EFTA01148164.pdf

INVESTMENT BANK Jes Staley, Chief Executive Officer Investment Bank February 28, 2012 JPMORGAN CHASE &CO. EFTA01148164  Agenda Page Performance I Markets 4 Business highlights 13 INVESTMENT BANK 1 MMORGAN CHASE &CO. EFTA01148165  2011: strength amidst volatility Performance ■ Near record performance ▪ Revenue: $26.3B ▪ Earnings: $6.8B (second highest) ■ ROE of 17% on capital of $40B ■ Further strengthened fortress balance sheet (Tier 1 common ratios) ▪ Basel II: 13.7% ▪ Basel III: 8.4% ■ Sustained Investment Banking leadership ■ #1 in Global IB Fees (third consecutive year): 8% market share' ■ Record loan syndication revenue, advisory fees up 22% ■ Fixed Income: historic high revenue market share, 17%2 ■ Equities: record results PERFORMANCE ■ Commodities: complete franchise Deelogic 2 Estimated using public disclosure of top 10 competitors. excluding DVA 2 JPMORGAN CHASE &CO. EFTA01148166  Strategic initiatives: 2011 progress and 2012 momentum Performance ■ Disciplined, sustained focus Clients ■ Formed International Steering Committee ■ TS/IB Markets growth with corporates International ■ Expanded Markets footprint in 20 countries ■ Add local market capabilities ■ Launched EMEA Prime Brokerage ■ Build Asia Prime Brokerage ■ ■ Achieved targets, increased client activity ■ Maintain leadership d Commodities ■ Completed Sempra integration ■ Grow developing markets franchise ■ Strategic Reengineering Program: over ■ Execute Strategic Reengineering Program 50% complete, on target ■ Rationalize IB/TSS costs and execution Technology (Value for Scale) ■ Doubled electronic equity internalization ■ Further reduced errors and cost per trade ■ Deliver cross-asset platforms for innovation ■ Prudent capital management ■ Efficient capital usage Capital/risk ■ Continued focus on regulation ■ Control during volatility management ■ Repositioning ahead of new regulations PERFORMANCE 3 JPMORGAN CHASE &CO. EFTA01148167  Agenda Page Performance 1 Markets 4 Business highlights 13 INVESTMENT BANK 4 JPMORGAN CHASE &CO. EFTA01148168  Credit, rates and currencies drive the global financial markets Markets Non-bank financial assets outpacing growth of traditional sources of capital... Financial assets (% of GDP) Capital by source (% of GDP) 450 • Public Financial Markets • Banks/Govs. 400 350 Global financial assets are Japan expected to nearly double over 300 the next 10 years U.S. 250 Non-bank financials 200 Korea (MFs, Insurance, HFs, 150 etc.) France 100 As countries develop. China banks/goys. are replaced by 50 public market growth 0 Brazil 1952 1959 1967 1974 1981 1988 1996 2003 2010 0 100 200 300 400 ...and Fixed Income markets continue to dominate Equities Gross U.S. equity and long-term debt issuance ($7) Daily average U.S. trading volume ($B) • Fixed Income' Equities ■ Fixed Income' Equities2 6.8 1,034 950 901 5.9 5.9 893 5.3 819 630 3.4 348 358 274 N 70 o 103 1996 1998 2000 2002 2004 2006 2008 2010 2011 1996 1998 2000 2002 2004 2006 2008 2010 2011 Source: Federal Flow of Funds. Bloomberg, IMF, Bank for International Settlements, CBRC. CSRC. Thomson Reuters. SIFMA. McKinsey Global Institute MARKETS Note: "Gross U.S. equity and longterm debt Issuance' and "Daily average U.S. trading volume' graphs not shown to scale Municipal, Treasury, MBS. Corporate Debt, and Federal Agency securities 2 Daily average value traded by the NASDAQ and NYSE 5 MMORGAN CHASE &CO. EFTA01148169  Our client franchise is large, diversified and global Markets 2011 Markets revenue mix Broker -dealers 441 Corporates Hedge Funds Latam Asia 13% 23% 2% 10% 7% Other Financials1 -16,000 North America 8% EMEA 55% Banks markets clients 33°O 16% Insurance 4% Asset Managers 29% 2011 IB fees mix Public Finance Asia Latam Consumer & Retail 3% 11% 9% 4% Tech. Media. Telecom 18% Diversified Industrials 13% Real Estate -5,000 North America 7% issuer clients 68% FIG 14% Natural Resources 23% Healthcare 11% MARKETS ' Other Financials includes pudic sector. pension funds. private equity, and SPVs JPMORGAN CHASE &CO. EFTA01148170  We have unmatched scale. diversification and leadership Markets Scale Diversity Leadership How we operate IB revenue (typical quarter) Industry rankings Descriptions 100% 2009 2010 2011' Advisory #3 #4 #2 ■ MA. Corporate Finance advisory 2.500 salespeople Equity 1 3 3 • Primary and secondary issuance Underwritin 2.000 traders Long-term Debt 1 2 1 ■ Bond underwriting Syndicated Loans 1 2 1 ■ Loan syndication 2.000 bankers Rates 2 1 1 • Treasuries, agencies, swaps, futures, options 800 research analysts Securitized • Mortgage and asset backed securities 2 1 1 Products Fixed Income 4.000 control and risk professionals o_ Emerging 2 3 2 ■ Non G-10 rates, credit. FX LL Markets Credit ■ Corporate bonds, loans, credit swaps, index 13.000 tech. & ops. Trading 1 1 1 products professionals Commodities 5 5 3 • Swaps, futures, options, physical transactions FX 2 2 2 • Spot foreign exchange swaps, futures, options 40 countries 3 3 3 • Municipal debt trading and issuance Agralaiaglaa • Rates and credit E-10=0:n 3 8 8 NIA 4 4 ■ High touch execution 110+ trading desks Cash NIA 9 9 • Low touch execution (electronic) Derivatives 3 3 1 • Swaps, options, convertibles 20 trading centers U. Prime Services 2 2 2 • Financing, execution, clearing NIA NrA NA • Margin financing, Structured notes Structures Source: Dealogic. Coalition ZEMAIE Note: Coalition competitor set: BAC. BARC. C. CS. OB. GS. MS. and UBS Fixed Income and Equities ranking as of 3O YID 2011 (Coalition — Revenue): Banking rankings are FY 2011 (Dealogic - Volume) 7 JPMORGAN CHASE &Co. EFTA01148171  Flow driven Markets business Markets IB Markets revenue: typical quarter (%) 100% 100% 100% Rates Securitized Products Fixed Emerging Flow Income Markets 70% Credit Trading Commodities FX Public Finance Cash Derivatives Equities Flow 30% Prime Services Structured I:IfltE 8 JPMORGAN CHASE &CO. EFTA01148172  High volume Markets business model with standardized products Markets Examples of major trading Quantity per quarter Average revenue Revenue per x quarter ($mm) products (# of trades) ($ per trade) • FX Spot/Forwards 5.000,000 70 350 • Credit Trading 250,000 1.500 375 • FX Options 150,000 600 100 • Metals Trading 140,000 600 75 • Financing 100,000 1,500 150 • Governments 75,000 2.500 200 • Energy Trading 50,000 5,000 250 • Interest Rate Swaps 30,000 12,000 350 • Asset Backed Securities 30,000 10,000 300 • Agencies 11,000 7.000 75 • Loan Trading 10 .000 10,000 100 • Cash Equities (N.A.) 10B shares 1.5 cents per share 150 a) • Cash Equities (EMEA/Asia) $200B notional 8bps 175 • Equity Swaps and Options 6,000 30,000 200 is LLI • F&O and OTC clearing 350mm lots 40 cents per lot 150 S Note: Quantity. average revenue and total revenue are estimates based on typical quarter: revenue per quarter rounded I:I=EEE 9 JPMORGAN CHASE &. CO. EFTA01148173  Over 90% of the Global Fortune 500 use swaps, futures, and options Markets Global Fortune 500 Usage by industry Usage by product 98% 88% 97% 83% 95% Total usage across all industries: 94% 92% 92% 92% 91% 49% 88% 29% 20% Financial Basic Tech. Industrial Health Utilities Consumer Services FX hterest rate Connelly aPRY Credit materials goods care goods Source. ISDA 2009 Survey MARKETS 10 JPMORGAN CHASE &Co. EFTA01148174  Scale driven Markets business model Markets Estimated % of total client trades by average revenue per trade (FY 2011) ■ High volume (-100,000 daily trades) 98% ■ Low spread ■ Low volume (-10 daily trades) ■ High spread 1.2% 0.6% 0.2% 0.08% 0.06% $0-$50K $50K-$100K $100K-$250K $250K-$500K 500K-$1mm $1mm+ % of Total Revenue 4 -► 75% 4 25% MARKETS Note: Represents Fixed Income business 11 JPMORGAN CHASE &Co. EFTA01148175  High turnover Markets business model Markets Case study — North America interest rate swaps daily turnover metrics 120 75 77 57 Average daily turnover: 53 44 36 37 29 24 26 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Client businesses carry little risk inventory and turn their positions multiple times a day Note: Turnover defined as daily DV01 risk traded divided by starting DV01. DV01 is the risk position for a desk (amount of money desk makes or loses on a one basis point move in the yield curve): actual two•week period in 2011 MARKETS 12 MMORGAN CHASE &CO. EFTA01148176  Agenda Page Performance 1 Markets 4 Business highlights 13 INVESTMENT BANK 13 JPMORGAN CHASE &CO. EFTA01148177  Well positioned to adapt to regulation Business highlights Impact Concerns I Strengths ■ Mandated clearing ■ Unresolved: end-user ■ Competitive advantage by Clearing and Swap ■ Meaningful volumes margin/extraterritoriality being a scale player with Execution ■ Lesser revenue impact existing connectivity and ■ Concentration of access to SEFs Facilities exposure to central (SEFs) counterpanes ■ Ban on Bright Line ■ Could limit liquidity ■ Long-track record of client- proprietary trading • Clients focused business model ■ Immaterial revenue impact ■ Markets ■ Competitors may need to ■ Not a large business re-orient their businesses Volcker ■ Compliance emphasis ■ Limits market may impact costs making/hedging ability ■ Pushing-out portions of below ■ Complicates risk ■ Operational excellence: investment grade CDS, management depth of experience Non-Bank Subsidiary equity and commodities managing complex derivatives ■ Extraterritoriality: migrations (NBS) swap potential impact to scope "push out" n No significant revenue or BUSINESS HIGHLIGHTS capital changes expected Strong governance programs in place to address regulatory change: 500 people; 65+ projects 14 JPMORGAN CHASE & CO. EFTA01148178  Expense discipline enables investment capacity Business highlights J.P. Morgan IB expense ($B) Highlights • Compensation ' • Noncompensation ■ Disciplined expense management ■ Total expense down 4% 16.8' ■ Focus on operating efficiency 16.1 ■ Best-in-class overhead ratio 15.4 r Lowest comp/revenue ratio 13.8 7.5 6.1 7.2 ■ Continued investment capacity ■ Strategic Reengineering Project (SRP) ■ International expansion ■ Commodities execution ■ International Prime Brokerage 9.3 9.2 8.9 7.7 ■ Value for Scale ■ Synergies across wholesale businesses 2008 2009 2010 2011 Overhead ratIo2 NM 51% 65% 65% BUSINESS HIGHLIGHTS Compirevenuet2 75% 31% 36% 36% 1 2010 compensation expense excludes $0.5B of U.K. payroll tax 2Overhead and comptrevenue ratios exclude DVA impact 15 JPMORGAN CHASE &CO. EFTA01148179  Global Corporate Bank: contributing to IB Markets and Treasury Services Business highlights 2011 international revenue with corporates I IB Markets Treasury Services Trade loan growth 47% Rates 32% Trade 35% revenue growth -22% growth FX 28% Liquidity YoY Commodities 27% Core cash BUSINESS HIGHLIGHTS Excludes nonrecurring items JPMORGAN CHASE &CO. EFTA01148180  Leveraging the J.P. Morgan platform Business highlights J.P. Morgan Investment Bank Leveraging the wholesale platform Treasury & Asset IB cross-LOB gross revenue share ($B) Commercial Securities Management Banking Services ■ IB recognized ■ Expanded client ■ 41 new Private fees for 147 coverage/footprint Bank clients from debt and 77 with Global IB referrals equity deals for Corporate Bank ■ 71 Private Bank CB clients in ■ Increased credit referrals to the IB 2011 extension and ■ Expanding ■ $1.4B gross product 18% international revenue in 2011 penetration referrals and syndication BUSINESS HIGHLIGHTS access 2011 total: $2.7B 17 JPMORGAN CHASE &.CO. EFTA01148181  Proven risk management capability Business highlights J.P. Morgan Markets revenue and VaR Average revenue over past 12 quarters JPM Markets revenue JRA VaR $8 $mm JPM -30% greeter than peers 25 180 23.5 160 20 19.3 19.3 S3.9 140 120 Peers J.P.Morgan 15 100 12.2 80 Markets revenue volatility2 of past 12 quarters 10 60 JPM -40% less than peers 40 5 4.2 20 40% 25°O 0 0 2006 2007 2008 2009 2010 2011 BUSINESS HIGHLIGHTS Market Peers J.P.Morgan 8% 9% 10% 13% 12% 14% share' Note: Revenue excludes DVA; peers: BAC, BARG, C, CS, DB, GS, MS and UBS Estimated using public disclosure of top 10 competitors, including DVA 2 Volatility equals standard deviation as a percentage of the period average -30% higher revenue than peers with -40% less volatility 18 JPMORGAN CHASE &CO. EFTA01148182  Fortress balance sheet and prudent capital management Business highlights Risk Weighted Assets (based on Basel Ill) $550 $467 $413 ($54) 4O10 actual 4O11 actual 4Q12 glidepath Allocated equity ($B) 40 40 40 Basel Ill Tier 1 7.2% 8.4% 9.5% common ratio BUSINESS HIGHLIGHTS Note: 2012 RWA reduction is a combination of legacy asset roll•off, risk adjustments, and continued RWA management discipline 19 JPMORGAN CHASE &CO. EFTA01148183  Consistency of results Business highlights JPM Investment Bank ROE vs. peers Markets revenue (Equities and FICC, $B) ■ JPM IB ■ Peer average' Industry Individual firms YoY 17% 17% 146 % JPM 20 2% 14% 131 Peer 1 17 (21%) Peer 2 17 (3%) Peer 3 15 (15%) 8% Peer 4 15 (16%) Peer 5 36% Peer 6 (25%) Peer 7 1% BUSINESS HIGHLIGHTS Peer 8 (30%) 2010 2011 2010 2011 Source: Company filings 'Pest average ROE excludes firms without sufficient IB segment•level disclosure 2Adjusted for non•recuring items 20 JPMORGAN CHASE &CO. EFTA01148184  Performance and outlook Business highlights J.P. Morgan IB ROE Outlook • We are holding 17% target going forward ■ Headwinds to consider Regulatory burden Global market uncertainty Tougher RWA calculations 18% 18% Sustained low interest rate environment 15% L Key drivers Scale and diversity of fr