(The following statement was released by the rating agency) Fitch Ratings-Chicago-April 22: Fitch Ratings has affirmed JPMorgan Chase Co.'s (NYSE:JPM) Long- and Short-Term Issuer Default Ratings (IDRs) at 'AA-' and 'F1+', respectively. The Rating Outlook has been revised to Negative from Stable as Fitch expects significant operating environment headwinds due to the disruption to economic activity and financial markets from the coronavirus pandemic. This rating action follows Fitch's event-driven review of the commercially-oriented U.S. global systemically important banks (G-SIBs). Fitch revised the Rating and Sector Outlook to Negative from Stable for U.S. banks on March 18, 2020 reflecting the expectation that credit fundamentals for the sector will deteriorate in the near-to-medium term. Fitch believes the drop in short-term and long-term rates will adversely impact spread revenue for a number of quarters, while fee income will also be hampered from lower levels of client activity. Bank profits will be further pressured from higher levels of provisioning for credit losses under the Current Expected Credit Loss (CECL) accounting framework. Fitch expects credit quality for issuers with relatively more exposure to industries and asset classes affected by the spread of coronavirus to be significantly more adversely affected over the course of the next two to three quarters than contemplated in Fitch's U.S. Bank Outlook published during fourth-quarter 2019. Please see "Fitch Ratings: Sector and Rating Outlook for U.S. Banks Revised to Negative" published on March 18th 2020 at www.fitchratings.com. In addition to a revised Global Economic Outlook, Fitch has published a common set of baseline and downside-scenario parameters against which all ratings groups globally are evaluating the impact of the coronavirus pandemic. As part of this portfolio review, rating actions have been taken in line with expected trajectories under the baseline scenario. For more information see "Fitch Ratings: Coronavirus Baseline and Downside Scenarios" published April 2, 2020 at www.fitchratings.com. Key Rating Drivers IDRs, VRs AND SENIOR DEBT In affirming JPM's ratings, Fitch is signaling its view that the bank enters this pandemic and ensuing sharp financial downturn in a position of strength, underpinned by its domestic and global franchise, diverse business mix and strong capitalization. Fitch also believes that JPM's rating have sufficient headroom, such that an Outlook revision back to Stable from Negative without a downgrade is possible. However, the bank's relatively high rating implies particularly strong financial performance compared to benchmark levels in Fitch's "Bank Rating Criteria" over the course of a normal business cycle. Given the level of expected earnings pressure and credit performance, the Outlook has been revised to Negative as Fitch sees moderate risk of JPM not returning to implied benchmark financial performance associated with its current 'AA-' Long-Term IDR by the end of 2021, even with a potential economic recovery beginning in the second half of 2020. Incorporated into today's affirmation is Fitch's expectation that capital levels on both a risk-weighted and leverage will remain reasonable relative to JPM's rating even with an expected decline in profitability in 2020. JPM's CET1 and supplementary leverage (SLR) ratios of 11.5% and 6.0% at 1Q20 were down from 12.4% and 6.3%, respectively, on a linked quarter basis, on significant asset and deposits growth in the last month of the quarter. Fitch also notes that JPM, along with much of the industry, continued to conduct share buybacks through the first half of March, which increased capital distributions and ultimately weighed on period end ratios. Fitch expects capital to continue to be pressured throughout the year and has revised the Outlook for JPM's 'a+' rated capitalization and leverage factor score to Negative from Stable. However, Fitch's assessment of JPM's capital and leverage is unlikely to move from the 'a' category over the rating time horizon, particularly given the bank's ability to build capital when shutting off share repurchases, which it has committed to do until economic uncertainty subsides. JPM has been one of, if not the most profitable bank, in Fitch's global rated universe. The bank's 2019 net income of $35 billion was considered a high-water mark for bank profitability. However, as displayed by 1Q20 results where the bank reported its lowest level of net income since 2013, Fitch expects significant pressure to be placed on profitability into 2021 by higher provisioning levels given the weaker economic outlook, and as asset yields likely fall quicker than funding costs. Fitch expects these headwinds to only be partially offset by higher earning asset levels as customers draw on unused credit lines and from fees generated from participating in government stimulus programs. As such, Fitch sees vulnerability to JPM's current earnings and vulnerability factor score of 'aa-' in the near-to-medium term, and has revised the Outlook to Negative from Stable. However, Fitch continues to view JPM's company profile as having a relatively higher influence on its rating, and as such, a downgrade to the earnings and profitability factor score may not immediately impact the bank's overall rating. In regards to expected credit quality deterioration, Fitch views JPM's exposure to the most vulnerable sectors impacted by the current pandemic as modest in context of capital. Since Fitch expects that the coronavirus will impact nearly all economic sectors domestically and globally, the agency expects asset quality metrics to deteriorate meaningfully from unsustainably low levels reported over the last several years. In addition, Fitch anticipates that credit losses will likely increase materially in 2Q20 and beyond for the entire U.S. banking sector. Fitch also notes that JPM has relatively more consumer credit card exposure than peers, which will likely expose it to higher credit losses if the pandemic is prolonged into 2021. However, Fitch believes JPM's balance sheet is relatively diverse compared to U.S. regional banks, and its overall business mix also potentially insulates creditors from longer-term implications from the economic damage done by the coronavirus pandemic. The duration of depressed economic activity and heightened unemployment related to the coronavirus spread and resultant COVID-19 disease remains uncertain and depends on the success of containment efforts that are difficult to predict. Therefore, to the extent that there is a slower than anticipated recovery (i.e. Fitch's Downside Scenario), Fitch may review JPM's ratings and Outlook further. Domestic SUBSIDIARY AND AFFILIATED COMPANY The Viability Ratings (VRs) remain equalized between JPM and its material operating subsidiaries. The common VR of JPM and its operating companies reflects the correlated performance or failure rate between JPM and these subsidiaries. The Long-Term IDRs for the material U.S. operating entities are rated one notch higher than JPM's Long-Term IDR to reflect Fitch's belief that the U.S. single point of entry (SPE) resolution regime, the implementation of total loss absorbing capacity (TLAC) requirements for U.S. global systemically important banks (G-SIBs), and the presence of substantial holding company debt reduces the default risk of domestic operating subsidiaries' senior liabilities relative to holding company senior debt. These entities include JPMorgan Chase Bank, N.A. (JPMCBNA), JPMorgan Chase Bank, Dearborn, and J.P. Morgan Securities, LLC. Bear Stearns Companies LLC is wholly owned subsidiaries of JPM, therefore its IDRs and debt ratings are aligned with the parent. MATERIAL INTERNATIONAL SUBSIDIARIES Per Fitch's updated Bank Rating Criteria published Feb. 28, 2020, the Long-Term IDR of J.P. Morgan Bank Luxembourg (JPMBL) has been upgraded to 'AA' and is no longer under criteria observation (UCO). JPML, JPMorgan AG (JPMAG) and J.P. Morgan Securities plc (JPMPLC) are subsidiaries of JPMCBNA which already receives one-notch uplift above JPM as noted above. Per Fitch's Bank Rating Criteria, where the Long-Term IDR of an operating company has been notched up, its IDR will usually serve as the anchor rating for the IDRs of highly integrated international subsidiaries located in jurisdictions on the basis of accepted resolution plans that identify key foreign subsidiaries to be beneficiaries of intra-group resources, among other factors. JPML, JPMAG and JPMPLC meet this criteria and as such, their IDRs are equalized with JPMCBNA's. DERIVATIVE COUNTERPARTY RATING The DCRs of JPM, JPMBNA and Bear Stearns Companies, LLC are equalized with the Long-Term IDRs of those entities because they have no definitive preferential status over other senior obligations in a resolution scenario, and therefore their ratings will move in line with their respective IDRs. These ratings have been assigned because they either have significant derivatives activity or are counterparties to Fitch-rated structured finance transactions. SUPPORT RATING AND SUPPORT RATING FLOOR JPM's Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's view that senior creditors cannot rely on receiving full extraordinary support from the sovereign in the event that JPM becomes non-viable. In Fitch's view, Dodd Frank Orderly Liquidation Authority legislation provides a framework for resolving banks that are likely to require holding company senior creditors participating in losses, if necessary, instead of/or ahead of the company receiving sovereign support. JPM's international entities have an institutional support rating of '1', which reflects Fitch's view of institutional support for the entities. This includes JPMPLC, JPMAG and JPMBL. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by JPM are all notched down from the common VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Per Fitch's updated Bank Rating Criteria published Feb. 28, 2020, Fitch has downgraded JPM's subordinated debt by one notch to 'A' and removed it from UCO to reflect the change in baseline notching for loss severity to two notches (from one previously) from the Viability Rating (VR). JPM's subordinated debt does not meet the specific conditions under Fitch's criteria for applying a one notch variance from the VR. Subordinated debt issued out of JPMBNA and other subsidiaries of JPM remain on UCO. Fitch continues to conduct additional analysis on conditions under the new criteria for keeping the notching at one notch. Per Fitch's updated Bank Rating Criteria published Feb. 28, 2020, JPM's preferred stock has been upgraded to 'BBB+' to reflect a reduction in incremental non-performance risk and is no longer UCO. Preferred stock is four notches from the VR, which encompasses two notches for non-performance and two notches for loss severity, and JPM's trust preferred securities is four notches from the VR, encompassing two notches for non-performance and two notches for loss severity. DEPOSIT RATINGS Deposit ratings are one notch higher than senior debt ratings reflecting the deposits' superior recovery prospects in case of default, given depositor preference in the U.S. JPMAG's Short-Term deposit ratings are at the same level as its Short-Term IDR because their preferential status is less clear and disclosure concerning dually payable deposits makes it difficult to determine if they are eligible for U.S. depositor preference. JPMorgan Chase Bank, N.A. Sydney Branch's short-term deposit rating is aligned with head office short-term deposit rating in accordance with Fitch's Bank Rating Criteria. Fitch does not observe any country risk constraints and Australia's 'AAA' Country Ceiling does not limit the branch's deposit rating. RATING SENSITIVITIES IDRs, VRs AND SENIOR DEBT In light of the rapidly evolving economic backdrop, Fitch expects that JPM's ratings and/or Outlook, as well as those of all other U.S. banks, may be subject to more frequent review than in a normal operating environment. Factors that could, individually or collectively, lead to negative rating action/downgrade: Negative pressure could be placed on JPM's ratings and/or Outlook if there is evidence of outsized deterioration in the level and volatility of earnings and credit quality relative to peers. Furthermore, the bank's rating would be at risk if its Common Equity Tier 1 (CET1) were to decline below 10.5% and remain there for multiple quarters absent a credible plan to build levels back above this threshold. Fitch observed that 1Q20 capital levels were lower than YE 2019 for JPM and its peers, given sudden asset growth during the month of March. Moreover, Fitch understands that JPM, along with its peers, has been directed by regulators to use capital and liquidity buffers to support the economy. Thus, Fitch does not expect its CET1 ratio to meaningfully increase throughout 2020. However, the suspension of buybacks in the near term, along with what Fitch expects to be a modest capital request under its capital plan submitted to the Fed, should support JPM's CET1 ratio at or near its 1Q20 level for multiple quarters. Negative pressure could be placed on JPM's ratings if there is evidence of outsized deterioration in the level and volatility of earnings and credit quality relative to peers. Failure to maintain an implied earnings rating of 'a', excluding non-recurring items, could warrant a ratings downgrade. Pressure on JPM's rating and/or Outlook could also emerge over time if the company's level of impaired loans to gross loans becomes more in line with a 'bbb' implied factor and is expected to remain above that threshold for an extended period of time. Fitch notes that at YE 2019, this ratio stood at 0.9%. Finally, although not expected, JPM's ratings and/or Outlook could also be pressured downward if Fitch observes JPM's global markets businesses post quarterly losses, which could be indicative of weaknesses in risk controls. Factors that could, individually or collectively, lead to positive rating action/upgrade: At its current rating level, JPM is among the highest rated banks in the world. Fitch does not see further ratings upside given the firm's capital markets business and complexity, despite strong performance through time. Over the medium term, should economic conditions normalize and JPM's financial performance show signs of returning to or above Fitch's expectations or faster than domestic or global peers, the Outlook could be revised to Stable. This would be predicated on the company maintaining a conservative risk appetite and asset quality measures near those of higher-rated peers during this expected period of stress as well as maintaining capital levels well-above regulatory minimums. Domestic SUBSIDIARY AND AFFILIATED COMPANY All U.S. bank subsidiaries carry a common VR, regardless of size, as U.S. banks are cross-guaranteed under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Thus, subsidiary ratings would be sensitive to any change in JPM's VR. Other subsidiary ratings would be sensitive to the same factors that might drive a change in JPM's IDR. MATERIAL INTERNATIONAL SUBSIDIARIES These entities' ratings are sensitive to the same factors that might drive a change in JPM's IDRs or Fitch's view of JPM's ability and propensity to support these international subsidiaries. Moreover, JPM's international subsidiaries' ratings are also sensitive to those factors described in Annex 2: Rating Banks Above the Sovereign within Fitch's Bank Rating Criteria. Specifically, the Long-Term IDR of JPMorgan Securities plc is now two notches above the sovereign rating of the United Kingdom, where it is domiciled. Therefore, its rating could become sensitive to the downside should the United Kingdom sovereign be downgraded further. DERIVATIVE COUNTERPARTY RATING DCRs are primarily sensitive to changes in the respective issuers' Long-Term IDRs. In addition, they could be upgraded one notch above the IDR if a change in legislation creates legal preference for derivatives over certain other senior obligations and, in Fitch's view, the volume of all legally subordinated obligations provides a substantial enough buffer to protect derivative counterparties from default in a resolution scenario. SUPPORT RATING AND SUPPORT RATING FLOOR Support ratings would be sensitive to any change in Fitch's view of U.S. sovereign support. However, since support ratings were downgraded in May 2015, there is unlikely to be any change to support ratings. JPM's international entities' Support Rating of '1' is sensitive to any change in Fitch's views of potential institutional support for these entities. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid ratings are primarily sensitive to any change in JPM's VR. The ratings of subordinated debt issued out of JPMBNA and other subsidiaries of JPM that remain on UCO are sensitive to Fitch's additional analysis on conditions under the new criteria for keeping the notching at 1-notch. DEPOSIT RATINGS JPMBNA's deposit ratings are sensitive to any change in the IDRs. Best/Worst Case Rating Scenario International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. JPMorgan Chase Bank, Dearborn; Long Term Issuer Default Rating; Affirmed; AA; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Viability Rating; Affirmed; aa- ; Support Rating; Affirmed; 5 ; Support Rating Floor; Affirmed; NF ----long-term deposits; Long Term Rating; Affirmed; AA+ ----short-term deposits; Short Term Rating; Affirmed; F1+ J.P. Morgan AG; Long Term Issuer Default Rating; Affirmed; AA; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Support Rating; Affirmed; 1 ----short-term deposits; Short Term Rating; Affirmed; F1+ JPMorgan Chase Bank, N.A.; Long Term Issuer Default Rating; Affirmed; AA; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Viability Rating; Affirmed; aa- ; Support Rating; Affirmed; 5 ; Support Rating Floor; Affirmed; NF ; Derivative Counterparty Rating; Affirmed; AA(dcr) ----senior unsecured; Long Term Rating; Affirmed; AA ----long-term deposits; Long Term Rating; Affirmed; AA+ ----subordinated; Long Term Rating; Under Criteria Observation; A+ ----short-term deposits; Short Term Rating; Affirmed; F1+ ----senior unsecured; Short Term Rating; Affirmed; F1+ Morgan Guaranty Trust Co. of New York ----senior unsecured; Long Term Rating; Affirmed; AA NBD Bank, N.A. (MI) ----subordinated; Long Term Rating; Under Criteria Observation; A+ J.P. Morgan Securities LLC; Long Term Issuer Default Rating; Affirmed; AA; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ----senior unsecured; Short Term Rating; Affirmed; F1+ JPMorgan Chase Bank, N.A. - Sydney Branch ----short-term deposits; Short Term Rating; Affirmed; F1+ J.P. Morgan Securities plc; Long Term Issuer Default Rating; Affirmed; AA; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Support Rating; Affirmed; 1 JP Morgan Bank Luxembourg S.A.; Long Term Issuer Default Rating; Upgrade; AA; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Support Rating; Affirmed; 1 JPMorgan Chase Long Term Issuer Default Rating; Affirmed; AA-; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Viability Rating; Affirmed; aa- ; Support Rating; Affirmed; 5 ; Support Rating Floor; Affirmed; NF ; Derivative Counterparty Rating; Affirmed; AA-(dcr) ----senior unsecured; Long Term Rating; Affirmed; AA- ----subordinated; Long Term Rating; Downgrade; A ----preferred; Long Term Rating; Upgrade; BBB+ ----junior subordinated; Long Term Rating; Affirmed; BBB+ ----senior unsecured; Short Term Rating; Affirmed; F1+ JP Morgan & Co., Inc ----senior unsecured; Long Term Rating; Affirmed; AA- ----subordinated; Long Term Rating; Under Criteria Observation; A+ Bank One Capital Trust III ----preferred; Long Term Rating; Affirmed; BBB+ Bank One Corp. ----subordinated; Long Term Rating; Under Criteria Observation; A+ Bear Stearns Companies, LLC (formerly Bear Stearns Companies, Inc.); Long Term Issuer Default Rating; Affirmed; AA-; RO:Neg ; Short Term Issuer Default Rating; Affirmed; F1+ ; Derivative Counterparty Rating; Affirmed; AA-(dcr) ----senior unsecured; Long Term Rating; Affirmed; AA- Contacts: Primary Rating Analyst Bain Rumohr, Senior Director +1 312 368 3153 Fitch Ratings, Inc. One North Wacker Drive Chicago 60606 Secondary Rating Analyst Christopher Wolfe, Managing Director +1 212 908 0771 Committee Chairperson Alan Adkins, Managing Director +44 20 3530 1702
Media Relations: Hannah James, New York, Tel: +1 646 582 4947, Email: hannah.james@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Bank Rating Criteria (pub. 28 Feb 2020) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10110041 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10118682 Solicitation Status https://www.fitchratings.com/site/pr/10118682#solicitation Endorsement Status https://www.fitchratings.com/site/pr/10118682#endorsement_status Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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