JP Morgan Chase & Co.

Please stand by. We are about to begin. Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's fourth 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 JPMorgan Chase's chairman and CEO, Jamie Dimon, and chief financial officer, Jennifer Piepsak. Piepsak, please go ahead.

Thank you, operator. Good morning, everyone. I'll take you through the presentation, which, as always, is available on our website, and we ask that you please refer to the disclaimer at the back. Starting on page one, the firm reported net income of $8.5 billion, EPS of $2.57, and revenue of $29.2 billion, with a return on tangible common equity of 17%. Underlying performance continues to be strong. Deposit growth accelerated in the fourth quarter across consumer and wholesale, with average balances up 7% year-on-year. We saw solid loan growth, with CARD and AWM being the bright spots, as average loans across the company were up 3% year-on-year, excluding the impact of home lending loan sales in prior quarters. Fine investment assets in consumer and business banking were up 27%, And Asset and Wealth Management, AUM, was up 19%, reflecting stronger market performance versus the prior year, as well as organic growth. We ranked number one for the full year in global IB fees with 9% wallet share. And gross IB revenue in the commercial bank was a record $2.7 billion. In CIV markets, we were up 56% year-on-year compared to a weak fourth quarter last year, However, it's important to note the quarter was very strong in absolute terms, in fact, a record fourth quarter. And credit performance continues to be strong across the company. On to page two and some more detail about our fourth quarter results. Revenue of $29.2 billion was up $2.4 billion, or 9% year-on-year, with net interest income down $220 million, or 2%, on lower rates, largely offset by balance sheet growth and mix, and higher CIV markets NII. Non-interest revenue was up $2.6 billion or 21% on higher revenue in CIV markets and AWM and continued strong performance in home lending and auto. Expenses of $16.3 billion were up 4% on volume and revenue related costs. Credit remains favorable with credit costs of $1.4 billion down $121 million or 8% year-on-year reflecting modest net reserve releases and net charge-offs in line with expectations. Turning to the full year results on page 3. The firm reported net income of $36.4 billion, EPS of $2.72, and revenue of $118.7 billion, all records, and delivered a return on tangible common equity of 19%. Revenue was up $7.2 billion, or 6% year-on-year, with net interest income up 2.1 billion, or 4%, on balance sheet growth and mix, as well as higher average short-term rates, partially offset by higher deposit pay rates. Non-interest revenue was up 5.1 billion, or 9%, driven by growth across consumer and higher CIV markets revenue. And expenses of $65.5 billion, or up 3% year-on-year, driven by continued investments as well as volume and revenue-related costs, partially offset by lower FDIC charges. Revenue growth and our continued expense discipline generated positive operating leverage for the full year. And on credit, performance remained strong throughout 2019. Credit costs were $5.6 billion. In consumer, credit costs were up $210 million, reflecting an increase in CAR due to balance growth, largely offset by lower credit costs and home lending. And in wholesale, we were up $504 million, largely due to reserve releases and higher recoveries, both in 2018. Moving to balance sheet and capital on page 4. We ended the fourth quarter with a CET1 ratio of 12.4% up slightly versus last quarter. The firm distributed $9.5 billion of capital to shareholders in the quarter, including $6.7 billion of net repurchases and a common dividend of $0.90 per share. And while on the topic of capital, it's worth noting, given the actions we have taken, we fully expect it will remain in the 3.5% GSIB bucket. Before we move into the business results, I'll spend a moment talking about CECL on page 5. As you know, the transition to CECL was effective on January 1st, and therefore there is no impact to our 2019 financials. On the page is the CECL adoption impact. an overall net increase to the allowance for credit losses of $4.3 billion, which is at the lower end of the range we've provided. This was driven by an increase in consumer of $5.7 billion, mostly coming from CARD, partially offset by a decrease in wholesale of $1.4 billion. In CARD, the increase is the result of moving to lifetime loss coverage versus a shorter loss emergence period under the incurred model, whereas in wholesale, Modeling changes, like using specific macroeconomic forecasts versus through-the-cycle loss rates under incurred, result in a decrease, especially given the forecasted credit environment. Recognition of the allowance increase has resulted in a $2.7 billion after-tax decrease to retained earnings, as you can see on the page. Also important to note, we have elected to use the transition approach to recognize the impact on capital. And now, turning to businesses, we'll start with consumer community banking on page 6. In the fourth quarter, CCB generated net income of $4.2 billion and an ROE of 31% with accelerating deposit growth of 5%, fine investment assets up 27%, and total loans down 6%. For the full year, results in CCB were strong with $16.6 billion of net income up 12% and an ROE of 31% on revenue of $55.9 billion up 7%. Fourth quarter revenue was $14 billion, up 3% year-on-year. In consumer and business banking, revenue was down 2%, driven by deposit margin compression, largely offset by strong deposit growth, and higher non-interest revenue on the increase in client investment assets, as well as account and transaction growth. Home lending revenue was down 5%, driven by lower NII on lower balances, which were down 17% reflecting prior loan sales, and lower net servicing revenue, predominantly offset by higher net production revenue, reflecting a 94% increase in origination. And in card, merchant services, and auto, revenue was up 9%, driven by higher card NII on loan growth, as well as the impact of higher auto lease volume. Card loan growth was 8%, with sales up 10%, reflecting a strong and confident consumer during the holiday season. Expenses of $7.2 billion were up 2%, driven by revenue-related costs from higher volumes, as well as continued investments in the business, including market expansion, largely offset by expense efficiencies. On credit, this quarter's CCB had a net reserve release of $150 million. This included a release in the home lending purchase credit impaired portfolio of $250 million, reflecting improvements in delinquencies and home prices, which was partially offset by a reserve building card of $100 million, driven by growth. Net charge-offs for $1.4 billion, largely driven by card and consistent with expectations. Now turning to the Corporate Investment Bank on page 7. For the fourth quarter, CIV reported net income of $2.9 billion and an ROE of 14% on revenue of $9.5 billion, a strong finish to the year. For the full year, CIV delivered record revenue of $38 billion and an ROE of 14%. In investment banking, IB fees reached an all-time record for the full year. We maintained our number one rank in global IB fees and grew share to its highest level in a decade. For the quarter, IB revenue of $1.8 billion was up 6% year-on-year, outperforming the market, which was flat. Advisory fees were down 3% following a record performance last year. On a sequential quarter basis, fees were up meaningfully as we benefited from the closing of some large transactions, and for the year, we ranked number two in gained share. Debt underwriting fees were up 11% year-on-year due to higher bond issuance activity as clients accelerated their funding to take advantage of attractive pricing conditions to strengthen their balance sheets. And for the year, we maintained our number one rank overall, and we were number one for needless positions in both high-yield bonds and leveraged loans. Equity underwriting fees were up 10% year-on-year, reflecting strong performance in the U.S. and Latin America. The new issuance market continued to be active, and for the year, we ranked number one in equity underwriting as well as IPOs. Our overall pipeline continues to be healthy as strategic dialogue with clients is constructive, equity markets remain receptive to new issuance, and the rate environment is favorable for debt issuance. Moving to markets... Total revenue was $5 billion, up 56% year-on-year, driven by record fourth quarter revenue in both fixed income and equity markets. Fixed income markets was up 86%, benefiting from a favorable comparison against the challenging fourth quarter last year, but also reflecting strength across businesses, notably in securitized products and rates, driven by strong client activity and monetizing flows. Equity markets was up 15%, driven by strength across cash and prime. Treasury services revenue was $1.2 billion, down 3% year-on-year, primarily due to deposit margin compression, which was largely offset by organic growth, while security services revenue was $1.1 billion, up 3%. Expenses of $5.2 billion were up 12% compared to the prior year, with higher legal, volume, and revenue-related expenses, as well as continued investments. Now moving on to commercial banking on page 8. Commercial banking reported net income of $938 million and an ROE of 16% for the fourth quarter. And for the year, $3.9 billion of net income and an ROE of 17%. Fourth quarter revenue of $2.2 billion was down 3% year-on-year, with lower deposit NII on lower margins largely offset by higher deposit fees and a gain on the strategic investment. Gross investment banking revenues were $634 million, up 5% year-on-year, driven by increased large deal activity. Full-year IB revenue was a record $2.7 billion, up 10%, on strong activity across segments, with record results for both middle market and corporate client banking. Expenses of $882 million were up 4% year-on-year, driven by continued investments in banker coverage and technology. The COVID balances were up 8% year-on-year as we continued to see strong client flows. Loan balances were up 1% year-on-year. D&I loans were up 2% driven by growth in specialized industries and expansion markets, partially offset by the runoff in our tax exempt portfolio. DRE loans were up 1% where we continued to see higher originations in commercial term lending driven by the low rate environment, offset by declines in real estate banking as we remained selective given where we are in the cycle. Finally, credit costs were $110 million with an NCO rate of 17 basis points, largely driven by its single name, which was reserved for in prior quarters. Underlying credit performance continues to be strong. Now on to asset and wealth management on page 9. Asset and wealth management reported net income of $785 million with pre-tax margin of 28% and ROE of 29% for the fourth quarter. And for the year, AWM generated net income of $2.8 billion with both pre-tax margin and ROE of 26%. Revenue of $3.7 billion for the quarter was up 8% year-on-year as the impact of higher investment valuations in average market levels, as well as deposit and loan growth, were partially offset by deposit margin compression. Expenses of $2.7 billion were up 1% year-on-year. And for the quarter, We saw net long-term inflows of $14 billion driven by fixed income and multi-assets, and we had net liquidity inflows of $37 billion. AUM of $2.4 trillion and overall client assets of $3.2 trillion, both records, were up 19% and 18% respectively, driven by higher market levels as well as continued net inflows into long-term and liquidity products. Deposits were up 8% year-on-year, driven by growth and interest-bearing products. And finally, we had record loan balances of 8%, with strength in both wholesale and mortgage lending. Now on to corporate on page 10. Corporate reported a net loss of $361 million. Revenue was a loss of $228 million for the current quarter, driven by approximately $190 million of net markdowns on certain legacy private equity investments. Sequentially, revenue was down $920 million due to lower rates the benefit recorded in the prior quarter related to loan sales, as well as the PE losses I just mentioned. Year-on-year revenue was down, also primarily driven by lower rates. Expenses of $343 million were down $165 million year-on-year due to the timing of our contributions to the foundation in the prior year. And turning to page 11 for the outlook. And Investor Day, as always, will give you more information on the full year outlook. However, for now, I'll provide some color and reminders about the first quarter. We expect NII to be approximately $14 billion market dependent, adjusted expenses to be about $17 billion, and as a reminder, the effective tax rate in the first quarter is typically impacted by stock compensation adjustments, and as a result, it's currently estimated to be approximately 17%, with the managed tax rate about 500 to 700 basis points higher. So to wrap up, 2019 was a year of record financial performance across revenue, net income, and EPS. Our outlook heading into 2020 is constructive, underpinned by the strength of the U.S. consumer, and despite expected slower global growth and the backdrop of geopolitical uncertainty, we remain well-positioned as we continue to build on our scale and benefit from the diversification of our business model.

And with that, operator, please open the line for Q&A.