TEXT-S&P: JPMorgan ratings unaffected by Q1 results

April 13 - Standard & Poor's Ratings Services today said its ratings on
JPMorgan Chase & Co. (JPM; A/Stable/A-1) are not affected by the
company's first-quarter results, which were slightly better than we expected,
considering the current operating conditions.

JPM generated $7.4 billion of Standard & Poor's-adjusted pretax earnings, down
from $8.0 billion in first-quarter 2011. Results exclude a $1.1 billion gain
resulting from the settlement of the Washington Mutual bankruptcy case and a
$900 million loss due to the narrowing of JPM's credit spreads. We expect a
modest increase in pretax income in 2012, largely stemming from further credit
improvement.

JPM's Standard & Poor's-adjusted revenue rose by 5.5% in the first quarter
(year over year) to $27.2 billion, mainly because higher mortgage fees led to
an increase in Retail Financial Service revenue. Positively, investment
banking revenue, excluding credit spread adjustments, was roughly flat year
over year. Based on seasonal factors that will likely lower trading results,
as well as lower mortgage banking fees, we expect revenues to decline in the
coming quarters.

The net interest margin (NIM) declined 9 basis points from fourth-quarter 2011
to 2.61%, largely because of a change in loan mix and excess deposits that
have not been redeployed. We expect the NIM to remain relatively flat for the
remainder of 2012. Positively, middle-market and wholesale lending continued
to grow in the first quarter.

Consumer credit trends improved in the first quarter, with net charge-offs
down roughly 17.9% from the previous quarter. Early delinquencies across asset
classes improved in the first quarter. Nonperforming assets rose in the first
quarter because of new regulatory guidance. As a result, JPM reported as
nonaccrual loans $1.6 billion of performing junior liens that are subordinate
to nonaccrual senior liens. We expect net charge-offs to continue to decline
in 2012, albeit a more moderate decline than in 2011. JPM released roughly
$1.6 billion of reserves in the first quarter. Reserves (excluding those for
purchase impaired loans) relative to nonperforming loans were 194% in the
first quarter, lower than the fourth-quarter level of 223%. Although credit
trends seem to be improving, we are cautious of reserve coverage reductions at
this stage in the credit cycle.

We believe direct exposure to the GIIPS countries (Greece, Ireland, Italy,
Portugal, and Spain) remains manageable but could have a negative ratings
impact if the European sovereign and financial crisis worsens.

JPM's Basel I Tier 1 common ratio was 10.4% in the first quarter, up 30 basis
points from the previous quarter. JPM repurchased $216 million of common stock
during the first quarter and has approval to repurchase $15 billion of shares
through first-quarter 2013. We assume that JPM's share repurchase will not
exceed 75% of earnings. Aggressive share repurchases above this level could
pressure ratings if total buybacks impede JPM's ability to increase its
risk-adjusted capital ratio (RAC), as measured by Standard & Poor's, to more
than 7.0% by the end of 2013.

We continue to evaluate possible adverse conditions in the housing market,
rule making from new legislation, particularly the Volcker Rule and derivative
legislation, and possible nonagency representation and warranty costs and
litigation concerns. Currently, we see these items as potentially pressuring
earnings, but not affecting ratings. We believe JPM has built a significant
litigation reserve, considerably higher than peers. We will also monitor the
size of future share buybacks and JPM's actions regarding the retirement of
trust preferred securities with regard to their potential impact on JPM's RAC
ratio, which currently is neutral to the ratings.

Standard & Poor's, a part of The McGraw-Hill Companies (NYSE:MHP), is the
world's foremost provider of credit ratings. With offices in 23 countries,
Standard & Poor's is an important part of the world's financial infrastructure
and has played a leading role for 150 years in providing investors with
information and independent benchmarks for their investment and financial
decisions.