Q2 2023 JPMorgan Chase & Co Earnings Call

July 14, 2023

Speaker 1: Good morning, ladies and gentlemen. Welcome to J.B. Morgan Chase's second quarter 2023 earnings call.

Speaker 1: This call is being recorded. Your line will be muted for the duration of the call. We will now go to the live presentation. Please stand by.

Speaker 1: Good morning ladies and gentlemen. Welcome to J.B. Morgan Chase's second quarter 2023 earnings call. This call is being recorded. Your line will be muted for the duration of the call. We will now go to the live presentation. Please stand by. Biden Ch

Speaker 1: Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Second Quarter 2023 Earnings Call.

Speaker 1: This call is being recorded. [Operator Instructions] We will now go to the live presentation. Please standby.

Speaker 1: At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon, and Chief Financial Officer, Jeremy Barnum.

Speaker 1: At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Burnham. Mr. Barnum, please go ahead.

Speaker 1: At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO , Jamie Dimon, and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Speaker 1: Mr. Barnum, please go ahead. Thanks, operator. Good morning, everyone. The presentation is available on our website, and please refer to the disclaimer at the back.

Speaker 2: Thanks, operator.

Speaker 2: Good morning everyone.

Speaker 2: The presentation is available on our website, and please refer to the disclaimer at the back. Starting on page 1, the firm reported net income of $14.5 billion, EPS of $4.75 on revenue of $42.4 billion, and delivered an ROTCE of 25%. These results included the First Republic borrowing purchase gain of $2.7 billion, a credit reserve build for the First Republic lending portfolio of $1.2 billion as well as $900 million of net investment securities losses in corporate. Touching on a few highlights.

Speaker 2: Thanks operator. Good morning everyone. The presentation is available on our website and please refer to the disclaimer in the back.

Speaker 1: Starting on Page 1, the firm reported net income of $14.5 billion, EPS of $4.75 on revenue of $42.4 billion, and delivered an ROTCE of 25%.

Speaker 2: Starting on page 1, the firm reported net income of $14.5 billion, EPS of $4.75 on revenue of $42.4 billion and delivered an ROTCE of 25%.

Speaker 2: These results included the First Republic Bargain Purchase Gain of $2.7 billion, a Credit Reserve Build for the First Republic Lending Portfolio of $1.2 billion, as well as $900 million of net investment securities losses in corporate. Touching on a few highlights. We had record long-term inflows into AWM. We ranked number one in IBT WalletSure.

Speaker 2: TCV client investment assets were up 18% year-on-year, we had record long-term inflows into AWM, and we ranked #1 in IVP Wallet Share.

Speaker 2: Touching on a few highlights.

Speaker 2: CCB client investment assets were up 18% year on year. Before giving you more details on the financials, let me give you a brief update on the status of the First Republic integration on Page 2.

Speaker 2: CCB client investment assets were up 18% year on year. We had record long term inflows in AWM. We ranked number one in IBT WalletSure.

Speaker 2: Before giving you more detail on the financials, let me give you a brief update on the status of the First Republic integration on page 2. The First Republic employees have formally joined us as of July 2, and we're pleased to have had very high acceptance rates on our offers.

Speaker 2: Before giving you more detail on the financials, let me give you a brief update on the status of the First Republic integration on page 2.

Speaker 2: The settlement process with the FDIC is on schedule, with the number of key milestones being recently completed. Systems integration is also proceeding at pace, and we are targeting it being substantially complete by mid-2024.

Speaker 2: The Sutherland process for the FDIC is on schedule with the number of key milestones being recently completed.

Speaker 2: The Sutherland process for the FDIC is on schedule with the number of key milestones being recently completed. Systems integration is also proceeding at pace, and we are targeting it being substantially completed by mid 2024. And although it's still early days, as we get the sales force back in the market, we are happy to see that client retention is strong, with about $6 billion of net deposit inflows since the acquisition.

Speaker 2: Systems integration is also proceeding at pace and we are targeting being substantially completed by mid 2024.

Speaker 2: First Republic employees have formally joined us as of July 2nd, and we're pleased to have very high acceptance rates on our offers. And although it's still early days, as we get the sales force back in the market, we are happy to see that client retention is strong with about $6 billion of net deposit imposed since the acquisition.

Speaker 2: First Republic employees have formally joined us as of July 2nd and we're pleased to have very high acceptance rates on our offers.

Speaker 2: And although it's still early days, as we get the sales force back in the market, we are happy to see that client retention is strong with about $6 billion of net deposit imposed since the acquisition.

Speaker 2: Now turning back to this quarter's results on page 3, you'll see that in various parts of the presentation, we have specifically called out the impact of First Republic where relevant. Now turning back to this quarter's results on Page 3, you'll see that in various parts of the presentation, we have specifically called out the impact of First Republic where relevant.

Speaker 2: Now turning back to this quarter's results on page 3.

Speaker 2: You'll see that in various parts of the presentation, we have specifically called out the impact of First Republic where relevant.

Speaker 2: To make things easier, I'm going to start by discussing the overall impact of First Republic on this quarter's results at the firm-wide level. Then, for the rest of the presentation, I will generally exclude the impact of First Republic in order to improve the comparability of prior periods.

Speaker 2: To make things easier, I'm going to start by discussing the overall impact of First Republic on this quarter's results at the firm-wide level, and then for the rest of the presentation, I will generally exclude the impact of First Republic in order to improve comparability with prior periods.

Speaker 2: With that in mind, this quarter, First Republic contributed $4 billion of revenue, $599 million of expense, and $2.4 billion of net income. As noted on the first page, this includes $2.7 billion of bargain purchase gain, which is reflected in NIR in the corporate segment, as well as $1.2 billion of allowance billed. And remember that the deal happened on May 1st, so the first public numbers only represent two months of results.

Speaker 2: With that in mind, this quarter, First Republic contributed $4 billion of revenue, $599 million of expense, and $2.4 billion net income. As noted on the first page, this includes $2.7 billion of bargain purchase gain, which is reflected in NIR in the corporate segment.

Speaker 2: You'll see in the line of business results that we are showing First Republic revenue and allowance in CCB, CB, and AWM. And for the purposes of this quarter's results, all of the deposits are in CCB, and substantially all of the expenses are in corporate.

Speaker 2: as well as $1.2 billion of allowance billed.

Speaker 2: And remember that the deal happened on May 1st, so the first public numbers only represent two months of results.

Speaker 2: You'll see in the line of business results that we are showing First Republic revenue and allowance in CCB, CB, and AWM. And for the purposes of this quarter's results, all of the deposits are in CCB and substantially all of the expenses are in corporate.

Speaker 2: And remember that the deal happened on May 1, so the First Republic numbers only represent two months of results. You'll see in the line of business results that we are showing First Republic revenue allowance in CCB, CV, and AWM. And for the purposes of this quarter's results, all of the deposits are in CCB, and substantially all of the expenses aren't corporate.

Speaker 2: As the integration continues, some of those items will get allocated across the segments.

Speaker 2: Now, turning back to firm-wide results excluding First Republic, revenue of $38.4 billion was up 6.7 billion, or 21%, year on year.

Speaker 2: As the integration continues, some of those items will get allocated across the segments.

Speaker 2: Now, turning back to firm-wide results excluding First Republic.

Speaker 2: As the integration continues, some of those items will get allocated across the segments.

Speaker 2: NIIX Markets was up $7.8 billion, or 57%, driven by higher rates. NIIX Markets was down $293 million, largely driven by the net investment security losses I mentioned earlier partially offset by a number of less notable items primarily in the prior year.

Speaker 2: Revenue of $38.4 billion was up 6.7 billion or 21% year on year.

Speaker 2: NIIX Markets was up $7.8 billion or 57% driven by higher rates. NIRX Markets was down $293 million largely driven by the net investment security losses I mentioned earlier partially offset by a number of less notable items primarily in the prior year. NIRX Markets was down $9.8 billion largely driven by higher rates NIIX Markets was down $9.8 billion largely driven by the net investment security losses

Speaker 2: And markets revenue was down 772 million or 10% year on year. However, expenses of $20.2 billion were up 1.5 billion or 8% year on year, primarily driven by higher compensation expense, including wage inflation and higher legal expense.

Speaker 2: And markets revenue was down 772 million or 10% year on year.

Speaker 2: NII X markets was up $7.8 billion, or 57%, driven by higher rates, and IRX markets was down $293 million, largely driven by the net investment securities losses I mentioned earlier, partially offset by a number of less notable items, primarily in the prior year. NIRX Markets was down $293 million, largely driven by the net investment security losses I mentioned earlier, partially offset by a number of less notable items primarily in the prior year.

Speaker 2: And markets revenue was down $772 million or 10% year-on-year. However, expenses of $20.2 billion were up $1.5 billion or 8% year-on-year, primarily driven by higher compensation expense, including wage inflation and higher legal expense.

Speaker 2: Expenses of $20.2 billion were up 1.5 billion or 8% year on year, primarily driven by higher compensation expense including wage inflation and higher legal expense.

Speaker 2: And credit costs of $1.7 billion included net charge-offs of $1.4 billion, predominantly in Allows. The net reserve build included a $389 million build in the Commercial Bank, a $200 million build in card, and a $243 million release in corporate, all of which I will cover in more detail later.

Speaker 2: And credit costs of $1.7 billion included net charge-offs of $1.4 billion, predominantly in credit cards. And credit costs of $1.7 billion included net charge-offs of $1.4 billion, predominantly in credit cards.

Speaker 2: And credit costs of $1.7 billion included net charge-offs of $1.4 billion predominantly inAllows.

Speaker 2: The net reserve build included a $389 million build in the Commercial Bank, a $200 million build in card, and a $243 million release in corporate, all of which I will cover in more detail later. The net reserve build included a $389 million build in the Commercial Bank, a $200 million build in card, and a $243 million release in corporate, all of which I will cover in more detail later.

Speaker 2: The Net Reserve Build included a $389 million build in the commercial bank, a $200 million building card, and a $243 million release in corporate, all of which I will cover in more detail later, onto the balance sheet and capital on page 4. On to the balance sheet and capital on Page 4.

Speaker 2: NIRX Markets was down $9.8 billion, largely driven by higher rates. NIRX Markets was down $9.8 billion largely driven by net investment security losses. Now turning back to firm line results, excluding First Republic, revenue of $38.4 billion was up $6.7 billion or 21% year-on-year. NII X markets was up $7.8 billion, or 57%, driven by higher rates, and IRX markets was down $293 million, largely driven by the net investment securities losses I mentioned earlier, partially offset by a number of less notable items, primarily in the prior year.

Speaker 2: We ended the quarter with a C2 on ratio of 13.8%, flat versus the prior quarter as the benefit of net income less distributions was offset by the impact of First Republic.

Speaker 2: onto balance sheet and capital on page 4.

Speaker 2: We ended the quarter with a CET1 ratio of 13.8%, flat versus the prior quarter as the benefit of net income less distributions was offset by the impact of First Republic. And as you can see in the 2 charts on this page, we've given you some information about the impact of the transaction on both RWA and the CET1 ratio.

Speaker 2: We ended the quarter with a C2 on ratio of 13.8% flat versus the prior quarter as the benefit of net income less distributions was offset by the impact of First Republic.

Speaker 2: And as you can see in the two charts on this page, we've given you some information about the impact of the transaction on both RWA and CET1.

Speaker 2: And as you can see in the two charts on the page, we've given you some information about the impact of the transaction on both RWA and CET1 ratio.

Speaker 2: And as you know, we completed C-CAR a couple of weeks ago. And as you know, we completed CCAR a couple of weeks ago.

Speaker 2: Our new Indicative SCB is 2.9% versus our current requirement of 4%, and it goes into effect on 4.23. The new SCB also reflects the board's intention to increase the dividend to $1.05 per share in the third quarter. Our new indicative SCV is 2.9% versus our current requirement of 4%, and it goes into effect in 4Q '23. The new SCV also reflects the Board's intention to increase the dividend to $1.05 per share in the third quarter.

Speaker 2: And as you know, we completed C-CAR a couple of weeks ago.

Speaker 2: Our new Indicative SCB is 2.9% versus our current requirement of 4% and it goes into effect in 4.23. The new SCB also reflects the board's intention to increase the dividend to $1.05 per share in the third quarter.

Speaker 2: Liquidity Our bank LCR for the second quarter ended at 129 percent, in line with what we anticipated at investor day. About half of the reduction is associated with the first public transaction.

Speaker 2: liquidity our bank LCR for the second quarter ended at 129 percent in line with what we anticipated at investor day. About half of the reduction is associated with the first public transaction.

Speaker 2: On liquidity, our bank LCR for the second quarter ended at 129%, in line with what we anticipated at Investor Day. About half of the reduction is associated with the First Republic transaction.

Speaker 2: And while we're on the balance sheet, as we previewed in the 10k, we will be updating our earnings at risk model to incorporate the impact of deposit repricing lags. So when we release this quarter's 10Q, you will see the up 100 basis point parallel shift scenario will be about positive 2.5 billion.

Speaker 2: And while we're on the balance sheet, as we previewed in the 10-K, we will be updating our earnings and risk model to incorporate the impact of deposit repricing lines.

Speaker 2: So when we release this quarter's 10-Q, you will see the up 100 basis point parallel shift scenario will be about positive $2.5 billion, whereas in the absence of the change, it would have been about negative $1.5 billion.

Speaker 2: Whereas, in the absence of the change, it would have been about negative one and a half billion.

Speaker 2: Whereas in the absence of the change, it would have been about negative one and a half billion.

Speaker 2: Now, let's go to our businesses, starting with CCB on page 5. Both US consumers and small businesses remain resilient, and we haven't observed any meaningful changes to the trends in our data we discussed at Investor Day. Both U.S. consumers and small businesses remain resilient, and we haven't observed any meaningful changes to the trends in our data we discussed at Investor Day.

Speaker 2: Now let's go to our businesses starting with CCB on page 5.

Speaker 2: Now let's go to our businesses, starting with CCB on Page 5.

Speaker 2: Both US consumers and small businesses remain resilient and we haven't observed any meaningful changes to the trends in our data we discussed at Investor Day.

Speaker 2: Turning now to the financial results, which I will speak to excluding the impact of First Republic on CCB, CB, and AWL.

Speaker 2: Turning now to the financial results which I will speak to excluding the impact of First Republic for CCB, CB and AWL.

Speaker 2: CCB reported a net income of $5 billion on revenue of $16.4 billion, which was up 31% year-on-year.

Speaker 2: Turning now to the financial results, which I will speak to excluding the impact of First Republic for CCB, [ CV ] and AWM. CCB reported net income of $5 billion on revenue of $16.4 billion, which was up 31% year-on-year.

Speaker 2: In banking and wealth management, revenue was up 59% year-on-year, driven by higher NII on higher rates. In Banking and Wealth Management, revenue was up 59% year-on-year, driven by higher NII on higher rates.

Speaker 2: CCB reported net income of $5 billion on revenue of $16.4 billion, which was up 31% year-on-year. In banking and wealth management, revenue was up 59% year-on-year, driven by higher NII on higher rates.

Speaker 2: End of period deposits were down 4% quarter on quarter as customers continued to spend down their cash buffers, including for seasonal tax payments, and seek higher yielding products. End of period deposits were down 4% quarter-on-quarter as customers continue to spend down their cash buffers, including for seasonal tax payments, and seek higher-yielding products.

Speaker 2: End of period deposits were down 4% quarter on quarter as customers continued to spend down their cash buffers including for seasonal tax payments and seek higher yielding products.

Speaker 2: High net worth investment assets were up 18% year on year, driven by market performance and strong net inflows across our advisor and digital channels. Client investment assets were up 18% year-on-year, driven by market performance and strong net inflows across our adviser and digital channels.

Speaker 2: High on investment assets were up 18% year on year, driven by market performance and strong net inflows across our advisor and digital channels.

Speaker 2: In home lending, revenue was down 23% year on year, driven by lower NII from tighter loan spreads and lower servicing and production revenue. However, originations were up around the quarter driven by seasonality, although still down 54% year on year.

Speaker 2: In home lending, revenue was down 23% year on year, driven by lower NII from tighter loan spreads and lower servicing and production revenue.

Speaker 2: In Home Lending, revenue was down 23% year-on-year, driven by lower NII from tighter loan spreads and lower servicing and production revenue. However, originations were up quarter-on-quarter, driven by seasonality, although still down 54% year-on-year.

Speaker 2: Moving to card services and auto, revenue was up 5%, largely driven by higher card services NII on higher revolving balances partially offset by lower auto lease income. Hard out sendings were up 18% year on year, which was the result of revolved normalization and strong no account growth. And in the auto industry, originations were up 12 billion, up 71% year on year, as competitors pulled back and inventories continued to slowly recover.

Speaker 2: Originations were up around quarter driven by seasonality, although still down 54% year on year.

Speaker 2: Moving to Card Services and Auto. Revenue was up 5%, largely driven by higher card services NII on higher revolving balances, partially offset by lower auto lease income. Card outstandings were up 18% year-on-year, which was the result of revolve normalization and growing new account growth. And in Auto, originations were up $12 billion, up 71% year-on-year as competitors pulled back and inventories continued to slowly recover.

Speaker 2: Moving to card services and auto, revenue was up 5%, largely driven by higher card services NII on higher revolving balances partially offset by lower auto lease income.

Speaker 2: Hard out sendings were up 18% year on year, which was the result of revolved normalization and strong no account growth.

Speaker 2: Expenses of $8.3 billion were up 8% year on year, driven by compensation predominantly due to wage inflation and headcount growth as we continue to invest in our front office and technology staffing as well as marketing. Expenses of $8.3 billion were up 8% year-on-year, driven by compensation, predominantly due to wage inflation and head count growth as we continue to invest in our [ firm ] office and technology staffing as well as marketing.

Speaker 2: And in auto, originations were up 12 billion, up 71% year on year, as competitors pulled back and inventories continued to slowly recover.

Speaker 2: In terms of credit performance this quarter, credit costs were $1.5 billion. In terms of credit performance this quarter, credit costs were $1.5 billion, reflecting a reserve build of $203 million, driven by loan growth in Card Services.

Speaker 2: reflecting a reserve bill of $203 million driven by loan growth and card services. Net charge-offs were 1.3 billion of 640 million year-on-year, predominantly driven by cards, as 30-day-plus delinquencies have returned to pre-pandemic levels in line with our expectations.

Speaker 2: reflecting a reserve bill of $203 million driven by loan growth and card services.

Speaker 2: Net charge-offs were $1.3 billion, up $640 million year-on-year, predominantly driven by Card as 30-day plus delinquencies have returned to pre-pandemic levels in line with our expectations.

Speaker 2: Net charge-offs were 1.3 billion of 640 million year-on-year, predominantly driven by card, as 30-day-plus delinquencies have returned to pre-pandemic levels in line with our expectations.

Speaker 2: Next, the CIB on Page 6.

Speaker 2: Next, the CIB on page 6. CIB reported net income of $4.1 billion on revenue of $12.5 billion.

Speaker 2: CIPB reported a net income of $4.1 billion on revenue of $12.5 billion.

Speaker 2: Next, the CIB on page 6.

Speaker 2: Investment Banking revenue of $1.5 billion was up 11% year on year, or down 7% excluding Bridge Book markdowns in the prior year. Investment banking revenue of $1.5 billion was up 11% year on year, or down 7% excluding Bridge Book markdowns in the prior year.

Speaker 2: Investment banking revenue of $1.5 billion was up 11% year-on-year or down 7%, excluding bridge book markdowns in the prior year. CIB fees were down 6% year-on-year, and we ranked #1 with a year-to-date wallet share of 8.4%.

Speaker 2: CIPB reported net income of $4.1 billion on a revenue of $12.5 billion.

Speaker 2: Investment Banking Revenue of $1.5 billion was up 11% year on year, or down 7% excluding Bridge Book markdowns in the prior year. I-B fees were down 6% year on year and we ranked number one with a year-to-date wallet share of 8.4%.

Speaker 2: Investment banking revenue of $1.5 billion was up 11% year on year, or down 7% excluding Bridge Book markdowns in the prior year. IB fees were down 6% year on year, and we ranked number one with a year-to-date wallet share of 8.4%. In Advisory fees were down 19%.

Speaker 2: I-B fees were down 6% year on year, and we ranked number one with a year-to-date wallet share of 8.4%. IB fees were down 6% year on year, and we ranked number one with a year-to-date wallet share of 8.4%.

Speaker 2: Advisory fees were down 19%, and Underwriting fees were down 6% for debt and up 30% for equity with more positive momentum in the last month of the quarter.

Speaker 2: Underwriting fees were down 6% for debt and up 30% for equity, with more positive momentum in the last month and a quarter. In terms of the second half outlook, we have seen encouraging signs of activity in capital markets, and July should be a good indicator for the remainder of the year. However, year-to-date announced M&A is down significantly, which will be a headwind.

Speaker 2: Underwriting fees were down 6% for debt and up 30% for equity with more positive momentum in the last month and a quarter.

Speaker 2: In terms of the second half outlook, we have seen encouraging signs of activity in capital markets, and July should be a good indicator for the remainder of the year.

Speaker 2: In terms of the second half outlook, we have seen encouraging signs of activity in capital markets and July should be a good indicator for the remainder of the year. However, year-to-date announced M&A is down significantly which will be a headwind.

Speaker 2: However, year-to-date announced M&A is down significantly, which will be a headwind. Total revenue was $7 billion, down 10% year-on-year.

Speaker 2: Moving to markets, total revenue was $7 billion, down 10% year on year. They think it is down almost 3%.

Speaker 2: Fixed income was down 3%, and as expected, the macro franchise substantially normalized from last year's elevated levels of volatility and client flows. This was largely offset by improved performance in the Securitized Products group and credit.

Speaker 2: Moving to markets, total revenue was $7 billion, down 10% year on year.

Speaker 2: As expected, the macro franchise substantially normalized from last year's elevated levels of volatility and client flows. However, this was largely offset by improved performance in the Secured House Products group and credit. Equity Markets were down 20% against a very strong prior year quarter, particularly in derivatives.

Speaker 2: They think almost down 3%. As expected, the macro franchise substantially normalized from last year's elevated levels of volatility and client flows.

Speaker 2: This was largely offset by improved performance in the Secured House Products group and credit.

Speaker 2: Equity Marcus was down 20% against a very strong prior year quarter, particularly in derivatives.

Speaker 2: A Payments revenue was $2.5 billion, up 61% year-on-year. Excluding equity investments, it was up 32%, predominantly driven by higher rates, partially offset by lower deposit balances.

Speaker 2: Payments revenue was $2.5 billion, up 61% year on year. Excluding equity investments, it was up 32%, predominantly driven by higher rates, partially offset by lower deposit balances.

Speaker 2: Equity Marcus was down 20% against a very strong prior year quarter, particularly in derivatives.

Speaker 2: Payments revenue was $2.5 billion, up 61% year on year. Excluding equity investments, it was up 32%, predominantly driven by higher rates, partially offset by lower deposit balances.

Speaker 2: Securities Services revenue of $1.2 billion was up 6% year-on-year, driven by higher rates, partially offset by lower fees.

Speaker 2: Expenses of $6.9 billion were up 1% year-on-year, driven by higher non-compensation expenses as well as wage inflation and head count growth, largely offset by lower revenue-related compensation.

Speaker 2: Security Services revenue of $1.2 billion was up 6% year on year driven by higher rates partially offset by lower fees.

Speaker 2: Expenses of $6.9 billion were up 1% year on year driven by higher non-compensation expense as well as wage inflation and headcount growth largely offset by lower revenue related compensation, expenses of $6.9 billion were up 1% year on year driven by higher non-compensation expense as well as wage inflation and headcount growth largely offset by lower revenue related compensation. Moving to the commercial bank on page 7, expenses of $6.9 billion were up 1% year on year driven by higher non-compensation expense as well as wage inflation and headcount growth largely offset by lower revenue related compensation.

Speaker 2: Security Services revenue of $1.2 billion was up 6% year on year driven by higher rates partially offset by lower fees.

Speaker 2: Moving to the Commercial Bank on Page 7.

Speaker 2: expenses of $6.9 billion were up 1% year on year driven by higher non-compensation expense as well as wage inflation and headcount growth largely offset by lower revenue related compensation. Moving to the commercial bank on page 7.

Speaker 2: Moving to the commercial bank on page 7, Commercial Banking reported a net income of $1.5 billion. Revenue of $3.8 billion was up 42% year-on-year driven by higher deposit margins. Payments revenue of $2.2 billion was up 79% year-on-year, driven by higher rates. Gross investment banking and markets revenue of $767 million was down 3% year-on-year, primarily driven by fewer large M&A deals. Expenses of $1.3 billion were up 12% year-on-year, predominantly driven by higher compensation expense, including fun office hiring technology investments as well as higher volume-related expenses.

Speaker 2: Commercial banking reported net income of $1.5 billion. Revenue of $3.8 billion was up 42% year on year driven by higher deposit margins.

Speaker 2: Commercial banking reported net income of $1.5 billion.

Speaker 2: Payments revenue of $2.2 billion was up 79% year on year, driven by higher rates.

Speaker 2: Revenue of $3.8 billion was up 42% year on year driven by higher deposit margins.

Speaker 2: Gross investment banking and markets revenue of $767 million was down 3% year on year, primarily driven by fewer large M&A deals.

Speaker 2: Payments revenue of $2.2 billion was up 79% year on year driven by higher rates. Gross investment banking and markets revenue of $767 million was down 3% year on year primarily driven by fewer large M&A deals.

Speaker 2: Average deposits were up 3% quarter-on-quarter, driven by inflows related to new client acquisition, partially offset by continued attrition in nonoperating deposits. Loans were up 2% quarter-on-quarter. C&I loans were up 2%, reflecting stabilization in new loan demand and revolver utilization in the current economic environment as well as pockets of growth in areas where we are investing.

Speaker 2: Expenses of $1.3 billion were up 12% year on year, predominantly driven by higher compensation expense, including front office hiring and technology investments, as well as higher volume-related expenses.

Speaker 2: CRE loans were also up 1%, reflecting funding on prior year originations for construction loans and real estate banking as well as increased affordable housing activity.

Speaker 2: Average deposits were up 3% quarter on quarter, driven by employees related to new client acquisition, partially offset by continued attrition in non-operating deposits.

Speaker 2: C&I loans were up 2%, reflecting stabilization in new loan demand and revolver utilization in the current economic environment, as well as pockets of growth in areas where we are investing. CRE loans were also up 1%, reflecting funding on prior year originations for construction loans and real estate banking, as well as increased affordable housing activity.

Speaker 2: Finally, credit costs were $489 million, net charge-offs were $100 million, including $82 million in the office real estate portfolio, and the net reserve build of $389 million was driven by updates to certain assumptions related to the [ flow ] state market as well as net downgrade activity in middle market banking.

Speaker 2: Finally, the credit costs were $489 million.

Speaker 2: CRE loans were also at 1%, reflecting funding on prior year originations for construction loans and real estate banking, as well as increased affordable housing activity. Finally, credit costs were $489 million.

Speaker 2: Then to complete the lines of business, AWM on Page 8. Asset & Wealth Management reported net income of $1.1 billion with a pretax margin of 32%. Revenue of $4.6 billion was up 8% year-on-year, driven by higher deposit margins on lower balances and higher management fees on strong net inflows.

Speaker 2: Met charge-offs were $100 million, including $82 million in the office real estate portfolio, and the net reserve build of $389 million was driven by updates to certain assumptions related to the office real estate market as well as net downgrade activity in middle market banking.

Speaker 2: Then, to complete our lines of business, AWM on page 8. Expenses of $3.2 billion were up 8% year-on-year, driven by higher compensation, including growth in our private banking advisory teams, higher revenue-related compensation, and the impact of global shares and JPMorgan Asset Management in China, both of which closed within the last year.

Speaker 2: Asset and wealth management reported a net income of $1.1 billion with a pre-tax margin of 32%.

Speaker 2: Asset and wealth management reported net income of $1.1 billion with pre-tax margin of 32%.

Speaker 2: For the quarter, record net long-term inflows were $61 billion, positive across all channels, regions, and asset classes, led by fixed income and equities. And in liquidity, we saw net inflows of $60 billion.

Speaker 2: Revenue of $4.6 billion was up 8% year on year, driven by higher deposit margins on lower balances and higher management fees on strong net inflows, while expenses of $3.2 billion.

Speaker 2: Revenue of $4.6 billion was up 8% year on year, driven by higher deposit margins on lower balances and higher management fees on strong net inflows.

Speaker 2: We're up 8% year on year driven by higher compensation, including growth and our private banking advisor teams, higher revenue-related compensation, and the impact of global shares and JP Morgan asset management in China, both of which closed within the last year, expenses of $3.2 billion. We're up 8% year on year driven by higher compensation, including growth and our private banking advisor teams, higher revenue-related compensation, and the impact of global shares and JP Morgan asset management in China, both of which closed within the last year.

Speaker 2: AUM of $3.2 trillion was up 16% year-on-year, and overall client assets of $4.6 trillion were up 20% year-on-year driven by continued net inflows, higher market levels, and the impact of the acquisition of Global shares.

Speaker 2: expenses of $3.2 billion. We're up 8% year on year driven by higher compensation including growth and our private banking advisor teams.

Speaker 2: higher revenue related compensation and the impact of global shares and JP Morgan asset management in China both of which closed within the last year.

Speaker 2: And finally, loans were down 1% quarter-on-quarter, driven by lower securities-based lending, and deposits were down 6%.

Speaker 2: For the quarter, record net long-term inflows were $61 billion, positive across all channels, regens and asset classes, led by fixed income and equities.

Speaker 2: Turning to corporate on Page 9. As I noted upfront, we are reporting the First Republic bargain purchase gain and substantially all of the expenses in corporate.

Speaker 2: Excluding those items, Corporate reported net income of $339 million. Revenue was $985 million, up $905 million compared to last year. NII was $1.8 billion, up $1.4 billion year-on-year due to the impact of higher rates. NIR was a net loss of $782 million and included the net investment securities losses I mentioned upfront.

Speaker 2: AUM of $3.2 trillion was up 16% year on year and overall client assets of $4.6 trillion were up 20% year on year, driven by continued net inflows, higher market levels, and the impact of the acquisition of global shares, driven by continued net inflows, higher market levels, and the impact of the acquisition of global shares.

Speaker 2: And in liquidity, we saw net inflows of $60 billion.

Speaker 2: AUM of $3.2 trillion was up 16% year on year and overall client assets of $4.6 trillion were up 20% year on year.

Speaker 2: driven by continued net inflows, higher market levels, and the impact of the acquisition of global shares.

Speaker 2: And finally, loans were down 1% quarter on quarter driven by lower securities-based lending, and deposits were down 6%.

Speaker 2: Expenses of $590 million, or up $384 million year-on-year, largely driven by higher legal expenses. And credit costs were a net benefit of $243 million, reflecting a reserve release as the deposit placed with First Republic in the first quarter was eliminated as [indiscernible].

Speaker 2: And finally, loans were down 1% quarter on quarter driven by lower securities based lending and deposits were down 6%.

Speaker 2: Turning to corporate on page nine, as I noted up front, we are reporting the First Republic Bargain Purchase Gain and substantially all of the expenses in corporate. Excluding those items, corporate reported net income of $339 million. The value was $985 million, up $905 million compared to the previous year.

Speaker 2: Turning to corporate on page nine. As I noted up front, we are reporting the First Republic Bargain Purchase Gain and substantially all of the expenses in corporate. Excluding those items, corporate reported net income of $339 million. The value was $985 million up $905 million compared to the previous year.

Speaker 2: Next, the outlook on Page 10. We now expect 2023 NII and [ NII X ] markets to be approximately $87 billion, the increase driven by higher rates, coupled with lower deposit reprice than previously assumed across both consumer and wholesale. And I should take this opportunity to remind you once again that significant sources of uncertainty remain, and we do expect the NII run rate to be substantially below this quarter's run rate at some point in the future as competition for deposits plays out.

Speaker 2: of $590 million, or up $384 million year-on-year, largely driven by higher legal expenses.

Speaker 2: Our expense outlook for 2023 remains approximately $84.5 billion.

Speaker 2: of $590 million or up $384 million year-on-year largely driven by higher legal expense.

Speaker 2: And credit costs were a net benefit of $243 million, reflecting a reserve release of the deposit placed with First Republic in the first quarter was eliminated as part of the contract.

Speaker 2: And on credit, we continue to expect the 2023 card net charge-off rate to be approximately 2.6%.

Speaker 2: And credit costs were a net benefit of $243 million reflecting a reserve release of the deposit placed with First Republic in the first quarter was eliminated as part of the contract. Log on to www.tamu.disciplinary.org

Speaker 2: So to wrap up, we are proud of the exceptionally strong operating results this quarter. As we look forward, we remain focused on the significant uncertainties relating to the economic outlook, competition for deposits, and the impact on capital from the pending finalization of the Basel III rules.

Speaker 2: Log on to www.tamu.disciplinary.org

Speaker 2: Next, the outlook on page 10. We now expect the 2023 NII and NIIX markets to be approximately $87 billion, the increase driven by higher rates coupled with slower deposit repricing previously assumed across both consumer and wholesale.

Speaker 2: Next, the outlook on page 10. We now expect 2023 NII and NIIX markets to be approximately $87 billion, the increase driven by higher rates coupled with slower deposit repricing previously assumed across both consumer and wholesale.

Speaker 2: Nonetheless, despite the likely headwinds ahead, we remain optimistic about the company's ability to continue delivering excellent performance through a range of scenarios. With that, Operator, please open the line for Q&A.

Speaker 2: And I should take this opportunity to remind you once again that significant sources of uncertainty remain, and we do expect the NII run rate to be substantially below this quarter's run rate at some point in the future as competition for deposits plays out.

Speaker 2: And I should take the opportunity to remind you once again that significant sources of uncertainty remain and we do expect the NII run rate to be substantially below this quarter's run rate at some point in the future as competition for deposits plays out. Our expense outlook for 2023 remains approximately 84.5 billion.

Speaker 2: Our expense outlook for 2023 remains approximately $84.5 billion.

Speaker 2: The first question comes from the line of Jim Mitchell from Seaport Global Securities. Jeremy, you talked about NII guidance. Clearly, Fed funds futures are up, so it makes some sense. But maybe, I guess, first, could you kind of discuss, I guess, comment on deposit behavior broadly around betas and mix and what you're seeing there so far seems to be coming in a little better than expected? And then, secondly, and probably more importantly, can you help us think about the implications of higher for longer rates on the outlook for NII next year and beyond, I guess, the [ inter-media ] term outlook that you guys have talked about?

Speaker 2: And on credit, we continue to expect the 2023 CardNet charge-off rate to be approximately 2.6%.

Speaker 2: So to wrap up, we are proud of the exceptionally strong operating results this quarter.

Speaker 2: As we look forward, we remain focused on the significant uncertainties relating to the economic outlook, competition for deposits, and the impact on capital from the pending finalization of the Basel III rules. Nonetheless, despite the likely headwinds ahead, we remain optimistic about the company's prospects.

Speaker 2: So to wrap up, we are proud of the exceptionally strong operating results this quarter.

Speaker 2: Yes, sure. Thanks, Jim.

Speaker 2: to continue delivering excellent performance through a range of scenarios.

Speaker 2: So yes, when we talk about the drivers of the upward revision, as I said, it's higher rates, coupled with lower deposit rates. It's hard to untangle the two drivers.

Speaker 2: For that, Operator, please open the line for Q&A.

Speaker 2: to continue delivering excellent performance through a range of scenarios.

Speaker 2: Please stand by.

Speaker 2: For that, operator, please open the line for Q&A. Please stand by.

Speaker 2: And specifically, I think when you look at consumers, the combination of the passage of time and the positive feedback we're getting, and the CD offerings in particular, has meant that it's quite a stable environment from that perspective.

Speaker 1: The first question is coming from the line of Jim Mitchell from Seaport Global Securities. You may proceed.

Speaker 1: The first question is coming from the line of Jim Mitchell from Seaport Global Securities. You may proceed. You may proceed.

Speaker 1: You may proceed. And similarly, in wholesale, we're just seeing slower internal migrations. You asked about mix. I think that, obviously, we're seeing the CD mix increase, and we would continue to expect -- we would continue to expect that to continue to take place probably even past the peak of the rate cycle into next year as we continue to capture money in motion.

Operator: Good morning, ladies and gentlemen. Welcome to J.B. Morgan Chase's second quarter 2023 earnings call. This call is being recorded.

Speaker 3: Good morning.

Speaker 3: Hey Jeremy, you talked about NII guidance. Clearly, Fed Funds futures are up, so it makes some sense. But maybe I guess, first, could you kind of discuss, I guess comment on deposit behavior broadly around betas and mix and what you're seeing there, which so far seems to be coming in a little better than expected? And then, secondly, and probably more importantly, can you help us think about the implications of higher for longer rates on the outlook for NII next year and beyond?

Operator: Your line will be muted for the duration of the call. We will now go to the live presentation. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon, and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead. Thanks, operator. Good morning, everyone.

Speaker 3: Thanks. Good morning. Hey Jeremy, you talked about NII guidance. Clearly Fed Funds futures are up, so it makes some sense. But maybe I guess first could you kind of discuss, I guess comment on deposit behavior broadly around betas and mix and what you're seeing there.

Speaker 3: I guess the intermediate-term outlook that you guys have talked about. Yeah, sure. Thanks, Jim.

Jeremy Barnum: 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 $14.5 billion, EPS of $4.75, on revenue of $42.4 billion, and delivered an ROTC of 25%. These results included the First Republic bargain purchase gain of $2.7 billion, a credit reserve billed for the First Republic lending portfolio of $1.2 billion, as well as $900 million of net investment securities losses. Touching on a few highlights... CCB client investment assets were up 18% year on year. We had record long-term inflows into AWM. We ranked number one in IVP wallet. Before giving you more detail on the financials, let me give you a brief update on the status of the First Republic integration. The Sutherland process with the FDIC is on schedule.

Speaker 3: so far seems to be coming in a little better expected. And then secondly, and probably more importantly, can you help us think about the implications of higher for longer rates on the outlook for NII next year and beyond? I guess the intermediate term outlook that you guys have talked about. Yeah, sure. Thanks, Jim. So um,

Speaker 3: So, um, so far, seems to be coming in a little better than expected. And then, secondly, and probably more importantly, can you help us think about the implications of higher for longer rates on the outlook for NII next year and beyond? I guess the intermediate-term outlook that you guys have talked about. Yeah, sure. Thanks, Jim.

Speaker 2: Yeah, so when we talk about the drivers of the upward revision, as I said, it's, you know, higher rates coupled with lower deposit rates. It's hard to untangle the two drivers. And specifically, I think, when you look at the consumer, the combination of the passage of time, you know, and the positive feedback we're getting from the..., and feel, and the CD offerings in particular has meant that, you know, and feel, and the CD offerings in particular have meant that, you know,

Speaker 3: But as you say, the most important point is time, which, as I said earlier, I don't consider at this level of a generation to be sustainable. And we talked previously about a sort of medium-term run rate in the mid-70s. That was before First Republic, and they argue that maybe that number should be a little higher. But whatever it is, it's a lot lower than the current number. We don't know when that's going to happen -- we're not going to predict the exact moment that's going to be a function of competitive dynamics in the marketplace, but we want to be clear that we do expect it at some point.

Speaker 2: Yeah, so when we talk about the drivers of the upward revision, as I said, it's, you know, higher rates coupled with lower deposit reprice, hard to untangle the two drivers. And specifically, I think, when you look at consumer, the combination of the passage of time, you know, and the positive feedback we're getting from the...

Speaker 2: It's quite a stable environment from that perspective. And similarly, in wholesale, we're just seeing slower internal migrations.

Speaker 2: and feel and the CD offerings in particular has meant that, you know,

Speaker 2: You asked about mix. I think that, obviously, we're seeing the Cd mix increase, and we would expect that to continue to take place, probably even past the peak of the rate cycle.

Speaker 3: Thanks. So, um,

Speaker 2: It's quite a stable environment from that perspective. And similarly, in a wholesale, we're just seeing slower internal migrations. You asked about mix. I think that obviously we're seeing the Cd mix increase, and we would expect that to continue to take place, probably even past the peak of the rate cycle.

Speaker 2: Okay, but I guess just one follow-up on that. Just if we don't get rate -- rate cuts, sorry, until the middle of next year or later, does that sort of give some confidence to the outlook for next year? Or are you still worried about significant reprice?

Jeremy Barnum: The number of key milestones being. Systems integration is also proceeding apace, and we are targeting it being substantially complete by mid-2020. First Republic employees have formally joined us as of July 2nd, and we're pleased to have had very high acceptance rates.

Speaker 2: into next year as we continue to capture money in motion.

Speaker 2: But as you say, the most important point is the fact that, as I said earlier, we don't consider this level of NIAID generation to be.

Speaker 2: into next year as we continue to capture money in motion. But as you say, the most important point is the fact that, as I said earlier, we don't consider this level of NIAID generation to be.

Speaker 2: I wouldn't necessarily assume that the evolution from the current run rate into the mid-70s number is that sensitive to the rate outlook in particular. When we put that number out there, we looked at a range of different types of rate environments and the reprice that we think would be associated with that. It was really meant to capture more of what we consider to be a true cycle sustainable number. So I wouldn't think of it as being particularly rate-dependent.

Jeremy Barnum: And although it's still early days, as we get the sales force back in the market, we are happy to see that client retention is strong, with about $6 billion of net deposit. Now, turning back to this quarter's results... You'll see that in various parts of the presentation, we have specifically called out the impact of First Republic where relevant. To make things easier, I'm going to start by discussing the overall impact of First Republic on this quarter's results at the firm-wide level. Then, for the rest of the presentation, I will generally exclude the impact of First Republic in order to improve comparability with prior periods.

Speaker 2: sustainable, and we talked previously about a medium-term run rate in the mid 70s. That was before First Republic, and you know.

Speaker 2: sustainable and we talked previously about a medium term run rate in the mid 70s. That was before First Republic and you know.

Speaker 2: You could argue that maybe that number should be a little higher, but whatever it is, it's a lot lower than the current number. We don't know when that's going to happen. You know, we're not going to predict the exact moment. That's going to be a function of competitive dynamics in the marketplace. But we want to be clear that we do expect it at some point.

Speaker 3: Okay, but I guess just one follow-up on that. Just if we don't get rate cuts till the middle of next year or later, does that sort of give some confidence to the outlook for next year, or are you still worried about significant reprice?

Speaker 2: Next, we'll go to the line of Erika Najarian from UBS.

Speaker 2: Jeremy, I'm just laughing to myself because I said at your Investor Day if you had any more NII rabbits to provide the hat. And I guess you do. So I guess I want to ask a broader question here, and maybe, Jamie, I'd like to get your thoughts.

Speaker 3: Okay, but I guess just one follow-up on that. Just if we don't get rate cuts till middle of next year or later, does that sort of give some confidence to the outlook for next year, or are you still worried about significant reprice?

Jeremy Barnum: With that in mind, this quarter, First Republic contributed $4 billion of revenue, $599 million of expense, and $2.4 billion of net income. As noted on the first page, this includes $2.7 billion of bargain purchase gain, which is reflected in NIR in the corporate segment, as well as $1.2 billion of allowance. And remember, the deal happened on May 1st, so the First Republic numbers only represent two months of results.

Speaker 2: I wouldn't necessarily assume that the evolution from the current run rate into that mid-17th number is that sensitive to the rate outlook in particular. When we put that number out there, we looked at a range of different types of rate environments and the re-price that we think... We understand what their

Speaker 2: So you earned 23% ROTCE and 13.8% CET1. And we hear you loud and clear that your more normalized NII generation is not $87 billion.

Speaker 2: I wouldn't necessarily assume that the evolution from the current run rate into that mid 17th number is that sensitive to the rate outlook in particular. When we put that number out there, we looked at a range of different types of rate environments and the re-price that we think... We understand what their

Speaker 2: It was really meant to capture more of what we consider to be a through-the-cycle sustainable number, so I wouldn't think of it as being particularly rate dependent. It was really meant to capture more of what we consider to be a two-cycle sustainable number, so I wouldn't think of it as being particularly rate dependent.

Speaker 2: That being said, and fully taking into account the potential haircut from Basel III's end game, is it possible that your natural [ rock ] is maybe above that 17% through the cycle rate when rates aren't zero? Because when you first introduced that ROTCE target, we were in a different world from a rate scenario. And everybody is talking about even if the Fed cuts, the natural sort of bottoming Fed funds is not going to be zero. So any input on that would be great.

Jeremy Barnum: You'll see in the line of business results that we are showing First Republic revenue and allowance in CCB, CB, and AWM. And for the purposes of this quarter's results, all of the deposits are in CCB, and substantially all of the expenses are in credit. As the integration continues, some of those items will get allocated across the sector. Now turning back to farm-wide results, revenue of $38.4 billion was up $6.7 billion or 21% year-on-year. And AIX Markets was up 7.8 billion, or 57%, driven by higher rates. And IRX Markets was down $293 million, largely driven by the net investment securities losses I mentioned earlier, partially offset by a number of less notable items, primarily in the prior year. The market's revenue was down $772 million, or 10% year on year. However, expenses of $20.2 billion were up $1.5 billion, or 8% year-on-year, primarily driven by higher compensation expenses, including wage inflation and higher legal expenses. And credit costs of $1.7 billion included net charge-offs of $1.4 billion, predominantly on cards.

Speaker 2: would be associated with that. It was really meant to capture more of a what we consider to be a through the cycle sustainable number so I wouldn't think of it as being particularly rate dependent.

Speaker 2: that it was really meant to capture more of a what we consider to be a two cycle sustainable number so I wouldn't think of it as being particularly rate dependent. Okay great thanks.

Speaker 1: Next, we'll go to the line of Erika Najarian from UBS. You may proceed.

Speaker 1: You may proceed. Hi, Jeremy. I'm just laughing at myself because I said to you on investor day, "Do you have any more NII rabbits to pull out of the hat?", and I guess you do. So I guess I want to ask a broader question really here, and maybe Jamie, I'd like to get your thoughts. So you know you earned 23% ROTCE on 13.8. Yes. Thanks, Erika.

Speaker 1: Next, we'll go to the line of Erika Najarian from UBS. You may proceed. You may proceed.

Speaker 2: would be associated with that. Okay, great thanks.

Speaker 1: Hi, good morning Jeremy and I'm just laughing to myself because I said to you investor day do you have any more NII rabbits to pull out of the hat and I guess you do. So I guess I want to ask a broader question really here and maybe Jamie I'd like to get your thoughts. So you know you you earned 23% ROTCE on 13.8

Speaker 1: I mean, it's a good question. There's a lot in there, obviously. I guess I would start by saying that when we talked about the 17% ROTCE, even though we may have introduced that at a moment when we introduced the lower eurobond, it was always premised on a sort of normalized rate environment. And at some level, that remains true today. Furthermore, you didn't ask this explicitly, but in the context of the proposed Basel III game, 1 relevant question might be, if you have a lot more capital in the denominator, what happens to that target?

Speaker 1: Is it possible that your natural raw tea is maybe above that 17% through the cycle rate? So I think, as I said in my prepared remarks, we feel very confident about the company's ability to produce excellent returns through the cycle.

Speaker 1: Is it possible that your natural raw tea is maybe above that 17% through the cycle rate?

Speaker 1: when rates aren't zero because when you first introduce that ROTC target, you know we were in a different world from a rate scenario, and everybody was talking about even if the Fed cuts, the natural sort of bottom in Fed funds is not going to be zero, so you know any input on that would be great.

Speaker 1: when rates aren't zero because when you first introduce that ROTC target you know we were in a different world from a rate scenario and everybody's talking about even if the Fed cuts the natural sort of bottom in Fed funds is not going to be zero so you know any input on that would be would be great.

Speaker 1: There are a lot of moving parts right now in that. Some of them could be good, some of them could be bad.

Jeremy Barnum: The net reserve build included a $389 million build in the commercial bank, a $200 million build in card, and a $243 million release in corporate, all of which I will cover in more detail. Moving on to the balance sheet and capital, we ended the quarter with a C2-1 ratio of 13.8%, flat versus the prior quarter as the benefit of net income less distributions was offset by the impact of First Republic. And as you can see in the two charts on this page, we've given you some information about the impact of the transaction on both RWA and CET1 ratio. And as you know, we completed C-CAR a couple of weeks ago. Our new negative SCB is 2.9% versus our current requirements of 4%, and it goes into effect in fourth year 23. The new SCB also reflects the board's intention... to a dollar and five cents per share. On liquidity, our bank LCR for the second quarter ended at 129%, in line with what we anticipated at investor day. About half of the reduction is associated with the First Republic.

Speaker 1: Hi, good morning Jeremy. I'm just laughing at myself because I said to you on investor day, "Do you have any more NII rabbits to pull out of the hat?", and I guess you do. So I guess I want to ask a broader question here, and maybe Jamie, I'd like to get your thoughts. So you know you earned 23% ROTCE on 13.8 Yes. Thanks, Erika.

Speaker 1: Narrowly on the capital one. The one thing to point out is that the straight-up math of simply diluting down the ROTCE by expanding the denominator misses the possibility of repricing of products and services, which, of course, goes back to our point that these capital increases do have an impact on the real economy. So we're not suggesting that we can price our way out of it. But we obviously need to get the right returns on products and businesses, and where we have pricing power, we will adjust to the higher capital.

Speaker 2: Yeah, thanks, Arka.

Speaker 2: I mean, it's a good question. There's a lot in there, obviously.

Speaker 2: I guess I would start by saying that when we talked about the 17% for the cycle ROTC, even though we may have introduced that in a moment when we were at the lower zero bound, it was always premised on a sort of normalized rate environment, and at some level, that remains true today. Furthermore, you didn't ask this explicitly, but in the context of the proposed puzzle 3 endgame, one relevant question might be if you have a So, as I said in my prepared remarks, we feel very confident about the company's ability to produce excellent returns during this cycle.

Speaker 2: Yeah thanks, Arka. I mean it's a good question. There's a lot in there obviously. I guess I would start by saying that you know when we've talked about the 17% for the cycle ROTC even though we may have introduced that in a moment where we were at the lower zero bound it was always premised on a sort of normalized rate environment.

Speaker 2: and at some level that remains true today. Furthermore, you know, you didn't ask this explicitly but in the context of the proposed puzzle 3 endgame, you know, one relevant question might be if you have a lot more capital in the denominator what happens to that target. So I think as I said in my prepared remarks we feel very confident about the company's ability to produce excellent returns with the cycle. There's a lot of moving parts right now in that.

Speaker 2: There are a lot of moving parts right now in that, and at some level, that remains true today. Furthermore, you didn't ask this explicitly, but in the context of the proposed puzzle 3 endgame, one relevant question might be, if you have a lot more capital in the denominator, what happens to that target. So, as I said in my prepared remarks, we feel very confident about the company's ability to produce excellent returns during this cycle.

Speaker 2: Some of them could be good, and some of them could be bad.

Speaker 2: There are a lot of moving parts right now in that, so there are a lot of moving parts in there, but I think the important point is that through a range of scenarios, we feel good about our ability to deliver good results. And we'll see how the mix of all the various factors plays out, especially after we see the Basel-III proposal and it comes out from the common period.

Speaker 2: Narrowly on the capital one, one thing to point out is that the straight up math of simply diluting down the ROTC by expanding the denominator misses the possibility of re-pricing, you know, re-pricing of products and services.

Speaker 2: Some of them could be good, some of them could be bad. Narrowly on the capital one, one thing to point out is that the straight up math of simply diluting down the ROTC by expanding the denominator misses the possibility of re-price, you know, re-pricing of products and services.

Speaker 2: Which, of course, goes back to our point that these capital increases do have an impact on the real economy.

Speaker 2: And Erika, I would say one thing. First, we have a mix of businesses that earn from like 0% ROTCE, and we have some that are very capital intensive. So we look at kind of all of them.

Jeremy Barnum: And while we're on the balance sheet, as we previewed in the 10k, we will be updating our earnings at risk model to incorporate the impact of deposit repricing. So when we release this Quartus 10 Q, you will see the up 100 basis point parallel shift scenario will be about positive two and a half billion, whereas in the absence of the change, it would have been about negative one and a half.

Speaker 2: Which of course goes back to our point that these capital increases do have impacts on the real economy. So we're not suggesting that we can price our way out of it but we obviously need to get you know the right returns on products and services and where we have pricing power we will we will adjust to the higher capital. So a lot of moving parts in there but I think the important point is that.

Speaker 2: So we're not suggesting that we can price our way out of it, but we obviously need to get you the right returns on products and services, and where we have pricing power, we will adjust to the higher capital.

Speaker 2: And I think it is a good number and a good target.

Speaker 2: The other thing we're overearning on is credit. We've been over in debt for a substantial amount of time now. We're quite conscious about it. We know it's going to pick up. Just as it normalizes, it will be considerably more than this now. For example, we would consider credit card normalized to be close to 3.5%.

Speaker 2: So, a lot of moving parts there, but I think the important point is that, through a range of scenarios, we feel good about our ability to deliver good results, and we'll see how the mix of all the various factors plays out, especially after we see the puzzle tree proposal and then go through the common period.

Jeremy Barnum: Now let's go to our businesses, starting with CCB on page five. But both U.S. consumers and small businesses remain resilient, and we haven't observed any meaningful changes to the trends in our data we discussed at investor. Turning now to the financial results, which I will speak to, excluding the impact of First Republic or CCB, CB, and AWM. CCB reported net income of $5 billion on revenue of... $34 billion, a 31% year on year increase. In banking and wealth management, revenue was up 59% year-on-year, driven by higher NII on higher rates. End of period deposits were down 4% quarter on quarter, as customers continue to spend down their cash buffers, including for seasonal tax, and Seek Higher Yielding Products. However, fine investment assets were up 18% year on year, driven by market performance and strong net inflows across our advisor and digital channels. In home lending, revenue was down 23% year-on-year, driven by lower NII from tighter loan spreads and lower servicing and production.

Speaker 2: Through a range of scenarios, we feel good about our ability to deliver good results and we'll see how the mix of all the various factors plays out, especially after we see the puzzle tree proposal and then go through the common period. Eric, I would say one thing. We have a mix of businesses that earn from like 0% ROTC to 100.

Speaker 2: Eric, I would say one thing. We have a mix of businesses that earn from like 0% ROTC to 100.

Speaker 4: We have some which are very capital intensive, so we look at kind of all of them.

Speaker 2: And so my follow-up question there, maybe, Jeremy, could you remind us what unemployment rate is embedded in your ACL ratio as of the second quarter?

Speaker 4: And I think that is a good number and a good target.

Speaker 4: We have some which are very capital intensive, so we look at kind of all of them. And I think that is a good number and a good target. We are over earning our own credit.

Speaker 4: We are over earning our own credit. Yes, still 5.8%.

Speaker 4: Credit for a substantial amount of time now. We're quite conscious about it.

Speaker 4: Next, we'll go to the line of John McDonald from Autonomous Research. You may proceed.

Speaker 4: We know that's going to kick up just as it normalizes considerably more than it is now. Like, you would consider credit card normalization to be close to 3.5%.

Speaker 4: credit for a substantial amount of time now. We're quite conscious about it. We know that's going to kick up just as it normalizes the considerably more than it is now. Like, you would consider credit card normalize to be close to 3.5%.

Speaker 4: Jeremy wanted to ask about capital in the wake of the bar speech. We don't have the details yet, but just kind of want to ask about options that you have and strategies for mitigation, both on RWA and potentially on the G-SIB front as you contemplate what you heard recently.

Speaker 1: And so my follow-up question there, maybe Jeremy, could you remind us what unemployment rate is embedded in your ACL ratio as of the second quarter?

Speaker 2: Yeah, it's still 5.8.

Speaker 1: Thank you. Thanks, John.

Speaker 1: Next, we'll go to the line of John McDonald from Autonomous Research.

Speaker 2: Yeah, it's still 5.8.

Speaker 1: Yes. So obviously, we're thinking about that a lot. On the other hand, as much as there have been a lot of very detailed reports on the that might lead you to start to try to do some planning.

Speaker 1: Thank you. Next we'll go to the line of John McDonald from Autonomous Research.

Speaker 3: You may proceed. Hi, good morning.

Speaker 3: Jeremy wanted to ask about capital in the wake of the bar speech. We don't have the details yet, but we just kind of want to ask about options that you have and strategies for mitigation, both on RWA and potentially on the G-SIB front as you contemplate what you heard recently. So sooner enough, we'll get to see something on paper, and we can stop kind of the guess work.

Speaker 3: You may proceed. Hi, good morning. Jeremy wanted to ask about capital in the wake of the bar speech. We don't have the details yet, but just kind of want to ask about options that you have and strategies for mitigation, both on RWA and potentially on the G-SIB front as well as you contemplate what you heard recently.

Jeremy Barnum: Originations were up quarter-on-quarter, driven by seasonality, although still down 54%. Moving to card services and auto revenue, revenue was up 5%, largely driven by higher card services NII on higher revolving balances, partially offset by lower auto leases. Heart outstandings were up 18% year-on-year, which was the result of revolved normalization and strong new account growth. And in auto, originations were up $12 billion, up 71% year-on-year, as competitors pulled back and inventories continued to slowly recover. Expenses of 8.3 billion were up 8% year on year driven by compensation, predominantly due to wage inflation and headcount growth.

Speaker 1: It does seem like this time it's real, and we are actually going to get a pole sometime this month or something.

Speaker 2: Yeah, thanks, John.

Speaker 2: So obviously, we're thinking about that a lot. On the other hand, as much as there have been a lot of very detailed rumors out there that might lead you to start to try to do some planning, it does seem like this time it's real, and we are actually going to get a proposal presumably sometime this month or something. So, soon enough, we'll get to see something on paper, and we can stop kind of the guesswork.

Speaker 2: Yeah, thanks John . So obviously we're thinking about that a lot. On the other hand, as much as there have been a lot of very detailed rumors out there that might lead you to start to try to do some planning, it does seem like this time it's real and we are actually going to get a proposal presumably sometime this month or something.

Speaker 3: Having said that, indulging a little bit of guess work -- it does seem like the biggest single driver of the increase that people are talking about, including [ Chair Pollo's ] 20% number, or vice Chair Bar's 2% of RWA, which ends up being roughly the same. It is just the way operational risk is getting introduced into the standardized pillar.

Speaker 2: So, soon enough we'll get to see something actually on paper and we can stop kind of the guesswork. Having said that, indulging in a little bit of guesswork, it does seem like the biggest single driver of the increase.

Speaker 2: Having said that, indulging in a little bit of guesswork, it does seem like the biggest single driver of the increase, and that is a little bit of a straight up across the board tax on everything. It's kind of hard to optimize your way out of that. With the exception, obviously, of the fact that you can simply increase prices, assuming you have pricing power, but that's obviously not what we want, and that's what we sort of mean by impacts on the real economy.

Jeremy Barnum: As we continue to invest in our farm office and technology staffing as well as more, In terms of credit performance this quarter, credit costs were $1.5 billion, reflecting a reserve bill of $203 million, driven by loan growth and card. Net charge-offs were $1.3 billion, up $640 million year-on-year, predominantly driven by CARD, as 30-day-plus delinquencies have returned to pre-pandemic levels in line with our expectations CFE reported net income of $4.1 billion on a revenue of $12.5 billion. Investment banking revenue of $1.5 billion was up 11% year-on-year or down 7% excluding bridge book markdowns in the prior year.

Speaker 2: that people are talking about, including Chair Powell's 20% number, or vice-chairs, but Vice-chair Barr's 2% of our WIA continues to work for their 20, being roughly the same. It is just the way operational risk is getting introduced into the standardized pillar.

Speaker 2: that people are talking about, including Chair Powell's 20% number, or vice-chairs, but vice-chair Barr's 2% of our WIA continues to work for their 20.

Speaker 2: And that is a little bit of a straight up across-the-board tax on everything, being roughly the same. That is just the way operational risk is getting introduced into the standardized pillar. And that is a little bit of a straight up across-the-board tax on everything.

Speaker 2: being roughly the same, is just the way operational risk is getting introduced into the standardized pillar. And that is a little bit of a straight up across-the-board tax on everything.

Speaker 2: It's kind of hard to optimize your way out of that, with the exception, obviously, of the fact that you can simply increase prices, assuming you have pricing power, but that's obviously not what we want. And that's what we sort of mean by impacts on the real economy.

Speaker 2: So there are details. There's a lot of the FRTB stuff. We can get way into the weeds there.

Speaker 2: It's kind of hard to optimize your way out of that with the exception obviously of the fact that you can simply increase price Assuming you have pricing power, but that's obviously not what we want And that's what we sort of mean by impacts on the real economy. So there are details there's a lot of the FRTB stuff You know we can get way into the...

Speaker 2: within the markets business, and we do have a good track record of adjusting and optimizing. But this time around, it may be a more fundamental set of questions around business mix as opposed to the ability to sort of optimize in a very technical way.

Speaker 2: So there are details; there's a lot of the FRTB stuff. You know, we can get way into the... leads there within the markets business.

Speaker 2: And we do have a good track record of adjusting and optimizing. But this time around, it may be a more fundamental set of questions around business mix, as opposed to the ability to optimize in a very technical way, leads there within the markets business. And we do have a good track record of adjusting and optimizing. But this time around, it may be a more fundamental set of questions around business mix, as opposed to the ability to optimize in a very technical way.

Speaker 2: leads there within the markets business. And we do have a good track record of adjusting and optimizing. But this time around, it may be a more fundamental set of questions around business mix, as opposed to the ability to optimize in a very technical way.

Jeremy Barnum: IB fees were down 6% year-on-year, and we ranked number one with a year-to-date wallet share of 8.4%, and advisory views were down. Underwriting fees were down 6% for debt and up 30% for equity with more positive momentum in the last month. In terms of the second half outlook, we have seen encouraging signs of activity in the capital markets, and July should be a good indicator for the remainder of the year. However, year-to-date announced M&A is down significantly, and will be ahead. Moving to markets, total revenue was $7 billion, down 10% year-on-year.

Speaker 2: Okay. That's helpful.

Speaker 2: And with a number of years for this to phase in, and you generating capital at a high level even if the ROTCE comes down a bit, how should we think about your pace of building capital for these new changes versus doing your everyday course of investing and buybacks and things like that over the next couple of years?

Speaker 3: Okay, that's helpful.

Speaker 3: And with a number of years for this to phase in, and you generating capital at a high level, even if the ROTC comes down a bit, how should we think about your pace of building capital for these new changes versus doing your everyday course of investing and buybacks and things like that over the next couple years? Generally speaking, we're always going to try to comply with new requirements early -- so when we know the requirements and when we have visibility, obviously, given how much organic capital we're generating right now, whatever the answer went up to be, it will be pretty easy to comply, narrowly speaking, but that's not the same as saying that there won't be consequences for returns or for pricing.

Speaker 3: Okay, that's helpful. And with a number of years for this to phase in, and you generating capital at a high level, even if the ROTC comes down a bit, how should we think about your pace of building capital for these new changes versus doing your everyday course of investing and buybacks and things like that over the next couple years?

Speaker 2: Yeah, I guess I'm sort of tempted to give you our standard capital hierarchy here. I mean, we're not going to stack investments, right?

Speaker 2: Yeah, I mean, I guess I'm sort of tempted to give you our standard capital hierarchy here. I mean, we're not going to stack investments, right? That won't come as a surprise to you. Generally speaking, we're always going to try to comply with new requirements early. So when we know the requirements and when we have visibility, obviously, given how much organic capital we're generating.

Jeremy Barnum: Big Sync was almost down 3%. As expected, the macro franchise substantially normalized from last year's elevated levels of volatility and climbed. This was largely offset by improved performance in the Securitas products group and credit. Equity markets were down 20% against a very strong prior year quarter, particularly in derivatives. Payments revenue was $2.5 billion, up 61% year on year. Thank you all for joining us today.

Speaker 2: That won't come as a surprise to you.

Speaker 2: Generally speaking, we're always going to try to comply with new requirements early, so when we know the requirements and when we have visibility, obviously, given how much organic capital we're generating.

Speaker 3: Yes. I mean, I guess I'm sort of tempted to give you our standard capital hierarchy here. I mean, we're not going to stack investments, right? That won't come as a surprise to you.

Speaker 2: And for whatever reason, things aren't exactly as we're anticipating; I don't see us sacrificing investments that we see as strategically critical in order to comply with higher capital requirements ahead of the formal timing or whatever.

Speaker 2: I don't see us sacrificing investments that we see as strategically critical in order to, you know, comply with higher capital requirements ahead of the formal timing or whatever. Okay.

Speaker 2: I don't see us sacrificing investments that we see as strategically critical in order to you know comply with with higher capital requirements ahead of the formal timing or whatever.

Speaker 2: And is there some room for buybacks? Unlikely -- that would be an unlikely outcome.

Jeremy Barnum: Security services revenue of $1.2 billion was up 6% year-on-year, driven by higher rates partially offset by lower fees. The expenses of $6.9 billion were up 1% year-on-year, driven by higher non-compensation expenses, as well as wage and headcount growth largely offset by lower revenue. Moving to the commercial bank on page 7, commercial banking reported net income of one and a half billion dollars.

Speaker 2: Sorry, John, go ahead. Did you have a follow-up?

Speaker 3: Okay, and there's some room for buyback. Yes.

Speaker 3: Just do buybacks play a role in the next couple of years strategically, just episodically?

Speaker 3: Okay, and there's some room for buyback.

Speaker 3: Okay, thank you.

Speaker 3: Sorry, John, go ahead. Did you have a follow-up? Yeah. No, just do buybacks play a role, you know, in the next couple of years strategically just episodically buybacks?

Speaker 3: Okay, thank you. Sorry, John , go ahead. Did you have a follow-up? Yeah. No, just do buybacks play a role, you know, in the next couple of years strategically just episodically buybacks? I mean, you know, capital hierarchy again, right? In the end, you know, when we have nothing else to do with the money, we'll…

Speaker 3: I mean, you know, capital hierarchy again, right? In the end, you know, when we have nothing else to do with the money, we'll...

Speaker 3: I mean, capital hierarchy again, right? In the end, when we have nothing else to do with the money, we'll do buybacks.

Speaker 3: And we talked about the $12 billion for this year. Obviously, there are a lot of new moving parts there, although all else equal, given what we've done so far, that's still probably a reasonable number for the full year.

Speaker 2: do buybacks, and you know, we talked about the 12 billion dollars for this year. Obviously, a lot of new moving parts there, although all else equal given what we've done so far, that's still probably a reasonable number for the full year. But yeah, that's always going to be at the end of the list, but yeah. Obviously, a lot of new moving parts there, although, all else equal, given what we've done so far, that's still probably a reasonable number for the full year. But, yeah, that's always going to be at the end of the list. But, yeah.

Jeremy Barnum: Revenue of $3.8 billion was up 42% year-on-year driven by higher deposits. Payments revenue of $2.2 billion was up 79% year-on-year, driven by higher rates. Gross Investment Banking and Markets revenue of $767 million was down 3% year-on-year, primarily driven by fewer large M&A deals. The expenses of $1.3 billion were up 12% year-on-year, predominantly driven by higher compensation expense, including front-office hiring and technology investment, as well as higher volume related.

Speaker 2: do buybacks and you know we talked about the 12 billion dollars for this year obviously a lot of new moving parts there although all else equal given what we've done so far that's still probably a reasonable number for the full year but yeah that's always going to be at the end of the list but yeah

Speaker 2: And, you know, we talked about the $12 billion for this year. Obviously, a lot of new moving parts there, although all else equal given what we've done so far, that's still probably a reasonable number for the full year. But, yeah, that's always going to be at the end of the list. But, yeah. Got it. Okay, thank you.

Speaker 3: But yes, that's always going to be at the end of the list. But yes.

Speaker 3: Next, we'll go to the line of Ken Oosten from Jefferies. You may proceed. Thanks, Good morning.

Speaker 2: Got it. Okay. Thank you.

Speaker 2: Next, we'll go to the line of Ken Usdin from Jefferies.

Speaker 3: Next we'll go to the line of Ken Oosten from Jefferies. You may proceed. Thanks, good morning. I just wanted to ask a little bit about how you're feeling about the trade-off between like the commercial economy and what might come through in terms of future loan growth versus the kind of green shoots that people are talking about in the investment banking pipeline and just how

Speaker 3: I just wanted to ask a little bit about how you feel about the trade-off between the commercial economy and what might come through in terms of future loan growth versus the kind of green shoots that people are talking about in the investment banking pipeline and just how Sure. So I think in terms of investment banking and markets, yes, slightly better than expected. Last month, we talked about green crews, especially in capital markets, generally still definitely some headwinds in M&A, lower amount of activity, some regulatory headwinds there. So we'll see. I think it's a little too early to call a trend there based on recent results, but we'll see.

Speaker 2: I just wanted to ask a little bit about how you feel about the trade-off between like the commercial economy and what might come through in terms of future loan growth versus the kind of green shoots that people are talking about in the investment banking pipeline, and just how it feels in terms of the reopening of markets and the trade-off between getting similar to those fees in and versus what's happening on the loan demand side.

Jeremy Barnum: Average deposits were up 3% quarter on quarter, driven by inflows related to new client activity, partially offset by continued attrition and non-operating deposits. Loans were up 2% quarter on quarter. C&I loans were up 2%, reflecting stabilization in new loan demand and revolver utilization in the current economic environment, as well as pockets of growth in areas where we are investing. CRE loans were also up. Thank you all for joining us today. Finally, Carlyle's costs were $489 million. The Met charge-offs were $100 million, including $82 million in the office real estate portfolio.

Speaker 2: There is a lot of talk about green shoes, especially in capital markets generally.

Speaker 2: Still definitely some headwinds in M&A, lower announced activity, and some regulatory headwinds there. So we'll see. I think it's a little too early to call a trend there based on recent results, but we'll see.

Speaker 2: A lot of talk about green shoes, especially in capital markets generally. Still definitely some headwinds in M&A, lower announced activity, some regulatory headwinds there. So we'll see. I think it's a little too early to call a trend there based on recent results, but we'll see.

Speaker 2: In terms of the broader economy and loan growth expectations, generally, we do still expect reasonably robust card loan growth -- but away from that, for a variety of different reasons and different products, whether it be mortgage or C&I after revolver normalization, and especially if we see a little bit of a cooling off of the economy, I would expect loan demand to be relatively modest there.

Speaker 2: In terms of the broader economy and loan growth expectations, generally, we do still expect reasonably robust card loan growth. But away from that, for a variety of different reasons and different products, whether it be mortgage or CNI after revolver normalization, and especially if we see a little bit of a cooling off of the economy. So we're not really expecting meaningful growth away from cards.

Speaker 2: In terms of the broader economy and loan growth expectations, generally we do still expect reasonably robust card loan growth. But away from that, for a variety of different reasons and different products, whether it be mortgage or CNI after revolver normalization, and especially if we see a little bit of a cooling off of the economy.

Jeremy Barnum: And the net reserve bill of $389 million was driven by updates to certain assumptions related to the office real estate market, as well as net downgrade activity. Then, to complete our lines of business, AWS Animal, and Wealth Management reported net income of $1.1 billion.

Speaker 2: But of course, we're there for the right deals, the right products, the right terms; we run through the cycle. So I see that as more of a demand-driven narrative, which will be a function of the economy rather than any tightening on our side. That makes sense.

Jeremy Barnum: The pre-tax margin was 32%. Revenue of $4.6 billion was up 8% year-on-year, driven by higher deposit margins on lower balances and higher management fees on strong net worth. Thank you all for joining us. Higher Revenue Related Compensation and the Impact of Global Shares and J.B. China, both of which closed within the last. In the quarter, record net long-term inflows were $61 billion, positive across all channels, regions, and asset classes, led by fixed income and equity.

Speaker 2: And as a follow-up to that, on the consumer side, you mentioned that consumers continue to spend, albeit a little more slowly -- and you mentioned that consumers are also using their excess deposits a little bit more as well. Can you just elaborate a little bit more on just your feelings about the state of the consumer?

Speaker 3: than any tightening on our side. That makes sense.

Speaker 3: And as a follow-up to that, on the consumer side, you mentioned that consumers continue to spend, albeit a little more slowly, and you mentioned that consumers are also using their excess deposits a little bit more as well. Can you just elaborate a little bit more on just your feelings about the state of the consumer, and is that car growth continuing to be a little bit more, and is that card growth continuing to be driven by people needing to revolve as Just kind of consider the trade-off on that side, too.

Speaker 3: than any tightening on our side. That makes sense. And as a follow-up to that, on the consumer side, you mentioned that consumers continue to spend, albeit a little more slowly, and you mentioned that consumers are also using their excess deposits a little bit more as well. Can you just elaborate a little bit more on just your feeling about the state of the consumer, and is that car growth continuing to be a little bit more

Jeremy Barnum: And in liquidity, we saw net inflows. AUM of 3.2 trillion was up 16% year-on-year, and overall client assets of 4.6 trillion were up 20% driven by continued net inflows, higher market levels, and the impact of the acquisition of global shares. And finally, loans were down 1% quarter-on-quarter, driven by lower securities-based lending, and deposits were down 7%. Turning to corporate on page 9, as I noted up front, we are reporting the First Republic bargain purchase. Excluding those items, the company reported a net income of $300,000.

Speaker 3: Yes. But, to us, I think we still see this as a normalization, not deterioration, story when we talk about consumer credit. -- Actually, revolve per account has still not gotten to pre-pandemic levels.

Speaker 2: credit actually revolved per account has still not gotten to pre-pandemic levels actually so I would definitely say there's a wanting rather than needing at least for our portfolio at this point and yeah you know I think that consumer continues to surprise on the upside So I would definitely say that it's a wanting rather than needing at least for our portfolio at this point.

Speaker 2: And yes, I think the consumer continues to surprise on the upside here.

Speaker 1: Okay, thank you. Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets.

Speaker 5: Okay, thank you.

Speaker 5: Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead.

Speaker 1: Okay, thank you. Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead.

Speaker 1: Please go ahead.

Speaker 5: Okay, thank you. Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead. Good morning, Jeremy. Good morning, Jamie. Good morning, Jeremy.

Speaker 5: Good morning, Jeremy. Good morning, Jamie. Good morning, Jeremy.

Speaker 5: Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Can you -- can you give us your view on how you're measuring the treasury functions and the asset liability of your balance sheet as we go forward versus the way you guys were positioning and managing it a year ago? in view of the fact that it looks like maybe we're approaching the terminal rate on Fed funds rates?

Speaker 6: Jeremy, can you give us your view on how you're measuring the Treasury functions and the asset liability of your balance sheet as we go forward versus the way you guys were positioning and managing it a year ago in view of the fact that it looks like maybe we're approaching the terminal rate on Fed Funds rates? Yeah, Gerard, I would say honestly not much has changed there actually.

Jeremy Barnum: Revenue was $985 million, up $905 million compared to last year. NII was $1.8 billion, up $1.4 billion year-on-year due to the impact of higher rates. NIR was a net loss of $782 million and included the net investment securities losses I mentioned up front, expenses of $590 million, or up $384 million year-on-year, largely driven by hiring. And credit costs were a net benefit of $243 million, reflecting a reserve release as the deposit placed with First Republic in the first quarter was eliminated in this market. Next, the Outlook on Page 10. We now expect the 2023 NII and NIIX markets to be approximately $87 billion, with the increase driven by higher rates coupled with slower deposit reprice than previously assumed across both consumer and wholesale. And I should take the opportunity to remind you once again that significant sources of uncertainty remain, and we do expect the NII run rate to be substantially below this quarter's run rate at some point in the future as competition for deposits plays out. Our expense outlook for 2023 remains approximately $84.5 billion.

Speaker 2: We've been pretty consistently concerned about the risk of higher rates. Of course, we always try to position things to produce reasonable outcomes across a broad range of scenarios. But at the margin, we've been biased towards higher rates, and that may be a little less true at these levels than it was before. Although a lot of that is just the consequence of positive convexity playing out in modeling.

Speaker 6: Yes, Gerard. I would say, honestly, not much change there, actually.

Speaker 2: we've been pretty consistently concerned about the risk of higher rates. Of course, we always try to position things to produce reasonable outcomes across a broad range of scenarios. But at the margin, we've been biased towards higher rates. And that may be a little less true at these levels than it was before. Although a lot of that is just the consequence of positive convexity playing out in modeling. But in any case, all else equal, I think we are going to continue to see

Speaker 6: We've been pretty consistently concerned about the risk of higher rates. Of course, we always start to position ourselves thanks to reasonable outcomes across a broad range of scenarios. But at the margin, we've been biased towards higher rates, and that may be a little less true at these levels than it was before, although a lot of that is just a consequence of it also coming back to playing out in the modeling. But in any case, all else equal, I think we are going to continue to focus on making sure we're fine in a higher rate scenario while staying balanced across a range of scenarios.

Speaker 2: But in any case, all else equal, I think we are going to continue to see continue to focus on making sure we're fine in a higher rate scenario while staying balanced across the ranges. It's really easier; you're not ever gonna get 100sea. Continue to focus on making sure we're fine in a higher rate scenario while staying balanced across the ranges.

Speaker 2: continue to focus on making sure we're fine in a higher rate scenario while staying balanced across the ranges. it's really easier, you're not ever gonna get 100sea

Speaker 2: It's really easier; you're not ever gonna get 100sea.

Speaker 2: So not really a lot of change in our positioning and that's obviously including the fact that we took on First Republic which you know even that of some of the liabilities.

Speaker 2: So not really a lot of change in our positioning, and that's obviously including the fact that we took on First Republic, which you know includes some of the liabilities. And that's obviously including the fact that we took on First Public, which even net of some of the liabilities had a long structural interest rate position; we did not actually want to get longer as part of the deal. And so as a result, we took actions to ensure that, net-net, we were still about the same as we were last quarter.

Speaker 2: had a long structural interest rate position, but we did not actually want to get longer as part of the deal.

Speaker 2: And so, as a result, we took actions to ensure that, net net, we were still about the same as we were last quarter.

Speaker 2: had a long structural interest rate position. We did not actually want to get longer as part of the deal. And so as a result, we took actions to ensure that, net net, we were still about the same as we were last quarter.

Speaker 6: Very good. And then, as a follow-up, you mentioned in giving us the read-through on the commercial banking segment of the business that you had some reserve building tied to some office real estate and also some downgrades in the middle market area.

Speaker 6: Very good. And then as a follow-up, you mentioned in giving us the read-through on the commercial banking segment of the business that you had some reserve building tied to some office real estate and also some downgrades in the middle market area. Can you go a little deeper? What are you guys seeing in this area of both commercial real estate but also the

Jeremy Barnum: And on credit, we continue to expect the 2023 card net charge-off rate to be approximately $2.6 billion. So, to wrap up, we are proud of the exceptionally strong operating results. As we look forward, we remain focused on the significant uncertainties relating to the economic outlook, competition for deposits, and the impact on capital from the pending finalization of Basel III. Nonetheless, despite the likely headwinds ahead, we remain optimistic about the company's ability to continue delivering excellent performance through a range of scenarios. With that, Operator, please open the line.

Speaker 6: Can you go a little deeper? What are you guys seeing in this area of both commercial real estate but also the very good? And then as a follow-up, you mentioned in giving us the read-through on the commercial banking segment of the business that you had some reserve building tied to some office real estate and also some downgrades in the middle market area.

Speaker 6: Can you go a little deeper, what are you guys seeing in this area of both commercial real estate and C&I loans? What's happening in that segment as well?

Speaker 2: I mean, I think that when we talk about offices, for example, our portfolio, as you know, is quite small, and our exposure to sort of the so-called urban dense office is even smaller.

Speaker 2: called Urban Dense office is even smaller. The vast majority of our overall portfolio is multi-family lending. And so as a result, like our sample size of observed valuations on office properties is quite small. But you know we'd like to be sort of ahead of the cycle and based on everything.

Speaker 2: The vast majority of our overall portfolio is multi-family lending. The vast majority of our overall portfolio is mortgage lending.

James Mitchell: Please stand by. The first question is coming from the line of Jim Mitchell from Seaport Global Securities. You may proceed. Oh, thanks. Good morning.

Speaker 2: we saw this quarter, it felt reasonable to build a little bit there to get to what felt like a comfortable coverage ratio. Across the rest of the Eon, the middle market segment, we saw downgrades and an excess of upgrades, but I don't see that as necessarily indicative of anything terribly significant in the broader read across.

Speaker 2: And so, as a result, like our sample size of observed valuations on office properties is quite small. And so, as a result, like our sample size of observed valuations on office properties is quite small.

Jeremy Barnum: Hey, Jeremy, you talked about NII guidance. Clearly, Fed Funds futures are up, so it makes some sense.

Speaker 2: we saw this quarter, it felt reasonable to build a little bit there to get to what felt like a comfortable coverage ratio. Across the rest of the Eon, the middle market segment, we saw downgrades and excess of upgrades, but I don't see that as necessarily indicative of anything.

Jeremy Barnum: But maybe, I guess, first, could you kind of discuss deposit behavior broadly around betas and mix and what you're seeing there so far seems to be coming in a little better than expected. And then, secondly, and probably more importantly, can you help us think about the implications of higher for longer rates on the outlook for NII next year? And beyond, you know, I guess, the intermediate-term outlook that you guys have talked about? Yeah, sure. Thanks, Jim.

Speaker 2: But you know we'd like to be sort of ahead of the cycle and based on everything. And based on everything we saw this quarter, it felt reasonable to build a little bit there to get to what felt like a comfortable coverage ratio.

Speaker 5: Thank you. Next, we'll go to the line of Steve Chubock from Wolf Research.

Speaker 2: terribly significant in the broader read across.

Speaker 2: -- Across the rest of the year, in the middle market segment, we saw downgrades in excess of upgrades, but I don't see that as sort of necessarily indicative of anything terribly significant in the broader read across.

Speaker 5: Please, requiring a vote is welcome to the Pledge ticket for

Speaker 5: Thank you. Next we'll go to the line of Steve Chubock from Wolf Research. Please requiring a vote is welcome to the Pledge ticket for

Speaker 7: ime

Jeremy Barnum: So, um, yeah, when we talk about the drivers of the upward revision, um, as I said, it's, it's, you know, higher rates coupled with lower deposit reprice, hard to untangle the two drivers. And specifically, I think when you look at consumers, the combination of the passage of time, um, um, you know, and the positive feedback we're getting from the field and the CDL. You asked about mix.

Speaker 7: ime

Speaker 2: So I would caution you from drawing too broad conclusions from this.

Speaker 5: It looks like his line dropped. Next, we'll go to the line of Steve Chubak from Wolfe Research.

Speaker 5: So next, we'll go to the line of Ibrahim Poonawalla from the Bank of India.

Speaker 5: It looks like his line dropped.

Speaker 5: It looks like his line dropped. Next, we'll go to the line of Ebrahim Poonawala from Bank of America.

Speaker 5: So next we'll go to the line of Ibrahim Poonawalla from Bank of

Speaker 8: Good morning.

Speaker 8: I guess just the first question following up on the outlook for the economy, like we've all been worried about a recession for a year, and there's a debate about the lag defects of the Fed rate hike cycle. And there's a debate about the lag effect of the Fed rate hike cycle.

Speaker 8: Good morning.

Speaker 8: Good morning. I guess just first question following up on the outlook for the economy like we've all been worried about a recession for a year and there's a debate about the lag defects of the Fed rate hike cycle. When you think about Jeremy I think you mentioned you're an unemployment outlook relatively similar today versus a quarter ago.

Speaker 8: When you think about Jeremy, I think you mentioned you have an unemployment outlook relatively similar today versus a quarter ago. When you think about it, Jeremy, I think you mentioned your unemployment outlook is relatively similar today versus a quarter ago.

Jeremy Barnum: I think that, obviously, we're seeing CDMX increase, and we would expect that to continue to take place, probably even past the peak of the rate cycle into next year as we continue to capture money in motion. But as you say, the most important point is the fact that, as I said earlier, we don't consider this level of NIA generation to be safe out there. We could argue that maybe that number should be a little higher, but whatever it is, it's a lot lower than the current number. But we don't know when that's going to happen.

Speaker 8: How worried should we be in terms of the credit cycle six to twelve months from now?

Speaker 8: How worried should you should we be in terms of the credit cycle six to twelve months from now? Or are you leaning towards concluding that maybe US businesses consumers? Consumers have absorbed the rate cycle a lot better than we expected a year ago

Speaker 8: Or are you leaning towards concluding that maybe US businesses and consumers have absorbed the rate cycle a lot better than we expected a year ago?

Speaker 8: I guess the first question is following up on the outlook for the economy.

Speaker 8: How worried should we be in terms of the credit cycle, 6 to 12 months from now? Or are you leaning towards concluding that maybe U.S. businesses and consumers have absorbed the rate cycle a lot better than we expected a year ago?

Speaker 2: Yeah, so I'm sure Jamie has some views here, but in my view, I would just caution against jumping to too many super positive conclusions based on a couple of recent prints. And I think, generally, our point is less about trying to predict a particular outcome and more about trying to make sure that we don't get too excited.

Speaker 2: Yeah, so I'm sure Jamie has some views here, but in my view, I would just caution against jumping to too many super positive conclusions based on a couple of recent prints. And I think generally our point is less about trying to predict a particular outcome and more about trying to make sure that we don't get too much euphoria.

Speaker 2: Yes, so I'm sure Jamie has some views on that. But in my view, I would just caution against jumping to too many super positive conclusions based on a couple of recent prints.

Jeremy Barnum: You know, we're not going to predict the exact moment. That's going to be a function of competitive dynamics in the marketplace. But we want to be clear that we do expect it. Okay, but I guess just one follow-up on that: if we don't get rate cuts till the middle of next year or later, does that sort of give some confidence to the outlook for next year? Or are you still worried about a significant reprice?

Speaker 2: And I think, generally, our point is less about trying to predict a particular outcome and more about trying to make sure that we don't get too much euphoria that over concentrates people on one particular prediction when we know that there's a range of outcomes there.

Speaker 2: Whether our own views on that have changed meaningfully, I don't know, but the broader point is that we continue to be quite focused on Jamie's prior comment that loss rates still have room to normalize, even post-pandemic, so we're probably over-earning on credit a little bit. Obviously, we've talked about the expectation that the NII is going to come down quite a bit.

Speaker 2: So obviously, people are talking a lot about the potential for soft lending right now, no lending, [ macular ] inflation or whatever. And whether our own views on that have changed meaningfully, I don't know.

Jeremy Barnum: I wouldn't necessarily assume that the evolution from the current run rate into that mid-70s number is that sensitive to the rate outlook in particular. When we put that number out there, we looked at a range of different types of rate environments and the repriced. It was really meant to capture more of what we consider to be a through-the-cycle sustainable number. So I wouldn't think of it as being particularly racist.

Speaker 2: So, even forgetting about whether you got some surprisingly negative outcomes on the economy from what we've seen today, even in the central case, you just need to recognize that there should be some significant... post-pandemic, so we're probably over-earning on credit a little bit. Obviously, we've talked about the expectation that the NII is going to come down quite a bit.

Speaker 2: But the broader point is that we continue to be quite focused on Jamie's prior comments that loss rates still have time to normalize even post-pandemic, so we're probably earning on credit a little bit.

Speaker 2: post-pandemic, so we're probably over earning on credit a little bit. Obviously, we've talked about the expectation that the NII is going to come down quite a bit. So, even forgetting about whether you got some surprisingly negative outcomes on the economy from what we've seen today, even in the central case, you just need to recognize that there should be some significant...

Speaker 2: So, even forgetting about whether you get some surprisingly negative outcomes on the economy from what we've seen today, even in the central case, you just need to recognize that there should be some significant... Obviously, we've talked about the expectation that the NII is going to come down quite a bit. So even forgetting about whether you got some surprisingly negative outcomes on the economy from where we stand today, even in the central case, you just need to recognize that there should be some significant normalization.

Speaker 4: And I would just add that the 5.8% is not our prediction. That is the average of the unemployment rate under multiple scenarios that we have to use, which are hypothetical to see.

Erika Najarian: Okay, great. Thanks. Next, we'll go to the line for Erika Najarian from UBS. You may proceed. Hi, good morning, Jeremy. I'm just laughing at myself because I said to you yesterday, do you have any more NII rabbits to pull out of the hat?

Speaker 4: And I would just add that the 5.8% is not our prediction. That is the average of the unemployment under multiple scenarios that we have to use, which are hypothetical to see.

Speaker 4: Yes. And I would just add that 5.8% is not our prediction. That is the average of the unemployment under multiple scenarios that we have to use, which are hypothetical for CECL. Asset predictions are on something different, and we know we don't know the outcome.

Speaker 4: If you have such predictions, you always come up with something different, and we don't know the outcome.

Speaker 4: We're trying to be really clear here: the consumer is in good shape. They're spending down their excess cash. That's all tailwinds.

Jeremy Barnum: And I guess you do. So I guess I want to ask a broader question here, and maybe, Jamie, I'd like to get your thoughts. So, you know, you earned 23% ROTC on 13.8% CT1.

Speaker 4: If you have such predictions, you always come up with something different, and we don't know the outcome. We're trying to be really clear here, the consumer is in good shape.

Speaker 4: Even if we go into recession, they're going to be in rather good condition with low borrowings and, you know, good house price values still. But the headwinds are substantial and somewhat unprecedented.

Speaker 4: They're spending down their excess cash. That's all tailwinds. Even if we go into recession, they're going into a rather good condition with low borrowings and, you know, good house price value still. But the headwinds are substantial and somewhat unprecedented. This is for Ukraine, oil, gas.

Speaker 4: We're trying to be really clear here.

Speaker 4: The consumer is in good shape. They're spending down their excess cash. That's all tailwinds, even if we go into recession, they're going with rather good condition, low borrowings, and a go out price value still, but the headwinds are substantial and somewhat unprecedented.

Speaker 4: This is for Ukraine, oil, gas, quantitative, tightening, unprecedented physical needs of governments, QT, which we've never experienced before. I just think people should take a deep breath in that.

Jeremy Barnum: And, you know, we hear you loud and clear that your more normalized NII generation is not 87 billion. That being said, and, you know, fully taking into account the potential haircut from Basel III's endgame, is it possible that your natural ROTC is maybe above that 17% through the cycle rate? You know, when rates aren't zero, because when you first introduced that ROTC target, you know, we were in a different role from a rate scenario. And everybody's talking about even if the Fed cuts, the natural sort of bottom in Fed funds is not going to be zero. So, you know, any input on that would be great. Yeah, thanks, Ark. I mean, it's a good question.

Speaker 4: We don't know where those things could put us in a soft landing, a mild recession, or a hard recession, quantitative, tightening, unprecedented physical needs of governments, QT, which we've never experienced before. I just think people should take a deep breath and deal with that.

Speaker 4: quantitative, tightening, unprecedented physical needs of governments, QT, which we've never experienced before. I just think people should take a deep breath in that. We don't know what those things could put us in a soft landing, a mild recession, or a hard recession.

Speaker 4: We don't know whether those things could put us in a soft landing, a mild recession, or a hard recession.

Speaker 4: The Sport Ukraine, oil, gas, [clock tightening ], unprecedented fiscal needs of the government's QT, which we've never experienced before. I just think people should take a deep breadth of that.

Speaker 8: And obviously, we should all hope for the best.

Speaker 8: And just to follow up on the upcoming Basel reforms, two questions. Two questions. And just a follow-up on the upcoming Basel reforms.

Speaker 8: And obviously we should all hope for the best. And just to follow up on the upcoming Basel reforms, two questions. You've talked about the impact of the U.S. economy. Others have said the same. At this point, is that falling on deaf ears? And secondly, maybe Jeremy, if you can touch upon just structural changes that you expect to make in the capital markets business because of FRTB.

Speaker 4: And we don't know what those things will bring us: a soft landing, a mild recession, or a hard recession. And obviously, we shall hope for the best.

Speaker 8: You've talked about the impact of the U.S. economy. Others have said the same. You've talked about the impact of the U.S. economy, and others have said the same. At this point, is that falling on deaf ears? At this point, is that falling on deaf ears?

Jeremy Barnum: There's a lot in there, obviously, but I guess I would start by saying that, you know, when we talked about the 17% through the cycle ROTC, even though we may have introduced that at a moment when we were at the lower zero bound, it was always premised on a sort of normalized, and at some level, that remains true today. Furthermore, you didn't ask this explicitly, but in the context of the proposed Basel III endgame, one relevant question might be, if you have a lot more capital in the denominator, what happens to that target? So I think, as I said in my previous remarks, we feel very confident about the company's ability to produce excellent products. Michael.

Speaker 8: And secondly, maybe Jeremy, if you could touch upon just the structural changes that you expect to see in the capital markets business because of FRTB. And secondly, maybe, Jeremy, if you could touch upon just the structural changes that you expect to see in the capital markets business because of FRTB?

Speaker 8: Got it.

Speaker 8: Yes. So on your first point, I mean, I think you can just read the adviser's speech, right? He addressed that point fairly directly. He clearly doesn't agree, as this is right. So we'll see what happens. But we continue to feel that, all else equal, higher capital requirements definitely increase the cost of credit, which is bad for the economy.

Speaker 2: Capital requirements definitely are going to increase the cost of credit, which is bad for the economy, so we'll see what happens with that.

Speaker 2: capital requirements definitely are going to increase the cost of credit which is bad for the economy so we'll see what happens on that.

Speaker 2: On FRTB, it's really very nuanced. It's probably too much detail for this call, to be honest, but just to give you like one immaterial and insignificant but useful example, you know, one product under FRTB is the yield curve spread option. But just to give you like one immaterial and insignificant but useful example, one product under FRTB is yield curve spread options. And if the FRTB proposal goes through as currently written, that product will no longer be viable. So obviously, if we need to stop doing that product, no one really cares -- but it's just one example of the way sometimes when you're really disciplined about allocating capital thoroughly all the way down to new products and responding accordingly.

Speaker 2: On FRTB, it's really very nuanced. It's probably like too much detail for this call, to be honest, but just to give you like one immaterial and insignificant but useful example, you know, one product under FRTB is yield curve spread option.

Speaker 2: and you know if the FRTP proposal goes through as currently written, that product just becomes not viable.

Jeremy Barnum: There are a lot of moving parts right now. Some of them could be good, and some of them could be bad. Narrowly on capital, the one thing to point out is that the straight-up math of simply diluting down the ROTC by expanding the denominator misses the possibility of repricing in products and services, which of course goes back to our point that these capital increases do have impacts on the real economy. So we're not suggesting that we can price our way out of it, but we obviously need to get the right returns on products and services, and So a lot of moving parts in there, but I think the important point is that through a range of scenarios, we feel good about our ability to...

Speaker 2: So obviously, if we need to stop doing that product, no one really cares, but it's just one example of the way sometimes when you're really disciplined about allocating capital thoroughly all the way down to a new level of capital. Right? products and responding accordingly, you can wind up having to change your business mix.

Speaker 2: and you know if the FRTP proposal goes through as currently written that product just becomes not viable. So obviously if we need to stop doing that product no one really cares but it's just one example of the way sometimes when you're really disciplined about allocating capital thoroughly all the way down to a new level of capital. Right?

Speaker 2: There are obviously more significant products that matter much more for the real economy, like mortgages where you know the layering on of the operational risk and the way it's being proposed, especially if products and responding accordingly, you can wind up having to change your business mix. There are obviously more significant products that matter much more for the real economy, like mortgages where you know the layering on of the operational risk and the way it's being proposed, especially if you can wind up having to change their business mix. There are obviously more significant products that matter much more for the real economy, like mortgages, where the layering on of the operational risk and the way it's being proposed, especially if some of the other beneficial elements of the proposal don't come through, you're once again making the product even harder to offer the homeowners.

Speaker 2: products and responding accordingly you can wind up having to change your business mix. There are obviously more significant products that matter much more for the real economy like mortgage where you know the layering on of the operational risk and the way it's being proposed especially if

Speaker 2: So we'll see what happens with that.

Speaker 2: On FRTB, it's really very nuanced.

Speaker 2: It's probably too much detail for this call, to be honest.

Speaker 4: If some of the other beneficial elements of the proposal don't come through, you know, you're once again making the product even harder to offer to homeowners. So we'll see.

Speaker 4: some of the other beneficial elements of the proposal don't come through, you know, you're once again making the product even harder to offer to homeowners. So we'll see. We'll see what happens. I would just add to that. So the product, even if your product doesn't make money, you might do it for clients who are great clients. You're going to manage by product, by client and by effectively business mix and those are the adjustments.

Speaker 4: We'll see what happens.

Speaker 4: I would just add to that. So even if your product doesn't make money, you might do it for clients who are great clients. You're going to manage by product, by client, and by effectively business mix, and those are the adjustments.

Speaker 5: Roughly speaking, loans don't make sense for you as a whole, almost any loan. And you know, people have to recognize that.

Speaker 2: So we'll see what happens.

Jeremy Barnum: We'll see how the mix of all the various factors plays out in a special... And Eric, I'll just say one thing. We have a mix of businesses that earn from like 0% ROTC to 100. We have some that are very capital-intensive. So we look at kind of all of them, and I think 70 is a good number and a good target.

Speaker 5: And some agencies have managed through all the various complications here, and they're going to know what the hell to do.

Speaker 5: Roughly, loans don't make sense for you as a whole, almost any loan. And you know, people have to recognize that. And some agencies have managed through all the various complications here and they're going to know what the hell to do. Thank you. Next we'll go to the line of Mike Mayo from Wells Fargo Securities. You may proceed. Hi, I had another question on...

Speaker 5: Thank you. Next, we'll go to the line of Mike Mayo from Wells Fargo Securities. You may proceed.

Speaker 5: Hi, I had another question on... And I would just add to that -- even if you're a product that doesn't make money, you might do it for clients who are great times. They're going to manage by product, by client, and by effectively business mix, and to the adjustments, roughly loans don't make sense for the balance sheet as a whole, almost any loan. And we keep having to recognize that and take some interest in managing all the various complications here, and you're going to the other do.

Speaker 5: Vice Chair Barr's speech this week, to the extent that capital ratios do go up 20% for you and perhaps others, to what degree would you think about changing your business model in terms of remixing where you do business, repricing, or simply removing activities that you used to do?

Jeremy Barnum: The other thing we're over earning on is credit. You know, we've been over credit for a substantial amount of time now. We're quite conscious about it. We know that's going to pick up just as it normalizes to be considerably more than it is now. Like, you know, we would consider credit card normalization to be close to three and a half percent. And so my follow-up question there, maybe, Jeremy, could you remind us what the unemployment rate is embedded in your ACL ratio as of the second quarter? Yeah, it's still 5.

Speaker 5: Vice Chair Barr's speech from this week, to the extent the capital ratios do go up 20% for you and perhaps others, to what degree would you think about changing your business model in terms of remixing where you do business, repricing, or simply removing activities that you used to do.

Speaker 5: Next, we'll go to the line of Mike Mayo from Wells Fargo Securities.

Speaker 5: It's kind of ironic, or maybe it's not ironic that Apollo hits an all-time stock price high the same week as the speech. So does that mean how much business leaves JP Morgan or the industry if capital ratios do go up as much as potentially proposed?

Speaker 5: I had another question on Vice Chair Bars' speech this week. To the extent that capital ratios do go up 20% for you, and perhaps others, to what degree would you think about changing your business model in terms of remixing where you do business, repricing, or simply removing activities that you used to do? It's kind of ironic, or maybe it's not ironic, but Apollo hits an all-time stock price high the same week as the speech.

Speaker 5: Kind of ironic or maybe it's not ironic that Apollo hits an all-time stock price high the same week as the speech So does that how much business leaves JP Morgan or the industry if capital ratios do go up as much as potentially proposed?

Speaker 4: Yeah, Mike.

Speaker 4: Wait, before Jeremy answers your question, I just want to say this is great news for hedge funds, private equity, private credit, Apollo, Blackstone, and, you know, dancing in the streets. Yeah, exactly.

Speaker 4: Yeah, Mike. Wait, before Jeremy answers your question, I just want to say this is great news for hedge funds, private equity, private credit, Apollo, Blackstone, and, you know, and the dance in the streets. Yeah, exactly. And I was going to say my yes to everything. So, me name.

Jeremy Barnum: Thank you. Next, we'll go to the line of John McDonald from Autonomous Research. You may proceed. Hi, good morning.

Speaker 4: And I was going to say yes to everything. So, my name.

John Eamon McDonald: Jeremy wanted to ask about capital in the wake of the bar speech. We don't have the details yet, but we just kind of want to ask about options that you have and strategies for mitigation, both on the RWA front and potentially on the GSIB front as well, as you contemplate what you heard recently. Yeah, thanks, John. So obviously, we're thinking about that a lot. On the other hand, as much as there have been a lot of very detailed rumors out there that might need you to start to try to do some planning, it does seem like this time it's real, and we are actually going to get a proposal, presumably sometime this month or something.

Speaker 4: So does that -- how much business leaves JPMorgan or the industry if capital ratios do go up as much as potentially proposed?

Speaker 2: Repricing? Yes, definitely.

Speaker 2: To the extent that we have pricing power and the higher capital requirements mean that we're not generating the right returns for shareholders, we will try to reprice, and we'll see.

Speaker 2: Repricing? Yes, definitely. To the extent that we have pricing power and the higher capital requirements mean that we're not generating the right returns for shareholders we will try to reprice and we'll see.

Speaker 2: Before Jeremy answer that question, this is great news for hedge funds, private equity, private credit, Apollo, Blackstone, and the gas industries.

Speaker 2: how that sticks and how that flows into the economy and how that affects demand for products. To the extent that we have pricing power and the higher capital requirements mean that we're not generating the right returns for shareholders, we will try to reprice, and we'll see how that sticks and how that flows into the economy and how that affects demand for products.

Speaker 2: how that sticks and how that flows into the economy and how that affects demand for products. And if the re-pricing is not successful, then in some cases we will have to remix and that means getting out of certain products and services. And as Jamie points out, that probably means that those products and services leave the regulator perimeter and go into...

Speaker 2: And if the re-pricing is not successful, then in some cases, we will have to remix, and that means getting out of certain products and services. And, as Jamie points out, that probably means that those products and services leave the regulatory perimeter and go into... Exactly like that.

Speaker 2: you know, elsewhere. And that's fine.

Speaker 2: As Jamie points out, those people are clients, and I think that point was also addressed in Vice Chair Barr's speech. So, but you know, traditionally, having risky activities leave the regulated perimeter has had some negative consequences. So these are all important things to consider.

Jeremy Barnum: So soon enough, we'll get to see something on paper, and we can stop kind of the guesswork. Having said that, indulging in a little bit of guesswork, it does seem like the biggest single driver of the increase... are talking about including Chair Powell's 20% number or Vice Chair Barr's 2% of RWA, roughly the same is just the way operational risk is getting introduced into the standardized pillar. And that is a little bit of a straight up across the board tax on. It's kind of hard to optimize. With the exception, obviously, of the fact that you can simply increase the price, assuming you have pricing power. But that's obviously not what we want.

Speaker 2: And I was going to say, Mike, yes to everything. So we name repricing, yes, definitely.

Speaker 2: you know, elsewhere. And that's fine. As Jamie points out, those people are clients. And I think that point was addressed also in Vice Chair Barr's speech. So, but you know, traditionally, having risky activities leave the regulated perimeter has had some negative consequences. So these are all important things to consider.

Speaker 2: And if the repricing is not successful, then in some cases, we will have to remix, and that means getting out of certain products and services, and the standing points out, that probably means that those products and services leave the regulated perimeter and go somewhere else. And that's fine.

Speaker 5: And a separate question, I appreciate investor day; it gives a little bit more color on the degree to which your investment may or may not pan out. We are still all watching that closely.

Speaker 5: And a separate question, I appreciate the investor day, it gives a little bit more color on the degree that your investment may or may not pan out. We are still all watching that closely. Having said that, you just increased revenue guidance by $10 billion for NII between this quarter and the first quarter.

Speaker 5: Having said that, you just increased revenue guidance by $10 billion for NII between this quarter and the first quarter without changing expense guidance by even $1. Aren't you tempted to spend a little bit more? Why not spend more if you're gaining a share? I'm not saying you should. I'm just wondering, like, aren't you tempted to do so? You have $10 billion more revenues; you're not spending $1 more on expenses. Like, why not?

Speaker 2: As Jamie points out, those people are clients, and I think that point was also addressed in Vice Chair Bars' speech. So -- but traditionally, having risky activities we have regulated within our regulated perimeter has had some negative consequences. So these are all important things to consider.

Speaker 5: Mike, let me get this right. You're actually comping without changing expense guidance by even $1. Aren't you tempted to spend a little bit more? Why not spend more if you're gaining a share? I'm not saying you should. I'm just wondering, like, aren't you tempted to do so? If you have $10 billion more revenues, you're not spending $1 more on expenses. Like, why not? Mike, let me get this right. You're actually comp-

Speaker 5: without changing expense guidance by even $1. Aren't you tempted to spend a little bit more? Why not spend more if you're gaining share? I'm not saying you should. I'm just wondering, like, aren't you tempted to do so? You have $10 billion more revenues, you're not spending $1 more of expenses. Like, why not? Mike, let me get this right. You're actually comp-

Jeremy Barnum: And that's what we sort of mean by impacts on the real economy. So there are details. There's a lot of FRTP stuff.

Jeremy Barnum: You know, we can get way into the weeds there within the markets business, and we do have a good track record of adjusting and optimizing. But this time around, it may be a more fundamental set of questions around business mix, as opposed to, you know, the ability to sort of optimize in a very technical way. Okay, that's helpful.

Speaker 2: complaining that our expenses aren't high enough. Is that right? You're actually complaining that our expenses aren't high enough. Is that right?

Speaker 5: All right.

Speaker 5: And a separate question. I appreciate Investor Day, which gives a little bit more color on the degree to which your investment may or may not pan out. We are still all watching that closely.

Speaker 5: All right.

Speaker 2: complaining that our expenses aren't high enough, is that right? Wait, wait, just to be clear, it's just the flip side of the question I asked for two years, you know, going back to that one. Fair enough. I appreciate the balance. Now, in all seriousness, we've always been pretty clear, right, that our spending is through the cycle spending, based on through the cycle investment, through the cycle spending, based on our through the cycle view of the earnings generating power of the company and the...

Speaker 2: Wait, wait, just to be clear, it's just the flip side of the question I asked for two years, you know, going back to that one. Wait, just to be clear, just the flip side of the question I asked for two years.

Speaker 5: Having said that, you've just increased revenue guidance by $10 billion for NII between this quarter and the first quarter without changing expense guidance. Are you tempted to spend a little bit more? Why not spend more if you're gaining share? And I'm not saying you should. I'm just wondering if you aren't tempted to do so. You have $10 billion more revenues; you're not spending $1 more on expenses, like why not?

Jeremy Barnum: And with a number of years for this to phase in, and you generating capital at a high level, even if the ROTC comes down a bit, how should we think about your pace of, you know, building capital for these new changes versus doing your everyday course of investing and buybacks and things like that, you know, over the next couple years? Yeah, I mean, I guess I'm sort of tempted to give you our standard capital hierarchy here. I mean, we're not going to make investments, right? That won't come as a surprise to you.

Speaker 2: Fair enough. I appreciate the balance. I appreciate the balance between them.

Speaker 2: Now, in all seriousness, we've always been pretty clear, right, that our spending is through the cycle spending, based on through the cycle investment, through the cycle spending, based on our through the cycle view of the earnings-generating power of the company and the... Mike, let me get this right. Now I know seriousness, we've always been pretty clear, right, that our spending is through the cycle spending based on through the cycle investment, through the cycle spending based on our through the cycle view of the earnings-generating power of the company and the goal to produce a lower return.

Jeremy Barnum: Generally speaking, we're always going to try to comply with new requirements early. So when we know the requirements, and when we have visibility, obviously, given how much organic capital we're generating right now, whatever the answer winds up being, it'll be pretty easy to comply, narrowly speaking, but that's not the same as saying that there won't be consequences for returns or for pricing. And, you know, if, for whatever reason, things aren't exactly as we're anticipating, I don't see us sacrificing investments that we see as strategically critical in order to, you know, comply with higher capital requirements ahead of ahead of the, forever. Okay, and there's some room for buyback. That would be it. Okay, thank you. Sorry, Sean, go ahead. Did you have a follow-up?

Speaker 4: like that. So whether or not there are opportunities to deploy some more dollars into marketing and stuff like that, we have actually looked at that recently.

Speaker 4: like that. We have actually looked at that recently. I don't see that being a particularly meaningful item this year which is part of why we have not revised the expense guidance so far. But you know this is about investing through the cycle and being honest and disciplined about which revenue items flow.

Speaker 4: We have actually looked at that recently. I don't see that being a meaningful item this year, which is part of why we have not revised the expense guidance so far.

Speaker 4: you know, carry expense loading and which of them don't.

Speaker 4: I don't see that being a particularly meaningful item this year, which is part of why we have not revised the expense guidance so far. But this is about investing through the cycle and being honest and disciplined about which revenue items flow carry an expense loading and which of them don't.

Speaker 4: And then last, a quick follow-up.

Speaker 4: Mike, I think we're kind of running this as fast as we can. So you actually sat down with the risk leader, credit compliance, the audit market, bankers, recruiters, trainers, the same way, like this is it, you know, we're full force right now and

Speaker 4: you know, carry expense loading and which of them don't. And then last quick follow-up. Mike, I think we're kind of running this as fast as we can. So you actually sat down with the risk leader, credit compliance, audit market, bankers, recruiter, trainers, the same, like this is it, you know, we're full effort right now and

Speaker 4: But you know this is about investing through the cycle and being honest and disciplined about which revenue items flow. So, broadly speaking, NII tends to flow straight through to the bottom line, both when it's going up. And by the way, when it's going down, too. And we've been through those moments, as you all remember.

Speaker 5: We want to make sure we get things right and do things thoughtfully and carefully. So it's not just the money, it's the people, and how many things can you change all at once and answer all at once?

Speaker 5: We want to make sure we get things right and get things thoughtful and careful. So it's not just the money, it's the people and how many things can you change all at once and answer all at once. And then one quick follow-up to that. Your efficiency ratio this quarter is the lowest we've seen in a long, long time. I guess you're saying don't extrapolate this efficiency ratio because NII will come down at some point. But when you just simply look at...

Speaker 5: And then one quick follow-up to that. Your efficiency ratio this quarter is the lowest we've seen in a long, long time. I guess you're saying don't extrapolate this efficiency ratio because NII will come down at some point.

Speaker 5: But when you just simply look at them... And then last, a quick follow-up.

Speaker 2: You benchmark yourself against low-cost providers. But I think more broadly on benchmarking ourselves against low-cost providers, it sort of speaks to an area that you've been interested in for a long time, which is all of the investment that we're doing in technology to improve scalability and get more of our cost base to be variable versus fixed in terms of how we respond to volumes. So it's not just the money, it's the people and how many things can change all at once and add to all at once.

Speaker 5: I think we're kind of running as fast as we can. So you actually set down the risk credit compliance, audit market bankers, recruiter trainers -- this is it. We're making a full effort right now.

Jeremy Barnum: Yeah, no, just do buybacks play a role in the next couple of years, strategically, just episodically? Buyback. I mean, you know, capital hierarchy again, right? In the end, you know, when we have nothing else to do with the money, we'll do buybacks. And, you know, we've talked about $12 billion for this year. Obviously, a lot of new moving parts there, although almost equal given what we've done so far, that's still probably a reasonable number for the full year. But yeah, that's always going to be at the end of the list.

Speaker 2: you know, you benchmark yourself against the low-cost providers. Where do you think you're there now and where can you still go? Because if you extrapolate this quarter, you're getting closer. Yeah, I mean, just out of yourself, right, you definitely can extrapolate the current...

Speaker 5: And we want to make sure we get things right and do things thoughtfully and carefully.

Speaker 2: But I think more broadly on benchmarking ourselves to low-cost providers, it sort of speaks to an area that you've been interested in for a long time, which is all of the investment that we're doing in technology to improve generally scalability and get more of our cost base to be variable versus fixed in terms of how we respond to volumes.

Speaker 2: Where do you think you're at now, and where can you still go? And where can you still go? Because if you extrapolate this quarter, you're getting closer.

Speaker 2: Because if you extrapolate this quarter, you're getting closer. Yeah, I mean, just out of yourself, right? You definitely can extrapolate the current...

Speaker 4: That's a big part of the reason that we're doing the investments that we're doing and Modernization, cloud, and AI and all the type of stuff that we talked about. So I think we feel really good about our efficiency as a company, but there definitely is room for improvement in a lot of places.

Speaker 2: And then once a quick follow-up to that.

Jeremy Barnum: But, Okay. Thank you. Next, we'll go to the line of Ken Ustin from Jeffries. You may proceed.

Speaker 4: That's a big part of the reason that we're doing the investments that we're doing and Modernization and cloud and AI and all the type of stuff that we talked about So I think we feel really good about our efficiency as a company, but there definitely is room for improvement in a lot of places.

Speaker 2: Your efficiency rate this quarter is the lowest we've seen in a long, long time. And I guess you're saying don't extrapolate this efficiency ratio because NII will come down at some point. But when you just simply look at it, you benchmark yourself against the low-cost providers.

Ken Usdin: Thanks, Good morning. I just wanted to ask a little bit about how you feel about the trade-off between like the commercial economy and what might come through in terms of future loan growth versus the kind of green shoots that people are talking about in the investment banking pipeline, and just how it feels in terms of the like reopening of markets and the trade-off between, you know, getting some more of those fees in versus what's happening on the loan demand side. Thanks. Sure, a good question, Ken. So I think in terms of investment banking and markets, yeah, some, you know, slightly better than expected last month, a lot of talk about green shoots, especially in capital markets, generally still definitely some headwinds in M&A, you know, lower announced activity, some regulatory headwinds there.

Speaker 5: All right, thank you.

Speaker 5: Next, we'll go to the line of Steven Chewbock from Wolf Research. You may proceed.

Speaker 5: All right, thank you. Next we'll go to the line of Steven Chewbock from Wolf Research. You may proceed.

Speaker 5: Yes. I mean you or yourself, right? You definitely can extrapolate the current numbers. But I think more broadly, benchmarking ourselves against low-cost providers, it sort of speaks to an area that you've been interested in for a long time, which is all of the investment that we're doing in technology to improve scalability and get more of our cost base to be variable versus fixed in terms of how they respond to volumes.

Speaker 9: Thanks for taking the question and apologies for the technical issues earlier. Wanted to ask on the deposit outlook, just with signs that the recent liquidity drawdown has come predominantly out of our RRP versus industry deposits. Just want to get your thoughts on what expectations you have for deposit growth in the second half, both for you and even the broader industry, especially as Treasury issuance really begins to ramp in earnest. Yeah, good question Steve.

Speaker 9: Thanks for taking the question and apologies for the technical issues earlier.

Speaker 9: wanted to ask on the deposit outlook just with signs that recent liquidity drawdown has come predominantly out of our RRP versus industry deposits just want to get your thoughts on what expectations you have for deposit growth in the second half both for you and even the broader industry especially as Treasury issuance really begins to ramp in earnest. Yeah good question Steve. So let me say a couple things about this. So obviously...

Speaker 9: So let me say a couple of things about this. First, obviously, wanted to ask about the deposit outlook. Just with signs that the recent liquidity drawdown has come predominantly out of our RRP versus industry deposits, I just want to get your thoughts on what expectations you have for deposit growth in the second half, both for you and even the broader industry, especially as Treasury issuance really begins to ramp in earnest. Yeah, good question Steve. So, let me say a couple things about that.

Speaker 4: Our deposit numbers have bounced around a little bit as a function of some of the turmoil that we saw in regional banks as well as obviously the first public transaction. But now, if you look at our end-of-period deposits this quarter and project forward, our core view is that we would expect a sort of modest downward trend to reassert itself from this higher starting point.

Speaker 9: So obviously... That's a big part of the reason that we're doing the investments that we're doing and modernization and cloud and AI and all the type of stuff that we talked about. So I think we feel really good about our efficiency as a company, but there definitely is room for improvement.

Speaker 4: Our deposit numbers have bounced around a little bit as a function of some of the turmoil that we saw in regional banks as well as obviously the first public transaction. But now if you look at our kind of end of period deposits this quarter and you project forward, our core view is that we would expect a sort of modest downward trend to reassert itself from this higher starting point.

Speaker 4: Next, we'll go to the line of Steven Chubak from Wolfe Research. Apologies for the technical problems earlier. Wanted to ask on the deposit outlook, just with signs that the recent liquidity drawdown has come predominantly out of RRP versus industry deposits. Just want to get your thoughts on what expectations you have for deposit growth in the second half, both for you and even the broader industry, especially as treasury issuance really begins to ramp in earnest.

Speaker 2: broadly as a function of QT playing through the system.

Ken Usdin: So we'll see. I think it's a little too early to call a trend there based on recent results. In terms of the broader economy and loan growth expectations... Generally, we do still expect reasonably robust card-blown growth, but away from that for a variety of different reasons, product, whether it be mortgage or C&I after revolver normalization. You know, and especially if we see a little bit of a cooling off of the economy, I would expect loan demand to be relatively modest there, so we're not really expecting meaningful growth away from CARD But of course, you know, we're there for the right deals, right products, right terms; we lend through the cycle. So I see that as more of a demand-driven narrative. Any typing on our part, That makes sense.

Speaker 2: But noting that we do have some hope for offsets by taking shares, to give a couple of examples, like in consumer, we've got some of our branch expansion markets for seasoning, and so there are share overties there. And in wholesale, we've obviously invested a lot in products and services, and so we think we have compelling offerings that are helping us with mandates, and so there are potentially some share offsets there.

Speaker 2: broadly as a function of QT playing through the system. But noting that we do have some hope for offsets by taking shares, to give a couple of examples, like in consumer, you know, we've got some of our branch expansion markets of seasoning, and so there are share overties there. And in wholesale, we've obviously invested a lot in products and services, and so we think we have compelling offerings that are helping us with mandates, and so there are potentially some share offsets there.

Speaker 4: But broadly, our core view remains modest deposit declines across the franchise. But broadly, we -- our core view remains modest deposit declines across the franchise.

Speaker 2: Yes. A good question, Steve. So let me say a couple of things about that.

Speaker 4: But broadly, our core view remains modest deposit declines across the franchise. Within that, you note the same thing we've noted, that as we got through the debt ceiling and the TGA build has come into effect, and you've seen a lot of bill issuance, big question in the market about whether that was going to come out of reserve or come out of RFP. And so far with most of the TGA build, we've seen a lot of

Speaker 4: Within that, you note the same thing we've noted, that as we got through the debt ceiling and the TGA build has come into effect, and you've seen a lot of bill issuance, a big question in the market about whether that was going to come out of reserve or come out of RFP. And so far, with most of the TGA build, we've seen a lot of I guess they're targeting 600, and they're You know, more of it than some people feared has come out of RFP. So, as you say, I think that's a relatively good sign and highlight. So the system works better when you've got an ample supply of short data collateral on the front end of the yield curve. So that whole RFP TGA reserve dynamic is going to continue to be significant. But it is good to see RFP coming down a little bit.

Speaker 2: So obviously, our deposit numbers have bounced around a little bit as a function of some of the turmoil that we saw in regional banks as well as obviously the public transaction. But now, if you look at our kind of end-of-period deposits this quarter and project forward, our core view is that we would expect a sort of modest downward trend to sort itself from this higher starting point.

Speaker 4: I guess they're targeting 600 and they're at 550 or something, so they're almost done. You know, more of it than some people feared has come out of RFP. So as you say, I think that's a relatively good sign and highlight. So the system works better when you've got ample supply of short data collateral on the front end of the yield curve. So that whole RFP TGA reserve dynamic is going to continue to be significant. But it is good to see RFP coming down a little bit. A helpful color. And just a follow up on card income. Revenues were muted in the quarter. I was hoping you could unpack just the sources of pressure.

Jeremy Barnum: And as a follow-up to that, you mentioned on the consumer side that consumers continue to spend, albeit a little more slowly. And you mentioned that consumers are also using their excess deposits a little bit more as well. Can you just elaborate a little bit more on just your feelings about the state of the consumer? And is that car growth, you know, will continue to be driven by people needing to rotate as opposed to, you know, wanting to have more in their deposits? Just kind of what is the trade-off on that side too?

Speaker 4: A helpful color.

Speaker 4: And just a follow-up on card income. Revenues were muted in the quarter. I was hoping you could unpack just the sources of the pressure.

Speaker 4: Broadly as a function of QT playing with the system, but noting that we do have some hope for us by taking shares, just to give a level of examples, like in consumer, we've got some of our branch expansion markets seasoning, and so their shareholders increase there. And in wholesale, we've obviously invested a lot in products and services. And so we think we have compelling offerings that are helping us win mandates, and so there are potentially some share offsets there.

Jeremy Barnum: Um, yeah, I mean, to us, I think we still see this as a normalization, not deterioration story when we talk about consumer credit. Actually, Revolve per account has still not gotten to pre-pandemic levels. So I would definitely say that it's a wanting rather than needing, at least for our portfolio at this point. Um, and yeah, you know, I think the consumer continues to surprise on the upside. Okay. Thank you. Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead. Good morning, Jeremy.

Speaker 4: Within that, you note the same thing we've noted that as we got through the dust ceiling, and the [ TGA ] build has come into effect, and you've seen a lot of bill issuance, a big question in the market about whether that was going to come out of reserves or come out of RRP.

Speaker 4: The sequential comparison is also getting hurt by a small positive one-off item in the prior period.

Speaker 4: And obviously, I know you guys look at it, but carding going isn't sort of a thing that we look at that much ourselves.

Speaker 4: The sequential comparison is also getting hurt by a small positive one-off item in the prior period. And obviously, I know you guys look at it, but carding going isn't sort of a thing that we look at that much ourselves.

Speaker 4: And so far, with most of the [ GTA ] build, I guess they're targeting 600, and they're at 550 or something, so they're almost done.

Speaker 9: Can you size the reward liability impact?

Speaker 4: Why don't you get Michael to give that to you? It's not that significant, but it's enough to just make the sequential number look a little bit wonky. That's why I have him send it to you. That's why.

Speaker 9: Can you size the reward liability impact?

Speaker 4: More of it than some people feared has come out of RRP.

Speaker 4: Why don't you get Michael to give that to you. It's not that significant, but it's enough to just make the sequential number look a little bit wonky. That's why I have him send it to you. That's why.

Speaker 4: Why don't you get Michael to give that to you? It's not that significant, but it's enough to just make the sequential number look a little bit wonky. Great, thanks for taking my questions.

Gerard Cassidy: Good morning, Jamie. Jeremy, can you give us your view on how you're measuring the treasury functions and the asset liability of your balance sheet as we go forward versus the way you guys were positioning and managing it a year ago in view of the fact that it looks like maybe we're approaching the terminal rate on Fed Funds Rate? Yeah, Gerard, I would say honestly, not much change there actually, you know, we've been pretty consistently concerned about the risk of higher rates. Of course, we always try to position things, Thank you so much, I think we are going to continue to focus on making sure we are fine in a higher rate scenario while staying balanced across the board, not really a lot of change in our positioning, and that's obviously including the fact that we took on First Republic, which, you know, even that of some of the liabilities had a long structural interest rate position and we did not actually want to get longer as part of the deal.

Speaker 5: Next, we'll go to the line of Glenn Schor from Evercore ISI. You may proceed. Thank you.

Speaker 4: So, as you say, I think that's a relatively good sign and an indicator that the system works better when you've got an ample supply of short-dated collateral on the front end of the yield curve. So that whole RRP--TGA bank reserve dynamic is to continue to be significant, but it is good to see RRP coming down a little bit.

Speaker 5: I just want to follow up on this pricing power conversation because you've been consistent over time that you have a limited ability to sustain pricing power due to the competitive landscape, but you, Helpful color.

Speaker 5: Next, we'll go to the line of Glenn Schor from Evercore ISI. You may proceed. Thank you. I just want to follow up on this pricing power conversation because you've been consistent over time that you have a limited ability to sustain pricing power due to competitive landscape but you

Speaker 5: And just a follow-up on Card income. Revenues were muted in the quarter. I was hoping you could unpack just the sources of pressure, maybe more specifically, how much of the drag is associated with [indiscernible] 91 versus some other factors.

Speaker 2: I guess my question is, "If not now, when?"

Speaker 2: Meaning a lot has changed on the institutional side, the European bank side, the regional bank side. And I would think that there would be certain businesses that you have a greater ability and willingness to push prices on. And then maybe you could tie that to your comments in the press release on... Yes.

Speaker 2: I guess my question is, if not now, when? Meaning a lot has changed on the institutional side, European bank side, the regional bank side. And I would think that there'd be certain businesses that you have a greater ability and willingness to push price on. And then maybe you could tie that to your comments in the press release on...

Speaker 2: So actually, that card income number, Steve, is a little bit of a one-off thing. So we had a reward liability adjustment this quarter kind of thing. So that's just a temporary headwind. And also, the sequential comparison is also getting hurt because of a small positive one-off item in the prior period.

Speaker 2: What are the material, what are the real-world consequences for markets and end users that you're referring to when talking about material regulatory changes?

Speaker 2: What are the material, what are the real-world consequences for markets and end users that you're referring to when talking about material regulatory changes? Thanks a lot. Sure, so look, on pricing power, you're right. It really depends on the product, and it depends on the competitive landscape across different banks, and so it's very granular. It's very product-specific, and, you know, in some cases we'll have more pricing power than in other cases. I think the overall...

Speaker 2: Thanks a lot.

Speaker 2: Sure, so look, on pricing power. You're right. It really depends on the product, and it depends on the competitive landscape across different banks, and so it's very granular. It's very product-specific, and, you know, in some cases, we'll have more pricing power than in other cases. I think the overall...

Gerard Cassidy: And so as a result, we took actions to ensure that now we are still about the same. Very good. And then, as a follow-up, you mentioned in giving us the read-through on the commercial banking segment of the business that you had some reserve building tied to some office real estate and also some downgrades in the middle market area. Can you go a little deeper?

Speaker 2: And obviously, I know you guys look at it as card income. It's the sort of thing that we look at that much ourselves.

Speaker 2: Can you size the reward liability impact? Why don't you get Michael to get that to you? It's not that significant, but it's enough to just make the sequential number look a little bit lumpy.

Speaker 2: Next, we'll go to the line of Glenn Schorr from Evercore ISI.

Speaker 2: Just want to follow up on this pricing power conversation because you've been consistent over time that you have a limited ability to sustain pricing power due to the competitive landscape. But I guess my question is, if not now, when, meaning a lot has changed on the institutional side, the European bank side, the regional bank side -- and I would think that there'd be certain businesses that you have a greater ability and willingness to push prices on.

Speaker 2: and services remain to be seen, importantly, since we don't actually have the proposal yet. So we need those details.

Jeremy Barnum: What are you guys seeing in this area of both commercial real estate and C&I loans? What's happening in that segment as well? Yeah, so I would caution you from drawing too broad a conclusion from this. I mean, I think that when we talk about the office first, for example, you know, our portfolio, as you know, is quite small. And our exposure to sort of the so-called urban dense office is even smaller, the vast majority of our overall portfolio. And so, as a result, our sample size of observed valuations on office properties is quite small. But you know, we'd like to be sort of ahead of the cycle and based on everything that we saw this quarter. Thank you. Terribly sick. Brawley

Speaker 2: and services remains to be seen, importantly, since we don't actually have the proposal yet.

Speaker 2: I'm sorry, Glenn, I forgot the second half of your question. What was it? Actually, I think you hit on it, so I'll just do a follow-up on something related.

Speaker 2: So we need those details. I'm sorry, Glenn, I forgot the second half of your question. What was it? Actually, I think you hit on it, so I'll just do a follow-up on a related. You know, so the notion of private credit doing large traditional investment-grade lending activity is maybe part of the competitive landscape that limits the ability to push prices.

Speaker 2: You know, so the notion of private credit doing large traditional investment-grade lending activity is maybe part of the competitive landscape that limits the ability to push prices. And then maybe you could tie that to your comments in the press release on what are the material -- what are the real-world consequences for markets and end users that you're referring to when talking about material regulatory changes?

Speaker 2: In Jamie's letter, you talked about the downsides, or my question is, what's the downside if more of the mortgage credit, asset-backed intermediation business is pushed out of the banking system? Sure.

Jeremy Barnum: Thank you. Next, we'll go to the line of Steve Chubak from Wolf Research. Please go ahead. Steve, are you there?

Speaker 2: So look, on pricing power, you're right. It really depends on the product, and it depends on the competitive landscape across different banks. And so it's very granular. It's very product-specific. And in some cases, we'll have more pricing power than in other cases.

Speaker 4: I mean, I guess it depends on what you mean by downside, but I just think, societally speaking, we've seen in recent history that when home lending is happening outside the regulated perimeter, and things get bad, when you have economic downturns, it produces bad outcomes for individuals and homeowners and society as a whole.

Operator: It looks like his line dropped. So next, we'll go to the line of Ibrahim Poonawalla from Bank of America. You may proceed. Good morning. I guess the first question is following up on the outlook for the economy, as we've all been worried about a recession for a year. And there's a debate about the lagged effects of the Fed rate hike cycle. When you think about Jeremy, I think you mentioned your unemployment outlook is relatively similar today versus a quarter ago. How worried should we be in terms of the credit cycle six to 12 months from now? Or are you leaning towards concluding that maybe U.S. businesses and consumers have absorbed the rate cycle a lot better than we expected a year ago? Yeah, so I'm sure Jamie has some views on that.

Speaker 4: I mean I guess it depends on what you mean by downside but I just think you know societally speaking I think we've seen in recent history that you know when home lending is happening outside the regulated perimeter you know and things get bad

Speaker 2: I think the overall point that we're trying to make in connection with the Basel end game is just that we think the capital increases are excessive.

Speaker 2: In terms of outcomes, it produces bad outcomes for individuals and homeowners and society as a whole. That is generally a bad thing for the real economy.

Speaker 4: you know, when you have economic downturns, it produces bad outcomes for individuals and homeowners and society as a whole. So Jamie has written about this extensively.

Speaker 4: So Jamie has written about this extensively.

Speaker 2: terms it produces bad outcomes for individuals and homeowners and society as a whole. So Jamie has written about this extensively.

Speaker 2: So Jamie has written about this extensively -- and how all of that plays out in detail across different products and services remains to be seen. Importantly, since we don't actually have the proposal yet.

Speaker 2: Beyond that, financially, we've talked about how mortgage lending, I mean, the profitability swings obviously is reasonably cyclical and in the recent past it's actually been.., by profit of all than it was less so like the correspondent channel right now is actually picking up a little bit but it's a thin margin business it's challenging and when you increase the capital requirements it makes it even harder so that just becomes one of the areas where you're in that tension between remixing versus pricing power that we talked about a second ago and it might in fact mean that we do less by profit of all than it was less so like the correspondent channel right now is actually picking up a little bit but it's a thin margin business it's challenging and when you increase the capital requirements it makes it even harder so that just becomes one of the areas where you're in that tension between remixing versus pricing power that we talked about a second ago and it might in fact mean that we do less

Speaker 2: Beyond that, financially, we've talked about how mortgage lending, I mean, the profitability swings obviously is reasonably cyclical and in the recent past it's actually been...

Speaker 2: Does it put pressure on returns? All of [indiscernible] that obviously puts pressure on us to increase prices where we can.

Speaker 2: by profit of all than it was less so like the correspondent channel right now is actually picking up a little bit but it's a thin margin business it's challenging and when you increase the capital requirements it makes it even harder so that just becomes one of the areas where you're in that tension between remixing versus pricing power that we talked about a second ago and it might in fact mean that we do less

Jeremy Barnum: But in my view, I would just caution against jumping to too many super positive conclusions based on, you know, a couple of recent prints. You know, and I think, generally, our point is less about trying to predict a particular outcome and more about trying to make sure that we don't get too much euphoria that over concentrates people on one particular prediction when we know that there are a range of outcomes out there. So obviously, people are talking a lot about the potential for soft lending right now, you know, no lending, you know, immaculate disinflation or whatever. And, you know, whether our own views on that have changed meaningfully, I don't know.

Speaker 2: So -- we need those details.

Speaker 4: Less credit available for homeowners and more regulatory risk as the activity moves outside the perimeter.

Speaker 2: I'm sorry, Glenn, I forgot the second half of your question. What was it? Actually, I think you hit on it.

Speaker 2: So I'll just do a follow-up on a related question. The notion of private credit doing large traditional investment-grade lending activity may be part of the competitive landscape that limits the ability to push price. In Jamie's letter, you talked about the downside, or my question is, what's the downside if more of the mortgage credit asset-backed intermediation business is pushed out of the banking system?

Speaker 4: less credit available for homeowners and more regulatory risk as the activity moves outside the perimeter.

Speaker 5: I appreciate that, Charmy.

Speaker 5: Next, we'll go to the line of Betsy Grafik from Morgan Stanley. You may proceed.

Speaker 5: Appreciate that, Charmy. Next we'll go to the line of Betsy Grafik from Morgan Stanley . You may proceed.

Speaker 10: Hi, good morning.

Speaker 10: I mean, I guess it depends on what you mean by downside, but I just think, societally speaking, we've seen in recent history that when home lending is happening outside the regulated perimeter and things get bad, when you have economic downturns, it creates bad outcomes for individuals and homeowners as a whole.

Speaker 10: I just wanted to unpack a little bit more the drivers of the change you outlined that's coming in the 10Q, Jeremy, regarding asset sensitivity going from liability sensitive to asset sensitive, at least that's the way I read it. I just wanted to understand what the drivers of that are. Yeah, sure, no problem Bessie.

Speaker 10: Hi, good morning.

Speaker 10: I just wanted to unpack a little bit more the drivers of the change you outlined that's coming in the 10Q, Jeremy, regarding the asset sensitivity going from liability sensitive to asset sensitive at least that's the way I read it I just wanted to understand what the drivers of that is. Yeah sure, no problem Bessie. As you know.

Speaker 10: As you know, or should I say, Jamie has written about this extensively.

Speaker 2: That's always been a challenging number.

Speaker 2: You know, it's meant as a risk management measure of sorts, although it's also somewhat limited in that respect.

Jeremy Barnum: But the broader point is that we continue to be quite focused on, you know, Jamie's prior comments that, you know, loss rates still have time to have room to normalize post-pandemic, so we're probably over-earning on credit a little bit. Obviously, we've talked about the expectation that the NII is going to come down quite a bit. So even forgetting about whether you get some surprisingly negative outcomes on the economy from what we've done today, even in the central case, we need to recognize that there should be some. Yeah, and I would just add that the 5.8% is not our prediction. That is the average of the unemployment rate under multiple scenarios that we have to use, which are hypothetical to see some. If you ask us for predictions, we always come up with something different, and we don't know the outcome.

Speaker 10: Beyond that, financially, we've talked about how mortgage lending -- I mean, the profitability swings are obviously reasonably cyclical, and in the recent past, it was actually very profitable, then it was less so, like the correspondent channel right now is actually picking up a little bit. But it's a thin margin business. It's challenging. And when you increase the Cap requirements, it makes it even harder. So that just becomes one of the areas where you're in that tension between remixing versus pricing power that we talked about a second ago. And it might impact me in that we have less credit available for homeowners and more regulatory risk as the activity moves outside the permit.

Speaker 2: That's always been a challenging number. You know, it's meant as a risk management measure of sorts, although it's also somewhat limited in that respect. And it has been an uneven usefulness in terms of being told to be able to predict our NII trajectory when rates change. But, you know, as we've looked at that and tried to improve it and spoken to all of you through this latest rate hiking cycle,

Speaker 2: And it has been of uneven usefulness in terms of being told to be able to predict our NII trajectory when rates change.

Speaker 2: But, you know, as we've looked at that and tried to improve it and spoken to all of you through this latest rate hiking cycle,

Speaker 4: We've come to the conclusion that it would improve the usefulness of the disclosure if we included in the modeling the effect of deposit repricing lives, and so we've done that, and that just has the effect that I talked about, it increases the ERR number by about 4 billion from minus one and a half, which is roughly what it was last quarter and what it would have been this quarter without the change to something more like two and a half.

Speaker 4: we've come to the conclusion that it would improve the usefulness of the disclosure if we included in the modeling the effect of deposit repricing lives and so we've done that and that just has the effect that I talked about it increases the ERR number by about 4 billion from you know minus one and a half which is roughly what it was last quarter and what it would have been this quarter without the change to something more like two and a half. But again all the usual caveats apply right I mean

Speaker 4: Next, we'll go to the line of Betsy Graseck from Morgan Stanley.

Speaker 2: It's never the answer that is going to hold true for any given change in rates; the change in our NII is always going to be for one reason or another different from what that disclosure shows, but we do our best to make it useful.

Speaker 4: I just wanted to unpack a little bit more the drivers of the change you outlined that's coming in the 10-Q, Jeremy, regarding asset sensitivity going from liability sensitive to asset sensitive, at least that's the way I read it. I just wanted to understand what the drivers of that are.

Speaker 2: It's never the answer is going to hold it for any given change in rates the change in our NII is always going to be for one reason or another different from what that disclosure shows but we do our best to make it useful.

Jamie Dimon: We're trying to be really clear here. Are consumers in good shape? They're spending down their excess cash. That's all tailwinds.

Speaker 10: Okay, and so is it fair for me to think about that change as a mark to market to where we are today?

Speaker 10: Okay, and so is it fair for me to think about that change as a mark to market to where we are today? And when I think about your forward guide here, longer term you're saying, look, deposit betas are accelerating. So as I go through the 10-Q 's over the next.

Speaker 10: And when I think about your forward guide here, longer term, you're saying, look, deposit betas are accelerating.

Jamie Dimon: Even when we go into recession, they're going in with rather good conditions, low borrowings, and good house price values still. But the headwinds are substantial and somewhat unprecedented. There's more in Ukraine, oil and gas, quantitative tightening, unprecedented fiscal needs of governments, QT, which we've never experienced before. I just think people should take a deep breath and deal with that. We don't know if those things could put us in a soft landing, a mild recession, or a hard recession, and obviously, we shall hope for the best. And just to follow up on the upcoming Basel reforms, two questions. You've talked about the impact on the U.S. economy, like others have said the same, at this point, is that falling on deaf ears? And secondly, maybe Jeremy, if you could touch upon the structural changes that you expect to make in the capital markets business because of FRTB. Thank you.

Speaker 10: So as I go through the 10-Q's over the next few weeks, yes, sure.

Speaker 10: Betsy. I mean, as you know, that's always been a challenging number.

Speaker 10: You know, four or five quarters from now, I should expect that that 2.5 should come down because deposit betas you're anticipating are going to be accelerating from here. I'm just trying to put those two things together.

Speaker 10: It's a risk management measure of store, so that's also somewhat limited in that respect, and it has been of uneven usefulness in terms of potential to be able to predict our NII trajectory when rates change.

Speaker 10: you know, four or five quarters, I should expect that that 2.5 should come down because deposit betas you're anticipating are going to be accelerating from here. I'm just trying to put those two things together. Yeah, it's a good question. It's quite a technical issue. So I think in the past, the way this number was constructed was to assume through the cycle betas and all the deposits.

Speaker 10: Yeah, it's a good question.

Speaker 10: It's quite a technical issue. So I think in the past, the way this number was constructed was to assume through the cycle betas and all the deposits.

Speaker 10: But as we looked at that and tried to improve it and spoken to all of you through this latest rate hiking cycle, we've come to the conclusion that it would improve the usefulness of the disclosure, if we included in the modeling the effect of deposit repricing lags -- and so we've done that, and that just has the effect that I talked about, it increases the EAR number by about $4 billion from minus $1.5 billion, which is roughly what it was last quarter and what it would have been this quarter without the change to something more like $2.5 billion.

Speaker 2: And so your notion that the number would include deposit beta acceleration would not have been the case because it would have been using essentially terminal deposit betas for the scenario based on the forward curve and then based on a 100% shock to the forward curve.

Speaker 2: And so your notion that like the number would include deposit beta acceleration would not have been the case because it would have been using essentially terminal deposit betas for the scenario based on the forward curve and then based on a 100% shock to the forward curve.

Speaker 2: The nuance that we've introduced now is to recognize that given the shock, the reprice that the beta predicts will not be instantaneous, and so you get sort of just the mathematical consequences of that, but I think translating that into a statement about our expectation for beta for the next 12 months relative to our NII guide might be a bridge too far. I'm not sure you can...

Speaker 2: The nuance that we've introduced now is to recognize that given the shock the reprice that the beta predicts will not be instantaneous and so you get sort of just the mathematical consequences of that but I think translating that into a statement about our expectation for beta you know for the next 12 months relative to our NII guide might be a bridge too far I'm not sure you can...

Speaker 10: But all the usual caveats, supply, right? I mean, it's never -- the answer is going to hold for any given change in rates; the change in our NII is always going to be for one reason or another different from what that disclosure shows. But we will do our best to...

Jeremy Barnum: Yeah, so on your first point, I mean, you know, I think you can just read Vice Chair Barr's speech, right? He addressed that point fairly directly. He clearly doesn't agree, as is his right.

Speaker 10: Actually go look.

Speaker 10: Right, but you were saying earlier, deposit betas you do anticipate are going to be accelerating from here, and that's part of the outlook for NII longer term to normalize in the mid 70s, is that right? Yes, but let me... Yes. Go ahead, Jamie. Yes. I mean, basically, yes, is it- Okay.

Speaker 10: actually go looking. Right, but you were saying earlier, deposit betas you do anticipate are going to be accelerating from here, and that's part of the outlook for NII longer term to normalize in the mid 70s, is that right? Yes, but let me... Yes. Go ahead, Jamie. Yes. I mean, basically, yes, is it-

Jeremy Barnum: So we'll see what happens. We continue to feel that, all else equal, higher capital requirements definitely, credit, and the economy. We'll see what happens. On FRTB, it's really very nuanced, it's probably too much detail for this call to be honest, but just to give you like one immaterial and insignificant but useful example, you know, one product under FRTB is yield curve spread options, and, you know, if the FRTB proposal goes through as currently written, that product is not viable.

Speaker 10: And so it is fair for me to think about that change as a mark-to-market comparison to where we are today. And when I think about your forward guide here, longer term, you're saying, look, deposit betas are accelerating. So as I go through the 10-Qs over the next 4 or 5 quarters, should I expect that that 2.5% should come down because deposit betas you're anticipating are going to be accelerating from here? I'm just trying to put those two things together.

Speaker 5: If the next round is going to be the beta built in 30 to 40 to 50, I mean whatever the product is, yeah, that's the lag. And the 2.5 will go down over time if that actually happens, if rates actually go up.

Speaker 2: The rates don't actually go up to 2.5, maybe exactly 2.5 again.

Speaker 2: And what I was going to say Betsy is that the projection of the 87 coming down to a significantly lower number contains both the element of internal migration as well as the...

Speaker 2: The rates don't actually go up to 2.5, maybe exactly 2.5 again. And what I was going to say Betsy is just that the projection of the 87 coming down to a significantly lower number contains both the element of internal migration as well as the...

Speaker 2: Yes, it's a good question. It's quite a technical subject.

Speaker 2: So I think in the past, the way this number was constructed was to assume through the cycle betas and all the deposits. And so your notion that the number would include deposit beta acceleration would not have been the case because it would have been using essentially terminal deposit betas for the based on the forward curve and then based on a 100% shock to the forward curve.

Jeremy Barnum: So obviously, if we need to stop doing that product, no one really cares. But it's just one example of the way sometimes, when you're really disciplined about allocating capital thoroughly all the way down to individual products and responding accordingly, you can wind up having to change your business. There are obviously more significant products that matter much more for the real economy, like mortgages. The layering on the operational risk and the way it's being proposed, especially if some of the other beneficial elements of the proposal don't come through, you're once again making that product even harder to offer the homeowner. So we'll see. We'll see what happens.

Speaker 2: potential, which is by no means guaranteed, of product level reprice. And furthermore, obviously, the dynamics are a little bit different in the different business segments as you move from large corporate wholesale to consumer.

Speaker 2: potential, which is by no means guaranteed, of product level reprice. And furthermore then, obviously the dynamics are a little bit different in the different business segments as you move from large corporate wholesale to consumer.

Speaker 5: Okay. All right.

Speaker 5: Thank you. I appreciate it.

Speaker 5: Yes.

Speaker 5: Next, we'll go to the line of Matt O'Connor from Deutsche Bank. You may proceed.

Speaker 5: Okay. All right. Thank you. I appreciate it. Yes. Next we'll go to the line of Matt O'Connor from Deutsche Bank. You may proceed. Good morning. So I'm in your camp that eventually consumers will want more deposit rate sensitivity here.

Speaker 5: Good morning. So I'm in your camp that eventually, consumers will want more deposit rate sensitivity here.

Speaker 5: The nuance that we've introduced now is to recognize that given the shock, the reprice at the beta predicts will not be instantaneous. And so you get sort of just the mathematical consequences of that.

Speaker 3: But I guess what would make you change your rates meaningfully?

Speaker 5: But I think translating that into a statement about our expectation for beta for the next 12 months relative to our NII guide might be a bridge too far.

Speaker 3: So the top two banks have about 50% of the consumer market share, loan to deposit ratios are low, your outlook for loan growth, and I think others it's fairly sluggish, at least outside of cards. So I get that it's common sense and that's what we've seen historically, but there really is this kind of big divergence among big banks and everybody else where the big banks just don't need to pay that much. Right?

Speaker 3: But I guess what would make you change your rates meaningfully? So the top two banks have about 50% consumer market share, loan to deposit ratios are low, your outlook for loan growth and I think others it's fairly sluggish at least outside of card. So I get that it's common sense and that's what we've seen historically but there really is this kind of big divergence among big banks and everybody else where the big banks just don't need to pay that much.

Jamie Dimon: I would just add to that. So the product, even if you're a product that doesn't make money, you might do it for clients who are great clients. You're going to manage by product, by client, and by effectively business mix and those adjustments. Roughly, loans don't make sense when you balance them as a whole, almost any loan. And you know, people have to recognize that. And you have to manage all the various complications here and figure out what the hell to do.

Speaker 5: I'm not sure you can actually grow them.

Speaker 3: But you were saying earlier, deposit betas you do anticipate are going to be accelerating from here, and that's part of the outlook for NII longer term to normalize in the mid-70s. Is that right? Yes,

Speaker 3: Go ahead, James. Yes.

Speaker 3: I mean basically, yes, as you have -- if the next round is going to be the beta built from 30 to 40 to 50, whatever the product is, yes, that's the latter. And the 2.5 will go down over time as that actually happens if rates actually go up. The rates don't actually go up to 2.5 billion; it is exactly 2.5 again.

Mike Mayo: Thank you. Next, we'll go to the line of Mike Mayo from Wells Fargo Securities. You may proceed. Hi, I had another question on Vice Chair Barr's speech this week. To the extent that capital ratios do go up 20% for you, and perhaps others, to what degree would you think about changing your business model in terms of remixing where you do business, repricing, or simply, you know, removing activities that you used to do? It's kind of ironic, or maybe it's not ironic, that Apollo hits an all-time stock price high the same week as this speech.

Speaker 11: So you have different competition in Arizona and Phoenix than you have in Chicago, Illinois. And we do have high-interest rate products, so it's a combination of all those things.

Speaker 11: So you have different competition, Arizona, and Phoenix than you have in Chicago, Illinois. And we do have high interest rate products, so it's a combination of all those things. I wouldn't call it big bang for small bang. And you're gonna see, whenever we report, who kind of paid up all the morphic things who didn't.

Speaker 11: I wouldn't call it a big bang for a small bang. And you're gonna see, whenever we report, who kind of paid up all the morphic things who didn't.

Speaker 11: And what I was going to say is that the projection of the 87 coming down to a significantly lower number contains both the element of internal migration as well as the potential, which is by no means guaranteed, at product level reprice.

Speaker 11: and things like that. Look, guys; I would take it as a given.

Speaker 11: I think it's a mistake. There is very little pricing power in most of our businesses, and betas are going to go up. Take it as a given.

Speaker 11: and things like that. Look, guys, I would take it as a given. I think it's a mistake. There is very little pricing power in most of our business, and betas are going to go up. Take it as a given. There is no circumstance that we've ever seen in the history of banking where rates didn't get to a certain point that you had to have competing products, and rates go up through migration or direct rates or movement to CDs or money market funds. That's finally been a problem to me as a Nathan Erickson. See, I think what makes building a lot different is the kind of values that I can promote right now and that we can Living days, so I folks ought to reframe to be more prone, be a better sellerries that I canRob Pavilion. victory today, wasn't a it that you could actually

Speaker 11: There is no circumstance that we've ever seen in the history of banking where rates didn't get to a certain point where you had to have competing products, and rates went up through migration or direct rates or movement to CDs or money market funds.

Speaker 11: And furthermore, obviously, the dynamics are a little bit different in the different business segments as we move from large corporate wholesale to consumer.

Speaker 11: That's finally been a problem to me as Nathan Erickson.

Speaker 11: See, I think what makes building a lot different is the kind of values that I can promote right now and that we can live by in the days to come, so I folks ought to reframe to be more prone, be a better seller that I canRob Pavilion.

Speaker 11: victory today, wasn't a thing that you could actually do.

Jamie Dimon: So how much business will leave J.P. Morgan or the industry if capital ratios do go up as much as potentially proposed? Wait, before Jeremy answers the question, I just want to say this is great news for hedge funds, private equity, private credit, Apollo, Blackstone, and you know, and there are dents in the streets. Exactly. And I was gonna say, Mike, yes to everything.

Speaker 11: Next, we'll go to the line of Matt O'Connor from Deutsche Bank.

Speaker 11: And we're going to have to compete for that. You already see it in parts of our business and not in other areas.

Speaker 2: We're going to have to compete for that. That's the core of the strategy.

Speaker 11: Okay, I don't know why it matters, it's just that it's really just our primary bank relationships. So I mean, eventually, consumers will want more deposit rate sensitivity here.

Speaker 2: You already see it in parts of our business and not in other parts.

Speaker 11: And we're going to have to compete for that. You already see it in parts of our business and not in other parts. Okay, I don't know why there matters, it's just that it's really just our primary bank relationships.

Speaker 2: We're going to have to compete for that. You already see it in parts of our business and not in other parts. Okay, I don't know why there are matters, just that it's really just about primary bank relationships in the end. That's the core of the strategy.

Speaker 2: Okay, I don't know why there are matters, just that it's really just about primary bank relationships in the end.

Speaker 11: I guess what would make you change your rates meaningfully? So the top two banks have about 50% of the consumer market share, and loan-to-deposit ratios are low. Your outlook for loan growth, and I think others is fairly sluggish, at least outside of card.

Speaker 3: I mean, again, I 100% agree, but we've never seen loan-to-deposit ratios for banks like yours this low. So you could just let deposits run off, you know, at a modest amount for quite some time before making the decision not to pay up.

Speaker 3: I mean, again, I 100% agree, but we've never seen kind of loans deposit ratios for banks like yours this low. So you could just let deposits run off, you know, at a modest amount for quite some time to make the decision not to pay up. I'm not seeing that's the tradeoff that eventually you'll... But that's a little more complicated because...

Jeremy Barnum: So does that mean repricing? Yes, definitely. To the extent that we have pricing power and the higher capital requirements mean that we're not generating the right returns for shareholders, we will try to reprice. But how that sticks, and how that flows into the economy, and how that affects demand for products. And, if repricing is not successful, then, in some cases, we will have to remix, and that means getting out of certain products and services. And, as Jamie points out, that probably means that those products and services leave the regulated perimeter and go into, um, you know, elsewhere. And, uh, that's fine.

Speaker 3: I'm not seeing that's the tradeoff that eventually you'll... But that's a little more complicated because...

Speaker 3: So I get that it's common sense, and that's what we've seen historically, but there really is this kind of big divergence among big banks and everybody else where the big banks just don't need to pay that much for deposits for the reasons. So what would make you change that?

Speaker 5: That was, you know, a lot of that loans evaluation is lower because of regulatory stuff. LCR, capital rates, et cetera.

Speaker 5: That was, you know, a lot of that loans evaluation is lower because of regulatory stuff. LCR, capital rates, et cetera. Got it. Okay. All right. Thank you. Thanks. And for our final question, we'll go to Charles Peabody from Portales Partners. You may proceed. Good morning. Jeremy, on page 4 of your presentation-

Speaker 5: Got it. Okay. All right. Thank you. Thanks.

Speaker 5: And for our final question, we'll go to Charles Peabody from Portales Partners. Please proceed. Good morning.

Speaker 5: Jeremy, on page 4 of your presentation, Yes.

Speaker 5: In the end, Matt, it's just feedback from the field. It's competition and feedback from the field.

Speaker 5: I think every bank is in a different position about what they need. And so, you have a whole range of outcomes. But remember, we do this also by city, so you have different competition. Arizona and Phoenix, then we have Chicago, Illinois, -- and we do have high-interest rate products. So it's a combination of all those things.

Speaker 2: You show some liquidity metrics, and there's been a meaningful deterioration, or I shouldn't say deterioration, depletion of some of that excess liquidity, obviously, for First Republic primarily.

Speaker 2: you show some liquidity metrics. And there's been a meaningful deterioration, or I shouldn't say deterioration, depletion of some of that excess liquidity, obviously for First Republic primarily. So, my question is, how quickly do you want to rebuild that liquidity?

Speaker 2: So, my question is, how quickly do you want to rebuild that liquidity?

Jeremy Barnum: As Jamie points out, those people are clients. And I think that point was also addressed in Vice Chair Barr's speech. So, but you know, traditionally, having risky activities leave the regulated perimeter has had some negative consequences. So these are all

Speaker 2: I wouldn't call it a big bank or a small bank, and you're going to see whenever we report who kind of pays for more things and who did and things like that.

Speaker 2: Because as I look out towards 24, there's probably a half dozen variables that are going to make liquidity a premium, event to have access to liquidity.

Speaker 2: Because as I look out towards 24, there's probably a half dozen variables that are going to make liquidity a premium.

Speaker 2: So that's my first question. What's your plan for replenishing liquidity? event to have access to liquidity. So that's my first question. What's your plan for replenishing the liquidity?

Speaker 2: So look, I would take you to give -- I think it's going to say there is very little pricing power in most of our business, and betas are going to go up. You take it as a given -- there is no circumstance that we've ever seen in the history of banking where rates didn't get to a certain point where you had to have competing products, and they went through migration or a direct rate or moved into CDs or money market funds And we're going to have to compete for that. You already see it in parts of our business and not in other areas.

Mike Mayo: All right, and separate question. I appreciate Investor Day. It gives a little bit more color on the degree to which your investment may or may not pan out. You know, we are still all watching that closely. Having said that, you've just increased revenue guidance by $10 billion for NII between this quarter and the first quarter without changing expense guidance by even $1. Aren't you tempted to spend a little bit more? Why not spend more if you're gaining a share? And I'm not saying you should; I'm just wondering, like, aren't you tempted to do so?

Speaker 2: Yeah, so I know we talked about this a little bit of ourselves today, right? So, as I said in my prepared remarks, yeah, we think about half of the change in the bank LCR number is consequential for the public, and the rest of it is just the expected decrease in system-wide deposits falling through into our HCLA balances. So that's all entirely as expected, and therefore, I think that the replenishing notion is not correct. In fact, obviously, we still have ample and full liquidity. Now if you want to project trends forward, that's a different story, but you know that the business of banking will adjust accordingly to the bank LCR ratio. So that's all entirely as expected, and therefore I think that the replenishing notion is not correct. In fact, obviously, we still have ample and full liquidity. Now if you want to project trends forward, that's a different story, but you know that's sort of the business of banking will adjust accordingly.

Speaker 2: event to have access liquidity. So that's my first question. What's your plan for replenishing liquidity?

Speaker 2: Yeah, so I know we talked about this a little bit of us today, right? So, as I said in my prepared remarks, yeah, we think about about half of the change in the bank LCR number is consequential for the public and the rest of it is just the expected you know decrease in system-wide deposits falling through into our HCLA balances.

Speaker 2: in the bank LCR ratio. So that's all entirely as expected and therefore I think that the replenishing notion is not correct. In fact obviously we still have an ample and full liquidity. Now if you want to project trends forward that's a different story but you know that's sort of the business of banking will adjust accordingly.

Jeremy Barnum: You have $10 billion more revenues; you're not spending $1 more on expenses, like, why not? Mike, let me get this right. You're actually complaining that our expenses aren't high enough, is that right? Wait, wait, just to be clear. It's just the flip side of the question I asked for two years, you know, going back. Fair enough, I appreciate the balance.

Speaker 2: It matters just that it's really just our primary bank relationships, and that's the core of the strategy. Yes,

Speaker 4: in terms of our asset and liability mix across different products and to ensure compliance with the ratios and fortress balance sheet principles, and reliability mix across different products and to ensure compliance with the ratios and fortress balance sheet principles as we would expect from us.

Speaker 2: I mean, again, I 100% agree, but we've never seen the kind of loan-to-deposit ratios for banks like yours this low. So you could just let deposits run off at a modest amount for quite some time before making the decision not to pay up. I mean, I assume that's a trade-off that eventually you'll.

Speaker 4: in terms of our asset and liability mix across different products, and to ensure compliance with the ratios and fortress balance sheet principles.

Speaker 4: and reliability mix across different products and to ensure compliance to the ratios and fortress balance sheet principles as we would expect from us.

Speaker 11: And I would say that just look at the top of the page in the press release, $1.4 trillion of cash and bonds.

Jeremy Barnum: Now, in all seriousness, we've always been pretty clear, right, that our spending is through the cycle of spending, based on through the cycle investment, through the cycle spending, based on our through-the-cycle view of the earnings-generating power of the company and the goal to produce the right return. So, broadly speaking, NII tends to flow straight through to the bottom line, both when it's going up and, by the way, when it's going down, too. And we've been through those moments, as you well remember.

Speaker 11: Even if we get down to no access, we're going to have like, I've got the exact number, $1.2 trillion.

Speaker 11: And I would say that just look at the top of the page in the press release, $1.4 trillion of cash and barberal securities. Even if we get down to no access, we're going to have like, I've got the exact number, $1.2 trillion.

Speaker 11: That's a little more complicated because that -- a lot of that loan-to-value ratio is lower because of regulatory stuff, LCR, capital ratio, et cetera.

Speaker 11: I think we have excess liquidity, and the liquidity rates are slightly different.

Speaker 11: I think there's plenty of liquidity in the system, and, of course, we can do multiple things to change this overnight if we want to.

Speaker 11: I think we have excess liquidity. And the liquidity rates are slightly different. I think there's plenty of liquidity in the system and of course we do multiple things to change this overnight if we want to.

Speaker 11: And for our final question, we'll go to Charles Peabody from Fortalis Partners. Jeremy, on Page 4 of your presentation, you showed some liquidity metrics. And there's been a meaningful deterioration, or I shouldn't say deteriorating depletion, of some of that excess liquidity, obviously, for First Republic primarily.

Speaker 2: So, sort of wrapped into that as a follow-up, if you take your 87 billion forecast for NII this year, and that implies at least one quarter of maybe 22 billion NII, and you take your eventual forecast of the mid-70s. So my question is how quickly do you want to rebuild that liquidity because as I look out towards '24, there's probably a half dozen variables that are going to make it a premium event to have excess liquidity, so that's my first question is what are your plans for replenishing it?

Speaker 2: So, sort of wrapped into that as a follow-up, if you take your 87 billion forecast for NII this year, and that implies at least one quarter of maybe 22 billion of NII, and you take your eventual forecast of mid-70s.

Jeremy Barnum: So, whether or not there are opportunities to deploy some more dollars into, you know, marketing and stuff like that, we have actually looked at that recently. But I don't see that being the case. This is a very meaningful item this year, which is part of why we have not revised the expense guidance so far. But this is about investing through the cycle and being honest and disciplined about which revenue items carry an expense loading and which of them don't. And that last quick follow up.

Speaker 2: billion of NII at some point in the future; that would imply at least one quarter of 18 billion of NII.

Speaker 2: billion of NII at some point in the future, that would imply at least one quarter of 18 billion of NII. So that's about an 18% drop.

Speaker 2: So that's about an 18% drop.

Speaker 2: And if you hold the balance sheet steady, you're talking about, you know, a 30 basis point drop in your margin, your NIM, to get to that from 22 billion to 18 billion. I mean, what is driving this, is it really the deposit, or are you thinking in terms of interest reversal as credit deteriorates, or is it the rebuilding of liquidity? I'm just trying to get a better sense of what the Yes, Charles. So I know we talked about this a little bit at Investor Day, right?

Speaker 2: And if you hold the balance sheet steady, you're talking about, you know, a 30 basis point drop in your margin, your NIM, you know, to get to that from 22 billion to 18 billion. I mean, what is driving, is it really the deposit or are you thinking in terms of interest reversal as credit deteriorates or is it rebuilding of liquidity? I'm just trying to get a better sense of what the...

Mike Mayo: And then one quick follow-up to that, your efficiency ratio this quarter is the lowest we've seen in a long, long time, and I guess you're saying don't extrapolate this efficiency ratio because NII will come down at some point, but when you just simply look at, you benchmark yourself against the low-cost providers, where do you think you are now and where can you still go? Because if you extrapolate from this quarter, you're getting closer. Yeah, I mean, you said it yourself, right?

Speaker 2: big impact.

Speaker 2: Yeah, I would think of that as being really entirely a deposit story. So whether it's as a consequence of migration from lower yielding to higher yielding...

Speaker 2: big impact. Yeah, I would think of that as being really entirely a deposit story. It's just not that complicated, right? I think we did this, I think it was either in the fourth quarter or in the first quarter, but we put a little chart on a page, just in very simple terms, it shows like what the dollar consequences are of whatever, like 10 basis point change and deposit rate paid in terms of NII run rate. So whether it's as a consequence of migration from lower yielding to higher yielding...

Speaker 2: It's just not that complicated, right? I think we did this, I think it was either in the fourth quarter or in the first quarter, but we put a little chart on a page, just in very simple terms, it shows like what the dollar consequences are of whatever, like a 10 basis point change and deposit rate paid in terms of the NII run rate.

Speaker 2: So as I said in my prepared remarks, yes, when you think about half of the change in the bank LCR number is due to First Republic, and the rest of it is just the expected decrease in deposits flowing through into our HQLA balances and the bank LCR ratio. So that's all entirely as expected. And therefore, I think that the replenishing notion is not correct.

Jeremy Barnum: You definitely can extrapolate. But I think more broadly, on benchmarking ourselves to low-cost providers, it sort of speaks to an area that you've been interested in for a long time, which is all of the investment that we're doing in technology to improve, generally, scalability and get more of our cost base to be variable versus fixed in terms of how we respond to volumes. That's a big part of the reason that we're doing these things, doing modernization, cloud, and AI and all, and we talk to them a lot. So I think we feel really good about our efficiency as a company, but there are definitely. All right, thank you. Next, we'll go to the line of Steven Chubak from Wolf Research. You may proceed. Thanks for taking the question and apologies for the technical issues earlier.

Speaker 2: In fact, obviously, we still have plenty of liquidity. Now if you want to project trends forward, that's a different story, but that's sort of the business of banking. We'll adjust accordingly in terms of our asset and liability mix across different products and to ensure compliance ratios and [indiscernible] balance sheet principles as you would expect from us. And I would just add that just look at the top of the page in the press release, $1.4 trillion of cash and market securities. Even if we get down to no excess, we're going to have, I've got the exact number, $1.2 trillion. I think we have excess liquidity. And the liquidity ratio is slightly different.

Speaker 12: Thank you.

Speaker 13: And we have no further questions at this time. And we have no further questions at this time.

Speaker 2: I think the studies according to the system and, of course, we do multiple things to change this overnight in one or two.

Speaker 13: Thank you very much. Thank you all for participating in today's conference. You may disconnect at this time and have a great rest of your day. Thank you. Have a great rest of your day. Thank you.

Speaker 12: Thank you.

Speaker 13: And we have no further questions at this time.

Speaker 13: And we have no further questions at this time. Thank you very much.

Steven Chubak: Wanted to ask on the deposit outlook, just with signs that the recent liquidity drawdown has come predominantly out of RRP versus industry deposits. Just want to get your thoughts on what expectations you have for deposit growth in the second half, both for you and even the broader industry, especially as Treasury issuance really begins to ramp in earnest. Yeah, good question, Steve.

Speaker 13: Thank you all for participating in today's conference. You may disconnect at this time and have a great rest of your day. Thank you. Have a great rest of your day. Thank you. you

Speaker 13: So, sort of wrapped into that as a follow-up. If you take your $87 billion forecast for NII this year and that implies at least one quarter of maybe $22 billion of NII, and you take your eventual forecast of mid-$70 billion of NII at some point in the future, that would imply at least one quarter of $18 billion of NII. So, sort of wrapped into that as a follow-up. If you take your $87 billion forecast for NII this year and that implies at least one quarter of maybe $22 billion of NII, and you take your eventual forecast of mid-$70 billion of NII at some point in the future, that would imply at least one quarter of $18 billion of NII. So that's about an 18% drop. And if you hold the balance sheet steady, you're talking about a 30 basis point drop in your margin -- your NIM -- to get to that from $22 billion to $18 billion. I mean, what is driving this -- is it really the deposit? Or are you thinking in terms of interest reversals as credit deteriorates? Or is it the rebuilding of liquidity? I'm just trying to get a better sense of what the impact will be.

Jeremy Barnum: So let me tell you a couple of things about this. Obviously, our deposit numbers have bounced around a little bit as a function of some of the turmoil that we saw in regional banks, as well as in transactions. But now, if you look at our kind of end-of-period deposits this quarter and project forward, our core view is that we would expect a sort of modest downward trend to reassert itself from this higher starting broadly as a function of QT playing through the system. But noting that we do have some hope for offsets by taking shares, to give a couple of examples, like in consumer, you know, we've got And so there are shareholders there. And then, wholesale, we've obviously invested a lot in products and services. And so we think we have compelling offerings that are helping us win mandates.

Speaker 12: The Case & Co. earnings conference call will begin shortly.

Speaker 12: Yes, Charlie, I would think about that as being really entirely a deposit story. I think it was either in the fourth quarter or in the first quarter, but we put a little chart on the page just in very simple terms, it shows like what the dollar consequences are, like a 10 basis point change in deposit rates paid in terms of the NII run rate.

Speaker 13: Thank you all for participating in today's conference. You may disconnect at this time and have a great rest of your day. Thank you. Have a great rest of your day. Thank you.

Jeremy Barnum: And so there are potentially some share offsets there. But broadly, we, our core view remains modest deposit declines across the franchise. Within that, you know, the same thing we've noted that, you know, as we got through the debt ceiling and the TGA bill, that bill has come into effect, and you've seen a lot of bill issuance, big question in the market about whether that was going to come out of reserves or come out of RRP. And so far, most of the TGA bill, targeting 600 in their output. , Please visit our Bookstore at www.bookstoreailuin.com. So that whole RRP, PGA thing, you know, reserve dynamic. Jr. A helpful caller. And just a follow-up on card income, revenues were muted in the quarter. I was hoping you could unpack just the sources of pressure, maybe more specifically, how much of the drag is associated with badge 91 versus some other factors.

Speaker 12: It's not that complicated, right? I think we can do this.

Speaker 7: So whether it's as a consequence of migration from lower-yielding to higher-yielding going from 0% to 4% CD is obviously a big impact on margin, or whether it's because savings reprices relatively small changes in rates, there is kind of a lot of money when you've got a couple of trillion dollars of deposits. So it's really not any more complicated than that.

Speaker 7: you

Speaker 7: And that's why we're being so forceful about reminding people about what we expect that trajectory to be. And we have no further questions at this time.

Speaker 12: The J.P. Morgan show, consultants exploding

Speaker 12: The J.P. Morgan show.

Speaker 12: consultants exploding

Jeremy Barnum: Yeah, so actually, that card income number, Steve, is a little bit of a one-off thing. So we had a reward liability adjustment this quarter kind of, and obviously, you know, I know you guys look at it, but carding, for the thing that we look at that much ourselves. Can you size the reward liability impact? Why don't you get Michael to give that to you?

Glenn Schorr: It's not that significant, but it's enough to just make the sequential number look like, Great, thanks for taking my question. Next, we'll go to the line of Glenn Schorr from Evercore ISI. You may proceed. Thank you. I just want to follow up on this pricing power conversation because you've been consistent over time that you have a limited ability to sustain pricing power due to the competitive landscape. But I guess my question is, if not now, when?

Speaker 7: And that's why we're being so forceful about reminding people about what we expect that trajectory to be. And we have no further questions at this time.

Jeremy Barnum: Meaning a lot has changed on the institutional side, the European bank side, the regional bank side. And I would think that there would be certain businesses that you have a greater ability and willingness to push prices on. And then maybe you could tie that to your comments in the press release on what are the real world consequences for markets and end users that you're referring to when talking about material regulatory changes. Thanks a lot.

Jeremy Barnum: Sure. So look, on pricing power. You're right. It really depends on the product, and it depends on the competitive landscape across different banks. And so it's very granular; it's very product specific.

Jeremy Barnum: And, you know, in some cases, we'll have more pricing power than in other cases. I think the overall point that we're trying to make in connection with The Puzzle through Endgame is just that, you know, like, we think. We think the capital increases are excessive. It puts pressure on returns, all else equal. That obviously puts pressure on us to increase prices where we can. That is generally a bad thing for the real economy, but how all of that plays out in detail across different products and services remains to be seen. Importantly, since we don't actually have the proposal yet, so we need those details. I'm sorry, Glenn.

Glenn Schorr: I forgot the second half of your question. What was it? Actually, I think you hit on it. So I'll just do a follow-up on something related. You know, the notion of private credit doing large traditional investment grade lending activity is maybe part of the competitive landscape that limits the ability to push prices. In Jamie's letter, he talks about the downsides, or my question is, what's the downside if more of the mortgage credit asset-backed intermediation business is pushed out of the banking system? I mean, I guess it depends on what you mean by the downside. But I just think, you know, socially speaking, I think we've seen in recent history that, you know, when home lending is happening outside the regulated perimeter, you know, and things get bad, you know, when you have economic downturns, it produces bad outcomes for individuals and homeowners and society as a whole.

Jeremy Barnum: So Jamie's written about this extensively, um Beyond that, you know, financially, we've talked about how mortgage lending, I mean, obviously, by profitable than it was less so like the correspondent channel right now is actually picking up a little bit, but it's a thin margin business, and it's challenging, and when you increase the capital requirements, even harder. So that just becomes one of the areas where you're in that tension between remixing versus pricing power that we talked about a second ago. And it might, in fact, mean that we do less, you know, less credit available for homeowners and more regulatory risk as the activity... I appreciate that, family. Next, we'll go to the line of Betsy Graseck from Morgan Stanley. You may proceed. Hi, good morning.

Yeah. I just wanted to unpack a little bit more the drivers of the change you outlined that's coming in the 10-Q, Jeremy, regarding asset sensitivity going from liability sensitive to asset sensitive. At least that's the way I read it.

Jeremy Barnum: I just wanted to understand what the drivers of that are. Yeah, sure. No problem, Betsy.

Jeremy Barnum: As you know, that's always been a challenging number. It's meant as a risk management measure of sorts, although it's also somewhat limited in that respect. It has been of uneven usefulness in terms of being a tool to be able to predict our NII trajectory when rates change. But as we've looked at that and tried to improve it and spoken to all of you through this latest rate hiking cycle, we've come to the conclusion that it would improve the usefulness of the disclosure if we included in the modeling the effect of deposit repricing lags. And so we've done that, and that just has the effect that I talked about. It increases the EAR number by about $4 billion from minus $1.5 billion, which is roughly what it was last quarter and what it would have been this quarter without the change, to something more like $2.5 billion.

Jeremy Barnum: But in the end, all the usual caveats apply, right? I mean, it's never the answer is going to always for any given change in rates. Change in our NII is always going to be, for one reason or another, different from what that disclosure shows, and we do our best. Okay and so is it fair for me to think about that change as a mark to market to where we are today and when I think about your forward guide here longer term you're saying look deposit betas are accelerating so as I go through the 10 Q's over the next you know four or five quarters I should expect that that 2.5 should come down because deposit betas you're anticipating are going to be accelerating from here I'm just trying to put those two things together yeah it's a good question it's quite a technical issue so I think in the past the way this number was constructed was to assume through the cycle betas on all the deposits and so your notion that like the number would include deposit beta acceleration would not have been the case because it would have been using essentially terminal deposit betas for the scenario based on the forward curve and then based on a 100% shock to the, The nuance that we've introduced now is to recognize that given the shock, the reprice that the beta predicts will not be instantaneous. And so you get sort of just the mathematical consequences of that.

Jamie Dimon: But I think translating that into a statement about our expectation for beta, you know, for the next 12 months relative to our NII guide might be a bridge too far. I'm not sure you, but you were saying earlier deposit betas you do anticipate are going to be accelerating from here, and that's part of the outlook for NII longer term to normalize in the mid-70s. Is that right? Yes, but let me be precise. Go ahead, Jamie.

Yes. I mean, basically, yes. If the next round is going to be, the beta will go from 30 to 40 to 50 on whatever the product is, yeah, that's the latter. And the 2.5 will go down over time as that actually happens if rates actually go up. The rates don't actually go up; that 2.5 may be exactly 2.5 again. Yeah, and what I was going to say, Betsy, is just that the projection of the 87 coming down to a lower number contains both the element of internal migration, as well as the potential, which is by no means guaranteed, of product level reprice. And furthermore, then obviously, the dynamics are a little bit different in the different business segments as you move from large corporate wholesale to consumer. All right. Thank you. I appreciate it. Next, we'll go to the line of Matt O'Connor from Deutsche Bank. You may proceed. Good morning.

Matt O'connor: So, I'm in your camp that eventually, consumers will want more deposit rate sensitivity here. But I guess what would make you change your rates meaningfully? So, you know, the top two banks have about 50 percent of the consumer market share. Loan to deposit ratios are low.

Jamie Dimon: Your outlook for loan growth, and I think others, you know, is fairly sluggish, at least outside of CARD. So, I get that it's common sense, and that's what we've seen historically, but that there really is this kind of big divergence among big banks and everybody else where, you know, the big banks just don't need to pay that much for deposits for, you know, a slew of So, what would make you change that?

Jamie Dimon: Yeah, in the end, Matt, it's just feedback from the field. It's competition and feedback from the field. I think every bank is in a different position about what they need, and so you have a whole range of outcomes. But remember, we do this also by city. So you have different competition in Arizona, Phoenix, than you have in Chicago, Illinois. And we do have high-interest rate products. So it's a combination of all those things.

Jamie Dimon: I wouldn't call it a big bang for small, and you're going to see whenever we report who kind of paid up a little more for things and who didn't, and things like that. So I would take it as a given. I think it's a mistake. There is very little pricing power in most of our business, and prices are going to go up. Take it as a gift.

Jamie Dimon: There's no circumstance that we've ever seen in the history of banking where rates didn't get to a certain point where you had to have competing products, and rates went through migration or direct rates or movement to CDs or money market funds. And we're gonna have to compete for that. You already see it in parts of our business, and not another one. Okay, I don't know why 100% there matters, just that it's really just about primary. That's the core of the strategy.

Matt O'connor: Yeah, I mean, again, I 100% agree, but we've never seen loan-to-deposit ratios for banks like yours this low. So you could just let deposits run off, you know, at a modest amount for quite some time before making the decision not to pay up. And that's the trade-off that eventually you'll see. That's a little more complicated because a lot of that loan devaluation is lower because of regulatory stuff, LCR, capital ratio, etc. Got it.

Jamie Dimon: Okay. All right. Thank you. And for our final question, we'll go to Charles Peabody from Portales Partners. You may proceed. Good morning.

Charles Peabody: Jeremy, on page four of your presentation, you show some liquidity metrics, and there's been a, you know, meaningful deterioration, or I shouldn't say deterioration, depletion of some of that excess liquidity, obviously for First Republic primarily. So my question is, how quickly do you want to rebuild that liquidity? Because as I look out towards 24, there's probably a half dozen variables that are going to make liquidity a premium event to have excess liquidity. So my first question is, what are your plans for replenishing that liquidity? Yeah, Charles, I know we talked about this a little bit yesterday, right?

Jeremy Barnum: So as I said in my prepared remarks, yeah, we think about half of the change in the bank LCR number is a consequence of First Republic, and the rest of it is just the expected, you know, decrease in system-wide deposits falling through into our HLAA balance and Mark Ruffin. I'm here to talk about the 2022 bank LCR ratio. So that's all entirely as expected, and therefore I think that the replenishing notion is not correct.

Jamie Dimon: In fact, obviously, we still have ambivalent liquidity. Now, if you want to project trends forward, that's a different story, but, you know, that's sort of the business of banking. We'll adjust accordingly in terms of our asset and liability mix across different products and to ensure, you know, compliance of the ratios and... And I would say that, just look at the top of the page in the press release, $1.4 trillion of cash embargo securities. Even if we get down to no excess, we're gonna have, I've got the exact number 1.2 trillion. I think we have excess liquidity, and the liquidity ratio is slightly different. I think there's plenty of liquidity in the system, and, of course, we can do multiple things to change this overnight if we want to.

Jamie Dimon: Right, so sort of wrapped into that as a follow-up, if you take your 87 billion forecast for NII this year, and you know, that implies at least a quarter, one quarter of maybe 22 billion of NII. And you take your eventual forecast of mid 70, you know, billion of NII at some point in the future, that would imply at least one quarter of 18 billion of NII. So that's about an 18% drop. And if you hold the balance sheet steady, you're talking about, you know, a 30 basis point drop in your margin, your NIM, to get to that from $22 billion to $18 billion. I mean, what is driving this, is it really the deposit, or are you thinking in terms of interest reversals as credit deteriorates, or is it the rebuilding of liquidity?

Jamie Dimon: I'm just trying to get a better sense of what the big impact is. Yeah, hey Charlie, I would think of that as being really entirely a deposit story. It's just not that complicated, right? I think we did this, I think it was either in the fourth quarter or in the first quarter, but we put a little chart on a page, just very simple terms that show like what the dollar consequences are of whatever, like a 10 basis point change in deposit rate paid in terms of the NII run rate. So whether it's as a consequence of migration from lower yielding to higher yielding, you know, going from 0% to 4% CD is obviously a big impact on margin, or whether it's because, you know, savings reprices, relatively small changes in rates are kind of a lot of money when you've got, you know, a couple trillion dollars of deposits.

Charles Peabody: So it's really not any more complicated than that, and that's why we're being so forceful about reminding people. But that's not what we expected. Thank you, and we have no further questions at this time. Thank you very much. Thank you all for participating. Thank you. Thank you all for participating in today's conference. You may disconnect at this time and have a great rest of your day. The J.P. Morgan Chase & Co. Earnings Conference Call will begin shortly, www.youtube.com.uk official You The J.P. Morgan Show.

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