JP Morgan Chase & Co.

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

Thank you very much. Good morning, everyone. As always, 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 $9.7 billion, EPS of $3.12 on revenue of $33.5 billion, and delivered an ROTCE of 18%. The only significant item this quarter was discretionary net investment securities losses in corporate of $959 million, as a result of repositioning the portfolio by selling U.S. Treasuries and mortgages. Our strong results this quarter reflect the resilience of the franchise in a dynamic environment. Touching on a few highlights, we had record third quarter revenue in markets of $6.8 billion. We ranked number one in retail deposit share based on FDIC data, and credit is still healthy with net charge-offs remaining low. On page two, we have more detail. Revenue of $33.5 billion was up $3.1 billion, or 10% year-on-year. Excluding the net investment securities losses, it was up 13%. NII X Markets was up $5.7 billion, or 51%, driven by higher rates. NIR X Markets was down $3.2 billion, or 24%, largely driven by lower IV fees and the securities losses. and market revenue was up $502 million, or 8% year-on-year. Expenses of $19.2 billion were up $2.1 billion, or 12% year-on-year, driven by higher structural costs and investments. And credit costs of $1.5 billion included net charge-offs of $727 million. The net reserve build of $808 million included a $937 million build in wholesale reflecting loan growth and updates to the firm's macroeconomic scenarios, partially offset by $150 million release in home lending. On to balance sheeted capital on page three. We ended the quarter with a CT1 ratio of 12.5%, up 30 basis points versus the prior quarter, which was primarily driven by the benefit of net income less distributions, partially offset by the impact of AOCI. RWA was down approximately $23 billion quarter-on-quarter, with growth and lending more than offset by continued active balance sheet management and lower market risk RWA. Given our results this quarter, we are well positioned to meet our CET1 targets of 12.5% in the fourth quarter and 13% in the first quarter of 2023. These current targets include a 50 basis point buffer over the growing regulatory requirements, which provides flexibility over the coming quarters. To conclude on capital, with the future increases in our risk-based requirements, SLR will no longer be our binding capital constraint, so we announced the call of $5.4 billion in preps this quarter and issued $3.5 billion in sub-debt to rebalance our capital stack. Now, let's go to our businesses, starting on page four. Before I review CCB's performance, let me provide you with an update on the health of U.S. consumers and small businesses based on our data. Nominal spend is still strong across both discretionary and non-discretionary categories, with combined debit and credit spend up 13% year-on-year. Cash buffers remain elevated across all income segments. However, with spending growing faster than income, we are seeing a continued decrease in median deposits year-on-year, particularly in the lower income segments. And not surprisingly, small business owners are increasingly focused on the risks and the economic outlook. Now moving to financial results, this quarter, CCP reported net income of $4.3 billion on revenue of $14.3 billion, which was up 14% year-on-year. In consumer and business banking, revenue was up 30% year-on-year, driven by higher NII on higher rates. Deposits were up 10% year-on-year and down 1% quarter-and-quarter. We ranked number one in retail deposit share based on FDIC data, up 60% year on year, making us the fastest growing among the top 20 banks. And we are now number one in LA, in addition to New York and Chicago, making us top ranked in the three largest markets. Client investment assets were down 10% year on year, driven by market performance, partially offset by flows. Home lending revenue was down 34% year on year, on lower production margins and volume. Moving to card and auto, revenue was up 9% year-on-year, driven by higher card and I.I., partially offset by lower auto lease income. Card outstandings were up 18%, and while revolving balances were up 15%, driven by strong net new account originations and growth in revolving balances per account, they still remain slightly below pre-pandemic levels. and in auto, originations were $7.5 billion, down 35% due to lack of vehicle supply and rising rates. Expenses of $8 billion were up 11% year-on-year, driven by the investments we're making in technology, travel, marketing, and branches. In terms of actual credit performance this quarter, credit costs were $529 million, reflecting net charge-offs of $679 million, which were up $188 million year-on-year, largely driven by loan growth in card, as well as a reserve release of $150 million in home lending. Card delinquencies remain well below pre-pandemic levels, though we continue to see gradual normalization. Next, the CIB on page 5. CIB reported net income of $3.5 billion on revenue of $11.9 billion. Investment banking revenue of $1.7 billion was down 43% year-on-year. IV fees were down 47% versus a strong third quarter last year. We maintained our number one rank with a year-to-date wallet share of 8.1%. In advisory, fees were down 31%, reflecting lower announced activity this year. Underwriting businesses continued to be affected by market volatility resulting in fees down 40% for debt and down 72% for equity. In terms of the fourth quarter outlook, we expect to be down versus a very strong prior year. And while our existing pipeline is healthy, conversion will, of course, depend on market conditions. Funding revenue of $323 million was up 32% versus the prior year, driven by higher NII on loan growth. Moving to markets, Revenue was $6.8 billion, up 8% year-on-year. Fixed income was up 22% as elevated volatility drove strong client activity in the macro franchise, partially offset by a less favorable environment in securitized products. Equity markets were down 11% against a record third quarter last year. This quarter saw relative strength in derivatives, lower balances in prime, and lower cash revenues on lower block activity. Payments revenue was $2 billion, up 22% year on year. Excluding the net impact of equity investments, it was up 41%, and the year on year growth was driven by higher rates and growth in fees. Security services revenue of $1.1 billion was relatively flat year on year. Expenses of $6.6 billion were up 13% year on year, largely driven by compensation. Credit costs or $513 million, driven by a net reserve build of $486 million. Moving to commercial banking on page six. Commercial banking reported net income of $946 million. Record revenue of $3 billion was up 21% year on year, driven by higher deposit margins, partially offset by lower investment banking revenue. Gross investment banking revenue of $761 million was down 43% year-on-year, driven by reduced capital markets activity. Expenses of $1.2 billion were up 14% year-on-year. Deposits were down 6% year-on-year and quarter-on-quarter, primarily driven by attrition of non-operating balances, while our core operating balances have shown stability as payment volumes continue to be robust. Loans were up 13% year-on-year and 4% sequentially. CNI loans were up 7% sequentially, reflecting continued strength in originations and revolver utilization. CRE loans were up 2% sequentially, driven by lower prepayment activity in commercial term lending and real estate banking. Finally, credit costs were $618 million, predominantly driven by a net reserve build of $587 million, while net charge-offs remained low. To complete our lines of business, AWM on page 7. Asset and wealth management reported net income of $1.2 billion with pre-tax margin of 36%. For the quarter, revenue of $4.5 billion was up 6% year-on-year, predominantly driven by deposits and loans on higher margins and balances, largely offset by reductions in management fees linked to this year's market declines. Expenses of $3 billion were up 10% year on year, driven by compensation, including investments in our private banking advisor teams, technology, and asset management initiatives. For the quarter, net long-term inflows were $12 billion across fixed income, equities, and alternatives. AUM of $2.6 trillion and overall client assets of $3.8 trillion were down 13% and 7% year on year, respectively. driven by lower market levels, partially offset by continued net inflows. And finally, loans were flat quarter on quarter, while deposits were down 6% sequentially, driven by migration to investments, partially offset by client flows. Turning to corporate on page eight. Corporate reported a net loss of 294 million. Revenue was a net loss of 302 million, compared to a net loss of $1.3 billion last year. NII was $792 million, up $1.8 billion year-on-year, driven by the impact of higher rates. NIR was a loss of $1.1 billion, down $852 million, primarily due to the securities losses I mentioned up front. And expenses of $305 million were higher by $125 million year-on-year. The outlook on page nine. Going forward, we will also provide guidance for total firm-wide NII. For the fourth quarter, we expect it to be approximately $19 billion, implying full-year 2022 NII of approximately $66 billion. And we expect NII X markets for the fourth quarter to also be about $19 billion, implying that we expect markets NII to be around zero, which brings the full year to about $61.5 billion. While we're not giving 2023 NII guidance today, you will recall that at Investor Day, we talked about a fourth quarter 2022 NII X markets run rate of $66 billion with potential upside for the full year 2023. Today's guidance for the fourth quarter of this year implies an approximate run rate of $76 billion. And from this much higher level, we would now expect some modest decline for the full year of 2023. In addition, there's quite a bit of uncertainty surrounding the trajectory of key drivers, including rates, deposit reprice, and loan growth. So keep both of those things in mind as you update the 2023 estimates in your models. Moving to expenses, our outlook remains unchanged. And as it relates to the card net charge-off rate, we now expect the full year rate to be approximately 1.5% below our previous expectations. So to wrap up, we are happy with the strong diversified performance of the quarter as we continue to navigate an environment of elevated uncertainty. With that, I will turn it over to Jamie for some additional remarks.

Jeremy, thank you very much. Hello, everybody. Yeah, I just want to give you a little more insight to how we're looking at capital and interest rates a little bit. So capital planning, you know, we're very comfortable with the earnings power of this company, which you can see is enormous, and the margins and the returns. And more importantly than that is we're growing franchise value, I think, all around the firm. And in most areas, we're up in market share, and a few areas we're not. And of course, that disappoints us. But the earnings power, you know, gives us a lot of confidence that we'll get over that 13% in the first quarter. But we always have to keep in mind the volatility in a bunch of other things. So, we know we have to deal with Basel IV. We don't know when and how that's going to be, and any change in G-SIB, such as an uncertainty in the back of our mind. AOCI. AOCI was traditionally countercyclical, but in this kind of environment is more procyclical. So, think of it as another 100 basis points, that's $4 billion. Easily can handle it, just in the back of our mind. You know, CECL already incorporates a percent of what we think the adverse consequences might be. But obviously, if the environment gets worse, we'll have to add to reserves. And or if we change our outlook, meaning that we think the chance of adverse events are higher, we'll change our reserves. put in the back of your mind that if, you know, unemployment goes to 5% or 6%, you're probably talking about $5 or $6 billion over the course of a couple of quarters. Again, easy to handle, not a big deal. It just does affect capital a little bit. And then RWA management, I mean, I think we're showing that we can easily manage RWA and drive it down in some areas and up in other areas and stuff like that. I would say a very limited financial effect. And the way you should look at this is, We don't tell, you know, commercial bank or investment bank, don't get new business, don't serve your clients. So we're serving clients the way we always do. And you see the loan books growing in a lot of areas. But there are some discretionary things which barely affect us. So we're not putting conforming mortgages on the balance sheet, whether we originate them or whether correspondents originate them for the most part, because it makes very low sense to do that in the balance sheet. And we make other choices. And so there are a lot of tools to manage it. Obviously, these capital requirements going up, we're going to find ways to reduce RWA. I'm talking about over years strategically, I think without affecting our basic franchises. Interest rates, I think the way to look at it is we're, you know, we're fairly neutral at this point to interest rates going up or down. Jeremy said the 19 billion, please do not annualize that. There are a lot of uncertainties today, and I'm just going to mention a few. We're not worried about them. It's not going to change things dramatically, but it does change things. What's going to be QT's effect on deposits? how much deposit migration you can have in this new technological environment. And there are pluses and minuses in that. And of course, there are lags. There are lags in consumer. There can be some lags in treasury services. There can be some lags in commercial banking. So it's just on the back of our mind, we're going to kind of actively manage that. And the other thing I want to point out is that taking investment securities losses, for the most part, is because we want to sell rich securities and replacement cheap securities. We don't want to be locked into something we think will get worse and not take a chance to buy something that we think will get better. So you might expect to see that taking place now. There may be some securities lost in the future. We can do that. We're not doing, we can do this to manage interest rate exposure, but for the most part, we can do that with swaps too, or other things. We just do it the most efficient and effective way. I want the people managing these portfolios to know that we can sell things we don't want to own and buy things that we do want to own. And other than that, we think it was a very, very good strong quarter across the board. And yeah, I guess we'll open for questions now.