The nation's largest bank by assets, JPMorgan Chase (JPM -0.82%), reported earnings for the first quarter of the year this morning. It was a strong performance by almost any measure. Net income was up by 33% on a year-over-year basis, mortgage originations soared, and the bank socked away more capital for a rainy day. What follows are some of the more notable quotes and exchanges from the bank's conference call with analysts.
1. Jamie Dimon just doesn't get it
Here's an exchange between Glenn Schorr, an analyst at Nomura, and Jamie Dimon about the ongoing debate about too big to fail banks. Pay particular attention to the final sentence of Dimon's response.
Glenn Schorr: "I know [you] addressed some of this in your shareholder letter, but between everything related to Basel III, Dodd-Frank in place already, and [other regulations] coming online, it feels like we're going down the path on containing too big to fail but there's still a steady drumbeat ... to change things. Just curious on where we're headed on this and what will stop the drumbeat? When is enough, enough?"
James Dimon: "[T]he reason you have companies is they serve clients well at a good cost. There's a reason our numbers are good because we have cross-selling clients come to us. And there's a reason for global banks just as there are reasons for community banks. I think that the real issue, again, and you guys do the numbers is, the banking system has gotten so much stronger in the United States. And it's not just capital, but it's capital, liquidity, oversight, all sorts of activities that people didn't like in order been done, derivatives clearing houses. And the initial wave of living wills, et cetera, should all work. I hope at one point we declare a victory and just stop eating our young at this thing."
The point here is that Dimon's perspective reaffirms many critics' belief that Wall Street bankers are out of touch with the rest of the country. With an elevated unemployment rate and vast swaths of houses still underwater, there are few ordinary Americans that would equate the current state of banking (in which JPMorgan and others are recording record profits) to eating our youth.
2. Why buybacks are nothing to write home about
Here's an exchange between John McDonald of Sanford Bernstein, JPMorgan's CFO Marianne Lake, and Jamie Dimon about the fact that JPMorgan's outstanding share count increased despite the fact that the bank repurchased $2.6 billion in shares over the quarter.
John McDonald: "You did a healthy buyback this quarter but share count didn't shrink that much. Is the first quarter heavier than usual in terms of your issuance? And the question is getting at, [would] $2.6 billion of buybacks . . . be expected to shrink the share count in quarters when it's not the first quarter?"
Marianne Lake: "Yes, that's right, John."
John McDonald: "Okay. So your issuances more weighted toward the first, is that right?"
Marianne Lake: "Yes, yes. But also remember, we didn't buy back shares in the fourth quarter or the third. So there is an overall, overall net $2.6 billion, close to $2.6 billion net of provisions."
John McDonald: "I'm not seeing how that translates into the reduction in the share count. It's kind of offset by what you do in issuance, right, each quarter?"
Marianne Lake: "Yes."
John McDonald: "And was this a normal quarter of issuance, so a $2.6 billion buyback would keep the [share count] flat? Is that the kind of share ratio we might expect?"
James Dimon: "No. I think the issuance number is fairly level and consistent quarter-by-quarter. It's really based upon amortization of restricted stock and all that. And the buyback, the $2.6 billion that was over the course of the quarter, so it averaged out -- half of that to the quarter. So we'll give you more detail on that a little bit later, John."
John McDonald: "Okay, but it's steady throughout the year?"
James Dimon: "The $6 billion will offset how much average amortization we have over the same 12-month period."
In case you didn't follow, there are two things to note, here. First, JPMorgan's CFO and CEO were not on the same page about the impact of share repurchases on outstanding share count throughout the year. Lake believed they were weighted more heavily in the first quarter. Dimon corrected her by saying they're "fairly level and consistent quarter by quarter."
And the second thing is, while buybacks are pitched as a great way to return capital to shareholders, they're more often only used to allocate capital to executives. You do the math.
3. Dimon snubs Mayo again
Ok, I know this is probably better suited for People magazine, but it's nevertheless worth pointing out. At JPMorgan's investor day last month, Dimon notoriously (and inappropriately, I might add) responded to a question from CLSA analyst Mike Mayo about the bank's capital levels. Well, it seems clear that Dimon is done talking to Mayo for the time being.
After and long back and forth between Mayo and Lake, Mayo asks Dimon about a passage from the recently released chairman's letter.
Michael Mayo: "Okay. And then a separate question, looking at annual report, Page 4 of the Chairman's letter said, refers to regulation and some of the issues that you faced and said, 'We will see more of these...' So when you say we will see more of these, Jamie, what are you talking about because people's imaginations can go in a lot of different directions? Are we talking Department of Justice, SEC...? Were you thinking anything in particular, general or timeframe? And really, what I'm asking you to address is the regulatory tail risk of we don't know what we don't know in terms of potential government moves as is relates to JPMorgan?"
Marianne Lake: "So, Mike, sorry, so we're in constant dialogue with the regulators, and so we know that we should be expecting some more consent orders. But to clarify for you, they relate to issues that we've been working on over the course of the last several years. So these are not new breaking issues that will surprise you in any material way."
Just so we're all on the same page, here, this is a question that would have traditionally been fielded by Dimon and should have been fielded by him this time, as regulatory tail risk, as Mayo calls it, is probably the single-most important unknown among investors and analysts today. As a result, Dimon's refusal to answer the question should be viewed skeptically, to put it mildly.