Highlights From JPM's Q1 Conference Call: Investment Bank Fees Up 23% Year-over-Year

JPMorgan Chase & Co. (NYSE: JPM) reported Q1 EPS of $1.28, $0.12 better than the analyst estimate of $1.16. Revenue for the quarter came in at $25.8 billion versus the consensus estimate of $25.48 billion. Shares are down 0.94% today.

Highlights From JPM's Q1 Conference Call:

• (Douglas L. Braunstein)For the quarter, we generated net income of $5.6 billion, $1.28 a share and that was on revenues of $25.8 billion.
  
  
• We ended the quarter with Tier 1 common of $120 billion. Strong Basel I Basel III ratios of 10% and 7.3% respectively. You see those on the page. An increase of about 20 basis points quarter-over-quarter. You also see on the next page ROE of 13%, ROTCE of 18%.
  
  
• Investment bank - Circled net incomes here on the page of $2.4 billion. That is on revenues of $8.2 billion. Investment Banking fees in the quarter were a $1.8 billion, up 23% year-on-year. We continue to be ranked number one but it remains a very highly competitive market.
  
  
• Markets revenues this quarter $6.6 billion. That really reflects very strong client based revenues and we have generated in part through the volatilities that we experienced in the first quarter in the markets and us helping our clients manage through that volatility. While these numbers are slightly down from a record first quarter 2010, still very strong results. $5.2 billion dollar of revenue you see on the page in fixed income.
  
  
• There was strong performance across all of our asset classes there, rates, effects, credit, securitized products and strong performance in commodities. A $1.4 billion in revenues and equities this quarter.
  
  
• Credit cost $429 million benefit and that really reflects a reduction in loan loss, allowances largely related to loan sales and net repayments. And just a reminder again here is with approach in a more normalized credit environment, this item is going to return to being expense item on an ongoing basis. Expenses in the quarter you see were $5 billion, up 4% year-on-year.
  
  
• One final note here, you see the loan balances in the investment bank up 2% modestly. And you will see that uptick to the extent that we continue to have active participation in the investment banking market, particularly the strategic advisory business, and you will see that in an uptick in our loan balances.
  
  
• Retail Banking had solid performance of net income of a little under $900 million on revenues of $4.4 billion. Revenue was up modestly year-over-year. And that was net of an impact of lower deposit related fees.
  
  
• Mortgage Banking, Auto and Consumer lending, there was a net loss of $937 million here on revenues of a little under $700 million.
  
  
• Revenues of $1.9 billion excluding the MSR risk management results, really reflect $36 billion in mortgage loan origination this quarter, higher volumes, wider margins in the first quarter of last year, but lower volumes and lower margins than the fourth quarter of last year.
  
  
• The other number that's included in that $1.9 billion you'll see is repurchase losses of $420 million for the quarter.
  
  
• Net income loss of $162 million. That's on revenues of $1.2 billion. That's down a little under $400 million year over year. The lower revenue number is really a decline in NII and it's a result of the portfolio run off. Balances declined year over year a little under $32 billion, $7.5 billion quarter on quarter, and we told you about that.
  
  
• Card Services. Circled net income on this page was $1.3 billion, revenues of approximately $4 billion. Credit cost, really the focus in this quarter, they were down significantly to $226 million, and if you look first at the bottom two circled numbers on the page you see 620 is the charge-off rate for our Chase portfolios. That's an improvement of 88 basis points quarter on quarter. That follows a 98-basis point improvement from Q3 to Q4.
  
  
• Chase volume was up 12% year-over-year, a little over $75 billion of spend from Chase cards.
  
  
• Commercial bank - You see circled net income of $546 million. That's on revenues of $1.5 billion. Revenues are up 7% year-on-year. That's a function of growth in loan balances, growth in liability balances, actually some wider spreads year over year. Higher investment banking fees year-over-year.
  
  
• Middle market loan balances, the average balances are up $4.3 billion or 13% year-over-year, which is quite substantial. And balances have been up now for 12 consecutive months. And while we know that our loan growth in that area is a mix of a market share gains and demand, we - this type of trend speaks more in part to what we believe is increasing demand in the space.
  
  You see the growth and liability balances, 17% year-over-year growth. We've got $156 billion of balances. And clients continue to generate cash and we hold that cash for them. And I think that speaks, again, to the quality of the customer base.
  
  
• Treasury and security services on Page 10. Circled net income of $316 million in the quarter. That's up 13% year-on-year, 23% quarter-on-quarter. Revenue of $1.8 billion that's up 5% year-on-year.
  
  
• Those are $25.5 billion in the quarter. That's up 86% year-over-year. It's up 21% quarter on quarter and we hope to continue to grow that business. Expenses continue to be up 4% year-on-year and that is a function of the discussion we've talked about in terms of investment particularly around international.
  
  
• Asset management - You see circled net income of $466 million in the quarter. That's up 19% year-on-year. Circled revenues $2.4 billion, that's up 13% year-on-year. And revenue growth was really based on a few factors. We continue to have strong net inflows into products with higher margins. Record asset under management inflows actually into long-term products this quarter of $27 billion.
  
  
• Corporate and Private Equity. You see the top number $383 million worth of net income from Private Equity in the quarter. That's really reflecting gains in the number of realizations, also improvements in the market value in our positions in the quarter.
  
  
• Corporate net income reported, $339 million. This line item is also going to be lumpy, but over time, trending to $300 million, plus or minus.
  
  
• (Q&A)And there has been some concern, I think, over the last few months in the marketplace that large dealers like yourselves, given some of the uncertainty about capital costs, Basel III, etc., are a little bit reluctant to put long-tailed derivative positions on. Is that being reflected at all in your results and might that have something to do with the decline in the margin? (A) So the capital and the risk already represent and affect Basel very close, or [indiscernible] with Basel III. And while it's possible some people are doing less long-tailed derivative stuff, I would not put it in the material category. There's a lot of client volume, a lot of client flow, a lot of activity.
  
  
• Your balance sheet shows a really significant increase in your deposits, both year-over-year and sequentially, $65, $70 billion. Can you give us a sense for what the big drivers are? (A) I'll answer this question, but you got to let someone ask a question, okay, Guy? So first of all, you look at the deposits, okay, middle market, I mean, commercial bank deposits are way up, TSS deposits are way up, private bank deposits are way up, retail deposits are up. Clients have a lot of money. And they're investing a lot. And as you know, we keep on saying, there's a lot of money wash around the world and obviously we're a beneficiary of some of that. You can see it by business if you go in deeper in the supplement.
  
  
• With respect to - you gave the credit card guidance of improved losses, going now to I guess 5.5%, yet you're carrying a 7.25% reserve. I guess ultimately where should we see that number go to and how much does it lag the improvement in NCOs? (A) Well, the reserve - look, obviously the reserves are coming down over time, precisely because of what you mentioned. The reserves are based on a forward-looking view of charge-offs; as charges come down, the reserve will come down. And eventually they will be the same, if you're reserving effectively for 12 months of losses and things are steady, eventually it will be the same. A normalized charge-off ratio will eventually be 4.5%, that's through the cycle. It can obviously be lower than that or higher than that.
  
  
• Right. Okay. And then just lastly, in looking at - you give the Basel I and Basel III Tier I common ratios, and it looks like the spread between the risk-rated assets on both those numbers is up $400 billion this quarter but it was also about $400 billion in the year-ago quarter. I guess through mitigation and the like, would we expect I guess a further reduction in - or further - for that spread to narrow? Or how should we just think about that in terms of - it doesn't look like there's been much mitigation on the RWAs for Basel III. (A) Because there are a lot of things that went through RWA. But I think we said last time the mitigation, most of which, not all of which, most of which will happen by the end of this year was 150 billion with great assets. (A) And I would say it's towards, in fairness, Jason, you would expect to see more of that towards the back end of the year as we get closer to sort of the market-based - market risk rolls.

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