Thursday, April 16, 2009

JP Morgan Earnings And Conf Call Q&A

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Guy Moszkowski: TARP repayment?

Like to repay asap, waiting for guidance from government of the U.S., want to do what is in the interest of the U.S. Don't think need more capital. Don't think need to do an equity issuance to repay TARP.

Guy: Equity VaR much higher. Why?

A lot of that just hedged positions. Does not signal higher equity risk derivative exposure.

Guy: No change from FASB change. Why?

Was adopted and had fundamentally no impact.

Guy: Talk about auto industry exposure - how are reserved to autosupplier exposure?

Direct exposure to three companies would be at worst $1 billion, could "lose more money" to finance companies as have collateralized exposure. Exposure to suppliers at both commercial and investment banks.

John McDonald: Credit cards: 9% charge off rate guidance? Where comes from? Why is WaMu book so much worse?

Based on real roll rates and real delinquencies. WaMu is mostly subprime.

McD: What about WaMu excess spread shrinkage triggers?

Not immediately concerned about it, paying attention to it, fixable if "want to."

Mike Mayo: Comp-to-revenue in IB low - is that going forward?

Actual accrual amount was higher.

Mike: credit card losses - are they going non linear vs. increase in unemployment in certain markets?

Wherever unemp goes up, charge offs go up, where house prices go down, charge off go up, and where the two occur at same time, the charge offs rise "significantly" more.

Mike: impact of moratorium?

Trying to do mod program. Will have more foreclosures, but many people did mod or refi.

Whitney: elaborate on MSR assumption to have gain?

Conservative on MSR. Over time prepayment fees have slowed, turnover has gone down. MSR is a real earning asset.

Whitney: subprime guidance - running off Providian portfolio; does that squeeze assumptions for another leg down in subprime market.

For JPM subrpime not that big, whole Providian book is $26 billion.

Whitney: expect to be profitable on cards this year?

No, and "that is not news".

Betsy Grasik: Libor vs Fed funds normalizing?

Benefitting from lower interest rate environment going forward.

Q: How thinking about PPIP?

No intent on using PPIP at all, mark their own assets properly; will never borrow from U.S. government, have "learned our lesson". PPIP could be good for system, would give prices to certain loans. But not critical to success of all government programs. Toxic assets are not the problem: banks in business are lending; banks are only 25% of the financial system, not 100%. The vast majority of funds flow does not occur at the bank.

Besty: How will lower cost of capital for bank with TLGP ending soon?

Cost would be 100 bps higher. Unguaranteed markets will come back eventually. (Dimon getting very excited here). Don't expect spreads to come back to historic levels. Have trillion in deposits and $700 billion in loans. Not a deal for JPM, could be a tremendous deal for others for whom it will cost 500 bps.

Jeff Hart: CRE for credit quality?

Not a big deal either [what is a big deal for big Jamie?] Losses are going up. Will see rapidly rising charge offs in real estate, will be idiosyncratic as different loans and different standards.

Jeff: Have billion in hedging gains?

Related to MSR, will not repeat.

Chris from OpCo: Strength and durability in fixed income trading?

Investment bank in corp fin and S&T side has been doing well. Very good results in F/X, Emerging markets, etc. Spreads are up, volumes are up, continue to gain share. Q1 was historically high quarter, likely will not repeat.

Chris: How look at reserve adequacy? Non-performing loans do not pile up in same way?

$4 billion for reserves, $1 billion in investment bank, underlying trading result would be even better.

Jason Goldberg: Update on stress tests? When will hear back?

Know what you know. Have not heard back from government. That's how will leave it.

James: Credit card losses - expect jump?

Will see creep up after a big jump next quarter.

Matt Burnell: Clarification on prime portfolio in CA and FL- is market bottoming there?

Affordability to pay at all time records there. Homes there moving much faster. All positive signs in CA. Will see what happens to prices over time. Activity not impacting views on losses, but sooner home prices stabilize the better.

On WaMu loans: testing for credit impairment?

In home lending side, low level of losses period - much higher credit quality in mortgage that has stayed in accrual books, while in "card" take losses in initial purchase accounting, normalized would have been 16-17%, next quarter will be 18% on $26 billion as initial purchase accounting benefit goes away.

Fluffer Q&A. Everyone afraid to offend Jamie.

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