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 and Stable trend reflects JPM’s highly-diversified and scaled universal banking franchise, its strong and resilient earnings generation across businesses, as well as its robust balance sheet fundamentals. Overall, 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 an ongoing critical challenge for the Company.
Given JPM’s high rating level and current risk profile, an upgrade of the ratings is unlikely. 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.
Franchise Combined Building Block (BB) Assessment: Very Strong
JPM’s powerful franchise encompasses strong, diverse businesses that contribute to strong and consistent earnings. The U.S. banking franchise combines an extensive branch banking franchise, with a virtually nationwide reach, a leading credit card business along with other scaled nationwide lending businesses, including residential mortgage, auto lending and commercial banking. 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 $3.0 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.
Earnings Combined Building Block (BB) Assessment: Strong
In 9M21, JPM reported $37.9 billion of net income, representing a very strong 20% return on equity (ROE). Revenues were strong across businesses, highlighted by exceptional results in the Corporate & Investment Bank. Excluding the benefit of $10.3 billion in reserve releases in 9M21, JPM would have delivered a ROE of 15%, which would still be higher than the pre-pandemic run rate.
Risk Combined Building Block (BB) Assessment: Strong
JPM has extensive exposure to various risks and has effective risk management capabilities. The Company has strong processes for measuring and controlling risk across the organization, limiting potential operational risk issues. Moreover, credit performance remains extraordinarily strong, with nonaccrual loans declining from already low levels, while net charge-offs have approached their lowest level in recent history. JPM's reserve coverage remains ample, as the allowance for credit losses was $20.5 billion at the end of 3Q21, or 1.86% of total retained loans.
Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong/Strong
JPM is the largest U.S. bank by deposits (domestic and foreign) with $2.4 trillion in total deposits. This large deposit base, including $1.1 trillion 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 continues to be exceptional, benefiting from heightened liquidity in the system. 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.
Capitalization Combined Building Block (BB) Assessment: Strong
JPM has strong capitalization levels and robust internal capital generation that provides a substantial cushion to absorb unexpected losses. Even with the resumption of share repurchases ($5.0 billion during 3Q21), capital metrics remain strong, with a Standardized CET1 ratio of 12.9% at the end of 3Q21, providing a substantial buffer above regulatory minimums.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/389491.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations.
Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
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.
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