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

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of JPMorgan Chase & Co. (JPM 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 JPM as having the top banking franchise 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. We see JPM’s franchise as expansive, which adds complexity to managing risks across the organization. While JPM has proven its ability to manage these risks over time, we see the need to effectively manage operational risk as a critical challenge for the Company. Furthermore, the unprecedented economic disruption caused by the Coronavirus Disease (COVID-19) pandemic and related extraordinary support measures implemented to mitigate the fallout have been factored into our ratings assessment. We will continue to monitor this developing situation and its impact on JPM’s overall credit profile.

RATING DRIVERS
Given the current operating environment, an upgrade is unlikely over the near term. If JPM’s risk-adjusted earnings continue to outperform the industry thus demonstrating that the Company can successfully manage risks across a complex, global organization, the ratings would be upgraded. Conversely, a sustained deterioration of earnings or balance sheet fundamentals, or any indications of significant weakening in JPM’s franchise due to risk management deficiencies or reputational issues would result in a downgrade.

RATING RATIONALE
JPM’s powerful franchise encompasses strong, diverse businesses that contribute to strong and consistent earnings. The U.S. banking franchise combines a strong branch banking franchise, with a virtually nationwide reach, a leading credit card business along with other scaled nationwide lending businesses, including residential mortgage and auto lending. The Company also has a strong commercial banking business. Supporting its global reach, JPM operates a significant investment banking and capital markets franchise, where it maintains leading market shares, and a sizable asset and wealth management franchise, with $2.6 trillion in assets under management (AUM). DBRS Morningstar also sees the Company as having success in cross-selling products across the franchise, allowing JPM to achieve deeper client relationships.

JPM is the largest U.S. bank by deposits (domestic and foreign) with $2.0 trillion in total deposits. This large deposit base, including $901 billion deposits sourced through the Consumer & Community Banking segment, anchors the Company’s sound funding profile. Core deposits readily fund the entire loan portfolio and deposit growth was exceptional during 9M20, primarily reflecting a flight to safety. JPM’s reliance on wholesale funds comprises approximately 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.

Despite the highly adverse operating environment, JPM’s financial performance has been resilient. In 9M20, JPM reported $17.0 billion of net income, representing a 9% ROE. While bottom line results were adversely impacted by a material reserve build, the Company’s $39.7 billion of income before provisions and taxes was up 4% versus 9M19, driven by record-setting results in the Corporate & Investment Bank.

Asset quality remains solid, with net charge-offs remaining at low levels, as the benefit from stimulus measures and payment relief programs continues to delay loss recognition. While we expect credit performance to worsen in the coming quarters, JPM remains well positioned to absorb the fallout, considering its substantial earnings generation capacity and robust balance sheet fundamentals. Liquidity is substantial at $1.3 trillion of liquidity sources, representing 41% of total assets. The Company’s CET1 ratio was in line with peers at 12.3% at the end of 3Q20.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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; Capitalization – Very Strong/Strong.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020): https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277