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Jamie Dimon, Chairman and Chief Executive Officer December 7, 0 Goldman Sachs U.S. Financial Services Conference Industry landscape There are several issues affecting banks. Regulatory changes other than
Jamie Dimon, Chairman and Chief Executive Officer December 7, 0 Goldman Sachs U.S. Financial Services Conference Industry landscape There are several issues affecting banks. Regulatory changes other than capital Durbin Amendment Derivatives reform Volcker Capital G-SIB capital surcharge Mortgage-related issues Litigation Put-back exposure European exposures Low interest rate environment Future profitability of investment banking Economy and loan growth but there are still significant growth opportunities If you view the business from the point of view of the customer, i.e., consumers, Middle Market, investors and corporations They will still need financial products Expect to see significant growth in customer needs over the next 0 years Opportunity to gain share in many underlying areas Small business Emerging markets Multinational corporations Asset Management / Private Banking New technology will create new products Mobile payments We start with a good hand Excellent client facing franchises Excellent client-facing franchises that continue to grow and strengthen Unparalleled client relationships in 0+ countries Strong products and technology Each standalone business has a top, or 3 position Solid growth opportunities Battleship balance sheet Solid organic growth opportunities across LOBs Never stopped investing in new products, branches and bankers Continued focus on cross-sell Significant earnings power, strong margins and strong risk management Significant excess capital Basel I Tier I Common of $0B, ratio of 9.9% as of 3Q Estimated Basel III Tier I Common ratio of 7.7% as of 3Q Ability to achieve Basel III Tier I Common ratio of 9%+ by end of 0 will depend on interpretation of rules and decisions on usage of excess capital See note 3 on slide 43 See note on slide 43 Firmwide total credit reserves of $9B, loan loss coverage ratio of 3.74% of total loans as of 3Q Benefits from diversification funding, capital, lower volatility We will spend a considerable amount of time in 0 navigating at a very detailed level through an increasingly complex environment Agenda Quick overview of some growth opportunities Branch build Chase Private Client Business Banking Retail branch cross-sell Card products Commercial Banking expansion and cross-sell Asset Management client advisors Global Corporate Bank Industry regulatory issues Volcker Rule G-SIB unintended consequences Pro-cyclicality of regulation Regulation skewed against U.S. banks Key investor topics European exposures Firmwide expense ## management Credit Wholesale and Retail Mortgage related ## issues Private label securitizations Future of investment banking ## Capital Basel III estimates LOB capital ## Performance targets Comments on capital 4Q outlook and future comments 3 Opportunities for growth Branch build Opportunities we will review Chase Private Client Business Banking Retail branch cross-sell Card products Commercial Banking expansion and cross-sell Asset Management client advisors Global Corporate Bank Investment Bank emerging markets expansion Opportunities we will not review Commodities International Prime Brokerage Commercial Banking international expansion Treasury & Securities Services client penetration and expanded product capabilities Asset Management market share gains in investment products 4 Update on growth initiatives Intend to build 75 +/- branches in 0 (down from 300+/- mentioned at Investor Day) Branches are a primary reason customers select a bank 95%+ of checking accounts are opened in a branch Branches are invaluable to the overall franchise (e.g., Mortgage Banking, Card, Middle Market and Private Bank) Economics of branches are changing Durbin and regulatory costs have made some branches less attractive Branch formats will vary by demographics, customer needs and behavior branch configurations could change (e.g., technology could change formats, some branches could be smaller) On average, we still expect branches to break even on a contribution basis in ~3 years We continue to build the majority of our branches in CA and FL We will also continue to build branches to meet our responsibilities under the Community Reinvestment Act ( CRA ) 5 Update on growth initiatives Update on the economics of the retail banking model Durbin Amendment will reduce Consumer and Business Banking s annualized revenue by $B in 0 Some changes to products and services have already been made to mitigate the impact of Durbin Changed banker and branch manager compensation Stopped issuing new debit rewards cards Stopped the ability for almost all existing debit cards to earn new rewards going forward Eliminated debit usage as a way for new customers to have monthly checking account fee waived We have great products and services that cost over $350 a year per checking account including debit cards, call centers, ATMs, on-line banking and bill pay, branches, and fraud protection on debit transactions We do not expect to recoup all our losses from Durbin and NSF/OD right away Adjusting our business model to address the needs of each individual market segment Redesigning products to forge and build on strong customer relationships and provide customer value while generating a fair return We believe that there will be some pressure in the short term, but in the long-run it will continue to be a profitable business because our underlying business drivers remain strong 6 Update on growth initiatives Chase Private Client (CPC) Recent progress Opened 50+ CPC locations in 0 Expansion into New York, Chicago, South Florida, Los Angeles and San Francisco 400 private client bankers and 30 private client advisors Progress to date On track for 0,000+ clients in the program by year-end ~40% of CPC clients invest with Chase Each % wallet penetration with our affluent clients represents $40B in new balances # of CPC locations Q 0F 0 target # of Chase Private Clients Plan to add 500+ additional CPC locations in 0 Expansion: California, Texas, Florida, Arizona and Washington Deepening presence in Tri-state, Midwest, Los Angeles and San Francisco Adding 600 Private Client Bankers and 00 Private Client Advisors 4K K 0K+ 70K+ 00 3Q 0F 0 target Becoming a significant provider to 0-0% of current affluent clients would result in incremental pretax income of $500mm - $B 7 Update on growth initiatives Business Banking Business Banking loan originations ($ in billions) Expansion markets (hwamu footprint - $ in billions) Verified income Stated income Deposit balances ADB Lending balances ADB $.5 $.3 $4. $.3 $4.7 $5.9 $. $. $5.4 $5.7 $.0 $7.3 $ Annualized QYTD Higher demand, growth in bankers (up ~400 each year) and return to normalized underwriting criteria are driving higher lending volumes Projected loan originations up ~5% YoY from higher quality applications / higher pull-through rates # SBA lender by loan units Annualized based on 3QYTD Expansion markets includes CA, FL, OR, NV, GA & WA. Loan and Deposit ADBs for expansion markets are estimated for 008 and 009 Expansion in the hwamu footprint is a ~$B revenue growth opportunity. As of 3Q 0: Average deposit balances per WaMu branch are ~40% of a Chase branch Average loan balances per WaMu branch are ~5% of a Chase branch Business bankers of 88, up from 80 in 008 (up 390%) Initiatives to capture expansion market opportunity include: Growing dedicated business bankers (00+ per year) Delivering full suite of small business products and innovative solutions Expansion in the hwamu footprint is a ~$B revenue growth opportunity 8 Update on growth initiatives Retail branch cross-sell Retail bank household cross-sell as of 3Q 6.8 h-wamu 7.4 Combined Chase h-chase Chase top region Avg. U.S. financial services consumer We are best-in-class in our ability to cross sell Cross-sell for Combined Chase has improved to 7.4 products and services per household in 3Q vs. 6.5 in Q0 Sales force has increased significantly in the CA/FL markets since the WaMu acquisition (4Q08) Added ~4,800 bankers and advisors; currently at ~8,000 WaMu cross-sell and growth drivers Investment sales ($B) Credit cards Retail Banking (000 s) Mortgage sales ($B) Avg. checking and saving balances ($B) 3 WaMu WaMu WaMu WaMu Annualized Annualized Represents cross sell activity from the WaMu branches acquired in September 008 Annualized figures. 008 annualized based on 4Q08 and 0 annualized based on 3QYTD 3 Excludes time deposits Annualized Q 0 Update on growth initiatives Card products We invested heavily in new products and services through the cycle and shifted our portfolio mix towards more rewards-engaged customers with a lower risk profile Our business continues to gain momentum Sales volume has increased from $85B in 008 to $3B in 0 Market share 3 gains have been considerable, increasing from 6.67% in 008 to 9.35% in 3Q Outstandings bottomed in Q and are expected to be $5B - $0B by year-end We are gaining traction with our high quality new products Sapphire:.8mm open accounts 4 at 3Q, since its introduction in 3Q09 Ink:.5mm open accounts 4 at 3Q, since its introduction in 4Q09 Freedom: 4.5mm open accounts 4 at 3Q; incremental 8.6mm open accounts 4 since the product was re-launched in Q0 Market share of new accounts opened increased 300 bps YoY in 3Q 5 Excludes WaMu, Commercial Card and Kohl s 0 Sales volume is annualized based on 3QYTD 3 General Purpose Credit Card (GPCC) market share; excludes WaMu and Commercial card. Estimates based on SEC filings and internal data 4 Includes new accounts as well as migrations from legacy products 5 Based on Equifax Inc. bankcard data; excludes private label and authorized user trades 0 Update on growth initiatives Commercial Banking expansion Expansion markets Opportunity Progress Long-term CB pretax income opportunity of $ mm Continue to add between new clients a year New markets we are adding: Seattle San Diego Portland Atlanta San Francisco Orlando Los Angeles Tampa Orange County Miami Sacramento More than 300 in-market dedicated resources Firmwide Over $.B in loans as of 3Q; more than double year-end 00 Over $.8B in liability balances as of 3Q; up from $B at year end 00 Breakeven in Q; now fully self-funded Expect to completely pay-back all investment cost in 0 (third year into effort) Out-of-footprint markets Opportunity Out-of-footprint markets we are covering: Minneapolis Knoxville St. Louis Charlotte Nashville Richmond Bowling Green Washington Birmingham D.C. Over,400 prospects Tyson s Corner Pittsburgh Philadelphia Boston Middle Market only, does not include other CB LOB efforts in expansion states Progress Over 40 Commercial Bankers covering these markets Actively building out coverage teams across markets Update on growth initiatives Commercial Banking cross-sell Non-lending revenue CB reported ($ in billions) Product revenue % of Total revenue 3 Treasury Services IB & Other Treasury Services IB & Other Lending 3 $.3 $.5 $.7 $3.0 $3. $3.3 $3. 00% 80% 60% 35% 35% 35% 9% 3% 8% 8% 0% 7% 6% 9% 6% 8% 6% 40% 0% 59% 59% 57% 6% 67% 66% 56% Annualized 0% Annualized Average products per relationship 4 Product sales to CB customers include TS, IB, AM, and Commercial Card Great clients and outstanding franchises Strong business and credit performance Q YTD Includes Commercial Card 0 annualized based on 3Q actuals and adjusting for seasonality 3 Total revenue and lending excludes CTL 4 Average products per relationship excludes CTL Update on growth initiatives AM client advisors Talent Private Banking Client advisors (#) Global Investment Management Sales headcount (#),868,64,30,696, Q Q Client facing headcount growth has continued in 0, despite challenging markets 6% growth in total Private Banking client advisors and 8% growth in Global Investment Management sales force in 0 International expansion is a priority and growing more rapidly International growth of 0%+ in Private Banking client advisors and 3%+ in Global Investment Management sales force in 0 The profit contribution from bankers hired in is projected to turn positive in 03 Represents 3Q growth from year-end 00 3 Update on growth initiatives Global Corporate Bank (GCB) ~3,500 clients mostly pre-existing relationships and large international clients Continuing to add bankers; on track for 0 target with ~60 bankers 0 banker coverage 78% international Overall 3QYTD international revenue growth of 7% YoY International revenues with Corporate clients 3QYTD up 7% YoY LatAm (+33%), APAC (+9%), US Outbound (+39%) Rates & FX (+7%), commodities (+4%), cash and liquidity (+9%) and trade (+3%) Approximately 40% of incremental revenues related to new clients, new products, or new countries GCB will provide an additional ~$B of annual pretax income in 5 years 4 Update on growth initiatives GCB priority countries and branch builds Russia Turkey Qatar Harbin, China Panama City Ghana (Q) Saudi Arabia Suzhou, China Legend Colombia Sufficient capabilities based on client requirements Nigeria Kenya (Q) Sri Lanka (4Q) Major additional investments Branches 0/0 Rep Offices 0/03 Branches Chile Argentina 0 markets prioritized partner bank solutions to extend network South Africa Holistic effort looking at target client needs, TSS and IB product capabilities and local infrastructure including local treasury, balance sheet and operations; Completing local currency capabilities including deposit-taking, clearing and lending Long-term plan for building Sub-Saharan Africa starting from South Africa and Nigeria 5 Agenda Growth initiatives Industry regulatory issues Key investor topics 4Q outlook and future comments Appendix 6 The industry and markets transformed significantly before Dodd Frank and Basel requirements this should be recognized in policy making Post-crisis landscape Industry is stronger for it Industry More capital Less leverage More liquidity Bad actors are gone Increased focus on risk by Boards of Directors, Risk Committees and regulators Better compensation practices Markets Most off-balance sheet vehicles like SIVs are gone CDO and CLO markets have virtually closed and are more conservative More conservative asset-backed commercial paper market More conservative money market funds More conservative repo and tri-party market Less exotic derivatives Less leveraged loans Housing Back to excellent mortgage underwriting, since 008 Alt-A and subprime mortgage virtually gone These are substantial changes may need to be codified 7 Regulatory topics reviewed in the presentation There has been significant regulation, much of which we have supported Regulation commentary Basel III Dodd Frank Support Support more capital up to 0-% Basel I capital requirement LCR support stronger liquidity Basel III RWA consistency Volcker ban on proprietary trading Higher capital/liquidity Derivatives reform Industry, not taxpayer replenishing FDIC fund Mortgage reform (skin in the game) completely fine with concept Concerns/comments G-SIB methodology and magnitude are an issue Calibration, and significant economic effects from giving no credit to certain liquid assets Being worked on Rules should not stifle market-making/alm/liquidity management Should not disadvantage U.S. banks End user margin/extraterritoriality Push-out Position limits Methodology to calculate should not penalize any organizations; exorbitantly expensive for short-term assets Rules should be finalized as soon as possible to help market Believe mortgage markets should be regulated Consumer Financial Protection Bureau Support same rule writer for all actors; concerned about overlap and inefficiency Resolution authority Financial Stability Oversight Council 8 Need to finalize rules so that they are believable, executable by regulators and provide comfort to taxpayers that they won t pay we believe this is achievable Needs more teeth but this is not the optimal way to run a robust financial system oversight needs to be simple, transparent, coordinated and consistent Dotted line indicates authority to request information, but no examination authority. Green indicates new agency or new powers and authority Gold indicates old agency. OFAC / FinCEN Financial Stability Oversight Council Identify risks to the financial stability of the U.S. from activities of large, interconnected financial companies. Authority to gather information from financial institutions. Make recommendations to the Fed and other primary financial regulatory agencies regarding heightened prudential standards. State Regulatory Authorities and AG s Power to enforce rules promulgated by Bureau of Consumer Financial Protection SEC Regulates securities exchanges; mutual funds and investment advisers. Examination authority for brokerdealers. Authority over securitybased swaps, securitybased swap dealers and major securitybased swap participants. CFTC Market oversight and enforcement functions. Authority over swaps, swap dealers and major swap participants. Regulates trading markets, clearing organizations and intermediaries. Office of the Comptroller of the Currency Focus on safety and soundness. Primary regulator of national banks and federal savings associations. Examination authority. Examines loan portfolio, liquidity, internal controls, risk management, audit, compliance, foreign branches. Federal Reserve Focus on safety and soundness-supervisor for bank holding companies: monetary policy; payment systems. Supervisor for systemically important financial institutions and their subsidiaries. Establish heightened prudential standards on its own and based on Council recommendations. Examination authority. Office of Financial Research Office within Treasury, which may collect data from financial institutions on behalf of Council. No examination authority. FDIC Focus on protecting deposits through insurance fund; safety and soundness; manage bank receiverships. Examination authority. Orderly liquidation of systemically important financial institutions 3. FINRA Regulates brokerage firms and registered securities representatives. Writes and enforces rules. Examination authority over securities firms. Bureau of Consumer Financial Protection Focus on protecting consumers in the financial products and services markets. Authority to write rules, examine institutions and enforcement. No prudential mandate. Investment Advisory Mutual and money market funds; wealth management; trust services Derivatives Futures, commodities and derivatives Consumer Lending Credit cards; student and auto loans Commercial Lending Commercial and industrial lending This chart assumes these activities are conducted in a systemically important bank holding company (BHC) The Council, through Office of Financial Research, may request reports from systemically important BHCs FDIC may conduct exams of systemically important BHCs for purposes of implementing its authority for orderly liquidations, but may not examine those in generally sound condition 3 The Dodd-Frank Act expanded the FDIC s authority when liquidating a financial institution to include the bank holding company, not just entities that house FDIC-insured deposits Broker-dealer Institutional and retail brokerage; securities lending; prime broker services 9 Retail Banking Deposit products; mortgages and home equity Alternative Investments Hedge funds; private equity Investment Banking Securities underwriting; M&A financial advisory services Note: Green lines from SEC and CFTC represent enhanced authority over existing relationships Payment and Clearing Systems Payments processing; custody and clearing Global Systemically Important Bank (G-SIB) capital surcharge Overview of proposed methodology G-SIBiness is measured relative to 73 other banks, making it difficult to determine where a bank scores under the metrics Criteria (each 0% of score) Metric description (% weight) Issues with methodology Total assets (00%) Double counts with all other categories Size Based on total grossed-up nominal asset exposure Ignores diversification benefits Interconnectedness Lending to fi
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