JPMorgan Chase reported net income of $14.5 billion, EPS of $4.75 on revenue of $42.4 billion and delivered an ROTCE of 25% for the second quarter of 2023. The results included a bargain purchase gain of $2.7 billion and credit reserve build for the First Republic lending portfolio of $1.2 billion. Highlights included an 18% year-on-year increase in CCB Client investment assets, record long-term inflows in AWM, and number one IB Fee wallet share. The integration of First Republic is proceeding on schedule, with systems integration targeting completion by mid-2024. Client retention is strong, with $6 billion in net deposit inflows since the acquisition. The presentation has called out the impact of First Republic where relevant.

This quarter, First Republic contributed $4 billion in revenue, $599 million in expenses, and $2.4 billion in net income. Firm-wide revenue excluding First Republic was up 21%, driven by higher rates, while expenses were up 8%, mainly due to higher compensation and legal expenses. Credit costs of $1.7 billion included net charge-offs of $1.4 billion, and the net reserve build included a $389 million build in the commercial bank and $200 million build in card.

CCB reported a net income of $5 billion with revenue of $16.4 billion, which was up 31% year-on-year. The CET1 ratio was 13.8%, flat from the prior quarter. The liquidity ratio was 129%, in line with expectations. The Board intends to increase the dividend to $1.05 per share in the third quarter. The 10-Q will show a positive $2.5 billion in the up 100 basis point parallel shift scenario. End-of-period deposits were down 4% quarter-on-quarter.

Client investment assets were up 18% year-on-year, driven by market performance and net inflows. Home Lending revenue was down 23%, while Card Services & Auto revenue was up 5%. Expenses were up 8%, driven by compensation. Credit costs were $1.5 billion, with net charge-offs of $1.3 billion. Investment Banking reported net income of $4.1 billion on revenue of $12.5 billion, with Investment Banking fees down 6%, advisory fees down 19%, and underwriting fees down 6% for debt and up 30% for equity.

The second-half outlook is encouraging, with July being a good indicator for the rest of the year. However, year-to-date announced M&A is down significantly. Total revenue for Markets was down 10%, while Equity Markets was down 20%. Payments revenue was up 61%, and Security Services revenue was up 6%. Expenses were up 1%, driven by higher non-compensation expense and wage inflation. Commercial Banking reported net income of $1.5 billion, with revenue up 42%, and Payments revenue up 79%. Expenses were up 12%, driven by higher compensation and technology investments. Average deposits were up 3% quarter-on-quarter, and loans were up 2%.

This paragraph discusses the various loan categories and credit costs of JPMorgan Chase & Co. C&I loans increased by 2%, CRE loans increased by 1%, and credit costs were $489 million. Net charge-offs were $100 million and a net reserve build of $389 million was driven by updates to certain assumptions related to the office real-estate market. Asset & Wealth Management reported net income of $1.1 billion with pretax margin of 32%. Revenue and expenses were both up 8% year-on-year. Net long-term inflows were $61 billion and net liquidity inflows were $60 billion. AUM was up 16% year-on-year and overall client assets were up 20%. Loans were down 1% quarter-on-quarter and deposits were down 6%. The paragraph also notes that the First Republic bargain purchase gain and substantially all of the expenses are reported in Corporate.

Corporate reported net income of $339 million and revenue of $985 million, an increase of $905 million from last year. Net interest income was $1.8 billion, up $1.4 billion due to higher rates, but net interest income resulted in a net loss of $782 million due to investment securities losses. Expenses were $590 million, an increase of $384 million due to higher legal expenses, while credit costs were a net benefit of $243 million. The company expects 2023 NII and NII ex-markets to be approximately $87 billion, driven by higher rates and slower deposit repricing, but the run rate for NII will be lower at some point in the future due to competition for deposits. Expenses for 2023 are expected to be $84.5 billion and the 2023 card net charge-off rate is expected to be 2.6%. Despite the uncertainties, the company is optimistic about its performance.

Jeremy Barnum discusses the drivers of the upward revision in deposit behavior, which are higher rates and lower deposit reprice. He explains that the CD mix has increased and is expected to continue to do so, but notes that the current NII generation is not sustainable and is expected to decrease to a mid-70s run-rate at some point.

Erika asked if JPMorgan Chase's natural ROTCE could be above the 17% through-the-cycle rate when rates are not zero, and Jeremy said that there is a lot to consider when answering the question. He mentioned that when the ROTCE target was first introduced, the rate scenario was different than it is currently.

Jamie Dimon states that 17% ROTCE is a good target and that the company is cautious about credit. He also explains that the straight-up math of diluting ROTCE by expanding the denominator doesn't account for the possibility of repricing products and services, which can help offset the impacts of capital increases. He concludes by saying that the company is confident in its ability to deliver results, regardless of the outcome of the Basel III proposal.

Jeremy Barnum discussed strategies for mitigating the potential increase in capital requirements due to the Federal Reserve's proposed rules, noting that the biggest driver of the increase is likely the introduction of operational risk into the standardized pillar. He noted that it is difficult to optimize one's way out of this, and that the only option is to increase prices, which could have a negative impact on the economy.

John McDonald and Jeremy Barnum discuss the changes to capital requirements and how the company will adjust to them. They discuss that they will likely comply with the new requirements early, but that this may have consequences to returns or pricing. Barnum states that they will not sacrifice investments to comply, and that buybacks are unlikely to play a role in the next couple of years.

Jeremy Barnum discussed the trade-off between loan growth and investment banking fees. He noted that while there were some green shoots in the capital markets, there were still headwinds in M&A and regulatory headwinds. He expected robust card loan growth, but modest loan demand for other products such as mortgage and C&I. He noted that the bank was open to the right deals and terms, but not expecting meaningful growth away from card.

Jeremy Barnum and Ken Usdin discuss the consumer side of the economy, with Barnum noting that consumers are still spending, albeit a bit more slowly, and are using their excess deposits. Barnum states that consumer products have not yet reached pre-pandemic levels, and that there is more of a wanting than needing for their portfolio. Gerard Cassidy then asks Barnum to discuss how the treasury functions and asset-liability of the balance sheet are being managed in view of the potential terminal rate on Fed funds rates, to which Barnum responds that there has not been much change.

Jeremy Barnum cautions against drawing broad conclusions from the Commercial Banking segment's reserve building tied to office real estate and downgrades in the Middle Market area. Barnum explains that the portfolio is mostly multiply lending and that the exposure to urban dense office is small. He suggests that the reserve building was done in order to get to a comfortable coverage ratio and that there were more downgrades than upgrades in the Middle Market segment.

Jeremy Barnum cautions against getting too optimistic about the economy and the credit cycle in the future, despite recent positive trends. He emphasizes that it is important to be aware of the range of potential outcomes and not focus too much on one particular prediction. He also mentions that their views on the potential of a soft lending environment have not changed significantly.

Jamie Dimon and Jeremy Barnum discussed the potential impacts of the pandemic on the economy, including the expectation that NII will come down, and the potential for a recession. They also discussed the upcoming Basel reforms, and the potential for structural changes in the capital markets business due to FRTB. Vice-Chair of the Federal Reserve has expressed disagreement with the idea that the impacts of the pandemic are falling on deaf ears.

Jamie Dimon and Ebrahim Poonawala discuss the potential impacts of higher capital requirements and the FRTB proposal, which could make certain products, such as yield curve spread options, less viable. Dimon adds that even if a product does not make money, they may still offer it to their clients. Poonawala acknowledges Dimon's point, and the conversation moves on to the potential implications of Vice-Chair Bar's speech from this week, which suggests that capital ratios may go up by 20%.

Jamie Dimon, Jeremy Barnum, and Mike Mayo discuss changing the business model in terms of re-pricing and remixing activities. This could potentially lead to a higher capital requirement and a repricing of products and services. If the repricing is not successful, then the company may have to remix, meaning getting out of certain products and services. The Investor Day provides more color on the degree of investment, and the revenue guidance has been increased by $10 billion without changing the expense guidance.

Jamie Dimon explains that the company's spending is based on their through-the-cycle view of the earnings generating power of the company and the goal to produce the right returns. He explains that they have looked at the possibility of deploying more dollars into marketing, but that it is unlikely to be a meaningful item this year. He also emphasizes that it is not just about the money, but also about making sure that they have the right people and that they are careful and thoughtful in their decisions.

Jeremy Barnum and Mike Mayo discuss the company's efficiency ratio, which is the lowest it has been in a long time. Barnum explains that the company is making investments in technology to improve scalability and reduce fixed costs. Mayo then asks Steve Chubak from Wolfe Research about the outlook for deposit growth in the second-half of the year, both for the company and the broader industry.

The deposit numbers have been fluctuating due to regional bank turmoil and the public transaction, but the core view is that there will be a modest downward trend. There is hope that this trend can be offset through taking share in consumer and wholesale, as well as the bill issuance that has come from the CGA build. Additionally, RFPs have been decreasing, which is a good sign, but card income revenues have been muted in the quarter, with batch 91 being a source of pressure.

Jeremy Barnum and Steve Chubak discuss the impact of a rewards liability adjustment on card income and its effect on the sequential comparison. Barnum explains that the impact is not significant, but enough to make the sequential number look a bit lumpy. Glenn Schorr then follows up by asking about pricing power, to which Barnum explains that it depends on the product and competitive landscape, and that they have more pricing power in some cases than others. He also explains that the point they are trying to make in connection with Basel end game is that the capital increases are excessive.

Jeremy Barnum discusses the potential downside of pushing mortgage credit asset-backed intermediation out of the banking system, such as bad outcomes for individuals and homeowners during economic downturns, as well as the difficulty of making a profit in a thin margin business. He also notes the tension between remixing and pricing power, which could result in less credit availability for homeowners and more regulatory risk.

Jeremy Barnum explains that the change in asset sensitivity going from liability sensitive to asset sensitive is due to including the effect of deposit repricing lags in the modeling. This change increases the EAR number by about $4 billion from minus $1.5 billion to $2.5 billion. He cautions that the answer is never going to hold for any given change in rates, but they are doing their best to provide a more accurate prediction. Betsy Graseck asks if it is fair to think about the change as a mark-to-market to where they are today and if the 2.5% should come down due to accelerating deposit betas over the next four or five quarters.

Jeremy Barnum and Betsy Graseck are discussing the technical issue of constructing a number that includes deposit beta acceleration. Barnum explains that the nuance of the shock to the forward curve is that the reprice at the beta predicts will not be instantaneous. He then states that it is difficult to make a statement about the expectation for beta for the next 12 months relative to the NII guide. Graseck then asks if the deposit betas will be accelerating from here, which Barnum confirms. Jamie Dimon adds that if the next round is built from 30 to 40 to 50, the 2.5 will go down over time. Barnum concludes that the projection of the 87 coming down to a significantly lower number contains both the element of internal migration and the potential for product level reprice.

Matt O'Connor asked Jeremy Barnum and Jamie Dimon what would make them change their deposit rates meaningfully, considering the top two banks have a large consumer market share and loan-to-deposit ratios are low. Jamie Dimon replied that each bank has a different position and they compete for deposits in different cities. Jeremy Barnum replied that it's just feedback from the field and competition that will determine the rates.

Charles Peabody asked Jeremy Barnum about the liquidity metrics shown on Page 4 of the presentation and the depletion of excess liquidity. Barnum explained that the change in the bank LCR number was expected, and that the notion of replenishing liquidity was not correct. He assured Peabody that the bank still had ample liquidity.

Jamie Dimon explains that the company has a large amount of cash and marketable securities, and Charles Peabody follows up by asking what the impact will be if the company's NII drops from $22 billion to $18 billion, to which Jeremy Barnum responds that it is entirely a deposit story and that the company has already demonstrated the dollar consequences of a 10 basis point change in deposit rate paid in terms of NII run rate.

Jamie Dimon explains that the movement of deposits from lower-yielding to higher-yielding accounts, even small changes in rates, can have a significant effect on margin when there are trillions of dollars in deposits. He emphasizes the importance of understanding the expected trajectory of this movement.

This summary was generated with AI and may contain some inaccuracies.