Q4 2020 JPMorgan Chase & Co Earnings Call

J P. Morgan coined and that's it is pretty impressive, but if we don't start with.

Our reserves are taking share from changes to share.

Okay.

Please standby we are about to begin.

Good morning, ladies and gentlemen, and welcome to J P. Morgan Chase's fourth quarter 2020 earnings call.

This call is being recorded.

<unk> 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 J P. Morgan Chase's, Chairman and CEO, Jamie Diamond and Chief Financial Officer, Jennifer Pizza must pizza. Please go ahead.

Thank you operator, good morning, everyone and.

The presentation as always is available on our website and we ask you. Please refer to the disclaimer at the bank.

It's slightly longer this quarter, given we're not having investor day, and so after I review, our results and I'll spend some time on our outlook for 'twenty and 'twenty, one as well as touch on a few important balance sheet topics and I kind of mindset.

So starting on page, one and fourth quarter.

<unk> reported net income of $12 $1 billion EPS of $3.79 on revenue of $3 $2 billion and delivering a return on tangible common equity of 24%.

Included in these results are approximately 3 billion on credit reserve releases.

Before we get into more detail on our performance I'll just touch on a few highlights first off our customers and clients continue to demonstrate strong financial resilience and the face and unprecedented pandemic as evidenced in our credit metrics thus far.

We saw continued momentum and investment banking and grew our share to nine 2%.

And CIB markets revenue was up 20% year on year, driven by strong client activity and elevated volatility and the corner.

And and EW, and we had record revenue up 10% and year on year.

On deposits, we saw another quarter of strong growth up 35% year on year, and 6% sequentially and fed balance sheet expansion continues to increase the overall and the mountains cash and put them.

Our loan growth for me and you did 1% both year on year and quarter on quarter.

On to page two from more on our fourth quarter results.

Revenue was $30 2 billion was up 1 billion or 3% year on year.

Net interest income was down approximately 900 million or 7%, primarily driven by lower rates and mix, partly offset by balance sheet growth and higher markets NII.

Non interest revenue was up $1 9 billion or 13%, a higher IV fees and legacy investment gains and corporate and higher production revenue and home lending.

Expenses of $16 billion were down 2% year on year on lower volume and revenue related expenses, partially offset by continued investment.

Credit costs were a net benefit on 1.9 billion down $3 3 billion year on year, primarily driven by reserve releases of $2 9 billion that I'll cover in more detail shortly.

Turning to the full year results on page three.

Yeah.

The firm reported net income of $29 1 billion EPS of $8.88 on record revenue of nearly 123 billion and deliberate and return on tangible common equity of 14%.

Revenue was up four and a half billion or 4% year on year as net interest income was down $2 8 billion or 5% on lower rates, partly offset by higher markets NII and balance sheet growth.

And non interest revenue was up $7 3 billion or 12% on higher markets and IV fees as well as higher production revenue and home lending.

Expenses from $66 7 billion and were up 2% year on year, driven by volume and revenue related expenses and higher legal and continued investment partially offset by lower structural expenses.

And credit costs were $17 5 billion, reflecting a net reserve builds and $12 2 billion due to the impact from COVID-19, and net charge offs that were down year on year.

Now turning to reserves on page four.

We released approximately 3 billion of reserves this quarter across wholesale and home lending.

Starting with wholesale we released 2 billion due to improving macroeconomic scenarios and the continued ability of our clients to access capital markets and liquidity.

And home lending or at least 900 million, primarily on improvement and H b on the expectations and to a lesser extent portfolio runoff.

And in card, we held reserves flat as we remain cautious about the near term, especially with the number of unemployed still nearly two times pre pandemic levels and potential payment shock coming to consumers from expiring benefits.

And so with a near term outlooks still quite uncertain, we remain heavily weighted toward downside scenarios and it nearly 31 billion, we reserved and approximately 9 billion above the current base case.

And you touched on net charge offs for the quarter, they were down about $450 million year on year and remained relatively low across our portfolios.

Looking forward, we still don't expect any meaningful increases and charge offs until the second half of 'twenty 'twenty, one and with the recent stimulus it could be even later.

Turning to page five.

We've included here and update on our customer assistance programs and you can see the trends are largely similar to last quarter and further evidence of the resilience of our customers.

The vast majority of what's left and deferral, and then mortgage with $10 billion on loans and $13 million and our service portfolio.

And in terms of what we're seeing from our customers that have exited relief more than 90% of accounts remain current.

Turning to balance sheet and capital on page six.

We ended the quarter with a CET one ratio of 13, 1% flat versus the prior quarter on strong earnings generation, largely offset by dividends of $2 8 billion and higher R. W. A.

As we stated in our press release last month. The board has authorized share repurchases and we plan to resume buybacks and the first quarter up to our fad authorized capacity of four and 5 billion after paying our 90 cent dividend.

You can see here on the page. We've included the liquidity coverage ratio from both the firm and the bank, which we believe is important to look at together in order to better understand the liquidity profile of our balance sheets.

And firm is that a healthy LCR at 110% I remember the bank LCR is 160%, reflecting the extraordinary deposit growth that has meaningfully outpaced loan demand.

Now, let's go to our businesses, starting with consumer and community banking on page seven.

And the fourth quarter PCB reported net income of $4 3 billion and an ROE of 32%.

Revenue of $12 7 billion was down 8% year on year, reflecting deposit margin compression and lower card NII on lower balances.

Largely offset by strong deposit growth and higher home lending production revenue.

Deposit growth was 30% year on year up over 200 billion of balances remain elevated and as we continue to acquire new customers and deep and primary relationships.

Loans were down 6% year on year with home lending down due to portfolio runoff and card down on lower spend offset by business banking, which was up to the P. P. P loans.

Client investment assets were up 17% year on year, driven by both net inflows and market performance.

On spend combined debit and credit card sales volume in the quarter was up 1% year on year, which reflected debit sales up 12% largely driven by retail and everyday spend and credit sales down 4% largely driven by T D.

And home lending overall production margins remained strong total originations were down 2% year on year, but were up 12% quarter on quarter, both driven by correspondent as we lean into the channel after pulling back earlier in the year.

For the year total originations were 114 billion, including nearly 73 billion of consumer origination both the highest since 2013.

And auto loan and lease origination volume was 11 billion up 29% year on year.

And of course, the franchise digital engagement continues to accelerate our.

Our customers use creep deposits from more than 40% of all check deposits, which is nearly 10 percentage points higher than a year ago and.

And in home lending nearly two thirds of our consumer applications were completed digitally using chase my home and that has tripled since the first quarter.

Over 69% overall, 69% of our customers are digitally active with business banking at 86% higher than a year ago.

Expenses of 7 billion were down 1% year on year and credit costs were a net benefit from 83 million driven by 900 million of reserve releases and home lending largely offset by net charge offs and card and a 767 million.

Now turning to the corporate and investment bank on page eight.

Yeah.

Yeah.

CIB reported net income of $5 3 billion and an ROE of 26% on revenue of $11 4 billion for the fourth quarter.

And and ROE of 20% on revenue of 49 billion for the full year.

The extraordinary nature of this year has meant that we had record and almost every category for both the quarter and the full year.

In investment banking fees were up 25% for the year and we grew share to its highest level on a decade.

For the quarter investment banking revenue was two and a half billion was up 37% year on year and up 20% sequentially.

The quarters performance was driven by the continued momentum and the equity issuance market as well as strong performances and D C M and M&A.

And advisory we were up 19% year on year, driven by the closing of several large transactions.

The M&A market continued to strengthen this quarter and in fact announced volume 60 day pre COVID-19 levels.

Debt underwriting fees were up 23% year on year, driven by leveraged finance activity and we maintained our number one rank overall.

And equity underwriting fees were up 88% year on year, primarily driven by a strong performance and follow on and Ipos.

Looking forward, we expect our D fees to be up modestly for the first quarter and the overall pipeline remains robust.

We expect M&A to remain active on improved overall, CEO confidence and the momentum and equity capital markets is expected to continue of course dependent on the successful containment of Covid.

Moving to markets.

Total revenue was $5 9 billion up 20% year on year against a record fourth quarter last year.

Fixed income was up 15% year on year, driven by good client activity across businesses, particularly and spread products as well as a favorable trading environment and currencies and emerging markets credit and commodities.

Equities was up 32% year on year, driven by strong client activity and equity derivatives and cash throughout the quarter across both flow trading and large episodic transactions.

Looking forward, we expect markets to remain active and the first quarter and we have seen strong performance since the start of January it's obviously too early to predict the full quarter.

And for the remaining quarters of this year and the full year, the comparisons will be particularly challenging given the extraordinary performance of markets and 2020.

Wholesale payments revenue of $1 4 billion was down 4% year on year, primarily reflecting the reporting the class and merchant services and security services revenue of $1 1 billion was down 1% year on year.

On a full year basis and headwinds from lower rates were almost entirely offset by robust deposit growth.

Expenses of $4 9 billion were down 9% compared to the prior year, driven by lower compensation and legal expenses.

Now, let's go and do commercial banking on page nine.

Commercial banking reported net income of 2 billion and and arguably a 36%.

Revenue of two and a half billion was up 7% year on year with higher lending and investment banking revenue, partially offset by lower deposit revenue.

Record froze investment banking revenue of 971 million to about 53% year on year.

And the full year was also a record finishing at $3 3 billion, surpassing our previously established $3 billion long term target.

And given our investments and bank for coverage, we believe there's continued upside from here.

Expenses and $950 million were flat year on year.

Deposits from 277 million were up 52% year on year, and 11% quarter on quarter as client balances remain elevated.

Average loans were up 1% year on year, but down 3% sequentially.

C&I loans were down 4% on the old revolver balances, but utilization rates nearing record both as clients continue to access capital markets for liquidity.

And CRE loans were down 1% on higher prepayment activity and both C T L and real estate banking.

And finally credit costs were a net benefit of $1 2 billion driven by reserve releases.

Now on to asset and wealth management on page 10.

[noise] asset and wealth management reported net income of 786 million with pre tax margin and ROE of 29%.

And for the year AWS and generated record net income of 3 billion with pre tax margin and ROE is 28%.

For the quarter revenue $3 9 billion was up 10% year on year as higher performance and management fees as well as growth in deposits and loan balances were partially offset by deposit margin compression.

Expenses of $2 8 billion were up 13% year on year, primarily due to higher legal expenses related to the resolution of matters pretty playing out.

And excluding this expenses would've been up 4% year on year on volume and revenue related expenses.

For the quarter net long term inflows of three 3 billion positive across all channels asset classes and regions.

And this was true of the 92 billion for the full year as well.

And liquidity, we saw net outflows of 36 billion for the quarter and net inflows of 104 billion for the full year.

And you earn a two seven trillion and overall client assets of $3 seven trillion of 17, and 18% year on year, respectively were driven by net inflows into both liquidity and long term products as well as higher market levels.

And finally deposits were up 31% year on year and loans were up 15% as clients continued to increase their liquidity and look for investment opportunities.

Now on the corporate on page 11.

Corporate reported a net loss of 358 million.

Revenue was a loss of approximately 250 million relatively flat year on year.

Net interest income was down 730 million on lower rates, including the impact of faster Prepays on mortgage securities as well as limited deployment opportunity on the back of continued deposit growth.

Decline and net interest income largely offset by net gains this quarter of approximately 540 million on several legacy equity investment.

And expenses and $361 million were roughly flat year on year as well.

Now shifting gears I will turn to our outlook for 2021, which I'll cover over the next few pages, starting with NII on page 12.

Yes.

And you can see on the page, we expect NII to be around 55, and a half billion in 'twenty and 'twenty one and this is based on the latest and five which reflects the steepening yield curve, we've seen over the past few weeks.

So you can see that we do expect to be able to more than offset the impact of low rates in 'twenty and 'twenty, one from continued deposit growth and higher markets NII.

But it's important to note that it takes a loan growth to truly realize the benefits on a steeper yield curve.

I'll also just remind you that the increase and CIB markets NII is largely offset and and I are and this component and it's highly market dependent.

And so as it relates to loan growth, while there should be some opportunities and AWS and wholesale we expect headwinds at least in the near term as corporate cash balances are at all time highs card payment rates are elevated and there continues to be significant prepayments and home lending.

But we do expect these to normalize and Steve on growth pick up and the second half of the year and particularly in card.

Therefore, our fourth quarter 2021, and I estimate of 14 billion or more is a reasonable exit rate and.

Notably thoughts and the ZIP code of our 14 19, NII when rates were significantly higher than they are today.

We've also included on the right side of the page and risks and opportunities and obviously this isn't an exhaustive list, but on the drivers that could be most impactful to this year's NII outlooks.

Now turning to expenses on page 13.

Yeah.

As Jamie mentioned last month, we do expect our expenses to increase in 'twenty and 'twenty, one and based on our latest works, we expect that number to be around 68 billion.

Versus the prior guidance of 67 billion largely due to higher volume and revenue related expenses and the impact of FX, both of which have offset from the revenue line as well as the impact on expenses from our recent acquisition of CX loyalty.

And then taking a look at the year over year expense growth you can see it's primarily due to investment which I'll cover in more detail on the next page.

Our volume and revenue related expenses are up slightly with some puts and takes there that's obviously market dependent but remember any changes there do come with corresponding changes to our top line.

And and structural we expect a net reduction of approximately 200 million. Notably this include the decrease of 500 million, reflecting the realization of continued cost efficiencies and what is largely a fixed cost base.

And you can see that it is partially offset by the impact of FX on our non U S dollar expenses.

It's important to note that while structural it's coming down it doesn't matter. If you got the full extent of our productivity, we're realizing efficiencies and each category here.

For example, our software engineers are becoming more productive and we are reducing our cost to serve as we've seen more customers use our digital tools to self serve.

Moving to page 14 to take a closer look at our investment spend.

Over the past few years, our investment stance has been around $10 billion and we expect that to increase to nearly 12 and a half a billion in 'twenty and 'twenty one.

You can see that we've highlighted on the page the major areas of focus that we've been consistently investing and for years, which is continued strength in our franchise and drive revenue growth.

Starting on the bottom with technology.

This represents roughly half of the overall investment spend and these tech investments are across the board as we look to better meet our customer and client needs and improve our customers' digital experience and strengthen our fraud detection capabilities as well as modernize and improve our technology infrastructure and cloud and data capabilities.

Moving to non SEC investment, we expect marketing spend largely and C V to return to pre Covid levels. This year after being down in 'twenty and 'twenty.

We continue to invest and our distribution capabilities across all of our businesses. This includes hiring bankers and advisors, not only and U S. But also internationally as well as expanding our physical footprint.

We've been continuing to execute against our branch expansion plans and new markets, having opened 170 branches. So far out of our planned 400 and expect to be and all contiguous 48 day by mid 2021, Jamie clapping.

And the other bucket on the page is a catch all for everything else, including real estate and other various investments across our businesses.

These expenses were fairly stable the past few years and the increase in 'twenty and 'twenty, one largely related to our $30 billion commitment to the path forward, which includes promoting affordable housing expanding homeownership for underserved community and supporting minority owned businesses and then as well as expenses related to our acquisition of CX loyalty.

So in summary, you can see that we continue to invest through the cycle and it is these investments that we believe position us well to outperform on a relative basis, regardless of the environment.

Now I'll turn to a few balance sheet and capital and related topics starting on page 15.

[noise] over the next few slides I'd like to provide you some insight on how recent monetary expansion and corresponding grows and the financial system and it's creating new challenges for bank balance sheets.

More specifically.

Pension and putting significant pressure on size based capital requirements, which is likely to impact business decisions, including capital targets.

Let's start with what has happened this year.

In response to the Covid crisis, the fed's balance sheet has significantly expanded which has resulted in three trillion dollars of domestic deposit growth across the U S commercial banks.

And what's important to note is that this QE is unlike anything we've seen before.

And the current QE, we have experienced a much bigger and faster expansion.

And that expansion has come without meaningful loan demand to be on P. P. P and you can see and the loan to deposit ratio on the page.

This is resulted and bank balance sheets, which are larger but more liquid and less risky.

From a bank capital perspective, the key question to ask is how long will this persist.

On the chart you can see that the QE three online and kept the fed on pause for several years before and modest tastes and reductions.

So even if the fed immediately signals tapering, which of course is not the base case and follows debate piece and the last on line. It will take many years to return to pre COVID-19 levels.

Of course, the on might be something but I think we can all agree that bank balance sheets will remain elevated for some time.

Yeah.

Now, let's go to page 16, and see how this will impact capital going forward.

Two factors that are top of mind for us our G SIB, which we've been talking about for a long time and also SLR, which is not something we typically talk about but given the overall system expansion and is now and focus.

On the graph you can see here are the historical trends of G SIB and SLR base requirements overlaid with the path from deferred Securities Holdings.

You can see that during the original calibration and these rules, which included significant gold plating and fed balance sheet was notably lower.

With the recent grows and the fed balance sheet, we're seeing upward pressure and increases to G. SIB requirements as well as the S. L are shifting from a backstop to a binding measure which would impact the pace of capital return and.

And these dynamics will likely persist for an extended period.

And that temporary relief on SLR expires after March 31st.

This adjustment for cash and treasuries should either be made permanent or at a minimum be extended.

With these exclusions you can see how this remains a backstop measure not a binding one.

Then on G. SIB and there has been public dialog about the need to index the score to GDP as a proxy to account for ordinary economic expansion over time.

And this was also cited by the fed as a possible shortcoming of their framework.

For 'twenty and 'twenty G. D. T was clearly not the best proxy for system expansion, but the principal suicides.

She said was designed and the relative measure between large and medium sized bank and therefore, it should certainly reflect and overall system expansion, which impacted small and medium and large banks and alike.

My future proofing, he said and inception like the adjustments outlined on the page you can see the resulting G SIB score profile.

Lower over time, but more importantly, flatter over the course of the most recent system expansion.

While we recognize the crude and bank capital requirements to promote safety and soundness satisfying. These heightened requirements. It's certainly not costless, which is why these two areas G. SIB and leverage are top of mind for us in 'twenty and 'twenty one.

Now, let's look at the impact of this on margin on deposits on page 17.

In addition to what we've already discussed there are two more and building blocks required to see the full picture of marginal deposit economics, and they are interest rates and loan demand.

We've experienced a combination of both lower interest rates and lower loan demand, which have reduced the NIM of marginal deposits to practically zero, which you can see here on the chart and this is an issue for all banks not just G. Sibs are jpmorgan.

It is specific to the larger bank is that when the SLR becomes binding we may be required to issue debt and retain higher equity, which ultimately makes the marginal deposit and negative ROE proposition and today's ultra low rate environment.

He catch the question is what could happen next week.

And we just simply shy away from taking your deposits redirecting them elsewhere on the system.

Or we can issue a routine additional capital and pass on some of that cost, which is certainly something that you wouldn't want to do and this environment.

And therefore, we strongly encourage a serious look besides based capital calibrations with an appropriate sense of urgency as we will soon be facing that's critical business decisions.

All of this can be addressed through a few simple adjustments, namely and extension of the SLR exclusion and the G. SIB fixed as we've spoken about over time.

But to be clear.

We believe the framework as a whole has made the banking system and safer as we experienced in 2020, but we're also seeing evidence where the lack of coherence and recalibration is risking unintended consequences going forward.

With all that said before I close things out on capital Here's how we're thinking about target CET one levels.

Well, she said pressure remains and the need for Recalibration is high our S. C. D optimization can provide some offset allowing us to manage to a 12% CET one target.

The recent stress test showed and implied 20 basis point reduction to F. C. D and we have continued our optimization efforts since the resubmission and so we're hopeful for a lower F. C. D. Later this year of course that scenario dependent.

At this point, it's too early to provide specific color on the impact of SLR. So it's just important to note and in the absence of any adjustments to the measure we may have to issue preferreds or carry additional fees. If you want or the 12 per cent charge I just mentioned.

We obviously can't emphasize these key message is enough and these factors are clearly front and center as we think about managing our balance sheet and capital targets and the near and medium term.

Now before we conclude.

Note that we've included a few additional slides on our businesses and the intended to give you an update on their strategic highlights and performance as well as provide the latest financial outlook.

The themes and initiatives, we talked about at last year's Investor Day still remain our focus and we continue to execute and make progress against them.

So to wrap up.

And in 'twenty was an incredibly challenging year, but also showcase the benefits of our diversification and scale and the resulting earnings power of our company all our employees relentlessly focused on supporting our customers clients and communities.

Well downside risk to remain in the near term and they could be significant several recent factors help us feel more optimistic as we look ahead and the recovery and the medium and longer term.

So with that operator, please open the line for Q&A.

Yeah.

Steven Chu Bank with Wolfe research.

Hi, Good morning, Jamie and good morning, Jan and on a happy new year and so.

Sure.

So wanted to start off with a question on the NII outlook are the 'twenty 'twenty, one guide implies a rather healthy step up versus the 54 billion and Jamie.

Jamie are you had reiterated just last month and your updated NII guide for 'twenty, one and what are you assuming regarding the deployment of excess liquidity given some of the recent curve steepened anger and.

And separately what are your assumptions around the trajectory for card balances and overall growth and 21, especially in light of the expectations for additional stimulus, which we saw at least this past year could drive further consumer deleveraging.

Sure. So I'll start with excess liquidity. So I think there the theme is we're being opportunistic Ah patient.

So and you think about the recent moves that we've seen and the yield curve and the Grand scheme of things those could be small moves and you know what as we think about managing the balance sheet. It's not just about and I of course, it's about capital and so there is risk and adding duration at these levels are and a further sell off so we're we're being very patient and but we have.

Ben and we'll continue to be optimistic and you will have seen that we did at 60 billion to the portfolio and are in the fourth quarter.

So that's what we're assuming and the outlook is is a you know a very balance view on deploying the excess liquidity.

And then and.

And the implied curve yeah, let me invite her yeah and then on card balances is quite extraordinary what we're seeing in terms of payment rates are in the card portfolio, which of course is very healthy as consumers use this opportunity to deleverage. So there isn't offsets and the on the credit line, but but we are expecting that to normalize.

And the back half of 'twenty, 'twenty, one as and spending recovers, but that it is certainly a risk for us if they remain elevated so that's why everything listed on that page and the plus minus because everything could be and opportunity and a risk.

Fair enough and just for my follow up wanted to ask on capital and focus like a really interesting highlighting the impact of QE and on the leverage ratio and G. SIB scores and you've been critical of G. SIB surcharges and the need to recalibrate. These coefficients for some time, we haven't really seen much.

<unk>, they're kind of feels like waiting for Godot and.

If the fed is slow to recalibrate the minimum leverage ratios to account for this QE driven deposit growth what mitigating actions can you take to ensure you're not capital constrained as balance sheet growth continues and maybe any revenue attrition and we need to contemplate as part of those mitigating actions.

Sure. So I'll start with G says, if we take that and turn so starting when she said as I said, we do think that we have opportunity in the F. C. D of course that scenario dependent and based on the fed model, but we do think we have opportunity there based on the work that we've been doing it will be very disk.

For us to get back to three 5% with the current expansion. So we are expecting to remain and the 4% bucket, but as you know that's not effective until early 2023. So that gives us time to manage F. C. D. As I mentioned as an offset them on on the leverage issues. We have you know we can cure that through issuing.

Preferreds, and but we haven't made that decision yet as I said because it is it is a it is a critical decision for us to think about and as you think about capital return it would depend on where our stock price is and as we think about the economic value of issuing preferreds to buyback stocks. So there's a lot for us to think about over the next couple of months.

The courageous and the G SIB fees, because it's very important if we were on the international standard or juice, if you would be 2% not four.

And we've been talking about they were supposed to adjust user fees for the growth of the economy and effectively the shrinking size of the banking system because the banking system itself is getting smaller as mortgage just go to the non banks and private credit goes elsewhere and the rest of the international Chinese bank to grow and et cetera. So these adjustments should.

And we made and when he pointed out is $1 three trillion dollars of liquid assets and.

Merkel and secured their balance sheet, which shockey reach five G shipping to G suite and he has no risk weighted bedroom and do it no diversification to it no.

Profitability too and it's just kind of use very gross measures and it needs to be recalibrate and say that's a war zone do.

And we expected to happen probably not in our lifetimes, because we've politicised bank.

Detailed bank.

Numbers, and so and we can live with it for now, but and the longer and it's not good for America and fees that much of a disadvantage or competitors overseas.

Yeah.

Okay.

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

I am sorry, sorry, sorry.

Sorry, let me first like there maybe just talking about loan growth you saw a pretty nice improvement and in the wholesale side, you talked about some opportunities and 21, it seems to be mostly coming out of the CIB is that sort of acquisition finance, what what's driving some of the improvement on the wholesale side.

Yeah, I would say acquisition and financing is the is the opportunity on the wholesale side you know when we when we you know there may be some opportunity and the back half of 2021 in C&I that that feels like it's returning to a V. A U but I think that's going to take some time, but as I said, we are at historic levels of cash on corporate Bal.

And sheets, and so outside of acquisition and financing and a and C&I. It it will be challenging C&I and the back half of 'twenty.

Okay fair enough.

And then maybe on your expense assumptions for the 68 billion you don't really mention at all and the CIB.

You would think that if and if we are as everyone assumes you know we had a record year in 2000, 22021, maybe markets and I be fees are lower.

Is there any kind of are you building and some lower comps you know revenue based.

Compensation expense and and that 68 billion or is that potential are positive.

So we capture that and the volume and revenue and related Jim It just happens to be more than offset by a volume and revenue related growth elsewhere.

We agree with and a 68 billion.

The real made commitments and promises so that's 68 billion.

Love to find too big and more of investments.

Literally I mean, we're seeking every where to find more to do to help clients around the world and stuff like that so that's kind of our current forecast and Fortunately we found some more to do recruiting CX loyalty and opening more branches and some of the technology with billings et cetera, but I'd like to find more it would be the best and possible highest use of our capital.

Yeah.

Yeah.

Your next question comes from the line of John Mcdonald with Autonomous research.

Hi, John.

Hi, Jen given the outlook for net interest income and expenses. It seems like the efficiency ratio is going to tick up a few hundred basis points. This year and 'twenty, one versus 'twenty and I know you don't manage it necessarily on year to year, but just kind of over time, you seem to have a mid fifties efficiency target just kind of wondering.

How you put guardrails up.

For yourselves in terms of expense discipline and managing over time to have positive operating leverage and inefficiency corridor.

Sure. So I'll start by saying, you're absolutely right and we don't manage the efficiency ratio and any quarter or even any ear and the operating leverage is very important to us and then we gave last year at Investor day at about a 55% efficiency ratio I'll say on a normalized environment we have.

<unk> had anything that structurally has changed and so that should still be achievable for us in a normalized rate environment and otherwise normalized environment and then as it relates to expense discipline and you know it is a bottoms up process and so everywhere around this company, we are looking to get more efficient and holding people.

[noise] accountable to do just that which is why I call out on the slide that structural is basically everything that is and investments are volume and revenue related is it necessarily a representation of all of our expense efficiency. So the discipline and is everywhere and it's it's the way we run the company and we do believe and and the importance of operating leverage through time.

No doubt.

Okay, and then as a follow up on the NII walk you have got a billion dollar of incremental NII expected and 21 versus.

'twenty from markets and CIB markets cannot be true if markets revenues is down year over year can you know can they both be true and just maybe explain that.

Yes, it can absolutely be true so market says I mean.

Most of our businesses, we don't run and NII versus non interest revenue as it is and accounting construct that markets. Its particularly true. So yes that is that is possible and NII the markets and as you can think about is liability sensitive. So you know you're going to see the benefit of lower rates and NII that doesn't necessarily imply.

Anything about the overall performance.

And if positive carry.

Trading profit goes down and the carry goes up and not the absolute numbers per se.

Yeah.

Our next question comes from Erika Najarian with Bank of America.

Hi, Hi, Good morning, and my first question is on the outlook for card losses. The a 2.17% net charge off rate was certainly eye opening relative to you know what's happened in 2020, and the discussions actually that I've been having with investors.

On the trajectory of card is you know do you think that the bridge that the government built is strong enough that we may not see a spike in losses and card like we're all expecting and Jim given your comments earlier, what would you need to see to feel more comfortable.

And I'll releasing reserves from your card portfolio.

Sure. So it was interesting that you you you brought up the bridge being strong enough. It does feel like at this point and this crisis is that the bridge has been strong enough. The question that still remains is is the bridge long enough and so you know while we just had recent stimulus and pass that that makes us feel better about the bridge being long enough, but we have to get.

Through the next three to six months. So it feels like we've been saying that since this crisis started but I think it is particularly true at this point, obviously given the vaccine rollout sales you know consumer confidence is still low relative to pre COVID-19 levels. You you can convert that with and compare that to the wholesale side, where CEO confidence.

That's not true on the consumer side and so the next three to six months is gonna be critically important for us to assess whether or not only is it strong enough and is it long enough and and do we see consumer sentiment and pick up a bit there's also possibility for payment shocks and some relief programs, whether it be student loan forbearance or.

And you know tax taxes owed on benefits received there are things that could hit the consumer and the next three to six months that we need to think about it.

And we said very different for subprime and prime and.

And if you look at our portfolio, it's mostly prime and <unk>.

The folks and the prime category and I have a lot more income a lot more savings and housing prices are off and they did not lose their jobs.

And usually it was actually rather good on the lower court tiles, and you'll see opposite even now and when do we just do the all the stimulus checks and we did about 12 million of them, which have already been processed from.

From a 12.012 billion 412 billion.

And at the bottom.

And the folks who have a thousand dollars and their accounts, where the accounts are coming down and you just got a thousand they obviously need it and the folks on the higher and they obviously don't need it quite as much so.

As you know it is positive we expect it to go up it is possible somehow.

It doesn't happen and some dramatic way.

Got it and and Jamie and my second question is from good Gregory.

And they can afford it very important.

Yes.

We do not consider taking down reserves recurring global income we don't do show a profit we don't consider profits. It's it's ink on paper, it's baseball and lots of different calculations, obviously be one real loss it would be lower over time, but it was just if you use our card reserves like $17 billion, we took it down.

Quarter, because we are more optimistic outlook, we're not going to be sitting here. She worried about that we're cheering and mercury's new and better but we don't win from Stat earnings and I think you all should look at it a little bit differently, particularly with the change in accounting rules.

Yeah, I think I think your investors appreciate that.

And the second question I had for you Jamie is you know and loss on last year's Investor Day. It was clear to your Investor base that you were looking to Inorganically enhance your scale and AWS and what's interesting is that the the discussion that I've been having on your investors more recently.

Is there I'm wondering whether or not you would consider a larger deal maybe and payments you know given that a lot of investors and banks are thinking that that's the.

That's the part that seems to be potentially more vulnerable to technology and competitors and.

What are your thoughts there and I guess my my own thought process has been tempered by Jennifer is presentation on capital, but we wanted to get your thoughts there would be great.

We have underway, we are capital Cup brothers over and we have so much capital we cannot use it if you look at what happened. This year are kept away from 12, 4% to 13 43 and boy I think advanced is more representative of a real risk. So it'll be 13.8, that's after doing to try and to all the loans 12 trillion dollars reserves 12 trillion dollars 12.

Was there a $12 billion and dividend I mean, we're earning if you look at pretax pre.

Pre provision of 45 or $50 billion a year. So we're in very good shape to invest the most important thing we sit and these management fees as we grow day every business grow organically every single one opening branches and Amy accounts doing payments and will put a lot of time and effort to payments. We're quite good at it between credit card debit card Chase merchant services, but I agree with.

And but we're open for any inorganic too it was gone.

And it shouldn't be and excuse not for growing organically and and this is not just chase, it's not just asset management and it'll be any area, where we can do and I don't see it's loyalty and these things is to marry with Newsday reported 55, IC, which the special way to manage money on.

Sufficiently and so we're going to build it ourselves or by our rote commodity anymore and you have good ideas force, let us know.

We have the wherewithal, but we felt we will always look at buying it and like I said, we're always looking for ways to invest more money and he tells me. He's got a tremendous set of assets. We also have a tremendous set of competitors, particularly in payments and consumer land now and.

A bunch of other areas and so are you saw Google pay and you saw on.

Walmart is going to try to extent they've been and more time is expanding and we like competition. We believe it if and we have to be really prepared for debt and that is deeply on our mind and how we run our business.

Your next question is from Bank, that's secret sick with Morgan Stanley.

Hi, good morning.

Jamie a question on CX loyalty, because I thought you were a loyalty program and and capability set there and your payment space and your consumer facing space was quite good. So I'm just wondering what the rationale was and is there and expectation that youre going to be leveraging that into.

And on card portions of your business was that part of the so what was the steel.

So that's the I'll take that one so that's where we're really excited about this one and and a you know really with any tech platform scale matters. So combining our scale with CX loyalties and innovative technology will be a win not only for our chase customers, but for our CX loyalties existing clients and so.

Fires and then and then you're right to point out our existing U R platform, but that today is predominantly used as a points redemption portal. So there's a huge opportunity to capture a greater share of our customer spend on travel, which is 140 billion both on and off us. So in addition to capturing the full economic.

Value of the existing redemptions on the platform and we also have an opportunity to really turn it into a great place for our customers to book travel.

Okay, but still focused on the card space as opposed to moving into other parts of your relationship with consumers.

And it's it's core it's consumer and just thinking of is consumed over on them.

And there's nobody that has to be card only German and a number like more than 30% of travel expense goes through our cards.

Something like that and.

And so we wanted to give a far better experienced or our own customers. When it comes to what we offer them through travel you're right Ultimate rewards always does a good job, but why wouldn't you try to double that overtime were triple it.

And we think we can we can we can do a better job for their existing clients and suppliers. So it wont just be about chase customers historically.

Okay and then the follow up question just on the technology budget, increasing I mean I know this comes after a year of being somewhat stable year on year and.

And just wanted to dig into the coming and you made on the on the page around data analytics cyber security and artificial intelligence capabilities again, you've been a leader and this for awhile. So you know the question is what where's the white space that you're moving into and can you give us a sense as to how.

Important this is for some of the expansion that you're doing geographically and you know you can't just at all and some of the European footprint that you're expanding into them.

So so push on cyber we're gonna do we have to do whatever it takes and we are going to do that and everything we do but you mentioned you know we built on.

Our brand new data centers pretty much around the world where share a lot more efficient and they're gonna be effectively the dark cloud base, but they have all the cloud our technology et cetera for old private cloud, we're moving other stuff to the public cloud or refactoring applications get there, where we do and all the data you all know the issue the data and that's it.

Thanks, Rebecca data was health and all these different accounts, you're trying to build these data lakes, you can use AI and machine learning and better and it all due haste to cloud is real and of course, there's real the speed is real and securities will be always be able to machine learning is real. So every single business. It was equity single maybe you could go through was talking about what are we moving to the cloud whether it's internal.

On the external what are we adding AI and machine. There on are we getting the data and analytics right and it is global and we.

We don't spend that much time on it but every single business is doing it.

You have a tremendous amount of AI being used and that's.

And wealth management, CIB and trading and commercial banking prospecting and it's literally the tip of the iceberg.

But whatever we say today 10 years from now it would be probably 50 times more and what we're doing today.

Okay.

And I would spend anything to get it done faster.

Yeah.

Your next question comes from the line of Ken Houston with Jefferies.

I can alright.

Alright, thanks, good morning.

A question on on on capital return and capital usage and and the deck and in your press release, you mentioned that you're.

Can you get back into a.

More return of capital you mentioned and four 5 billion net and Theres still the net income test and I was just wanted to ask your debt kind of walk us through how you think about you know how.

How do you think about full usage of that $4 5 billion and then how do you think forward vis vis the comments, we just talked about with regards to potential external opportunities and what's the best use of that incremental capital given that you still have a healthy amount sitting there.

Sure. So so we always start and the same place, which is we would much prefer to do the things that Jamie has been talking about Ben to buyback our stock. So we would much prefer to deploy it to organic growth or acquisitions, and having said that we do as you point out has a significant excess capital at this point when we look at the first quarter.

The fed capacity it was defined by the trailing four quarters of profits and so when you back out our dividend and that's where you get to the four and a half million. So that is you know the capacity that we have for this quarter and are and you know, we'll we'll do up to that amounts, obviously and I don't know that we'll do the full amount, but well well well certainly.

Do you, obviously can't do more than four and a half and then we you know we're certainly hopeful that we can go back to the are you under the SCB framework beyond the first quarter as we think about buybacks, but we'll wait to see what the fed says at the end of the first quarter.

Okay, great. Thanks, Lee as you can imagine capital down to the 12% or whatever we said that's about with regards to I'd be getting permission from said they've already applied and that's what they can do it that's the way it should be done and eventually one day.

Yeah, No I understood I wanted to point out is that right.

We've been consistent at two times tangible book with our earnings power and dividends and all and stuff like that it still makes sense to buy back stock, but that diminishes every point.

And two core and wanted to point to a $2 three.

Much rather use our capital to grow organically your energetically and yes, I mean, what we'll always look at the effective return of us buying back our stock for our remaining shareholders and if we think it makes sense relative to alternatives and we're gonna keep you on it.

Yes, consistent with what you've said in the past thanks, and just a question on the card business.

And you mentioned that how much of that spend goes through Jamie Chase and just you're you know you're on a given that we still have some uncertainties with regards to a true return to open.

And your card segment revenue yield actually did improve a little bit and just wondering if you can kind of help us just think through just the pushes and pulls you see on the card business with regards to your expectations of spend improving our balance is improving.

And and competition underneath thanks.

Yeah. So from competition remains very very strong as it relates to the revenue deal that's a little bit of noise. There because balances are down so much and that's that's what that's derived from and so there's a little bit of noise. There importantly.

We do it if GDP is back to 2019 levels by the middle of the year, we expect spend to continue to recover and perhaps significantly so and the second half and.

And as it relates to travel whether it's the second half of 'twenty, one or 'twenty. Two are we we are confident that our customers will continue to travel and and there's pent up demand on shore for travel and so we are excited about those opportunities whether they come you know and 21 or 22 or beyond and we.

We take very seriously and new entrants like the yard Goldman Sachs card.

And there are a bunch of other folks are doing similar things and we expect to see more of that.

Your next question comes from Glenn Schorr with Evercore ISI.

Glenn.

Hello, there. Thank you.

I think it's a good time.

To get your Mark to market on your thoughts on the competitive landscape and I know every business is competitive.

But I'm more curious on.

The new site is competitive and and maybe I'm talking more about the consumer and commercial banking right now, but between all the neo banks that either want to pay much more than you guys on deposits our charge no fees or the buy now pay later models, where things were you also even play and banking as a service and trying to provide banking.

<unk>, two big technology companies with big client footprint.

And most curious to see is this just normal evolution and not changing things or or is there something bigger.

Going on here that you want to comment on thanks.

Yeah, and so on the.

And the commercial bank is probably less W think I do think there are alternative credit providers, but we also do a lot of things for our clients. They can co investment banking and FX swaps on cash management custody and asset management et cetera. So it's slightly different like on the consumer So I mean listen we wrote and the chairman's letter years ago that Silicon Valley has come.

And I think it's just more and faster and better and quicker.

And we have to just be very conscious of that includes the pay now pay later and we are some of the product ourselves, but as you know our job is to make sure we use our unbelievable strength and client base and capability and then.

And the GOR and always points out when you have that kind of product set goals to keep it simple and clear basic with the customer wants and that's it.

And deliver more and better and so and we're quite conscious of it and I would also add by the way. It's not just that we've the team looks at and Prudential and I always say and and.

All of these other competitors and I expect one day and you can see other big foreign banks back a year ago, including a big Chinese banks, the biggest ones were bigger than us and you know and that.

And that may be five or 10 years out, but we better be thinking five or 10 years out and so broke on me, but we're comfortable but you know were for.

We're still exercise it and take it on a particular vitamins and.

And it's another wave and our investments are going on.

And because we're very well aware of it.

Fair enough keep taking those arguments and maybe along the same lines I think you spoke spoken about.

The power of that data of your own client footprint, and and and franchises have and I'm. Just curious we haven't heard that much lately about what youre collecting and how you can use it how you can use it to enhance the customer experience accelerate growth.

You have all this at your fingertips and people talk about that as being the new gold and I'm curious on how you're thinking about it right now, yes, yes, and yes, that's all we're going to tell you.

I mean, I've talked about how important AI use on that.

The AI and data directly related and no.

And some of that gets us very well, but if you sat down and some of it does get us well, we have restrictions for more restrictions and some of our silicon valley competitors, but still they're ways to use our data to do a better job for our clients and we do a tremendous amount already and marketing and risk fraud cyber you name it and we use a lot of that like a lot of that stuff also protects our clients and sorry.

Yeah.

Okay.

Your next question comes from Mike Mayo with Wells Fargo.

Oh, Hi, I'll ask my question I'll ask my question and they go back and the queue and just I guess I missed your Investor day, we have four slides to talk about that I guess.

And if your capital Cup as write offs over maybe your expense budget right. It's over two I mean spending a certain returns are uncertain and so it seems like there's more questions. This year than in the past you did get positive operating leverage last year. During the pandemic. So yes, you've earned the right to go ahead and spend more I think most people would agree but there's still just so many questions. So I'll just add.

On C C b, a and it looks like slide 16, you mentioned going to all 48 states by mid 2021, I didn't really get all of that so.

And what how many states have you been in and by the time you get to 48, you know how much spending is that what's the game plan. What's your plan with branches others are shutting branches. After the pandemic you're expanding if you could just give some color on that or if gordon's on the call. We can hear from him too.

Gordon Gordon snack, but so we've restored as a waterbed or expand the branches and stuff like that and we're still closing plenty of branch and so if you look at what we're doing it because the number we've closed like a thousand the last four or five years and we've opened microstat was on something like that but and.

We did the banquet Jpmorgan deal, we were and 21 States 23 states and well we started the expansion originally.

And we're very conscious that the world and you use less branches and this shaped the British differently and you made a hub and spoke and we're always testing new things and stuff like that but we still have almost a billion people a day visit branches and that's down.

And people a day I've got the number at 60 and started just any accounts still open and branches and small businesses still need branches and the new branches that we opened in Boston and Philadelphia.

D C.

They've been doing quite well and it's shocking thing, it's doing quite well and card and.

Consumer investments small business. So as we go on all the other states. We just wanted to be and we know we have to have certain size and each day with one just to play a declared that'd be kind of a waste of time and look at the major markets remember people already noticed to chase and stuff like that and so we're optimistic that this strategy will pay off and will it.

And we'll enhance our businesses our capabilities and.

And the other things and I could tell you. This is a very competitive I think share too much with our competitors in the past so I'm gonna, it's crush on myself up a little debt.

No Mike I can just add a little bit of color on the numbers. So we had said that we were going to open up 400, new branches and market expansion. So we have done 170, so far and importantly in 2020, we did fewer than 90 and in 2021, and we're going to do 150, and so of course we.

And by 2022, or 2023, and that's gonna start to Sunset. So there are in the numbers multiyear investment and Scott will theyre ramping maybe in 'twenty, one, but they will ramp down now that will obviously give us capacity to reinvest those dollars but.

We have a lot of capacity within the numbers you see on the page to continue to increase investments without necessarily the absolute number going up and tech as an example, a 10 or 20% of and of that number in any given year is completed so that gives us more dollars to reinvest and then the only other thing I'd add on branches is just like the <unk>.

Franchise value that comes with opening up these branches and you see them is extraordinary and I think underestimate it because it gives us the ability to do you know state and Muni municipal business that we wouldn't have otherwise been able to do so it's not it's not just about consumer banking and.

And it gives me a chance to go to North Dakota, where she only state I've never been a believer.

And believe it or not we already do a lot of middle market and credit card and mortgage and North Dakota, We just didn't do a consumer banking. So I do the second Rumble and I'm on my way to like Bismarck or and Fargo support.

Hi, Justin.

Did you read on the new head of Investor Relations Sioux City, and his roommate out Reggie Chambers.

And I'm sure you'll get to know this was part of what he did for Sun's out which is the all the branch expansion.

From a restrictive and how much you can tell you.

But and including looking at different formats, we're not blind and nature that you have got the world's changing and digital that so and we could very quickly and it just so you know I forgot the number changed the fleet.

You said, you've got the world changing more rapidly we're completely comfortable debt and a five year period, we can dramatically reduce the size of the fleet or the cost of the fleet et cetera, while serving clients.

And so this is kind of like what you did with commercial bank from a few years back going to every state I guess, but so 48 states of where where you say a year ago or three years ago, just to give final context to that.

28 states three.

And three years ago.

And part of commercial Bank same thing we talked about expansion. So we bought womble.

Took years, but we separately and do a billion.

And the one stage, which is most of the California, Florida Atlanta. So we've got we're very close to hitting that come to us like 908 million this year or something like that I told the teams. We reviewed it yesterday that when we hit a billion I wanted to send a case of really expensive wider and wider geico, Steve Walker, who did it for us and.

Alright, great and we told them till the right great bankers, great capability and stuff like that we were doing $400 million of investment banking business. When we did the bank when D O J P. Morgan through the commercial bank, we set a target of 1 billion and $2 billion and three day, we exceeded 3 billion because I think we did three and a F P and the new target is 4 billion. It's now.

And with 25% to 30% of domestic U S investment banking and which.

With DCM ECM M&A through the network and the investment Bank and these commercial bank expanded into health care technology, and you have a couple of other areas and we're gonna be rolling out soon and so Oh. These expansions really makes sense they pay for themselves the relentless but hard to do.

They were working right.

Okay, all right and remember the commodity and commercial bank generally and these branches.

It's very hard to and.

And we've done it but it's very hard to build the quality business without a retail branch system and your commercial bank and you will see very few commercial banks that don't have retail branches.

Your next question comes from the line of Brian Klein Hensel with K B W.

Hey, Brian Hey, good morning.

Just a quick question on the expense outlook and I noticed there was a small piece and they're related to the workforce optimization, but I guess thinking and the broader context as we get through COVID-19, and move to the post COVID-19 World. The general thought process was that there would be this big expense save opportunity coming from that work from home environment, but it doesn't really.

Show and your expense outlook and Thats something that you can expect to see beyond 2021 of this.

Stepped down expenses.

And the Big picture, where are people expenses 33 billion of real estate expenses I must say 3 billion. Yeah. So yeah, EBIT and I do think you can be much more efficient on that but I don't think it's quicker.

The game changer, and and we can't we can't move our footprint that quickly anyway. So we do and we do have time here to make sure that we do it really thoughtfully.

But just thinking about moving to finance functions of Florida.

[laughter], Hawaii, yes, a lot of Hawaii and right.

And then just a follow up on maybe on the international and thoughtful the billion hopes of additional revenue on the international if you could just give us update on how that's tracking so far.

We're excited and catch anyway.

On the international revenue expansion that you would hope for the well first of all the investment bank is expanding broadly everywhere as best we can and as soon as the asset management and <unk>.

Before we spoke on China and stuff like that the commercial bank started and international expansion effort to cover companies overseas and we do business with here that we're not covering and it's doing fine and it's mostly expense right now.

We added bankers and products and services and legal and from Florida, and we didn't and we have you been any classes and we're quite happy with it I should point out there and we've just had the best year ever and Asia.

And I think it was up like 20% or something like that so and.

Asia is still would be one of the fastest growing markets and the world, so or and that's kind of country by country to make sure we get that right.

Yes.

Your next question comes from Gerard Cassidy with RBC capital markets.

Hi, Gerard.

And Jennifer Hi, Jamie.

Can you guys share with US obviously, there's been a change and the administration and the Senate and a number of on a regulatory body heads are going to be replaced this year, including the OCC and the consumer Protection Bureau can you guys give us some color what you're thinking about what may change from a regulatory standpoint with the.

Different political party controlling Washington now.

Yeah.

This is always to say we've got it.

And we've got 60 million U S card and you've got 6000 investment clients around the world and we.

We brought on was coming to serve clients communities hostels refinanced $100 billion of states cities schools hospitals, this year and Thats, what we do and obviously, we want to satisfy all of our regulators. So I do expect that there'll be a new set of regulators will have a new set of demands.

And we agree with you we wanted to do a better job and climate for the world, we want and be more green, we want to help the disadvantage more we rolled out and enormous amount of progress ratio of quality and things like that so yes. It does.

They'll be tougher that's that's life, you're always flight from around the world and we're going to we have to do a whole bunch and deregulators, which we're trying to satisfy and the ECB et cetera, and so it's just not going to change our lives that much and competitively everyone's in the same kind of boat and so.

And so it'll be fun and.

And we want the new president and to be successful.

And then following up Jennifer you talked about on page 17 of your slide deck, the issue with deposits and the marginal.

Benefit of these deposits and you guys are wrestling with this issue can you share with us and you already have talked about the <unk>.

The branch expansion and all 48 states contiguous states.

Is this going to be managed as best you can over the next 12 to 24 months, because obviously long term and you want that branch expansion, but simultaneously as you've pointed out you may be getting a negative ROE. If you don't get relief on the SLR and is there a chance that you will get that extension on the SLR from the regulators.

So I'll start with we.

Certainly remain hopeful that we'll get the extension.

Importantly, as we think about branch expansion near term rate headwinds are you know, we certainly consider that but that at the margin there theyre not a factor given the long term franchise value associated with the branch expansion and and the fact that it's not just about deposits for any one consumer anyway, because we have the opportunity.

To have a much broader relationship with them and all of that is factored into the branch expansion, but we do consider.

And in the analytics there the the near term headwinds from from rates, but there is day, a steady state number which is more of a normalized level of rates. So it doesn't it doesn't and presented it might change some decisions around marketing them, but it doesn't have a big impact on us.

Decisions on that.

A lot of leeway on this out of the investment bank.

Its repo deposits corporate clients trade finance all those other things. So the this is managed very very closely remember G. SIB and he is just one of them.

And 20 constraints, we manage by business byproduct by area by region by Oh.

Yeah, and and we bring it up obviously it is an issue for us and that in the near to medium term should we not get the extension and it's one that's important.

For people to understand but we bring it up more so because it's just another example of where lack of coherence around these debt. These rules can have an impact not just on J P. Morgan. So we don't bring it up just because of the impact on J P. Morgan and we bring it up because it is perhaps one of the better examples of our of the need for.

<unk> Recalibration you have to have the right incentives and the system and for it to work through time, and we're just seeing that that's not the case.

And remember we were able to reduce deposits $200 billion within like months last time.

And we don't want to do and it's very customer friendly and say you take your deposits elsewhere, but right now they do have a lot of these larger corporate card. If you have other options and it's not just deposits, but money market funds or something like that so well.

What matters is that none of this could be an issue for 2021 and folks I mean fundamentally just to elaborate on our company.

And even and even if debt temporary relief goes away and I'm always against temporary relief because from this exactly and it creates another clip even if it goes away before we just have to manage it much.

Your next question comes from the line of Matt O'connor with Deutsche Bank.

Hi.

And maybe a bit of a basic question, but why does markets revenue or trading.

Oh, good still not just from there, but the overall wallet and I get it that the investment banking business.

Theatre business, they're very good there's lots of liquidity banks have lots of capital but of course rates on near Zero Cross prototype volatility is low.

And I'll take away some of the answers, but just conceptually.

It's been a very strong it sounds like the hope is that all remain strong.

What's really driving it.

There's $350 billion of global financial assets.

50 trillion and 350 trillion.

And probably in 10 or 20 years, and there will be 700 trillion people have to buy and sell to hedge for the ads from money around the world on.

FX currencies on our pension plans.

Obviously volumes go up and down you know spreads generally over time, its been coming down, but you would expect and a competitive market and so but with the expansion of the balance sheets of the central banks around the world for Gen showed you on the three or four trillion and the fed pretty global it's 12 trillion.

And you know companies have a lot of financing to do and.

Force, where you have higher D C M and hire ECM and higher M&A that also drives a lot of trading and so.

And you got to kind of put them all on the mix.

And obviously the question is how sustainable is this and and I guess, one argument would be that technology has allowed banks to increase the velocity.

You've been talking about this for some time do you think that is a structural change on.

And that will benefit their businesses and specifically for you guys.

Correct.

Alright.

And the way to look as we've kept our share of what people are trying to find and digitized and the business is done and kind of the way we expected them to do it. So yeah, we think scale matters technology matters, and hopefully and we think we can even grow our share of just this is just trench warfare.

We expect to grow it, but but we I don't see on its very hard to say with the base level is.

And we thought that the base level of Covid bottomed out sometime last year, and but you know what those.

And it stays high and the state and 2020 that I doubt.

And it may not go back to what it was it may be higher than that.

Your next question comes from the line of Charles Peabody with portal.

Hi, Charles.

Good morning.

Couple of questions related to Fintech, and unfortunately always prompt born in the wrong generations I need a lot out.

How dependent is the Fintech world.

On the banking system and.

And as I understand they lay on top of the pipes and the plumbing and at the banking system.

Do you have any leverage and a competitive world against the Fintech World and and.

And then secondly.

I noticed that the OCC gave banks the green light to use public blockchain networks and stable coins can you explain how.

What's important is that has to jpmorgan.

Yeah.

Do I go to the block trade Oh, Okay sure. So so so that that guidance enables and offering of stable coins on a public blockchain. So that doesn't impact J P. M. Cohen J P. On corn and you should think about as a token innovation of our customer deposits. So it's obviously very early we'll assess use cases and and.

And customer demand, but that but it's still too early to see where the skull and suppressed.

And we're usually blockchain for sharing data with banks already and so we're at the forefront of that which is good. The other question was about and.

Yeah look first of all they are very good competitors and I pointed out to a lot of people you know Paypal is worth $250 billion squares with only $20 million drivers worth $80 billion and financials, there quite a bit now, but it's they're they're they're they're stronger smart some effectively ride the rails, so something we bank a lot of them.

And we help them accomplish what they want to accomplish and where you have so my view is we're going to compete when we need to and we have to look at our look inside about what we could do better or could have done better and things like that was uncovered and we're gonna be able compete but I think we now are facing and old generation.

Newer tougher faster competitors, who and if you don't mind, the rails and J P. Morgan and they can brighten relative so no. So you see I told you before everyone's going on we're involved and payments. Some bank is going to white label, which makes you know which makes it a fintech competitors. These white label banking and build whatever service. They went out with it and we have to be prepared for.

I expect it to be very very tough brutal competition that extra on yours I expect to win so what have we got.

Thank you.

Do they need the banking system to complete their loop of service or can they work.

And were completely outside the bank debt.

Most of them do for now, but I think it's a mistake because it says can be forever. The game's bank licenses, Utah is giving people a doctor of licenses.

And I said, thanks for white labeling and so it's effectively the same thing if it's a fintech company use the white label bankers to process their business. There there was basically a bank no win with the regulator to it that I don't know, but we have to assume that they're going to do it.

And then some don't need to find ways not to use the banking system, which they've done I mean, if you look at you know a whole bunch of other things they do stuff around the banking system, which is fine and I'm not against that the regulators may have a point of view, but that one day, but I'll, let them worry about that and worried about us.

Your next question comes from the line of Andrew Lim with Society.

Hi, Andrew Hi, Hi, good morning.

So I'm just looking at places like Blake I was wondering if there is there are examples of unfair competition, which we will do something about it eventually people who will make a lot more.

And on debit because they activate on this sort of thing it's the only way they compete and just because of that.

Basically on PK wise to AML and create risk for the system and I go on and I don't know, but there are that part we will be a little more aggressive on people, who improperly use data that's been given to them like plaid. Okay. So you could expect that there will be other battles that take place here.

Oh, sorry and <unk>.

Yeah.

So I just I just want to pick your brains on the inflation.

Hopefully inflation metrics are picking up if we look at the rates that we would pick up and inflation indicators and.

It's like a lot of people are jumping on dissertation and bandwagon.

But I just wanted to see what you are seeing on the ground and the real world.

And how this lumpy manifesting itself.

And in commercial banking, all and investment banking.

In terms of like the demand for products or volatility.

Is that something that you see as athene developing.

Alright.

I mean look we don't have that much more insight and you do you do see signs of it and sort of commodities and certain products and consumer goods and stuff like that it's hard to tell that it was supply lines that are their kid keep up with demand or do you have long term trends and trade is no longer and from the world.

And that can change and vision.

And we looked at when Jim and give you those numbers. So you can always use the implied curve I think the best way to think about it is I think there should be a much bigger conversation next year.

Because we have good growth I think that's a good thing and have good growth and partner inflation, but that will become part of the compensation and how bad was going to do and things like that and just as a risk management and saying you've got to build into your mindset that you've got to look at that as being a possibility. So I think maybe a year ago people and so its not possible before COVID-19 and narrow because.

And if the world is done 12 trillion dollars of QE and something like 10 to 12 trillion dollars and fiscal stimulus you've got and put on that thing a scenario, where you have higher inflation and not 2%.

That would be great yeah, that's like a goldilocks.

But you know like three or 4% and just so you understand what the risk is there and how you would manage through it that's not the worst thing and the world by the way the worsening and the world There's no growth.

Mhm.

Great.

Okay, and and and so my follow up question you talked about some.

How do you resolve the issue of excess deposits by pressing the way about 200 billion of those.

So I was just wondering why and why you don't do that now or is it coming from what the problem that much bigger.

Yeah.

We don't have to now and that's all so we don't have to yet and it's also it is slightly different in the sense that there was capacity and the system then to absorb it and this is an issue for everyone. So yeah.

And that that could be a challenge.

You can't make them go away.

Your next question comes from Betsy <unk> with Morgan Stanley.

Oh, Hi, just a couple of quick follow ups, one Jamie on the topic of payments and competition. You know Libra is Facebook flavors back out there getting rebranded as D. M. And you know we you know that their goal is basically to be a global payment network or at least create one.

And I'm wondering does the OCC stable coin approval do anything for you and you already have J P. M. Cohen, obviously, that's internally your own footprint, but I'm wondering is there any benefit of the OCC stable coin approval and is there anything with regard to no. The Libra competition, that's coming that are.

Would drive.

Changes that you're making and and your own platforms.

I don't think so but.

I don't think so we expect okay.

And obviously this is talking about and separate banks, having digital currencies and stuff like that but their currency is digital and where you're moving around the world. It's some central bank for all grew by electrons and stuff like that.

And you expect that stuff is coming in.

It may not change our world that much but some of your competitors, who want to do it they want to be in payments. They want the payments data they wanted to move the money again.

And again, it's gonna be a regulatory issue about what that means.

And then so as long as it.

And just not unfair and that's the only thing I suppose and all the carpet as long as we can do the safety and the competition can do and it's hard to argue this that's unfair.

And as Dan mentioned earlier, you might have missed it but it does not impact J P. M. Cohen JP and pointed is different and you should think about that as a token and I think deposits to maintain its easier for clients.

Right, Yeah, no yeah, no I totally get that I was just thinking hey, if that would see fees, allowing stable coin maybe they're trying to you know.

Help move the center of this back you know and into.

And to the banking system that was kind of a question on the follow up was just on back to slide 14, and the other a purple you know area or the non technology and expenses are moving up year on year and part of that is the 30 billion and commitment to the path forward initiative and.

And Jamie I wanted to understand like how you're thinking about that 30 billion and what kind of timeframe is that over you know and and where that money's going I mean, we put a note out as you know this past quarter on.

Housing and on housing and our quality and and wondering how you're thinking about how youre going to be investing in that 30 billion and kind of Oh put that you want from it right.

So we believe that any quality is a real problem.

And then and.

And if people don't always know, but about 40% of Americans make $15, an hour or less which is $32000 a year or something like that 50 million don't have unemployment and people at the lower end or die and quicker and they died before so the first time and in our lifetimes, our grandparents lifetimes Americans for mortality is getting worse not better.

And society has to fix these problems now we need healthy growth healthy growth and that goes but you also need education infrastructure health care and affordability. The ratio problem has been around for hundreds of years and with all of the things that took place after even after the civil rights and we haven't made the progress that we should be made sure we and unfortunately.

And lots of other people and companies take this really seriously how can we help all of American citizens and particular, the black community who's been left behind.

And for so long and so our effort is five years. The 30 billion includes that's going to be.

Exact numbers, we published 8 billion of mortgages to and lower middle income neighborhoods Black neighborhoods are primarily black neighborhoods and includes affordable housing.

And building affordable housing includes billions of dollars for entrepreneurs of color includes finished education.

We recently, but over a million secure card, which is what we expect it to do with this these are cars that you'll have all the benefits banking Atms and online bill pay before 95 a month.

For lower paid individuals we're doing more and more education of those 400 branches are open and 25% or more and be in Illinois, and neighborhoods, where financier M D and C. D. F. Ours. So it's a serious effort its course, hundreds and millions daus easier or harder to people involved here. So we don't we haven't down to how many loan offs, you're going to put in this neighborhood.

Well, even from that era, and we would've reported out to you, we're not going to and we're going to take work and work didn't work. We don't mind thinks about working with a changed course and stuff like that and so and obviously includes hiring more from the black community trading here and stuff like that so Oh these efforts.

And I would view is that the co.

The World has to do this if you want and fix it and it's not going to happen we need good government, but it's not going to happen just with good government. The jobs are at the local level unemployment and the south Bronx, and 20% or 20, it's still high and the kids didn't have computers to go home and do the resuming and and and the good schools and.

And unfortunately, a lot of co after peas, and clean my wife said lot of computers to people there but.

We have we have to do something about this we were all were soft for Wii and.

And my view and you should do it from moral purpose is alone that would be sufficient but for commercial purposes do it.

If all imports from Merck and doing better and better outcomes and more jobs and healthier people and less crime and prisons and less drugs and so it's time to get our act together and and.

And again I think business has to work in collaboration with governments and do it I just don't think it could happen alone and it's not going to happen just by yelling and people.

Is the successful companies do not create the slums, but they can help fixed them.

Your next question comes from the line of Mike Mayo with Wells Fargo Securities.

Hi, just following up more on the market expansion and our commercial banking.

Could you just drill down deeper on the international part of that expansion and what's left to be done and the U S.

Well I think you all and the U S.

The U S.

Again, we're only going to share so much information from now on.

But it's the same thing we've looked at all the major S. M S as where the middle market companies, we're doing deep dives down and they are and I think we're now in 75 of the top 75, roughly so its at that expansion now just going deeper and not maybe more at this point there'll be helped a little bit by the retail expansion like overseas and I just.

Just don't remember the number off hand and either okay.

Okay, but you're talking about.

Yeah.

And that will eventually cover it could be dead wrong on this but that was more clients overseas. These are headquarters are subsidiaries of foreign companies that we probably do business with headquarters subsidiaries and the U S.

And well and we could share more of as you later down the road and how much would tell Charlie you can't imitate me on this one.

[laughter] Oh my God.

And I would just add just from an expense perspective, it's important to remember on the international front that we're riding existing rails that are already there and the CIB. So we can and this is this is an extraordinary opportunity to hire bankers and we already have the infrastructure. So that we were on.

And we usually generally bank the U S subsidiaries, and that's where our U S headquarters and its not the lift you might think from and expense perspective.

Okay, and then just a follow up on the other questions that have been asked related to Fintech.

Jamie you said youre going to win right, but based on the valuations of the Paypal and stripes and.

Lisa and Mastercard and anything that Fintech related I mean, they they trounced the valuation of your stock. So I think the market, saying that others are going to win so how is J P. Morgan is going to go I mean, you said Silicon Valley is coming what that was like six years ago or something and so.

And then and then each year, we say yeah, we missed it we missed it we miss it well.

And here with Mike and we never said, we missed it we've been doing fine those last five years.

But I, but I do agree with you and you know I'd tell you that the management team. We're all operating community a little deck that show visa 500 billion Mastercard drove 50 Bank Paypal, two and three day and financials six nine and.

And since the 800 billion Alibaba.

Alibaba.

Trillium, Facebook, Google and Apple Amazon you can go on and on but absolutely we should be scared shitless about debt.

So how are you going to win I mean, just like.

Like what I'm not going on I'm not going to tell you.

[laughter], but from here, but we have plenty of resources a lot of very smart people, we just got to get quicker better and faster and that's you know, which we do it. We've got you know we've done an exceptional job. If you look at looking for and we've done you can see we've done a good job, but the other people have done a good job too.

Some of them monopolies virtually so it's a whole different issue but.

Your next question comes from the line of Gerard Cassidy with RBC capital markets.

Thank you.

Hi, just one follow up obviously, Jennifer you pointed out that you're.

Mortgage production revenue was quite healthy and the quarter and and you've penetrated the correspondent channel can you guys share with us on the servicing side with the new you know with the.

Forbearance programs that the government has put into place is that a positive or negative for servicing revenue as we go forward.

Oh gosh.

General and answer that one.

Yeah.

Yeah.

I don't even know exactly how to answer it you're right and I. All I can say is that when you give.

When we give customers the help that they need and if that's what the bridges them to the other side of this thing for sure is good. So I don't I don't know precisely what the masses, but theres no doubt its good if it helps get our customers to the other side.

Service and their mortgage.

In the past when loans go into delinquency, obviously, and theirs and and a mortgage backed security. Obviously, you guys have to advance the funds and stuff, but the deferral loans or not and I'm, assuming you're not in that category is that correct that.

And that yet and you're absolutely right and of course, it's servicing the defaulted loans is like 10 times. The sorry of course survey and non deposit loans. So jet is right as long as they don't currently default, there's probably a small benefit.

Right. Okay. I got you were talking about advancing that they and servicing.

Servicing costs got it and that's not an issue either.

Okay. Thank you and I appreciate it.

Yeah.

Folks. Thank you very much for spending time with US will force you all soon.

Thank you for participating in today's call you may now disconnect.

Yeah.