JP Morgan Chase 2013 Annual Report Download - page 63

JPMorgan Chase & Co./2013 Annual Report 69
The Firm is also devoting substantial resources in order to
continue to execute on its control and regulatory agendas.
In 2012, it established its Oversight and Control function,
which works closely with all control disciplines, including
Compliance, Legal, Risk Management, Internal Audit and
other functions, to provide a cohesive and centralized view
of control functions and issues and to address complex
control-related projects that are cross-line of business and
that have significant regulatory impact or respond to
regulatory actions such as the Consent Orders. See
Operational Risk Management on pages 155–157 in this
Annual Report for further information on the Oversight and
Control function. The Firm’s control agenda is receiving
significant senior management and Board of Director
attention and oversight, and represents a very high priority
for the Firm, with 23 work-streams currently underway
involving more than 3,500 employees. In 2013, the Firm
increased the amount spent on the control agenda by
approximately $1 billion, and expects to spend an
incremental amount of slightly more than $1 billion on the
control agenda in 2014.
The Firm is also executing a business simplification agenda
that will allow it to focus on core activities for its core
clients and better manage its operational, regulatory and
litigation risks. These initiatives include ceasing student
loan originations, ceasing to offer traveler’s checks and
money orders for non-customers, exiting certain high-
complexity arrangements (such as third-party lockbox
services), and being more selective about on-boarding
certain customers, among other initiatives. These business
simplification changes will not fundamentally change the
breadth of the Firm’s business model. However, they are
anticipated to reduce both revenues and expenses over
time, although the effect on annualized net income is
expected to be modest. In addition, the efforts are also
expected to have the benefit of freeing up capital over time.
The Firm expects it will continue to make appropriate
adjustments to its business and operations, capital and
liquidity management practices, and legal entity structure
in the year ahead in response to developments in the legal
and regulatory, as well as business and economic,
environment in which it operates.
2014 Business Outlook
JPMorgan Chase’s outlook for the full year 2014 should be
viewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopolitical
environment, the competitive environment, client activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Each
of these inter-related factors will affect the performance of
the Firm and its lines of business.
The Firm expects that net interest margin will be relatively
stable in the near term. Firmwide adjusted expense is
expected to be below $59 billion for the full year 2014,
excluding firmwide (Corporate and non-Corporate) legal
expenses and foreclosure-related matters, even as the Firm
continues to invest in controls and compliance.
In the Mortgage Banking business within CCB, management
expects that higher levels of mortgage interest rates will
continue to have a negative impact on refinancing volumes
and margins, and, accordingly, the pretax income of
Mortgage Production is anticipated to be modestly negative
for the first quarter of 2014. For Real Estate Portfolios
within Mortgage Banking, if delinquencies continue to trend
down and the macro-economic environment remains stable
or improves, management expects charge-offs to decline
and a further reduction in the allowance for loan losses.
In Card Services within CCB, the Firm expects that spread
compression will continue in 2014; the shift from high-rate
and low-FICO balances is expected to be replaced by more
engaged customers or transactors, which is expected to
positively affect card spend and credit performance in
2014. If current positive credit trends continue, the card-
related allowance for loan losses could be reduced over the
course of 2014.
The currently anticipated results for CCB described above
could be adversely affected if economic conditions,
including U.S. housing prices or the unemployment rate, do
not continue to improve. Management continues to closely
monitor the portfolios in these businesses.
In Private Equity, within the Corporate/Private Equity
segment, earnings will likely continue to be volatile and
influenced by capital markets activity, market levels, the
performance of the broader economy and investment-
specific factors.
For Treasury and CIO, within the Corporate/Private Equity
segment, as the Firm continues to reinvest its investment
securities portfolio, net interest income is expected to
improve and to reach break-even during the second half of
2014.