Q3 2021 JPMorgan Chase & Co Earnings Call
Yeah.
Please turn by they were about to begin good morning, ladies and gentlemen, welcome to Jpmorgan Chase's third quarter 2021 earnings call. This call is being recorded your lines will be muted for the duration of the call people now go light duty presentation. Please standby at this time I'd like to turn the call over to Jpmorgan, Chase's, Chairman and CEO, Jamie Dimon, and Chief Financial Officer, Jeremy buying him Mr. Barton.
Please go ahead.
Thanks, operator, good morning, everyone. The presentation is available on our website and please refer to this to the disclaimer in the back.
Starting on page one the firm reported net income of $18.0 billion EPS of $77.0 sons on revenue of $34.0 billion and delivered a return on tangible common equity of 22%.
These results include a $3.0 billion not credit reserve release, which I'll cover in more detail shortly as well as an income tax benefit of $566 million.
Adjusting for these items, we delivered an 18% R O T C. This quarter.
Touching on a few highlights.
It was another strong quarter for investment banking, including an all time record for M&A.
And while loan growth remains muted, we see a number of indicators to suggest it has stabilized and maybe poised to begin more robust growth across the company and particularly in card.
And consistent with last quarter credit continues to be quite healthy in fact, nine net charge offs are the lowest we've experienced in recent history.
On page two we have some more detail.
Revenue of $34.0 billion was up $500 million or 2% year on year.
Net interest income was up 1% with balance sheet growth and higher rates, primarily offset by mix and lower CIB markets NII.
And <unk> was up 3% driven by solid fee generation across investment banking and AWS <unk>, largely offset by net securities losses in corporate versus gains in the prior year and lower revenue in home lending.
Expenses of $18.0 billion were up 1% year on year on continued investments and higher volume and revenue related expenses predominantly offset by lower legal expense and the absence of an impairment in the prior year.
And credit costs were a net benefit of one $5 billion driven by the reserve release, but it's also worth noting that net charge offs of just over $500 million, where approximately half of last year's third quarter number.
Just a couple of reserves on the next page.
We released $3.0 billion this quarter driven by less severe downside scenarios as the macro environment continues to normalize.
Reserves stand at $25.0 billion, which still accounts for elevated uncertainties surrounding COVID-19 and the current labor market dynamics, including the exploration of expanded unemployment benefits.
Now moving to balance sheet and capital on page four.
We ended the quarter with a <unk> ratio of 12, 9% down modestly primarily on higher R. W.
The firm distributed $8 billion of capital to shareholders this quarter, including 5 billion of not repurchases and the common dividend was increased to $1 per share.
With that let's move onto our businesses, starting with consumer and community banking on page five.
<unk> reported net income of $7.0 billion, including reserve releases of 950 million on revenue of $17.0 billion down 3% year on year.
Deposits were up 3% quarter on quarter, indicating some deceleration as excess deposits are stabilizing.
Notably contributing to this growth we ranked number one in retail deposit share based on the FDIC data and we're the only large bank to show meaningful share growth up 70 basis points year on year.
Similarly client investment assets were up 29% year on year and while market performance was a driver retail flows in both advisor and digital channels were strong.
Touching on spend combined credit and debit spend was up 24% versus the third quarter of 19 and in line with last quarter.
Within that data travel and entertainment spend was up 8% versus three to 19 and very closely track the patterns of the Delta variant within the quarter softening in August and early September and re accelerating in recent weeks.
Card Outstandings were up 1% year on year, and 4% quarter on quarter.
<unk> from higher new account originations.
And while the payment rate is still very elevated it's come down from the highs in revolving balances have stabilized and when we look inside our data we see evidence of excess deposits starting to normalize and segments of the population that traditionally revolve. So as a result, we are optimistic about the growth prospects of revolving card ban.
<unk>.
Moving to home lending average loans were down 6% year on year, but up 2% quarter on quarter with portfolio additions now outpacing prepayments.
It was another strong quarter for originations totaling nearly 42 billion up 43% year on year, reflecting record purchase volume and share gains in the refi market.
And in auto we had 11.5 billion of originations second only to last quarter's record.
So overall loans ex PPP, we're up 3% quarter on quarter on the growth in card and home lending I just mentioned.
Expenses of $9.0 billion were up 5% year on year, driven by investments in the business, including marketing.
And more generally we continue to see that the acceleration in digital adoption. During the pandemic has persisted with active mobile users up 10% year on year to almost $45 million.
So with that looking forward, we are encouraged by our household growth and balance sheet trends. However, we expect it to take some time for revolving credit card balances to return to pre pandemic levels, given the amount of liquidity in the system.
In the meantime, credit losses, and delinquencies remain extraordinarily low and card on a year to date basis versus 2019, low charge offs more than offset lower NII.
Next the corporate and investment bank on page six.
CIB reported net income of $11.0 billion on revenue of $16.0 billion.
Investment banking revenue of $3 billion was up 45% versus the prior year and down 12% sequentially.
Fees were up 52% year on year, driven by strong performance in advisory and equity underwriting and we maintained our number one rank with a year to date wallet share of nine 4%.
In advisory it was an all time record quarter benefiting from the surge in M&A activity and we almost tripled fees year on year and the market doubled.
Debt underwriting fees were up 3% driven by an active leveraged loan market, primarily linked to acquisition financing and.
And in equity underwriting fees were up 41%, primarily driven by our strong performance in Ipos.
Looking ahead to the fourth quarter. The overall pipeline is healthy and the M&A market is expected to remain active and if so <unk> should be up year on year, but down sequentially.
Moving to markets.
Revenue was $9.0 billion down 5% compared to our record third quarter last year.
Notably we were up 24% from 2019, driven by the continued strong performance in equities and spread products.
Fixed income was down 20% year on year due to ongoing normalization across products, particularly in commodities as well as an adjustment to liquidity assumptions in our derivatives portfolio.
Equities was up 30% a record third quarter with strength across regions and in reflecting higher balances in prime strong client activity and cash as well as ongoing momentum in derivatives.
In terms of outlook keep in mind that it will be a difficult compare against a record fourth quarter last year.
But the current environment continues to challenge our ability to forecast revenues.
Wholesale payments revenue of $7.0 billion was up 22% or up 10% excluding gains on strategic equity investments in the year on year growth was driven by higher deposits and fees, partially offset by deposit margin compression.
Security services revenue of $2.0 billion was up 9%, primarily driven by growth in fees on higher market levels.
Okay.
Expenses.
A $14.0 billion or flat year on year, as higher structural and volume and revenue related expense as well as investments were offset by lower legal expense and.
And credit costs were a bet, where net benefit of 638 million driven by the reserve release I mentioned upfront.
Moving to commercial banking on page seven <unk>.
Commercial banking reported net income of $5.0 billion revenue of two 5 billion was up 10% year on year on higher investment banking and wholesale payments revenue.
Record gross investment banking revenue of $1.3 billion was up 60%, primarily driven by increased large deal activity with continued strength in M&A and acquisition related financing across both corporate client and middle market banking.
Expenses of $1 billion were up 7% year on year predominantly due to investments and higher volume and revenue related expenses.
Deposits were up 4% sequentially, mainly driven by higher operating balances and loans were down 1% quarter on quarter C&I loans were down 3%, but up 1%, excluding PPP driven by higher originations and it's also worth noting that consistent with last quarter, we are seeing a.
Slight uptick in utilization rates in middle market and those among larger corporates it seemed to have stabilized, albeit at historically low levels.
CRE loans were flat with modestly higher originations in commercial term lending offset by net payoff activity and real estate banking.
Finally credit costs were a net benefit of $363 million driven by reserve releases with net charge offs of six basis points.
And then to complete our lines of business AWS on page eight.
Asset and wealth management reported net income of $1.2 billion with pretax margin of 37%.
Record revenue of $7.0 billion was up 21% year on year as higher management fees and growth in deposit and loan balances were partially offset by deposit margin compression.
Expenses of $10.0 billion were up 13% year on year, largely driven by higher performance related compensation as well as distribution fees.
For the quarter net long term inflows of 33 billion continued to be positive across all channels asset classes and regions with notable strength in equities and fixed income.
AUM of three trillion dollars and overall assets of 4.1 trillion.
Up 17% and 22% year on year, respectively were driven by higher market levels and strong net inflows.
And finally loans were up 3% quarter on quarter with continued strength in custom lending securities based lending and mortgages, while deposits were up 5% sequentially.
Turning to corporate on page nine.
Corporate reported a net loss of $817 million, including $393 million of the 566 million tax benefit that I mentioned upfront.
Revenue was a loss of $4.0 billion down $957 million year on year.
NII was a loss of $2.0 billion down $372 million, primarily unlimited deployment opportunities as deposit growth continued.
And we realized $256 million of net investment securities losses in the quarter compared to 466 million of net gains last year.
Expenses of $160 million were down.
$559 million year on year, primarily driven by the absence of an impairment on our legacy investments in the prior year.
On the next page, let's discuss the outlook.
Our full year outlook for 2020, one remains largely in line with our previous guidance, we still expect NII to be approximately $57.0 billion and adjusted expenses to be approximately 71 billion.
But as Youll see on the page, we've lowered our outlook for the card net charge off rate to around 2% as delinquencies remain very low.
So to wrap up we're pleased with this quarter's performance as we approach what we hope is the tail end of the pandemic the strengths of the company. Both in terms of our diversified business model as well as our fortress balance sheet talent and culture have enabled us to perform well through this difficult period, while continuing to serve our clients customers and <unk>.
<unk> as.
As we look ahead in the environment normalizes, new challenges will undoubtedly arise, but we feel confident with the position of the company and the strategy going forward.
With that operator, please open the line to Q&A.
And our first question is coming from John.
<unk> from Autonomous research John Please proceed.
Good morning, Jeremy wanted to ask about the net interest income guidance for the year. It seems to imply a nice step up in NII for the fourth quarter to roughly $18.0 billion was wondering what do you expect to be the drivers of that sequential step up and would you see the fourth quarter NII is a good starting point for us to think about our <unk>.
2022 NII forecast.
Yes, John good good question and good catch there. It is true that is quite a bit of sequential growth. If you do the math it suggests about $350 million.
In reality, if you think about what we've been saying about the outlook for increased revolve in deployment and so on the increase is not intuitively hi.
So just to explain within that there are a couple of factors. So one theres actually a meaningful amount of markets NII growth between the third and the fourth quarter, which in general weird sort of encourage you to ignore.
And Theres also some sequential increase in NII from PPP forgiveness contributing.
Contributing to the fourth quarter numbers. So if you strip those two out.
You still see a little bit of modest growth, which is a little bit more consistent I think with the overall story that we've been time, which is that the real acceleration in NII, especially from higher card revolve is a 2022 item in that context, then if you take that sort of lower number and think about annualized that.
I think it's fair to assume that that would be a sort of lower end estimate for.
For the 2022 number in light of what we believe will happen in terms of especially Carter evolve, but obviously you know we will give you a little bit more color about 2022 on next quarter.
Okay and as a follow up your cash balances continue to grow and you've been conservative on liquidity deployment could you update us on your thinking around liquidity deployment pacing that and what factors you're balancing.
Yes, totally so at the highest level I would say that nothing has really changed meaning we're still all else equal happy to be patients. We still believe in a robust global recovery.
We still are a little bit concerned about inflation I think relative to the consensus and all of that contributes to a willingness to be relatively patient about deployment.
But it's also fair to say that relative to last quarter. Our rates are obviously higher we start to see central banks around the world normalizing their policy stance, a little bit so the market implied rates are coming a little bit more in line with our view and given that you know.
It wouldn't be surprising if we saw some more opportunities for front end deployment in cash and cash like activity as.
As well as possibly some duration management.
Got it thank you.
Our next question is coming from the line of Jim Mitchell from Seaport Global Securities. Please proceed.
Hey, good morning.
Just first on loan growth.
Noting again auto has been strong card starting to show signs of life, but it looks like outside of acquisition Finance C&I.
C&I still seems a little weak and we've got ongoing supply chain issues. So I don't know as we think about the big picture. How are you seeing I guess loan demand trends playing out and what do you what are you expecting as the as the as the next 12 months progresses.
Yes, so let's go through loan growth because obviously thats.
One of the areas that everyone's interested and so if we start with card, which is obviously the one that's going to come out of the most in terms of NII impact as you said, we see some signs of life and.
And we believe that a recovery is strongly underway and it seems hopefully like delta is really fading. So so that's going to help if you just look forward to the holiday season, we would expect to see normal seasonality normal growth there.
And the question really for card as we've talked about a lot is whether that growth in spend and card outstandings translates into revolve.
But as I noted in the prepared remarks, when we look inside the data and we look at the customers who have both deposit accounts with us and our card customers and and we look at those who would typically be the ones that are most inclined to revolve we actually do see slightly faster.
You know spend down of the excess deposit balances there so that makes us relatively optimistic about both the potential for card outstandings to grow with higher spend but also for increase revolve in lower pay rates as we go into next year, it's going to take time obviously.
But that is the core view.
In home lending.
Broadly, we expect that this quarter's trend with portfolio additions outpacing prepayments to continue.
And then in C&I, which you mentioned you know just a reminder, right that as you go to the higher end of the spectrum in terms of the size of the C&I customers were eager to lend to them. It's a key part of the franchise, but from a financial performance perspective, that's more of a of an outcome rather than than a goal, but we do as I noted.
<unk> see a little bit of an uptick in utilization rates amongst smaller corporate so that's kind of consistent with the theme that we've been seeing which is that the smaller you are and the less likely you are to have had to have benefited from the wide open capital markets. The more likely you are.
To be to be borrowing we do hear a lot about supply chain issues from that customer segment. So it's going to be interesting to see how that plays out and then in CRE.
We see quite a robust origination pipeline as we've sort of fully removed any any pandemic.
Pandemic related credit pullbacks, and we're leaning into that and we do expect to see a little bit of net loan growth going forward and then finally I would note that we do see some loan growth and markets actually and you know we generally discourage you from focusing too much on NII and loan growth within markets, but it is in India.
Cater that there are some opportunities there that we're that we're taking advantage of and the usual kind of nimble way that you would expect us to do in markets.
Okay. That's all very helpful and maybe just a follow up on the expense side, you and your peers have all seen higher expenses this year higher capital markets and incentive expense increased investment spend but if we think about going into next year of capital markets activity normalizes as many expect can we start to see expense growth slow or are there other.
Iterations to think about whether it's investment standard inflation pressures that we should think about.
Yes, so it's a little bit of an all of the above story I would say so first of all we're still in the middle of budgeting.
And it's sort of a little early to be giving you 2022 expense guidance, we'll do more of that next next quarter, but realistically expenses are going to be up next year now to your point about capital markets related expenses. It's obviously true that we pay for performance and in light of the very strong performance over the last couple of years.
Ours in both banking and markets, we have seen increased compensation expense on the way up and therefore as a function of the amount of normalization that you see in 2022, you're going to see that come down in line all else equal obviously I would point out that I think that the amount of growth in that number.
What we've seen through the pandemic is less than a lot of people would have expected actually and therefore on the way back down you would also essentially expect loss participation.
Not to mention just the timing dynamics associated with the <unk>.
Treatment of stock based compensation.
Vesting so all of that aside at the same time, we are still investing we still see significant opportunities, we still see marketing opportunities in card and yeah labor inflation is a question you know you saw us re.
Raise wages and in parts of the U S. The entry level that just came into effect.
This September and as we look out we see a lot of churn and as Jimmy was saying, it's it's good stuff. It's normal it's understandable in this environment, but.
Labor inflation is definitely a watch item for us. So when you put all that stuff together as I say, we'll update you more next quarter, but that's sort of how we see the expense outlook for next year.
Okay, Great that's helpful. Thanks.
Next question is coming from Mike Mayo from Wells Fargo Securities. Your line is open. Please proceed.
Hi, there a couple of events during the quarter that I wanted to ask about and specifically how has the tech strategy evolved one you made the announcement that you are changing the retail bank core system entirely to the public cloud and that's a big change and Jamie I would love to hear your comments on that and then second your expansion in the U K.
With digital banking what metrics are you shooting for and third your recent fintech acquisitions to what degree.
Are there synergies among the acquisitions in addition to Jpmorgan. Thanks.
Okay hang on I am writing down your questions because I don't want to lose track.
Okay. So let's start with <unk> with the cloud first so yeah.
<unk> seen some press coverage around our partnership with thought machine at a high level, there's actually nothing new here, we've actually been committed to the cloud for a long time and by the way when I say cloud I think we're talking about both private and public cloud our core strategy involves really leaning into both and being very nimble across both and I think that's very important for us.
As a regulated institution from a resiliency perspective.
But the reasons for <unk> and that's all part of our overall tech monetization roadmap and a lot of the investments that we're doing that you've heard all of the leadership of the company and talk about it when it comes to top machine in the consumer space.
There are five main reasons why why we did that and it's all the normal reasons why you do cloud stuff and you do take monetization, we want to be able to innovate quickly and bring customer products to consumers faster, we want to be able to run multiple products on the same platform as I mentioned resiliency is critical.
Increasingly we want to be able to run the bank much more in real time, rather than based on batch processes.
Obviously, a P i's are central to the entire strategy in this in this environment. So.
That's what I would say.
About that now.
Now please.
Thanks, Jamie.
Not machine is a is basically.
For General Ledger.
All the other stuff around consumer and when you do these conversions different than conversions in the past you can do them you can schedule pieces <unk>.
We reported a time not all at once like a big bank, which we used to have to do and we did a big merger and stuff like that so.
Put into low risk for the company.
The core strategy hasn't changed at all.
Yep.
Okay, and then Mike.
International consumer and acquisitions I think you asked about so in terms of international consumer you will have seen that we launched it's obviously early days too.
To give you know meaningful updates on that but you will have noted actually that were just rebranded not mag is of J P. Morgan company, just a couple of days ago. So all of that's proceeding apace and it seems to be pretty well received I think the offering is seen as differentiated and innovative so we'll have more to say about that overtime.
Generally.
Again. This is this is a 10 year game plan. This.
This is not going to worry that much about metrics in the next month or two.
And with this as a long term work to try to get this thing right because if we ever going to be retail overseas is going to be digital and so we'll be very patient and at one point, Mike. We will report some metrics you can see them, but theyre not going to be material to the firm's numbers for years, yes, it's going to take time for sure.
So, but just more generally in terms of the acquisition strategy, we've talked about this a little bit before we're not claiming that we have some.
Overarching top down acquisition strategy I think broadly, we're just doing things that make sense, but there are some themes that you can detect.
Around bolt on and adding capabilities or just for the sake of argument. If you start with with AWS Youll see a pretty consistent theme in there of ESG related capability additions, you've mentioned already international expansion and the and the potential for growth and it'll be a long game as Jamie says.
And then yes, there is definitely a fintech narrative a little bit in terms of some of the stuff that we've done it in the CIB and then within consumer most recently the collection of things that we've done I think is unified by the theme of.
Providing more integrated and holistic experiences to our customers.
We've always been very proud of all of the value proposition that we offer especially in the car product, but we think we can take it up even another notch with some of the stuff that we're doing around lounges, and CX loyalty and stuff like that so.
I think I touched on everything there Mike.
You certainly did and just a follow up I mean, we see the results the marginal efficiency in the businesses, where you're growing it has improved and we just don't have the why so.
So how much of that is tech driven versus other reasons that Jimmy I guess, you have metrics internally that we just don't have.
Your marginal efficiency is what are the unit costs are going down or any additional color as to the why the marginal efficiency is improving.
Yeah. So I mean, I think reasonable people can differ on how you talk about this stuff, especially in terms of what parts of the expense base you see is a little bit more fixed versus a little bit more floating I would've said that in reality.
Marginal expense increases as a function of most types of marginal revenue are actually lower than a lot of people think so the sort of operating leverage that you see especially in the type of environment that we've had with really big increases in revenue and the capital markets areas in the in our IR side.
Is actually relatively consistent with what I would've expected, but a little bit to your point, Mike. What's also true is that.
We're a big organization, there's a scale play here, we have a big fixed cost base and a lot of the modernization agenda is about making sure that that doesn't creep in that it is as expensive as possible. So that it can be as nimble as possible and that marginal efficiency over time is as good as possible, but that's that's it.
Long play there.
Alright, Thanks, Mike.
Yeah, one of the things you should think about.
One is you people worried about the forecast for next year and stuff like that we're playing the game for 10 years here.
So we're going to and we're not going to disclose certain things like margin by product or something like that.
Inflammation, but the long game.
We're competing with some very large talented global players who are not even in banking today and we are going to compete natural even though these acquisitions are more around that and around.
Just what I consider traditional banking so.
And my whole life, just so you know we've been modernizing technology.
Every year of every month every quarter, that's like a permanent state of affairs, obviously now as to the cloud and stuff like that those things are critical to do to be competitive going forward that was true by the way 20 years ago.
Got it thanks.
Next up we have a question from Ken <unk> from Jefferies. Your line is open. Please proceed.
Thanks, Good morning, I wanted to ask if you can expand a little bit more upon card fees and card revenue rate. We certainly expected the marketing expenses to kind of go up inside that line and just wondering if you can help us understand how much of that was cash.
<unk> in the third quarter and just what your general outlook is for now the fee line and the underlying overall revenue rate. Thank you.
Yeah. Thanks, Ken So you are right part of the drop in the revenue rate. This quarter is a function of higher card marketing spend which you would have expected as a result of what we said last quarter in terms of the importance of getting our fair share of the of the growth in spending as we emerge from the pandemic and the fact that we're out in the market with a lot of.
Offers that are seeing good uptake and we're seeing nice nice growth. There. So that's expected and I think that card marketing number will actually remain elevated and if anything tick up a little bit sequentially just based on how the amortization there works.
So you should expect to see that continue but in addition, this quarter we have.
Just an adjustment to the rewards liability.
Which is contributing to the drop this quarter as well so that is not something that we see continuing so that should come out of the run rate as we look forward.
Can you help us understand like what the magnitude of that is and what do you think about overall card revenue rate going forward.
Yeah, I mean as you know, we don't really manage the card revenue rate. So it's not a number that I'm eager to guide too.
But I think the if I remember correctly I think the rewards liability adjustment. This quarter was of the order of something like 180 million. So, we'll we'll confirm that but I think that's right.
Okay. Thanks, if I might just ask Jamie you made a comment yesterday about the supply chain hopefully easing by next year around this time that what are you just hearing from your partners around the world in terms of the log jams and the potential for that to open up from here.
Yes, I'm not hearing much different than you're hearing.
I know that the over focus over time is so extraordinary sometimes the press that people forget the big picture the economy's growing 4%, 5% where people are buying has changed which has also hurt supply changed a little bit there's not one company no does not working aggressively to fix the supply chain issues sales are still up credit card debit card spend is still up.
Because he was in great shape and capitalism works.
We'll be talking about supply chain stuff for the year.
Things that we're focusing are too much is simply dampening a fairly good economy, it's not reversing a fairly good economy.
Got it thank you.
Next up we have a question from Betsy <unk> from Morgan Stanley. Please proceed.
Hi, two questions. One just following up on the card discussion that we just have regarding the fees and the $180 million on the roughly $180 million on the rewards adjustment and it still leaves us with a pretty big decline Q on Q.
And I'm, just trying to think through that a little bit because I know marketing rewards et cetera is up.
But was there anything in particular that would have driven a one timer that is unlikely to persist or not.
I realize that cash back into a little more expensive. So maybe that's a piece of it and it's a onetime move or is it more a function of hey, we're going to be ramping our offerings here and.
And so you should expect that the forward look is is.
The step down from what you had been seeing into Q.
Yes, Betsy in short it's really the latter so the only thing that is one time ish in nature for lack of it our term is a rewards liability adjustment and the rest of it really is marketing spend and we see that as a critical investment in this moment, it's a moment of high engagement with the product in.
We're very committed to making those investments and so that is going to remain elevated and if anything tick up a little bit as we look forward.
Okay. Thanks, and then separately.
I think today is the last day of the Vice chair supervision, Randy Quarles term as Vice chair of Southern Reagan. So the question is how should we be thinking about how you are positioning for an environment, where maybe these rules don't change right like the LCR the SLR.
The things that we had been hoping might have some some changes in them should we be anticipating that in order to help deliver the growth that youre looking for that we should anticipate more preface un's going forward.
Yes, so I think.
Obviously, we're a little disappointed that we haven't seen some of the changes on the non risk sensitive size based constraints that we had expected, but we're still hopeful that that will come soon we know the staff is hard at work on the Basel III and game and Thats complicated soften it may be the case that some of those things are connected.
And you know our strategy on profit issuance has been to try to balance giving ourselves the capacity that we want to deal with the SLR constraint without over issuing and therefore being stock with.
Hi cost, perhaps that arent callable for five for five years. So as part of the reason why we're operating a little bit above our CET one target right now and we're just going to continue to be nimble in that respect.
Thanks.
Next question from Glenn Schorr from Evercore ISI. Your line is proceed.
Hi, Thanks very much.
In the spirit of your thought on not over overly focusing on the near term I heard your comments on payment rates in cards <unk> seasonality optimism about revolving card balances. So is there an implicit comment within there about buy now pay later and the impact it may have.
May not meet I'd love to get your perspective on hand, this old and I guess, new payment option might have on the Cogs industry overall.
Yeah. Thanks, Glenn so I'll be NPL everyone's talking about it. It's a it is funny how you know layaway is back in the E Commerce checkout land, but.
Obviously, we're looking at it everyone's talking about it and it's a moment for us as a company, where even though for any given thing. That's that's emerging you could easily convince yourself that its kind of not a threat.
We're in a moment of taking all types of potential disruptions, especially fintech type disruptions quite seriously and then the case will be NPL, it's obviously, particularly high profile because of the growth that we've seen although it's it's.
It's a relatively small portion.
Of the overall market I'll remind you that we have our own very compelling offerings that speak directly to the installment payment experience in the form of mine Chase loan and my Chase plan.
Which we get really good feedback on the customer experience there in terms of the kind of post purchase experience you can select eligible purchases on the App and then move that to an installment plan if you want.
But yes, we acknowledge that it is downstream of the of the point of sale, which potentially raising some questions about whether we should we should be looking at.
Moving moving a little bit more upstream there, but even more generally when you take a step back what we're really trying to do in the consumer business. Here is think about what is the actual customer need that is driving the growth and be NPL and how can we respond to it you know in our strategic holistic way across.
All of our customers.
And not sort of too narrowly until Reactively just just.
Respond to be NPL, but it's obviously a thing that we're looking at and it's quite interesting.
And as another example.
Any.
You saw a firm come out and it's no longer just about NPL theyre going to have a debit card and cash banking account. So these are all different forms of competition, which we have to respond to and so thats why when we talk about like expenses, we will spend whatever we have to spend to compete with all these folks in our space.
I appreciate all that may be one mother comments are to get your thought on the right perspective to think about China and evergreen.
And then what people care about most is.
Is there an expansion across border, meaning is this a contained within the end market.
Funders.
That will have some marks within their market like DC any.
Domino effect and crossing borders.
Yes, so look obviously everyone's looking at Evergrande, let me start by just saying that for us in terms of direct Evergrande exposure is absolutely de minimis.
So that's that's one piece as you would expect we've also looked at sort of more indirect exposures in terms of the broad China property sector as well as exposures of financial institutions that we deal with to the China property sector and in general.
Those exposures are all very modest so we're obviously watching it closely and continuing to look for read across and do what you would expect us to do but we're not terribly concerned right now.
The impact on us.
I think in terms of cross border contagion.
I don't I don't hold my own opinion on this and particularly high regard, but it does.
It seemed like this was pretty well telegraphed by the Chinese authorities when they talked about their three red lines. So you know it's.
It's a process that's being managed.
And I would say the better the better view right now is that it will be contained but of course, it's the market. So we'll see what happens.
Thanks for all that time thanks.
Next up we have a question from Ebrahim <unk> from Bank of America Merrill Lynch. Please proceed.
Good morning.
I guess I just wanted to follow up on the two teams that were discussed one around fintech and the regulatory changes a lot of focus on the change in leadership and the regulatory agencies.
Jimmy you've talked about in the past in terms of the regulatory arbitrage. When you look at big deck Nonbank players I think be NPL is a good example of that do you think as we have new leadership at the legacy agencies.
Alert to this arbitrage and do you think we see a climb down or is it too late for the early them too.
<unk>.
Leveled the playing field.
I don't expect.
There will be.
Beneficial changes that help banks.
But I think that we just have to compete with what were the hand, we're dealt.
I would not expect anything like that.
And I think that youre going to have some people clamped down more in banks and maybe some people regularly fintech based on products and service something like that but I'm not expecting any any relief.
Got it and I was just wondering if there will be increased scrutiny of the nonbank deals relative to the banks, but no debt.
And I guess just on a separate question, Jamie we didn't see any building the CET one when I look at the numerator anything going on there this quarter that impacted and with the stock where it is at two four times tangible book just remind us of how.
How important are buybacks here as opposed to just keeping some dry powder as the economy gets better.
Yes, so I mean, the answer to how important <unk> that there at the end of our capital hierarchy as we often say right so organic growth, including acquisitions sustainable dividend and only then do we look at buybacks and in light of the SCB environment that we're in.
Where we don't have a you know a fed approved buyback plan anymore and if we just simply have to comply with the minimums and be a U that gives us quite a bit of nimbleness, which is an important thing to preserve in light of a world where we do hope for loan growth next year, and where acquisitions are still potentially on the horizon. So nothing.
Really going on this quarter other than a little bit of art of your OE growth in the denominator.
Or just really going to stay nimble there.
But is there a case to be made Jeremy in terms of just holding some dry powder in excess capital given your macro outlook as opposed to buying back stock at current valuations.
Yes, I need evaluations as the stock goes up you're going to you should expect this maybe one day by less.
And we don't need dry powder, we have an extraordinary amount of capital and liquidity.
Extraordinary and we earned 40 billion pre tax year I.
I mean, how much dry powder do you need.
We have one six trillion dollars of cash and marketable securities. We have 200, well over 200 billion of equity. We can issue preferred we can issue debt. We can issue stock we had to do something so I don't think we need dry powder I think we are.
Capital run it over where it is.
Got it thank you.
Next one is from seat you back from Wolfe Research. Please proceed.
Hi, good morning.
So Jeremy you provided some helpful detail on the drivers of loan growth by category. Just looking ahead is your expectation that loan growth begins to keep pace with GDP or economic growth or is there anything that would actually justify more meaningful acceleration in lending activity, whether it's just.
Greater pent up long demand normalization of the card payment rates or something else.
Well good question, Steve, but I think youre sort of.
Potentially leading me into giving fairly detailed loan growth guidance for 2022, which I am not really in a position to do but let me see if I can answer this at a high level I mean.
We've talked a lot about spend which we believe in driving card loans higher so that's one piece.
And the revolve story within that as a function of the spend down in cash buffers, especially in our revolver revolving segment of our of our customers and obviously as you know well if you kind of think about our NII is the sum product of the NIM in the in the Outstandings in the various loan categories. It is.
Disproportionately car that drives things in the meantime, if you move a little bit away from consumer.
The larger wholesale system in a world, where even if tapering starts relatively soon if that plays out over roughly eight months at $15 billion of decreased demand do you still if you do the math.
Windup with another half a trillion dollars of QE. So we are dealing with the system that has a lot of surplus liquidity.
So in that context realistically is hard to imagine seeing a lot of wholesale loan growth at a minimum.
But frankly, that's not really a big driver of performance for us. So I don't know if that helps but it's a good question.
Thanks, Jeremy It absolutely helps and just one clarifying question on the <unk> commentary you noted this quarter's results included an adjustment to liquidity assumptions in the derivatives portfolio I was hoping you could help unpack.
What that adjustment actually Intel is what prompted that and can you help size the impact in the quarter.
I Couldnt help on packet, but it would take another 20 minutes, which we don't really have as just bog standard you know liquidity evaluation type stuff in the derivatives book in terms of.
You know.
As we revise our assumptions about what the potential transaction costs would be would be associated with transferring certain types of positions. It's normal course stuff that just happened to be a little bit bigger I think fixed.
Fixed income was down 20% and I think without that it would've been down 15%. So does that helps.
Very helpful. Thanks for taking my questions.
Next question is from Matthew O'connor from Deutsche Bank. Please proceed.
Hey, guys.
And then a follow up on the capacity to deploy liquidity.
And I guess, that's the kind of leave it a little bit if we look at the growth in deposits and I know some of them are kind of.
Considered noncore.
But take out the <unk>.
Loan growth on the growth of our Securities book since Covid, you've got about an extra $500 billion of deposits and how much of that you think can be deployed into facilities.
Understanding that you expect loan growth to pick up so that'll go to some but is there a way to size that 500 billion capacity in terms of buying securities.
Yes, so I.
I think theres a lot of factors that play into.
Now what the deployment decision is in any given moment, obviously as you said.
Loan growth, but also we will always make these decisions on a long term economic basis not for the purpose of generating short term NII.
And so when you do that you have to think about.
Capital volatility drawdowns, and frankly, whether or not you see value and that if anything is probably the biggest single factor right now as I talked about earlier.
It is true that the market has come a little bit more in line with our views at least from a rate perspective, and that may lead to a little bit more deployment all else equal right now.
But when you start talking about spread product for example in light of the of the liquidity environment that we're in and the QE numbers that I mentioned, a second ago that remains very very compressed and theres just not a lot of value there. So.
We're always we're all we always try to be long term economically motivated they're considering all the scenarios considering risk management, considering the convexity of the balance sheet and looking at value in being tactical there. So that's really how I would think about that.
Yeah, I mean, I'll just stood on a near term basis, but I think.
A lot of investors are sitting here, saying.
The 10 year or really any part of the curve hits that magic point for you what is the capacity. So for example, if the 10 year gets to say, 3% and your confidence is not going to go to five.
Do you have a 100 billion of capacity is at $300 billion.
Just any way to frame it longer term appreciating that its not what youre looking to do at this moment at these levels.
No I got the question that we could easily do 200 billion.
Yeah, I mean I got the question I get why you want to know I guess I, just think like for a company of our sophistication and given how carefully we think about the stuff. The idea of a particular target at which we would deploy a particular amount of course jamie's right, but it's always going to be situational, it's always going to be a function of why.
The rate is where it is I mean in your question you alluded to it is like if the 10 year notes at three.
And we're sure it's not going to five but then where is the rest of the yield curve what are the other options what's going on in that moment. So.
No.
<unk>.
There's there's a we're always going to be.
Situational and tactical about it.
That's helpful. And then cargo squeeze then you've announced a bunch of kind of what most of us or characterize as relatively small acquisitions.
This quarter and obviously looking back for the full year.
Is there something is there a way you could kind of size the capital impact of that I know most of the terms arent disclosed individually, but any way to frame kind of the capital and financial impact and then just lastly.
Remind us like what is the driving force when you look for a deal some of the deals you kind of look at your like how does that fit into broader JP Morgan Chase.
Thank you.
Yes.
With the capital impact in total isn't that big a deal and we're not going to disclose anymore, nor is the immediate financial impact.
And each one is different so consumer Jeremy already said, it's more about lifestyle travel.
As you know.
Millennial stuff like that.
In asset management products, it was tax efficient products ESG products timber products and stuff like that and then and then.
Between nutmeg and C six and stuff like that that is the longer term view I was trying to get position into retail overseas over 10 years, if we can.
Great. Thank you.
Next one is coming from Jared Cassidy from RBC capital markets. Please proceed.
Thank you good morning, Jeremy you were saying that when we were talking earlier about the potential SLR changes and such and we haven't seen anything in quarles is leaving today, but you mentioned about maybe the fed is focus on the Basel III and game that's coming very soon here can you share with us.
From your guys' perspective, what are you focusing on on with the Basel III final.
Rules and regulations that could affect your growth going forward.
Yes, so I think I mean, the thing about the Basel III end game is that you need to essentially deal simultaneously with the Basel floors, the Basel standardized floors and the Collins floor. So you need to simultaneously so from the perspective of the stuff that's working.
This stuff they have a tough challenge too.
Simultaneously put in place a U S rule, which is Basel compliant.
<unk> also complying with the Collins floor Saturdays R. W. A minimum and so.
Now that's complicated and it's hard and it's quite technical and that sort of explains why it is taking a little bit longer than we might have otherwise thought in terms of the impact of that on our long term growth I mean at a high level, it's unlikely to be significant I think that the related point is whether or not there are some changes as <unk>.
Part of that or contemporaneously with that to these sort of non risk sensitive size based constraints like G SIB and SLR, where obviously most prominently in the case of G. SIB.
It's really getting pretty extreme in terms of the growth in the score for reasons that really have nothing to do with what the original design of the metric was and to a very significant degree are driven by the expansion of the system that we've seen in the last 18 months. So that's why we believe that that should be addressed.
What's contemplated in the original rule and so you know across all of those potential changes you could see us doing a little bit of optimization in response to those you can imagine that Basel III end game in terms of standardized in advance and the impact on different products might make some things a little bit more capital efficient than others a little bit.
<unk> capital efficient at the margin, but we're a big diversified company, we're pretty good at navigating this stuff. So when we have clarity, we'll we'll make the necessary tweaks.
Very good thank you and then.
Obviously, you and the industry have seen really good deposit growth on a year over year basis. I think your deposits are up 20%. All in you talk specifically about retail being the number one market share in retail deposits.
When the fed ends QE, assuming it does sometime by the middle of next year and I'm not asking you guys to forecast for your deposits are going to be but just higher level should we anticipate that deposits could actually decline or no.
They are going to be so sticky even with the liquidity that everybody carries that we shouldnt really see a decline in deposits after QE and this lets call. It second half of next year.
Yes, so I think Theres a couple of factors in here, so let's for the sake of argument.
Set RFP aside for a second and hold that constant if you just look at the impact of QE on system wide deposits.
We talk about tapering, but as I said earlier tapering still involves another half a trillion dollars of system expansion between now and the end of tapering or rather between the startup tapering and the end of tapering if the fed follows the same type of trajectory trajectory that it followed last time, there will be an extended pause between the end of QE.
In the beginning of Q T.
Again, setting RP aside for a second it would only really be with the beginning of Q T that you would expect.
The size of the of the system deposit base to start shrinking and I think the timing last time, if I remember correctly.
Something like 22 months between the end of QE in the beginning of Q T. Now of course, RP could bounce around and there could be other factors, but at a high level, that's how we're thinking about it.
Thank you.
Yes.
Just add my two cents I think they'll have to go quicker than that.
And they'll have to reverse some of it. So you are talking about we still going to increase deposits for a year and then there'll be.
A fairly large reduction over two or three year period, which we should be prepared for.
Thank you.
Yeah.
Next question is from Charles Peabody from Portales Partners. Please proceed.
Good morning.
Do you sort of get a progress report on your new headquarter building.
Typically what's the moving projected move in date or has that been affected by the pandemic.
Secondly are there costs noticeable cost running through 2021 expense structure for that build out and does that tick up noticeably when you move in and then thirdly.
What's the plan for unloading the properties that youll be vacating and how is that being affected by the current real estate market. Thank you.
So the plan is on schedule moving date 20, I think 2025, there are no material expense of course is duplicate expenses and we have to sell that building and stuff like that but nothing material to our shareholders we need to disclose.
Operator, any other questions, yes, Sir that is coming from Andrew Lim from Societe Generale. Please proceed.
Hi, Good morning, Thanks for taking my question so equally.
Jamie.
How you all focusing on inflation.
Just wondering if you could outline what you're looking at exactly metric wise.
Across our businesses.
To signal to you that patient is actually materializing as a concern.
How would that pan out versus your expectations.
Terms of like how we deal with this if it does materialize house concern.
Is there anything that you can do to try and test.
The bank against inflationary forces there.
Yes, I mean, I think we should look at the Big picture here, which I think is always important I mean, two years ago, we were facing COVID-19 virtually a great depression global pandemic and that's all in the back mirror, which is good so by hopefully a year from now be no supply chain problem. The endemic will become <unk>.
And I think it's very good to have good healthy growth, which we have in our industry would be good to have unemployment at 4% is good there.
There are jobs that are open I think it is good to wages going up long and I think there's too much focus on none of this changes how we run the business, which we had clients all the time consumer card auto deposits real estate small business large companies and stuff like that which is really the underlying theme that drive JP Morgan, it's not whether they take the robot.
25% or 27% so having.
Having said all of that yet and I'm not focused on inflation, we simply are pointing out when you have inflation was 4%.
4% now for the better part of a couple of quarters in my view.
Likely to be lower than that next quarter or the quarter after that.
The only question is does it start to ease after that with supply chains and wages.
More people looking for work or does it continue to go up and of course, we prepare probabilities and eventualities and one of those possibilities as it it might go higher than people think that that'll have to tamp down I doubt that will happen before late 2022 in the meantime, I think it's unbelievable that we're getting out of this data against 4% unemployment and you can have good growth.
With with some inflation in Dutch.
Okay. Thanks.
I think that people always focusing too much on immediate concerns.
As you have inflation of 4% or 5%, we're still gonna open deposit accounts checking accounts and grow our business.
I also should point out because it was always in the back my mind.
$30 billion of revenues.
20 billion as subscription revenues asset management.
Banking consumer banking.
Which is pretty good.
Wholesale payments.
Security services custody and so we're pretty proud of the people have accomplished all of this if you look at the actual underlying numbers getting earnings per second more customers more accounts more share and at the end of the day that is what drives everything.
Okay. That's great. So it seems like you're taking a benign view that it's manageable.
I'm going to get out of hand.
Fair enough.
I'm, telling you I don't know it's the opposite.
I don't know we're prepared for all eventualities, there may be if that Gallup inflation and one of the things about our balance sheet, you guys talked about liquidity and stuff like that one of the <unk> bank.
Thanks.
The banks should be worried about is high inflation and high rates.
B had been very liquid protects us more against that and other things.
Right got it thanks for the clarity on that.
And just a short follow on question Benny.
Could you could you update us on the amount of excess proficiency.
Versus your base case economic scenario, you've given that number in the paulson passed a bit of color on also on how that base case has changed over the quarter if it hasnt deed.
Yes so.
I think the base case.
The central case, it's probably actually gotten a tiny bit worse quarter on quarter in light of the.
The revisions in GDP outlook, but as you know the framework also involves looking at probability weighted scenarios and as I said in the prepared remarks.
The sort of less extreme downside scenarios.
Contributed a bit to the released this quarter.
In terms of sizing the overall balance again as I said in the prepared remarks, they remain a little bit elevated relative to what they would be if we had this type of economic performance with none of the Covid related unusual features I E.
Certainty about the virus as much as we are optimistic about that right now or uncertainty about labor market conditions or the fact that even though a lot of the.
Essentially all the federal level unemployment assistance has now rolled off in most of the states have to Theres still some.
Forms of assistance, the mortgage foreclosure moratoriums student loan stuff run moratoria stuff like that.
That don't roll off until later in the year. So there's a number of factors in the environment that are still on.
Unusual, which do contribute to a slightly elevated AR reserves relative to what we were all otherwise have and.
How those things play out those will those will develop.
Attributable quickly I got to go out of town I have means they have to go to but you guys should continue and folks thanks for listening to us and we'll talk to you all soon alright. Thanks, Jamie.
Yes.
And by that we have no further questions waiting.
Okay. Thanks very much.
Everyone. That's marched handover the call for today you may now disconnect. Thank you for joining enjoy the rest of your day.
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