At JPMorgan Chase, we believe we have a responsibility to be part of the solution to the world’s most pressing problems, not only because it’s the right thing to do but because our own long-term success depends on the success of our communities and the people, companies and institutions we serve.
JPMorgan Chase contributes approximately $200 million a year — much of it to help the poor and disadvantaged
— and our people dedicated more than 540,000 hours of volunteer service in local communities around the globe.
The volunteer work that our employees do helps to deine the meaning of corporate responsibility by creating tangible connections in communities around the world — from the largest countries to the smallest towns.
And our eforts go well beyond philanthropic work. We also develop programs that bring together our inancial capital, as well as our core strengths, capabilities, and the expertise of our business and our people to help improve the world in which we live. It is a big responsibility to be a bank — and communities around the globe are better of if we do it well.
We will continue to use our size, scale and expertise to make a diference and to be a real, positive contributor to society — from ighting income inequality to improving education and work skills. I see evidence of the diference we make every day, and following are just a few examples that I’d like to mention.
Helping Close the Skills Gap
Even in the face of high unemployment, we hear from our clients daily about how hard it is to ind workers with the right skills. Some 4 million jobs stand open, while 11 million Americans remain unemployed, and millions more have given up seeking employment. That’s why we launched New Skills at Work, an unprecedented $250 million, ive-year private sector initiative to improve job training at the middle-skill level (for jobs that require training beyond high school but not a four-year degree). The sense of urgency to address this issue is something we see everywhere we do business, and we are working with community leaders across the country — community colleges, technical training programs, policymakers and employers — to tackle the skills gap. We know that helping workers gain the skills they need is only one part of the solution to the unemployment challenge, but it is an area we can do something about right now. And JPMorgan Chase is uniquely suited to the task of rallying a broad range of business leaders around the goal of aligning our investments in education and skills training with current job openings and future career pathways.
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consumers and merchants. We now have several clients on a beta test, and we are hoping to roll out some exciting programs that are good for consumers and merchants alike.
• Payments. While this topic does keep us up at night due to the talent and innova-tion of the competiinnova-tion that would love to make us obsolete, we should point out that JPMorgan Chase is one of the biggest payment companies in the world (across
credit cards, merchant payments, global wire transfers, etc.). We are even one of the biggest mobile payment companies. So in this space, there is both risk and opportu-nity. We have some good ideas and action plans so stay tuned!
• European capital markets. As the bank markets are shrinking in Europe, the public bond markets will be growing. It is hard for us to compete in the bank lending markets in Europe, but we are very qualiied to gain market share in the public capital markets.
31 Improving Educational Outcomes for Young Men of Color
We’re also willing to roll up our sleeves. Over the last four years, our employees coached 24 young men of color from low-income New York City neighborhoods — where less than 30% of black and Hispanic males graduate from high school — in an end-to-end program that supplemented their academics, gave them leadership training and helped them apply for college. All 24 got into college — they started last fall — with $8 million in scholarships, and we’re hoping we see them this summer in internships here.
Attracting Private Capital to Social and Environmental Challenges
Foundations and governments, with their limited resources, can do only so much to solve the challenges facing low-income populations around the world. To make progress at the scale required, we need to create vehicles that attract private capital and apply it to generate measurable social and environmental beneits — alongside inancial returns. The Global Health Investment Fund that we established with the Bill & Melinda Gates Foundation raised private capital to invest in new drugs and vaccines, emerging diagnostic tools, child-friendly formulations of existing products, and technologies to reduce maternal and infant mortality — all focusing on diseases that dispro-portionately afect the world’s poorest countries. By including global access requirements, products are avail-able at afordavail-able prices to the populations most in need. And we’re working now with The Nature Conservancy to establish a new center for natural capital investing that will structure transactions that generate revenue from sustainable use of a property — monetizing habitat protection, water conservation, sustainable timber harvesting, wetlands, etc. Stay tuned for more on that.
Serving Cities as Clients and the Engines of Economic Growth
JPMorgan Chase continues to focus on ways to help metropolitan communities operate and grow. We ofer states and cities our best advice and considerable inancial support. Last year, the irm provided more than $85 billion in capital or credit to nearly 1,500 government entities, including states, municipalities, hospitals, universities and nonproits.
We extended the reach of our Global Cities Initiative with The Brookings Institution by creating a network of trading cities across the United States and ultimately around the globe — these are cities that will build new commercial relationships by strengthening trade and investment ties and by learning from each other about how to grow industries with real export potential. Our Global Cities Initiative with Brookings, which we launched two years ago, includes a $10 million inancial commitment and the ability to tap our network of relationships around the world to convene an extraordinary series of events in cities from Los Angeles to São Paulo. These sessions bring together policymakers, business leaders and non-governmental organizations to share best practices and formulate strate-gies for improved competitiveness. As a result of these meetings, participants are developing locally driven, action-able strategies to strengthen their respective region’s trade and investment practices.
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• Emerging markets. As the world grows, so does the number of countries and compa-nies that we can serve. Every time we open an operation in a country, we support companies from around the world to do business there – and we help the country’s companies explore the world. The network efect is huge and hard to duplicate.
Taking everything on balance, all the risks and all the opportunities in what essen-tially is an improving and growing world, we remain optimistic about the future of banking.
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It is important to acknowledge that no matter how good one’s position is, no one has a divine right to success. Many of you have seen companies in extraordinary positions erode over time.
Sometimes this happens because of structural or technological changes, but, frequently, it happens because of plain and simple mismanagement. And this is even more true when you operate in tough, complex, competitive and sometimes volatile global markets.
So to succeed long term, we need an excellent management team.
And in my opinion, your management team has the character, culture, intellect, experience and wisdom necessary to succeed.
And importantly, this management team does not rest on its laurels and is continually questioning itself and often focusing not on what we do well but on what we have not done well. Years ago, the U.S.
military adopted a review process called the After Action Reviews (AAR). An AAR is a disciplined process where military leaders review the results of all missions taken. This examination is conducted not so the commanders in charge can ind faults and point ingers – but so everyone can continually get better. At our company, we have the same attitude and just hope that we can do it half as well as the U.S. military.
In closing, I want to reiterate how honored I am to work at this company and with its people. What they have accomplished during these diicult circumstances has been extraordinary. On behalf of JPMorgan Chase and its management, I want to express my deepest gratitude to our people – I am proud to be their partner.
I N C LO S I N G
Jamie Dimon
Chairman and Chief Executive Oicer April 9, 2014
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Safeguarding the business
simplifying our business model, eliminating products and services that are not essential to serving our customers and are not core to our businesses. We are ensuring that our systems, practices, controls, technol-ogy and, above all, culture meet the highest standards.
Liquidity and interest rate risk management more critical than ever Last year, we continued to advance our approach to liquidity and inter-est rate risk management, corner-stones of safety and soundness. We have focused on striking the appro-priate calibration when it comes to managing our balance sheet, protect-ing the deposits our clients and cus-tomers entrust to us and, ultimately, our shareholders.
2013 represents a year of signiicant progress in managing the irm’s liquidity risk. We evolved our inter-nal liquidity framework to ensure that the irm has suicient liquidity resources to continue business-as-usual operations under both a short-term and prolonged market and company-speciic stress. Consistent with this new framework, we more
narrowly deined the JPMorgan Chase liquid asset bufer available to meet short-term liquidity needs to be more conservative and consistent with the scale of our balance sheet.
We further built out technology that will enable more lexible and timely liquidity stress testing for the enter-prise and our major legal entities.
Our internal framework is more conservative than the related Basel liquidity measures. Compliance with our framework, which was achieved in 2013, results in the irm exceeding regulatory minimums, notably the Basel III Liquidity Coverage Ratio. Of course, we are diligent in understanding new regulations as they are introduced and stand ready to comply.
We continued to make strides in advancing our Asset-Liability Man-agement (ALM) capabilities, which are critically important as we con-template the reversal of Fed mone-tary policy and the ensuing impact on interest rates. We established a global ALM portfolio strategy team in 2013, whose mandate includes working across the irm to ensure consistency in our analytical
approach and modeling in relation to structural interest rate risk. A signii-cant area of focus for us this past year was advancing our scenario and analytical capabilities, including materially investing in our technol-ogy and supporting infrastructure to allow for more dynamic analysis.
We continue to actively and conser-vatively manage our substantial investment securities portfolio, which is the primary vehicle we use to manage our irmwide structural interest rate risk. In 2013, we applied held-to-maturity accounting for cer-tain investment securities the irm purchased, which will help to miti-gate Basel III capital volatility in a Our goal is to be the safest, soundest
and most proitable inancial services company in the world, doing the highest-quality business and deliver-ing to our clients and customers best-in-class products every day.
How we operate as a company is key to accomplishing that goal. Looking across our entire enterprise, the Chief Operating Oicer’s oice drives many of the processes and corporate utilities, as well as the infrastructure, to that end, ranging from managing the irm’s liquidity, funding and structural interest rate risk to over-seeing strategic irmwide functions such as global Technology and Operations, Oversight and Control, Compliance, Corporate Strategy and Regulatory Afairs, among others.
In the past year, we re-prioritized our major projects and initiatives, deployed massive new resources and refocused critical managerial time on these eforts. We’ve enhanced signiicantly our governance process and developed a system for manage-ment reporting that enables much greater transparency up to senior management and our Board. We are
Matt Zames
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Another thing we worked on in 2013 is how to take problems we ind in one area of the irm and determine whether there are any similar risks in another part of the irm. We created a state-of-the-art controls room in our executive head-quarters to maintain a repository of irmwide control-related information and to enable rapid access to relevant data, reporting capabilities, sophisti-cated analytics and more proactive issue identiication.
We have made substantial progress in AML
We also are deploying unprece-dented resources, dedicating senior managerial time and prioritizing eforts to build and maintain an industry-leading AML program. By the end of 2014, we will have dedi-cated close to 8,000 full-time employ-ees solely to AML. We are making progress in strengthening our ability to measure AML risk, are improving how we onboard clients and perform customer due diligence, and are enhancing how we monitor client transactions to detect potentially sus-picious activity. At the same time, we have taken substantial steps to de-risk, or simplify, our businesses. We have exited more than 500 relation-ships with foreign correspondent banks and are moving any accounts for foreign government oicials/
politically exposed persons out of Consumer Banking.
We want to make sure we have nothing but open and honest dialogues with our regulators
We have hundreds of regulators around the globe and are examined extensively each year. We also have thousands of documents and data points we periodically share with them. It is imperative that we are fully transparent with our regulators at every level of our organization.
rising rate environment. The average yield of our investment securities portfolio increased by more than 50 basis points from 4Q 2012 to 4Q 2013, relecting our ability to deploy new investments at higher yields throughout the year.
We have put enormous resources on the control and compliance agenda We have developed and implemented an end-to-end control and compliance agenda, central to which is early issue identiication and escalation and sustainable remediation. Over the course of 2013 and 2014, we will have increased our total spend on that agenda by approximately $2 billion.
We are looking at issues on a irmwide basis
One of the things we focused on last year is a series of irmwide reviews – issues raised by our regulators and issues we identiied internally – that we thought should be examined on an enterprise-wide basis. We stood up 24 separate programs and dedi-cated teams around the globe to look at these issues across businesses and geographies to make sure we are appropriately and consistently man-aging the associated risks. They include matters like Anti-Money Laundering (AML), Basel implemen-tation and how we evaluate new business initiatives. Oversight of our tens of thousands of vendors across our front and back oices is another example of a process we re-evaluated, so that across our company, we man-age these relationships and their associated risks to a common set of highly developed standards. We report on these programs regularly to our Board of Directors.
We pay close attention to our regula-tory environment, not only to make sure we behave in ways consistent with the spirit as well as the letter of the rules but to anticipate the evolv-ing regulatory agenda. I personally meet with our primary regulators at least twice a month to make sure we as a company understand their expectations and fully address them.
Technology drives the experience of our clients and customers and our risk and controls management Technology fuels almost every aspect of this company and is a core part of our value proposition to clients and customers. Over the past ive years, the irm has invested 8% - 9% of its annual revenue to fund our global technology capabilities. This is one of our largest investments as a company.
Technology enables our business growth, supports our worldwide oper-ations, helps us build stronger con-trols and meet regulatory require-ments, enhances our productivity and eiciency, and, most important, pro-tects the safety of our clients’ assets.
The scale of our businesses contin-ues to expand. Information Technol-ogy (IT) supports 300,000 desktops, 58,000 servers in 32 data centers, 26,000 databases and 7,250 business applications. Our global telecommu-nications network connects our pres-ence in 60 countries along with our 5,600 Chase branches and 19,000 ATMs. Technology in our Consumer business supports 30+ million cus-tomers via our digital platform and 15+ million customers using our innovative mobile capabilities. In our Corporate & Investment Bank (CIB), we process up to $4 trillion of U.S.
dollar payments daily.
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low of inancial transactions. We have invested heavily in improving our overall cyber defenses and dramatically improved our ability to withstand these attacks. However, as the threats continue to grow and attacks continue to evolve, it’s crucial that we evolve as well and focus on tomorrow’s threats, as well as today’s. To that end, we’ve nearly doubled our investment in cyber- security, including deployment of increased monitoring and protection technology, and we’ve expanded the number of dedicated cybersecurity professionals in the company to focus on protecting our customers and our staf.
Last year, we kicked of an efort to develop multi-year technology plans for our businesses and corporate functions that relect the irm’s top priorities and business requirements.
These “road maps” will enable us to manage the irm’s technology invest-ments against the backdrop of a strategic plan, which we’ll continue to revisit and reine.
As we look to 2014, our reliance on technology will continue to expand.
We will spend close to $250 million on our cyber capabilities. IT will be at the core of what we need to do to adapt to the new global inancial architecture and to meet regulatory requirements, including AML, Comprehensive Capital Analysis and Review (CCAR), Volcker and Dodd-Frank, among others. We will lever-age our internal cloud platforms to further improve the eiciency and time to market for our IT infrastruc-ture. Each of our business lines has a robust set of strategic initiatives.
Whether it is upgrading our next-generation digital and mobile programs, enhancing our Asset Management Solutions business,
improving our e-trading platforms, enabling growth in Commercial Banking or making our corporate functions more efective, technology is core to the delivery.
Conclusion
Not every organization has the lead-ership team, the talent and the forti-tude to make this level of investment for the future. We feel privileged to be able to do so on behalf of our clients, our customers and our share-holders. I could not be more proud of our employees and our accom-plishments to date. 2014 is another important year for us, and I am conident that we will continue to deliver at the level you expect of us – holding ourselves, our business practices and our culture to the highest standards.
Innovation is happening across our business lines every day. Our Consumer Branch of the Future is powered by IT innovation. Our recently completed Strategic Reengineering Program in the CIB has improved eiciency by hun-dreds of millions of dollars. IT is improving not only the speed and scale of our credit card authoriza-tions but has enhanced our fraud protection capabilities and is the engine behind new, innovative products, including BlueprintTM. Each year, we invest hundreds of mil-lions of dollars in our risk and con-trols technology agenda. A sizable part of this investment is dedicated to ensuring that we have the systems to identify problems – whether these problems have to do with AML risk, fraud risk or something else – on a real-time basis. A core objective of our technology strategy is to reduce variability and increase consistency and standardization. As such, one of our most important goals is to lessen our reliance on manual controls, which are more susceptible to human error. We also are seeking to substan-tially reduce subjectivity to allow for a more consistent and predictable way to identify control gaps in the envi-ronment. Systems enhancements, including information technology and data architecture, are critical to the broad management of inancial risks.
Our technology environment contin-ues to be tested. In the past two years, we have faced unprecedented cyber threats from sophisticated adversaries bent on wreaking havoc in the inancial industry. Two years ago, we saw a rise in “denial of ser-vice” attacks aimed at disrupting the
Matt Zames
Chief Operating Oicer