Q3 2019 Earnings Call

To begin.

Good morning, ladies and gentlemen, welcome to JP Morgan Chase This third quarter 2019 earnings call.

Coal is being recorded.

Your line will be muted for the duration of the call.

Well now go after the presentation. Please standby.

At this time I would like to turn the call over to JP Morgan Chase is chairman and CEO , Jamie Diamond, a chief Financial Officer, Jennifer people check Ms. Pizza. Please go ahead.

Thank you operator, good morning, everyone.

Thank you through the presentation, which as always is available on our website and the assay. Please refer to the disclaimer at the back [noise].

Starting on page one the term reported net income of $9.1 billion.

Yes, a $2.68 on record revenue of 30.1 billion with the return on tangible common equity of 18%.

Underlying performance continues to be strong, which highlights including client investment assets in consumer banking up 13%.

Strength in our consumer lending businesses in particular on higher origination volumes in home lending and auto and healthy growth in sales and Outstandings in card.

Number one in global IB fees year to date with over 9% wallet share and record gross IB revenues in middle market.

And the asset and wealth management, we saw record eight U.M. and client assets.

Overall for the sum total loans were flat year on year, which includes continued mortgage loan sales X T cells loans were up 3% unhealthy girls in card and DW and.

Total deposits were up 5% with strength across wholesale and retail.

Credit performance remained strong across businesses.

Onto page two and some more detail about our third quarter results.

Record revenue of $30.1 billion was up 2.2 billion or 8% year on year as net interest income was up 293 million or 2% on balance sheet growth in mix, partially offset by higher deposit pay rates.

Noninterest revenue was up 1.9 billion year on year, or 14% driven by strong performance across fixed income markets in consumer lending, which included a gain on mortgage loan sales of approximately 350 million.

<unk> expenses of 16.4 billion were up 5% on volume and revenue related expenses as well is continued investments partially offset by lower FDIC charges.

Credit remains favorable with credit cost of 1.5 billion, reflecting modest net reserve builds and charge offs inline with expectations.

And as we mentioned last quarter, we do not see any signs of broad based deterioration across our portfolios both consumer and wholesale.

Now onto the balance sheet and capital on page three.

We ended the third quarter with the C. P. One ratio of 12.3% up about 10 basis points versus last quarter.

Deferred distributed 9.6 billion of capital to shareholders in the quarter, including 6.7 billion of net repurchases and a common dividend of 90 cents per share.

Now onto page four for look at our businesses, starting with consumer in community banking.

CCB generated net income of $4.3 billion and in our we have 32% with continued deposit growth and total loans down 4% year on year.

Revenue of 14.3 billion was up 7% year on year.

In consumer and business banking, we saw strong deposit and investment growth year on year with deposits up 3% in client investment assets up 13%, reflecting continued growth across both physical and digital channels.

Revenue was up 5% driven by higher and I on the time deposit growth and margin expansion as well as higher non interest revenue on higher transaction volumes.

And even though the deposit margin, it's higher year on year, not surprisingly it was down 13 basis points quarter on quarter, given the current rate environment.

Oh lending revenue was up 12% on higher production volumes and margins, partially offset by lower an eye on lower balances, which were down 12% reflecting on sales.

With regard to these loans held its important to note the net impact a home lending revenue is minimal with the gain on sale being offset by funding charge from corporate.

And in card merchant services in auto revenue was up 9% driven by higher card and eye on loan growth and margin expansion as well as the impact of higher auto these volumes.

Cars loan growth was 8% sales up 10% and merchant processing volume was up 11%.

Expenses of 7.3 billion were up 4% year on year, driven by continued investment and higher ought to lease depreciation partially offset by expense efficiencies and lower FDIC charges.

On credit starting with reserves this quarter CCB had a net reserve build a $50 million, which included a building card of 200 million largely offset by releases of 109 at home lending and 50 million in business banking.

The building cars is primarily driven by mix is a newer vintages nationally season and become a larger part of the portfolio.

Net charge offs for 1.3 billion, largely driven by card and consistent with expectations.

Now turning to the corporate investment bank on page five.

Yeah, I'd be reported net income of $2.8 billion and an ROI of 13% on revenue of 9.3 billion.

Investment banking revenue of 1.9 billion was up 8% year on year in a market that was down.

With the record third quarter for investment banking fees, driven by strong performances in debt and equity underwriting partially offset by lower advisory.

Year to date, we continue to rank number one it overall I'd be wallet and gain share across products and regions benefiting from our leadership position in the technology and health care sectors.

In advisory we were down 13% year on year, reflecting lower deal activity compared to a strong prior year. However, we continue to Meanwhile, the share driven by our strategic investments.

In debt underwriting, we were up 17% year on year in a market that was down.

Here, we benefited from our participation in some large transactions increased activity in investment grade bonds.

In equity underwriting, we were up 22% year on year significantly outperforming the market driven by our strong performance in Ipos in convertibles and for both the quarter end on a year to date basis, we ranked number one in wallet share for overall easy and ideas.

We expect fourth quarter IB fees to be down both sequentially and year on year driven by strong performance isn't this every quarter and prior year. However that pipeline remains healthy and strategic dialogue with clients is constructed equity markets remain receptive to new issuance and the lower rate environment to meet debt issuance more attractive.

Moving to markets total revenue was 5.1 billion up 14% year on year.

Fixed income markets was up 25% a good results, which also benefited from a comparisons with somewhat quiet quarter in the prior year.

This quarter was characterized by strong client activity across the board that outperformance in agency mortgage trading and improved flows in rates in commodities.

Equity markets were down 5% against a very strong third quarter last year.

Equity derivatives performance was challenged by lower client activity and unfavorable market conditions, a prime remains strong and cash outperformed relative to the prior year.

Treasury services and security services revenues were 1.1 billion and 1 billion down, 7% and 2% year on year, respectively. The rate environment remains relative headwinds primarily from the funding bases compression we've been talking it out which is largely from white neutral and to a lesser extent client specific repricing.

And Treasury services, but importantly, the organic growth in fees end balances continues to be strong.

Expenses of 5.3 billion were up 3% compared to the prior year with investments in higher revenue related expenses, partially offset by lower litigation and FDIC charges.

And finally credit cost were 92 million driven largely by reserve builds on select emerging market client downgrades.

Now moving onto a commercial banking on page six.

Commercial banking reported net income of $937 million, an army of 16%.

Revenue of 2.2 billion was down 3% year on year was lower and I are driven by lower deposit margins, partially offset by higher non interest revenue due to strong investment banking performance.

Gross investment banking revenues were 700 million up 20% year on year on increased M&A and equity underwriting activity.

We saw revenues increase for both large deals and flow business with a record quarter in middle market.

Expenses of 881 million were up 3% year on year as investments in the business, we largely offset by lower FDIC charges.

Deposit balances were up 3% year on year on strong client flows.

Loan balances were flat year on year across both he and I N CRD IV.

See an eye why we are seeing pockets of growth in select industries like financial institutions technology and energy does continue to be significant runoff in our tax exempt portfolio.

I didn't see Ari, although there was higher origination activity in commercial term lending it was largely offset by declines in real estate banking is we remain selective given where we are in the cycle.

Finally credit costs were 67 million with a net charge off rate of nine basis points.

Now on the asset in wealth management on page seven.

[laughter] wealth management reported net income of $668 million with pre tax margin of 25% and our we have 24%.

Revenue of 3.6 billion for the quarter was flat year on year as the impact of higher average market levels as well as deposit and loan growth were offset by deposit margin compression.

Expenses of 2.6 billion were up 1% year on year on continued investments in technology in advisors, partially offset by lower distribution and legal fees.

Credit costs were 44 million driven by net charge offs as well as reserve builds on loan growth.

For the quarter, we saw net long term inflows of 40 billion driven by fixed income and net liquidity inflows of 24 billion.

Thank you ma'am, a 2.2 trillion and overall client assets of 3.1 trillion. Both records were up 8% and 7% respectively, driven by cumulative net inflows into long term and liquidity products as well as higher market levels.

Deposits were up 4% year on year, driven by growth in interest bearing products.

Finally, we had record loan balances up 7% with strength in both wholesale and mortgage lending.

Now, it's a corporate on page eight.

Corporate reported net income of $393 million revenue was 692 million up 795 million year on year, primarily due to higher net interest income driven by higher balances and balance sheet mix as well as the funding offsets on the mortgage loans held for that I mentioned earlier, all of which was partially.

That by lower rates. This quarter also included small net gains on certain legacy private equity investments compared to approximately 200 million of net losses in the prior year.

And expenses, the 281 million were up 253 million year on year, primarily due to higher investments in technology any prior year net legal benefit.

Finally, turning to page nine any outlets.

Our full year outlook remains in line with previous guidance, we expect net interest income to come in slightly below 57, and a half billion based on the latest implies and adjusted expense approximately 65 and a half billion.

So to wrap up.

The U.S. economy is on solid footing and while global growth is slowing the U.S. consumer remains healthy.

Despite continued macro uncertainty and headwinds from the rate environment. This quarter showcases the diversification and scale of our business model.

We remain well positioned to outperform in any environment and we'll continue to strategically invest in our businesses.

And with that operator, please open the line for QNX.

[noise].

Our first question is from Glenn Schorr of Evercore.

Hi, Thanks, very much [noise].

Oh I'm curious your take on on everything that went on in the repo markets during the quarter and I would love. It if you could put it in the context of maybe the fourth quarter of last year. If I remember correctly, you stepped in and the fourth quarter, so higher rates [noise] throw money at it made some more money.

Tom the markets down I'm curious, what's different this quarter that that did not happen.

And I'm curious if if you think we meet changes in the structure of the market to function better on the go forward basis.

So if I remember correctly or go look at a cost recovery for checking account at the said what sort of Medicare should it.

Last year, we had more care through either for regulatory requirements for repo rates went up what's the checking account.

Youre into repo.

As we make sense you make more money.

Now the care skin care, which is still huge totaling $20 billion in the morning, It's still goes down to 60 during the course dating back to where this is.

That cares we believe is required on the resolution and recovery and liquidity stress testing and therefore, we could not redeployed into people work, which would have been happy to do and I think yourself to the regulators to decide they want to recalibrate our younger kinda liquid is expected to keep another count.

Hi, good people look at this is technical a lot of reasons why those balances dropped where they were like a lot of banks from the same position by the way.

But it really true you think that is what does that need if we ever had a bad markets because that kind of maybe the red line that the check your Carol you're always going to hit a red line at LCR.

It's too late which cannot be redeployed either so you know to me that will be the issue in a time clubs and it's not about JP Morgan Chase worried before in our you bet. It's about how the regulators want to matters the system and who they want to intermediates when it's hard comes.

It's worth noting Glenn that they that the overall impact of JP Morgan from the events in mid September was not material, one way or another into our third quarter results.

Yeah, I feel bad for whoever borrowed at 10% [noise].

Purchases, a quickie on on and I heard John the the full year 19.

Commentary and I don't think that's the president maybe even a little bit better.

Have you done much repositioning on the balance sheet as we look forward and 2020, which is looking like a obviously lower rate.

Backdrop.

I want to ask you what your thoughts are on 2020, Eni, but I'd rather.

Here, the soft coat, because I know, you're not going to give it to us.

[laughter] well I'll try.

So in terms of balance sheet positioning as you know we haven't negatively convex balance sheet. The management in both directions. Some moves in interest rates are hedgeable and some are not in a quarter like we just had with rally that we had you would expect us to iteration and we did and so but in terms of 2020. The way I think you can think.

About it is we've given you full year 29 team, which implies a fourth quarter of just under 14 billion frankly, that's not a bad place to start there will be some puts and takes obviously you would have to I'm getting a full run rate of the October caused because of course, it's all based on the implied and then there's one more cut next year, but an offset to that.

At least a partial offset to that would be balance sheet girls in mix. So we'll give you more color on investor day, as we always do and we'll be in a better position then, but that's what the fourth quarter of 19 in terms of run rate is not about place to start.

Our next question is from Betsy Gray sick of Morgan Stanley .

Hi, good morning.

Right.

A couple of questions one on your G. SIB Saket I know you know what I said.

End of June it showed that you had bumped up into the next GE said bucket.

And I wanted to understand how you're thinking about managing that as we go into yearend and is there a plan to get back down and how would you affect that.

Sure. So as it relates to GE could we fully intend to be in the three and half percent docket for year end as you know most aspects and she said she did or on a spot basis. So we will manage it like we do any scarce resource and fully intend to be in that 3% to 5% docket for year end.

Is there a you know.

Does that impact you know just your market position in general is there anything that you would be looking to doing to get there that might you know reduce your positioning and some of the businesses that you're involved in for example, you know things like hurt us et cetera, or is it really not isn't gonna be some.

Thing that we're not gonna see in the revenues because it's too small to matter to you.

You know I couldn't say.

Yeah, what we need to do across the various chasing buckets will not be obvious in our fourth quarter results I'd like I said, we will be managing and fully intend to being a 3% to 5% bucket.

It's more than just leverage.

Our next question is from Erika Najarian of Bank of America Merrill Lynch.

Yes, good morning.

My first question as a follow up a attempt glenn's question I'd be thinking about the cross currents of resolution planning LCR and liquidity stress testing could you help us yeah.

What is the level of.

Excess deployable cash of JP Morgan.

He said, we have $120 billion there are tricky because he said.

And it goes down to 60 in a better through 120 during the average day.

We believe the requirement under she lore rosebush recovery, there's really nothing that accounts are says is extreme stress during the course today it doesn't go below zero.

To go back to before the crisis you go below zero all the time during the day. So the question is how far is as a red Lori will do tend to regulators to see lower resolution dr. lock up that much of reserves.

That said and done Adobe up for regulatory oversight right now we're going to we have to meet those rules you don't want to violate.

With me we've told you we're gonna do.

Got it and that's my follow up John If you said something about the offset to that the two fed cuts that are in the forward curve would be in a balance sheet growth and mix I could you give us a little bit more color on you know how you're expecting those dynamics at play out.

Take really given that you know slightly lower core loan growth this quarter, and you know, 22% up increasing investment securities balances.

Sure I think well I'll come back to investment Securities balances thought in terms of in terms of balance sheet growth. In 2020, you can think of that largely in deposits and just as one example, obviously the rate environment and be a economy will matter a whole lot, but just in a declining rate environment the higher yielding alternatives.

For consumers are less attractive and so.

We do expect to continue to grow the franchise and we could see healthy growth in the deposit Pete. So that's what I was referring to in terms of investment securities. When you look at the increased this quarter. There's a few things going on as I said earlier, we did find duration, but importantly, what you see an investment securities are also cashed appointed.

Strategies as well as actions we took on the back of the mortgage loan sales. So there's a few things going on in investment securities This quarter.

In some cases security sort of how are your return on standardized capital that certain workload <unk>.

Our next question is from Mike Mayo of Wells Fargo.

Hi, I'm. So you I guess lowered your guidance for and I, but also lowered your guidance for expenses. So how much of that lower expense guidance is due to the deployment of technology or just for generally at every Investor day, you tell US you know you're going to spend what $12 billion on technology and we we don't really.

We have a lot of insight into the.

The the traction that there was technology investments are getting so what's working technology wise, what's not working and how much of that can contribute to your improved expense guidance.

Okay sure so folks aren't gross assets. So so I would say it might be an <unk> guidance I'm just not lower at the second quarter, We said 67, and a half billion plus or minus at the time be implies had three pads on July September and December and we said if there were two or more than it would be 57 in <unk>.

Half minus and it was not perhaps if you seem to have plus and so we are I'm kind of right, where we said we would be and I were little bit higher than what we said earlier in September at Barclays and that's because we got a little bit of a tailwind on the 10 year and some balance growth and a and one less caught in December so I would say and I got is broadly in line.

Fine on expenses and technology. There's a few things you can think about for first of all broadly speaking on expenses I would say we remain committed to what we said at Investor day in terms of the cost curve flattening from here, but importantly, you have to look at the underlying story, which I know is what you're getting out which is there.

Volume or revenue related expenses, and we're always looking for productivity, there and out but they will be what they will be they will come with topline growth in terms of investments. We will continue with this is when we always have around didn't use cases, and net present value payback periods, but we will also always invest in the things we think we need.

Even if they're table stakes and so and then there's productivity, which is your point and so we continue to realize productivity in our investments and we continue to think we have opportunity ahead, we haven't laid that out in terms of quantifying it but some of the things you can think about our robotics replaced.

Thing repetitive prophecies, you can think about machine learning or AI in fraud, So machine learning assisting us in decision, making processes. Our call centers are always getting more productive as Gordon said at Investor day, our cost to serve in the consumer businesses are down 15% and then digital capabilities that we're rolling.

Out to our customers in terms of self service is not only better for them, but more efficient for us and so we can realize significant productivity to date in not only our technology investments, but other investments and things we still have room to run or just said part of <unk> merchant processing systems. They always do it for commercial for the ours.

I'd be a good stuff, we built a took a hit in OLED in two or custody business. So you can go business by business, we see the expense we noticed Gulf War now.

That is all right I was having one follow up then we have one follow up then so I mean, how many are call center personnel do you have or how many data centers do you have and how does that compare to the peak.

We're building brand new data centers as we speak I forgot the total number but it's quite a few the newer three better more fishing, the more expandable and safer more secure or kind of stuff in there.

Yeah, we were we have to build that infrastructure of the best of the world. So we're not going to other scrimp on something like that and maybe at Investor Day, We could go a little bit more into every for a minute as a technology budget, yes, I'd like to get and then I'll call Center like we don't necessarily think about it just in terms of the number of people, we think about the productivity of the people.

So the number of calls that they're able to take because you may have more people because of more volumes, but that's good healthy volume with topline growth, but we're always making sure that the people in our call centers and the overall productivity of the call center is increasing and with all the Oh, sorry, Christopher read about or floor in card and consumers come down not gone up.

Because if somebody's deploy technology didn't call centers whatever ticket for all of them because we're talking to embed guys are secrets, but are there a lot of ways to stop some of the bad guys now.

Our next question is from so Martinez W.P.S.

Hi, Thank you good morning, sort of what's sort of a broader question on the just the macro outlook you don't see you think Jane you mentioned.

Well the economy, the U.S. economies on sound footing, the consumers, obviously strong, but we are seeing some softening in the economic data.

What are you hearing from clients, what do they telling you about whether they're concerned or whether there is increasing concern on policy macro uncertainties and how you're thinking about that going forward.

Sure. So on client sentiment I think it's fair to say that perhaps the marginal investment is being impacted by you know trade a straight fatigue in terms of be uncertainty, but broadly speaking I'm, while it's slower growth, it's still growth as I said the U.S. consumer is incredibly.

From a consumer spending and strong sentiment is is strong for the consumer credit is good and it is true that people can be I send surveys both manufacturing and nonmanufacturing. They were recently disappointing. So I would say no doubt cautionary signs, but credit remains very good and they're still.

<unk> very healthy business activity.

Okay, Great. That's helpful on Emily I, just going back then I specifically in the CCB. If you just for the 350 actually.

Grew sequentially, which was a pretty strong result, and I know <unk> guidance is that the consolidated level, but how do we think about.

The glide path in that business going forward. Some of the puts and takes you know deposit pricing came in a little bit at the consolidated level I suspect some of that's commercial but how do we think about that business in the and I I trajectory and is it.

Is it possible that you can continue to grow that.

So I mean, there there's no doubt that business will be impacted by rate headwinds 50 implies play out we're not immune to that.

But as I said earlier there is a there is at least a partial offset to that in growth and so we still feel very good about the underlying growth that we're seeing there and then just in terms of reprice, obviously, there's very little movement on the back of the Saudis given there's very little movement on the way up a and.

In fact quarter over quarter, we saw rates paid a in the consumer businesses tick up a little bit on slight migration that we continue to see into interest bearing but yeah. We love the platform. The maybe you know branch expansion is going very very well and so we feel great about the continued growth there, but we won't be.

Immune to Ah two rate headwinds.

Our next question is from Gerard Cassidy of RBC.

Good morning.

Can you guys give us some additional color on the investment banking backlog that you may have at the end of the third quarter and then second.

If you take a look at the success that you had an investment banking grabbing more a wallet share is it coming here in North America her or in Asia can you give us some color there as well.

Sure. So on the I'd pipeline I would say it it's it's healthy although we do expect to be down in the fourth quarter, both sequentially and year on year on very strong performances in the third quarter as well as the fourth quarter last year, but overall, it feels healthy and I would say geographically.

You know largely used on strength in the U.S.

And then following up in the markets business again, you had good numbers [laughter]. How important is the technology spending that you've been doing in markets, leading to grabbing more wallet share in both equity and sick.

I think is critical because you're walking the trading floor today, the deployment of technology or automated trading algorithms and swaps and FX and equities.

It's making its way into corporate bonds, but he is critical to keep up with a technology at a very competitive visit for market share matters.

Our next question is from Eric Compton of Morningstar.

Thanks for taking my question. So I, just want to step back and real Big picture here I mean.

Net interest income at your already starting to see some pressure there I'm just I think the general commentary in the industry is you know.

The banks or just under pressure seemingly almost everywhere I mean, it got to focus on expenses and yet you guys are still hitting returns on tangible that 18%. So just stepping back I mean, you still have a couple billion to play with before you even start getting to that 17% long term goal level.

What what worries you about you know potentially pushing you under that 17% level is it just seems like you know even with all the pressures in the industry, you're still even exceeding it and other than you know onetime credit events.

Really I guess stepping back what worries you about pushing the bank to that or even below that from your perspective.

Are there did you overdoing, the crushers and the baby Ministry of trade, because we've had a record growth areas faced with better for 10 years or I'd say that the credit is extraordinary good for you look at consumer credit commercial credit wholesale or is extremely good. They can only get worse. If you ever cycle. So were 17% is real.

Really sort of where it is through the cycle were up over earning four of the cycle accredited today, you know what will be under hurting or on credit is of course, you ever recession affects volumes always sort of thing. So that's that's the sensors so through the cycle times, they're not they're bad.

Our next question is from Martine, mostly finding spark.

Thanks, and good morning.

I was up one I ask you are two different venues of questions first it's if you look at the balance sheet screw yields came down pretty significantly this quarter just wondered how much you had in you know premium amortization that was embedded in that and then as you look at the spring deposit cost.

We didn't get much traction on the first cut but did you get a little bit more traction on lowering those rates as you went into the into the you know going into the fourth quarter.

Okay sure. So first on security deals so that did play a role Marty but more importantly, the impact on securities yields came from mix and just lower rates overall, so predominantly mix and lower rate and then to a lesser extent your point on pre pays as well as little bit a day count and then.

Data as broadly speaking, we say dean as our symmetric and so if you look at the retail side as I said before I'm very little movement on Saturdays and we did see rates paid even tick up a little bit there a quarter on quarter wholesale there's obviously more opportunity to reprice that we do that client <unk>.

Okay, and we're not going out lose valuable client relationships over a few checks the beta so what we saw there as you might expect and see IB at rates paid down a down quarter over quarter and then we also saw rates paid down in both ADW EM and the commercial bank, but a little bit less so.

And then would you see retail improving next quarter and then they may I wanted to talk to you about liquidity.

Two things one with all the repo market and as you looked at Volcker in the liquidity coverage ratio as you kind of taken the big banks out of participating in being able to solve for some of those liquidity issues. So the fed has not put a ring fence around just putting that all their shoulders versus letting JP Morgan or Goldman Sachs or bank of America jump in and how.

Within those processes and then when you sold the loans this quarter those mortgage loans and replace them with securities was that related to liquidity or how does the decision process on that thanks.

So theres love the loan decision is because we are.

A standardized capital now, which I think by the way risk, we I think that the advanced as far more important I mean should probably report more than that that's a 30%, but when you're when were constrained by you standardized third points in time, we're putting mortgages on your balance sheet, just because you're very low return and of course, you have a portfolio decision you can sell it we're putting your balance sheet.

If you so it's going to probably reinvesting securities. So it's a pure economic calculation would give you a better return and.

That's why I think you need some fixing the mortgage market about securitizations because I think we pointed out if you had if you had good securitizations you go to help your mortgage market you keep some of them your balance sheet. So some of the risk and you wouldn't have to sell these mortgages per se in.

I do think into liquidity, we focus on liquidity at the federal or account, where we have 400.

For the $50 billion of cash or T bills repo ER positive said, there's only been just sort of constraints and you want things appropriate liquidity, but there's also point out that the dose is going to multiple GCP calculations multiple other calculation. So trying to calibrate of course, all those things optimize of course, all those things like <unk>.

You're correct. The banks are the point that would they will not do a redeploy a big chunk that that fiber to billion dollars or we have or in other markets. When the time comes it's not volcker per se volcker's a slightly different there.

And then Marty I think you asked about fourth quarter. We do think we'll continue to see the target margin compression there on the retail side, we have come off the piece in terms of CD pricing, but you still had slight migration there into interest bearing products.

Our next question is from Ken is then of Jefferies.

Hey, Thanks, good morning.

John You had mentioned earlier just the point about that next year's earning asset growth will be led largely through deposits, but with all this mixing into your last point, there about where the deposit margin pressure comes and do you expect the constitution of deposit growth to change at all weather comes from the consumer business wholesale or the wealth management complex.

Thanks.

Sure. So look I think it's difficult to now I think a in a declining rate environment as I said I think the higher yielding alternatives are obviously less attractive for consumers would you still see good organic growth in a in wholesale as well in both Treasury services and security services. So I think it's it.

Difficult to know the macro environment will will be a big determine.

God I understood and second question. The the card revenue margin out you mentioned, it's it's kind of flattened out and I'm. Just wondering can you first walk us through.

And I versus FY components. There you know any is it is it partially because of that obviously and I I challenges are also any changes with regards to see underlying card fee activity. Thanks.

Yeah. There, it's really just timing there was just seasonality there. So at Investor Day, We said that the card revenue rate would be 11, 50, plus or minus and fourth quarter is a seasonal high quarter for us and so we do still expect to hit that 11 50.

Plus or minus for the full year guidance.

So just seasonality and this is an ancillary there just to have some compression that those deposits.

Different dynamic.

Our next question is from Matt O'connor with Deutsche Bank.

Good morning.

I wanted to follow up on you talked about the fourth quarter net interest income just under 14 billion and that's not a bad place to start for next year or highlight balance sheet growth and mix than kind of some puts and takes but it's it's probably not as bad as I think some would have thought I'm thinking about that 14, billionish as potential run rate.

Plus or minus.

I'm, just trying to better sound like what's the rate assumption that you have and you know how much of a swing factors. The duration change that you did in the third quarter help in that.

So I mean, we're doing that based on the latest implies and it's obviously early days were working through our budget process as we speak.

So it's based on the latest implied which has caught in October and occurred in April .

And 10 year I'll call, it 170, plus or minus so relative to where we might have been just a couple of months ago, even weeks ago. It might have been a different outlook. So I think it's important to take it was health warning that it's on the latest implies because that is of course, what we know and just assuming some balance sheet growth and it just as opposed to.

Things being equal that's right that wouldn't be worse, that's right. It would get worse the balance sheet girls partial offset to a larger impact from just Rangers.

And what does the rate sensitivity at this point and how is that split between the short and long and thank you.

There I would just say.

You can look at the earnings at risk that will happen in the queue. I think that's probably the best way to think about it because that is that is not an eni sensitivity, but is an interest rate sensitivity and so that'll be out in a few weeks.

Our next question is from Mike Mayo of Wells Fargo.

Hi, Thanks for allowing my follow up question, but Jamie just the first earnings call. We've had since the business round table came out with its new statement that it's not about shareholder driven kapitalismus about stakeholder driven capitalism and.

I was hanging out the New Yorker festival over the weekend and your name came up then.

At least one author said he spoke to you and the real question what is the political and regulatory risk to JP Morgan to earnings as we look out over a year, you're having that the presidential debates you know over the weekend people talked about and the politicians talk about a wealth tax a transaction taxes.

Changing corporate tax personal attacks are basically flattening the pair amid and seems like a lot of people point their fingers at the banks, including JP Morgan. So my question to you is what are you were doing what we're in figure for the banks will work I think part part of the cost part of the cause of.

Any quality at America banks should be doing more to help out the situation.

And again, it's all this is just one example of Mike the way I saw this at the New Yorker Festival. This was cut on the intellectual underpinnings of a lot of the policies that are being introduced today and so you're saying that in the politicians statements about you know a wealth tax you no changes to the bank business model.

Too much deregulation and it's just an environment I mean here. We are 10 years after the financial crisis, where what I would summarize it as very anti bank I know JP Morgans had proposals you know to.

Help move to the company in the country ahead, but how do you as head of the business round table help the industry in corporate America manage these concerns about income inequality in these other topics that come up and the presidential debates I know, it's a big question, but hey, you're in that role.

This is round table.

Okay. So does this round table check didn't get rid of shareholder value based said shareholder value and customers and employees and communities, which essentially how spring how many these banks, but running for years.

For the statement was a lot of world with the children value. They did you ever patients private seeking whereas most ceos are thinking pretty long term doing people taking care of their employees their customers and we could probably like always great things. We do for employers. She was training health wellness retirement or sharing the wealth inside the company.

And we do all that most these companies do that allowed is larger companies, they're great community citizens when it comes to try to participate and help and stuff like that.

So I do think it so as you JP Morgan matter, we're going to grow our businesses and sherbert clients as best we can ever the environment. It doesn't vardeman shady politically and changes economically it changes geopolitically, but workers navigate to do the best we cared servier close because we can I do think that we try and.

For a lot of course to try to do a tremendous amount to help the communities because there had been people left behind.

In a city schools are not filling because of banks. Okay infrastructure is not doing because a bags. So I think we can help build infrastructure help train people get worse skills get involved with education systems like always kind of stuff that a lot of us all doing Detroit, we could lift off society I think it's good for US lived have decided and human society does better everyone.

It's better I don't believe you look at Venezuela, Argentina, Cuba, North Korea et cetera, that's doing well is a good thing for society and you could share the welcome a little bit so I'm not good responses specific political.

Steve It's out there, but we'll do our part to be a great community citizen server shows the same time.

Alright, well thanks for that that response could I put words in your mouth, I mean doing well for the communities and employees and all the other stakeholders is good for the shareholders long term is that yes. Mike are you actually give examples in the crisis, but the amount of people that we financed at markets where are you a price is way below the market.

We were doing therapies to make where patients progress you can go and that's why they produced that included states cities hospitals businesses are consumers et cetera, and so you won't be replacement or added two were younger help our clients go through this tough time was it better profitability are probably dropped dramatically and we were fine I think that way.

As long term, but you've never got shoot over that so you know can save for how we do employees. We were currently investing employees in branches in jobs in training and that's still benefit three years out five years out 10 years out 20 years out.

All right. Thank you.

Yeah.

Our next question is from Brian Klein handful of KBW.

Great. Thanks.

Quick question on equity trading I gave an update on where you thought the <unk> revenues come in and mid September and if it became Anworth thought you were looking for is there way to kind of break out what was the impact of potential marks on investments versus true equity trading revenues.

Sure in equity derivatives. It was a combination of weaker client activity and some losses on inventory, but it wasn't meaningful those losses were certainly not meaningful in the Grand scheme of things that they were part of the equity derivatives sorry.

But there wasn't any other additional investments in there that have marks on them back to the numbers.

Okay.

And then separately on C.. So I know you've been doing parallel runs as all banks have been are you at the point now we can kinda give what the pro forma provision would be foresee so or do you plan on doing that prior to the adoption that.

So as we said at Investor day, the ranges four to 6 billion. We've done I'm kind of work as you say and a lot of modeling. The range is still a you know between four and 6 billion and a and we'll be able to be more precise obviously as we prepare for the January one implementation.

Our next question is from Betsy Graseck of Morgan Stanley .

Hi, Thanks, one follow up on the equity I mean, I know DB books were in the market and.

I believe that you were a winter or some of that this is that in these numbers in threeq where that comes in for Q.

That was that there was some prime balances you referred to I don't know gifts.

It's not it was not.

Not meaningful not meaningfully remembered it okay.

Alright, and then separately you know there's been some news obviously on discount brokers cutting commissions to zero I know you have you in faster that that's a.

Recent launch, but how do you think about how that impacts your business model is it just something that you would consider is specific to you invest or do you think that that's something that would have a bigger impact and potentially you know more optionality for your clients across your well spectrum.

So the majority of our customers and you invest a already trade for free and so we're pleased to see the market moving toward us a as we think about you invested is one component of our broader investment strategy and as I said, we're really proud of Ah. This quarter's results with kind of that's what happens being up 13%.

It was an important product launch for us in terms of meeting an unmet need with our existing customers, but we're pleased to see the market moving toward us never strength in new industry. So we still are improving the product over time, you haven't thought a tremendous met a marketing kind of want to get it all right, but if you were just in your best portfolios.

Then we'll figure out all the exact.

Specific pricing around it.

And we have no further questions at this time.

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