DBRS Morningstar Confirms JPMorgan Chase & Co. at AA (low), Trend Remains Stable

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of JPMorgan Chase & Co. (JPM, JPMorgan or the Company), including the Company’s Long-Term Issuer Rating of AA (low). At the same time, DBRS Morningstar confirmed the ratings of its primary banking subsidiary, JPMorgan Chase Bank, N.A. (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA, while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The ratings confirmation reflects JPM’s well diversified and highly scaled universal banking franchise, its strong and resilient earnings generation across businesses, as well as its robust balance sheet fundamentals. DBRS Morningstar views JPMorgan as being amongst the top banking franchises globally. The ratings also consider JPM’s exposure to a wide range of capital markets activities, which support the franchise value, but elevate risk levels. The challenges with managing risk across such a large, complex organization are also factored into the ratings.

RATING DRIVERS
DBRS Morningstar views JPM as well placed in its current rating category and sees positive rating action as limited since the Company generally runs with a higher level of risk than similarly-rated peers. Over the longer term, if JPM demonstrates sustained success in managing risks across the organization, DBRS Morningstar sees the potential for positive ratings pressure. Conversely, negative ratings pressure could arise if JPM’s financial profile weakens or if its risk appetite increases materially.

RATING RATIONALE
JPM is the largest U.S. bank by both assets and deposits and has a deep and diverse business model. The Company maintains a leading credit card business along with other scaled nationwide lending businesses, including residential mortgage and auto lending, as well as a strong commercial banking business. Additionally, the Company’s large global capital markets business, with top-tier rankings across numerous banking, markets and investor products and services, along with its extensive global fee-based businesses, including its sizable treasury and securities services, asset management and private banking businesses, contribute to JPMorgan’s overall diversity.

JPM’s performance has been global peer leading. For 9M19, JPM generated positive operating leverage with revenues growing 5% to a strong $87.3 billion driven by continued momentum in Consumer & Community Banking, while expenses increased just 3% over the same time period, despite ongoing investments in the businesses. These investments include a sizable annual technology spend of about $11.5 billion, as well as various other initiatives such as expanding banker coverage and increasing the branch footprint. Overall, the Company generated $27.9 billion in net income in 9M19, up 10% from the prior year period, equating to return on equity of 15%.

Credit performance remains very sound with the Company’s nonaccrual loan ratio at a low 0.52% at the end of 3Q19. Meanwhile, charge-offs continue to trend upward with Card loan growth, but remain manageable and are in line with expectations. In 9M19, the Company’s provision for credit losses represented a low 11% of income before provisions and taxes. Market risk levels also remain low, though low client activity and low volatility are factoring into these levels. From an operational risk perspective, JPM has put much of its material legacy litigation issues behind it, with the estimated upper range of possible losses beyond current litigation reserves of $1.3 billion at the end of 3Q19, compared with $5.8 billion at the end of 2014.

We view JPM’s funding, liquidity and capitalization as very strong, supported by its $1.5 trillion global deposit base. JPMorgan’s reliance on wholesale funds represents around one-third of total funding and primarily reflects its capital markets businesses. We view JPM’s wholesale funding as appropriately diversified by instrument, maturity and investor type and view the Company as having ready access to capital markets globally. JPM averaged $537 billion of high-quality liquid assets, contributing to a 115% liquidity coverage ratio (LCR) during 3Q19, and had a CET1 ratio of 12.3% at quarter end.

The Grid Summary Scores for JPM are as follows: Franchise Strength – Very Strong; Earnings Power – Very Strong/Strong; Risk Profile – Strong; Funding & Liquidity – Very Strong/Strong; Capitalisation – Very Strong/Strong.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Global Methodology for Rating Banks and Banking Organizations (June 2019), which can be found on our website under Methodologies & Criteria.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

For more information on this credit or on this industry, visit www.dbrs.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA