By Emily Glazer
J.P. Morgan Chase & Co.'s chief financial officer on
Wednesday said it is "reasonable" to assume the largest U.S. bank's
capital ratio could go up to a total of 11.5%, just a day after
U.S. regulators said eight of the largest U.S. banks will need more
capital to make the financial system less risky.
Marianne Lake, speaking at a finance conference in New York,
said the new rule would put J.P. Morgan at an expected high end of
the additional capital buffer of 4.5% of risk-weighted assets, on
top of the base 7% common-equity capital requirements most banks
face.
The increased capital ratios reflect broader efforts by the
Federal Reserve and other regulators to have banks hold more
cushion against bad economic times or soured loans. The bigger and
more complex a bank, the more capital it has to hold, since a big
bank's demise would create the most serious problems for the
economy.
On Tuesday, Federal Reserve officials said J.P. Morgan, the
nation's largest bank by assets, will feel the biggest impact of
the new rules, since the bank is $21 billion short of the capital
requirement.
Fed Vice Chairman Stanley Fischer, in an apparent misstep,
disclosed during an open meeting Tuesday that J.P. Morgan is the
only one of the eight banks involved that face a shortfall under
the proposed rule. Fed staff had closely guarded details of the
proposal's impact on specific firms.
Ms. Lake on Wednesday said the announcement didn't entirely come
as a surprise to the bank.
She said J.P. Morgan over time would probably get its capital
ratios to about 12%, or 0.50 percentage points higher than the
expected requirement. Today, J.P. Morgan's minimum capital ratio is
9.5%. Ms. Lake has said in the past that the bank is running
between 10% and 10.5%.
In response to a question on whether the bank would try to
reduce its required capital surcharge, Ms. Lake expressed
skepticism, saying it wouldn't happen if it caused
"more-than-surgical changes" to J.P. Morgan's strategy.
"It's important for us to maximize the terms on the capital we
have...in the most efficient way," Ms. Lake said.
She said the capital-ratio gap with the bank's largest, most
meaningful competitors is around 1 percentage point, but that the
bank can still compete effectively.
But certain parts of the bank, particularly its commercial and
consumer divisions, could have wider capital-ratio gaps than local
competitors. J.P. Morgan will counter that by emphasizing its
broader services, larger international scale and additional
platforms.
The bank is talking with clients about the pricing of loans, Ms.
Lake said. But she added: "We don't want to overcorrect or
overreact today." The proposed rules, if completed, would be phased
in starting in 2016 and take full effect in 2019.
Ms. Lake said the bank will disclose more details Feb. 24 at its
own investor conference.
Ms. Lake also spoke about the mortgage market, with the
expectation that it will be "slightly slow" in 2015.
She said the bank is working on repositioning its mortgage
business, making it smaller and working with high-quality
borrowers. Though it is possible the bank may expand its credit
standards to mortgage lenders, that will only happen if a loan
falls in a specific "high-quality" segments the bank is targeting,
Ms. Lake said.
Write to Emily Glazer at emily.glazer@wsj.com
Access Investor Kit for JPMorgan Chase & Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US46625H1005
Subscribe to WSJ: http://online.wsj.com?mod=djnwires