JPMorgan Chase & Co. Q1 Earnings Conference Call: Full Transcript

Operator: Good morning ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2016 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, Marianne Lake. Ms. Lake, please go ahead. Marianne Lake: Chief Financial Officer: Thank you, Operator. Good morning, everybody. I'm going to take you through the earnings presentation which is available on our website. Please refer to the disclaimer regarding forward-looking statements at the back of the presentation. Starting on Page 1, the firm reported net income of $5.5 billion, EPS of $1.35, and a return on tangible common equity of 12%, on $24 billion of revenue and despite the general market backdrop and energy, our results this quarter were quite good and pretty straightforward. Consumers remain leading to robust growth in business drivers and strong financial performance. In Consumer we saw double-digit growth in deposits year-on-year, healthy loan growth across products driving 17% core loan growth for the firm, and high single-digit card sales volumes. The wholesale businesses performed in line or better than expectations expressed at Investor Day and delivered descent financial results in challenging markets with significant volatility and global macro uncertainty. The firm's results included one significant item, $773 million of wholesale credit cost of which $529 million related to oil and gas reserves, and $162 million related to metals and mining reserves which were generally in line with our guidance but we also experienced some charge-offs this quarter in these sectors totaling $48 million which were already contemplated in the Investor Day guidance of up to $4.75 billion of charge-off this year. While oil prices have been improved somewhat in March, they do remain near historically low levels and the market is not expecting the recovery to be strong. So the natural gas which is a meaningful portion of our portfolio does remain depressed. We don't see the current prices are sufficient to spare meaningful restart of production and many of the cost reductions and conservation actions that have been taken are not easily and quickly reversed. Therefore the impact of oil prices is somewhat asymmetric on credit costs. Reserves are main specific are based on downgrades reflecting the actual financial condition and liquidity position of borrowers. As such we likely will see some incremental results though for the rest of the year but they will be increasingly situation specific and our ability to estimate them will improve over time. However, using reasonable stress assumptions, on growth downgrade and considering spill-over effects to closely related companies, those incremental reserves could reach $500 million plus or minus this year but with a very high degree of variability around that number. We continue to believe overall our client base is relatively well positioned to weather this downturn and we will be there to sort them whenever feasible. We also monitor the contagion and aside from experiencing a couple of name-specific issues in very closely related companies and observing some general stress in oil regions, we are not seeing anything broad-based and would not expect losses to be significant. Moving on Page 2, moving on this page for just a moment a few comments from overall revenue and expense. We told you that the first rate hike together with our strong loan growth would drive 2016 NII higher by $2 billion and the $700 million increase in net interest income year-over-year that you see here, is in line with that. However sequentially NII was only up slightly as expected given the absence of certain securities gains that we had in the fourth quarter as well as day counts. Non-interest revenue was down $1.5 billion year-on-year, primarily driven by the market environment in both the corporate and investment bank as well as asset management, the biggest drivers being lower IBCs and fixed income markets revenue in both versus a very strong prior year. Adjusted expense of $13.9 billion was down 2% year-on-year on lower performance based compensation while continuing to self-fund incremental investments and growth. Turning to Page 3, the firm's fully phased in advanced CET1 ratio was 11.7% which standardized at 11.9%. The improvement to both ratios was driven primarily by net capital generation. Recall that we ended the year with very low levels of inventory and as expected we did see that reverse with our spot balance sheet up $70 billion quarter-on-quarter reflecting growth in deposits and an increase in trading assets and secure financing activity. It also drove the slight increase in RWA net of run-offs and model calibration. Firm SLR improved to 6.6% and we returned $3 billion of net capital to shareholders this quarter including $1.3 billion of net repurchases and common dividend of $0.44 per share. Lastly, the fed did not object to a $1.9 billion increase in our capital plan giving incremental capacity for repurchases next quarter. Moving on to Page 4 and Consumer & Community Banking. You will notice that we consolidated Consumer into one page and for your reference we've included the old pages in the appendix. CCB generated $2.5 billion of net income and an ROE of 19% with strength across all lines of business and T&S just announced after the fourth consecutive year, we are the number one consumer retail bank reflecting our ability to attract, satisfy, and retain customers. The fundamental business drivers remain strong with average loans up 12% year-on-year and core loans up 25% driven by mortgage and auto but with strength across products and we saw record deposit growth of $50 billion up 10%. We added over 1 million households since last year and our active mobile customer base was up 19%. Revenues of $11.1 billion was up 4% year-on-year and up 1% sequentially. If you exclude from last quarter, nearly $200 million from the square IPO and the bronx sale. In Consumer and Business Banking revenue was up 4% year-over-year, reflecting that record deposit growth I mentioned as well as higher account and transaction volumes and investment revenue up 4% despite the challenging environment. Mortgage revenue increased 7% on higher MSR risk management and strong loan growth partially offset by lower servicing revenues. Card, Commerce Solutions and Auto revenue was up 2%. On strong auto loan in East Coast, 8% growth in car sales and 12% in merchant processing volumes. All of which more than offset the impact of card renegotiations. Expense was down 2% year-on-year with an overhead ratio improving to 55% as we continued to make progress against our commitment more than offsetting $200 million in incremental marketing and auto lease growth. Finally, credit trends in the consumer businesses continued to be favorable. Now turning to Page 5 on the Corporate & Investment Bank. CIB reported net income of $2 billion on revenue of $8.1 billion and an ROE of 11%. In Banking, IB revenue was $1.2 billion, down 24% year-on-year driven by lower equity and debt underwriting fees but in line with the market which was down 27%. We continued to rank number one in global IB fees and ranked number one in three regions; North America, EMEA and LATAM. It was another strong quarter for Advisory up 8% versus a wallet that declined 15%. We gained share, ranking number one as we benefited from a number of deals that were announced in 2015 and closed this quarter. Equity underwriting fees were down 49% in line with the market as volatility kept issuers on the sidelines. We maintained our number one rank globally and increased our lead. Debt underwriting fees were down 35% and while were down more than the market, it can be explained by a tough comparison with several large acquisition finance deals in the first quarter of last year as well as being conflicted out to several large deals this quarter. In terms of the outlook, we expect a sequential decline in M&A to be more than offset by an increase in debt and equity underwriting if the recent market improvements continue. Treasury services revenue was down 5% driven by business simplification. Lending revenue was down 31% primarily reflecting mark-to-market changes on both hedges of accrual loans and securities received from restructuring. Moving on to markets. Markets revenue was $5.2 billion and was down 11% year-on-year reflecting descent performance given the environment and especially in light of the strength in the first quarter of 2015 where we saw elevated client wallet and trading particularly in January last year particularly around the Swiss bank event. In fact if you indulge me, adjusting for our out-performance year-over-year, results would have been down by a mid-single digits. Fixed income revenue was down 13%. The first couple of months of this quarter as you know were challenging across markets but some stability returned in March and overall I would characterize the quarter as seeing reasonably solid client activity but given the market backdrop, it was more difficult to monetize flows. We saw better performance in rates and lower performance across other asset classes. Equity markets revenue was down 5% and although flows were steady, idiosyncratic events and sharpness were tough for our client, goes all the way down and back up. Asia equities continued to outperform driven by market volatility particularly in Japan. With respect to the second quarter, the relative stability we saw in March has continued into April so far. However, it's also the case that markets are still quite liquid in certain parts and will be primed somewhat about directions. So while investors have doubted to deploy cash and capital markets are wide open for well understood names, they are still remaining cautioned for more challenging issuers. Although there's been noise in the data globally, there is an emerging belief that it's fundamentally better but we need to continue to see no downplayed surprises and as such we remain somewhat cautious about the second quarter. Security services revenues was $881 million, in line with guidance. Credit adjustments and Other was a loss of $336 million mainly driven by VDAs on fed widening. Credit cost of $459 million were driven by reserve bills for oil and gas and metals and mining as discussed earlier and finally expense of $4.8 billion was down 15% year-on-year driven by lower performance based compensation and lower legal expense with a comp to revenue ratio for the quarter of 32%. Moving on to Page 6 and Commercial Banking. The Commercial Bank generated net income of $500 million on revenue of $1.8 billion and an ROE of 11%. Outside of credit cost for oil and gas effect, quarter was very solid performance. Revenue was up 4% year-on-year driven by higher loan balances and deposits net interest income offset by lower IB revenues versus a record last year. Expense of $713 million was up 1% year-on-year and down 5% quarter-on-quarter, but in line with recent trends if you exclude the impairment taken on lease corporate aircraft last quarter. We saw strong growth in our loan base with average balances up 13% year-on-year and 3% quarter-on-quarter and with portfolio spreads relatively flat for a couple of quarters now. Our commercial real estate business continued to exceed the industry with growth of 18% year-on-year, reflecting superior execution while maintaining credit discipline. In CNI, loans were up 9% year-on-year driven by robust originations in Corporate banking. Finally on credit, we added $300 million to reserves mostly related to oil and gas but we continue to see very low net charge off. Moving on to Page 7 and asset management. Asset management reported net income of $587 million with a 30% pretax margin and 25% ROE. Revenue of $3 billion was down 1% year-on-year driven by weaker market and lower brokerage revenues. Excluding the impact of a sale of an asset this quarter which contributed $150 million to the revenue number, adjusted revenue, AUM, and current assets, were down each generally in line with lower market. Expense of $2.1 billion was down 5% year-on-year largely driven by lower performance based compensation. In spite these lower markets, we saw positive long term flows of $12 billion this quarter. The strength in fixed income, multi-assets, and alternatives, and including the benefit of a large mandate being partially offset by outflows in equity products given volatility. Our long-term investor performance remains strong with 80% of mutual fund AUM ranked in the first or second quarter over five years. Loan balances of a $110 billion were up 7% year-on-year which record mortgage balances up 20% and solid growth in traditional lending. Before I move on -- the Department of Labor issued the final fiduciary rule last week. It is a long and complex set of requirements and details will matter and will take time to fully digest. On first read there are no significant new provisions from the proposal that would change our positions which is that we've been a fiduciary for over 150 years and based on our current advisory business we are confident in our ability to adjust and be successful. Perhaps one of the biggest -- is the longer time to implement which allows us to be even better prepared. Skipping Page 8 as we actually have nothing significant to call out on Corporate. I will move on to the outlook on Page 9. We've included our guidance from Investor Day on the page and it is unchanged so I won't go through it. So just two new points to highlight. For asset management, the first quarter revenues adjusted at $150 million are a little over $2.8 billion and assuming relatively constructive markets, we would expect those revenues in the second quarter to be flat to up but to be less than $3 billion and obviously expense will also be flat to up in line with those revenues on performance based compensation. In the Commercial Bank, we expect revenues will be up modestly on continued loan growth and we also expect expenses to increase to about $725 million as we add bankers and execute on our technology and product investment strategy. That sort of which is we expect pre-provision net revenue for the Commercial Bank to be relatively in line with the first quarter. Before moving to Q&A, I want to make a few comments about the news this morning regarding --. Obviously we were disappointed with the conclusion reached by the joint agencies on our resolution plans. We have taken this planning process very seriously and we believe we made substantial progress. Having said that, the most important thing is as we work with our regulators to understand their feedback fully and in more detail and we are fully committed to meeting their expectations. So wrapping up; despite challenging market conditions, we delivered really quite good performance in the quarter, the diversification allowing us to perform well in difficult environment and be there for our clients. Operator you can open up for Q&A. Question & Answer Operator: [Operator Instructions]. Your first question comes from the line of Matthew Bernal. One moment. Please go ahead. Matthew Bernal: Good morning. Thanks for taking my questions. Marianne may be a couple of questions on energy. You noted that the provision was slightly above your guidance this quarter relative to what you mentioned you thought it might be in late February. Guess I am curious in terms of what your expectations are in terms of your guidance relative to potential drawdowns particularly in $10 billion of a high yield loans that you have drawn and what your ability is to potentially mitigate potential drawdowns based on the financial condition of your borrowers. Marianne Lake: So, hi, Matt. So the first thing I'd say is rest thing I would say it was just like to oil and gas honestly I think $529 million is pretty close to 500 plus or minus. So, that was pretty much in line. Well you are seeing they're little bit higher was on metals and mining we were expecting close to 100 and there are couple of extra downgrades that came through in the quarter and that kind of timing is going to happened. It doesn't change the overall perspective for us. With respect to droves when we when I gave some sort of indicative guidance about what you might expect to see potentially in the rest of the year in terms of reserve builds, we do try to take into consideration the likelihood that we will see incremental growth and clearly we will well -- to try and help them I thought that may not be necessary and in other case as we can reduce our exposure in re-determination cases. But we will expect to see some growth in that contemplated in our guidance. So I want to make sure that everyone understood that we try to be very complete. So this is not just oil and gas and metal to mining as the next quarter suggest we have looked at very closely related companies in shipping and marine transportation that they like. So we are trying to be very complete. Matthew Bernal: We get -- loss. Marianne Lake: We have -- level. Matthew Bernal: Performance. Marianne Lake: Yes. Nothing, not very much. Matthew Bernal: Yes. Fair enough that make sense but that tells nicely actually into my follow up in terms of the closely on non-accrual balances those were up about a billion two quarter-over-quarter. Can you give us a sense as to how much of that was energy and metals and mining and where there other areas of the portfolio that added to that and what your outlook for wholesale non-accruals over the course of the next couple of quarters. Marianne Lake: So, of the billion to a billion was a combination of oil and gas and metal and mining for the vast majority and outside of that consistent with my comments on contingent there is no any sort of dramatic or noteworthy things mentioned to you and obviously as we continue to watch sort of cycle payout over the next several quarters and re-evaluate sometimes it may be experiencing stress, it is likely that we will see some more and but you know I gave you contacts so I am already expecting to see in terms of results. So they will go up but not to numbers that I would consider to be large in the context of our wholesale portfolio. Operator: Your next question comes from the line of Glen Schorr with Evercore ISI. Glen Schorr: Evercore ISI: Hi. I just wanted to follow up, what was the drown on energy facilities this quarter? It doesn't seem to be too big and then related to that, what's the reserve as a percentage of drawn credit right now? Marianne Lake: The draws are about $1.3 billion in the quarter so some but not excessive and after the results that we put up in the first quarter the coverage ratios if 6.3%. Glen Schorr: And then may be a little bit of different question. Marianne Lake: Glen, well not 6.3. That's the firm. If you look in the Commercial Bank, obviously it's higher. So you've got sort of a different portfolio mixed in the Commercial Bank relative to CIB. So it's a sum part of our portfolio closer to 9% or 10% and in Other profit, lower. The second question? Glen Schorr: I appreciate that now. Thank you. The other question is on growth. We have been waiting for a long time but you have been seeing great growth across a lot of different products. I mean CRE up 18% in the Commercial Bank, CNI up 9. At this stage of the cycle, I appreciate the consumers showing a lot of strength, is there any growth where we scratch our heads and say wow, is that growing too much. It sounds funny that for me to be asking for less growth but just curious to get your thoughts. Marianne Lake: It is a perfectly reasonable question and obviously when we look at growth and CRE or the commercial real estate businesses of 18%, it is an obvious question, are you doing something different and the answer is, no we are not. We haven't changed our geographies, we haven't changed our risk appetite. It just simply indicates that we have a good process and we are continuing to focus on our sort of core capabilities in our core risk segments. We have been able to take advantage of the opportunity to get our processes better and to a lesser degree but nonetheless to a degree, given that the CMBS market has been somewhat disrupted. Operator: Your next question comes from the line of Betsy Graseck with Morgan Stanley. Betsy Graseck: Morgan Stanley: Hi. Good morning. Marianne Lake: Hi. Betsy Graseck: I have a question on the livings wills, the indications there was that there were four areas that you needed to enhance. Liquidity was one of those and I was a little surprised to see that given the strength of your liquidity book. I guess what I am wondering is, does the living world submission and the changes that you have to make have an impact on your current business at all? In other words, do you need to build liquidity to meet the requirements that the regulators have or this is in a obviously worst case scenario you would build at that time? Marianne Lake: So Betsy obviously with having only received the specific feedback less than 24 hours ago, we still have to get into the analysis phase that what it all means. I would start with your opening comments that considering our liquidity you were surprised this, it doesn't appear to be a segment about the adequacy obviously it's JPMorgan's liquidity which is very significant as you know but it is really about how we analyze and think about that at the material legal entity level and the inter-affiliate nature of how we sum our entity so I can't tell you with any clarity policy exactly what we will be required as we get into analysis it wouldn't be might core expectation that it would require us to do a meaningful overall new liquidity actions, but we have to do the work. Betsy Graseck: So as we think about the implications of this morning's announcement it around your planning and procedures as a opposed to a likely impact on the business operations today and the results that you can generated is that a reasonable conclusion? Marianne Lake: Again just based on our preliminary rates, I think there is going to be significant work to meet the expectations with regulators and our plan already had of doing a lot of work around actual real simplification of the legal entities and other things. So I don't know that there are going to be significant changes is not my primary expectation of that would be but we do need to have a moment to go through a details. Betsy Graseck: The liquidity of the company is extraordinary. Your $400 billion on banks around the world, $300 billion of double AA plus short duration securities. Just about $300 billion of very short terms secure hope really top quality -- stuff like that. The training book is $300 billion and which mostly very liquid kind of stuff it's the liquidity come extraordinary just. Marianne Lake: I would say just again we need to do the work and we need to figure out obviously what they referenced what that would be but it is encouraging that sometimes was sound to be incredible for larger summit financial institutions and if they have been able to adequately say to preparedness and we are confident we should be able to do the same. We just need to make sure that we understand the details of what it is that we don't have an enough time today that we need to change and we are committed Operator: Your next question comes to line of Gerard Cassidy with RBC. Gerard Cassidy: RB Thank you. Good morning. Marianne can you expand upon your comments in your opening dialogue about the energy exposure. You are not too worry about the contingent risk but you did say that there are couple of specific issues relating to the some very closely related companies. Can you give us more color on what you are referring to. Marianne Lake: Yes, absolutely. So I just wanted to, if you use the industry code the way that you put, that you want to expand or thinking through just what it technically considered it's been oil and gas company you would miss out for example, a marine shifting company that will they do is ship oil and therefore their financial condition and their performance is going to be directly related to the health of the energy sector. Those companies we have identify them specifically they are managed within energy risk team, they are not managed by different teams. So I was simply saying that some of the companies that we are watching and in one or two is located that have experienced this are not traditional energy companies, but today the condition is directly related to oil and gas. Gerard Cassidy: Thank you and then on the loan growth which is obviously very strong. What are your people on front line saying about commercial real-estate are there any changes in terms of underwriting metrics that your front line people is seeing since the way are starting to see in certain markets like multi-family which you guys have already identified some weak spots. Are there any other underwriting issues that are cropping up now that you didn't see three months ago or six months ago. Marianne Lake: So and obviously not trust. I would say that is competitive and obviously some it -- not irrational and we aren't seeing or at least we are not seeing very rational proposals on structuring and risk meanwhile we haven't changed our risk appetite, we haven't changed our underwriting standards, we continue to have lower LTBs and higher debt coverage ratios pretty consistently on consistent geographies. So, speaking for JPMorgan specifically there has been no change in our underwriting standards. In fact if anything, since the last process of the last recession we tightened our underwriting standards than we moved away from some of the riskier types of that business. So, homebuilders and a lot of construction loan business. Operator: Your next question comes from the line of Michael Mayo with CLSA. Michael Mayo: CLS Hi. That was a very serious CEO letter you had in the Annual Report but two questions related to that one would be you, Jaime indicated potential for higher interest rates and just looking more color into why you think that's the case and if you are preparing the bank for a scenario of higher rates orders just trying to return at the top or perhaps the contrary. And I know you gave some technical factors in the CEO letter. And then the second thing is just the contract between what you have in the CEO letter, liquidity trading governance oversight with the living will that came out today and just a follow-up on the earlier question, so you simply have to write a better resolution plan or might you have to change a little bit the way you do business and does this make you have a more conservative... Marianne Lake: Hey Mike. I'll start and then Jaime can add to it. So on the interest rate point, the cause are pretty consistent with what we said over time which is we have to the belief that US economy is continuing to move in the right direction that the consumer is on solid footing and despite the noise in the data and some of the bulletin you see in the market global growth will continue albeit at a moderate pace and obviously stability in the markets in March this continue to help us with that so that coupled with the fact that the narratives in the minute and also dubbed continuing to feel gradually increases and debate around negative rates has kind of quietened. We don't particularly run the company with a day to day view what's going to happen with interest rates. We are positioned for rising rates as you know and have been but we also understand what the performance of the company looks like if there are no more rate rises or when we expect our portfolio's in lots of different ways. So we are positioned for rising rates. It is central case but that will happen the market pricing less than one hike in this year, we just have to wait and see. I'll also start and the Jaime can jump in on the living rule--we have to face value and in discussions with our regulators that we need to meet their requirements whatever they may be all of the rules whether its capsule, whether its liquidity, whether its assessing, whether its resolution times and if we do that and satisfy them then we can continue to operate the company the way that we think is best for our clients and around the world and so at this point we need to remediate and address the issues and the feedback they have given us and we can make plans for assessments that we hope will be credible and that's certainly what we will commit to do. That's where we are focused on. Michael Mayo: Was there anything else from Jamie on that you compare and contrast the CEO letter to what the regulators just said about you guys it's not completely consistent. Jamie Dimon: Chairman and Chief Executive Officer: I don't even think--we currently meet all the regulations all the rules all the requirements has been doing that now for 5 or 6 years. Six years -- they have their job to do and we have to perform towards. Marianne Lake: I know it's easy to sort of overlook across these statements where there's an acknowledgement that a progress has been made and none of the feedback in the letter and the significant progress of the industry on capital equinity forecasting now it is consistent but we have more work to do, and we'll do it. Jamie Dimon: And interest rates -- I wasn't predicting it, I am simply saying I think there is chance it will be different than what people expect-- Operator: Your next question is from the line of Brian Foran with Autonomous. Brian Foran: Autonomous: Hi good morning. Matthew Bernal: Good morning. Brian Foran: I wonder on trading you appreciate that you reported first so you haven't seen the market yet but two questions around the whole thesis last man standing versus restructures. One, do you have any sense of whether you -- have rolled in really thick representing market share gains or not this quarter and then two; with some of the guidance coming out of the your banks in particular being very poor and some of the restructurings may be an accelerating is there any thought around comp and may be using to have us a level to improve returns over the remainder of the year and in to next. Marianne Lake: So crossing is a first read out and it is very difficult when you thinks about performance because you well crowed relative performance in the period and prior year in light. I would say that down missing with strategic we would consider to be in our performance locked in is really quite the performance was I just know the but I with protect making a profitable that why I think in generally pretty good about performance and there is no anything to the. Jamie Dimon: I would just add that $5 billion plus of sales and trading in a quarter like I would look as good earnings decent returns we had good margins and that quite looks at but I look as it quite a good performance and trading losses were six days there is source like $40,000 so that the actual results -- that is really good I look at it as a very healthy business. Marianne Lake: Yes. And then with respect to the restructuring and whether that presents opportunity for us including compensation for better performance. We pay per performance and we pay with returns and we are not looking to try and maintain as to what we have been very consistent about over time and you can see our comp to revenue ratio is 33% this quarter, is in line with the ratio in the first quarter of last year and in fact the first quarter of the year before and obviously we intend to ensure that we are competitive but we are not going to take any direct action as a result of that... Jamie Dimon: We also got some big deals in the end of the quarter Western Digital, -- it is a part of sales and trading we also guide we did this I thought a very creative chase trust just the first real securitization in a long in the mortgage business now we revenues this yearend I think is quite good. Operator: Your next question comes from the line of John McDonald with Bernstein. John McDonald: Bernstein: Hi. Question on expenses. First was there any legal expense in the quarter and then just a broader question Marianne, are the incremental expenses you're getting from your programs falling to the bottom-line or is it some of it getting reinvesting like in CCB and the headcount is up a little bit on page 11 just last couple of quarters does that reflect reinvestment of the cost saves sales and then just on the legal side if you have anything this quarter. Thanks. Marianne Lake: So on legal I'd the number is about zero pretax as I can tell you -- we did some -- net about zero this quarter which I'll take it for the quarter, but it doesn't necessary predict the future. In terms of expenses so we told the investor day in particular but also Daniel is that we are continuing to invest in our businesses and across the board in fact getting bankers and technology and digital, digitizing etcetera. So it's we continue to do that across the businesses and I mentioned in the CCB page that the net expenses little bit down includes the self-funding $200 million of incremental investments year-over-year and growth. But you did notice the headcount in the consumer businesses is up slightly and that's the combination of the investments we are making in technology and digital of about 500 overheads and the other 1500 is increasing tough time sorting in the branches so that we have flexibility to make sure that we have loading at the right time today for making sure the customer experience is good. So I would characterize that all as very consistent and yes we continued to invest and that is and probably you'll seeing headcount in CCB. John McDonald: Thanks and your credit card -- delivering 1.5% back lot of stuff in chase pay you heard sort of star bucks thing we have try to top digital side images and we continue win the awards in the consumer banks so we will always be investing there. Operator: Your next question comes from the line of Erika Najarian with Bank of America. Erika Najarian: Bank of America: Yes, good morning. You feeling the lot of questions on energy credit quality, but taking a step back given that the delinquencies the delinquency statistics outside of energy still remains fairly stable. Could you give us an outlook for how you think credit quality trends will play out for the rest of the year if the base case is slow growth in the US. Marianne Lake: So it is our expectations across both the consumer and the wholesale businesses outside energy. That credit trends will remain favorable how that will be -- we are not expecting to see material increases expect those the factor withdrawing our lending --. So when we did invested today we talked about charge offs this year will go up year-on-year and that will go up to essentially as highest $4.75 billion, but because of that would on the factors was driving our portfolios and see we just have natural -- levels of charge offs from that and then the other half would be on energy. So we are not expecting or seeing at this point anything other than good product quality throughout 2016 outside of obvious. Erika Najarian: Great and just a one more follow up question on the living world. Could you help us to understand what you think the regulators demand in terms of if the remediation is not met by October 1st of this year, that there could be more stringent prudential requirements. What that could that possibly mean higher capital or liquidity standards if the expectations aren't met by October. I guess we always thought of believing as more of a cost issue rather than a further tax on regulatory ratios. Marianne Lake: So I will start by saying as you know our regulated pass extraordinary powers over a wide ranges of requirements for us regardless in many ways of influencing those and you are familiar with most of them. It is absolutely the case that as you look at the resolution process so there are provisions that talk about, its remediation is not satisfactory or cured in a two year period. There are possibility that regulators could jointly decide may jointly decide to take other actions that could include capital or liquidity or leverage or operating model discussions. So obviously they do have a talent. Our CAGR rate is not that far away I'd do our very very best to make sure that we put our best foot forward and remediate the issues and then we have another submission in July 2017. So not just we won't fully remediate them to the very best of our ability but the living will take as I expect to continue to be somewhat intricate over the next several cycles and we will continue to put ourselves raise above and I am certain that the -- Operator: Your next question comes from the line of Matt O'Connor with Deutsche Bank. Matt O'Connor: Deutsche Bank: Good morning. Marianne Lake: Good morning Matt. Matt O'Connor: If I look at the first quarter interest income which was what I had good gain and I think about your full year outlook. If I take it literally implies flattish net interest income dollars from here and I am just wondering if that's too little of -- or if may be there are some offsets to the loan growth from say lower long term rates as we think about the rest of year? Marianne Lake: Okay so we talked no change in rates and if we continue to grow our loans we'd expect our NII dropped by $2 billion and so you're right. If you look at the run rate right now that would be relatively flat from here. I think in our favor, because of the easiness still going on around the rest of the world and the rubbish comments has been lower reprice in the industry generally that's in our favor and you know we're much more sensitive to the front end of rate. So it was not projecting that the long end of the curve has no impact. It's relatively modest. So $2 billion may be a little more. The biggest driver of significantly higher NII about that guidance with these, if we had another hike earlier than December. Matt O'Connor: And then just separately any comments on the treasuries willing on inversion as you think about MNA obvious speak in the industry and for you guys specifically and confrere who much that's driven your MNA revenues in the past of the industry and color on that will be helpful. Marianne Lake: So not going specifically about the treasuries actions other than saying that we would suppose back of performance general with respect to the impact our business other historically we going forward it would be there and be significant Operator: Your next question comes from the line of Jim Mitchell with Buckingham Research. Jim Mitchell: Buckingham Research: Hey good morning. Maybe we could talk little bit about at had some investors express concern about the fed inclusion of negative of you found that to be difficult in terms of modeling just give in the improvement in website given in you capital ratios you things that there is should be I want to see some improvement increase in into would got for few months. Marianne Lake: Okay. So obviously I am not going to be as specifically about our plans we estimated because we have to feed back in the confidential but I will tell you that the obviously negative right it will point of it is not and at least in other possible in your time and outweigh so we have to be discussion fan truly what we think we could do what will happen to our balance sheet we can models it and we can affect it. So in that sense obviously we will continue work that process through as it continues to be feature. You're absolutely right that year-over-year our launch point is higher level of capital and balance sheet and credit quality continues to improve. Level not materially changed so as a general matter, we would hope and we've also added -- so as general matter we would hope to have incremental capacity but nothing inconsistent with what we have said externally which is but over time continue to have the capacity to potentially increase dividend and that we would likely test capacity to within a reasonable range. We something that's the framework that we have used all the time. Operator: Your next question is from the line of Steven Chubak with Nomura. Steven Chubak: Nomura: Hi good morning. Marianne Lake: Good morning. Steven Chubak: So Marianne within the asset management segment you noted that the revenues were down in line with the market but if we isolated think component to exclude some of the to begin your highlighted as well as other income or the revenue decline by double digit both quarter and quarter and year-on-year which is been more pronouncing what we are expected and also be we speak maybe some of factors outside of the market decline there maybe impacting revenues in that business specifically why you are seeing in terms of retail engagement and maybe you're seeing any improvement in sentiment now that the market have recovered pretty nicely of the February trial. Marianne Lake: So if I do the sort of I want address by adopt for the full impact of the asset sales we are in the quarter not just $160 million in this quarter but also revenue that were present with respect to that in the first quarter of last year my adjusted revenues are down about 4% to a market on average while I appreciate it recovered in March but the market on average for the quarter was down around 5%. So we would characterize that as generally in line and similarly if you do adjustments on the balance sheet side, the assets on the management and current assets so certainly you can speak to Jason all to reconcile our numbers so that we are not confusing each other. Steven Chubak: The retail engagement. Marianne Lake: Retail engagement picked up in March as you would expect. We saw positive sides we obviously saw negative sides for the quarter in equity that's not surprising and then we saw positive flows and so we did see some reasonably healthy retail flows in the quarter primarily in March and somewhat offset by outflows in equities Steven Chubak: Excellent Thank you Marianne Lake: Thank you. Operator: Your next question comes from the line of Brennan Hawken with UBS. Brennan Hawken: UBS: Good morning Marianne. Quick question on NIM here. Can you talk about how sustainable you think the NIM expansion might be and whether or not there is anything one time in the numbers we should adjust for? Marianne Lake: What we have in this quarter there is nothing one time you need to adjust for last quarter there obviously was and so we would expect that our NIM should be favorable to improving over the course of 2016 the expenses which ever to improvability depending upon what happens in terms of gradual rising rates. Brennan Hawken: Okay great thank you and then on the energy exposures in the loan book, can you comment on maybe whether or not some of the equity capital raising that we have seen in the energy spaces perhaps taken some of the tail risk away from that book and then is it possible also to update us on the criticized exposures in oil and gas I believe in the 10-K it was somewhere around $4.5 billion at year end? Marianne Lake: Yes. With respect to equity capital rated I mean obviously to a degree that would be true will those companies that were able to offset the consumer market. So that those are experiencing the most the most stress so obviously all the other things -- deposited, but I am not sort of necessarily thinking it's going to take significant seeing more the pressure off and with respect to what [inaudible] second part of this question I am so sorry. Brennan Hawken: C&C. Marianne Lake: Jason I will get back to you I am sorry. Brennan Hawken: No problem. Thanks so much. Operator: Thank you. Your next question comes from the lien of Eric Wasserstrom with Guggenheim Securities. Eric Wasserstrom: Guggenheim Securities: Thanks. Marianne can you comment on what's competitive conditions are like in the credit card market currently and is there been any change around the intensity of competition for core brands and awards and I think Jim you alluded to the launch of a new product and look to get an update on your initial thoughts about -- going. Marianne Lake: So, no nothing is changed in that -- landscape including in program to fill very competitive will be that we are and we feel a little bit of deceleration in sales growth year-over-year last year and we see that trend back positively for us since year. So we feel good about that and we have been increasing amount -- we launched freedom unlimited quiet recently and it will helping quite recent, but early feedback is very positive with respect to freedom within 50% increases in activity and interest there is going to be repeat cannibalization of all the products we would expect that. But so far so good and we just might give our customers -- and it's been favorably Eric Wasserstrom: Great. Thank you and on the orders is been a big area of focus and you touched on it certainly during your Investor Day. But in the mid cycle range is there anything going on macro level that would suggest some significant likelihood of -- duration. Marianne Lake: So Mannheim is down slightly we continue to believe and expect that it will continue to trends on with philosophy and it will continue to trend a lot with just given rate where it is today and also the amount of lead inventory that will ultimately go into the used car space over the of course the next several years. However, the fundamental -- the market is still solid and we have pulled back on -- of our originations and so other than seeing some - pickups as expected in some of the energy related space but not very significantly there is nothing at the moment that's on the bonus for us. Eric Wasserstrom: I do think that this is market... Operator: Thank you. Your next question comes from the line of Paul Miller with FBR. Paul Miller: FBR Capital Markets: Thank you very much. On in the mortgage banking segment you worked down the MSR by almost is like $0.9 billion. Was there any hedging games I couldn't find them in the documents any hedging in to offset that. Marianne Lake: So the MSR we announced of course there was $124 million and the combination of sort of BAU immaterial factors that added up to that and probably about half of it was a combination of hedge performance in the market. Paul Miller: And the other -- and then on the mortgage banking side, have you even seen you saw the MBA today released that to purchase by purchase applications are the high since 2010 or something in that order. Are you seeing the spring buying season here in the purchase side starting to pick up? Marianne Lake: Yes. So our purchase -- are up 30% I think year-over-year -- positive momentum in that place and we also in for activity continues to be robust as expected. Operator: Your next question comes from the line of Ken Usdin with Jefferies. Ken Usdin: Jefferies Hey thanks. Good morning. Just two quick follow ups on the fee side, understanding that market dependence is built into the outlook to get the 50 billion fees for the year. I am just wondering have we now run rated the combination of -- I guess the question is really what are the things that you expect to get better from the first quarter on the fee side upside in normal seasonality? Marianne Lake: Okay so in terms of run rated the two biggest drivers of the walk that we gave at Investor Day were the cost cobrands renegotiations and the mortgage banking noninterest revenues. I would just point out that while we are seeing some of the increment impact of negotiations that will payout over the course of the year, but on the positive side, mortgage banking just given where rates were over the quarter has been positive relative to the central expectations when we did the Investor Day so those two things worth noting, but we are seeing really quite good drivers in net interest revenue drive across the continues space generally in debit investment in seas and account full 5% range and sometimes in the range higher than that so we continuing to exactly what we expected which is the majority of our businesses will continue to deliver mid to high single digit growth and they seems to have do that the impact will be what it would be and mortgage NII will end up down year-over-year whether its $700 million or $600 million we'll see and so the biggest driver of what the end result would be is going to be markets. Ken Usdin: Yup. Okay and I know it's a smaller line item but just noticing the guide for security services to be flat from here. There is always some seasonality in there too but I am just wondering if you could give a comment about that what you are seeing in that business and are there any incremental challenges that may be with a flat outlook. Marianne Lake: Yeah. I mean the business is not immune to market so obviously as you look at the performance for the quarter our fees have been impacted by lower asset levels and we also the tail impact business simplification just getting the tail of that outlook of the performance. We are also seeing the benefit of higher rates so I would characterize a majority of those negatives on lower fees and simplification as being behind us. So it's a trajectory if rates continue to rise with the outlook but that's why we said market dependent. We were not expecting our performance to go down from here, flat to up but depending on rates Operator: Your next question comes from the line of Christopher Wheeler with Atlantic Equities. Christopher Wheeler: Atlantic Equities: Yes. Good morning. The question is on the compensation ratio. You obviously have done a fantastic job on the cost base but one of the issues that strikes me is clearly with the reduced revenues particularly in the markets business, you're comp down about $400 million compared to the first quarter of last year and obviously what we experienced generally is you holding the ratio steady for the second and third quarter and then slowing up with a lower ratio in the fourth quarter. From looking at the estimates we have revenues on well-known providers of data you got to be flat revenues being forecast by people like me whether we're right or wrong. Should we be thinking about how you are going to build the bonus pool against this background and whether we should be looking at thinking or thinking that you are going to have to retain the comp ratio at a pretty similar level through the year if indeed we don't see any uptick in revenues and they remain reasonably flat. Jamie Dimon: I just used 32%. Marianne Lake: Well we've given the range 30 to 35 within it the lower end of that range when we performed very strongly we could drift up, if we performed very strongly we pay for performance and I think we did a good job in the third quarter. Jamie Dimon: You have the among the lowest ratio and we are paying our people properly. Christopher Wheeler: I am not talking about the quality of the ratio. I am just intrigued because clearly what we are seeing are mostly and indeed in your difficulty of building a pool when you'd be so used to having a very strong first quarter obviously makes it quite difficult. May be just as a follow up which is vaguely related could I just ask you talked earlier about there is question about competition and picking up market share which indeed you see you clearly have but one of the questions I just wanted to ask is I know that you have been pushing hard on this equity cash in particular. My sense is that actually a lot of applies including the Europeans who are doing massively restructure are putting more capital into equities on the back of the fact that it's a lower capital business and therefore they think they can get higher returns and just maybe that's one to -- pulled out of your European equities yesterday. What are you seeing in the equity space in particular because I don't I am not seeing as much shorten with rules we has done in the fixed place. Marianne Lake: That's very fair and we talked about it pretty often that the people when they restructure, they restructure out of the things that they were less strong at, less profitable at and in many cases they doubled down where they continue to have strength and we are seeing that and that's what we mean when we say there is always someone left to compete in every part of our business and equity there is no exception if not the for that however the equity business here at JPMorgan we rebuild our technology platform we have--we built the time rates international capabilities, the two of those were hand in glove and we have every opportunity to continue to gain share and win. Jamie Dimon: And we've done very well gaining share in electronic trading and the time broker has been built in Asia and Europe where we had some weaknesses so you have seen our share go up and we intend to win it. We have top notch research which obviously helps drive the equity business too. Operator: Your next question comes from the line of Gerard Cassidy with RBC. Gerard Cassidy: RB Thank you. Marianne just as a follow up. I just want to make sure I understood you correctly on the $500 million of incremental result build for energy for the remainder of the year that's for the total of its following nine months is that correct I mean give Marianne Lake: Give that's right obviously there is around as we have ability to understand that we would you know being result while to continue to make difficult situation specific it evolve every time we just want give you an indications that there is likely to be more cost to be something might quite a bit from that because you have to make assumptions in 500 to nine month gap Gerard Cassidy: Okay. Thank you and then I know there is the specific examine that the first quarter result for the industry will reflect similar to your own but we also have the traditional credit examine this is been done for 21 years any color on how that's going the normal share examine Marianne Lake: Yes there is that any comment about except to say that everything that we know down with our result Operator: Your next question comes from the line of John McDonald John McDonald: Hi two quick follow ups Marianne and give me couple of questions about just the math on energy reserve ratio. I think you mentioned 6.3. Just to be clear is that the reserve for the loans over funded loans and then there is an additional reserve fund for funding commitments. Marianne Lake: Correct. Yes. John McDonald: Okay, got it and did you tell us the size of your energy commitments and whether they change it all this quarter? Marianne Lake: They change by couple of billion dollars on a single name that we like. Operator: And there are no further questions at this time. Marianne Lake: Thank you very much. Jamie Dimon: Before you all go, we should say good bye to start and young -- to goes on to a bigger variety of job is CFO the consumer bank as you did an outstanding job and she is being succeeded Jason and we could say hi right now and congratulations really you guys have done an outstanding job. Marianne Lake: Thank you everyone. Operator: Thank you for joining today's conference call. You may now disconnect.