And while a 200 basis point increase could cause unrealized losses in its bond portfolio to climb by $15 billion, which would affect its capital, it would also generate $17 billion in incremental income over the next three years, the CFO noted.
In short, the capital impact from rising rates is "very manageable" and the incremental earnings impact is "significant," said Lake.
Credit quality continues to improve significantly in the mortgages and credit card businesses. Issuing guidance for the third quarter, the executive said investors can expect the bank to release reserves totaling $1.2 billion in the mortgage business. The Cards business could see an additional $500 million reserve release in the second half of 2013.
But the gains from improving credit quality might be more than offset by an increase in litigation reserves.The firm has seen a "crescendo of activity" in the last few weeks, with multiple regulatory agencies pursuing legal action against it. Lake did not offer any fresh details. "We are reacting where it makes sense to do it and where it is in the interest of our shareholders. We are still finalizing the number." The CFO said the bank intends to be appropriately reserved for all possible legal losses based on the information it has at this time. The bank is making instituting controls its number one priority and has added 3,000 workers across control functions, according to the presentation. Guidance for markets revenues was also weak, as a unusually strong September in the previous year, makes for tough comparison. The bank expects its trading revenues to be flat or lower by 5% in the third quarter. JPMorgan also set new targets for capital. While it is on track to finish the year with a Basel III Tier I Common Ratio of 10% by the end of next year, nearly double the level it had when it entered the crisis, the bank plans to maintain an additional buffer of 50 basis points above the minimum capital and supplementary leverage ratio levels. But, the bank is not giving up on its return targets despite the higher capital, the CFO said. Overall, it was somewhat of a mixed outlook from the bank. While the long-term outlook was positive, it looks like the third quarter is going to be lackluster. -- Written by Shanthi Bharatwaj New York. >Contact by Email. Follow @shavenk