Operator:

Good morning ladies and gentlemen. Welcome to JPMorgan Chase's Second Quarter 2024 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. The presentation is available on JPMorgan Chase's website and please refer to the disclaimer in the back concerning forward-looking statements. Please stand by. At this time I would like to turn the call over to JPMorgan Chase's Chief Financial Officer Jeremy Barnum. Mr. Barnum, please go ahead.

Operator:

For our first question, we'll go to the line of Steven Chubak from Wolfe Research. Please go ahead.

Jeremy Barnum:

Good morning Steve.

Jeremy Barnum:

Right, okay. Thanks Steve. And actually before answering the question, I just want to remind everyone that Jamie is not able to join because he has a travel conflict overseas, so it's just going to be me today. Okay. Good question on the capital and the ROTCE. So let me start with the ROTCE point first. In short, my answer to that question would be no. It's hard to imagine a scenario coming out of the whole potential range of outcomes on capital that involves an upward revision on ROTCE. If you think about the way we've been talking about this, we've said that you know before the Basel III endgame proposal, we had a 17% through cycle target and that while you can imagine a range of different outcomes, the vast majority of them involve expansions of the denominator. And while we had ideas about changing the perimeter and repricing, all of which are still sort of in effect, most of those would be thought of as mitigants rather than things that would actually increase the ROTCE. And I don't really think that answer has particularly changed. So as of now, that's what I would say, which is a good pivot to the next point, which is yeah, we've been reading the same press coverage you've been reading and you know, it's fun and interesting to speculate about the potential outcomes here, but in reality, we don't know anything -- you don't know. We don't know how reliable the press coverage is. And so in that sense, I feel like on the overall capital return and buyback trajectory, not much has actually changed relative to what I laid out at Investor Day, the comments that I made then, the comments that Jamie made then, as well as the comments that Jamie made subsequent week at an industry conference. So maybe I'll just briefly summarize for everyone's benefit what we think that is, which is one, we do recognize that our current practice on capital return and buybacks does lead to an ever-expanding CET1 ratio. But obviously we're going to run the company over the cycle over time at a reasonable CET1 ratio with reasonable buffers relative to our requirements. So after all the uncertainty is sorted out, the question of the deployment of the Capital one way or another is a matter of when, not if. On the capital hierarchy, it's also worth noting that's another thing that remains unchanged, so I'll review it quickly. You know, growing the business organically and inorganically, sustainable dividend, and in that context it's worth noting that the Board's announced intention to increase it to a $1.25 is a 19% increase prior to last year, so that's a testament for our performance and that is a return of capital. And then finally buyback, but that hierarchy does not commit us to return 100% of the capital generation in any given quarter. And so, as we said here today, when you look at the relationship between the opportunity cost of not deploying the capital and the opportunities to deploy the capital outside the Firm, it is kind of hard to imagine an environment where that relationship argues more strongly for patients. So given all that, putting it all together I'm sorry for the long answer, we remain comfortable with the current amount of excess capital. And as Jamie has said, we really continue to think about it as earnings in store, as much as anything else.

Jeremy Barnum:

Yes. Interesting question, Steve. So let's talk about deposit balances. So yes I see your point about how balance pressures are slightly abating. When you look at the system as a whole, just to go through it, Q2 is still a bit of a headwind. Loan growth is modest and not enough to offset that. And RRP seems to have settled in roughly at its current levels, and there are reasons to believe that it might not go down that much more, although that could always change and that could supply extra reserves into the system. But on balance, net across all those various effects, we still think that there are net headwinds to deposit balances. So when we think of our balance outlook, we see it as flat to slightly down maybe, with our sort of market share and growth ambitions offsetting those system-wide headwinds. So in terms of normalizing higher, I guess it depends on relative to what. But I think it is definitely too early to be sort of calling the end of the over earning narrative or the normalization narrative. Clearly, the main difference in our current guidance relative to what we had earlier in the year, which implied a lot more sequential decline, is just the change in the Fed outlook. So two cuts versus six cuts is the main difference there. But obviously, based on the latest completion data and so on, you could usually get back to a situation with a lot more cuts in the yield curve. So we'll see how it goes. And in the end, we are kind of focused on just running the place, recognizing and trying not to be distracted by what remains some amount of over earning, whatever it is.

Jeremy Barnum:

Thanks Steve.

Saul Martinez:

Hi, good morning. Thanks for taking my question. Jeremy, can you give an update on the stress capital buffer? You noted, obviously, that you think there is an error in the Fed’s calculation due to OCI. Can you just give us a sense of what the dialogue with the Fed looks like? Is there a process to modify the SCB higher? And if you could give us a sense of what that process looks like.

Saul Martinez:

Okay. Got it. That's helpful. Just following up on capital returns on Steve's question. I think you highlighted in response as a matter of when not if. And obviously, Jamie is not there. You can't speak for Jamie. But seems to have shown limited enthusiasm for a special dividend or buybacks at current valuations. Can you just give us a sense of how you're thinking about the various options? Any updated thoughts on your special dividend? And can you do other things like for example, have a material increase in your dividend payout sort of a step function increase, where -- keep that flat and grow into that grow your earnings into that over time? Can you just maybe give us a sense of how you're thinking about what options you have available to deploy that capital.

Saul Martinez:

Okay, great. Thanks a lot.

Operator:

Next, we'll go to the line of Ken Usdin from Jefferies. Please go ahead.

Jeremy Barnum:

Yes. Thanks, Ken. It's progress, right? I mean we are happy to see the progress. People have been talking about [depressed] (ph) banking fee wallet for some time, and it's nice to see not only the year-on-year pop on the low base, but also a nice sequential improvement. So that's the first thing to say. In terms of dialogue and engagement, it's definitely elevated. So as the dialogue on ECM is elevated and the dialogue on M&A is quite robust as well. So all of those are good things that encourage us and make us hopeful that we could be seeing sort of a better trend in this space. But there are some important caveats. So on the DCM side, yes, we made pull-forward comments in the first quarter, but we still feel that this second quarter still reflects a bunch of pull forward, and therefore we are reasonably cautious about the second half of the year. Importantly, a lot of the activity is refinancing activity as opposed to for example, acquisition finance. So the fact that M&A remains still relatively muted in terms of actual deals has knock-on effects on DCM as well. And when a higher percentage of the wallet is refi, then the pull-forward risk becomes a little bit higher. On ECM, if you look at it kind of at [remove] (ph), you might ask the question, given the performance of the overall indices, you would think it would be a really booming environment for IPOs, for example. And while it's improving, it's not quite as good as you would otherwise expect. And that's driven by a variety of factors, including the fact that as has been widely discussed, that extent to which the performance of the large industries is driven by like a few stocks, the sort of mid-cap tech growth space and other spaces that would typically be driving IPOs have had much more muted performance. Also, a lot of the private capital that was raised a couple of years ago was raised at pretty high valuations. And so in some cases, people looking at IPOs could be looking at down rounds, that's an issue. And while secondary market performance of IPOs has improved meaningfully, in some cases, people still have concerns about that. So those are a little bit of overhang on that space. I think we can hope that, over time that fades away and the trend gets a bit more robust. And yes, on the advisory side, the regulatory overhang is there, remains there. And so we'll just have to see how that plays out.

Jeremy Barnum:

Yes. I still feel like when it comes to Card charge-offs and delinquencies, there's just not much to see there. It's still -- it's normalization, not deterioration. It's in-line with expectations. As I say, we always look quite closely inside the cohort, inside the income cohorts. And when you look in there, specifically, for example on spend patterns, you can see a little bit of evidence of behavior that's consistent with a little bit of weakness in the lower income segments, where you see a little bit of rotation of the spend out of discretionary into non-discretionary. But the effects are really quite subtle, and in my mind definitely entirely consistent with the type of economic environment that we are seeing, which, while very strong and certainly a lot stronger than anyone would have thought given the tightness of monetary conditions, say, like they've been predicting it a couple of years ago or whatever, you are seeing slightly higher unemployment, you are seeing moderating GDP growth. And so it is not entirely surprising that you're seeing a tiny bit of weakness in some pockets of spend. So it all kind of hangs together in what is sometimes actually not a very interesting story.

Jeremy Barnum:

Thanks Ken.

Glenn Schorr:

Hi, thanks very much. So Jeremy, the discussions so far around private credit and you all, your recent comments have been the ability to add on balance sheet and compete when you need to compete on the private credit front. I do think that most of the discussion has been about the direct-lending component. So I'm curious if you are showing more progress and activity on that front. And then very importantly, do you see the same trend happening on the asset-backed finance side, because that's a bigger part of the world, and it is a bigger part of your business? So I'd appreciate your thoughts there. Thanks.

Glenn Schorr:

That's great for you if you are not hearing much about it, so we can leave it at that. Maybe just one quick follow-up in terms of your just overall posturing on -- you were patient and smart when rates were low, waited to deploy, worked out great. We know that story. Now it seems like you have tons of excess liquidity and you are being patient and rates are high. And I'm curious on how you think about what kind of triggers, what kind of things you're looking for in the market to know if and when you would extend duration?

Glenn Schorr :

Super, helpful. Thanks so much for that.

Operator:

Next, we'll go to the line of Matt O'Connor from Deutsche Bank. Please go ahead.

Jeremy Barnum:

Sure. Good question, Matt. I mean, I guess the way I think about it is a couple of things. Like our returns tend to be a bit seasonal, right? So if you kind of build yourself out a full year forecast and make reasonable space on your own, or analyst consensus or whatever, and you think about the fourth quarter, better look at this on a full year basis when you think about the returns than the quarterly numbers, and you obviously have to strip out kind of the onetime items. And so if you do that, like whatever you get for this year is still clearly a number that's higher than 17%. So yes, one source of headwinds is normalization of the NII, primarily as a result of the expected higher deposit costs. That's -- we've talked about that. Part of it is also the yield curve effects. Some cuts will come into the curve at some point. And in the normal course, if you kind of do a very, very, very supplemental model of the company, you would have like expenses grow -- revenue is growing at some organic GDP like rate, maybe higher, and expenses growing at a similar slightly lower rate, producing a sort of relatively stable overhead ratio. But even if the amount of NII normalization winds up being less than we might have thought at some prior point, you still have some background -- you still have some normalization of the overhead ratio that needs to happen. So as much as our discipline on expense management is, as tight as it always has been, the inflation is still non-zero. There are still investments that we're executing. There is still higher expense to come in a slightly flatter revenue environment as a result of in part, the normalization of NII. And then the final point is that whatever winds up being the answer on Basel III endgame and all the other pieces, you have to assume some amount of expansion of the denominator, at least based on what we know so far. So of course, any of those pieces could be wrong, but that's kind of how we get to our 17%. And if you look at the various scenarios that we showed on the last page of my Investor Day presentation, it illustrates those dynamics and also how much the range could actually vary as a function of the economic environment and other factors.

Jeremy Barnum:

Yes. I mean you and I talked about this before. I guess I sort of -- I guess I don't really agree fundamentally with the notion that the way to think about things is that sort of yield curve steepness above and beyond what's priced in by the forwards is a source of structural NII or NIM for banks, if you know what I mean. Like I mean people have different views about the so-called term premium. And obviously, in a moment of inverted curve and different types of treasury supply dynamics, people thinking on that may be changing. But I think we saw, when rates were at Zero and the 10-year note was below 2%, everyone sort of -- many people were kind of tempted to try to get extra NIM and extra NII by extending duration a lot. But when the steepness of the curve implies -- is driven by the expectation of actually aggressive Fed tightening, it's just a timing issue and you can wind up kind of pretty offside from the capital and other perspectives. So there are some interesting questions about whether fiscal dynamics might result in a structurally steeper yield curve down the road and whether that could be sort of -- earning the term premium, so to speak, could be a source of NII, but that feels a bit speculative to me at this point.

Jeremy Barnum :

Thanks Matt.

Mike Mayo:

Hi. Jeremy, you said it's too early to end the over earning narrative, and you highlighted higher deposit costs and the impact of lower rates and lower NII and DCM pull-forward and credit cost going higher. Anything I'm missing on that list? And what would cause you to end the over earning narrative?

Mike Mayo:

You're 17% through-the-cycle ROTCE kind of expectation, what is the CET1 ratio that you assumed for that?

Mike Mayo:

Let me just zoom out for one more question on the return target. I mean when I asked Jamie at the [2013] (ph) Investor Day would it make sense to have 13.5% capital, he was basically telling you take a hike, right? And now you have 15.3% capital and you're saying, well, we might want to have a lot more capital here. I mean at some point, if you're spending $17 billion a year to improve the company, if you're gaining share with digital banking, if you're automating the back office, if you're moving ahead with AI, if you're doing all these things that I think you say others aren't doing, why wouldn't those returns go higher over time? Or do you just assume you'll be competing those benefits away? Thanks.

Mike Mayo:

All right. Thank you.

Betsy Graseck:

Hi, Jeremy.

Betsy Graseck:

So I did want to ask one drill-down question on 2Q, and it is related to the dollar amount of buybacks that you did do. I think in the press release, right and the slide deck, it's $4.9 billion common stock net repurchases. So the question here is what's the governor for you on how much to do every quarter? And I mean I understand it is a function of okay, how much do we organically grow. But even with that, so you get the organic growth which you had some nice movement there. But you do the organic growth and then is it how much do we earn and we want to buy back our earnings? Or how should we be thinking about what that repurchase volume should be looking like over time? And I remember at Investor Day, the whole debate around I don't want to buy back my stock, but we are right? So I get this question from investors quite a bit of how should we be thinking about how you think about what the right amount is to be doing here?

Betsy Graseck:

Great. Thank you Jeremy. Appreciate it.

Operator:

Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead.

Jeremy Barnum:

Hi, Gerard.

Jeremy Barnum:

Yes. Good question, Gerard. I have to be honest, I haven't focused on that particular sequential explain i.e., quarter-on-quarter change and average non-interest-bearing deposits. But I think the more important question is the big picture question, which is what do we expect? I mean how are we thinking about ongoing migration of non-interest-bearing into interest-bearing in the current environment, and how that affects our NII outlook and our expectation for weighted average rate paid on deposits. And the answer to that question is that we do continue to expect that migration to happen. So if you think about it in the wholesale space, you have a bunch of clients with some balances in non-interest-bearing accounts, and over time for a variety of reasons, we do see them moving those balances into interest-bearing. So we do continue to expect that migration to happen, and therefore, that will be a source of headwinds. And that migration sometimes happens internally, i.e., out of non-interest-bearing into interest-bearing or into CDs. Sometimes it goes into money markets or into investments, which is what we see happening in our Wealth Management business. And some of it does leave the company. But one of the things that we are encouraged by is the extent to which we are actually capturing a large portion of that yield-seeking flow through CDs and money market offerings, et cetera, across our various franchises. So big picture. I do think that migration out of non-interest-bearing into interest-bearing will continue to be a thing, and that is a contributor to the modest headwinds that we expect for NII right now. But yes I'll leave it at that, I guess.

Jeremy Barnum:

Yes, it's a good question. I think the short answer is no, we are not really seeing early signs of cracks in C&I. I mean, yes, I agree with you, like the C&I charge-off rate has been very, very low for a long time. I think we emphasized that at last year's Investor Day, if I remember correctly. I think the C&I charge-off rate we are seeing 10 years was something like literally zero. So that is clearly very low by historical standards. And while we take a lot of pride in that number, I think it reflects the discipline in our underwriting process and the strength of our credit culture across bankers and the risk team, that's not -- we don't actually run that franchise to like a zero loss expectation. So you have to assume there will be some upward pressure on that. But in any given quarter, the C&I numbers tend to be quite lumpy and quite idiosyncratic. So I don't think, that anything in the current quarter results is indicative of anything broader, and I haven't heard anyone internally talk that way, I would say.

Jeremy Barnum:

Thanks Gerard.

Erika Najarian:

Hi, good morning. I just had one cleanup question, Jeremy. The consensus provision for 2024 is $10.7 billion. Could you maybe clarify for once and for all sort of Jamie's comments at an industry conference earlier and try to sort of triangulate if that $10.7 billion provision is appropriate for the growth level that you are planning for in Card?

Erika Najarian:

Great. Thank you.

Operator:

And for our final question, we'll go to the line of Jim Mitchell from Seaport Global Securities. Please go ahead.

Jeremy Barnum:

Thanks, Jim. Good question. So yes, trading assets have been up. That is basically client activity primarily secured financing related sort of matchbook repo type stuff and similar things that are -- grows up the balance sheet quite a bit, but are quite low risk and therefore quite low RWA intensity. So while our ability the supply that financing to clients is something that we're happy about and it's very much represents us leaning into the franchise to serve our clients. It's not really particularly RWA, and therefore capital intensive, and therefore it doesn't really reflect an aggressive choice on our part to deploy capital, so to speak. On the loan demand front, yes, I mean, unfortunately, I just don't have much new to say there on loan demand. Meaning, to your point, loan demand remains quite muted everywhere except Card. Our Card business is, of course, in no way capital constrained. So whatever growth makes sense there in terms of our customer franchise and our ability to acquire accounts and retain accounts, and what fits inside our credit risk appetite is growth that's going to make sense. And so we're very happy to deploy capital to that. But it's not constrained by our willingness or ability to deploy capital to that. And of course, for the rest of the loan space, the last thing that we are going to do is have the excess capital mean that we lean in to lending that is not inside our risk appetite or inside our credit box, especially in a world where spreads are quite compressed and terms are under pressure. So there is always a balance between capital deployment and assessing economic risk rationally. And frankly, that is in some sense, a microcosm of the larger challenge that we have right now. When I talked about if there was ever a moment where the opportunity cost of not deploying the capital relative to how attractive the opportunities outside the walls of the company are, now would be it in terms of being patient. That's a little bit one example of what I was referring to.

Jeremy Barnum:

Thanks Jim.

Jeremy Barnum:

Very good. Thank you, everyone. See you next quarter.

Operator:

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2024 Earnings Call. This call is being recorded. [Operator Instructions] We will now go live to the presentation. Please stand by.

Jeremy Barnum:

Thank you very much, and good morning, everyone. The presentation is available on our website, and please refer to the disclaimer in the back.

Betsy Graseck:

So a couple of questions here. Just one, Jamie, could you talk through the decision to raise the dividend kind of mid-cycle, it felt like, pre-CCAR? And also help us understand how you're thinking about where that payout ratio, that dividend payout ratio range should be. Because over the past several years, it's been somewhere between 24% and 32%. And so is this suggesting we could be towards the higher end of that range or even expanding above that?

James Dimon:

Yes. So Betsy, before I answer the question, I want to say something on behalf of all of us at JPMorgan and me personally. I'm thrilled to have you on this call.

James Dimon:

I'm sorry, $2 billion a quarter.

Betsy Graseck:

Okay. Thank you so much, and I appreciate it. Looking forward to seeing you at Investor Day on May 20.

Operator:

Our next question comes from Jim Mitchell with Seaport Global.

Jeremy Barnum:

Yes, a good question, Jim. I think the simplest and best answer to that is not really. So as we've been saying for a while, migration from checking and savings to CDs is sort of the dominant trend that is driving the increase in weighted average rate paid in the consumer deposit franchise. That continues. We continue to capture that money in motion at a very high rate. So we're very happy about what that means about the consumer franchise and the level of engagement that we're seeing.

James Mitchell:

Okay. And just a follow-up on that and just sort of bigger picture on NII. Is that sort of the biggest driver of your outlook? Is it migration? Is it the forward curve? Is it balances? It sounds like it's migration, but just be curious to hear your thoughts on the biggest drivers of upside or downside.

John McDonald:

Jeremy, you had mentioned at a conference earlier this year that The Street might need to build in more reserve growth for the Card growth. You've had more reserve build. We didn't see that this quarter. Is that just kind of seasonal? And would you still expect the kind of growth math to play out in terms of Card growth and reserve build needs?

Jeremy Barnum:

That is exactly right. And specifically, what's going on here is this shift between the on-balance sheet and off-balance sheet in the financing businesses and prime and so on within Markets. And you can actually see a little bit of a pop of the Markets balance sheet in the supplement, and these things are all related.

Ebrahim Poonawala:

I guess just in terms of, Jamie, when you think about the outlook for the economy, would appreciate your thoughts on the health of the customer base, both commercial and consumer.

James Dimon:

Yes. So I'll put it into 2 buckets. First of all, we're fine. We've got good reserves against office. We think the multifamily is fine. Jeremy can give you more detail on that if you want.

Operator:

Our next question comes from Erika Najarian with UBS.

Jeremy Barnum:

Right. So interesting framing of the question, Erika. So I think we've been pretty consistent about where we're overearning, right? So obviously, one major area is that we're overearning in deposit margins, especially in consumer. And that's sort of why we're expecting sequential declines in NII, why we've talked about compressing deposit margins and increases in weighted average rate paid.

L. Erika Penala:

Got it. And just as a follow-up question. You mentioned that the current curve that you set your NII outlook upon is stale. I guess, does it matter? That it seems like the market down-pricing; and obviously no June cut; no September cut; and a toss-up in December, which shouldn't matter for this year. As we think about that $90 billion, does the -- if we price rate cuts out totally, does that matter much? Given that it seems like June is the only one that...

Operator:

Our next question comes from Ken Usdin with Jefferies.

Kenneth Usdin:

Got it. And I guess I'll just stick on the theme of capital markets. And not surprising at all to see a little bit tougher comp in FICC. I think you guys have kind of indicated that maybe a flattish fee pool is a reasonable place, and I know that's impossible to guide on.

Jeremy Barnum:

Yes, a really good question. I would say, in general, that the sort of volatility and uncertainty in the rate environment overall on balance is actually supportive for the Markets revenue pool. And I think that, together with generally more balance sheet deployment as well as sort of some level of natural background growth, is one of the reasons that the overall level of Markets revenue has stabilized at meaningfully above what was normal in the pre-pandemic period.

Michael Mayo:

Jamie, I'm just trying to reconcile some of your concerns in your CEO letter. I'm sure the 60 pages, I can see you put a lot of effort into that and it's appreciated. But you talked about scenarios, tail risk, macro risk, geopolitical risk and all that over several years, it's not weeks or months, I get it.

Jeremy Barnum:

Right, Mike. So I'm sorry to tell you that Jamie actually left us because he's at a leadership offsite. That's why he was here remote. So I think he left the call in my hands for better or for worse. So -- but let me try to address some of your points and without sort of speaking for Jamie here.

Jeremy Barnum:

Well, I think one of the things about payments businesses is that, in some sense, they're -- I mean, recession-proof is probably the wrong word. And in any case, we're not dealing with a recession, but we're talking fundamentally about moving money through pipes around the world. And that's a thing that people need to do more or less no matter what. So that's one piece.

Operator:

Our next question comes from Glenn Schorr with Evercore.

Glenn Schorr:

Maybe one other follow-up. You're always investing. You clearly get paid in growth across the franchise as you do. But relative to a lot of other banks that have been keeping the expenses a lot closer to flat, do you envision an environment -- or maybe I should rephrase that. What type of environment would have JPMorgan pull back on this tremendous investment spending wave that you've been going through?

Matthew O'Connor:

You mentioned one use of capital is to lean into the trading businesses with your balance sheet. And we did see the trading assets going up Q2, which is probably seasonal, but also up a lot year-over-year, but not necessarily translate into higher revenues. And I know they don't like match up necessarily each quarter. But maybe just elaborate like how you're leaning into the trading with the balance sheet and how you expect that to benefit you over time.

Jeremy Barnum:

Maybe a little bit. Jamie already alluded somewhat to this. So I do think spend is fine but not boomy, broadly speaking, I would say. You can look at it a lot of different ways, inflation cohorts, et cetera. But when you kind of triangulate that, you get back to this kind of flattish picture.

Gerard Cassidy:

Notwithstanding your guys' outlook for uncertainty, and of course, Jamie talked about it in the shareholder letter and addressed it also on this call when he was here earlier. Can you guys share -- or can you share with us the color on what's going on in the corporate lending market in terms of spreads seem to be getting tighter? It's not reflecting, I don't think, a real fear out there in the global geopolitical world. And any color just on what you guys are seeing in the leveraged loan market as well.

Gerard Cassidy:

And I guess as a tie-in to that question and answer. We've read and seen so much about the private credit growth in this country by private credit companies. Can you give us some color on what you're seeing there as both as a competitor but also as a client of JPMorgan, how you balance the 2 out? Where you may see them bidding on business that you'd like, but at the same time, you're supporting their business.

Operator:

Our last question comes from Charles Peabody with Portales.

Jeremy Barnum:

Okay. Thanks, Charlie. And I'm going to do my best to answer your question while sticking to my sort of guns on not giving too much First Republic-specific guidance. But I do think that kind of framework you're articulating is broadly correct. So let me go through the pieces.

Charles Peabody:

As a quick follow-up, where are the next home runs going to come from? And this is more strategic beyond just JPMorgan. But there's probably going to be more regional bank failures, whether it's this year or next year, and opportunities to pick those up.

Jeremy Barnum:

Thank you, everyone.

Operator:

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Fourth Quarter 2023 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go to the live presentation, please standby. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Operator:

[Operator Instructions] For our first question, it's coming from the line of Matt O'Connor from Deutsche Bank. You may proceed.

Jeremy Barnum:

Yes, Matt, not particularly updating. I think you're referring to that $80 billion number that we put out there. And I wouldn't exactly describe that as an outlook. I think it's more just a number that we put out there to try to quantify a little bit the extent of the over-earning. So not particularly necessary to revise the number. But I just would point out again, as we highlighted on the page and as I highlighted in the prepared remarks, that when you look at that $94 billion exit rate and full-year guidance of $88 billion, that implies obviously exiting below $88 billion and some significant sequential decline. So in that sense, you can see us kind of marching on the path to that $80 billion. Whether we ever get to the $80 billion or not and when is maybe a topic for later in the year or next year.

Jeremy Barnum:

Yes, good question. I think you framed it exactly correctly in the sense that we obviously have a lot of buyback capacity in general based on organic capital generation. So the normal capital hierarchy will apply. But for now, we plan to remain on a modest base of buybacks consistent with that kind of $2 billion net buyback, a quarter number that we've talked about and that you've seen us do in light of probably the need to continue building to have a bit of a buffer, as you said, the uncertainty about the finalization of the rules. And also, just as a reminder, the SCB is probably a little bit low right now and has been quite volatile. So that's another factor that we need to keep in mind.

Jeremy Barnum:

Thanks, Matt.

John McDonald:

Thanks. Jeremy, could you give a little more color on what's baked into the loan loss reserve in terms of kind of weighted average assumptions and how any change in macro outlook played into the dynamics of the reserve builds and releases this quarter?

John McDonald:

Okay. And then just to follow up on the NII, could you give us some sensitivity to that outlook when you flex the amount of Fed cuts, what's the impact of a few Fed cuts, and how much does it matter for the first two versus if you're thinking four, five, six? I know it's complicated, but maybe a little bit of color on how sensitive you are to a couple of cuts might be helpful.

John McDonald:

Okay. Thanks.

Jim Mitchell:

Hi, good morning. Maybe just a follow-up in a different way on the NII question. Just in deposits, can you, Jeremy, discuss your assumptions on the reprice and migration thoughts? And then layering in, if we do get six cuts, does that start to change the dynamic around growth and deposits? How are you thinking about all that?

Jim Mitchell:

Right. Okay. Thanks a lot.

Ebrahim Poonawala:

Hi, good morning. I guess maybe one question, looking at your statement, and I think Jamie is quoted as saying, as he sees the consumer as resilient and the market expecting a soft landing. I would love to hear. I'm not sure if Jamie's on the call, but maybe, Jeremy, I would love to hear your thoughts around do you believe that the outlook for a soft landing has increased. Is the market pricing incorrectly, or when you look at your customer base, are you still worried about the lagged effects of the rate hikes?

Ebrahim Poonawala:

And maybe just taking that a step further, there has been concern around whether we see some of the CRE pain filtered into multifamily apartments. You all have a pretty large multifamily exposure, high quality. But just give us a sense of one, are you seeing any bleed-through of what we've seen in office in other areas of commercial real estate or any particular parts of C&I lending? Thank you.

Ebrahim Poonawala:

Got it. Thank you.

Erika Najarian:

Hi. Good morning. My first question is a follow-up on Matt's with regarding the buyback. You printed 15% CET1 in the quarter. Your - on a net basis, net to RWA growth, your net income produces 51 basis points every quarter. Again, that's net of RWA growth. I'm wondering what guideposts you're looking for, Jeremy, in terms of that buyback increasing from that $2 billion a quarter. Do we need to wait for B3 finalization, which seems like it could be quite delayed? Or will having clarity in the June DFAST results, you mentioned the SCB sort of be enough that you could reconsider this pace over the medium-term?

Erika Najarian:

Thanks. And just as a follow-up, the $90 billion in expenses for 2024, does that contemplate a significant increase or the comeback of investment banking that everybody seems to be expecting for '24?

Erika Najarian:

Thank you.

Mike Mayo:

Hi. You're guiding to $90 billion of expenses. That's up $7 billion year-over-year. Seems like quite a big increase. And if you could just give some color on that. I know we've been through this before, two years ago with the big increase in expenses and without a lot of visibility. So if you could just upfront give us visibility. How much of that is due to incentive pay? How much is that due to tech? How much is that due to AI? And what are the expected returns to get from that $7 billion pickup? Thanks.

Mike Mayo:

Okay. I have a short follow-up. I'm still here.

Mike Mayo:

Yes. Can you just talk about the impact of AI on your technology approach? And I know I asked you this before, and you said you're spending it, you're being careful, you want to see a return on your dollars. But how much difference can this make? How big is your tech budget last year? How much should it be this year? How much should AI make a difference? Just a little bit more meat on the tech bones.

Mike Mayo:

All right. Thank you.

Operator:

Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. You may proceed.

Jeremy Barnum:

Hi, Gerard.

Jeremy Barnum:

Yes, Gerard, I wish the answer were more interesting, but it's just our practice. We just always use the forward curve for our outlook, and that's what's in there.

Jeremy Barnum:

Yes, good question, Gerard. I mean, I think you've heard Jamie talk about this a lot. QT is obviously a big focus, and one of the complicating elements that we have in the current environment. I think that the math is the math in the sense that QT all else equal is withdrawing from system-wide deposits. In the last six months of this year, that's been offset helpfully by a reduction in the size of RRP. And so that's been supportive of system-wide deposits. As we go into 2024, RRP is at lower levels, and so that may be a little bit less of a tailwind. But it's also the case, as you know, that there's - the market's expectation is that the QT is going to start slowing down at some point this year. So - and we still have reasonable levels of reserves and some cushion from RRP. So that's part of the reason that our outlook is for deposits to be modestly down with the shrinkage in system-wide deposits maybe partially offset by our belief that we can take some share. But also I think the second half of this year is going to be interesting to watch in terms of what the Fed does.

Jeremy Barnum:

Thanks, Gerard.

Manan Gosalia:

Hi, good morning. Thanks for taking my questions. There's been a lot of talk about capital markets rebound. You noted you're starting the year with a healthy pipeline. Can you give us some more color on what you're seeing there and how the rate in - how the change in the rate environment is changing the conversations that you're having across M&A, ECM and DCM?

Manan Gosalia:

Great. And on the flip side, in C&I you spoke about lower revolver utilization, more muted demand. What would it take for that to rebound? Do you think it accelerates from here if rates come down, or is there room for this to slow even further if the capital markets open up even more?

Manan Gosalia:

Great. Thank you.

Operator:

Next, we'll go to the line of Glenn Schorr from Evercore ISI. You may proceed.

Jeremy Barnum:

Yes. Thanks, Glenn. So I think the last part of your question, as you say, is the most important part, which is, this as an important factor in the competitive dynamic and what is one of the key things that we offer as a company. So it is a meaningful shift in the environment. It's something that we've been watching for some time. We've made some enhancements and some new initiatives to ensure that we can compete effectively both in our traditional syndicated lending businesses, but also go head to head with the private credit providers and these types of unitranche structures, if and when that's what the client actually wants. It tends to be a trade-off between the best possible pricing versus speed and certainty of execution. And we can provide both off our sort of exceptionally strong long-time DCM franchise. So that's been a priority. And we're actually already starting to see some results from that across both the Commercial Bank and the CIB, with certain client segments. And in the bigger picture, of course, in the context of the Basel III Endgame, people talk a lot about the risk of certain lending activity getting pushed out of the regulated perimeter. It's important to be clear, right, these are important clients of ours too. We compete with them. They're also clients. And in the end, our point here is just people, and regulators in particular, should just be aware of the likely consequences of what's happening here and make sure that the results are intentional and that we're looking around the corner a little bit.

Jeremy Barnum:

It's interesting. I haven't heard much about that, Glenn, so we can look into it for you. But to be honest, the fact that I haven't heard much makes me think that it's maybe not such a big driver right now.

Operator:

And for our final question, we'll go to the line of Charles Peabody from Portales Partners. You may proceed.

Jeremy Barnum:

Yes. Thanks, Charlie. So one thing that we said when we kind of gave First Republic guidance at Investor Day earlier this year is that while we understood the need to track that, and we've been splitting out First Republic in our reported results in order to improve period on period comparability, we kind of want to stay out of the business of guiding on First Republic. And so we really focused on having our guidance be firm-wide, including First Republic, now that everything is embedded in the franchise. Having said that, let me just react to a couple of things that you said. So again, I don't want to get into like micro validation one way or the other of some of your back-of-the-envelope math, but we did have some accelerated pull to par on some of the accretion of some of the loans that we purchased this year. So I think the annualization that you're doing is maybe a bit high for the 2024 number. And then from a sensitivities perspective, I actually think I can simplify the math for you a little bit and just kind of direct you to the EAR for my response to the prior question, because that EAR fully includes all of the First Republic assets and liabilities with all of their various dynamics. And so I think that's kind of like an easier way to think about it for the company.

Jamie Dimon:

It was kind of head-matched the day we did it, so.

Charles Peabody:

All right. Thank you.

Jeremy Barnum:

Okay. Thanks very much, everyone.

Operator:

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Third Quarter 2023 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please standby. At this time, I would like to turn the call over to JPMorgan Chase's Chief Financial Officer, Jeremy Barnum, and their Chairman and CEO, Jamie Dimon. Mr. Dimon, please go ahead.

Jeremy Barnum:

Thanks, Jamie, and, of course, I very much echo this sentiment. Now, let's turn to our first-quarter earnings results. The presentation is available on our website, and please refer to the disclaimer in the back. Starting on Page 1, the firm reported net income of $13.2 billion, EPS of $4.33, and revenue of $40.7 billion, and delivered an ROTCE of 22%. These results included $669 million of net investment securities losses in Corporate and $665 million of Firmwide legal expense. On Page 2, we have some more detail. Similar to last quarter, we have called out the impact of First Republic where relevant. For this quarter, First Republic contributed $2.2 billion of revenue, $858 million of expense, and $1.1 billion of net income. Now, focusing on the Firmwide results, excluding First Republic, revenue of $38.5 billion was up $5 billion or 15% year-on-year. NII, ex-Markets, was up $4.8 billion or 28%, driven by higher rates and higher revolving balances in Card, partially offset by lower deposit balances. NIR, ex-Markets, was up $374 million or 4%, which included lower net investment securities losses than the prior year. And Markets revenue was down $190 million or 3% year-on-year. Expenses of $20.9 billion were up $1.7 billion or 9% year-on-year, primarily driven by ongoing growth and front office and technology staffing, as well as wage inflation and higher legal expense. And credit costs were $1.4 billion, predominantly driven by net charge-offs in Card, and included a $102 million net reserve release, driven by changes in the central scenario, primarily offset by card loan growth. On to balance sheet and capital on Page 3. We ended the quarter with a CET1 ratio of 14.3%, up about 50 basis points versus the prior quarter as the benefit of net income less capital distributions was partially offset by AOCI. We had $2 billion of net share repurchases this quarter and the pace of buybacks will likely remain modest in light of the Basel III endgame proposal. In line with our capital hierarchy, we will continue to reassess the buyback trajectory as circumstances evolve or opportunities emerge. And on the topic of the Basel III endgame, you'll see that we added a couple of pages on it. So, let's cover that now, starting on Page 4. Given the significance of this proposal for us, the broader industry as well as households and businesses as end-users, we thought it was important to spend time discussing it. And while we know there is interest in having us quantify the expected impact of this proposal in a lot of granular detail, it's important to start by asking why the proposed increase is so large given the repeated statement over time by policymakers that banks are well-capitalized and well-positioned to deal with stress. Given that context, the absence of detailed analysis supporting a capital increase of this magnitude is disconcerting and there's a lot that does not make sense to us. Starting with RWA, we've already said we expect the firm's RWA to increase by around 30% or $500 billion, which results in capital requirements increasing by about 25% or $50 billion. One immediate thing to point out is that at 4.5% GSIB, a $500 billion increase in RWA requires $22.5 billion of additional capital with no change in our systemic risk footprint. We've been on the record for a long time that GSIB was conceptually flawed and miscalibrated originally. Since implementation, the failure to address economic growth despite the Fed themselves acknowledging this problem at the outset has made matters worse. And now all of those problems are being applied to an additional $500 billion of RWA. Our view is that the combined proposals could have adjusted the surcharge levels to keep dollars of capital associated GSIB buffer constant rather than simply multiplying the RWA increase by the existing surcharges. Another lens on the proposed increases is the introduction of RWA for operational risk and its clear overlap with op risk losses already capitalized through the stress capital Buffer. Although there is limited disclosure from the Fed on this point, we have estimated that we have about $15 billion of operational risk capital embedded in the SCB based on the information the Fed does disclose. Once we capitalize for this new op risk RWA, our required capital will go up by around $30 billion without any change to our portfolio. Now let's turn to Page 5, which shows the impact of the actual and proposed capital rules over the last few years. Zooming out from the details of this most recent proposal, this page reminds us of what's happened since 2017. Since then, SA-CCR and the stress capital buffer have been adopted and our GSIB surcharge will increase to 4.5%. So assuming the Basel III endgame and GSIB proposals are finalized in their current form, we would see a 45% increase in our capital requirements relative to that 2017 starting point. This illustrates again how overcalibrated these proposals are and it's not done yet. We still expect the Fed to incorporate CECL into CCAR, which will likely increase the SCB. And, of course, given the absence of a fix to the GSIB clause, it continues to present a headwind into the indefinite future. And aside from those dynamics, there remains the long-standing issue of procyclicality in the overall capital [Technical Difficulty]. We think it's also important to point out that the agencies did actually have a choice here. While it may technically be true that the proposal is Basel compliant, Basel compliant does not mandate a 25% increase in capital requirements. Implementing the Basel III endgame consistently with how the Europeans have by retaining credit risk modeling and also addressing the compounding effects of GSIB and SCB would have achieved Basel compliance without creating this unnecessary increase in capital requirements. As you would expect, we will continue to engage and forcefully advocate during the comment period and beyond in a great deal of technical detail. For the purposes of this call, we wanted to make the equally important broader plans about both the level of capital increase and the flaws in the construct of the framework itself since coherent design is critical to the framework's durability over time. The current proposal exacerbates existing features that discourage beneficial scale and diversification. If it goes through as written, there will likely be significant impacts on pricing and availability of credit for businesses and consumers. In addition, the ongoing and persistent increase in the regulatory cost of market-making for banks suggests that the regulators want dramatic changes to the current operation of the US capital markets. We believe that well-regulated market makers that are committed to deploying capital to clients on a principal basis are a critical building block supporting the breadth, depth and resilience of the American capital markets, which is vital to the US economy. So, caution is warranted when proposing changes of this magnitude. With that, let’s go to our businesses, starting with CCB on Page 6. Consumer spend growth has now reverted to pre-pandemic trends with nominal spend per customer stable and relatively flat year-on-year. Cash buffers continue to normalize to pre-pandemic levels with lower-income groups normalizing faster. Turning now to the financial results, excluding First Republic. CCB reported net income of $5.3 billion on revenue of $17 billion, which was up 19% year-on-year. In Banking & Wealth Management, revenue was up 30% year-on-year, driven by higher NII on higher rates. End-of-period deposits were down 3% quarter-on-quarter. We ranked number one in retail deposit share based on FDIC data and continue to solidify our leadership position in key markets. Client investment assets were up 21% year-on-year, driven by market performance and strong net inflows as we continue to capture yield-seeking flows from our consumer banking customers. In Home Lending, revenue was down 2% year-on-year given a smaller market. Originations of $10.3 billion were up slightly quarter-on-quarter, but they remain down 15% year-on-year. Moving to Card Services & Auto, revenue was up 7% year-on-year, driven by higher Card Services NII on higher revolving balances, partially offset by lower Auto lease income. Card outstandings were up 16% year-on-year due to strong account acquisition and continued normalization [for both] (ph). And in Auto, originations were $10.2 billion, up 36% year-on-year as we saw competitors pull back and regained market share. Expenses of $8.5 billion were up 7% year-on-year, largely driven by continued investments in staffing, primarily in front office and technology. In terms of credit performance this quarter, credit costs were $1.4 billion, driven by net charge-offs, which were up $720 million year-on-year, predominantly due to continued normalization in Card. The net reserve build of $49 million reflected a $301 million build in Card services, primarily offset by a $250 million release in Home Lending. Next to CIB on page seven. CIB reported net income of $3.1 billion and revenue of $11.7 billion. Investment Banking revenue of $1.6 billion was down 6% year-on-year. IB fees were down 3% year-on-year and ranked number one with a year-to-date wallet share of 8.6%. In advisory, fees were down 10%. Underwriting fees were up 8% for debt and down 6% directly. In terms of the outlook, we're encouraged by the level of capital markets activity in September, and we have a healthy pipeline going into the fourth quarter. Advisory has also picked up compared to the first half, but year-to-date announced M&A remains down significantly, which will continue to be a headwind. Payments revenue was $2.1 billion, up 3% year-on-year. Excluding equity investments, it was up 12%, driven by higher rates, partially offset by lower deposit balances. Moving to Markets. Total revenue was $6.6 billion, down 3% year-on-year against a very strong third quarter last year. Fixed income was up 1%, driven by an increase in financing and trading activity and securitized products, as well as improved performance in credit. This was predominantly offset by currencies in emerging markets coming off a very strong quarter last year. Equity Markets was down 10%, reflecting lower revenues across products compared to a strong prior-year quarter as activity was challenged by lower volatility. Securities Services revenue of $1.2 billion was up 9% year-on-year, driven by higher rates, partially offset by lower deposit balances. Expenses of $7.4 billion were up 11% year-on-year, predominantly driven by higher legal expense and wage inflation. Credit costs were net benefit of $185 million, driven by a net reserve release of $230 million, reflecting the impact of net lending activity and net charge-offs of $45 million. Moving to the Commercial Bank on Page 8. Commercial Banking reported net income of $1.7 billion. Revenue of $3.7 billion was up 20% year-on-year with payments revenue of $2 billion, up 30% year-on-year, driven by higher rates, and gross Investment Banking and Markets revenue of $821 million was up 8% year-on-year, reflecting increased M&A volume. Expenses of $1.4 billion were up 15% year-on-year, largely driven by an increase in headcount including front-office and technology investments, as well as higher-volume related expense, including the impact of new client acquisition. Average deposits were down 7% year-on-year, 5% quarter-on-quarter, primarily driven by lower non-operating deposits as clients opt for higher-yielding alternatives. Loans were up 1% quarter-on-quarter. C&I loans were flat, reflecting continued stabilization in new loan demand and revolver utilization. And CRE loans were up 1%, reflecting funding of prior year originations of real-estate banking as well as lower pay-off activity. Finally, credit costs were $64 million, including net charge-offs of $50 million and a net reserve build of $14 million. Then to complete our lines of business, AWM, on Page 9. Asset & Wealth Management reported net income of $1.1 billion with pretax margin of 31%. Revenue of $4.6 billion was relatively flat year-on-year as higher management fees on strong net inflows and higher average market levels were offset by lower performance fees and lower NII deposits. Expenses of $3.1 billion were up 3% year-on-year, driven by continued growth in our private banking advisor teams and the impact of closing the JPMorgan Asset Management China and Global Shares acquisitions. For the quarter, net long-term inflows were $20 billion, positive across all asset classes led by equities. And in liquidity, we saw net inflows of $40 billion. AUM of $3.2 trillion was up 22% year-on-year and client assets of $4.6 trillion were up 21% year-on-year, driven by continued net inflows and higher market levels. Finally, loans were flat quarter-on-quarter, while deposits were down 5%, driven by migration to investments, partially offset by client inflows. Turning to Corporate on Page 10. Corporate reported net income of $911 million. Revenue was $1.5 billion, up $1.8 billion compared to last year. NII was $2 billion, up $1.2 billion year-on-year due to the impact of higher rates, and NIR was a net loss of $506 million and included the net investment securities losses I mentioned upfront. Expenses of $456 million were up $151 million year-on-year. To finish, we have the outlook on Page 11. We now expect 2023 NII and NII ex-Markets to be approximately $88.5 billion and $89 billion, respectively, with the increase driven by slower reprice than previously assumed. Consistent with what we've been saying throughout the year, while we don't know when it will normalize, we do not consider this level of NII to be sustainable. Our outlook for 2023 adjusted expense is now approximately $84 billion. And as a reminder, this is on an adjusted basis, which excludes legal expense. Also, remember, this outlook excludes the pending FDIC special assessment. And on Credit, we now expect the 2023 Card net charge-off rate to be approximately 2.5%, mostly driven by denominator effects due to recent balanced growth. So to wrap up, we're pleased with another quarter of strong operating results. Throughout the year, we've been pointing out the various sources of significant uncertainty in all of those, including the geopolitical situation, economic outlook, rate environment, deposit reprice and the impact of the Basel III endgame proposal are as prominent now as they have been in the recent past. But as always, we continue to prepare for a range of scenarios and are focused on being there for our clients and customers when they need us most. And with that, let's open the line for Q&A.

John McDonald:

Hi, good morning. Jeremy, I was wondering if you could give us a little more color on what you're seeing so far on deposit reprice and migration, what's been better than expected so far on that front? And how do you see higher for longer rates potentially impacting deposit reprice pressure?

John McDonald:

And just as a follow-up, it seems like you've done some securities repositioning in the last couple of quarters. How are you positioning the balance sheet in terms of cash in the securities portfolio, given your outlook for rates?

John McDonald:

Okay. Thanks.

Steven Chubak:

Hey, good morning.

Steven Chubak:

Jeremy, I was hoping to just inquire about capital market outlook. You cited improved activity levels in September. But given persistently higher rates, geopolitical tensions and just poor performance of recent IPOs, how you're thinking about the outlook over the near to medium term? And how are you thinking about just the timing of an inflection in activity?

Steven Chubak:

Thanks for the color. And just for my follow-up on some of the regulatory commentary you provided, certainly a lot of helpful color on the slide. So thank you for that. If the proposal were to go through as written, what proportion of the inflation do you believe can be mitigated over time? And I was also hoping you could provide some context as to the quantum of how you think CECL inclusion could potentially impact the SCB and CCAR.

Steven Chubak:

Very helpful color, Jeremy. Thanks for taking my questions.

Operator:

Thank you. Our next question comes from Ebrahim Poonawala with Bank of America. You may proceed.

Jeremy Barnum:

Yeah. So on the central scenario, you should read the research that gets put out by our competitors and our excellent research team. No, but in all seriousness, I think our US economists had their central case outlook to include a very mild recession with, I think, two quarters of negative 0.5% of GDP growth in the fourth quarter and first quarter of this year. And that then got revised out early this quarter to now have sort of modest growth, I think, around 1% for a few quarters into 2024. So just flowing that through our process while acknowledging that we're still skewed to the downside, we're still reserved to a significantly higher unemployment rate on a weighted average basis than is in the central case outlook. So that number we’ve sometimes given you is 5.5% this quarter. So it's really not much more complicated than that. We're just kind of following the process. And I think your other question was, where am I seeing softness in credit. And I think the answer to that is actually nowhere roughly or certainly nowhere that's not expected, meaning we continue to see the normalization story play out in consumer more or less exactly as expected. And then, of course, we are seeing a trickle of charge-offs coming through the office space. You see that in the charge-off number of the Commercial Bank. But the numbers are very small and more or less just the realization of the allowance that we've already built there.

Jeremy Barnum:

Yeah. So I'll let Jamie speak for himself on that point, but our job is to advocate. We're not going to guess what the sentiment is in Washington. It's a 1,000-page rule proposal as you know. We've got a big team of very smart people studying it very closely. Interestingly, we noted recently that in some of the analysis that they did about the impact on lending, they sort of forgot about like $1 billion of the Fed and their preamble, they forgot about $1 billion of operational risk RWA. So it just highlights that there is a possibility or seem to have forgotten. They simply omitted the impact of the operational risk RWA on fees. So anyway, the point is it's long, it's complicated, it's technical. We do think there are probably some technical mistakes and they are going to forcefully advocate on all of those. And while we disagree with a lot of this stuff, these are technical issues that should be, in some sense, resolved technically. And hopefully, they'll listen.

Jeremy Barnum:

Sorry, I'm just getting a correction in the room. I meant to say trillion.

Operator:

Thank you. Our next question comes from Ryan Kenny with Morgan Stanley. You may proceed.

Jeremy Barnum:

Yeah, a couple of things. So let me do the timing question first. So we're being very clear that we are not predicting when it's going to be a function of the marketplace and the rate environment and competitive dynamics and so on and so forth. So we're just really just trying to remind everyone not bank on the current run rate, which we just don't fundamentally think are sustainable. You'll be aware that before Investor Day last -- earlier this year, we tried to quantify what we thought that kind of normalized range might look like, and we put a sort of mid-70s type number out there. And at Investor Day, we talked about how the acquisition of First Republic was going to push that number up a little bit, although there were some overlaps and so on and so forth. So anyway, with the benefit of time and having everything settled in a little bit, if you sort of push us for that kind of what does that number now look like, we think it's probably closer to about 80 with all the obvious caveats that this is a guess and we don't know when. But we're just trying to point out that it's a bit lower than the current run rate.

Jamie Dimon:

Inside the company, some people think it will happen sooner, i.e., me. Some people think it will happen later, i.e., Jen and Marianne and Jeremy.

Ryan Kenny:

And then on the loan growth side, industry loan growth has slowed significantly this year. What demand are you seeing for loan growth across the different categories? And I know it might be too early to talk about next year, but directionally, how should we think about loan growth, given where we are in the cycle and the higher capital requirements coming?

Ryan Kenny:

Thank you.

Gerard Cassidy:

Good morning, Jeremy. How are you?

Gerard Cassidy:

Jeremy, you guys have put up a really strong ROTC number of 22% for the quarter. And when you dive into your different segments, what really jumps out at us is the 40% ex-First Republic ROE in Consumer and Community Banking. I know you and Jamie have talked about your over-earning on credit, we get that. But in view of all of these fintechs and all these other non-bank competitors that were all supposed to pick away at everybody's market share, you guys have put up great numbers here. What's the drivers behind an ROE, even when you take that credit over-earning out, what's driving this business profitability at such high levels?

Gerard Cassidy:

Very good. And then as a follow-up, which ties into your answer on the deposit margin and consumer and your earlier comments, you and Jamie, about the internal debate inside JPMorgan about the migration of rates going higher on the funding side. Your noninterest-bearing deposits, I think, are around 28% of total deposits, which is slightly above the 26% you guys had back in 2018 or 2019 or pre-pandemic. Is this expectation that you're going to see more of the noninterest-bearing deposits going to interest-bearing or is it just the repricing of interest-bearing deposits that have some of your folks inside JPMorgan a little more cautious on that net interest income number?

Gerard Cassidy:

Great. Thank you.

Erika Najarian:

Hi, good morning. Jeremy, my first question is for you. Again, sort of maybe re-asking the question a different way. Your new guide for net interest income for this year would imply an exit run-rate of $22.9 billion in the fourth quarter. As we think about the dynamics in higher for longer, on one hand, your fixed rate assets will continue to reprice. On the other, you've been asked a lot about the deposit dynamics that could continue to creep higher. How do you think about those puts and takes as we think about that relative to that exit rate of $22.9 billion in the fourth quarter?

Jamie Dimon:

It was [$2.5 billion] (ph).

Jamie Dimon:

She said $22.9 billion.

Jamie Dimon:

And I would just say quantitative tightening there. That will be a large number, and we don't exactly know the effect where wholesale, consumer -- remember also the Fed has the RRP program, which is also sucking money into the Fed directly reducing deposits. That's still [$1 trillion, too] (ph).

Jeremy Barnum:

Yeah. Okay. That's a good question, Erika. I think there's a couple of pieces in there. So let me take the most important piece first, which is the 17% through the cycle target. Are we keeping that or not in light of the Basel III endgame proposal? So short answer is we're not going to change that number today. But when you look at what we've disclosed about a 25% increase in capital, it's not -- you have to start by acknowledging that, that is a major headwind to returns. In simple terms, you talk about earnings power and returns, but they're two different things, right? We have to be a little bit pedantic and do numerator, denominator here. Okay. So say the numerator doesn't change, if you just dilute down the numerator by the increased capital, that's a significantly lower return number. I would say that, that's probably the lower bound in terms of the impact of the Basel III endgame for a couple of reasons. One is we are hoping for changes. Two is, once the rule is final, we will seek to reprice in the places where we can. And that will be different in consumer and in wholesale. Some of it will be product level, some of it will be relationship level. But that hopefully can mitigate some of it. But of course, the flip side of that is that's cost getting passed into the real economy, and that's part of the point that we've made about lowering availability of products and services and lending. There may be some opportunities for costless optimization. I'm personally a little bit more pessimistic about those, but we surprised ourselves on those points in the past. So we'll see. And then finally, yeah, we may stop doing certain things, and we may exit things. But I wouldn't necessarily assume that, that's going to do a lot to preserve returns at the 17%. That's going to be about exiting things that are shareholder disruptive but not necessarily producing much higher returns if you know what I mean. So that's that. And then the other part of your question implicitly was talking about organic capital generation, and I think it's just very important to separate impacts on the economy and impacts on long-term returns from our ability to meet the requirements. Of course, as Jamie always says, JPMorgan is going to be fine. And we're building a lot of capital, and we were managing capital conservatively. And we'll be able to build the necessary capital in order to achieve on time or early compliance, which is always what we strive to do. But that doesn't really have any particular bearing on the question of what the long-term return target is or the impact on the real economy.

Operator:

Thank you. Our next question comes from Glenn Schorr with Evercore ISI. You may proceed.

Jamie Dimon:

Yes. Go ahead, Jeremy. Do you want to start?

Jamie Dimon:

So I would add caution. There has been an extraordinary amount of fiscal monetary stimulus still in the system. And you can't look at -- and of course, it can drive markets and sentiment and sales and profits and all that, but it can't stay like this forever. Between Q2, if you've never had, and how much the fiscal stimulus is going to continue at this rate before you have kind of [indiscernible] kind of factors. So I just -- I think you have to be very cautious. And of course, the dealer policies, I think, is just an extraordinary issue we have to deal with. How do you prepare the company for that? We do 100 stress tests a week. And we do multiple views of it, including geopolitical problems or interest rate problems. But usually, geopolitics presents itself as usually as a deep recession or a mild recession, a recession part of the world or markets going down a lot. And because markets do well is not a reason ever to say they're going to continue to do well. If you don't believe me, remember 1987, 1990, 1994, the year 2000, the year 2009, and people don't predict those inflection points. I just -- but my caution is that we are facing so many uncertainties out there. You just got to be very cautious [what you’re] (ph) facing. And like I said, the other thing about the green shoots regardless of that, we try to run the company so that we serve the clients day in and day out with better products and better services, securely, safely and all those things. And that's the ultimate goal. We know there are going to be bad times. That's not a surprise as there are going to be bad times. We don't always know how they're coming and where they're coming from, but we keep on serving clients, doing good for clients, you can build a good business kind of separate from what it does to your returns. That's a slightly different issue at this point. But we'll deal with that, too, when we figure out what to do.

Jeremy Barnum:

Thanks, Glenn.

Mike Mayo:

Hi. I understand the NII strategy benefited from First Republic asset sensitivity, TD strategy, money in motion. And I'm curious to how much is the NII increase and the deposit benefits a function of the 67 million digital banking customers. Do you have more digital banking customers and branch customers now? If you can just refresh that? And then a more general question, I guess, the first one for Jeremy, and the second one for Jamie. You have record tech spend. What's the benefit of having record tech spend? If you can kind of mark to market your thoughts there as it relates to AI as it relates to maybe wasted spending, your outlook for next year? And does it really help to be the biggest tech spender of the banking industry?

Jamie Dimon:

The percent who are digital-only is much lower than that.

Jamie Dimon:

And just the competition, we look at it as, it’s Wells. It was coming back, which I'm happy for you guys. It's obviously [Marcus, it's Apple. It's Chime, it's Dave] (ph). There’s a lot of people coming up with these businesses in different ways. Some have been quite successful, like Stripe in payments. And so we want to be very good and very competitive. Some of that tech spending is things which are almost a sine qua non, which is cybersecurity, data center resiliency, regulatory requirements and things like that, which we simply are going to do and be very, very good at to protect the company.

Jamie Dimon:

Well, I don't agree with that statement. Banks have an extraordinary amount of proprietary data in addition to when you do like a large language model, that's public data. It's looking at everything in the Internet or everything that's ever been published or something like that. But AI is an extraordinarily good tool to use. We just put a woman who is running at our table. So it's data analytics, AI, et cetera. And there are multiple types of AI. So we use AI for risk, fraud, marketing, prospecting. And the management team is getting better and better and say, how can we use data to do a better job to reduce errors, to serve clients better, to have a salesperson have co-pilots. They know why even the clients calling us something like that. And so we simply have to do it. Does it create opportunity for disruptors to come in? Yeah, of course. That’s always been true with technology and -- but we'll be quite good at it.

Jeremy Barnum:

Yeah. No, because you did ask a little bit about the expense outlook for next year. So I think at the conference, we said I think the consensus was $88 billion, but we're still going through budget process, et cetera, et cetera. So that's still true. I think we're still kind of in the ballpark, but I would say at the margin, there's going to be a little bit of upward...

Jeremy Barnum:

This is all now including First Republic. And I think there'll be a little bit of upward pressure on that as we sort of do our usual thing and look at all the opportunities that we see and the investments that we want to make. So no surprise in that sense that we're going to invest prudently. Nothing dramatic, but probably a little bit of upward pressure on the margin.

Operator:

Thank you. Our next question comes from Jim Mitchell with Seaport Global. You may proceed.

Jamie Dimon:

Can I just answer real quickly? We don't really know. It's a one-sided conversation generally. They say put in your comments. So everyone's going to put in extensive comments kind of like you heard from Jeremy, and we don't really know. We don't really know what's going on inside the Fed, how many people get involved. In my view, it's become a very politicized process as opposed to the technical analysis, I think that’s required to do it exactly right. So we'll see.

Jamie Dimon:

I think -- so if you look at Markets alone, it's a huge, I think, 60% increase in capital. And if you look at it, you can do that by product, for some products it worth it than for others. But generally, it's bad across all products. And market make -- but the really important thing is market making is a critical function. And if you look at the world, only so many large market makers who can make markets for governments, hospitals, cities, schools, states, IMF, World Bank, BlackRock, Blackstone and all those various things to buy and sell for their clients in size, and market makers have a different function than hedge funds. And I don't know what the real intent was with this, this is another one, I think, needs to be really thought through. What are you trying to accomplish? We do market making quite safe. We've never lost the kind of money that people talk about in market making in the global market [shock] (ph) or something like that. But the other thing about market making, I do agree it could actually force some people out. It will force lower positions, which is why I think it's a little risky, but it may also force more consolidation. And so clients, since they need it so much, there may be consolidation in unintended way in market making and obviously more volatile markets because with all the constraints for the LCR, SLR, capital, et cetera, you will constantly be up against limitations on what you can do.

Jamie Dimon:

Great opportunity for European market makers. I mean, a great opportunity. Like they can do repo and FX and swaps and credit and stuff with 30% less capital. That is a big difference in that kind of business.

Operator:

Thank you. Our last question comes from Matt O'Connor with Deutsche Bank. Your line is open.

Jeremy Barnum:

Yeah. I mean, I wish I had sort of an answer that fit better into your framework, but in some fundamental sense, we just don't agree with the framework, in the sense that -- and we've been through this over the last couple of years, right? In a world where rates drop very suddenly and recover like quite dramatically and credit becomes abnormally good and then rebounds, and you see these very significant fluctuations in capital markets. We saw that 2021 going into 2022 where the revenue environment can change a lot in the short term for reasons that can be largely out of your control. And while, of course, there are parts of our expense base, which are in the short term, directly sensitive to the revenue environment, and some of those adjust naturally and some of them we adjust more forcefully as a function of volumes. But other things are much more structural. And the goal is to make sure that those other things are sized appropriately to what we believe sustainable through cycle returns are. So we're always very focused on cost. You can be rest assured of that. That discipline internally is as aggressive as ever as we go through the budget cycle, but they're long-term plays. And you really shouldn't expect us to see trying to generate cosmetically lower cost in response to a lower revenue environment, where we didn't balloon the cost when the revenue became, as we've argued, unsustainably high.

Jeremy Barnum:

Yeah. So you're right about the contribution and about the runoff of loans and it is notable, the net income, the First Republic-related net income that we printed this quarter. So the first thing to say is that we don't think that, that First Republic-related net income number from this quarter is a sustainable indicator of the future run rate. Some of the same dynamics that we just talked about, in particular, overearning on deposits or sort of above-normal deposit margins also apply to First Republic franchise to some degree. So we would expect that to normalize. And probably more significantly, as I think you alluded to, we do have some accelerated pull-to-par on some of the commitments that we took on at a fair value discount as part of the acquisition. And so that's a short-term tailwind in the revenue that will come out of that over the next few quarters. And yeah, in terms of how it's going overall and deepening the relationships, that remains a focus. And I think more of that will happen as we continue the integration and we continue stabilizing. And yeah, I think, as I said, I think, on the press call, things are going well, arguably a little bit better than we had sort of modeled as part of the acquisition, and we're happy to see that.

Operator:

Thank you. There are no further questions.

Operator:

Thank you for participating in today's conference. You may disconnect at this time.

Operator:

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Second Quarter 2023 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go to the live presentation. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon, and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Operator:

The first question is coming from the line of Jim Mitchell from Seaport Global Securities. You may proceed.

Jeremy Barnum:

Yes, sure. Thanks, Jim. So -- yes, so when we talk about the drivers of the upward revision, as I said, it's higher rates coupled with lower deposit reprice, hard to untangle the two. And specifically, I think when you look at Consumer, the combination of the passage of time and the positive feedback we're getting from the field and the CD offerings in particular has meant that it's quite a stable environment from that perspective. And similarly in wholesale, we're just seeing slower internal migrations. You asked about mix. I think that obviously, we're seeing the CD mix increase and we would continue to expect -- we would continue to -- we would expect that to continue to take place, probably even past the peak of the rate cycle into next year as we continue to capture money in motion. But as you say, the most important point is the fact that, as I said earlier, we don't consider this level of NII generation to be sustainable and we talked previously about the medium-term run-rate in the mid-70s that was before First Republic and you know you could argue that maybe that number should be a little higher, but whatever it is, it's a lot lower than the current number. We don't know when that's going to happen. We're not going to predict the exact moment. That's going to be a function of competitive dynamics in the marketplace, but we want to be clear that we do expect it at some point.

Jeremy Barnum:

I wouldn't necessarily assume that the evolution from the current run-rate into that mid-70s number is that sensitive to the rate outlook in particular. When we put that number out there, we looked at a range of different types of rate environments and the reprice that we think would be associated with that. It was really meant to capture more of what we consider to be a through-the-cycle sustainable number. So, I wouldn't think of it as being particularly rate dependent.

Operator:

Next, we'll go to the line of Erika Najarian from UBS. You may proceed.

Jeremy Barnum:

Yes. Thanks, Erika. I mean it's a good question. There is a lot in there obviously. I guess I would start by saying that when we talk about 17% through-the-cycle ROTCE, even though we may have introduced that in a moment where we brought the lowest eurobond, it was always premised on a sort of normalized rate environment. And at some level, that remains true today. Furthermore -- you didn't ask this explicitly, but in the context of the proposed Basel III end-game, one relevant question might be, if you have a lot more capital in the denominator, what happens to that target. So, I think -- as I said in my prepared remarks, we feel very confident about the Company's ability to produce excellent returns through the cycle. There's a lot of moving parts right now in that. Some of them could be good, some of them could be bad. Narrowly on the capital one, the one thing to point out is that the straight-up math, simply diluting down the ROTCE by expand the denominator misses the possibility of reprice, you know repricing on products and services, which of course goes back to our point that these capital increases do have impacts on the real economy. So, I'm not suggesting that we can price our way out of it, but we obviously need to get the right returns on products and services, and where we have pricing power, we will adjust to the higher capital. So lot of moving parts in there, but I think the important point is that through a range of scenarios, we feel good about our ability to deliver the results and we'll see how the mix of all the various factors plays out, especially after we see the Basel III proposal and it goes through the common period.

Erika Najarian:

And, so my follow-up question there, maybe Jeremy, could you remind us what unemployment rate has embedded in your ACL ratio as of the second quarter?

Erika Najarian:

Thank you.

John McDonald:

Hi. Good morning. Jeremy, wanted to ask about capital in the wake of the par speech, we don't have the details yet, but just kind of want to ask about options that you have and strategies for mitigation, both on RWA and potentially on the G-SIB front as well as you contemplate what you heard recently?

John McDonald:

Okay, that's helpful. And with a number of years for this to phase-in and you generating capital at a high level, even if the ROTCE comes down a bit. How should we think about your pace of building capital for these new changes versus doing your everyday course of investing and buybacks and things like that over the next couple of years?

John McDonald:

Okay, and there is some room for buybacks?

John McDonald:

Okay, thank you.

John McDonald:

Yes. No, just do buybacks play a role in the next couple of years, strategically, just episodically you buyback?

John McDonald:

Got it. Okay, thank you.

Ken Usdin:

Well, thanks, good morning. I just wanted to ask a little bit about, how you're feeling about the trade-off between like the commercial economy and what might come through in terms of future loan growth versus kind of green shoots that people are talking about in the investment banking pipeline, and just how it feels in terms of like reopening of markets and the trade-off between getting similar to those fees in versus what's happening on the loan demand side. Thanks.

Ken Usdin:

That makes sense. And as a follow-up to that. On the consumer side, you mentioned that consumers continue to spend, albeit a little more slowly and you mentioned that consumers are also using their excess deposits, a little bit more as well. Could you just elaborate a little bit more on just your feeling about the state-of-the consumer and is that is that car growth continued to be driven by people needing to revolve as opposed to wanting to have more in their deposits just kind of what the trade-off on that side to.

Ken Usdin:

Got it. Okay, thank you.

Gerard Cassidy:

Good morning, Jeremy and good morning, Jamie. Jeremy, can you give us your view on how you're measuring the treasury functions and the asset-liability of your balance sheet as we go forward versus the way you guys were positioning and managing it a year-ago in view of the fact that it looks like maybe we're approaching the terminal rate on Fed funds rates?

Gerard Cassidy:

Very good. And then as a follow-up, you mentioned in giving us the read-through on the Commercial Banking segment of the business that you'd had some reserve building tied to some office real-estate and also some downgrades in the middle-market area. Can you go a little deeper? What are you guys seeing in this area of both commercial real estate but at also the C&I loans, what's happening in that segment as well?

Gerard Cassidy:

Thank you.

Ebrahim Poonawala:

Good morning. I guess just first question, following-up on the outlook for the economy, like we've all been worried about a recession for year and there is a debate about the lag effects of the Fed rate hike cycle when you think about -- Jeremy, I think you mentioned you have an unemployment outlook relatively similar today versus a quarter ago. How worried should we be in terms of the credit cycle six months to 12 months from now or are you leaning towards concluding that maybe U.S. businesses, consumers have absorbed the late-cycle a lot better than we expected a year ago.

Jamie Dimon:

Yes. I would just add, the 5.8% is not our prediction, that is the average of the unemployment under multiple scenarios that we have to use which hypothetical for CECL. Asset predictions on something different and we don't know the outcome. We trying to be really clear here, the consumer in good shape, their spending down their excess cash. That's all. Tailwinds. If we go into recession, we're going with rather good condition, low borrowings and good, our price-value still but the headwinds are substantial and somewhat unprecedented. There is more Ukraine Oil Gas, market, timing, unprecedented fiscal, needs of governments, few team which we've never experienced before, I just think people should take a deep breath of that and we don't know those things because the soft landing in mild recession for our recession. And obviously, sure we will be the best.

Jeremy Barnum:

Yes, so on your first point. I mean, I think you can just read Vice-Chair of our speech right. He addressed that point early directly. He clearly doesn't agree as this is right. So we'll see what happens. We continue to feel that all else equal, higher capital requirements, definitely are going to increase the cost of credit, which is bad for the economy. So we'll see what happens on that. On an FRTB, it's really very nuanced, it's probably like to much detail for this call to be honest, but just to give you like one immaterial and insignificant but useful example, one-product under FRTB has yield curve spread options and if the FRTB proposal goes through, as currently written, that product becomes not viable. So obviously, if we need to stop doing that product, no one really cares, but it's just one example of the way, sometimes when you're really disciplined about allocating capital thoroughly, all the way down to new products and responding accordingly. You can wind-up having to change our business mix there. Obviously, more significant products that matter much more of a real economy like mortgage where, the layering on of the operational risk in the way it's being proposed, especially if some of the other beneficial elements of the proposal don't come through, you're once again, making the product even harder to offer the homeowners, so we'll see, we'll see what happens.

Ebrahim Poonawala:

Got it. Thank you.

Mike Mayo:

Hi. I had another question on Vice-Chair Bar's speech from this week. I do except the capital ratios do go up 20% for you. And perhaps others to what degree would you think about changing your business model in terms of remixing, will you do business repricing or simply removing activities that used to do it. Kind of ironic, or maybe it's not ironic though, Apollo hit an all-time stock price high at the same week as to speech. So does that -- how much business they have JPMorgan or the industry capital ratios to go up as much as potentially proposed.

Jeremy Barnum:

Exactly. I was going to say Mike, yes to everything. So, rename, re-pricing, yes, definitely. To the extent that we have pricing power and higher capital requirements, mean that we're not generating the right returns for shareholders, we will try to reprice and we'll see how that sticks and how that flows into economy and how that affects demand for products. And if the repricing is not las, successful then in some cases, we will have to remix that means getting out of certain products and services. And as Jim points out, that probably means that those products and services we have the regulated perimeter and go into elsewhere and that's fine, as Jamey pointed out, those people are clients and I think that point was addressed also in Vice-Chair Bar speech. So, but in our traditionally, having risky activities we have a regulated perimeter has had some negative consequences. So these are all important things to consider.

Jamie Dimon:

Mike, let me get this right, you're actually complaining that our expenses aren't high enough, is that right?

Jeremy Barnum:

I appreciate the balance. Now in all seriousness, we've always been pretty clear right that our spending is through-the-cycles funding, based on through this cycle investment, through-the-cycle spending based on our through-the-cycle view of the earnings generating power of the company and the goal to produce the right returns. So broadly speaking, NII tends to flow straight-through to the bottom-line, both fund is growing up, and by the way, when it's going down too and we've been through those moments, as you will remember. So, whether or not there are opportunities to deploy some more dollars into marketing and stuff like that, we have actually looked at that recently. I don't see that being a meaningful item this year, which is part of why we have not revised the expense guidance so far. But this is about investing through-the-cycle and being honest and disciplined about which revenue items flow, carried expense loading and which item don't.

Jamie Dimon:

I think we're kind of running as fast as we can. So you actually set down the risk credit compliance, audit market bankers recruiter trainers -- this is it. We're a full effort right now. And we want to make sure we get things right and get things thoughtful and careful. So it's not just the money, it's the people and how many things can change all the once and add to all at once.

Jeremy Barnum:

Yes. I mean, you or yourself right? You definitely can't extrapolate the current numbers, but. I think more broadly on benefiting our benchmarking ourselves too low-cost providers that sort of speaks to an area that you've been interested in for a long-time, which is all of the investment that we're doing in technology to improve generally scalability and get more of our cost base to be variable versus fixed. In terms of how we respond to volumes that's a big part of the reason that we're doing the investments that we're doing and modernization and cloud and AI and all that type of stuff that we're talking about, so. I think we feel really good about our efficiency as a company, but there definitely is room for improvement.

Operator:

Next we'll go to the line of Steven Chubak from Wolfe Research. You may proceed.

Jeremy Barnum:

You know more of it and some people feared has kind of RFPs. So, as you say. I think that's a relatively good sign and highlights. So the system works better when you've got ample supply of short video collateral the front-end of the yield curve. So that whole RFP TGI reserve dynamics is going to continue to be significant, but it is good to see RFPs coming down.

Jeremy Barnum:

Yes, so actually that card income number Steve has a little bit of a one-off thing. So we had a rewards liability adjustment this quarter kind of a technical thing. So that's just a temporary headwind and also the sequential comparison is also getting hurt by a small positive one-off item in the prior periods. So and obviously, I know you guys look better the card income is sort of thing that we look at that much ourselves.

Jeremy Barnum:

Why don't you get Michael to get that to you. It's not that significant, but it's enough to just make the sequential number look a little bit lumpy. .

Operator:

Next, we'll go to the line of Glenn Schorr from Evercore ISI. You may proceed.

Jeremy Barnum:

Sure. So look, on pricing power, you're right. It really depends on the product, and it depends on the competitive landscape across different banks. And so it's very granular. It's very product specific. And in some cases -- we'll have more pricing power than in other cases. I think the overall point that we're trying to make in connection with Basel end game is just that like we think the capital increases are excessive. Does it put pressure on returns, all else equal that obviously puts pressure on us to increase price where we can. That is generally a bad thing for the real economy. -- and how all of that plays out in detail across different products and services remains to be seen. Importantly, since we don't actually have the proposal yet. So we need those details. I'm sorry, Glenn, I forgot the second half of your question. What was it?

Jeremy Barnum:

I mean, I guess it depends on what you mean by downside, but I just think societally speaking, I think we've seen in recent history that when home lending is happening outside the regulated perimeter and things get bad, when you have economic downturns, it purchases bad outcomes for individuals and homeowners on as a whole. So I mean, Jamie has written about this extensively. Beyond that, financially, we've talked about how mortgage lending -- I mean, the profitability swings obviously is reasonably cyclical. And in the recent past, it's actually very profitable, then it was less so like the correspondent channel right now is actually picking up a little bit. But it's a thin margin business. It's challenging. And when you increase the Cap requirements, it makes it even harder. So that just becomes one of the areas where you're in that tension between remixing versus pricing power that we talked about a second ago. And it might impact me in that we do less credit available for homeowners and more regulatory risk as the activity moves outside the perimeter.

Operator:

Next, we'll go to the line of Betsy Graseck from Morgan Stanley. You may proceed.

Jeremy Barnum:

Yes, sure. Betsy. I mean, as you know, -- that's always been a challenging number. It's manages a risk management measure of store, so that's also somewhat limited in that respect. And it has been an uneven usefulness in terms of potential to be able to predict our NII trajectory when rates change. But as we looked at that and tried to improve it and spoken to all of you through this latest rate hiking cycle, we've come to the conclusion that it would improve the usefulness of the disclosure, if we included in the modeling the effect of deposit repricing lags -- and so we've done that, and that just has the effect that I talked about, it increases the EAR number by about $4 billion from minus $1.5 billion, which is roughly what it was last quarter and what it would have been this quarter without the change to something more like $2.5 billion. But all the usual caveat supply, right? I mean it's never - the answer is going to hold for any given change in rates, the change in our NII is always going to be for one reason or another different from what that disclosure shows. But we do our best to...

Jeremy Barnum:

Yes, it's a good question. It's quite a technical issue. So I think in the past, the way this number was constructed was to assume through the cycle betas and all the deposits. And so your notion that like the number would include deposit beta acceleration would not have been the case because it would have been using essentially terminal deposit betas for the based on the forward curve and then based on a 100% shock to the forward curve. The nuance that we've introduced now is to recognize that given the shock, the reprice at the beta predicts will not be instantaneous. And so you get sort of just the mathematical consequences of that. But I think translating that into a statement about our expectation for beta for the next 12 months relative to our NII guide might be a bridge too far. I'm not sure you can actually draw that thing.

Jeremy Barnum:

Yes. Go ahead, James. Yes.

Jeremy Barnum:

And what I was going to say, as is just that the projection of the 87 coming down to a significantly lower number contains both the element of internal migration, as well as the potential, which is by no means guaranteed, at product level reprice. And furthermore, then obviously, the dynamics are a little bit different in the different business segments as we move from large corporate wholesale to consumer.

Operator:

Next, we'll go to the line of Matt O'Connor from Deutsche Bank. You may proceed.

Jeremy Barnum:

Yes. In the end Matt, it's just feedback from the field. It's competition and feedback from the field.

Jeremy Barnum:

Matters just that it's really just our primary bank relationships. And that's the core of the strategy.

Jamie Dimon:

That's a little more complicated because that - a lot of that loan to value ratio is lower because of regulatory stuff, LCR, capital ratio, et cetera.

Jeremy Barnum:

Thanks.

Charles Peabody:

Good morning. Jeremy, on Page 4 of your presentation, you showed some liquidity metrics. And there's been a meaningful deterioration or I shouldn't say deteriorating depletion of some of that excess liquidity obviously for First Republic primarily. So my question is how quickly do you want to rebuild that liquidity because as I look out towards '24, there's probably a half dozen variables that are going to make liquidity a premium event to have excess liquidity, so that's my first question is what's your plans for replenishing that liquidity?

Jamie Dimon:

And I would just add that just look at the at the top of the page in the press release, $1.4 trillion of cash and marketable securities even we get down to no excess, we're going to have like I've got the exact number, $1.2 trillion. I think we have excess liquidity. And the liquidity ratio is slightly some difference. I think the studies according to system and of course, we do multiple things to change this overnight in one or two.

Jeremy Barnum:

Yes, Charlie, I would think about that as being really entirely a deposit story. It's not that complicated, right? I think we did this. I think it was either in the fourth quarter or in the first quarter, but we put a little chart on the page just in very simple terms, it shows like what the dollar consequences are whatever, like a 10 basis point change in deposit rate paid in terms of NII run rate. So whether it's as a consequence of migration from lower-yielding to higher-yielding going from 0% to 4% CD is obviously a big impact on margin or whether it's because savings reprices relatively small changes in rates there are kind of a lot of money when you've got a couple of trillion dollars of deposits. So it's really not any more complicated than that. And that's why we're being so forceful about reminding people about what we expect that trajectory to be

Operator:

And we have no further questions at this time.

Operator:

Thank you all for participating in today's conference. You may disconnect at this time. And have a great rest of your day.

Operator:

Good morning, ladies and gentlemen. Welcome to the [JPMorgan Chase’s] First Quarter 2023 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Operator:

[Operator Instructions] From the line of Steve Chubak with Wolfe Research.

Jamie Dimon:

Well, I think you already kind of complete with answering your own question there. Look, we’re hoping that everyone just takes a deep breath and looks at what happened, and the breadth and depth of regulations already in place. Obviously, when something happens like this, you should adjust, think about it. So I think down the road, there may be some limitations on held to maturity, maybe more TLAC for certain type size banks and more scrutiny and history exposure, stuff like that. But it doesn’t have to be a revamp of the whole system. It’s just recalibrating things the right way. I think it should be done knowing what you want the outcome to be. The outcome you should want is very strong community and regional banks. And certain actions are taking, which are drastic, it could actually make them weaker. So, that’s all it is. We do expect higher capital from Basel IV effectively. And obviously, there’s going to be an FDIC assessment. That will be what it is.

Jamie Dimon:

Well, we’ve told you -- I think we’ve told you that we’re kind of penciled in $12 billion for this year. Obviously, capital is more than that, but -- and we did a little bit of buyback this quarter. We’re going to wait and see. We don’t mind keeping our powder dry. And you’ve seen us do that with investment portfolios, and we’re also willing to do with capital.

Ken Usdin:

Hey, Jeremy, I was just wondering if you can just give us a little bit more detail on those lower funding expectation points that you made. Just in terms of -- is it because of like what you can offer the client that might allow you to kind of keep that beta lower? And maybe you can just kind of wrap it into what your overall beta expectations are in that revised update. Thank you.

Ken Usdin:

Yes. And as a follow-up on the point about rate expectations coming now in and potentially getting cut sooner, how do you take a look at what that might mean just for the broader economy? Is that -- do you think it’s more just because inflation is coming down? Do you think it’s because the Fed has just got to react to an even tougher economy and still some of those storm clouds that might be out there? Just kind of -- just your general thinking about the other read-throughs of what lower rates quicker will mean for the broader economy.

Operator:

The next question comes from the line of John McDonald with Autonomous Research.

Jeremy Barnum:

Yes. John, it’s a really good question, and we’ve obviously thought about that. But as we sit here today, I guess I have two answers to that. One is, it doesn’t -- it’s not meaningfully affecting our current outlook. We don’t see it as a major driver. And I think in terms of the larger dynamics that you lay out, it’s just a little too early to tell. But from where we are right now, the base case is no real impact.

Jamie Dimon:

I wouldn’t use the word credit crunch, if I were you. Obviously, there’s going to be a little bit of tightening. And most of that will be around certain real estate things. You’ve heard it from real estate investors already. So I just look at that as a kind of a thumb on the scale. It just makes the finance conditions will be a little bit tighter, increases the odds of a recession. That’s what that is. It’s not like a credit crunch.

Erika Najarian:

My first question is you mentioned that your reserve build was driven mostly by worse economic assumptions. I’m wondering if you could update us on what unemployment rate you’re assuming in your reserves.

Erika Najarian:

So, as we think about all of what you’ve just told us, so $81 billion of NII this year, and who knows when medium term is going to happen is mid-70s, the clear strength of the franchise producing 23% ROTCE in a quarter where your CET1 was 13.8% and a reserve that already reflects 5.8% unemployment. As we think about recession and what JPMorgan can earn in a recession, do you think you can hit 17% ROTCE even in 2024, assuming we do have a recession in ‘24 as everybody is expecting, given all these revenue dynamics and how prepared you are on the reserve?

Jamie Dimon:

It’s a great question. Jeremy answers it.

Operator:

The next question comes from the line of Jim Mitchell with Seaport Global Securities.

Jeremy Barnum:

Yes. A couple of things there. So first of all, we don’t know, right? The deposits just come in. We don’t know. We’re guessing. Number two, the deposits just came in. So by definition, these are somewhat flighty deposits because they just came into us. So, it’s prudent and appropriate for us to assume that they won’t be particularly stable. Number three, there’s a natural amount of internal migration of deposits to money funds. So, you have to overweigh that, and that’s embedded in our assumptions. And number four, it’s a competitive market. And it’s entirely possible that people temporarily come to us and then over time, decide to go elsewhere. So for all of those reasons, we’re just being realistic about the stickiness of that.

Jim Mitchell:

All fair points. And maybe just a follow-up on John’s question on the lending environment. You talked about the industry likely pulling back. Are you changing your underwriting standards in any way? Just trying to think through, is there a potential for some market share gains given your strength of capital and liquidity, or how are you thinking about the loan environment?

Jeremy Barnum:

Yes. And we always say, right, we underwrite through the cycle. And I think notably, we don’t loosen our underwriting standards when all the numbers looked crazy good during the pandemic. And we’re not going to like overreact now and tighten unreasonably. Some of that correction happens naturally. Credit metrics deteriorate for borrowers, whether in consumer or wholesale and that might make them leave our pre-existing risk appetite. But we’re not running around aggressively tightening standards right now.

Gerard Cassidy:

In your comments about your CET1 ratio, obviously, came in strong at 13.8%. You’ve got the G-SIB buffers obviously going up next year. And we have the stress test coming this summer or in June, the results, which maybe will lead to banks including yours having a higher stress capital buffer. Where should we think about that CET1 ratio being by the end of the year, do you think?

Gerard Cassidy:

Sure. And then just as a follow-up, if I heard you correctly, can you give us a little more color? I think you mentioned in building the loan loss reserve this quarter, you identified some one-off credits. I don’t know if that’s how you said it. There’s some larger credits. Were they commercial real estate orientated? Were they commercial? Any more color there?

Gerard Cassidy:

Leveraged loan type items or just regular corporate credits?

Gerard Cassidy:

Okay, very good.

Operator:

The next question comes from the line of Ebrahim Poonawala with Bank of America Merrill Lynch.

Jeremy Barnum:

Yes. Ebrahim, let me sort of respond narrowly in connection with our portfolio and our exposure, right? So really, the large majority of our commercial real estate exposure is multifamily lending in supply-constrained markets. And I think it’s quite important to recognize the difference between that and sort of higher-end, higher price point, non-rent-controlled, not supply-constrained markets. So, our space is really quite different in that respect. And I think that’s a big part of the reason the performance has been so good for so long. So, of course, we watch it very carefully, and we don’t assume that past performance predicts future results here. But I think our multifamily lending portfolio is quite low risk in the scheme of things.

Jeremy Barnum:

Yes. And then, in terms of the office space, as you know, our exposure is quite small. Yes, Jamie has also mentioned all the refi dynamics that you mentioned too are something that the office space is processing one way or the other. Our office exposure is quite modest, very concentrated in Class A buildings and sort of dense urban locations where the return to the office narrative is one of the drivers is generally in favor of high occupancy. So again, launching it. There are obviously specific things here and there to pay attention to, but in the scheme of things, for us, not a big issue.

Jamie Dimon:

Yes. So, I’d like to answer that. So, there is a risk of higher rates for longer. And don’t just think of just the Fed funds rate because I think you should -- for our planning, I’d be thinking more about, it could be 6 and don’t -- and then think about the 5- and 10-year rate, which could be 5. And I think if those things happen, I’m not saying they’re going to happen. I just think people should prepare for them. They saw what just happened when rates went up beyond people’s expectations. You had the guilt problem in London. You had some of the banks here. People need to be prepared for the potential of higher rates for longer. If and when that happens, it will address problems in the economy for those who are too exposed to floating rates or those who are too exposed to refi risk. Those exposures will be in multiple parts of the economy. So now that -- I say to all of our clients, now would be the time to fix it. Do not put yourself in a position where that risk is excessive for your company, your business, your investment pools, et cetera. That’s answer number one. Number two is it will not come back to JPMorgan. Okay? While we do provide credit to what you call shadow banks, it is very -- we think it’s very, very secure. That does not mean it won’t come back to other credit providers.

Mike Mayo:

Hey, Jeremy, you mentioned a degree of reintermediation to the lending markets. You said capital markets activity has gone to bank lending. And I’m just wondering, as part of your $7 billion increased NII guide, are you assuming better loan spreads? And on the topic of the loan pricing, why aren’t your credit card yields going higher than where they are today? Thanks.

Mike Mayo:

All right. And then one for you, Jamie. I guess, taking the 10,000-foot level, I guess, when you look at asset liability management or AUM, you could call this Nightmare on Elm Street, and you’ve seen some big problems at banks. And I guess, how would you evaluate yourself, I guess, with this $7 billion higher NII guide? Probably is good. But to what degree are you willing to sacrifice JPM shareholder money to help rescue problem banks that do not get their asset liability management correctly?

Mike Mayo:

Jamie, your CEO letter said the banking crisis isn’t over. So, what do you mean by that, or was that dated 2 weeks later and talking contagion or what?

Operator:

The next question comes from the line of Betsy Graseck with Morgan Stanley.

Jeremy Barnum:

Betsy, did we just lose you? I feel like you just dropped.

Jamie Dimon:

Yes, you’re back now. You’re back.

Jamie Dimon:

Go ahead, Jeremy. And I’ll...

Jamie Dimon:

Yes. So, I would just add, so next quarter, we kind of know already, two quarters out, we know a little bit less, three quarters out, we know a little bit less, and ‘24, we know very little. That number, you can imagine, this is a little inside baseball now, the number that we’re talking about for 2024 is not based upon an implied curve. It’s based upon us looking at multiple potential scenarios, leveling them kind of out and saying this is kind of a range. And you’re absolutely correct. You could have an environment of higher for longer that might be better than that. But remember, higher for longer comes with a lot of other things attached to it, like maybe a recession, taxation, lower volume. So I wouldn’t look at that as higher flows a positive. It might be a slight positive in that line. It probably be negative in other lines.

Jamie Dimon:

Yes. No, we’re not on pause now. We’re doing a little bit now. We obviously have a lot of excess capital. We also like to buy our stock when it’s cheap, not just when it’s available. And we’re also peering ahead, looking at those a little bit of storm cloud, so we’re going to be kind of cautious. So we’re going to make this decision every day. We also don’t like to tell the market what we’re doing, just so you know.

Jeremy Barnum:

Yes. Betsy, we really don’t have any new information there, right? I mean I think, clearly, if you go back like a year, we were maybe a little bit more optimistic that it might be across all the different levers and all the different pieces of it closer to capital neutral. I think now it feels like it’s likely to be worse than that. Hopefully, it’s not too much worse than that. And I would just remind you that there are a lot of different levers. So in any -- when the NPR comes, that’s only going to be part of it. There’s going to be other pieces, the holistic review, and it’s going to take a lot of time to phase in, and we’re going to have time to adjust. So, we’ll know when we know.

Betsy Graseck:

…on the current rule set.

Betsy Graseck:

I like the NII from loans better than the gain on sale. So I’ll prefer the former, not the latter. But thanks, appreciate it.

Operator:

The next question comes from the line of Glenn Schorr with Evercore ISI.

Jeremy Barnum:

Yes, Glenn, and sure, we really haven’t seen big changes to speak of. And I do think it’s just worth saying, I think you’re sort of hinting at this a little bit when you talk about the behavior of corporates. But when we talk about responses to the recent events through the lens of uninsured deposits, that’s obviously very different if you’re talking about large balances of nonoperating uninsured deposits from financial institutions or de facto financial institutions versus normal large corporate operating balances which is of course, like core banking business for all of us.

Glenn Schorr:

Interesting. Just a follow-up. The other thing that caught my eye in the letter is you mentioned that you’re exploring new capital optimization strategies, including partnerships and securitizations. What’s different than what you’ve already been doing for the last 30 years?

Operator:

Our final question comes from the line of Matt O’Connor with Deutsche Bank.

Jeremy Barnum:

Yes. So the story there is kind of the same story we’ve been talking about for a while. It’s just a matter of degree. So we had revolving balances obviously drop a lot during the pandemic period, and then we talked about having them recover in absolute dollar terms to the same level as we had pre-pandemic. So I think happened last quarter. And then the remaining narrative is just the further normalization of the revolve per account because we also have seen some account growth, and that continues to happen. And so -- and yes, we also, to Mike’s question earlier, we’re seeing higher yield there as well, so. And on your question of whether it’s good or bad, obviously, there is a point at which the consumers have too much leverage. We don’t see that yet, so.

Matt O’Connor:

Okay. And then just separately to squeeze in. You guys took some security losses again this quarter. And in the past, you’ve talked about really just going security by security, looking for kind of pricing opportunities. Is that kind of what drove it again this quarter, or is there some kind of broader overarching...

Operator:

We have no further questions.

Operator:

That concludes today’s conference. Thank you all for your participation. You may disconnect at this time.

Operator:

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s Fourth Quarter 2022 Earnings Call. This call is being recorded. [Operator Instructions] We will now go live to the presentation. Please standby. At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Operator:

[Operator Instructions] [Technical Difficulty] is coming from the line of John McDonald from Autonomous Research. You may proceed.

Jeremy Barnum:

Sure, John. I mean I wouldn’t take the chart on the bottom left too literally. That’s just supposed to give a stylized indication of the fact that relatively small changes in deposit rate paid for the company on average, as we all know, can produce quite significant impacts on the NII and also that there is – as we have already talked about, a meaningful [Technical Difficulty]. The outlook is our best guess, as Jamie says. And the drivers within that are the usual drivers in wholesale. We would expect to see a little bit of continued attrition, especially of the non-operating type balances. And you are going to see some internal migration there out of non-interest-bearing into interest-bearing over time. In consumer, CDs are flowing right now and we are seeing good new CD production. We have got a 4% CD in the market as of this morning. And so continued CD production and internal migration there will be a driver. And the rest of it is – well, of course, as I said in the prepared remarks, we do expect across the company modest deposit attrition as we look forward as a function of QT in the rate cycle and so on. So we have got the best guesses for all of those in the outlook. And of course, the actual outcome will be different in one way or another and we will just run the business this year.

Jeremy Barnum:

Yes, sure. So sort of in the mode of like helping you guys out to put a number in the model. If you sort of look at the way we are seeing things, obviously, we have got another GSIB stuff coming next year. So say, 13.5% target and the sort of using your estimates, organic capital generation, minus dividends, etcetera and all of the elements of uncertainty there, I think a good number to use is something like $12 billion of buybacks for this year for 2023. But you know, of course, that buybacks are always at the end of our capital hierarchy. So if we have better uses for the money, those will come first and the timing and the conditions of how much we do when is entirely at our discretion and also noting that we are potentially going to see a Basel III NPR sometime in the first quarter or maybe the second quarter. And while that will be an NPR and it will only cover part of the surface area and it won’t be final, so it’s unlikely that it meaningfully shapes short-term decision-making. There will be some information content of that release that could shape our decisions as well.

Operator:

The next question is coming from the line of Erika Najarian from UBS. You may proceed.

Jeremy Barnum:

Thanks, Erika. So look, I totally appreciate the desire for more specific guardrails. I would want that too, if I were you. I do think that we’re trying to be quite helpful by giving you a full year number which, if we’re honest, involves a lot of guessing about how things will evolve throughout the year. I think once you start giving guardrails, you implicitly assume that outcomes outside of the guardrails are very unlikely. And that’s just a level of precision that we’re just not prepared to get into, especially because in the end, as I said, a lot of the repricing decisions that we will be faced with as a company or respond to data in the moment at a granular level in connection with the strategy, which is about growing and maintaining primary bank relationships rather than chasing every dollar of balances at any cost. So in that context, we do expect modest balance attrition across the company for deposits, as I said. Jamie, on [indiscernible]

Erika Najarian:

And my follow-up is exactly in that line of questioning. Let’s zoom out for a second here. To your point, Jamie, the returns are still good. You mentioned that your outlook already captures a mild recession. And I’m going to reask the question I asked in the third quarter. As you think about 2023, do you think JPMorgan can hit that 17% ROTCE that you laid out in Investor Day, even with the headwind in NII and the headwind on the provision?

Jeremy Barnum:

And Erika, let me just add a very minor clarifying point as I want to be crystal clear about this. So as you know and as we discussed a lot, like through the pandemic in terms of the way we construct and build the allowance, while it’s anchored around our economist central case forecast, which is correctly, say, is a mild recession, through the way we weight the different scenarios and a range of other factors, the de facto scenario that’s embedded in the forecast is actually more conservative than that from an [allowance] (ph) perspective. So we just want to be clear about.

Operator:

The next question is coming from the line of Ebrahim Poonawala from Bank of America Merrill Lynch. You may proceed.

Jeremy Barnum:

Sure. Let me just do CRE quickly, Ebrahim. As you know, our sort of multifamily commercial term lending business is really quite different from the classic office type business. Our office portfolio is very small Class A best developers, best locations. So the vast majority of the loan balances in commercial real estate are that sort of affordable multifamily housing, commercial term lending stuff, which is really quite secure from a credit perspective for a variety of reasons. So we feel quite comfortable with the loss profile of that business. And so yes, so then you were asking about the assumptions in credit overall. So yes, as I said, like the central case economic forecast has a mild recession and if I remember correctly, unemployment peaking at something like 4.9%. The adjustments that we make to the scenarios to reflect a slightly more conservative outlook have us imply a peak unemployment that’s notably higher than that. So I think we have appropriately conservative assumptions about the outlook embedded in our current balances. And the trajectory that we’ve talked about in the presentation, they are definitely – can capture something more than a very mild soft lending. But of course, it wouldn’t be appropriate to reflect a full-blown hard landing in our current numbers since the probability of that is clearly well below 100%.

Jeremy Barnum:

Yes. So there are definitely still opportunities to optimize. We’re continuing to work very hard, and it’s a big area of focus. Some of that is reflected in this quarter’s numbers, but some of the other drivers of this quarter are what you might call more passive items, particularly in market with RWA. And yes, but we should be clear that although we’ve said that the effects of capital optimization are not a material economic headwind for the company, they are also not zero. There are real consequences due to the choices that we’re making as a result of this capital environment. And in a Basel III outcome, that is unreasonably punitive from a capital perspective. There will be additional consequences to that. We obviously are hoping that’s not the case and believe that it’s not appropriate, but we will see what happens.

Operator:

The next question is coming from the line of Glenn Schorr from Evercore ISI. You may proceed.

Jeremy Barnum:

Yes. A couple of things there, Glenn. So short answer is we’re absolutely open for business there. Terms are better, pricing is better. We have the resources needed. We’re fully there. No overhang and no issue. Also, I think there is a bit of a narrative that like activity in the market needs to overcome overhang, we’re not convinced that, that’s true. We think that the overhang is in the numbers and people need to look forward and the system has the capacity to handle the risks. So I recognize your point. I think it’s an interesting point, but we are wide open for business and not particularly concerned about the overhang from the perspective of bank’s ability to finance activity.

Jamie Dimon:

I think it’s the same. You have the Apples, who are basically doing a lot of banking services and Walmart starting theirs. And obviously, higher rates will hurt some of the folks in the fin-tech world and maybe even help some folks. So we expect tough competition going forward.

Operator:

The next question is coming from the line of Gerard Cassidy from RBC Capital Markets. You may proceed.

Jeremy Barnum:

Hi, Gerard.

Jeremy Barnum:

It was a gain last year. It wasn’t a write-down this year.

Jeremy Barnum:

Let me make that clear. sorry about that.

Jeremy Barnum:

Sorry, do you want me to take that? Yes, this is a couple of things. So Jamie is right. The headwind year-on-year is primarily a function of the fact that this is an investment that just because of the management alternative accounting standard we were forced to mark up previously. This is an investment that we got payment in kind as part of the sale of some of our internally developed initiatives. So anyway, it’s fine. The point is there is a small write-down this quarter. And the important point there is that the core business performing exceptionally well, both because of higher rates, but also because of the strategy that talked a lot at Investor Day paying off across fees and value-added services and so on and so forth. And I guess throughout your question is like private equity in general and how are we feeling about that space? Did I hear that correctly?

Jeremy Barnum:

Yes. I mean I think that’s a risk that we manage quite tightly as a company. Our exposure to the sort of non-bank financial sector are probably defined. And of course, as we thought a little bit about what normalized wholesale charge-offs could look like through the cycle. they are obviously higher than effectively zero, which is what we have now. But we feel confident with our credit discipline and what we have on the books.

Jeremy Barnum:

Yes. I mean, I’ll give you that answer, but I’m oversimplifying a lot. I would say that.

Jeremy Barnum:

Yes, yes, I know. I got it. The sort of conservatism of the management overlay did not change for all intents and purposes quarter-on-quarter. I think that’s the best way to think about that, Gerard.

Jamie Dimon:

The National Shared Credit thing will not affect our results materially.

Operator:

The next question is coming from the line of Ken Usdin from Jefferies. You may proceed.

Jamie Dimon:

Yes. So if I just take that one. Just assume we’re going to have modest growth in RWA. And in every single businesses, mortgages, loans, derivatives, how we hedge CVA and stuff like that, we take access to manage RWA. Do not – it does not really affect the business that much. It might 1 day, but it doesn’t affect it today. And so we don’t build in somehow we lose a little bit of this, a little bit of that. And there – and the biggest opportunity down the road will be a reopening in the securitization markets. and they are still very tight. And I think 1 day, they will reopen.

Jamie Dimon:

Can I just make it real simple? The base case, okay, is where it hits almost that 5% unemployment. Then you probability weight other scenarios. That’s why Jeremy is saying the reserve is higher than the base case. We didn’t change the probabilities in our weighting. But of course, it got worse and the base case got worse. That’s all it is, which still is a good benchmark, you’ll keep in mind, is if we got to a relative adverse case, all that a 6% unemployment, we – and then once you get there, you assume the average weighting, you have wins. It could get better or it could get worse. At that case, we would need about $6 billion more. When the base case itself deteriorates, we’re moving closer to relative adverse, that’s all it is. These are all probabilities and possibilities and hypothetical numbers. And if I review, like just look at charge-offs like actual results. And so – and we break this out, but it’s hard to describe, and every bank does it slightly differently, and every bank has a slightly different base case and slightly different weighting of adverse cases, etcetera. And so we’re just trying to make it as simple as possible.

Jamie Dimon:

And once the any base case gets to where you expect relative adverse, you’d be adding to $6 billion of reserves before you have charge-offs.

Jeremy Barnum:

Hey, Ken, maybe just out of interest. Implied to your question might be a little bit, to what extent does this quarter’s build sort of is a down payment on the $6 billion? And the answer to that question is much less than all of it because a lot of it was driven by loan growth, but in some of it, as Jamie says, is driven by the flow-through of the downward provision in the central case. You could say, subject to the caveat that this is a little bit or not science, that there is some down payment on that $6 billion.

Operator:

The next question is coming from the line of Betsy Graseck from Morgan Stanley. You may proceed.

Jamie Dimon:

Hey, Betsy.

Jamie Dimon:

Sure. So, I mean as we have – as you know, obviously, we tend to break down our expenses across our three categories. And in some sense, the category that you are addressing is the volume and revenue-related expense, which we highlight because it should pre-symmetrically respond to a better or worse environment and thereby contribute to operating leverage. So, for example, in this year’s ultimate outcome, and the number that we want on printing on Page 22, the year-on-year change in volume and revenue-related expense, still we are finding the numbers, we will probably show you more at the Investor Day, but it’s probably close to $1 billion. In other words, year-on-year decline, whereas next year, we are assuming something more like flat. So, while the sort of year-on-year dollar change in the outlook sort of ‘21 to ‘22, ‘22 to ‘23 is comparable, the mix is quite different actually. And so for example, if we wound up being long about the type of environment that we are budgeting for, you would expect a significant drop in the volume and revenue-related expense number that’s in the current outlook, and that would contribute to operating leverage. For the rest of it, we are always generating efficiency. And we have worked just as hard at that, whether the revenue environment is good or bad. And as you know, we invest through the cycle. And so broadly, our investment plans really should be that sensitive to short-term changes in the environment. Of course, certain types of things like marketing investments in the card business, in particular, the math of what we expect the NPV of those things to be the cycle may change in a downturn. And that could produce lower investment, all else equal. But the core strategic investments that we are making to secure the future of the company are not going to get modified because of the ups and downs of both the environment and...

Jeremy Barnum:

Got it. I mean it’s a fair question. It’s a good question. I am not going to answer it super specifically. And Jamie may have some views there too. But let me just quickly say, we have kind of said that we feel quite confident about this company’s ability to generate 17% in the cycle. And that’s incorporating our sense of the current environment, the operating leverage that you talked about and the expectation of higher capital requirements with the 13.5% target in the first quarter of ‘24. The question of whether Basel III end game and other factors increase that number and how much of that we can absorb and still produce those returns is of course, impossible to answer right now. But I would remind you that it’s not just denominator of our expansion, unreasonable capital outcomes will increase costs into the real economy, which goes into the numerator too. It’s not what we want, but that is the possible outcome.

Operator:

The next question is coming from the line of Mike Mayo from Wells Fargo Securities. You may proceed.

Jamie Dimon:

Obviously, Mike, let’s say, a very good question, which we always concerned at. We have always talked about complacency and all things like that. So obviously, when you are getting up to bat 300 times a year, you are going to make – have errors. And we don’t want our company to be terrified errors that we don’t do anything. And the complacency is then burdened by bureaucracy, which is stasis and depth. So, you have to be very careful when you make an error like you cripple the firm. We are very disciplined and you see that in a lot of different ways. You see in our leverage lending book. You see the success of our investments. You see it in the quality of our products and services. You see it in our – in all these things. And it’s no different for an acquisition. There are – so the acquisitions are done by the businesses, but it’s also a centralized team that does extensive due diligence. So, the business does it. The centralized team does it. We have been doing it for 20 years, like we just started doing something like that. And obviously, there are always lessons learned. And at one point, we will tell you the lesson we learned here when this thing is out of litigation. But we are quite comfortable. And the people who are responsible are the people in the business. So, they – that business did the acquisition, they are responsible, they report back. And we expect people, when they talk to all of us is the goods, the bad, the ugly. We are never looking for how great everything was. And obviously, this thing in one way or another, it was a huge mistake.

Jamie Dimon:

So, just to be clarified. So, I would say that Marianne and Jen, when it comes to credit, debit, checks and all the consumer-related stuff and Takis, which I think you saw in the presentation about payments at Investor Day reporting to Daniel, and that is on the wholesale payments, merchant processing, a whole bunch of stuff and those are direct responsibilities, it’s quite clear this is an area that counts across the company. So, it’s a payments working group that just spends time on that. That working group has not done an acquisition, okay. And if they make – if they want to invest – which there are cases, by the way, which you – and you will see more this year, we decided jointly and all the way up to Daniel and me.

Jamie Dimon:

Totally and we try to show you guys at Investor Day, every branch we open, for every bank that we hire, for every tech thing we do, we are pretty comfortable. There are certain things that’s more like infrastructure, like getting to the cloud, and stuff like that, which you can’t identify all of that. But we are pretty comfortable that we – if they weren’t working, we changed them. So, we ask ourselves that question every day with any wealth managers or branches or certain things, so – and marketing is half of that, not quite half, but half that number. That’s a very specific – for the most part, very specific dollar in, how many dollars out. It’s not a guess, and we are pretty accurate at that kind of stuff. And again, if we – if there is $1 billion that we were spending that didn’t give us the return, we cut the $1 billion.

Operator:

The next question is coming from the line of Steve Chubak from Wolfe Research. You may proceed.

Jeremy Barnum:

Sure. Thanks Steve. So, let’s do banking first. So, I think the thing that’s interesting about banking right now is that the declines have been so significant, obviously, from very elevated levels. But even relative to just 2019, 2022, was a relatively weak year. And as we look into 2023, it’s possible that the actual economic environment will be worse than it was in 2022. That could conceivably make you pessimistic about the investment banking wallet outlook. And to be sure, it’s not as if we are super optimistic. But it’s important to note that part of the issue here is how quickly things change in 2022, specifically with respect to rates as that affects the debt business and valuations as it affects M&A and DCM as well. And one of the sort of necessary conditions for people to do deals or decide to raise capital is just getting comfortable with valuations in the all of open market. So, I think there is a chance that, that actually winds up helping in 2023 in the investment banking world. Of course, we don’t know. But those are some of the things that we are thinking about. Similarly, on the markets side, obviously, markets had another very strong year, better than we had expected since the numbers were so strong. Coming out of the pandemic, we were expecting more normalization than what we actually saw. And 2022 had a lot of themes. I think the active management community did well. That always helps us a little bit. And we had volatility with relatively orderly and continuing markets. As we look towards 2023, maybe some of those themes will be a little bit less obvious, and that could be a little bit of a headwind. But on the other hand, it’s not like the volatility is going away. And markets seem to continue to be quite orderly. And 4.5%, 5% rate environment is probably one where there is more trading opportunities than the zero percent rate environment. So, of course, we don’t know. We will see. I think you would have to probably expect some normalization there. It’s – the numbers are really very strong in markets, but we will see and we will see what happens.

Jeremy Barnum:

Yes. So, Steve, I would love to get into more detail here, but I just think that the question of how to mitigate is really hard to discuss in a lot of detail until we see an actual proposal. And the reason that we talk about potentially punitive increases, I mean you studied this issue closely. It’s just to point out that under the version of the world where you get the worst outcome in all of the different moving parts of this thing, it’s a very significant increase to the capital requirements of the system as a whole. And given how strong the system is today, that just like doesn’t make sense to us. So, we just want to say that. But yes, Jamie, please.

Jeremy Barnum:

Just a minor expansion to that, just to expand a bit on Jamie’s point that it’s important to be clear, there will be time to adjust, like there is a long road from the NPR to – so to sort of supports Jamie’s point, let’s see what it is and then we will…

Operator:

The next question is coming from the line of Matthew O’Connor from Deutsche Bank. You may proceed.

Jamie Dimon:

Yes. So, remember, the securities book is an outcome of investing, but basically excess deposits. And you have like $2.4 trillion deposits and $1 trillion of loans and things like that. So – and we manage it to manage interest rate exposure, all these various things. And so – and then when you say the size of it, we forecast, which I am not going to give you the numbers, we forecast every quarter what we are going to buy, what we are going to sell, how much is coming in, how much we need for liquidity, and we adjust it all the time based upon deposits coming down and loans and stuff like that. Obviously, what you get to invest in is at much higher rates today. And you see JPMorgan’s lost an ACM loan book as the percentage is much lower than most other people. We are kind of conservative there too.

Jamie Dimon:

Yes, we do. But we should get the answer, of course, to get that. We look at it, what everybody is doing, pension plans, governments. We look at every part of the curve. We look at what other banks are doing. I think I have mentioned earlier in this call, banks are in different positions. Some may have to sell securities to finance their loan books. We obviously don’t. So, people are in a different position. And as Jeremy pointed out, it’s very important. That yield curve will not be the same six months from now that is today. While we use that to kind of look forward, it’s not actually our forecast. We know it will be wrong. And with the investment portfolio, we would be invested when there are opportunities. We bought a lot of Ginnie Maes when there is a 60 OAS spread. We have sold – one of the reasons we take securities losses, because that gives you $10-plus billion you can reinvest it when you think of more attractive securities.

Operator:

The final question is coming from the line of Andrew Lim from Société Générale. You may proceed.

Jeremy Barnum:

Yes. Andrew, well, I think we have talked about CECL like quite a bit, and I think there is some decent color there in terms of Jamie’s $6 billion over a few quarters in a world where the economic outlook is worse than it is today. We are definitely not going to get into the business of giving you an outlook for sequential evolution of the loan loss allowance. But it’s appropriate today and it will evolve as a function of the environment.

Jeremy Barnum:

Yes. No. So, let me un-controversially say no there, Andrew, just really wouldn’t doubt. So, my comments about sequential increases were to address the sort of obvious conclusion, which we are somewhat correctly drawing from the slide, which is that in a world where we are exiting the fourth quarter run rate at 81, and we are telling our ADX markets or whatever. And we are telling you 74 for the full year, there are obviously some sequential declines in there somewhere as a function of what plays out. We are simply saying don’t project those into the future in perpetuity. Once things adjust, we will return to normal sequential growth. Does that make sense?

Jeremy Barnum:

Yes. Thanks.

Jeremy Barnum:

That’s it. Thank you very much.

Operator:

That concludes today’s conference. Thank you all for participating. You may disconnect at this time.

Operator:

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s Third Quarter 2022 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Jamie Dimon:

Jeremy, thank you very much. Hello, everybody. I just wanted to give you a little more insight to how we’re looking at capital and interest rates a little bit. So capital planning, we’re very comfortable with the earnings power of this company, which, you can see, is enormous and the margins and the returns. And more importantly than that is we’re growing franchise value, I think, all around the Firm. And in most areas, we’re up in market share, in a few areas, we’re not, and of course, that disappoints us. But the earnings power gives us a lot of confidence that we’ll get over that 13% in the first quarter. But we always have to keep in mind the volatility and a bunch of other things. So, we know we have to deal with Basel IV. We don’t know when and how this is going to be, and any change in GSIB such as an uncertainty in back of our mind. AOCI

Operator:

Please stand by. And the first question is coming from the line of Ken Usdin from Jefferies.

Jeremy Barnum:

Yes. Thanks, Ken. Good morning. Okay. So, at Investor Day, you’ll recall that Jen said that we expected betas to be low this cycle as they were in the prior cycle, which was a low beta cycle by historical standards. And what we’re now seeing, as we see the rate hikes come through and we see the deposit rate paid develop, is that we’re seeing realized betas being even lower than the prior cycle, just through the actuals. And the question was why is that? And it’s, of course, we don’t really know, but plausible theories include the speed of the hikes, which probably means that some of this is lagged, but also the fact that the system is more better positioned from a liquidity perspective than in prior cycles. So, as we look forward, we know that lags are significant right now. We know that at some point, that will start to come out. Obviously, in wholesale, they come out much faster. That’s probably starting to happen now. But the exact timing of how that develops is going to be very much a function of the competitive environment in the marketplace for deposits, and we’ll see how that plays out.

Jamie Dimon:

Yes. As you know, I think CECL has informed us the bad accounting policy. Honestly, I wouldn’t spend too much time on it because it’s not a real number. It’s a hypothetical probability-based number. And the way I’m trying to make it very simple for you. So, if you look at the pandemic, we put up $15 billion over two quarters, and then we took it down over three or four after that. Okay? And all it did swing all these numbers, and it didn’t change that much. I’m trying to give you a number, obviously, this number to be plus or minus several billion. But if unemployment goes to 60%, [ph] and that becomes the central kind of case, and then you have possibilities it gets better and possibilities it gets worse, we would probably add something like $5 billion or $6 billion. That probably would happen over two or three quarters. I mean, that’s as simple I can make it. Right now, what we have -- right now, we already have a percent in these adverse -- in severe adverse case. We can -- if we change that next quarter, that will be part of that $6 billion I’m talking about.

Ebrahim Poonawala:

I guess just following up, Jamie. So I appreciate CECL and the model-based approach. I think you were quoted in the press talking about the potential for a recession in the next 6 to 9 months. Would appreciate any perspective in terms of are you beginning to see cracks, either be it commercial real estate, consumer where it feels like the economic pain from inflation, higher rates is beginning to filter through to your clients? I would appreciate any insights there.

Jamie Dimon:

Yes. I think, we’re in an environment where it’s kind of odd, which is very strong consumer spend. You see it in our numbers, you see it in other people’s numbers, up 10% prior to last year, up 35% pre-COVID. Balance sheets are very good for consumers. Credit card borrowing is normalizing, not getting worse. You might see -- and that’s really good. So, you go in a recession, you’ve got a very strong consumer. However, it’s rather predictable if you look at how they’re spending and inflation. So, inflation is 10% -- reduces that by 10%. And that extra cap -- money they have in the checking accounts will deplete probably by sometime midyear next year. And then, of course, you have inflation, higher rates, higher mortgage rates, oil -- volatility war. So, those things are out there, and that is not a crack in current numbers, it’s quite predictable. It will strain future numbers.

Jamie Dimon:

I mentioned QT as being one of the uncertainties because it’s a very large change in the flow of funds around the world, who are the buyers and sellers of sovereign debt. There’s a lot of sovereign debt. But I think if you look at -- the tilting [ph] alone is a bump, it’s not going to change what we do or how we do it. And you’re going to see bumps like that because all of the things I already mentioned. It’s inevitable that you’re going to see them. Whether they create systemic risk, I don’t know. I have pointed out, it’s harder for banks to intermediate in that, and that creates a little bit more fragility in the system. That does not mean that you’re going to see a crack of some sort. But again, it’s almost impossible not to have real volatility based on the fact where I told you. Those are large uncertainties that we know about today and in the future.

Jim Mitchell:

Hey, Jeremy, at the Investor Day, you noted that expense growth in ‘23 would slow from this year’s level and might be slightly higher than consensus expectations at the time. So, is that -- now that you get closer to next year, does that still hold? And if the economy does get worse than expected, is there some levers to pull, or is it just still investing heavily regardless?