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 ratings 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 $2.6 trillion in assets under management (AUM).
Earnings Combined Building Block (BB) Assessment: Strong
In 9M22, JPM reported $26.7 billion of net income, representing a strong 14% return on equity (ROE). Revenues were strong across businesses, benefiting from significantly higher net interest income and very strong trading results. The Company’s consistent, global-peer-leading profitability metrics support the ratings.
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. Additionally, credit performance remains extraordinarily strong, with nonaccrual loans and net charge-offs still at historically low levels. JPM's reserve coverage remains ample, as the allowance for credit losses was $20.8 billion at the end of 3Q22, or 1.70% of total retained loans.
Funding and Liquidity Combined Building Block (BB) Assessment: Very 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 $1.2 trillion deposits sourced through the Consumer & Community Banking segment, anchors the Company’s sound funding profile. 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. With share repurchases suspended in anticipation of higher capital requirements and substantial earnings generation, capital ratios continue to improve, including the Company’s CET1 ratio, which stood at 12.5% at the end of 3Q22. JPM expects to reach its 13% CET1 target in 1Q23, which includes a 50 basis point management buffer, at which point the Company would likely resume buybacks.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/407113
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022)
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations: https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations
(June 23, 2022). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022)
The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. 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.
The conditions that lead to the assignment of a Negative or Positive trend are generally 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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