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

DBRS, Inc. (DBRS Morningstar) confirmed the credit 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 CREDIT RATING CONSIDERATIONS

The credit 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 credit 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, as well as across numerous jurisdictions. 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.

CREDIT RATING DRIVERS
Given JPM’s high credit rating level and current risk profile, an upgrade of the credit 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 credit ratings downgrade.

CREDIT RATING RATIONALE

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 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 $3.2 trillion in assets under management (AUM).

Earnings Combined Building Block (BB) Assessment: Very Strong/Strong

In 9M23, JPM reported $40.2 billion of net income, representing a very strong 19% 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 credit 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 $24.1 billion at the end of 3Q23, or 1.73% 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 $1.1 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 and robust internal capital generation that provides a substantial cushion to absorb unexpected losses. In anticipation of higher capital requirements, the Company’s capital levels have improved considerably during the past year. At the end of 3Q23, JPM’s CET1 ratio stood at 14.3%, up 180 basis points from the prior year. While share repurchases have resumed, the pace is expected to remain modest in light of the Basel III Endgame proposal.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/425035

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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (July 4, 2023).

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

The principal methodology is Global Methodology for Rating Banks and Banking Organizations (June 22, 2023): https://www.dbrsmorningstar.com/research/415978/global-methodology-for-rating-banks-and-banking-organisations. 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/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors (July 4, 2023).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 credit 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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