On November 12, 2008 Jamie Dimon, CEO and Chairman of JP Morgan Chase spoke at a Merrill Lynch Banking and Financial Services Conference. Here are some quotes and notes which I found helpful.
1. “Bear Stearns (BSC), we still expect the Bear Stearns units — they’ve almost been combined at this point, by not all the systems, but the way we run the businesses. So it’s really hard for us to completely break it out. But we still expect Bear Stearns’ businesses to add about $1 billion of earnings to the Company. That’s exactly the same.”
“And BSC cost us more money than we thought. If you asked me the question how much more, probably about $10 billion more. When we announced the deal, we said that we expected to get $5 billion of equity with it; we basically got nothing. So — but it’s mostly done.”
2. WAMU a good fit, integration going well. Deposits growing, key staff kept, immediately accretive.
3. “Credit card losses, we told you. would be about 5% in the third and fourth quarter. We still expect that 5% plus. We think it’s a reasonable expectation that it will start next year at 6% and end next year at 7% plus. So we don’t know that for a fact, but if you build unemployment in like we’re looking in housing, that’s a reasonable expectation. If unemployment goes much higher than 7%, 7.5%, we would expect this number to go up too. Since we don’t know what unemployment is doing, you have to make your own estimates for what that is.”
4. “My own personal opinion is that in an environment that is stressed like this, you have to see nonperformers and charge-offs go up. There will be a lot of surprises coming out of the woodwork, so we’re prepared for that. And I should point out that while our charge-offs are really low compared to the competition and the nonperformers are low compared to the competition, our loan loss reserves are not low compared to the competition. So we think we are kind of prepared, but we are expecting this to deteriorate a little bit too.”
5. “Obviously, strong loan-loss reserves are an important part of what we call our fortress balance sheet. So is strong capital. After the TARP program, we will have Basel I Tier 1 capital of about 10.8%. Before that, it was about 8.9%; so it was strong before that.”
6. “We feel our liquidity position is exceptional. I’m not going to take you through it. But if you look at loans to deposits in any business, like in the Commercial Bank, it’s $70 billion of loan, $100 billion of deposits. And all of our businesses are very liquid and very well-funded, as is the rest of the Company.”
7. “And remember, we also have to stand ready to serve clients who pull down revolvers. We have $300 billion of undrawn revolvers across all the lines of businesses on the wholesale side. And we have to be prepared for that too. Obviously, the more stressed the environment gets, the more we’re going to be called on to do that. Then things like buying back the $4 billion of auction rate obviously uses up some of that too.”
8. “But deposits, more deposits, more accounts, more checking, more credit cards, more loans, more net assets — well, assets under management down; we actually had net flows in. This is the stuff which is going to drive our results for five or 10 years.”
9. “There is a reason we have a steep yield curve and very high risk premiums, that people are going to eventually move out that curve. Like I’ll give you an example right now. I’m probably not supposed to say this, but I just took a lot of my cash, which I was getting like 1% on, and bought JPMorgan Preferreds at 11.5%. I think they’re pretty good investments and I’d rather get 11.5% than 1%.”
Yes, the question is when the government stop Fannie and Freddie from paying dividends on preferred? Yes, we know because lost — we wrote those to [$0.05 on the dollar] and lost $1 billion too.
The regulators — and I think what I’m about to say is accurate — have always had the right to force companies — banks to stop paying on their Preferreds if they think that paying dividends on Preferreds will create an unsound bank. And that’s always been true. So I think our ability is to pay dividends on our Preferred or Common will relate to us maintaining a safe and sound bank. So I don’t think we are going to stop paying dividends on our Preferred. But they’ve always kind of had that right.”“
10. “So when Warren Buffett says when the tide goes out, you see who’s swimming naked, there were people swimming naked everywhere — and they weren’t just banks. There were banks. There were investment banks. There were hedge funds. There were investors. There were individuals. There were margin loans. And I think that it will get cleaned up.”
11. “Which is one of the reasons the dollar’s strong, is it’s still a haven. And you know, we’re not running this Company like we have a Great Depression. We don’t think so. We just think we’ll have a tough year.”