JPMorgan Chase & Co. (NYSE:JPM)
Q3 2014 Earnings Conference Call
October 14, 2014 08:30 AM ET
Marianne Lake – CFO
Jamie Dimon – Chairman and CEO
Matt O’Connor – Deutsche Bank
John McDonald – Stanford Bernstein
Glenn Schorr – ISI
Betsy Graseck – Morgan Stanley
Guy Moszkowski – Autonomous
Gerard Cassidy – RBC
Mike Mayo – CLSA
Erika Najarian – Bank of America Merrill Lynch
Brennan Hawken – UBS
Ken Usdin – Jefferies & Company
Steve Chubak – Nomura
Good morning, ladies and gentlemen. Welcome to the JPMorgan Chase’s Third Quarter 2014 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 standby.
At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Marianne Lake. Ms. Lake, please go ahead.
Marianne Lake – CFO
Thank you, operator. Good morning everyone. I am going to take you through the earnings presentation, which is available on our web site. Please refer to the disclaimer regarding forward-looking statements at the back of the presentation.
Starting on page one, the firm delivered strong underlying performance this quarter with net income of $5.6 billion on strong revenue of over $25 billion, up 5% year-on-year, reflecting growth across most of our businesses, and EPS of $1.36 and the return on tangible common equity of 13% for the quarter. Included in our results with firm-wide legal expense of approximately $1 billion after tax, which relates to a number of matters in large part and estimated amount for FX which was treated as non-deductable tax purposes.
There were also a number of smaller items, most notably a benefit of approximately $400 million of tax discrete items in corporate as well as consumer reserve releases of $200 million pre tax. Excluding these and other non-core items, net income was approximately $5.8 billion reflecting strong core performance.
The quarter was characterized by continued strengths in our leadership positions as well as market share gains across the consumer businesses. Higher levels of market volatility and client volumes than anticipated in CIB and record performance in asset management. Core loan growth for the quarter was strong up 7% year-on-year while maintaining strong discipline across the board and with encouraging trends in consumer. We’ve also continued to make progress against our capital targets with a CET 1 ratio of 10.1% and firm supplementary leverage ratio of 5.5%. All while returning approximately $3 billion as capital to shareholders the quarter, with growth share repurchases of $1.5 billion.
Turning to page two, adjusted expense that excluding legal was $14.7 billion in the third quarter, down approximately 30 million quarter-on-quarter with an adjusted overhead ratio of 59%. We continued to be focused and diligent on managing expenses, although our third quarter adjusted expense may appear elevated in comparison to our full year target of 58 billion, it was substantially driven by higher market performance versus our earlier expectations. If the positive momentum continues in the fourth quarter, it’s likely that our total adjusted expense will be above $58 billion but obviously on higher revenues.
On credit, despite lower reserve releases firm wide credit costs remained very low driven by reduced net charge-offs. We expect total net charge-offs for 2014 to be less than $5 billion which is below our previous guidance. Also included on this page are the returns generated by each of our businesses this quarter. Of note the commercial bank and asset management achieved 18% and 25% ROEs respectively in line with their previous cycle target. CCB was at 19% and if you back out the impact of legal expense in CIB its ROE would have been around 14%.
Moving on to capital on Page 3. The firm reported a fully phased in advanced CET 1 ratio of 10.1% up from 9.8 last quarter reaching our year-end target of 10% plus. Not on the page but for your information the fully phased in standardized ratio was 10.5%. As you know the final U.S. rules on SLR and LTR were published in September, on SLR there were no notable changes and as I just mentioned the firm’s SLR was 5.5% reaching our target level and we’re at 5.7% for the bank this quarter.
The LTR final U.S. rule had some changes versus the NPR, remember we have been disclosing our LTR compliance relative to the Basel rules. The U.S. final rule is in some ways more punitive but we remain compliant with a more modest buffer.