JP Morgan Chase 2013 Annual Report Download - page 60

Management’s discussion and analysis
66 JPMorgan Chase & Co./2013 Annual Report
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of events, trends and uncertainties, as well as the
enterprise risks and critical accounting estimates affecting
the Firm and its various lines of business, this Annual Report
should be read in its entirety.
Economic environment
The global economy regained momentum in 2013, led by
faster growth in the advanced economies, helped by
decisive policy actions in the U.S., European Union, U.K.,
and Japan. Uncertainties about U.S. fiscal policy were
reduced substantially by year-end, as were extreme
downside risks to performance in the Eurozone and China
that had been concerns earlier in the year. In addition, real
consumer spending in the U.S. was supported late in the
year by solid job growth, falling gasoline prices, and rising
equity and house prices.
The U.S. economic forecast for 2014 looks for a gradual
acceleration in real sales growth and for inflation to remain
well below the Federal Reserve’s Open Market Committee’s
long-run target of 2%. If the economic forecast for 2014 is
realized, the tapering of asset purchases by the Federal
Reserve’s Open Market Committee will proceed and is
expected to be completed before the end of 2014. However,
the forecast does not look for a first rate hike by the Federal
Reserve’s Open Market Committee until sometime in 2015.
The European Central Bank’s (“ECB”) support in stabilizing
European financial markets, along with the constructive
steps taken by the European Union to lay the groundwork
for a more coherent banking union, helped the region to
return to growth during the first half of 2013. However,
later in the year, the pace of the Eurozone’s recovery
remained slow, high unemployment tested the social and
political stability of several of Europe’s weaker economies,
and Cyprus became the fourth country in the Eurozone to
receive a full bail-out. While Germany and the northern
European economies continued to drive growth, elsewhere
in Europe growth was more subdued. More encouraging
were signs that the peripheral economies in the region are
showing signs of healing.
Economic performance in Asia was mixed in 2013. Japan
boomed; in contrast, activity decelerated across much of
the rest of the region. Growth outcomes were also mixed
across Latin America. Economic activity decelerated in
Mexico. Brazil began 2013 with positive momentum but
then lost significant steam, with a widening gap between
projected growth outcomes and inflation indicators. Policy
uncertainties, slowing China demand for commodities,
credit overhangs, and elevated inflation all weighed on
investment in many emerging countries.
In summary, there is reason to be optimistic about the U.S.
economic outlook in 2014. The economy finally appears to
have broken out of the 2% range of growth experienced in
the first several years of recovery, and the extent of both
fiscal policy restraint and fiscal policy uncertainty should be
sharply reduced. While growth in emerging markets is
expected to remain subdued, economic activity is expected
to continue accelerating in Europe.
Financial performance of JPMorgan Chase
Year ended December 31,
(in millions, except per share
data and ratios) 2013 2012 Change
Selected income statement data
Total net revenue $ 96,606 $ 97,031 — %
Total noninterest expense 70,467 64,729 9
Pre-provision profit 26,139 32,302 (19)
Provision for credit losses 225 3,385 (93)
Net income 17,923 21,284 (16)
Diluted earnings per share 4.35 5.20 (16)
Return on common equity 9% 11%
Capital ratios
Tier 1 capital 11.9 12.6
Tier 1 common 10.7 11.0
Summary of 2013 Results
JPMorgan Chase reported full-year 2013 net income of
$17.9 billion, or $4.35 per share, on net revenue of $96.6
billion. Net income decreased by $3.3 billion, or 16%,
compared with net income of $21.3 billion, or $5.20 per
share, in 2012. ROE for the year was 9%, compared with
11% for the prior year.
The decrease in net income in 2013 was driven by a higher
noninterest expense, partially offset by lower provision for
credit losses. The increase in noninterest expense was
driven by higher legal expense. The reduction in the
provision for credit losses reflected continued favorable
credit trends across the consumer and wholesale portfolios.
The decline in the provision for credit losses reflected lower
consumer and wholesale provisions as net charge-offs
decreased and the related allowance for credit losses was
reduced by $5.6 billion in 2013. The decline in the
allowance reflected improved home prices in the residential
real estate portfolios, as well as improved delinquency
trends in the residential real estate, credit card loan and
wholesale portfolios. Firmwide, net charge-offs were $5.8
billion for the year, down $3.3 billion, or 36%, from 2012,
which included $800 million of incremental charge-offs
related to regulatory guidance. Nonperforming assets at
year-end were $9.7 billion, down $2.2 billion, or 18%. Total
firmwide allowance for credit losses was $17.0 billion,
resulting in a loan loss coverage ratio of 1.80%, excluding
the purchased credit-impaired portfolio, compared with
2.43% in 2012.