JP Morgan Chase & Co.

JPMorgan Chase & Co. Earnings Conference Call will begin shortly.

Please stand by. We are about to begin. Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's second quarter 2022 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.

Thanks, operator. Good morning, everyone. The presentation is available on our website, and please refer to the disclaimer in the back. Starting on page one, the firm reported net income of $8.6 billion, EPS of $2.76, on revenue of $31.6 billion, and delivered an ROTCE of 17%. Touching on a few highlights, we had another quarter of strong performance in markets, which generated revenue of nearly $8 billion. Credit is still quite healthy, and net charge-offs remain historically low. And there continue to be positive trends in loan growth across our businesses, with average loans up 7% year-on-year and 2% quarter-on-quarter. On page two, we have some more detail. Revenue of $31.6 billion, percent year-on-year. NII ex-markets was up 2.8 billion or 26 percent driven by higher rates and balance sheet growth. NIR ex-markets was down 3.6 billion or 26 percent largely driven by lower IV fees and higher card acquisition costs and markets revenue was up 1 billion or 15 percent year-on-year. Expenses of 18.7 billion were up 1.1 billion or 6 percent year-on-year and predominantly on higher investments and structural expenses, partially offset by lower volume and revenue-related expenses. And credit costs were $1.1 billion, which included net charge-offs of $657 million and reserve bills of $428 million, reflecting loan growth as well as a modest deterioration in the economic outlook. On to balance sheet and capital on page three. Let's start by talking about our plans for capital management over the coming quarters. The new 4% SCB will raise our standardized CT1 requirement to 12%, effective in the fourth quarter. And the 4% G-SIB, effective in 1Q23, further raises this requirement to 12.5%. At Investor Day, we said that we expected SCB to be higher and made it clear that in the near term, share buybacks would be significantly reduced in order to build capital for the increased requirements. In light of the SCB coming in even higher than expected, we have paused buybacks for the near term. As we discussed at Investor Day, and as we show at the bottom of this presentation page, our organic capital generation allows us to rapidly build capital in excess of future requirements, with a current target of roughly 12.5% in the fourth quarter. Any excess over the regulatory requirements offers us protection against a range of economic scenarios with room to deploy capital in line with our strategic priorities. We have a long established track record of balance sheet discipline across the company, and this quarter's RWA reduction shows evidence of this discipline. Turning to this quarter's results, you can see that our CT1 ratio of 12.2% is up 30 basis points from the prior quarter. Our RWA was down approximately $44 billion, with growth in franchise lending being more than offset by the combination of active balance sheet management and the normalization of market risk RWA from the first quarter. C2-1 capital was slightly down as earnings were offset by distributions and the impact of AOCI drawdowns in our AFS portfolio. Now, let's go to our businesses, starting with consumer and community banking on page four. Before I review CCB's performance, let me touch on what we're seeing in our data regarding the health of the U.S. consumer. Spend is still healthy, with combined debit and credit spend up 15% year-on-year. We see the impact of inflation and higher nondiscretionary spend across income segments. Notably, the average consumer is spending 35% more year-on-year on gas and approximately 6% more on recurring bills and other nondiscretionary categories. At the same time, we have yet to observe a pullback in discretionary spending, including in the lower income segments, with travel and dining growing a robust 34% year-on-year overall. And with spending growing faster than incomes, median deposit balances are down across income segments for the first time since the pandemic started, though cash buffers still remain elevated. With that as a backdrop, this quarter, CCB reported net income of $3.1 billion, on revenue of 12.6 billion, which was down 1% year-on-year. In consumer and business banking, revenue was up 9% year-on-year, driven by growth in deposits. Deposits were up 13% year-on-year and 2% quarter-on-quarter. And client investment assets were down 7% year-on-year, driven by market performance, partially offset by flows. Home lending revenue was down 26% year-on-year, as the rate environment drove both lower production revenue and tighter spreads, partially offset by higher net servicing revenue, and mortgage origination volume of $22 billion was down 45%. Moving to card and auto, revenue was down 6% year-on-year, reflecting higher acquisition costs on strong new card account originations and lower auto lease income, largely offset by higher card NII. Card outstandings were up 16%, and revolving balances were up 9%. and in auto, originations were $7 billion, down 44% from record levels a year ago, due to continued lack of vehicle supply and rising rates, while loans were up 2%. Expenses of $7.7 billion were up 9% year-on-year, driven by higher investments and structural expenses, partially offset by lower volume and revenue-related expenses. In terms of actual credit performance this quarter, credit costs were $761 million, reflecting net charge-offs of $611 million, down $121 million year-on-year driven by card, and a reserve build of $150 million in card driven by loan growth. Next, the CIB on page 5. CIB reported net income of $3.7 billion on revenue of $11.9 billion. There were a number of notable items this quarter, including... Net markdowns on certain equity investments of approximately $370 million was about $345 million reflected in payments, and markdowns on the bridge book of approximately $250 million in IB revenue. Investment banking revenue of $1.4 billion was down 61% year-on-year, or down 53%, excluding the bridge book markdowns. IB fees were down 54% versus an all-time record quarter last year. We maintained our number one rank with a year-to-date wallet share of 8.1%. In advisory, fees were down 28% reflecting a decline in announced activity, which started in the first quarter. The volatile market resulted in muted issuance in our underwriting businesses. Underwriting fees were down 53% for debt and down 77% for equity. In terms of outlook, While our existing pipeline remains healthy, conversion of the deal backlog may be challenging if the current headwinds continue. Lending revenue of $410 million was up 79% versus the prior year, driven by gains on mark-to-market hedges as well as higher loan balances. Moving to markets, total revenue was $7.8 billion, up 15% year-on-year in both fixed income and equities against a strong quarter last year. In fixed income, elevated volatility drove both increased client flows and robust trading results in the macro franchise, most notably in currencies and emerging markets. This was partially offset by credit and securitized products in a challenging spread environment. In equity markets, we had a strong second quarter, and again, increased volatility produced a strong performance in derivatives. Credit adjustments and other was a loss of $218 million, largely driven by funding spread widening. Payments revenue was $1.5 billion, up 1% year-on-year, or up 25%, excluding the markdowns on equity investments. The year-on-year growth was primarily driven by higher rates. Security services revenue of $1.2 billion was up 6% year-on-year, with growth in fees and higher rates more than offsetting the impact of lower market levels. Expenses of $6.7 billion were were up 3% year-on-year, predominantly driven by higher structural expenses and investments, largely offset by lower revenue-related compensation. Moving to commercial banking on page 6. Commercial banking reported net income of $1 billion. Revenue of $2.7 billion was up 8% year-on-year, driven by higher deposit margins, partially offset by lower investment banking revenue. Gross investment banking revenue of $788 million was down 32%, driven by lower debt and equity underwriting activity. Expenses of $1.2 billion were up 18% year-on-year, predominantly driven by higher structural and volume and revenue-related expenses. Deposits were down 5% quarter-on-quarter, driven by migration of non-operating deposits into higher-yielding alternatives, which we expect to continue given the current rate environment. Loans were up 4% sequentially. C&I loans were up 6%, reflecting higher revolver utilization and originations across middle market and corporate client banking. CRE loans were up 3%, driven by strong loan originations and funding in commercial term lending and real estate banking. Finally, credit costs of $209 million were largely driven by loan growth, while net charge-offs remain historically low. and then to complete our lines of business, AWM on page seven. Asset and wealth management reported net income of a billion dollars with pre-tax margin of 31%. For the quarter, revenue of 4.3 billion was up 5% year on year, driven by growth in deposits and loans as well as higher margins, partially offset by investment valuation losses versus gains in the prior year.