Q1 2022 JPMorgan Chase & Co Earnings Call
Good morning, ladies and gentlemen, welcome to Jpmorgan Chase's first quarter 2022 earnings call. This call is being recorded.
And even before the duration of the call, but you'll have to live to the presentation. Please standby at this time I would like to turn the call over to Jpmorgan, Chase's, Chairman and CEO , Jamie Dimon, and Chief Financial Officer generally ballroom. Mr. Volume. Please go ahead.
Thanks, operator, good morning, everyone. The presentation is available on our website and please refer to the disclaimer in the back.
Starting on page one the firm reported net income of $8 3 billion EPS of $2 63 on revenue of $31 6 billion and delivered an <unk> of 16%. These.
These results include approximately $900 million of credit reserve builds which I'll cover in more detail shortly.
Well as $500 million of losses, and credit adjustments and other N CIB.
Regarding loan growth, we're continuing to see positive trends with loans up 8% year on year, and 1% quarter on quarter ex PPP with the sequential growth driven by continued pickup in demand in our wholesale businesses, including ongoing strength in AWS.
On page two we have some more detail on our results.
Revenue of $31 6 billion was down one 5 billion or 5% year on year.
NII ex markets was up 1 billion or 9% on balance sheet growth and higher rates, partially offset by lower NII from PPP loans.
And IR ex markets was down $2 2 billion or 17% predominantly driven by lower IV fees lower home lending production revenue losses in credit adjustments in other in CIB as well as investment securities losses in corporate.
And markets revenue was down 300 million or 3% against a record first quarter last year.
Expenses of $19 2 billion were up approximately $500 million or 2% predominantly on higher investments and structural expenses, largely offset by lower volume and revenue related expenses.
<unk> costs were $1 5 billion for the quarter, we built $902 million in reserves driven by increasing the probability of downside risks due to high inflation in the war in Ukraine, as well as builds for Russia associated exposures in CIB in AWS.
Net charge offs of $582 million were down year on year and comparable to last quarter and remain historically low across our portfolios onto.
On the balance sheet and capital on page three.
Our CET one ratio ended at 11, 9% down 120 basis points from the prior quarter.
As a reminder, we exited the fourth quarter with an elevated buffer to absorb anticipated changes this quarter, the largest being soccer adoption as well as some pickup in seasonal activity.
In addition to those anticipated items there were a couple of other drivers the rates fell off led to LCA LCI drawdowns in our <unk> portfolio, but keep in mind all else equal these mark to market losses creep back to capital through time and as securities mature.
And price increases across commodities resulted in higher counterparty credit and market restaurant of UA.
While of course, the environment is uncertain and many of these effects are now in the rearview mirror and as a result, we believe that our current capital and future earnings profile position us well to continue supporting business growth, while meeting increasing capital requirements as we look ahead.
With that let's go to our businesses, starting with consumer and community banking on page four.
<unk> reported net income of $2 9 billion on revenue of $12 2 billion, which was down 2% year on year.
In consumer and business banking revenue was up 8% predominantly driven by growth in deposit balances and client investment assets, partially offset by deposit margin compression.
Deposits were up 18% year on year, and 4% quarter on quarter, consistent with last quarter and client investment assets were up 9% year on year largely driven by flows in addition to market performance and.
In home lending revenue was down 20% year on year on lower production revenue from both lower margins and volumes against a very strong quarter last year, largely offset by higher net servicing revenue originations.
Originations of $24 7 billion declined 37% with the rise in rates and as a result mortgage loans were down 3%.
Moving to card and auto revenue was down 8% year on year, primarily on strong new card account originations leading to higher acquisition costs card Outstandings were up 11% and revolving balances have continued to grow ending the quarter above the first quarter of 'twenty one levels.
And then auto originations were $8 4 billion down 25% due to the lack of vehicle supply while loans were up 3%.
Touching on consumer spend combined credit and debit spend was up 21% year on year with growth stronger in credit as we see a continued pickup in travel dining.
And as the quarter progressed, we saw robust reacceleration of G&A spend up 64%.
Expenses of $7 7 billion were up 7% year on year, driven by higher investments in structural expenses, partially offset by lower volume and revenue related expenses.
The CIB on page five.
CIB reported net income of $4 4 billion on revenue of $13 5 billion for the first quarter.
Investment banking revenue of $2 1 billion was down 28% versus the prior year.
I V fees were down 31% year on year, we maintained our number one ranked with a wallet share of 8%.
And advisory fees were up 18% and it was the best first quarter ever benefiting from the closing of deals announced in 2021.
Debt underwriting fees were down 20%, primarily driven by leverage finance as issuers contended with market volatility and in equity underwriting fees were down 76% on lower issuance activity, particularly in North America and EMEA.
Moving to markets total revenue was $8 8 billion down 3% against a record first quarter last year fixed.
Fixed income was relatively flat driven by a decline in securitized products were rising rates have slowed down the pace of mortgage production largely offset by growth in currencies in emerging markets and commodities on elevated client activity in a volatile market.
Equity markets were down 7% against an all time record quarter last year. This quarter. However was our second best with robust client activity across both derivatives and cash and prime continued to perform well with client balances hovering around all time highs.
Credit adjustments and other was a loss of $524 million driven by funding spread widening as well as credit valuation adjustments relating to both increases in commodities exposures and markdowns of derivatives receivables from Russia associated Counterparties.
Let me take a second here to address the widely reported situation in the nickel market as it relates to our results this quarter.
We were hedging positions for clients closely linked to Nicole producers, who generally sell forward a portion of the coming year's production the.
The extreme price movements created margin calls, which we and other banks are helping to address because this is counterparty related not trading it appears in the credit adjustments and other line, where it contributed about $120 million to the reported loss I just mentioned.
It also drove approximately half of the increase in market risk <unk> that I noted on the capital Slide and was a driver of higher reported far which will also be elevated in our upcoming filings.
Payments revenue was $1 9 billion up 33% year on year or up 9%, excluding net gains on equity investments driven by continued growth in fees deposit balances and higher rates.
Securities services revenue of $1 1 billion was up 2% year on year, driven by higher rates and growth in fees.
Fences of seven 3 billion were up 3% year on year, mostly due to higher structural expenses and investments largely offset by lower volume and revenue related expenses.
Moving to commercial banking on page six.
Commercial banking reported net income of $850 million and an ROE of 13%.
Revenue of $2 4 billion was flat year on year with higher payments revenue and deposit balances offset by lower investment banking revenue.
Gross investment banking revenue of $729 million was down 35% driven by both fewer large deals and less flow activity.
Expenses of $1 1 billion were up 17% year on year, largely driven by investments in volume and revenue related expenses.
Deposits were down 2% quarter on quarter as client balances are seasonally highest at year end.
Loans were up 5% year on year, and up 3% quarter on quarter, excluding PPP.
C&I loans were up 3% sequentially ex PPP, reflecting higher revolver utilization and originations across middle market and corporate client banking CRE.
CRE loans were up 3% driven by strong loan originations and funding across the portfolio.
And then to complete all lines of business AWS on page seven.
Asset and wealth management reported net income of 1 billion with a pretax margin of 30%.
Revenue of $4 3 billion was up 6% year on year as growth in deposits and loans and higher management fees and performance fees in alternative investments were partially offset by deposit margin compression and the absence of investment valuation gains from the prior year.
Expenses of $2 9 billion were up 11% year on year, predominantly driven by higher structural expenses and investments as well as higher volume and revenue related expenses.
For the quarter net long term inflows of $19 billion were positive across all channels with strength in equities multi asset and alternatives and then liquidity we saw net outflows of 52 billion.
AUM of three trillion and overall client assets of $4, one trillion up 4% and 8% year on year, respectively were driven by strong net inflows and finally loans were up 3% quarter on quarter with continued strength in mortgages and securities based lending while deposits were up 9%.
Turning to corporate on page eight.
Corporate reported a net loss of $856 million revenue was a loss of 881 million down $408 million year on year.
AI was up 319 million due to the impact of higher rates and the NII was down $727 million due to losses on legacy equity investments versus gains last year as well as approximately $400 million of net realized losses on investment securities This quarter.
Expenses of $184 million were lower by $692 million year on year, primarily due to the contribution to the firm's foundation in the prior year.
Next the outlook on page nine.
We still expect NII ex markets to be in excess of 53 billion and adjusted expenses to be approximately 77 billion and we will update these and give you more color at Investor Day next month.
So to wrap up once again this quarter of the company's performance was strong in a particularly volatile and challenging environment. We helped our clients navigate very difficult markets provided support to relief efforts and implemented economic sanctions of unprecedented complexity with multiple directives from governments around the world and of course.
Our thoughts remain with everyone, including our employees affected by Russia's invasion of Ukraine.
Looking ahead the U S economy remains robust, but we're watching high inflation, the reversal of QE and rising rates as well as the ongoing effects of the war on the global economy.
With that operator, please open the line for Q&A.
Please standby.
And our first question is coming from John Mcdonald from Autonomous Research. Please go ahead.
Thank you morning, Jeremy I was wondering about the net interest income outlook I know it sounds like we'll get more in Investor day, but it's very similar to what you gave in mid February and obviously rate expectations have advanced since then could you give us a little bit of color on what kind of assumptions are underlying the net interest income ex markets outlook.
Yes, good morning, John Good question, and yes look obviously, given what's what's happened in terms of fed hike expectations and what's getting pressed into department that curve, we would actually expect the access part of in excess of 53 billion to be bigger than it was at credit Suisse. So.
To size that.
Probably a couple of million dollars, but we don't want to get too precise at this point.
We're on a bottoms up process, we there've been very big moves and we want to get it right and so we will give more detail about that at Investor day.
Okay and as my follow up could you give us some thoughts about the markets related NII what thing should we think about there whether it's seasonality or how it's affected by rising rates.
Yeah, I guess I would direct you to my comments I think one or two quarters ago. On this that generally speaking that number is pretty correlated to the to the short term rates. So you know all else equal you'll see a headwind in there as the fed hikes come through which you know in general in the geography, we would tend to expect that to be offset in the NII.
But it's noisy can shift as a function of obscure balance sheet composition issues as I've mentioned in the past.
And so that's why we don't focus too much on that number.
Okay. Thanks.
Thanks, Sean.
Okay and the next question is coming from Ken <unk> from Jefferies. Please go ahead.
Alright, Thanks, Scott Good morning, Jeremy just wanted to follow up on your comments about capital and.
Being able to provide room for for organic growth.
With five to SLR 11, nine CET one.
First is your longer term targets can you talk about what that means in terms of the buyback potential from here and do any of the RW a inflation items come back off that you just saw in the first quarter. Thanks.
Yeah. Thanks, So let me just give some some high level comments about about the seed you own trajectory and so on so as you know we went into the quarter with elevated buffers, knowing that we would have denominator growth as a result of the adoption of Osaka.
It happened and you know, we would've expected roughly to be 12 in half right in the middle of the range for this quarter of course, it was an unusual quarter in number of ways and so we saw a R. W insulation from market risk, which we've talked about.
And the OCI drawdown and and you know a number of other slightly smaller factors producing the 11 nine from where we sit here to your point a number of these items are in fact going to bleed back in relatively quickly as some faster than others. So we would expect a significant portion of the RW <unk>.
Relation to bleed out obviously to decal D. A OCI drawdown will we'll obviously come back over time and probably most importantly, you know to the prior question the higher rate outlook is improving the revenue outlook, which will of course accretive to capital.
So then if you line that up against the sort of rising minimums of course, we have.
The increase in the juice of requirement in the first quarter of 'twenty three coming in.
And then there's the question of SCB, where you know, we don't know, obviously, but given the countercyclical nature of the stress.
And the fact that the unemployment launch point is a lot lower and that the unemployment rate is floored and defense scenario you might expect FCB.
To be a little bit higher when it's published in June effective in the fourth quarter, but that gives us time to make any adjustments that we need to make so I guess to summarize when we put all this together between improved income generation some of the denominator to K effects and the various levers that we have.
Available to pull across the dimension of time as new information comes into play we really feel quite good about our capital position from here and the trajectory as we look forward and and minimums.
Evolve.
And just a follow up there too is there anything you need to consider structurally in terms of like adding prefers to help bridge that gap or is it just going to be enough to organically build back with possibly just utilizing less buybacks will allow things to just grow back.
Yes.
Yes, I think the or actually I guess in general we haven't wanted to say a lot publicly about our preferred actions as you know some of the sentiments are callable and you know we have choices to make about whether or not we call them to adjust to different situations. So I think that's an example of the types of levers that we have available to pull.
As the environment evolves, but from where we sit today with the numbers that I'm looking at you know, we have a pretty clean trajectory to get to where we want to be.
Okay. Thanks, Jeremy Yes.
Yes.
The next one is coming from Betsy <unk> from Morgan Stanley . Please go ahead.
Hi, good morning.
Good morning Betsy.
I had a question for Jamie in your annual letter you mentioned, how you expect to achieve double digit market share over time and payments.
And when I.
I wanted to understand is if you could unpack that a little bit because when I look at payments you've got a lot of different sleeves. For example in consumer credit card Youre at 2025% and Treasury I think you are at 7%. So could you give us a sense as to where you think you are in this total payments category you're talking about.
What you're expecting in terms of drivers to get to double digit and what kind of timeframe youre thinking about there yes.
So yes.
So that number the double generative relating just a wholesale payments not to consumer payments, which obviously, we already have a fairly significant share and we've gone from four 5% to something a little bit north of 7% over the last five years and we're just building out I gave some examples when I gave a lot and then you have investor day coming up we're building.
All the things you need real time payments.
Certain blockchain type things wallets to just a couple of acquisitions that are building out our wholesale capabilities to do a far better job for clients globally around the world and.
And supported by what I'd say is very good cyber risk controls, which clients really need too by the way. So it's kind of across the board is nothing mystical about it.
It's an area we want to women.
Okay and getting to double digits is over the same kind of timeframe at the same pace going from four to seven or do you think you can accelerate that because I.
I was meaning to put a timeframe on it but I would say five years.
You'll get more update on this in Investor day.
Okay, and then just a follow up here is on the NII outlook, where you indicated that curve.
Suggests the plus side and is it a couple of billion in I guess the question I have is historically you've been looking at reinvest that that benefit from rising rates you did that last cycle as well.
What I hear what I'm hearing is that maybe you don't want to size. It for US right now today, because you plan on investing it and explain that at Investor day is that a fair.
No no no no.
That way like we're reinvesting NII, we invest these stuff we look at all the time, we're investing in where we are.
Investing a lot of money for the future kind of across the board, but that's not why are you, saying I mean, I think fundamentally you know we have had confidence in delivering our 17% of our TCE through the cycle, we talked a little bit over the last couple of quarters about at the time, some short term headwinds.
To that mostly as a function of the rate environment in a couple of other things. The investment plan is a strategic plan that recognizes that sort of confidence in the 17%. The fact that that moment may be getting pulled forward as a result of the feds reaction to the economy has no impact on how we think about spending.
Okay, great. Thanks for thanks for that.
The next question is coming from Steve <unk> from Wolfe Research. Please go ahead.
Hey, good morning.
So wanted to start off with a question on Q T. In the past you've spoken about the linkage between fed balance sheet reduction in deposit outflow expectation for yourselves and the industry and with the fed just outlining a more aggressive glide path for.
For our balance sheet reduction how should we be thinking about deposit outflow risk any views on how beta is may differ versus last cycle, given a more aggressive pace of fed tightening.
Hey, Steve. So this is a fun question, so, let's nerd out a little bit and I'm sure Jamie I'll jump in then yes.
Yes exactly.
Okay. So look I think we've talked a little bit about what happened in the prior cycle right. So you had QE and then you had big expansion and bank deposit system wide expansion in at the tail end of that cycle, you had RFP come in and then our P has gotten sort of quite big as QE finished and so now as you look.
It potentially kind of running that whole thing in reverse you might actually expect that the first thing that would happen is that RFP would get drained and only later with bank deposits start to shrink.
But I think you correctly point out some of the nuances and the fed minutes and when you sort of combine all the effects together you realize that theres a lot of interacting forces here and is really I think very intelligent people defer on their predictions about what's going to happen here and just to outline a couple of those so it's worth noting for <unk>.
Starters that in general industry wide loan growth outlook is quite robust and that should be a tailwind for system wide deposit growth. So as you note yeah Q T will start in may in all likelihood for the minutes headwind. Then you just have to look at it what's going to happen in the front end of the curve, particularly in bills. So the.
The treasury has to make decisions about weighted average maturity and what makes sense. There. There's obviously a little bit of shortage of short dated collateral in the market right now so.
That might argue for wanting more supply there the fed has to make decisions about portfolio management, they talked and the men adds about using bill maturities to fill in gaps and so on and so forth.
And so those those things are going to interact in various ways. I think one thing that's worth noting though is that if you wind up in a state of the world where bank deposits drain sooner than people might have otherwise thought in all likelihood thats going to be the lower value nonoperating type deposits.
So you know in any case, we'll see but to simplify it for a second our base case remains modest growth in deposits for us as a company and just pivoting away for a second from the system to US you know from a share perspective, we've taken share in retail deposits and we feel great about that and then wholesale you know we've had some nice wins.
And in a nice pipeline of deals there. So that's the current thinking on that topic.
So the answer is we don't know.
And you guys should read it.
<unk> reports, but the fact is initially probably won't come out of deposits over time, it'll come out of wholesale and then may be consumer we're prepared for that it doesn't actually mean that much to us in the short run and the beta effectively we don't expect that different ones in the past there are a lot of pluses and minus and you could argue a whole bunch of different ways, but the fact it won't be that.
Much different leased the first hundred basis point increase.
No. That's really helpful color, thanks for allowing us to an earn out with you guys on that just one more topic.
Follow up I should say, Jamie just in the shareholder letter you had spoken about how the market is underestimating the number of fed hikes that might be needed to curb inflation and what's your expectation around the level of fed tightening I know, it's difficult to make predictions, but maybe if you could just help us understand given your own rate outlook, how that's informing how you're managing excess liquidity.
Given the significant capacity that you had to redeploy some of those proceeds into higher yielding securities.
So I think the implied curve now is like two 5% at the end of the year and maybe 3% at the end of 2023 and I look we no one knows and you know obviously everyone does their forecast I think is going to be more than that I can't give you a million different reasons, why because of inflation and we just about deposits and we've never been through agile Qt.
Like this so this is a new thing for the world and I think it's more substantially important than other people think because the huge change in flows of funds is going to create as people change their investment portfolios. The way, we're gonna be fine because we're going to certainly all of our customers and gain share. So what does it do for JP Morgan Chase JP <unk> change, but it will be fun to play cap.
It'll play, whereas all great margins, we already have the returns we want and all the things like that so.
I just I would just be cautious I think we should expect these volatile markets again, that's okay for us.
In defence, we stick the fed needs to do what they need to do to try to manage this economy and tried to get to a soft landing if possible.
And any appetite to deploy the excess liquidity and no don't expect that.
Yeah, Okay, Yeah, we can leave it there.
Okay. Thanks, so much.
The next question is coming from Glenn Schorr from Evercore ISI. Please go ahead.
Hi, Thank you.
I Wonder if you could talk through the changes in the macro assumptions.
To capture that downside risk and CCL and seasonal assumptions just because we don't want to get to is where we came from where we're at now and then we can impose our thoughts on each.
I don't wanted to spend a lot of time on six look I think it's a complete waste of time basically all we said is the chance of the adverse a severe adverse event is 10% higher than it was before that's all we did.
Very basic and that led to worked out it's really it really is that something we don't know and it's a guess probability weighted hypothetical multiyear scenarios that we do the best we can but to spend a lot of time on earnings calls about seasonal swings is a waste of time, it's got nothing to do with the underlying business.
Charge offs are extraordinarily good matter of fact way better than they should be I mean, you know middle market one basis points credit card, one and a half we would've told you the path the best will ever be as two and a half. So credit is very good that will get worse NII is going to get much better things get a normalized we're still earning 16 or 70% on tangible equity.
And obviously you haven't read.
Yes, the 10% is what I wanted because your guess is better than my guess so that's I appreciate that.
Brian with all due respect I do not believe it is.
[laughter] okay.
We will have a pinky bet so.
So so I think you might've just answered it but I want to make sure I ask it explicitly.
Follow up I have on on credit and I know it much better shape and it depends on the go forward, but are you seeing any stretches stresses in the levered parts of the debt markets, meaning levered loan high yield CLO private credit anything in there that makes you liked aside.
Sinai.
So just spread widening a little bit less liquidity.
It doesn't sound so bad and.
Hi.
Look we no one likes to be complacent about this type of stuff and obviously in this environment everyone's looking very closely everywhere for any risks and trying to see around the corner, but as of right. Now we're really not seeing anything of concern in the kind of spot metrics so to speak.
Maybe the last quickie on credit is is just with everybody, having a job and there's wage inflation in excess cash are there any buckets. The income that you are seeing early stage delinquencies picking up.
In short no you know it is an interesting question as you look across our customer base, particularly in card and you sort of did that heavily debated question of real income growth in gas prices and what's that doing to consumer balance sheets, and so we're watching that especially in the kind of LMI.
Segment of our of our customer base, but right now we're not actually seeing anything that gives us a reason to worry.
Thank you for all that.
Thanks Glenn.
The next one is coming from Gerard Cassidy from RBC capital markets. Please go ahead.
Thank you and good morning, Jeremy.
Jeremy.
Can we follow up on your comments about building up the reserves I think you said it was $902 million that.
Guys built up and was due to high inflation and the war in the Ukraine, how much was that due to inflation and when you made that comment is it because you are concerned about the lower end consumer spending more money for fuel and food that may lead to greater delinquencies down the road and how much was that due to the Ukraine situation.
Yes, Glenn it's really a lot more general than that so just to repeat 900 build 300 named specific primarily related to Russia associated individual names. The other 600 is portfolio level and as Jamie just said is simply reflects increasing the probability from a very low probability to a slightly higher probability.
<unk> of a you might call. It volcker style fed induced recession in response to the current inflationary environment, which obviously is in part driven by commodity price increases which are in part driven by the war on Ukraine, So, but it's not.
Super micro portfolio level thing, except to the extent that our models you know handle that I'd say top down modification of the probabilistic one of the things I hated when Cecil came out is that we spend a lot of time at every call yapping about seasonal.
I see.
I just think it's a huge mistake over to spend too much time on it.
Understood.
And then as a follow up.
Jeremy if we look at the OCI number that you gave us and you were very clear about it it's going to creep back into the capital as those securities mature two things is there anything you can do assuming if the long end of the curve continued continues to rise and probably giving you maybe a bigger hit on iOS.
As we go forward is there anything you can do to mitigate that whether to shrink that.
The available for sale portfolio, which looks like it was 313 billion at the end of this period or do you just have to grow the revenue as you pointed out is another way of growing your capital.
Yes, I mean, I think that obviously, we always try to grow revenue sort of independently or anything else I think the large point here is yes. There are some things that can be done to mitigate this but the big picture is that you know the central case path is one that gets us to where we want to be when we need to be there in terms of seats, you want and leverage.
And if things don't play out is along the lines of the Central case, we have tools and levers available to adjust across a range of dimensions. So.
Okay. Thank you.
Okay.
The next one is coming from Mike Mayo from Wells Fargo Securities. Please go ahead.
Hi.
I have a question for Brian , Jeremy and Jamie and Jeremy I guess, the SLR five 2% close to the minimum.
You explained that.
Since the quarter end Aoc I, probably has gotten worse.
Guessing your SLR might be very even closer to that minimum.
So I understand your central case, it's fine Youre out looks good.
But at what point.
Do you say.
You stopped buybacks or do you think youll buyback, maybe happen the $30 billion authorization or does JP Morgan even put an asset caps given just the amazing.
Asset growth over the last three months.
So that's my question for Jeremy.
Bigger picture for you Jamie your CEO letter.
And the takeaway wasn't the either be harder like a game is really worried about a recession. This year no it's not.
So the first question certainly ties into the second so Jeremy plan for buyback stopping at asset cap and then Jamie your view of the broader economy and that feeds into your expectations for capital for us. Thank you.
Okay, Mike So let me take this capital ones. So first let's not talk about asset caps. That's just not a meaningful thing I think that's a distraction on the terminology is unhelpful then in terms of.
The leverage ratio.
Uh huh.
Just remember that the denominator of that number is so big that it actually takes like pretty big moves to move the ratio. So 520 is actually still pretty far away from 5% and of course that are relatively easy to use tools to address that as well as was alluded to earlier.
In addition, I do think it's worth just reminding everyone of how the E. R. I restrictions work now relative to how they were at the beginning of the crisis.
Just briefly just to remember that based on the redefinition. If you drop if you drop into the regulatory buffers on you're subject to the 60% of restriction, which based on our recent historical net income generation still gives us ample ample capacity to pay the dividend and so on so.
It's obviously not part of the plan, but it is worth remembering that the cliff effects that we had in there at the beginning of the pandemic are no longer there and then in terms of buybacks. Just a reminder, that the $3 billion authorization as a.
Non time bounded.
You know FCC requirement, it's not the old CCAR standards. So it's just a signal that we want to have that capacity and that flexibility, but it doesn't really say that much about how much we're actually planning to do in the near term.
Are you allowed to say what Youre planning to do in the near term like just like if you kind of like half the level last year. Do you think you can keep that or does it slow down or youre not giving guidance.
Let's talk about buybacks for a second so in the kind of post SUV World, We haven't been guiding a lot on the pace of buybacks, mainly because as you know there are at the bottom of our capital stack. So we're focused on investing in the business, providing capital to support growing art of UA acquisitions, when they make sense et cetera et.
Federer and buybacks are an output as we've discussed in.
In the current environment.
The rate of buybacks is clearly going to be less than it was in the 2021 period as a result of the interaction with all of those effects and that's a good thing and it means that we have better uses for the capital.
And if things evolve one way or the other than the buyer at the rate of buybacks will be an output, but it's one of the tools in the toolkit mycosis <unk>.
If you look at liquidity and capital, it's extraordinary and we don't want to have buffers on top of buffers. So we're gonna manages pretty tightly over time and obviously when you have a OCI and earnings and cease all of that but it being conscious of all that we can manage through that and and and we've done some acquisitions. This year and so plus we are adding.
Planning to have to have more capital for the increase in G Sippy down the road, which reduced stock buyback and.
But I'd look at the amount of liquidity the earnings the capital. That's that's the stuff that really matters and and at the end of the day is driving customers. We serve customers, which is why we're here we don't serve managing SLR, that's kind of our output and stuff, we do and so.
And then your question about I think it was about recession basically.
Yes.
Sure.
Yeah, No I mean, if you read your CEO letter.
Great Youre, the keep worry officer, the chief risk manager, you're bringing up all the things that keep you up at night, which is which is great. But you can read it one way and say, hey, Jamie and JP Morgan, Thanks, Theres going to be a recession. This year and you can read it another way, saying hey things are fine, but these are some tail risk. So do you think.
I'll repeat what I think people Glenn said European is better than mine and I'm not going to accept anything else do you have a lot of people a lot of resources do you think the U S is going to have a recession. This year based on everything you know.
I don't but I just.
One question is first of all I can't forecast the future any more than anyone else and you know the fed forecasted and everyone forecasted everyone's wrong, all the time and I think it's a mistake and we run the company to serve clients do we think or that's what we do we know there will be obviously, we know that would be down and we know the weather is it going to change all that stuff like that but I have pointed out in my letter is very.
Strong underlying growth right.
Right now we should go on it's not it's not stop a bullet consumer has money they pay down credit card debt.
Havas is in high but the fact that they have money, they're spending their money they get to tree instill new savings and the savings and checking accounts business are in good shape home prices were up credit is extraordinarily good.
So you had this that's one factor that's going to continue in the second quarter third quarter.
After that it's hard to predict you've got two other very large.
Countervailing factors, which you guys are all completely where one is inflation slash QE Qt.
You've never seen that before I'm simply pointing out that we have that those storm clouds on the horizon that may disappear. They may not that that's a fact and I am quite conscious of that fact that I do expect that alone will create volatility and concerns and endless printing and analyst headlines and stuff like that and the second is more in.
Ukraine.
I pointed out in my letter that warranty cranium, usually wars don't necessarily affected the global economy in the short run, but there are exceptions to that this may very well be one of them.
I'm not looking at this on a static basis. Okay. So you're looking at this for Ukraine, we sanction stay where they are things are unpredictable wars are unpredictable warrants have unpredictable outcome, you've already seen in oil markets the oil markets.
Our precarious, okay. So I pointed that out over and over that if you know people don't understand that those things can change dramatically for either physical reasons cyber reasons or or just.
Supply demand and so that is the that's another huge cloud and horizon and we're prepared for it we understand it. We're just I can't tell you the outcome movie I hope those things all disappear and go away, we have a soft landing in the war's resolved.
Again, I just wouldn't bet at all that you know of course being to risk manage we were going to get through all that and we can serve our clients and when a gain share when it comes to that or any tremendous returns on capital like we have in the past.
Alright, thank you.
Youre welcome.
Yeah.
Next one is from Matthew O'connor from Deutsche Bank. Please go ahead.
Good morning, I was hoping you guys could comment on the Earth.
Some articles on the nickel exposure and how.
The losses could have been significant if the trade had it been canceled them from the actions that were taken in.
Just as a follow up you guys have talked about kind of looking at that business on reevaluating. How you think about some of the outsized rough and maybe you could update us on that process.
We've already told you we're helping our clients get through this we had a little bit last this quarter, we're going to manage through it we'll do postmortems on both what we think we did wrong and what the <unk> could do differently.
What I can do it now.
And then I guess I mean more broadly speaking.
Given what we just saw where it was probably a several standard deviation event and kind of getting that.
Some markets might do.
Through more of these unusual things like does it make you step back and look at other portfolio of other businesses and try to.
And my life in my life I've seen so many 10 standards exactly shock, yes, obviously, we're aware of that all the time in everything we do and I would take it one step further I think the whole paradigm of saying, it's a 10 center at aviation events as native right. We know the returns are not normally distributed we know that regular.
Leaders know that the capital framework recognizes that in a broad variety of ways, including things like stress far. So I don't think of course, you can't predict where and in which asset class and which particular moment youre going to see these types of fat tail events, but the framework recognizes in a range of ways that that's the case and that.
How we manage risk and that's how it works.
We do see car once a year as you guys see but we actually run 100 different various stress tests every week with extreme movements and things.
And that's what we do and were always you always give us all surprise somewhere, but we're pretty confident those risen mindy and all events like this we always look at it but it doesn't have to happen to us it can happen to someone else. We still analyze everything that you know maybe we were on the wrong side of something too, but the end of the day in all of our businesses. We are here to serve clients all the.
Time that means taking rational thoughtful disciplined risk to do that.
And then separately you had mentioned earlier that you weren't looking to deploy large amounts of liquidity and I guess the question is.
You might get the right benefits from fed funds going up but is there an opportunity to accelerate that benefit just by moving from cash into shorter term treasuries. We've obviously had a big move in.
We're just talking about this as rates going up maybe more than 3% convexity is going up a OCI is go up all these are all these various reasons not to do that we're not going to do it just to give you a little bit more NII next quarter yeah.
And Steve just to just go one level deeper there for a second right. So you're talking about deployment of course as Jamie says, we're always going to take relative value opportunities in the portfolio. You know mortgage spreads have widened there's interesting stuff to do so and nonsense.
Yeah deployment out of cash into various sorts of spread product that looks more interesting. We do that all the time the high level simple question of buying duration, you know as Jamie says balance sheets extend a little bit that was never we were never planning through that much of that anyway, and you know frankly given the.
Timing unexpected speed of the rate hikes increasingly it just kind of doesn't matter that much and so I think that's.
That's helpful to keep that in mind.
Okay. Thank you.
The next question is coming from Jim Mitchell from Seaport Global Securities. Please go ahead.
Hey, good morning.
Maybe you could just talk about how youre thinking about the trajectory of loan growth from here, where you're seeing the biggest pockets of strength in specifically in our cards is the significant year over year growth driven more by slowing paydowns or is that increasing demand or or a combination of both yes.
Yes sure so.
You'll remember in the fourth quarter that we talked about the outlook based on sort of high single digit loan growth for the year and this quarter, we've roughly seen that interestingly, it's a little bit more driven by wholesale this quarter, which sort of brings us to your question of card.
So overall card loan growth is reasonably robust when you adjust for seasonality and so on and that's really primarily driven by spend which as you know is very robust. The question inside of that is done what's going on with revolve and I think our core revolve thesis of getting back to the pre pandemic levels a revolving.
Balances by the end of the year is still in place to a good approximation.
At the margin, we probably saw the like takeoff moment delayed by six weeks or so because of omicron, but some of that is re accelerating now we see that in some of the March numbers. So we will see how it goes but also just a reminder, that there's a very very close linkages linkage between what we see in revolve and what we see in.
Charge offs and so.
In the moments, where revolve is lagging potentially certainly that was true throughout the pandemic period relative to what we had thought we also saw exceptionally low charge offs on a bottom line basis.
Run rate performance Ah Theres significant offset there, but the core thesis is still their spend is robust we are seeing spend down or some of the cash buffers and the customer segments attempts to revolve so more or less as anticipated I would say.
Okay, and then maybe just on skipping over to trading clearly is a stronger quarter must have finished off strongly in March so any confirmation of that and how do we if you are expecting more volatility around fed in Q T is it should we be thinking that this could be better than normalization year. How are you thinking about trading I guess.
Going forward, yes.
I mean, you know that we're gonna be reluctant until like projects for the next three quarters of trading.
I could try.
Yeah.
But.
But just to your point about normalization right. We have been saying that of course, we expect some normalization. The question is if you define normalization as a return to kind of like 2019 type trading run rate levels, we never expected that because theres been a bunch of organic growth in the background some share gains and we had.
Said that as we emerge from the pandemic and monetary policy normalize that was going to add volatility of the markets and that you know with any lock in good risk management that would not help a little bit to mitigate what we might otherwise expect in terms of the drop from the very elevated levels that we saw during the pandemic.
So obviously there are some particular things that played out this quarter, but one of those was more volatile rate market and that helps a little bit so.
Yeah, all else equal you know the much more dynamic environment right now would mute the normalization you would see otherwise, but our core case is still that the pandemic year period market's performance was is not repeatable.
I'll just add to that I cannot foresee any scenario at all where you're not going to have a lot of volatility in markets going forward.
We've already spoken about the enormous strength the economy Q T inflation war commodity prices, there's almost no chance you won't have volatile markets that could be good or bad for trading, but there's almost no chance what happened and I think people should be prepared for that.
Alright appreciate the color.
The next one is from Ebrahim <unk> from Bank of America Merrill Lynch. Please go ahead.
Good morning, I guess, just one more question on the macro outlook I guess, we can debate, whether or not we get into a recession over the next year, but Jamie would love to hear your thoughts around as we think about just the medium term do you see a better capex cycle for the U S economy, we've heard a lot about Z shorting libre productive.
D. How companies are dealing with it just given the lens you have in terms of large corporates and middle market customers.
See some pent up demand for Capex spending that's going to be a big diver of growth maybe not for the next six months, but as you think about the medium term next few years.
Yes.
In general because.
People are spending money and indeed produce more goods and all that yes in general you see capex going up and I forgot the exact number you're better off looking at our greater Carlos forecasted that in asking me.
And we see in the borrowing a little bit yeah, we do see a pretty nice loan growth in the commercial bank I mean, theres a bunch of different factors there could be some inventory effects and so on but we'll see.
And just on that front like have you seen any improvement in supply chains and home biggest setback was the Russia, Russia war to supply chain improvements.
It's very hard to tell there was some improvement and then there was you're correct and now its all mixed again, so it's hard to tell.
Got it and just one follow up Alan you launched the UK digital bank last months any early wins in terms of how that's playing out any perspective on what the markers I'd have you think about.
How that strategy pays out until you're going to talk about that in Investor day, but just wondering any early thoughts.
I'll leave that to Investor day.
Thank you.
And the next question is coming from Erika Najarian from UBS. Please go ahead.
Hi, Good morning, my questions have been asked and answered I'll see you guys at Investor Day.
Alright, Thanks Erika.
And there are no further questions in the queue.
Okay.
Folks. Thank you very much. Thanks very much you are I guess in Investor day may 23rd Okay.
Yeah.
Thank you so much everyone that mark at the end of your conference call for today you May now disconnect. Thank you for joining and enjoy the rest of your day.
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