Q3 2022 JPMorgan Chase & Co Earnings Call

October 14, 2022

Please standby we're about to begin.

Good morning, ladies and gentlemen, welcome to Jpmorgan Chase's first quarter 2022 earnings call. This call is being recorded climbed it'd be muted for the duration of the coal division.

Life. This presentation. Please standby.

At this time I would like to turn the call over to J P. Morgan Chase's, Chairman and CEO , Jamie Dimon, and Chief Financial Officer, Jeremy Barton.

Please go ahead.

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

Starting on page one.

Reported net income of $9 7 billion EPS of $3 12, Sams on revenue of $33 5 billion and delivered an <unk> of 18%.

The only significant item this quarter was discretionary net investment securities losses, and corporate of $959 million as a result of repositioning the portfolio by selling U S treasuries and mortgages.

Our strong results this quarter reflect the resilience of the franchise in a dynamic environment touching on a few highlights we had a record third quarter, we had record third quarter revenue in markets of $6 8 billion. We ranked number one in retail deposit share based on FDIC data and credit is still healthy with net charge offs remain.

Well.

On page two we have more detail Rob.

Revenue of $33 5 billion was up $3 1 billion or 10% year on year, excluding the net investment securities losses, It was up 13%.

AI ex markets was up $5 7 billion or 51% driven by higher rates and IR ex markets was down $3 2 billion or 24% largely driven by lower IV fees and the securities losses, and markets revenue was up $502 million or 8% year on year.

Expenses of $19 2 billion were up $2 1 billion or 12% year on year, driven by higher structural costs and investments.

And credit costs of one 5 billion included net charge offs of $727 million.

And that reserve build of 808 million included a 937 million build in wholesale reflecting loan growth and updates to the firm's macroeconomic scenarios, partially offset by a $150 million release in home lending.

On the balance sheet and capital on page three.

We ended the quarter with a CET one ratio of 12, 5% up 30 basis points versus the prior quarter, which was primarily driven by the benefit of net income less distributions, partially offset by the impact of LCI.

<unk> was down approximately 23 billion quarter on quarter with growth in lending more than offset by continued active balance sheet management and lower market risk <unk>.

Given our results this quarter, we are well positioned to meet our CET one target of 12, 5% in the fourth quarter and 13% in the first quarter of 2023.

These current targets include a 50 basis point buffer over the growing regulatory requirements, which provides flexibility over the coming quarters.

To conclude on capital with the future increases in our risk based requirements.

<unk> will no longer be our binding capital constraint. So we announced the call of $5 4 billion in profit this quarter and issued $3 5 billion in sub debt to rebalance our capital stack.

Now, let's go to our businesses starting on page four.

Before I review Ccp's performance, let me provide you with an update on the health of U S consumers and small businesses based on our data.

Nominal spend is still strong across both discretionary and non discretionary categories with combined debit and credit spend up 13% year on year.

Cash buffers remain elevated across all income segments, however, with spending growing faster than income we are seeing a continued decrease in media in deposits year on year, particularly in the lower income segments.

Not surprisingly small business owners are increasingly focused on the risks and the economic outlook.

Now moving to financial results. This quarter CCP reported net income of $4 3 billion on revenue of $14 3 billion, which was up 14% year on year.

In consumer and business banking revenue was up 30% year on year, driven by higher NII on higher rates.

Deposits were up 10% year on year and down 1% quarter on quarter.

We ranked number one in retail deposit share based on FDIC data up 60% year on year, making us the fastest growing among the top 20 banks and we are now number one in Hawaii. In addition to New York and Chicago, making us top ranked in the three largest markets.

Client investment assets were down 10% year on year, driven by market performance, partially offset by flows and lending revenue was down 34% year on year on lower production margins and volumes.

Moving to card and auto revenue was up 9% year on year, driven by higher card NII, partially offset by lower auto lease income.

Card Outstandings were up 18% and we're all revolving balances were up 15% driven by strong net new account originations and growth in revolving balances per account they still remain slightly below pre pandemic levels.

And in auto originations were seven 5 billion down 35% due to lack of vehicle supply and rising rates.

Expenses of 8 billion were up 11% year on year, driven by the investments, we're making in technology travel marketing and branches.

In terms of actual credit performance this quarter credit costs were 529 million, reflecting net charge offs of $679 million, which were up $188 million year on year, largely driven by loan growth in card as well as a reserve release of $150 million in home lending.

Card delinquencies remain well below pre pandemic levels, though we continue to see gradual normalization.

Next the CIB on page five.

CIB reported net income of $3 5 billion on revenue of $11 nine goodson.

Banking revenue of $1 7 billion was down 43% year on year.

Ivy fees were down 47% versus a strong third quarter last year, we maintained our number one ranked with a year to date wallet share of eight 1%.

And advisory fees were down, 31%, reflecting lower announced activity this year.

Underwriting businesses continued to be affected by market volatility, resulting in fee is down 40% for <unk> and down 72% for equity in.

In terms of the fourth quarter outlook, we expect to be down versus a very strong prior year end.

While our existing pipeline is healthy conversion will of course depend on market conditions.

Funding revenue of $323 million was up 32% versus the prior year driven by higher NII on loan growth.

Moving to markets revenue was $6 8 billion up 8% year on year.

Fixed income was up 22% as elevated volatility drove strong client activity and the macro franchise, partially offset by a less favorable environment in securitized products.

Equity markets were down 11% against a record third quarter of last year. This quarter saw relative strength in derivatives lower balances in prime and lower cash revenues on lower block activity.

Payments revenue was $2 billion up 22% year on year, excluding the net impact of equity investments was up 41% in the year on year growth was driven by higher rates and growth in fees.

Securities services revenue of $1 1 billion was relatively flat year on year.

<unk> expenses of $6 6 billion were up 13% year on year, largely driven by compensation.

Credit costs were $513 million driven by a net reserve build of $486 million.

Moving to commercial banking on page six.

Commercial banking reported net income of $946 million.

Record revenue of $3 billion was up 21% year on year, driven by higher deposit margins, partially offset by lower investment banking revenue.

Gross investment banking revenue of $761 million was down 43% year on year, driven by reduced capital markets activity.

Expenses of $1 2 billion were up 14% year on year.

Deposits were down 6% year on year and quarter on quarter, primarily driven by attrition of nonoperating balances, while our core operating balances have shown stability as payment volumes continued to be robust.

Loans were up 13% year on year, and 4% sequentially C&I loans were up 7% sequentially, reflecting continued strength in originations on revolver utilization.

<unk> loans were up 2% sequentially, driven by lower prepayment activity in commercial term lending and real estate banking.

Finally credit costs were 619 million predominantly driven by a net reserve build of 597 million, while net charge offs remained low.

And then to complete our lines of business AWS on page seven.

Asset and wealth management reported net income of $1 2 billion with pretax margin of 36%.

For the quarter revenue of $4 5 billion was up 6% year on year predominantly driven by deposits and loans on higher margins and balances largely offset by reductions in management fees linked to this year's market declines.

Fences of $3 billion were up 10% year on year, driven by compensation, including investments in our private banking advisor teams technology and asset management initiatives for the quarter net long term inflows were $12 billion across fixed income equities and alternatives.

AUM of $2 six trillion and overall client assets of $3 eight trillion were down 13% and 7% year on year, respectively, driven by lower market levels, partially offset by continued net inflows.

And finally loans were flat quarter on quarter, while deposits were down 6% sequentially driven by migration to investments, partially offset by client flows.

Turning to corporate on page eight.

Yes.

Corporate reported a net loss of $294 million.

Revenue was a net loss of $302 million compared to a net loss of $1 3 billion last year.

NII was 792 million up $1 8 billion year on year, driven by the impact of higher rates.

<unk> was a loss of $1 1 billion down $852 million, primarily due to the securities losses, I mentioned upfront.

And expenses of $305 million were higher by $125 million year on year.

Next the outlook on page nine.

Going forward, we will also provide guidance for total firm wide NII for the fourth quarter, we expect it to be approximately 19 billion, implying full year 2022, and a high of approximately 66 billion.

And we expect NII ex markets for the fourth quarter to also be about 19 billion, implying that we expect markets NII to be around zero, which brings the full year to about 61 and a half billion.

Well, we're not giving 2023 and our guidance today, you will recall that at Investor Day, we talked about our fourth quarter 2022, NII acts markets run rate of $66 billion with potential upside for the full year of 2023 today as guidance for the fourth quarter of this year imply.

As an approximate run rate of 76 billion and from this much higher level. We would now expect some modest decline for the full year of 2023. In addition, theres quite a bit of uncertainty surrounding the trajectory of key drivers, including rates deposit reprice and loan growth.

So keep both of those things in mind as you update the 2023 estimates in your models.

Moving to expenses our outlook remains unchanged.

And as it relates to the card net charge off rate. We now expect the full year rate to be approximately one 5% below our previous expectations.

So to wrap up we are happy with a strong diversified performance of the quarter as we continue to navigate an environment of elevated uncertainty.

With that I will turn it over to Jamie for some additional remarks Jeremy.

Jeremy Thank you very much Hello, everybody you just wanted to give you a little more insight to how we're looking at our capital and interest rates a little bit. So capital plan, we're very comfortable with the earnings power of this company, which you can see is enormous and the margins and the returns.

And more importantly than that is we're growing franchise value I think all around the firm and in most years, we're up in market share in a few areas. We're not in a bridge that disappoints us, but the earnings power. It gives us lot of confidence we will get over that 13% in the first quarter, but we always have to keep in mind, the volatility and a bunch of other things that we know we.

To deal with Basel, four we don't know when and how this is going to be and any changes in G. SIB searches and uncertainty in back of our mind Aoc Aoc.

<unk> traditionally counter cyclical but in this kind of environment is more more pro cyclical so think of it as rates go up another 100 basis points is $4 billion easily can handle it just in the back remind seasonal.

<unk> already incorporates a percent of what we think the average consequence, it might be but obviously if the environment gets worse, we'll have to add to reserves and and or if we change your outlook, meaning that we think the chances of adverse events are higher we will change our reserves put in the back of your mind.

Unemployment goes to 5% or 6%, you're probably talking about five or $6 billion over the course of a couple of quarters again easy to handle not a big deal. It just doesn't fit capital a little bit.

And then arguably a management.

I think we're showing that we can easily manage RTW and drive it down in some areas up in other areas and stuff like that.

With that I would say very limited financial effect and the way you should look at this is we don't tell commercial bank or investment Bank don't get new business don't serve your clients. So we're serving clients. We always do when you see the loan book is growing and a lot of areas, but there are some discretionary things, which barely affect us so we're not putting.

Conforming mortgages on the balance sheet, whether we whether we originate them whether correspondence originated the most part because it makes very low sense to do that in the balance sheet and we make we make other choices and so are we there are a lot of tools to manage it obviously the capital requirement is going up we're going to find ways to reduce our debate central but over years strategically I think without.

Affecting our basic franchises.

Interest rates I think the way to look at it is we're we're fairly neutral at this point to interest rates going up or down Jeremy said, the 19 billion. Please do not annualize that there are a lot of uncertainties today and I'm just can mention a few we're not worried about them, it's not going to change things dramatically, but it does change things whats going to be Qt effect on deposits how much.

Deposit migration you have this new technological environment, and there are pluses and minuses that and of course, there or lack there are lags in consumer there can be some lags in treasury services can be some lags in commercial banking. So just on the back of our mind kind of actively manage that.

And the other thing I want to point out is that.

<unk> taken investment securities losses for the most part it can be worn as Dell average securities and replacement cheap securities. We don't want to be locked into something we think will get worse and not take a chance to buy something that we think will get better. So you might expect to see that taking place now there may be some securities losses in the future. It could do that we're not doing if we can do this to manage interest.

Great exposure, but for the most part we can do that with swaps to where other things. We just do it in the most efficient and effective way I want the people who manage these portfolios to know that we can sell things you don't want to own and buy things, we do want to own.

Other than that we think it was a very very good strong quarter across the board and.

We are open for questions now.

Yep. Thanks, Jamie Let's go ahead and open up for questions.

Please standby.

And the first question is coming from the line of Ken <unk> from Jefferies.

Hi, Thanks, a lot good morning, I just wanted to follow up on the on the NII and the fee and the deposit side to Jamie's comments. There. Obviously, that's one of the toughest uncertainties as to understand how we think about flows and mix and data. So I'm just starting to see it it looks like in terms of deposit cost starting to.

Starting to increase so how do you think about it now in this new environment, where we might go to four and a half maybe higher in terms of how betas might act over the course of this cycle as compared to any prior cycles in previous thoughts. Thanks.

Yeah. Thanks, Ken Good morning, Okay. So at Investor day, you'll recall that John said that we expected betas to be low this cycle.

As they were in the prior cycle, which was a low beta cycle by historical standards.

And what we're now seeing as we see the rate hikes come through and we see the deposit rate paid develop is that we're seeing realized betas being even lower than the prior cycle just through the actuals and.

The question of Lord is why is that and it's of course, we don't really know, but plausible theories include the speed of the hikes, which probably means that some of this is why but also the fact that the system is more a better position from a liquidity perspective than in prior cycles. So as we look forward.

We know that lives are significant right now we know that at some point that will start to come out obviously in wholesale that come out much faster, that's probably starting to happen now, but the exact timing of how that develops there's going to be very much a function of the competitive environment in the marketplace for deposits and we'll see how it all plays out.

Got it Okay and then just the second follow up on Jamie's points about like Okay, if things do.

You know look worse ahead looking ahead, you might have to build a little bit more understandable over the next couple of years can you just help us understand where you are in your scenario now at scenarios bill than just in today I'm still looks great tomorrow, there's some more uncertainty so how do we just get to start to understand.

How quickly and how you get your handle on that magnitude of ACL Delta and how do you think about it versus either I don't know pandemic peak or.

Day, one seesaw, it's very hard for all of us to see this of course.

Yes.

As you know I think seasonal is an enormously better county policy.

I wouldn't spend too much time on it because it's not a real number it's a hypothetical probability based number and the way I am trying to do to make it very simple for you. So if you look at the pandemic, we put up $15 billion over two quarters and then we took it down over three or four after that.

And all it did swing all these numbers and it didnt change that much.

I'm trying to give you a number and obviously this number could be plus or minus several billion.

Unemployment goes to 60% and that becomes the central kind of case, and then you have possibility to get better and possibly it gets worse. We in fact had some like five or $6 billion.

That probably would happen over two or three quarters.

And that's just simply like to make it yes.

Okay.

Right now we already have a percent in these adverse and severe adverse case.

We can change if we change that next quarter that will be part of that 6 billion Im talking about.

Yes.

Okay understood. Thank you.

Yes.

The next question is coming from the line of Ebrahim Tuna, let up from Bank of America Merrill Lynch You May proceed.

Good morning.

I guess just following up Jamie so appreciate that.

Cecil and then the model based approach.

I think you were quoted in the past talking about potentially putting a recession in the next six to nine months would appreciate any perspective in terms of are you beginning to see cracks either lead commercial real estate consumer where it feels like the economic being from inflation higher rates is beginning to filter through to your clients would appreciate any insights there.

Yeah, I'll I'll take deliver him. Thanks, the short answer to that question is just now we just don't see anything that you could realistically describes a crack.

In any of our actual credit performance and I made some comments about this in the prepared remarks on the consumer side, but we've done some fairly detailed analysis about different cohorts and you.

You know of the early delinquency bucket entry rates and stuff like that and we do see in some cases, some tiny increases but.

Generally in almost all cases, we think that's normalization and it's even slower than we would expect so yes.

Yes, I think.

We're in and we're in an environment, where it is kind of odd which is very strong consumer spend you see it in our numbers you see in other peoples numbers up 10% prior last year up 35% pre COVID-19 balance sheets are very good for consumers' credit card borrowing is normalizing aren't getting worse, you might see and.

And that's really good so we can go into a recession you got a very strong consumer.

However.

It's rather predictable if you look at how they're spending and inflation. So inflation. It is 10% reduces that by 10% and that extra cap money. They have the checking accounts will deplete probably by sometime mid year next year.

Then of course, you have inflation higher rates higher mortgage rates oil.

Volatility more so those things are out there.

Is that a crack in current numbers is quite predictable it will strain future numbers.

And just tied to that I think the other thing that the investors from the outside worry about this interconnectedness of the systems will be the U K gilt market L deals. How much are you worried about that part of the business in terms of having a meaningful impact in terms of our capital to talk at some point over the next year, just given all the QD happening around the world.

Well I mentioned in Q T has been one of the uncertainties because it's a very large change the flow of funds around the world by who are the buyers solid sovereign debt, there's a lot of sovereign debt.

But I think if you look at that building alone is a is a bump it's not going to change what we do or how we do it and youre going to see bumps like that because both of these are already mentioned.

It's inevitable that you're going to see them, whether they create systemic risk I don't know I have pointed out as part of debased intermediate net and that creates a little bit more for Julian to system that does not mean that you're going to see a crack of some sort, but again, it's almost impossible not to have real volatility based on the facts, where we told you.

Those are large uncertainties, we know about today and in the future.

Got it and grade messaging on the call today. Thank you.

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

Hey, Good morning, Hey, Jeremy at the Investor Day, you did noted that expense growth in 'twenty three with slow from this year's level and might be slightly higher than consensus expectations. At the time. So is that now that you get closer to next year is that still holds that will and if the economy does get worse than expected.

Is there some levers to pull or is it just.

Still investing heavily regardless.

Yeah. Thanks, Jim So broadly yes, it's still holds no real change on the outlook just to remind everyone at Investor Day, I think the consensus was 79 and a half for 2023, and we said you were a little low I think it got revised up to sort of you know.

A D and a half or something like that.

That's still does now it's still roughly in the right ballpark, obviously, we're going through our budget cycle. We're looking at the opportunity set on the environment set for next year.

So you know it's not set in stone.

But broadly on the question of investments and I'm sure Jamie will agree to hear that.

Our investment decisions are very much through the cycle decisions and so we're not going to attempt to change those just because of sort of.

Yes.

The difference in that in the short term economic environment of course, the volume and revenue related expense can fluctuate as a function of the environment as you would expect.

Right.

I think the guidance again.

Thank you.

Compensation go up or down dramatically. So you'll have different estimates about investment banking revenues in markets revenues and we can't really adjust for your numbers that I just want to point out. The other side is we're making heavy investments and we have among the best margins in the business I think that's a very good thing.

Okay.

Right.

And maybe on that front leveraged loan rate was there any leveraged loan write downs this quarter and is that and how does that market beginning to clear or are there still overhang.

There are no real leverage loan write downs this quarter in that market isn't yet clear.

We don't we are sure of is very small so we're very comfortable.

Okay. Thanks.

The next question is coming from the line of John Mcdonald from Autonomous you May proceed.

Hi, Good morning, Jeremy wanted to ask about your EHR disclosure is what we call your rate sensitivity disclosures, they look a little different than peers and when we look at the sensitivity to 100 basis points of higher rates beyond the forward curve. It looks like your liability sensitive can you give us some context of maybe the limitations of that.

Closure and how we should put that in context of the assumptions behind it.

Yeah, Thanks, John and I'd love to have a very long conversation with you about this but I'm going to keep it short here, it's really all about lags so.

As our disclosure says we do not include the impact of reprice lags in our AAR calculation. So as a result of that the entire calculation is based on modeled rates paid in the terminal state as you well know right now we're in the middle of some very significant lags, which are affecting the numbers quite a bit in which we.

Back to persist for some time, so as a result of that what I would expect in the near term is something quite similar to what we've experienced this year as you know this year as rates have gone up we've revised our NII outlook from 950 at the beginning of the year to now 61 and a half so.

As we look forward in the near term from here I would expect similar type sensitivities for rate fluctuations given the live environment that we're in.

And just to follow up on Jamie's comments about not annualizing. The fourth quarter is that where the risks lie to annualize in the fourth quarter. What are some of the puts and takes that you.

You said it might be down a little bit from that fourth quarter annualized.

Yes.

I've already mentioned.

Rapidly changing yield curve deposit migration, everybody does EHR differently. So what is lag. One is we did we assumed deposit migration. Some people don't we use our ECR is included in here some people don't and all of that.

For your models because of all that kind of stuff just use a number less than annualize in the 19th so instead of 76 using a number like 74.

Just keep it as simple as possible and we don't know, we hope to beat that but with all the stuff going on I. Just you just got to be a little cautious and conservative.

Sure.

Okay. Thanks.

The next question is coming from the line of Erika Najarian from UBS you May proceed.

Hi, Good morning, I agree with Ebrahim that your presentation. This morning was quite correct.

And impactful so I'm going to ask a question that I think has been sort of the key debate to the stock all year.

So at Investor Day in May you mentioned.

Our TCE target of 17% and that was before we found out that the STB would be higher in June .

We think our balance.

Your capital build is going faster than expected.

Think about the revenue power that shows through in this firm.

No.

Plus or minus what may happen with seasonal do you think you can achieve 17% RTC next year.

Yes.

There's obviously a good question the answer is yes, and one of the things. We always look at is normalized Aro TCA. So we were very honest, we're over we're not overheated NII, maybe a little bit because of the lags and stuff like that but not a lot, but we are over earning on credit your credit card and the one 5% we've never seen a number that low risk were quite strong.

So that's where I'm, Greg about the 19% this quarter figure that's going to continue forever is not and obviously, many adjusted 17, a little bit, but it's not a material adjustment we're going to we've got a lot of great bright people going to find a lot of ways to squeeze some of these things Dan, including Michael CCAR is an SCB and liquidate some assets and business models.

Just a little bit.

If you look at our acquisition for example, they were non <unk> acquisitions non capital non GCB all services and service related. So that's what we can do over time and we're pretty comfortable that we will get very good returns. So yeah. We are.

And next year is totally dependent on what happens to the army.

Other thing I would look at maybe we'll give you this number other times.

What would we weren't in a recession.

Would have pretty damn good returns in a recession.

I feel very good about that.

Thank you for that Jamie and distillate Supermicro question as a follow up for.

Hi, Jeremy.

Why with markets on our IV zero next quarter and should we expect that to be zero next year.

Yeah, Thanks, Kevin simple, where we're putting entering the market.

The yield curve, so youre already in your pain to finance the trading book.

Yes, Erika I mean, basically as rates go up the funding cost goes up and the offsets on the other side in many cases rents or derivatives or derivatives like instrument. So it goes through at IR.

Italy, we believe the markets business revenue as you know right and sensitive you can see that history through our disclosures. This year. So as you look out to next year with the forward curve implying.

A much less biased evolution of fed funds.

You Shouldnt expect to see as many changes at least from rates of course, we can sometimes see.

Somewhat more unpredictable changes from balances, but that should be on bias, one way or the other.

Got it thanks.

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

Okay.

Hi.

And Jamie once again I'm trying to reconcile your actions with your words.

You've said publicly you mentioned the Hurricane you mentioned the recession, you mentioned look out and there are all sorts of risks I don't think anyone disagrees with that on the other hand.

Your reserves to loans are still well below seasonal day, one so your actions with the reserving don't seem to reflect you're more pessimistic comments about the economy. So how do I reconcile the two.

Yeah. So the way to do that is in our CSR is in our reserves today. There is a significant percentage probability that we've put on adverse and severe adverse.

Already so it's in there already a lot of people work in the cease of reserves our economist Jeremy a lot of other folks are set by me because I have to thank the odds might be different than other people.

So I completely understand what you're saying.

The numbers are very good we had some of that I was trying to be very honest about if things get worse, here's what it might mean for reserves that may be different because of course. These calculated changes all the time, but.

<unk>.

Yes.

Does he Michael.

Those bainbridge and seasonal the timing of when something happens.

Very important.

So what happens if you set a recession is going to happen in the fourth quarter next year that'd be very different if theres going to be in the first quarter of next year.

Yeah, I just understood as the lifetime losses on the loans as opposed to it that has been strengthened.

Loans, some yes, some loans have a short life and some loans that have a long life.

Okay, let's just cut to the chase so where are you versus three months ago I mean is it.

<unk> currently got headlines with the hurricane comment and all of that and its look like as you said you have fed tightening Qt tighter capital rules for banks, you have like the trifecta of tightening by the fed.

And then you have wars and everything else. So I don't think any stock market supports your view in that all the risks out there, but are things better worse or the same as they were three months ago.

They're roughly the same but just getting closer to what you and I might consider bad events.

And my Hurricane I've been very consistent but looking at probabilities and possibilities. There is still for example, a possibility of a short win.

We can debate, we think 10% is yours might be different than mine, but there is a possibility of a mild recession and consumers are very good shape coming in very good shape and as possibly it'll be worse, mostly because the more in Ukraine and oil price molds and things like that.

<unk>.

I would not change by possibilities and probabilities this quarter versus last quarter.

For me and then.

It's different.

Yeah, let last follow up I know you invest through cycles, you've always done that you are consistent but I mean, your head count increase is probably going to be the highest in the industry I mean head count.

66280, 8000, your CIB, you're adding head count and if you did expect weakness in nine months from now when you wait to hire people, maybe get them a little cheaper.

No.

Okay.

Alright, Thanks, a lot.

Thank you. The next question is coming from the line of Betsy <unk> from Morgan Stanley You May proceed.

Hi, good morning.

Hey, Betsy Hi.

A couple of questions. One just on the investment spend could you give us a sense as to the areas that you're leaning in the most as we should be thinking about into next year, because you've obviously done a lot this year with regard to technology advancement.

So you're buying to enhance your digital capabilities and international expansion in particular on the consumer side. So just thinking through is this continuation on those themes or is there something else we should be looking for.

Betsy is exactly what we showed you at Investor day, almost no change to take out that deck, we broke out by business kind of investment investment been tech spend is pretty much on track for that.

And the inflation that drives some of that cost structure, you can deal with through just efficiency elsewhere is that fair.

Believe it or not there was in the numbers, we gave you Nate.

Okay, and then separately on the bond restructuring that you did this quarter and the comments around look we don't need to hold stuff, we don't need to hold we don't want to hold with that that's kind of suggests to me that there'll be more bond restructuring as we go through the next quarter or is there any reason why you didn't clean the whole thing up this quarter.

No I think I said, we sell we sell rich securities and buy cheap. So you look at if you look what happened to mortgage spreads gapped out.

The gap in we bought gapped out fold and that kind of dumped you are getting to gen. Two and a half. So you can have different point of views, but I do expect future bond losses going forward I. Just don't think that's real hard so I think a bright and what our people are experts in the investment area, if they really want to sell something.

We're going to sell it.

We're not going to sit here lock ourselves into somebody has gotten very very rich because you feel like you can't take a bond was and remember it doesn't affect capital and in fact, when you reinvest it which we tend to do yes, you are hiring going forward.

Okay. Thanks.

Okay.

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

Let me let me just add two like you saw the Cielo has gapped out in Europe I want our people when they gap out can be reported basis points I want them to be willing to buy they might sell something to do that but that is a very smart thing to do.

Okay.

Okay. Thank you. This is Glenn so look from time to time weird things happen in the market we get these.

Losses, like RK goes and now this UK pension <unk>.

So my question for you is besides that do you have risk in the derivative book and as this situation has done its more of.

When you meet with risk Committee are there pockets of leverage that you are considering on these big market moves whether it be the dollar our rates work, where we are not thinking like guys.

Or do you view, the LTI issue as an isolated event.

Yes.

Mentioned in Germany, you might have some AD, but so the <unk> thing is a bump in the road and I think the bank of England does it trying to get through this thing without changing older policies about monetary policy and in Q T.

And you know I was surprised to see how much leverage there was in some those pension plans and by experienced in life has been when you have things like what we're going through today, there are going to be other surprises someone who is going to be all sides.

We don't see anything systemic.

There is leverage in certain credit portfolios of celebrity to certain companies with leverage so you're probably going to see some of that I do think you used the volatile markets you already see very low liquidity, so something like the LD I think could cause more issues down the road if it happens constantly and stuff like that but so far it is a bump in the road the banking system.

<unk> itself is extraordinarily strong.

What would the dollar qualify as one of those super strong moves that could put people off site.

So how do you make sure you protect jpmorgan against that.

Well, because we're we generally win.

We're kind of taking them, we generally hedge when it comes to the currencies and stuff like that but yes dollar flows qt emerging markets are hedge funds, yes that would be a category that might somebody might happen there it wouldn't be it shouldnt be somebody's going to stick J P. Morgan that much in fact, it usually creates an opportunity for J P. Morgan.

Yeah on that point, Glenn Alright, Susan just that of course, it's always traditionally the case that emerging markets struggle sovereign struggle with a kind of dollar strength that we're experiencing right now, but our our emerging market franchise folks have been through these cycles before so.

While we manage through it.

Thank you Bob I appreciate it.

Just to add to this trade to the franchise I remember looking back at our emerging markets results by quarter over a decade. It was shocking to me how few quarters and help your country, we ever lost money.

We may have had low returns in some quarters, but it was shocking we've made money in Argentina every almost every year for last 20 years.

And I think there was one quarter, we put up reserves for one of the oil companies and took down but it's kind of very disabilities Shire is striking.

The next question is coming from the line of Gerard Cassidy from RBC capital markets.

Thank you good morning, Jeremy and good morning, Jamie.

You guys have been talking about.

The system liquidity with Jamie referenced Q T also.

The fragility of the system can you share with US what are the metrics you guys are looking at to see if the system does.

A problem on liquidity just this week you probably saw that the Swiss National Bank updates.

Reserve currency swap lines to $6 3 billion. So what are some of the things you guys focusing on to see if theres going to be maybe more some liquidity issues that could lead to greater problems.

Yeah, I mean, Gerard broadly if you just look at standard regulatory reporting of LCR ratios in the U S. Banking system, everyone. Just has very significant surpluses and of course, we can go into the question of ask you to your place through and how that interacts with RP.

Loan growth was that put some pressure on banking system deposits, but that.

Starting from a very very strong position. So there's a lot of cushion there for.

For that to come down before you start to have a real challenge from a liquidity perspective.

If we look at everything from fed repo to quite a bit tightened to net issuance of treasury debt issuance of mortgages in treasury volatility in treasury bid ask spreads in treasury.

Martin our markets and all that we're looking at all of that.

Is the base itself is extremely strong.

Extremely strong it is that what you're going to see will not be in the bank and then maybe your bankers outside somewhere but it'll be somewhere else it'll be somewhere else.

It might be in credit might be in emerging markets it might be FX, but you're likely to have something like that we have events like the ones we're talking.

About.

Very good and then.

In terms of the investment banking and capital markets businesses can you guys give us any color into pipelines, how they stood at the end of the third quarter and as Youre going into the fourth quarter, what you're seeing in terms of those business lines.

Yeah, I've always pointed out two other pipelines come and go okay you've seen.

The size, we had before so pipeline is not necessary.

Put in your model lower IV revenues next quarter than this quarter based upon what we see today.

Markets, we have no idea.

Seasonally is generally a low quarter to fourth quarter, but we don't know this quarter because there's so much activity taking place in your guess is as good as ours.

Very fair thank you.

The next question is coming from the Rhino flats O'connor from Deutsche Bank You May proceed.

Can you guys talk.

Can you guys talk about the outlook for loan growth. The next few quarters and you know besides the obvious areas like leverage lending and correspondent mortgage I already talked about any areas that you are tightening around the edges.

Yeah, Matt Let me take your last question first so in general no we underwrite through the cycle, we haven't we didn't really.

Loosen our underwriting standards in the moment, where everything looked great and so we don't see any need to tighten now really a lot of consistency there in terms of the actual loan growth outlook, we decided for this year, obviously only one quarter left then we would have high single digits no meaningful change that outlook there.

A little bit of a headwind as a function of rates as you mentioned.

The RVO optimization in mortgages as we go into next year, we remain very positive and optimistic about the carb story across a range of dimensions in terms of both outstandings and revolve normalization, but for the rest of the loan growth environment, it's going to be.

Thank very dependent especially in wholesale on on the macro on the macro situation. We know that in recessionary environments, we tend to see lower loan demand at the same time, we've got a lot of great initiatives going and client engagement new clients. So we'll just have to see how that plays out next year.

And I guess, when we read the headlines about home prices going down in some markets.

Car prices starting to roll.

I mean, why does not drive some tightening in those businesses.

Well it has I mean look at the volumes in mortgages dropped in cars quota who've dropped this stuff like that and that's already in our numbers and we would expect that to continue that way.

Okay. Thank you.

The last question is coming from the line of Charles Peabody from Portales Partners. You May proceed.

Just curious in your guidance on NII, where you kind of implied fourth quarter would be peak run rate next year.

You factor in any impact from a possible treasury buyback program, which which could.

Direct liquidity out of the money market system into the banking system and therefore keep your deposit betas lower do you think about that at all as a possibility.

Yes, I think I don't know if youre lithium I said before.

Qt.

Net issuance in mortgages net issuance treasuries globally is going to reduce deposits and creates certain forms of volatility.

And absolutely we incorporate them. Thank you.

<unk> lags.

The change in the yield curve changes in spreads and all those things in the numbers. We gave you and that's why we're being trying to be conservative NII.

While you can annualize the 19% to 76. So you can have a model put in 74 and it incorporates all of that.

Thank you.

Youre welcome.

At the moment there are no further questions on the line.

Well. Thank you very much and we'll talk to you all next quarter. Thank you.

Thank you everyone that concludes your conference call for today you may now disconnect. Thank you all for joining and enjoy the rest of your day.

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