, benefiting from higher balances and payments volume, being partially offset by deposit margin compression. Security services revenue was $1 billion, down 4%, and organic growth was more than offset by fee and deposit margin compression, lower market levels, and the impact of a business exit. Of note, deposit margin in both treasury services and security services is impacted by funding basis compression rather than client basis, and at the firm-wide level, there's an offset. Finally, expense of $5.5 billion was down 4%, driven by lower performance-based compensation and lower FDIC charges, partially offset by continued investments in the business. The comps revenue ratio for the quarter was 30%. Moving to commercial banking on page 6. A strong quarter for the commercial bank, with net income of $1.1 billion and an ROE of 19%. Revenue of $2.3 billion was up 8% year-on-year on strong investment banking performance and higher deposit NII. Record growth IB revenue of over $800 million was up more than 40% year-on-year due to several large transactions, and the pipeline continues to feel robust and active. Deposit balances were down 5% year-on-year and 1% sequentially, as migration of non-operating deposits to higher-yielding alternatives has decelerated, and we believe is largely behind us. From here, we expect deposits to stabilize, given the benign rate outlook. Expense of $873 million was up 3% year-on-year, as we continue to invest in the business, in banker coverage, and in technology. Loans were up 2% year-on-year and flat sequentially. C&I loans were up 2%. or up 5% adjusted for the continued runoff in our tax exempt portfolio. We continue to see solid growth across expansion markets and specialized industries. CRE loans were up 1% as competition remains elevated, and we continue to maintain discipline given where we are in the cycle. Finally, credit costs of $90 million were predominantly driven by higher reserves from select client downgrades, and met charge-off for only two basis points on strong underlying performance. Before moving on, I want to address the perceived gap between our reported C&I growth statistics and those that we all see in the Fed weekly data. If we look across all of our wholesale businesses, we also show strong growth year-on-year at about 8%. So there are three comments I would make. The first is that there can be reasonable noise in the Fed weekly data. Second, CIB is a big contributor for us, and CIB loan growth this quarter was supported by robust acquisition financing and higher market loans. And third, as previously noted, the definition of CNI for the Fed does not include our tax-exempt portfolio, which has seen significant year-on-year declines given tax reform. So while it's true that the Fed data is showing strong growth year-on-year, and apples to apples, so are we, In the mainstream middle market lending space, we're seeing good mid-single-digit demand in line with our expectations. Moving on to asset and wealth management on page 7. Asset and wealth management reported net income of $661 million, with a pre-tax margin of 24% and an ROE of 25%. Revenue of $3.5 billion for the quarter was flat year-on-year, as lower management fees on average market levels, as well as lower brokerage activity, were offset by higher investment valuation gains. Expense of $2.6 billion was up 3% year-on-year, as continued investments in our business, as well as other headcount-related expenses, were partially offset by lower external fees. For the quarter, we saw net long-term inflows of $10 billion with strength in fixed income, partially offset by outflows from other asset classes. Additionally, we had net liquidity outflows of $5 billion. AUM of $2.1 trillion and overall client assets of $2.9 trillion were both records up 4%, driven by cumulative net inflows into liquidity and long-term products, and with first quarter market performance nearly offsetting fourth quarter declines. The profits were up 4% sequentially on seasonality, and down 4% year-on-year, reflecting continued migration into investments, although decelerating, as we continue to capture the vast majority of these flows. Finally, we had record loan balances up 10%, with strength in both wholesale and mortgage lending. Moving to page eight and corporate. Corporate reported net income of $251 million, with net revenue of $425 million compared to a net loss of over $200 million last year. The improvement was driven by higher NII on higher rates, as well as cash deployment opportunities in Treasury. And recall, last year we had nearly $250 million of net losses on security sales relative to a small net gain this quarter. of $211 million is up year-on-year and includes a contribution to the foundation of $100 million this quarter. Concluding on page nine, to wrap up, this is the sort of quarter that really showcases the strengths of the firm's operating model, benefiting from diversification and scale, and our consistent investment agenda. We delivered record revenue and net income in a clean first quarter performance, despite some hangover from the fourth quarter. Underlying drivers across our businesses continue to propel us forward, and in March and coming into April, the economic backdrop feels increasingly constructive. Client sentiment has recovered, and recent global data shows encouraging momentum. Investor Day is only six weeks behind us, so our guidance for the full year hasn't changed. We do remain well-positioned and optimistic about the firm's performance. With that, operator, we'll take questions.

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