Q3 2023 JPMorgan Chase & Co Earnings Call
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Speaker 1: The JPMorgan Chase & Co earnings conference call will begin shortly.
J P. Morgan Chase <unk> co earnings conference call will begin shortly.
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Good morning, ladies and gentlemen, welcome to J P. Morgan Chase's third quarter 2023 earnings call.
Speaker 2: Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's third quarter 2023 earnings call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand by.
Always being recorded your line.
<unk> will be muted for the duration of the call. We will now go live to the presentation. Please standby.
Speaker 2: At this time, I would like to turn the call over to JP Morgan Chase's Chief Financial Officer, Jeremy Barnum, and their Chairman and CEO , Jamie Dimon. Mr. Dimon, please go ahead.
At this time I would like to turn the call over to Jpmorgan, Chase's Chief Financial Officer, Jeremy Barnum and their chairman and CEO , Jamie Diamond Mr. Diamond. Please go ahead.
Speaker 3: Good morning everybody. Before we start the actual call, I want to repeat something we just said on the press call. So before getting into discussions about third quarter earnings, I just want to say how deeply saddened we all are about the recent horrific attacks on Israel and the resulting bloodshed and war. Terrorism and hatred have no place in our civilized world and all of our hearts here at JPMorgan Chase go out to all who are suffering.
Good morning, everybody.
Before we start the actual call I want to repeat something we just said on the press call.
So before getting into discussions about third quarter earnings I, just want to see how deeply saddened. We all are about the recent horrific attacks on Israel and the resulting in bloodshed in war terrorism and hatred of no place our civilized world and all of our Hearts <unk> JP Morgan Chase go out to all who are suffering.
Speaker 4: Thanks Jamie and of course very much. Now let's turn to our fourth quarter earnings.
Thanks, Jimmy and of course, I'm very much.
Now, let's turn to our fourth quarter earnings results.
Speaker 4: The presentation is available on our website, and please refer to the disclaimer in the back.
The presentation is available on our website and please refer to the disclaimer.
Speaker 4: Starting on page one, the firm reported net income of $13.2 billion, EPS of $4.33 on revenue of $40.7 billion and delivered an ROTCE of $22.7 billion.
Starting on page one the firm reported net income of $13 $2 billion EPS of $4 33 times on revenue of $40 7 billion and delivered an ROIC TCE of 22%.
Speaker 4: These results included $669 million of net investment securities losses in corporate and $665 million of firm-wide legal expense.
These results include a $669 million of investment securities losses in corporate and $665 million a firm wide legal expense on page two we have some more detail.
Speaker 4: Similar to last quarter, we have called out the impact of First Republic where relevant. For this quarter, First Republic contributed 2.2 billion of revenue, 858 million of expense, and 1.1 billion of netting.
Similar to last quarter, we have called out the impact of first Republic, where relevant this quarter first Republic contributed $2 2 billion of revenue $858 million of expense and $1 1 billion of net income.
Speaker 4: Now focusing on the firm-wide results, excluding first republic, revenue of 38.5 billion was up 5 billion or 15%.
Now focusing on the firm wide results, excluding first Republic revenue of 38, and a half billion was up 5 billion or 15%.
Speaker 4: And IIX Markets was up 4.8 billion or 28 percent driven by higher rates and higher revolving bounces and card, partially offset by lower deposit.
And I I ask markets was up $4 8 billion or 28% driven by higher rates and higher revolving boss card, partially offset by lower deposit balances in.
Speaker 4: And IRX markets was up 374 million or 4%, which included lower net investment securities losses than the prior year. And markets revenue was down 190 million or 3% here on.
And I R X markets was up $374 million or 4%, which included lower net investment securities losses in the prior year.
Markets revenue was down $190 million or 3% year on year.
Speaker 4: expenses of 20.9 billion or up 1.7 billion or 9% you're on here primarily driven by ongoing growth in front office and technology staffing as well as wage inflation and higher
Expenses of $20 9 billion were up $1 7 billion or 9% year on year.
Primarily driven by ongoing growth in front office technology staffing as well as wage inflation and higher legal expense.
Speaker 4: and credit costs were 1.4 billion, predominantly driven by net charge off-cent card and included a 102 million net reserve release driven by changes in the central scenario primarily offset by card long growth.
Credit costs were $1 4 billion predominantly driven by net charge offs in card and included a $102 million not reserve release, driven by changes in the central scenario, primarily offset by card loan growth.
On the balance sheet and capital on page three.
Speaker 4: We ended the quarter with a C21 ratio of 14.3% up about 50 basis points versus the prior quarter, as the benefit of net income less capital distributions was partially offset by AOCI.
We ended the quarter with a CET one ratio of 14, 3% up about 50 basis points versus the prior quarter as the <unk>.
Net income loss of capital distributions was partially offset by a OCI.
Speaker 4: We added 2 billion of net share purchases this quarter, and the pace of buybacks will likely remain modest in light of the Bottle 3 endgame.
We added 2 billion of net share repurchases this quarter and the pace of buybacks will likely remain modest in light of the Basel III and game proposal in line with our capital hierarchy, we will continue to reassess the buyback trajectory as circumstances evolve or opportunities.
Speaker 4: In line with our capital hierarchy, we will continue to reassess the by-back trajectory as circumstances evolve or opportunities emerge.
And on the topic of the Basel III on game, you'll see that we added a couple of pages on it.
Speaker 4: And on the topic of the Fuzzle 3 on Game, you'll see that we added a couple of pages on it. So let's cover that now, starting on page.
Let's cover that now starting on page four.
Speaker 4: Given the significance of this proposal for us, the broader industry, as well as households and businesses as end users, we thought it was important to spend time discussing it. And while we know there's interest in having us quantify the expected impact of this proposal in a lot of granular detail, it's important to start by asking why the proposed increases so large, given the repeated statement over time by policymakers that banks are well capitalized and well positioned to deal with stress.
Given the significance of this proposal for us the broader industry as well as households, and businesses as end users. We thought it was important to spend time discussing it and while we know there's interest in having us quantify the expected impact of this proposal and a lot of granular detail, it's important to start by asking why.
The proposed increase is so large given the repeated statement overtime by policymakers that banks are well capitalized and well positioned to deal with stress.
Speaker 4: Even that context, the absence of detailed analysis and supporting a capital increase of this magnitude is disconcerting, and there's a lot that does not make
Given that context, the absence of detailed analysis supporting a capital increase of this magnitude is disconcerting and Theres a lot that does not make sense to us.
Speaker 4: Starting with RWA, we've already said we expect the firms RWA to increase by around 30% or 500 billion, which results in capital requirements increasing by about 25% or 50%.
Starting with our Wi.
We've already said, we expect the firms are W. A to increase by around 30% or 500 billion, which results in capital requirements, increasing by about 25% or 50 billion.
One immediate thing to point out is that at four and a half per sentence. You said, a 500 billion dollar increase in our Wi requires 22, and a half billion of additional capital with no change in our systemic risk footprint.
Speaker 4: One immediate thing to point out is that it's 4.5% GSI, a $500 billion increase in RWA, requires 22.5 billion of additional capital with no change in our systemic risk footprint. Excuse me.
Excuse me.
Speaker 4: We've been on the record for a long time. That G-SIM was conceptually flawed and miscalibrated originally.
We've been on the record for a long time that G. SIB was conceptually flawed and Miss calibrated originally since implementation the failure to address economic growth. Despite the fed themselves acknowledging this problem at the outset has made matters worse and now all of those problems are being applied to an additional 500.
Speaker 4: Since implementation, the failure to address economic growth despite the fed themselves acknowledging this problem at the outset has made matters worse. And now all of those problems are being applied to an additional 500 billion of RWA. Our view is that the combined proposals could have adjusted the search arch levels to keep dollars of capital associated with the G-CIP buffer content rather than simply multiplying the RWA increase by the existing search arch.
Our view is that the combined proposals could have adjusted the surcharge levels to keep dollars of capital associated with the G. SIB buffer constant rather than simply multiplying the art of UA increase by the existing surcharges.
Speaker 4: Another lens on the proposed increases is the introduction of RWA for operational risk, and it's clear overlap with operas glosses already capitalized through the stress capital.
On the other lines on the proposed increases as the introduction of <unk> for operational risk and its clear overlap with op risk losses already capitalized through the stress capital buffer.
Speaker 4: Although there's limited disclosure from the Fed on this point, we have estimated that we have about $15 billion of operational risk capital embedded in the SCB based on the information the Fed does disclose.
Although theres limited disclosure from the fight on this point, we have estimated that we have about $15 billion of operational risk capital embedded in the S. C. B based on the information the fed doesn't disclose once we capitalize for this new offer startup Yue a required capital will go up by around $30 billion without.
Speaker 4: Once we capitalize with this new operas guard of UA, a required capital will go up by around $30 billion without any change to our portfolio.
Any change to our portfolio.
Now, let's turn to page five which shows the impact of the actual proposed capital rules over the last few years.
Speaker 4: Now let's turn to page 5, which shows the impact of the actual and proposed capital rules over the last few years.
Speaker 4: Fluing out from the details of this most recent proposal, this page reminds us of what's happened since 27th.
Yeah.
Zooming out from the details of its most recent proposal this page reminds us of what's happened since 2017.
Speaker 4: Since then, FACCAR and the stress capital buffer have been adopted, and our G-Zim search charge will increase to 4.5%.
Since then soccer and the stress capital buffer had been adopted and our G. SIB surcharge will increase to four 5%.
Speaker 4: So assuming the Basel 3N game and G-SIM proposals are finalized in their current form, we would see a 45% increase in our capital requirements relative to that 2017 starting.
So assuming the Basel III and game and G. SIB proposals are finalized it in their current form we would see a 45% increase in our capital requirements relative to that 2017, starting point there.
Speaker 4: This illustrates again how overcalibrated these proposals are and it's not done yet.
Illustrates again, how over calibrated. These proposals are and it's not done yet we.
Speaker 4: We still expect the Fed to incorporate diesel into C-Car, which will likely increase the SCB. And of course, given the absence of a fix to the G-CIP laws, it continues to present a headwind into the indefinite future. And aside from those dynamics, there remains the long-standing issue of prosyclocality in the overall capital.
We still expect decided to incorporate diesel to CCAR, which will likely increase the C. B and of course, given the absence of a fix to the G. SIB flaws and continues to present a headwind into the indefinite future.
And aside from those dynamics there remains the long standing issue of pro cyclicality in the overall capital framework.
Speaker 4: We think it's also important to point out that the agencies did actually have a choice here. Well, it may technically be true that the proposal is Basel compliant. Basel compliance does not mandate a 25% increase in capital requirements.
We think it's also important to point out that the agencies did actually have a choice here.
It may technically be true that the proposal is Basel compliant ASO compliance does not mandate, a 25% increase in capital requirements implementing the Basel III endgame consistently with how the European shop by retaining credit risk modeling and also addressing the compounding effect. If you said that FCB would have.
Speaker 4: implementing the Basel 3N game consistently with how the Europeans have by retaining credit risk modeling and also addressing the compounding effects of GSIB and SCB would have achieved Basel compliance without creating this unnecessary increase in capital requirements.
Chief Basel compliance without creating this unnecessary increase in capital requirements.
Speaker 4: As you would expect, we will continue to engage and forcefully advocate during the comment period and beyond in a great deal of technical.
As you would expect we will continue to engage and forcefully advocate during the comment period and beyond and a great deal of technical detail.
Speaker 4: For the purposes of this call, we wanted to make the equally important broader points about both the level of capital increase and the flaws in the construct of the framework itself. Since coherent design is critical to the framework's durability over time.
For the purposes of this call we wanted to make the equally important broader points about both the level of capital increase and the flaws in the construct of the framework itself since coherent design is critical to the frameworks durability over time.
Speaker 4: The current proposal exacerbates existing features that discourage beneficial scale and diversification. If it goes through as written, there will likely be significant impacts on pricing and availability of credit for businesses and consumers.
The current proposal exacerbates the existing features to discourage beneficial scale and diversification. If it goes through as written there will likely be significant impacts on pricing and availability of credit for businesses and consumers. In addition, the ongoing and persistent increase in the regulatory cost of market.
Speaker 4: In addition, the ongoing and persistent increase in the regulatory cost of market making for banks suggests that the regulators want dramatic changes in the current operation of the U.S. capital market.
Banking for banks suggest that the regulators want dramatic changes the current operation of the U S capital markets, we believe that well regulated market makers that are committed to deploying capital to clients on a principle basis are a critical building block supporting the breadth depth and resilience of the American capital <unk>.
Speaker 4: We believe that well-regulated market makers that are committed to deploying capital declines on a principle basis are a critical building blocks supporting the breadth, depth, and resilience of the American capital markets which is a vital to the U.S. economy.
Which is vital to the U S economy. So caution is warranted when proposing changes of this magnitude.
Speaker 4: The caution is warranted when proposing changes of this magnitude.
Speaker 4: With that, we put our businesses starting with CCB on page 6.
Was that all of our businesses starting with the ECB on page six.
Speaker 4: Consumer spend growth has now reverted to pre-pandemic trends, with nominal spend for customers stable and relatively flat urine here.
Consumer spending has now reverted to pre pandemic trends with nominal spend per customer stable and relatively flat year on year.
Speaker 4: Cash buffers continue to normalize to pre-pandemic levels with lower income groups normalizing
Cashcall hearse continued to normalize to pre pandemic levels with lower income groups normalizing posture.
Speaker 4: Turning now to the financial result, excluding first republic.
Turning now to the financial results, excluding first Republic.
Speaker 4: CCB reported net income of 5.3 billion on revenue of 17 billion, which was up 19% of your hand you're currently
<unk> reported net income of $5 3 billion on revenue of 17 billion, which was up 19% year on year in.
Speaker 4: In banking and wealth management, revenue was up 30% year on year, driven by higher NII on higher rates.
Banking and wealth management revenue was up 30% year on year, driven by higher NII on higher rates.
Speaker 4: and the period deposits were down 3% quarter on quarter. We ranked number one in retail deposit share based on FBSE data and continued to solidify our leadership position in key market.
End of period deposits were down 3% quarter on quarter, we ranked number one in retail deposit share based on FDIC data and continued to solidify our leadership position in key markets.
Speaker 4: Client investment assets were up 21% here on here, driven by market performance and strong net inflows as we continue to capture yield-seeking flows from our consumer banking customers.
Client investment assets were up 21% year on year, driven by market performance strong net inflows as we continue to capture yield seeking close for our consumer banking customers.
Speaker 4: In home lending, revenue was down 2% here on year, given a smaller market. Originations of 10.3 billion were up slightly quarter on quarter, but they remained down 15% here on year.
And home lending revenue was down 2% year on year or given a smaller market originations of 10.3 billion were up slightly quarter on quarter, but they remained down 15% year on year.
Speaker 4: Moving to card services and auto, revenue was up 7% year on year, driven by higher card services and II on higher revolving balances, partially offset by lower auto leases.
Moving to card services and auto revenue was up 7% year on year prevent by higher card services NII on higher revolving balances, partially offset by lower auto leasing call.
Speaker 4: part of standings were up 16% year on year through the strong account acquisition and continued normalization for fall.
Alright, Outstandings were up 16% year on year due to strong account acquisition continued normalization for fall.
Speaker 4: And then auto origination to a 10.2 billion up 36% here on here. As we saw competitors pull back and we gained market share.
And then auto originations were $10 2 billion up 36% year on year as we saw competitors pull back and we gained market share.
Speaker 4: Expenses of 8.5 billion were up 7% here on year, largely driven by continued investments in staffing, primarily in front office and technology.
Expenses of eight and a half billion and were up 7% year on year, largely driven by continued investments in staffing primarily in front office technology.
Speaker 4: In terms of credit performance this quarter, credit costs were 1.4 billion driven by net charge which were up 720 million year on year predominantly due to continued normalization of the car.
Credit performance this quarter credit costs were $1 4 billion driven by net charge offs, which were up $720 million year on year predominantly due to continued normalization card.
Speaker 4: And that reserve build of 49 million reflected a 300 and 1 million build in card services primarily offset by 250 million release and home lending. Next, the CS...
And that reserve build of 49 million reflected a 301 million build in card services, primarily offset by a $250 million release and homeland thing.
That's the CIB on page seven.
Speaker 4: CIV reported net income 3.1 billion on revenue of 11.7 billion.
CIB reported net income of $3 1 billion on revenue of $11 7 billion.
Speaker 4: The best banking revenue of 1.6 billion was down 6% to year on year. IVFs were down 3% year on year and we ranked at number one with a year-to-date wallet share of 8.6%.
Investment banking revenue of $1 6 billion was down 6% year on year.
Fees were down 3% year on year, we ranked number one with a year to date wallet share of eight 6%.
Speaker 4: In advisory fees were down 10%. Underwriting fees were up 8% for dead and down to 6% for act.
And advisory fees were down 10% underwriting fees were up 8% for debt and down 6% for equity.
Speaker 4: Terms of the outlook were encouraged by the level of capital market activity in September , and we have a healthy pipeline going into the fourth quarter. Advisory has also picked up compared to the first half, but year-to-date announced M&A remains down significantly, which will continue to be ahead of us.
Terms of the outlook, we're encouraged by the level of capital markets activity in September and we have a healthy pipeline going into the fourth quarter Advisory has also picked up compared to the first half, but year to date announced M&A remains down significantly which will continue to be a headwind.
Speaker 4: Payment revenue was 2.1 billion up 3% here on here. Excluding equity investments, it was up 12% driven by higher rates, partially offset by lower deposit.
Payments revenue was $2 1 billion up 3% year on year, excluding equity investments it was up 12% driven by higher rates, partially offset by lower deposit balances.
Speaker 4: Moving to markets, total revenue was $6.6 billion down 3% year on year against a very strong third-corner last year.
Moving to markets total revenue was $6 6 billion down 3% year on year against a very strong third quarter last year fixed.
Speaker 4: Fixed income was up 1%, driven by an increase in financing and trading activity and securitized products, as well as improved performance and credit. This was predominantly offset by currencies and emerging markets coming off a very strong quarter last year.
Fixed income was up 1% driven by an increase in financing and trading activity and securitized products as well as improved performance in credit.
Was it predominantly offset by currencies in emerging markets coming off a very strong quarter last year.
Speaker 4: Equity markets was down 10% reflecting lower revenues across products compared to a strong prior year quarter. As activity was challenged by lower volatility.
Equity markets was down 10%, reflecting lower revenues across products compared to a strong prior year quarter as activity was challenged by lower volatility.
Speaker 4: Security Services revenue of 1.2 billion was up 9% here on here, driven by higher rates partially offset by lower deposits.
<unk> services revenue of $1 2 billion was up 9% year on year, driven by higher rates, partially offset by lower deposit balances.
Speaker 4: expenses of 7.4 billion were up 11% here on year predominantly driven by higher legal expense and wage
<unk> seven 4 billion were up 11% year on year, predominantly driven by higher legal expense and wage inflation.
Speaker 4: Credit costs were not benefit of 185 million driven by a net reserve release of 230 million reflecting the impact of net lending activity and net chargeoffs of 45 million.
Credit costs were not benefit of $185 million driven by a net reserve release of $230 million, reflecting the impact of not lending activity and net charge offs of $45 million.
Speaker 4: Moving to the commercial bank on page 8. Commercial banking reported net income of 1.7 billion. Revenue of 3.7 billion was up 20% year on year, with payments revenue of 2 billion up 30% year on year driven by higher rates, and gross investment banking and markets revenue of 821 million was up 8% year on year, reflecting increased and enable.
Moving to the commercial banking on page eight commercial banking reported net income of one 7 billion revenue of $3 7 billion was up 20% year on year with payments revenue of 2 billion up 30% year on year, driven by higher rates and gross investment banking and markets revenue of 800.
$21 million was up 8% year on year, reflecting increased I'm, enabling.
Speaker 4: Spence is a 1.4 billion, 15% here on year, largely driven by an increase in headcounts, including front office and technology investments, as well as higher volume related expanse, including the impact of new client acquisition.
Expenses of $1 4 billion were up 15% year on year, largely driven by an increase in head count, including front office and technology investments as well as higher volume related expenses, including the impact of new client acquisition.
Speaker 4: Havards deposits were down 7% here on year, 5% quarter on quarter, primarily driven by lower non-operating deposits as clients opt for higher yielding alternatives. Loans were up.
Average deposits were down 7% year on year, 5% quarter on quarter, primarily driven by lower non operating deposits as clients opt for higher yielding alternatives.
Loans were up 1% quarter on quarter.
Speaker 4: C&I loans reflect, reflecting continued stabilization in new loan demand and revolver utilization. C&I loans were up 1% reflecting funding of prior year originations and real estate banking, as well as lower pay off.
C&I loans were flat, reflecting continued stabilization in new loan demand revolver utilization.
CRE loans were up 1%, reflecting funding of prior year originations in real estate banking as well as lower payoff activity.
Speaker 4: Finally, credit costs were $64 million, including net charge-offs of $50 million and a net reserve bill of $14 million.
Credit costs were $64 million, including net charge offs of 50 million and a net reserve build of $14 million.
Speaker 4: then to complete our lines of business, AWM on page.
Then to complete our lines of business AWS I'm on page nine.
Speaker 4: I said that wealth management reported net income 1.1 billion with pre-tax margin of 31.
Asset and wealth management reported net income $1 1 billion with pretax margin of 31%.
Speaker 4: Revenue 4.6 billion was relatively flat year on year as higher management fees on strong net inflows and higher average market levels were offset by lower performance fees and lower
Revenue of $4 6 billion was relatively flat year on year as higher management fees on strong net inflows and higher average market levels were offset by lower performance fees lower NII deposits.
Speaker 4: The defenses of 3.1 billion were up 3% year on year, proven by continued growth in our private banking advisor teams and the impact of closing the JPMorgan asset management China and global shares acquisition.
Expenses of $3 1 billion were up 3% year on year, driven by continued growth in our private banking advisor teams and the impact of closing the Jpmorgan asset management, China and global shares acquisitions.
Speaker 4: For the quarter, net long-term inflows were 20 billion, positive across all asset classes led by equities. And in liquidity, we saw net inflow-
For the quarter net long term inflows were 20 billion positive across all asset classes led by equities and then liquidity we saw net inflows of 40 billion.
Speaker 4: A U.M. of 3.2 trillion was up 22% here on year, and client assets of 4.6 trillion were up 21% here on year, driven by continued net inflows higher market.
U N of $3 two trillion was up 22% year on year and client assets of $4 six trillion were up 21% year on year, driven by continued net inflows higher market levels.
Unknown Attendee: The JPMorgan Chase & Co, earnings conference call will begin shortly Good morning ladies and gentlemen, welcome to JP Morgan Chase's third quarter, 2023 earnings This call is being recorded, your line will be muted for the duration of the call, we will now go live to the presentation, please stand by At this time I would like to turn the call over to JP Morgan Chase's Chief Financial Officer, Jeremy Barnum, and their chairman and CEO, Jamie Dimon Mr. Dimon, please go ahead Good morning everybody, before we start the actual call I want to repeat something we just said on the press call So before we get into discussions about third quarter earnings, I just want to say how deeply said that we all are about the recent horrific attacks on Israel and the resulting bloodshed and more Terrorism and hatred of no place in our civilized world and all of our hearts are your JP Morgan Chase, go out to all who are suffering Thanks, Jamie, and of course I very much, I close my sentence Now, let's turn to our third quarter earnings results The presentation is available on our website and please refer to this disclaimer in the back Starting on page 1, the firm reported net income of $13.2 billion EPS of $4.33 on revenue of $40.7 billion and delivered an ROTC of 22 percent These results included $669 million of net investment securities losses in corporate and $665 million of firm wide legal expense On page 2, we have some more detail Similar to last quarter, we have called out the impact of First Republic where relevant For this quarter, First Republic contributed $2.2 billion of revenue, $858 million of expense, and $1.1 billion of net income Now, focusing on the firm wide results excluding First Republic, revenue of $38.5 billion was up $5 billion or 15 percent urine And IIX Markets was up $4.8 billion or 28 percent driven by higher rates and higher revolving bounces and cards personally offset by lower deposit balances And IRX Markets was up $374 million or 4 percent which included lower net investment securities losses than the prior year And Markets revenue was down $190 million or 3 percent urine on here. Expenses of 20.9 billion or up 1.7 billion or 9% you're on here, primarily driven by ongoing growth in front office and technology staffing, as well as wage inflation and higher legal expense.
Speaker 4: And finally, loans were flat-port on quarter, while deposits were down 5% proven by migration to investments partially offset by client inflows. Turning to...
Finally loans were flat quarter on quarter, while deposits were down 5% driven by migration into investments, partially offset by client inflows.
Turning to corporate on page 10.
Speaker 4: Corporate reported net income of 911 million. Revenue was one and a half billion, up 1.8 billion compared to last year. And II was 2 billion, up 1.2 billion year on here due to the impact of higher rates. And NIR was in that loss of 506 million and included in net investment securities losses, I mentioned, upfront.
Corporate reported net income of $911 million revenue was one and a half billion up $1 8 billion compared to last year.
And I was 2 billion up $1 2 billion year on year due to the impact of higher rates and N. I R was a net loss of 506 million and included a net investment securities losses, I mentioned upfront.
Speaker 4: expenses of 456 million or up 151 million year on year. To finish, we have the outlook on
Spencers of $456 million were up $151 million year on year.
To finish we have the outlook on page 11.
We now expect.
Speaker 4: and III and III X markets to be approximately 88.5 billion and 89 billion, respectively, with the increase driven by slower
20th twenty-three NII and NII ex markets to be approximately 88, and a half billion, an 89 billion respectively with the increase driven by slower repriced and previously as you know consistent.
Speaker 4: consistent with what we've been saying throughout the year. But we don't know when it will normalize. We do not consider the level of NII.
Consistent with what we've been saying throughout the year, but we don't know when it will normalize we do not consider this level of NII to be sustainable.
Speaker 4: Our outlook for 2023 adjusted expense is now approximately 84 billion. And as a reminder, this is on an adjusted basis which excludes legal expense. Also, remember this outlook excludes the pending FEC Special Assess.
Our outlook for 2023 adjusted expense is now approximately 84 billion and as a reminder, this is on an adjusted basis, which excludes legal expense also remember this outlook excludes the pending FDIC special assessment.
Speaker 4: And on credit, we now expect the 2023 card net charge offer rate to be approximately two and a half percent, mostly driven by denominator effects due to recent balance.
Non credit now expect the 2023 card net charge off rate to be approximately 2.5%, mostly driven by denominator effects due to a recent balanced growth.
So to wrap up.
Speaker 4: So to wrap up, we're pleased with another quarter of strong operating.
Pleased with another quarter of strong operating results throughout the year, we've been pointing out the various sources of significant uncertainty and all of those including the geopolitical situation economic outlook rate environment deposit reprice and the impact of Basel III and game.
Speaker 4: Throughout the year, we've been pointing out the various sources of significant uncertainty in all of those, including the geopolitical situation, economic outlook, rate environment, deposit reprice, and the impact of the Basel III endgame proposal are as prominent now as they have been in the recent past. But as always, we continue to prepare for a range of scenarios and are focused on being there for our clients and customers when they need us most. And with that, let's open the line for Q&A.
Ours prominent now as they have been in the recent past, but as always we continue to prepare for a range of scenarios and are focused on being there for our clients and customers when they need us most.
With that let's open the line for Q&A.
Thank you please standby.
Our first question comes from John Mcdonald with Autonomous research.
Speaker 2: Our first question comes from John McDonald with Autonomous Research. You may proceed.
You May proceed.
Speaker 5: Hi, good morning. Jeremy's wondering if you could give us a little more color in what you're seeing so far on deposit reprice and migration. What's been better than expected so far on that front? And how do you see higher for longer rates potentially impacting deposit reprice pressure?
Hi, Good morning, Jeremy was wondering if you could give us a little more color on what youre seeing so far on deposit reprice and migration, what's been better than expected so far on that front and how do you see higher for longer rates potentially impacting deposit reprice pressure.
Unknown Attendee: And credit costs were 1.4 billion, predominantly driven by net charge-offs in the card and included a 102 million net reserve release, driven by changes in the central scenario, primarily offset by card-long growth, on to balance you in capital on page 3. We ended the quarter with a C-2-1 ratio of 14.3 percent, up about 50 basis points versus the prior quarter, as the benefit of net income and less capital distributions was partially offset by AOCI.
Speaker 4: Sure. Thanks, John . I think the themes are pretty much the same as we've seen in prior quarters. So, you know, as we talked a little bit about on the press call, we've been
Sure. Thanks, John I think the themes are pretty much the same as we've seen in prior quarters. So you know as we talked a little bit about it on the press call. We've been trying to be a little bit cautious about recognizing that we don't think they're criminals are sustainable and we do think that we'll have to reprice and some pockets to some degree maybe tearing or whatever at some point.
Speaker 4: Trying to be a little bit cautious about recognizing that we don't think the current levels are sustainable and we do think that we'll have to reprice.
Speaker 4: in some pockets to some degree, maybe with hearing or whatever at some point in the future. And of course that hasn't happened yet this year, so that's one factor.
And of course that hasn't happened yet this year. So that's one factor in the meantime, the CD strategy is working well.
Speaker 4: In the meantime, the CD strategy is working well. We're going to continue to get very good feedback from the field and we're capturing money in motion.
Unknown Attendee: We added 2 billion of net share repurchases this quarter, and the pace of buybacks will likely remain modest and light of the Basel III end-game proposal. In line with our capital hierarchy, we will continue to reassess the buyback trajectory as circumstances evolve for opportunities emerge.
Get very good feedback from the field and we're capturing money in motion.
Speaker 4: And so we're seeing, you know, the sort of internal migration and the associated slow increase in deposit rate paid as a result of CD migration, but that's sort of working as we would have hoped. And so everything is kind of playing out according to plan, I would say.
And so we're seeing you know the sort of internal migration associated slow increase in deposit rate paid as a result of C D and migration, but that's sort of working as we would have hoped and so everything is kind of playing out according to plan I would say.
Jeremy Barnum: And on the topic of the Basel III end-game, you'll see that we added a couple of pages on it, so let's cover that now starting on page 4. Given the significance of this proposal for us, the broader industry, as well as households and businesses as end users, we thought it was important to spend time discussing it. And while we know there's interest in having us quantify the expected impact of this proposal in a lot of granular detail, it's important to start by asking why the proposed increase is so large, given the repeated statement over time by policymakers that banks are well capitalized and well positioned to deal with stress.
Speaker 4: In terms of higher for longer, I think it just means that, you know, there will continue to be upward pressure on deposit pricing, both from internal migration and possibly from other effects. And in the end, as we always say, we're going to, you know, price products as a function of the competitive market environment.
In terms of higher for longer I think it just means that you know they will continue to be upward pressure on deposit pricing both from internal migration and possibly some other effects in India and as we always say, we're gonna you know priced products, that's a function of the competitive market environment.
And just as a follow up it seems like you've done some securities repositioning last couple of quarters. How are you positioning the balance sheet in terms of cash in the securities portfolio given your outlook for rates.
Speaker 5: And just as a follow-up, it seems like you've done some securities repositioning the last couple of quarters. How are you positioning the balance sheet in terms of cash and the securities portfolio, given your outlook for rates?
Yeah, I think I would say that you know, while we're not predicting higher race and I'm sure Jamie will have something to say here, we believe in being prepared for it and that's been our position for some time and of course, that's produced good good results and we continue to try to position ourselves. So.
Speaker 4: While we're not predicting higher rates, we believe in being prepared for it, and that's been our position for some time, and of course that's produced good results, and we continue to try to position ourselves so that neither significantly higher rates nor lower rates
Jeremy Barnum: Given that context, the absence of detailed analysis supporting a capital increase of this magnitude is disconcerting, and there's a lot that does not make sense to us. Starting with RWA, we've already said we expect the firms RWA to increase by around 30% or 500 billion, which results in capital requirements increasing by about 25% or 50 billion. One immediate thing to point out is that if 4.5% GSIB, a 500 billion-dollar increase in RWA requires 22.5 billion of additional capital with no change in our systemic risk footprint.
Neither significantly higher rates, nor significantly lower rates present, a particularly large challenge to the company. So it probably at the margin.
Speaker 4: lower rates present a particularly large challenge to the company, so probably at the margin.
Speaker 4: We're still a little bit biased for slightly higher rates, but do keep in mind that
Still a little bit biased for slightly higher rates, but do keep in mind that you know when modeling the duration of the balance sheet higher rates do.
Speaker 4: You know, when modeling the duration of the balance sheet, higher rates do.
Speaker 4: the duration, or rather shorten the duration on the deposit side, so that can be a factor as well.
Tenda duration or rather shorten the duration on the deposit side, so that that can be a factor as well.
Okay. Thanks.
Speaker 2: Thank you. Our next question comes from Stephen Chewback with Wolf Research. You may proceed.
Thank you. Our next question comes from Steven <unk> with Wolfe Research you May proceed.
Jeremy Barnum: We've been on the record for a long time, that GSIB was conceptually flawed and miscalibrated originally. Since implementation, the failure to address economic growth despite the fed themselves acknowledging this problem at the outset has made matters worse. And now all of those problems are being applied to an additional 500 billion of RWA. Our view is that the combined proposals could have adjusted the surcharge levels to keep dollars of capital associated with the GSIB buffer content rather than simply multiplying the RWA increase by the existing surcharge.
Hey, good morning.
Okay.
Speaker 5: Jeremy, I was hoping to just inquire about capital markets outlook. You cited improved activity levels in September , but given persistently higher rates, geopolitical tensions, and just poor performance of recent IPOs, how are you thinking about the outlook over the near to medium term, and how are you thinking about just the timing of an inflection in activity?
Hi, Jeremy I was hoping to just inquire about capital markets outlook, you cited improved activity levels in September , but given persistently higher rates geopolitical tensions and just poor performance of recent Ipos. How are you thinking about the outlook over the near to medium term and how are you thinking about just the eight.
<unk> got an inflection in activity.
Yeah. Good question I mean, as you know obviously, the current levels and investment banking remain quite depressed certainly relative to the elevated levels that we saw.
Speaker 4: Yeah, good question. I mean, as you know, obviously, the current levels in investment banking remain quite depressed, certainly relative to the very elevated levels we saw during the pandemic, but even relative to sort of 2019, which is what you might consider the last normal year. We do eventually think we'll recover to those levels and hopefully recover to above those levels, recognizing that by the time it happens, we'll have had many years of economic growth.
Jeremy Barnum: Another lens on the proposed increases is the losses already capitalized through the stress capital buffer. Although there's limited disclosure from the Fed on this point, we have estimated that we have about 15 billion dollars of operational risk capital embedded in the SCB based on the information the Fed does disclose. Post. Once we capitalize with this new Office Guard of UA, a required capital will go out by around $30 billion without any change to our portfolio.
But even relative to sort of 2019, which is what you might consider the last normal year. We do eventually think will recover to the levels and hopefully recover to above those levels recognizing that by the time. It happens that's many years of economic growth and in the meantime, and you know to be fair, while the current environment is a little bit.
Speaker 4: And, you know, to be fair, while the current environment is a little bit complicated and mixed and there are some headwinds, as you pointed out, things have improved a little bit. And I think I would say our banking team is a little bit more optimistic than they were last quarter. So, it feels to me like a little bit of a slow grind with some positive momentum, but obviously significant uncertainty in the outlook and some, you know, structural headwinds given lower levels of announced M&A and some regulatory headwinds on that side.
Complicate it and mixed and there are some headwinds as you pointed out things have improved a little bit and I think I would say our banking team is a little bit more optimistic than they were last quarter. So it feels to me like a little bit of a slow grind with some positive momentum, but obviously significant uncertainty in the outlook and some you know structural headwinds.
Jeremy Barnum: Now let's turn to page 5, which shows the impact of the actual and proposed capital rules over the last few years. Zooming out from the details of this most recent proposal, this page reminds us of what's happened since 2017. Since then, Facker and the stress capital buffer have been adopted, and our G-SIM search charge will increase to 4.5%. So assuming the Basel III endgame and G-SIM proposals are finalized in their current form, we would see a 45% increase in our capital requirements relative to that 2017 starting point.
Given our lower levels of announced M&A at some regulatory headwinds on that side.
Speaker 5: Thanks for the color. And just for my follow-up on some of the regulatory commentary you provided, certainly a lot of helpful color in the slide, so thank you for that. If the proposal were to go through as written, what proportion of the inflation do you believe can be mitigated over time? And I was also hoping you could provide some context as to the quantum of how you think CECL inclusion could potentially impact the SCB and CCAR.
Thanks for the color I just for my my follow up on some of the regulatory commentary you provided certainly a lot of helpful color in the slides. So thank you for that if the proposal were to go through as rain what proportion of the inflation do you believe can be mitigated over time and was also hoping you could provide some context.
Jeremy Barnum: This illustrates, again, how over-calibrated these proposals are, and it's not done yet. We still expect the Fed to incorporate diesel into C-Car, which will likely increase the SCB. And of course, given the absence of a fix to the G-SIM clause, it continues to present a headwind into the indefinite future. And aside from those dynamics, it remains the long-standing issue of prosych locality in the overall capital framework. We think it's also important to point out that the agencies did actually have a choice here.
The quantum of how you think Cecil inclusion could potentially impact the C b and CCAR.
Speaker 3: Yeah, those are all good questions, Steve. I think it's probably too early to try to provide that level of quantification on either front. If I start with first with the with the puzzle three endgame proposal from our perspective were
Yeah. Those are all good question, Steve I think it's probably too early to try to provide that level of quantification on either fund if I start first with the Basel III proposal from our perspective were.
Speaker 4: know, currently focused on advocating as aggressively as possible for the necessary changes, some of which are what you might call philosophical in nature, some of the things I highlighted in my prepared remarks, but some of them are sort of very technical in nature, including things that we think might actually be mistakes in the proposal.
Currently focused on advocating as aggressively as possible for the necessary changes some of which are what you might call philosophical in nature or something things I highlighted in my prepared remarks, but some of them are very technical in nature, including things that we think might actually be mistakes causal and so you know talking a lot about optimal.
Jeremy Barnum: Well, it may technically be true that the proposal is Basel compliant. Basel compliance does not mandate a 25% increase in capital requirements, implementing the Basel III endgame consistently without the Europeans have by retaining credit risk modeling and also addressing the compounding effects of G-SIM and SCB would have achieved Basel compliance without creating this unnecessary increase in capital requirements. As you would expect, we will continue to engage and forcefully advocate during the comment period and beyond in a great deal of technical detail.
Speaker 4: You know, talking a lot about optimizing away stuff that might change just feels like a bit premature at this point.
Using away stuff that might change just feels like a bit premature at this point I would point out that given how significant operational risk guard up UA is as part of the proposal that is you can think of that sort of as a generic tax across the entire spectrum and is therefore in some sense non optimizer bolt so.
Speaker 3: I would point out that given how significant operational risk RWA is as part of the proposal, that is, you can think of that sort of as a generic tax across the entire spectrum and is therefore, in some sense, non-optimizable.
Speaker 4: We feel that it's important to manage expectations about the level of optimization that's possible once the rule is finalized and hopefully some of these technical items are addressed.
We feel that it's important to manage expectations about the level of optimization. That's possible. Once the rule is finalized hopefully some technical items are addressed also it depends on your definition of optimization, there's what I sometimes.
Jeremy Barnum: For the purposes of this call, we wanted to make the equally important broader points about both the level of capital increase and the flaws in the construct of the framework itself. Since coherent design is critical to the framework's durability over time. The current proposal exacerbates existing features that discourage beneficial scale and diversification. If it goes through as written, there will likely be significant impacts on pricing and availability of credit for businesses and consumers.
Speaker 4: Also, it depends on your definition of optimization. Sometimes, I use the term costless optimization, where it's just technical fixes that don't affect revenue and don't require you to exit business.
Sometimes.
I use the term costless optimization, where its just technical fixes that don't affect revenue and don't require you to exit businesses I think that type of optimization will be harder to find than it has been in the past, but you know as we've pointed out we may simply need to exit things.
Speaker 3: I think that type of optimization will be harder to find than it has been in the past. But, you know, as we pointed out, we may simply need to exit.
Speaker 3: And, you know, that will be because it is better than the alternative, which would be to do activity that's shareholder value destructive, but it won't be costless. You know, a good example of that is the renewable energy tax credit investment business, which as a result of the quadrupling of the risk weight may no longer make sense. Now, that's one that we hope will be changed, but it's tricky because those are very long duration assets. So, between now and the rule is finalized, it raises some questions about whether we want to put that stuff. Thank you.
And you know that will be because it is better than the alternative which would be to do activity that's shareholder value destructive but it won't be costless. You know a good example of that is the renewable energy tax credit assessment business, which as a result of the quadrupling of the risk weight may no longer make sense. So that's one that we hope will be changed but.
Jeremy Barnum: In addition, the ongoing and persistent increase in the regulatory cost of market making for banks suggests that the regulators want dramatic changes in the current operation of the U.S, capital markets. We believe that well-regulated market makers that are committed to deploying capital declines on a principal basis or a critical building block supporting the breadth, depth, and resilience of the American capital markets, which is a vital to the U.S, economy. So caution is warranted when proposing changes of this magnitude.
It's tricky because those are very long duration asset so between now and the rule is finalized it raises some questions about whether we want to put that stuff on the balance sheet.
Speaker 3: So, sorry, a bit of a long answer, but then, yeah, on quantifying CECL and CCAR, I think we better wait for that one because, you know, given the relative lack of transparency that we have into the Fed's exact modeling in terms of which quarter is the peak and so on and so forth, it's a little bit hard to predict what the exact impact of putting CECL and CCAR is going to be. We just know probabilistically that it will, like everything else these days, tend to push capital higher.
Sorry, a bit of a long answer, but then yeah on quantifying seesaw on CCAR I think we better wait for that one because you know given the relative lack of transparency that we have into the fed to exact modeling in terms of which quarter is the peak and so on and so forth, it's a little bit hard to predict what the exact impact of it.
Jeremy Barnum: With that, what are our businesses starting with CCB on page 6? Consumer spend growth has now reverted to pre-pandemic trends, with nominal spend for customers stable and relatively flat urine here. Cash buffers continue to normalize to pre-pandemic levels with lower income groups normalizing costs. Turning now to the financial result, excluding First Republic. CCB reported net income of $5.3 billion on revenue of $17 billion, which was up 19% year on year. In banking and wealth management, revenue was up 30% year on year, driven by higher NII on higher rates.
Putting cecil on CCAR is going to be we just know probabilistic way that it will like everything else. These days tend to push capital higher.
Very helpful color Jeremy Thanks for taking my question.
Speaker 6: Yep.
Yeah.
Speaker 2: Thank you. Our next question comes from Ibrahim Poonawalla with Bank of America. You may proceed.
Thank you. Our next question comes from Ebrahim <unk> with Bank of America. You May proceed.
Hey, good morning.
Speaker 7: Just first question, Jeremy, on credit, I think you mentioned some of the reserves release was tied to the change in the central scenario. Just talk to us, remind us what the central scenario is today, what changed, and then in terms of fundamentally on credit, like where are you seeing softness either on the consumer or the commercial side?
Just first question Jeremy.
Jeremy Barnum: End of period deposits were down 3% quarter on quarter. We ranked number one in retail deposit share based on FBSE data and continued to solidify our leadership position in key markets. Client investment assets were up 21% year on year, driven by market performance and strong net inflows as we continued to capture yield-seeking flows from our consumer banking customers. In home lending, revenue was down 2% year on year, given a smaller market.
I think you mentioned some of.
Adobe believes will stay to the change in the central scenario.
Talk to us remind us what the central scenario is today, what changed and then in terms of fundamentally on credit like where are you seeing softness either on the consumer or the commercial side.
Yes, so on the central scenario you should read the research. That's good gets put out by your competitors are excellent research team.
Speaker 3: Yes, on the central scenario, you should read the research.
Speaker 4: gets put out by our competitors and our excellent research team. Now, but in all seriousness, I think our U.S. economists had their central case outlook to include a very mild recession with.
No, but in all seriousness I think are our U S. Economists had their central case outlook to include a very mild recession with I think two quarters of negative GDP.
Jeremy Barnum: Originations of $10.3 billion were up slightly quarter on quarter, but they remained down 15% year on year. Moving to card services and auto, revenue was up 7% year on year, driven by higher card services on III on higher revolving balances, partially offset by lower auto lease income. Hardout standings were up 16% year on year due to strong account acquisition and continued normalization for both. And an auto, origination toward $10.2 billion up 36% year on year as we saw competitors pull back and we gained market share.
Speaker 4: I think two quarters of negative half a percent of GDP growth in the fourth quarter and first quarter of this year. And that then got revised out early this quarter to now have sort of modest growth, I think around 1% for a few quarters.
GDP growth in the fourth quarter and first quarter of this year and that then got revised out early this quarter to now have sort of modest growth I think around 1% for a few quarters into 20, or so just flowing that through our process, while acknowledging that we are.
Speaker 4: for. So just flowing that through our process while acknowledging that we're still skewed to the downside, we're still reserved to a significantly higher unemployment rate on a weighted average basis than is in the central case outlook, so that number which I've given you is five and a half percent this quarter. So it's really not much more complicated than that, we're just kind of following the process. And I think your other question was where am I seeing softness in credits?
Still skewed to the downside, we're still reserved to a significantly higher unemployment rate on a weighted average basis than there is in the central case outlook. So that number sometimes giving you. This five 5% this quarter. So it's really not much more complicated than that we're just kind of following process.
Jeremy Barnum: Expenses of 8.5 billion were up 7% year on year, largely driven by continued investments in staffing primarily in front office and technology. In terms of credit performance this quarter, credit costs were 1.4 billion driven by net chargeoffs, which were up 720 million year on year, predominantly due to continued normalization in card. And that reserve build of $49 million reflected a $301 million build in card services, primarily offset by $250 million release in home lending.
And I think your other question was software where am I seeing softness in credits.
Speaker 4: And I think the answer to that is actually nowhere, roughly. Or certainly nowhere that's not expected. Meaning we continue to see the normalization story play out in consumer more or less exactly as expected.
And I think the answer to that is actually nowhere roughly or certainly nowhere that's not expected, meaning we continued to see the normalization story play out in consumer more or less exactly as expected and then of course, we are seeing you know a trickle of charge offs coming through.
Speaker 4: And then, of course, we are seeing a trickle of charge-offs coming through the office space. You see that in the charge-off number for the commercial bank, but the numbers are very small and more or less just the realization of the allowance that we've already built.
Jeremy Barnum: Next, the CIB on page 7. CIB reported net income of $3.1 billion on revenue of $11.7 billion. With us in banking revenue, the $1.6 billion was down 6% year on year. IB fees were down 3% year on year and we ranked at number 1 with a year-to-date wallet share of 8.6%. In advisory fees were down 10%. Underwriting fees were up 8% for debt and down 6% for equity. In terms of the outlook, we're encouraged by the level of capital markets activity in September and we have a healthy pipeline going into the fourth quarter.
The office space, you see that in the charge off number for commercial bank, but the numbers are very small and more or less just the realization of the allowance that we've already built there.
That's helpful and then just going back to the details.
Speaker 7: That's helpful and just going back to the details you let laid out on Basel and came maybe on the philosophical side. I think Jamie was speaking last month said.
Lead out in Basel, and then Jim maybe on the philosophical side I think generally speaking last months. It doesn't mean, we don't expect any changes, but at the same time you make everything that makes sense in terms of the pushback is it all falling on deaf ears.
Speaker 7: doesn't like we don't expect any changes, but at the same time you make everything that makes sense in terms of the pushback. Is it all falling on deaf ears from a shareholder perspective? Are we resigned to the fact that?
The perspective of <unk>.
The fact that.
Speaker 7: We are going to see more towards the worst case outcome play out or Is there some level of sort of meeting as middle of the road as the thing gets finally?
We are going to be more towards the worst case outcome play out or.
Jeremy Barnum: Advisory has also picked up compared to the first half, but year-to-date announced M&A remains down significantly, which will continue to be a headwind. Payment revenue was 2.1 billion up 3% year on year. Excluding equity investments, it was up 12% driven by higher rates, partially offset by lower deposit balances. Moving to markets, total revenue was 6.6 billion down 3% year on year against a very strong third quarter last year. Fixed income was up 1%, driven by an increase in financing and trading activity and securitized products, as well as improved performance and credit.
It did some level off at a meeting in the middle of the road of the thing gets finally.
Speaker 4: Yeah, so I'll let Jamie speak for himself on that point, but our job is to advocate. We're not going to guess what the sentiment is in Washington. It's a thousand page rule proposal, as you know. We've got a big team of very smart people studying it very closely.
Yeah, So I'll, let Jamie speak for himself on that point, but our job is to advocate, we're not going to guess what the sentiment is in Washington, It's a thigh.
Page rule proposal as you know we've got a big team of very smart people studying it very closely you know interestingly. We noted recently that in some of the analysis that they did about the impact on Monday, and they sort of forgot about like a $1 billion at the fed and their preamble they forgot about it bill.
Speaker 4: You know, interestingly, we noted recently that in some of the analysis that they did about the impact on lending, they sort of forgot about like a billion dollars of the Fed and their preamble, they forgot about a billion dollars of operational risk or a few a. So it just highlights that there is a possibility or seem to have forgotten. They simply omitted the impact of the operational risk or a few a on P.
<unk> dollars of operational risks so it just highlights that there is a possibility.
Jeremy Barnum: This was predominantly offset by currencies in emerging markets coming off a very strong quarter last year. Equity Markets was down 10%, reflecting lower revenues across products compared to a strong prior year quarter, as activity was challenged by lower volatility. Security services revenue of 1.2 billion was up 9% here on here, driven by higher rates partially offset by lower deposit balances. Expenses of 7.4 billion were up 11% here on year, predominantly driven by higher legal expense and wage inflation. Credit costs were not benefit of 185 million, driven by a net reserve release of 230 million, reflecting the impact of net lending activity and net chargeoffs of 45 million.
There seem to have forgotten they simply omitted the the impact of the operational risks.
Speaker 4: So, anyway, the point is, it's following its complicated its technical, we do think there are probably some technical mistakes in there, we're not forcefully advocate on all of those. And, you know, while we disagree with a lot of this stuff, these are technical issues that should be...
So anyway. The point is its long it's complicated it's technical we do think there are probably some tactical mistakes and there wasn't enough forcefully advocate on all of those and you know.
While we disagree with a lot of this stuff. These are technical issues that should be some sense resolved technically and you know hopefully they'll listen.
Speaker 4: sometimes resolved technically and hopefully they'll listen.
Speaker 8: But, but thank you. Sorry, I'm just getting a correction in the wrong. I meant to say trillion. I know, yeah, no, I got that. I got that $15. Yep. Thank you. We're talking about it. And so that gave me up for something out on it. Pig?
Got it thank you.
Sorry, I'm, just getting a correction I meant to say trillium, yes.
No I got that.
Yep.
What are we talking about here.
And so that.
Jeremy Barnum: Moving to the commercial bank on page 8, commercial banking reported net income of 1.7 billion. Revenue of 3.7 billion was up 20% here on year, with payments revenue of 2 billion up 30% here on year driven by higher rates, and gross investment. Revenue of 821 million was up 8% here on year, reflecting increased and enabling. Expenses of 1.4 billion were up 15% here on year, largely driven by increase in headcounts, including front office and technology investments, as well as higher volume related expense, including the impact of new client acquisition.
But just thinking of it.
Yep. Thank you.
Yeah.
Speaker 2: Thank you. Our next question comes from Ryan Kenny with Morgan Stanley . You may proceed.
Thank you. Our next question comes from Ryan <unk> with Morgan Stanley You May proceed.
Hey, good morning.
Okay.
Wanted to dig in on the NII side, So you're right that's funny twenty-three NII Mark its guidance by 2 billion for this year.
Speaker 1: Wanted to get on the NII side. So you raised this 2023 NII X-Markets guidance by two billion for this year. So I know your comments in the press release suggest JP Morgan's over earning. So I just want to triangulate there, but does normalized NII look like and do we get to normalize next year or later on?
I know and I know your comments in the press release suggests J P. Morgan's over earning so I just wanted to triangulate there, but has normalized and I look like and do we get to normalize next year or later on.
Speaker 4: Yeah, a couple of things. So, let me do the timing question first. So, we're being very clear that we are not predicting when, you know, when it's going to be a function of the marketplace and the rate environment and competitive dynamics and so on and so forth. So, we're just really just trying to remind everyone not bank on the current run rates.
Yeah, a couple of things. So let me do the timing question first so we're being very clear that we are not predicting one.
Jeremy Barnum: Habers deposits were down 7% here on year, 5% quarter on quarter, primarily driven by lower non-operating deposits, as clients opt for higher yielding alternatives. Loans were up 1% quarter on quarter. CNI loans were flat, reflecting continued stabilization in new loan demand and revolver utilization, and CRI loans were up 1%, reflecting funding of prior year originations and real estate banking, as well as lower payoff activity. Finally, credit costs were 64 million, including net charge offs of 50 million, and a net reserve bill of 14 million.
You know why it is going to be a function of the marketplace and the rate environment and competitive dynamics and so on and so forth. So we're just really just trying to remind everyone not bank on that front.
They just don't fundamentally think are sustainable you'll be aware of that.
Speaker 4: You'll be aware that before investor day last earlier this year.
You know before Investor day last earlier this year, we tried to quantify what we thought that kind of normalized range might look like and we put us sort of mid seventies type number out there.
Speaker 4: We tried to quantify what we thought that kind of normalized range might look like and we put a sort of mid-70s type number out there. And at investor day, we talked about how the acquisition of first-re public was going to push that number up a little bit.
And at Investor Day, we talked about how the acquisition of first Republic was going to push that number up a little bit.
Jeremy Barnum: Then, to complete our lines of business, AWM on page 9. I said that wealth management reported net income of 1.1 billion, with pre-tax margin of 31%. Revenue of 4.6 billion was relatively flat year on year, as higher management fees on strong net inflows and higher average market levels were offset by lower performance fees and lower NII from deposits. Expenses of 3.1 billion were up 3% year on year, driven by continued growth in our private banking advisor teams and the impact of closing the JP Morgan asset management China and global shares acquisitions.
Speaker 4: although there was some overlap and so on and so forth. So anyway, with the benefit of time and having everything settled in a little bit, if you sort of push us for that, what is that number now look like? We think it's probably closer to about 80 with all the obvious caveat that this is a gas and we don't know when, but we're just trying to point out that it's quite a bit lower.
Although there was some overlap and so on and so forth so anyway, but the benefit of time in and you know having everything settled in a little bit if you sort of push us for that kind of what is that number now look like we think it's probably closer to about 80 with all of the obvious caveat that this is a gas I don't know why.
But we're just trying to point out that it was quite a bit lower than the current run rate.
Speaker 4: and Company some people think it will happen sooner. I mean Some people think over half a later. I gen and Mary and a jamb
Got it.
Inside the company some people could go happened sooner I E me.
Some people think it would have happened later I E. Gen and Marianne to Germany that was nowhere there I was in that kind of all that but I don't know I don't I'm not sure I have an opinion.
Jeremy Barnum: For the quarter, net long-term inflows were 20 billion, positive across all asset classes led by equities, and in liquidity, we saw net inflows 40 billion. AUM of 3.2 trillion was up 22% year on year, and client assets of 4.6 trillion were up 21% year on year, driven by continued net inflows and higher market levels. And finally, loans were flat quarter on quarter, while deposits were down 5%, driven by migration to investments partially offset by client inflows.
[laughter].
Speaker 1: And then on the lone growth side, industry lone growth has slowed significantly this year. What demand are you seeing for lone growth across the different categories? And I know it might be too early to talk about next year, but directionally, as we think about where we're in growth given, where we are in the cycle, and the higher capital.
And then on the loan growth side.
Industry loan growth has slowed significantly this year, but demand are you seeing for loan growth across the different categories and I know it might be too early to talk about next year, but directionally, how should we think about where AUM growth given where we are in the cycle and the higher capital requirements coming.
Speaker 4: Yeah, sure. So on loan growth, the story is pretty consistent with what we've been saying all year. So we've first seen very robust loan growth in card. And that's coming from both spending growth and the normalization revolving balances. As we look forward, we're still optimistic about that, but it'll probably be a little bit more muted than it has been during this normalization.
Yeah sure. So on loan growth. The story is pretty consistent with what we've been saying all year. So we've seen very robust loan growth in card.
And that's coming from.
Jeremy Barnum: Turning to corporate on page 10. Corporate reported net income of 911 million, revenue was 1.5 billion, up 1.8 billion compared to last year, NII was 2 billion, up 1.2 billion year on year due to the impact of higher rates. And NIR was in net loss of 506 million, and included in net investment securities losses, I mentioned, up front.
You know both spur.
Spending growth and the normalization, we're holding balances as we look forward, we're still optimistic about that but it'll probably be a little bit more muted than it has been growing.
Sure Ed.
Speaker 4: In auto, we've also seen pretty robust long growth recently, both as a function of slightly more competitive pricing on our side, as the industry was a little bit slow to raise rates, and so we lost some share previously, and that's come back now. And generally, the supply chain situation is better, so that's been supported. As we look forward there, it should be a little bit more.
In auto we are also seeing pretty robust loan growth recently, both as a function of sort of a slightly more competitive pricing on our side as the industry was a little bit slow.
Jeremy Barnum: Expenses of 456 million or up 151 million year-on-year To finish, we have the outlook on page 11. We now expect 2023 NII and NII X markets to be approximately 88 and a half billion and 89 billion respectively, with the increase driven by slower reprise than previously assumed. Consistent with what we've been saying throughout the year, but we don't know when it will normalize, we do not consider this level of NII to be sustainable.
Raise rates until we lost some share previously and that's come back now and you know generally the supply chain situation is better. So that's been supported as we look forward there should be a little bit more muted.
Speaker 4: And I think generally in wholesale, you know, the loan growth story is going to be driven just by the economic environment. So depending on what you believe about soft lending, mild recession, no lending, you have slightly lower or slightly higher loan growth, but in any case, I would expect it to be relatively muted. And of course, home lending.
I think generally in wholesale you know with the loan growth story is going to be driven just by the economic environment. So depending on what you believe about soft landing mild recession, no lending you have slightly lower or slightly higher loan growth, but in any case I would expect it to be relatively muted and of course.
Jeremy Barnum: Our outlook for 2023 adjusted expense is now approximately 84 billion and as a reminder, this is on an adjusted basis which excludes legal expense. Also, remember this outlook excludes the pending FEC special assessment. Noncredit, we now expect the 2023 card net charge of rate to be approximately two and a half percent, mostly driven by denominator effects due to recent balance growth. So to wrap up, we're pleased with another quarter of strong operating results.
Hum lending.
Speaker 3: remains, you know, fairly constrained both by rates and market conditions.
<unk>, you know fairly constrained both by rates and market conditions, but also and I think this is true across the board you know we will be.
Speaker 4: But also and I think this is true across the board, you know, we will be.
Speaker 4: managing things actively, as you mentioned, which may not change origination, but it will change what we retain.
Managing things actively as you mentioned, but also three which may not change originations, but it won't change what we retained.
Okay.
Speaker 2: Thank you. Our next question comes from Gerard Cassidy with RBC. You may proceed.
Thank you. Our next question comes from Gerard Cassidy with RBC you May proceed good morning.
Jeremy Barnum: Throughout the year, we've been pointing out the various sources of significant uncertainty in all of those including the geopolitical situation, economic outlook, rate environment, deposit reprise and the impact of the Basel III endgame proposal are as prominent now as they have been in the recent past. But as always, we continue to prepare for a range of scenarios and are focused on being there for our clients and customers when they need us most.
Speaker 9: Good morning, Jeremy. How are you? Hey, Gerard. Um, Jeremy, you guys have put up a really strong ROTC number of 22% for the quarter.
Jeremy how are you.
Hey, Gerard.
Jeremy you guys have put up a really strong R. O T C number of 22% for the quarter.
Speaker 9: And when you dive into your different segments, what really jumps out at us is the 40 percent X First Republic ROE in consumer and community banking. I know you and Jamie have talked about your over-earning on credit. We get that. But in view of all of these fintechs and all these other non-bank competitors that we're all supposed to pick away at everybody's market share, you guys have put up great numbers here. What's the drivers behind an ROE? Even when you take that credit over-earning out, what's driving this business profitability at such high levels?
And when you dive into your different segments, what really jumps out at US is the 40% ex first Republic, Aro E and consumer and community banking I know you and Jamie has talked about you're over earning on credit we get that in.
Unknown Attendee: And with that, let's open the line for Q&A. Thank you, please stand by.
In view of all of these Fintech and all these other non bank competitors that we're all supposed to pick away at everybody's market share you guys have put up great numbers here, what's the drivers behind that or are we even when you take that credit over earning out what's driving this business profitability is such a high levels.
Speaker 3: Yeah, George, I'd say a couple of things there. So first, it's not just credit, it's also deposit margin, right? So when we talk about over-earning on NII, a disproportionate amount of that is coming out of the consumer franchise for all the reasons that we've
John Mcdonald: Our first question comes from John McDonald with autonomous research. You may proceed.
Yeah, Gerard I'd say a couple of things there. So first it's not just credit it's also deposit margin.
Jeremy Barnum: Hi, good morning. Jeremy's wondering if you could give us a little more color in what you're seeing so far on deposit reprise and migration. What's been better than expected so far on that front? And how do you see higher for longer rates potentially impacting deposit reprise pressure? Sure. Thanks, John. I think the themes are pretty much the same as we've seen in fire quarters. As we talked a little bit about on the press call, we've been trying to be a little bit cautious about recognizing that we don't think the crumbles are sustainable and we do think that we'll have to reprise in some pockets to some degree, maybe appearing or whatever at some point in the future.
Talk about over earning on NII, a disproportionate amount of that is coming out of the consumer franchise for all the reasons that we've talked about but I would also point out you know, sometimes we don't like the word over earning because you know right now customers are happy and they're doing C. DS and the broader answer to your question about why we're able to compete.
Speaker 4: But I would also point out, you know, sometimes we don't like the word over-earning because, you know, right now customers are happy and they're doing CDs and the broader answer to your question about why we're able...
Speaker 4: effectively really comes back to, you know, a decade, two decade long history of investing for the future and recognizing that there's a holistic value proposition here that includes branches and, you know, the app and all the online services and the entire suite of products and services that is around
Actively really comes back to you know a decade, two decade long history of investing for the future and recognizing that theres a holistic value proposition here is good.
Branches and you know the up and all the online services and the entire suite of products and services that is around the central prize, which drives engagement and customer loyalty and yeah. We're seeing some of the benefits of that and now although we're not complacent.
Jeremy Barnum: Of course, that hasn't happened yet this year, so that's one factor. In the meantime, the CD strategy is working well. We're going to continue to get very good feedback from the field and we're capturing money in motion. And so we're seeing the internal migration and associated slow increase in deposit rate as a result of CD migration, but that's sort of working as we would have hoped and so everything is kind of playing out according to plan, I would say.
Speaker 4: The center prize which drives engagement and customer loyalty and we're seeing some of the benefits of that now although we're not complacent. The competition is still there, the fintechs are still there and we know we need to continue investing to preserve the value and it's also true that the particular circumstances of the current rate and credit environment mean that the earnings are a little bit above normal but that core franchise is extremely robust.
Competition is still there the fin techs are still there and you know we know we need to continue investing to preserve the value and it's also true that the particular circumstances of the current rate environment means that the earnings are a little bit above normal, but that core franchise is extremely robust.
Jeremy Barnum: In terms of higher for longer, I think it just means that there will continue to be upward pressure on deposit pricing both from internal migration and possibly from other facts. And in the end, as we always say, we're going to price products as a function of the competitive market environment.
Speaker 9: Very good. And then as a follow up which ties into your answer on the deposit margin and consumer and your earlier comments you and Jimmy about the internal debate inside JPMorgan about the migration of rates going higher on the funding side. You're not just bearing deposits. I think are around 28% of total deposits, which is slightly above the 26% you guys had back in 2018 or 90 or pre pandemic. Is this expectation that you're going to see more of the non interest bearing deposits going to interest bearing or is it just the repricing of interest bearing deposits that have had some of your folks inside JPMorgan a little more cautious on that net interest income number.
Very good and then as a follow up which ties into your answer on the deposit margin in consumer in your earlier comments, you and Jimmy about the internal debate inside JP Morgan about the migration of rates going higher on the funding side your noninterest bearing deposits I think around 28% of total deposits, which is slightly.
Jeremy Barnum: It's just as a follow-up. It seems like you've done some securities repositioning the last couple of quarters. How are you positioning the balance sheet in terms of cash and the securities portfolio given your outlook for rates? Yeah, I think I would say that, you know, while we're not predicting higher rates, I'm sure Jamie will have something to say here. We believe in being prepared for it. And that's been our position for some time.
[noise] above the 26% you guys had back in 2018 or 19 of pre pandemic.
Is this expectation that youre going to see more of the noninterest bearing deposits go into interest bearing or is it just the repricing of interest bearing deposits that have had some of your folks inside JP Morgan a little more cautious on that net interest income number.
Speaker 4: That's a good question, Gerard. I think it's a little bit bigger picture than that, and I'm not sure. I get your question, it's a good question, but I'm not sure that the recorded in just very non-interesting split is the best lens to look at this through for a couple of reasons. So first.
Yeah. It's a good question Gerard I think it's a little bit bigger picture than that and I'm not sure I got your question. It's a good question, but I'm not sure that the reported interest bearing noninterest bearing split as the best ones to look at their school for a couple of reasons. So first like between wholesale and retail you know we've got some amount of noninterest bearing and wholesale that's part of it.
Jeremy Barnum: And of course, that's produced good, good results. And we continue to try to position ourselves. So it neither significantly higher rates nor significantly lower rates present a particularly large challenge to the company. So probably at the margin, we're still a little bit biased for slightly higher rates, but do keep in mind that, you know, when modeling the duration of the balance sheet, higher rates do extend the duration or rather short in the duration of the positive side. So that can be a factor as well. Okay, thanks.
Unknown Attendee: Thank you.
Speaker 4: Like between wholesale and retail, we've got some amount of non-interest bearing and wholesale that's part of the UCR product and so you see some dynamics there that play out.
See our product until you see some dynamics there that play out and in consumer you know in a world where savings.
Speaker 4: And in consumer, you know, in a world where savings, you know, is paying a relatively low rate paid across checking and savings, the migration dynamics are probably not that different right now. But then of course, even within consumer across both...
Paying a relatively low rate pay to cross checking and savings that migration dynamics are probably not that different right now, but then of course, even within consumer across both <unk>.
Stephen Chewback: Our next question comes from Stephen Chewback with Wolfe Research. You may proceed. Good morning.
Speaker 4: Consumers and small businesses you've got slightly different dynamics in terms of how people manage their operating balances So I would tend to zoom out a little bit and see this as a holistic answer that's driven by internal migration
Consumers and small business as you've got slightly different dynamics in terms of how people.
Our operating balances so I would tend to zoom out a little bit and see this as a holistic answer that's driven by internal migration from checking things just C. D is from ECR to interest bearing in wholesale and then you know our potential response to the rate environment.
Jeremy Barnum: Jeremy, I was hoping to just inquire about capital markets outlook. I did improve the activity levels in September, but given persistently higher rates, geopolitical tensions and just poor performance of recent IPOs. How are you thinking about the outlook over the near to medium term? And how are you thinking about just the timing of an inflection activity? Yeah, good question. I mean, as you know, obviously, the current levels in investment banking remain quite depressed, certainly relative to the very elevated levels of the soldering pandemic, but even relative to sort of 2019, which is what you might consider the last normal year.
Speaker 4: from check-in recordings to CDs, from ECR to Interest Baring and wholesale. And then, you know, our...
Speaker 4: The potential responds to the rate environment, the competitive environment, the overall level of system by deposits.
The competitive environment, the overall level of system wide deposits.
Speaker 3: in terms of product level reprise that may or may not happen at the moment in the future.
It was a product level reprice that may or may not happen in.
Jeremy Barnum: We do eventually think we'll recover to the levels and hopefully recover to above those levels, recognizing by the time it happens, you know, if that's many years of economic growth in the meantime. And, you know, to be fair, while the current environment is a little bit complicated and mixed and there are some headwinds as you pointed out, things have improved a little bit and I think I would say our banking game is a little bit more optimistic than they were last quarter.
In the future.
Great. Thank you.
Speaker 2: Thank you. Our next question comes from Erica Najirim with UBS. You may proceed.
Thank you. Our next question comes from Erika Najarian with UBS you May proceed.
Hi, good morning.
Speaker 10: Jeremy, my first question is for you. Again, sort of maybe re-asking the question a different way, your new guide for net interest income for this year would imply an exit run rate of $2.5 billion.
Gary My first question is for you again sort of maybe re asking the question a different way.
Our new guidance for net interest income for this year would imply an exit run rate of $22 9 billion in the fourth quarter as we think about the dynamics and higher for longer.
Speaker 10: 22.9 billion in the fourth quarter. You know, as we think about the dynamics and higher for longer, you know, on one hand, your fixed rate assets will continue to reprise. You know, on the other, you know, you've been asked a lot about the deposit dynamics that can continue to creep higher. How do you think about those puts and takes as we think about that, you know, relative to that exit rate of 22.9 billion in the fourth quarter?
One hand, your fixed rate assets will continue to reprice.
Jeremy Barnum: So it feels to me like a little bit of a slow grind with some positive momentum, but obviously significant uncertainty in the outlook and some, you know, structural headwinds given lower levels of announce M&A and some regulatory headwinds on that side.
The other you know you've been asked a lot about the deposit dynamics that could continue to creep higher how do we think about those puts and takes.
As we think about that.
Relative to that exit rate of $22 9 billion in the fourth quarter.
Jeremy Barnum: Thanks for the color. I just for my follow up on some of the regulatory commentary you provided. Certainly a lot of helpful color in this slide, so thank you for that. If the proposal were to go through is written, what proportion of the inflation do you believe can be mitigated over time and was also hoping you could provide some contacts that's to the quantum of how you see so inclusion could potentially impact the SCBNC car.
Speaker 3: Yeah, so I think the simple answer to your question is, you know, those, I believe that fourth quarter exit number equates to a $90 billion run rate X market.
Yeah. So Erika I think the simple answer to your question as you know those I believe that fourth quarter exit number equates to a $90 billion run rate ex markets and we're kind of saying that we sort of have yeah. There's numbers I meant to say she said to wait 290, I didn't hear that okay.
Speaker 4: And we're kind of saying that we have. Yeah, there's numbers I meant to say. She said, she said,
Speaker 4: Oh, I didn't hear that. Okay. Anyway, model it. So call it 90 billion run rate on an exit rate basis. And we're saying that we think, you know, something a bit more normal is closer to 80. So that's one building block. Underneath that, I think one thing that's interesting actually is that as the percentage of the deposits which are CDs increases.
[laughter] so call it call. It 90 billion run rate I'm on an exit rate basis, and we're saying that we think you know something a bit more normal was closer to 80. So that's one building block underneath that I think one thing that's interesting actually is that as the percentage of the deposits which are C. DS.
Jeremy Barnum: Yeah, those are all good questions, Steve. I think it's probably too early to try to provide that level of anticipation on either funds. If I start first with the bus and three end game proposal, from our perspective were, you know, currently focused on advocating as aggressively as possible for the necessary changes, some of which are what you might call philosophical nature or some things I highlighted in my prepared remarks, but some of the marks are of very technical nature, including things that we think might actually be mistakes in the proposal.
Creases sort of balanced between internal migration and betas and rate volume, it's a little bit less of a binary in a little bit smoother. So you know when we look at this type of stuff and we model migration balances product level reprice.
Speaker 3: The sort of balance between internal migration and betas and rate and volume gets a little bit less binary and a little bit smoother. So, you know, when we look at this type of stuff and we model migration, balances, product level reprise, you know, as you get out of that, or zero bound with zero percent C.D. mix world, things get a little bit smoother, I would say overall. So it'll be interesting to watch that, but it's obviously one of the most important things for us as a company right now.
As you get out of that four zero bound with zero percent EMACS world things get a little bit smoother I would say overall, so it'll be interesting to watch that but now it's obviously one of the most important things for us as a company right now.
Jeremy Barnum: And so, you know, talking a lot about optimizing away stuff that might change just feels like a bit premature at this point. I would point out that given how significant operational risk RWA is as part of the proposal, that is, you can think of that sort of as a generic tax across the entire spectrum and it's therefore in some sense non-optimizable. So we feel that it's important to manage expectations about the level of optimization that's possible once the rule is finalized and hopefully some technical items are addressed.
Speaker 4: And we do everything we can to manage it, but it's also worth remembering the big picture point.
And we do everything we can to manage it but it's also worth remembering that the big picture point is just the client franchise and as we've often said, we're very focused on primary bank relationships and we didn't lose any of those in the last cycle. We're not playing any in this cycle and that's what sort of a long term focus for us and I would just say quantitative.
Speaker 4: is just a client franchise and as we've often said, we're very focused on primary bank relationships and we didn't lose any of those in the last cycle, we're not playing for lose any in this cycle and that's what sort of a long-term focus means for us. And I would just say quantitative, take it out there.
Are you there.
Speaker 9: That will be a large number and we don't exactly know the effect. We're a host-hale consumer, also the Fed of the RIP program, which is also sucking money into the Fed directly, reducing deposits, especially in too.
That that would be a large number and we don't exactly know the effect, where you have wholesale consumer.
Jeremy Barnum: Also, it depends on your definition of optimization. Sometimes, you know, I use the term costless optimization, whereas this technical fixes that don't affect revenue and don't require you to exit businesses. I think that type of optimization will be harder to find than it has been in the past, but, you know, as we point it out, we may simply need to exit, of Things. And, you know, that will be because it is better than the alternative, which would be to do activity that's shareholder value destructive, but it won't be costless.
As you know remember also that fed is the RP program, which is also sucking money into fed directly.
Reducing deposit that's still a trillium too.
Thank you and my second question is on.
Speaker 10: Thank you. And my second question is, maybe zooming out on the Bosel 3N game impacts, it's clearly complex, overly complex. And I completely agree with you that it is unnecessary at this point and very backwards looking. I guess what is not complex?
Maybe zooming out on the Basel III endgame impact no. It's clearly complex overly complex and I completely agree with you that it is unnecessary at this point and very backward looking I guess what is not complex is the fact that you generated 75 basis points of CET one.
Jeremy Barnum: You know, a good example of that is the renewal of energy tax credit investment business, which as a result of the quadrupling of the risk weight may no longer make sense. Now, that's one that we hope will be changed, but it's tricky because those are very long duration assets, so between now and the rules finalize or basis some questions about whether we want to put that stuff on the balance sheet. So, sorry, a bit of a long answer, but then yeah, on quantifying Cecil and C. Carr, I think we better wait for that one because, you know, given the relative lack of transparency that we have into the Fed's exact modeling in terms of which quarter is the peak and so on and so forth, it's a little bit hard to predict what the exact impact of putting Cecil and C. Carr is going to be. We just know, probabilistically, that it will link everything up these days and to push capital higher.
Speaker 10: The fact that you generated 75 basis points of CE-T1 this quarter, while your RWAs are down.
This quarter, while you're arguably.
Speaker 10: And I guess my question here is, is that I understand that we're in the public advocacy process. I hear you loud and clear in terms of how this could have.
And I guess my question here is is that I understand that we are in the public advocacy process I hear you loud and clear in terms of how this could have.
Speaker 10: harm in terms of pricing for Main Street and, you know, dislocating the pipes in American capital markets, but for JP Morgan.
In terms of pricing for main street and you know.
Dislocating the pipe in American capital markets, that's for J P. Morgan.
Speaker 10: You know, this change your natural recurrence.
Does this change your natural recovery.
Speaker 10: profile of 17%. Jamie, I know you linger a little bit on 14 when you were at Barclays in September , but you know, at the end of the day, it feels like
File of 17%, Jamie I know you lingered a little bit on 14, when you were at Barclays in September but you know.
At the end of the day it feels like.
Speaker 10: for the portfolio manager that own JP Morgan through the cycle, this boggle-free endgame really harm your natural earnings power and return.
You know for you or.
<unk> for the portfolio managers that you now own JP Morgan through the cycle, It's Basel III and game really harm your natural earnings power and returns.
Unknown Attendee: Very helpful, Collar, Jeremy. Thanks for taking my question. Yep. Thank you.
Ebrahim Poonawala: Our next question comes from Ibrahim Punowala with Think of America. You may proceed. Good morning. Just first question, Jeremy, on credit, I think you mentioned some of the reserves released to the change in the central scenario. Just talk to us, remind us what the central scenario is today, what changed, and then in terms of fundamentally on credit, like where are you seeing softness, either on the consumer or the commercial side? Yeah, on the central scenario, you should read the research that gets put out by your competitors and our excellent research team.
Speaker 4: Yeah. Okay, that's a good question, Erica. I think there's a couple of pieces in there. So let me take those important piece first, which is 17% through the cycle target. Are we keeping that or not in light of the puzzle being?
Okay. That's a good question Erika I think there's a couple of pieces in there. So let me take those important piece first which is 17% through the cycle target are we keeping that or not in light of the Basel proposal.
Speaker 4: So, short answer is we're not going to change that number today. But...
So short answer is we're not going to change that number today, but.
Speaker 4: When you look at what we've disclosed, about a 25% increase in capital, it's not, you have to start by acknowledging that that is a major headwind of return.
When you look at what we've disclosed about a 25% an increase in capital. It's not you have to start by acknowledging that that is a major headwind to returns.
Speaker 4: In simple terms, you talk about earnings power and returns, but there are two different things. We have to be a little bit pedantic and do nominator and denominator here.
In simple terms, you know you're talking about earnings power on returns, but they're two different things right, we have to be a little bit pedantic and do numerator and denominator here.
Ebrahim Poonawala: Now, but in all seriousness, I think our US economists had their central case outlook to include a very mild procession with, I think, two quarters of negative half a percent of GDP growth in the fourth quarter and first quarter of this year. And that then got revised out early this quarter to now have sort of modest growth. I think around one percent for a few quarters into 24. So just flowing that through our process while acknowledging that we're still skewed to the downside, we're still reserved to a significantly higher unemployment rate on a weighted average basis than as in the central case outlook.
Speaker 4: Okay, so say the numerator doesn't change. If you just dilute down the numerator by the increased capital, that's a significantly lower return number.
Okay. So let's say the numerator it doesn't change if you're just dilute down the numerator by the increased capital that's a significantly lower return number I would say that that's probably the lower bound in terms of the of the of the impact of the Basel III game for a couple of reasons. One is we are hoping for changes.
Speaker 3: I would say that that's probably the lower bound in terms of the impact of the puzzle 3N game. For a couple reasons, one is we are hoping for changes. Two is once the rule is final, we will seek to reprice in the places where we can. And that will be different in consumer and wholesale, some of it will be product level, some of it will be relationship level.
Two is once the rule is final we will seek to reprice in the places, where we can and that'll be different in consumer and wholesale some of it will be product level. Some of it will be a relationship level, but you know that hopefully can mitigate some of it but of course, the flipside of that is not cost getting passed into the real.
Speaker 3: But that hopefully mitigates some of it. But of course, the flip side of that is that's cost getting passed into the real economy and that's part of the point that we've made about lowering availability of products and services and lending.
Ebrahim Poonawala: So that number of times given you is five and a half percent this quarter. So it's really not much more complicated than that. We're just kind of following the process. And I think your other question was where am I seeing softness in credit? And I think the answer that is actually nowhere, roughly, or certainly nowhere that's not expected, meaning we continue to see the normalization story play out in consumer more or less exactly as expected.
Economy, and that's part of the point that we've made about lowering availability of products and services in London.
Speaker 4: There may be some opportunities for costless optimization. I'm personally a little bit more pessimistic about those, but we surprise ourselves on those points in the past, so we'll see. And then finally, yeah, we may solve doing certain things, and we may exit things.
There may be some opportunities for costless optimization, I'm personally a little bit more pessimistic about those but we surprised ourselves on those points in the past. So we will see and then finally, yeah. We may stop doing certain things and we may exit things.
Ebrahim Poonawala: And then, of course, we are seeing a trickle of charge-offs coming through the office space. You see that in the charge-off number of commercial banks, but the numbers are very small and more or less just the realization of the allowance that we've already built there.
Speaker 4: But I wouldn't necessarily assume that that's going to do a lot to preserve return to the 17%. That's going to be about exiting things that are, you know, shareholder destructive.
But I wouldn't necessarily assume that that's going to do a lot to preserve returned at the 17% that's gonna be about exiting things that are you know shareholder destructive.
Speaker 4: but not necessarily, you know, producing much higher returns if you know what I mean. So that's that.
But not necessarily you know.
Jeremy Barnum: That's helpful.
Producing much higher returns if you know what I mean, so that's that and then the other part of your question implicitly. It was talking about organic capital generation and I think it's just very important to separate impacts on the economy and impacts on long term returns from our ability to meet the requirements of course as Jamie says JP Morgan is going to be fine.
Ebrahim Poonawala: And just going back to the details you left laid out on Basel Land Game. Maybe on the philosophical side, I think Jamie was speaking last month said, doesn't like we don't expect any changes, but at the same time, you make everything that makes sense in terms of the pushback. Is it all falling on deaf ears from a shareholder perspective? Are we resigned to the fact that we are going to see more towards the worst case out, or is there some level of sort of meeting in the middle of the road as this thing gets finally?
Speaker 3: The other part of the question implicitly was talking about organic capital generation and I think it's just very important to separate impacts on the economy and impacts on long-term returns from all our ability to meet the requirements.
Speaker 4: Of course, as Jamie all says, JP Morgan is gonna be fine.
Speaker 4: and we're building a lot of capital and we were managing capital conservatively and you know we'll be able to build the necessary capital in order to achieve on time or early compliance which is always what we strive to do but that doesn't really have any particular bearing on the question of what the long-term return target is or the impacts on the real economy.
And we're building a lot of capital and we were managing capital conservatively and you know we'll be able to bill.
Build the necessary capital in order to achieve on time or early compliance, which was always what we strive to do but that doesn't really have any particular bearing on the question of what the long term return target is or are the impacts on the real economy.
Ebrahim Poonawala: Yeah, so I'll let Jamie speak for himself on that point, but our job is to advocate. We're not going to guess what the sentiment is in Washington. It's a thousand page rule proposal as you know. We've got a big team of very smart people studying it very closely. You know, interestingly, we noted recently that in some of the analysis that they did about the impact on lending, they sort of forgot about like a billion dollars of the Fed and their preamble, they forgot about a billion dollars of operational risk or a few A.
Got it thank you.
Thank you. Our next question comes from Glenn Schorr with Evercore ISI you May proceed.
Speaker 2: Thank you. Our next question comes from Glenn Shore with Evercore ISI. You may proceed.
Ebrahim Poonawala: So it just highlights that there is a possibility or seem to have forgotten. They simply omitted the impact of the operational risk or a few A on P's. So anyway, the point is it's wrong. It's complicated. It's technical. We do think there are probably some technical mistakes in there. We're not forcefully advocate on all of those. And you know, while we disagree with a lot of this stuff, these are technical issues that should be some sense resolved technically and, you know, hopefully they'll listen. Water. Thank you. Sorry, I'm just getting a correction in the wrong. I meant to say Trillion. Yeah, no, I got that. I got that. Thank you.
Alright, thank you.
Speaker 11: So I very much appreciate the comments and the release on the big picture things of what's going on in the world, and the potential impact on markets, on food, market, global trade, everything that you mentioned.
So I I I very much appreciate.
Appreciate the comments.
In the release.
On the Big picture things of what's going on in the World.
Cancel impact on markets on food market Global trade everything that you mentioned.
Speaker 11: and sadly agree about the most dangerous time in decades. The question I have is
And sadly agree about the most dangerous time in decades. The question I have is.
Speaker 11: This is a surprise you that markets are hanging in that you yourself have a green shoots or still green shoots type of mindset about banking while that's going on. And then maybe more importantly, if you believe what, obviously what you wrote, what are you doing about it? How do you manage yourself conservative? How do you prepare for puffer time?
This is surprise you that markets are hanging in that you yourself have a green shoots are still green shoots type of mindset about banking.
While that's going on and then maybe more importantly, if you will.
What obviously what ROE what are you doing about it how do you manage yourself can serve you have you prepare.
Boy tougher times.
Speaker 4: Yeah, go ahead, Jeremy, you want to start? Okay, so I mean...
Yeah.
Go ahead, Jeremy I'm, sorry, Okay. So I mean.
Speaker 3: On green shoots, you know, you'll just note that our comments are cautious. I mean, there is momentum. I do think we are a little bit more optimistic than we were. But obviously, markets have been bumpy, both equity markets and rate markets have been very wippy recently. So, you know, we don't want to get too carried away with optimism here. We are coming on an awful very low base. And so there's a hope and an expectation that we are on the path normalization and but who really are the interests that we are careful to give aayan
On Green shoots you know you'll just note that our comments are cautious I mean, there is momentum I do think we are a little bit more optimistic than we were but obviously markets have been bumpy, both equity markets and rape markets have been very with he recently. So you know we don't want to get too carried away with optimism.
Ryan Kenny: Our next question comes from Ryan Kenny with Morgan Stanley. You may proceed.
On and off a very low base. So there's a hope and an expectation that we are on the path to normalization and an improvement and of course, the overall economic picture at least currently looks solid they're sort of Immaculate Disinflation trade is actually happening. So those are all reasons to be a little bit optimistic in the near.
Jeremy Barnum: Hey, good morning. Wanted to get on the NII side. So you raised this 2023 NII X market guidance by two billion for this year. So I know and I know your comments in the press release suggest JP Morgan's over earning. So just want to triangulate there. But is normalize the NII look like and do we get to normalize next year or later on? Yeah, a couple of things. So let me do the timing question for us.
Speaker 12: improvement and of course the overall economic picture at least currently looks solid this sort of Immaculate disinflation trade is actually happening. So those are all reasons to be a little bit optimistic in the near charm But it's tempered with quite a bit of caution I would add caution
But it's it's tempered with quite a bit of caution.
So I would urge caution there has been.
Speaker 12: an extraordinary amount of physical monetary stimulus. Still in the system.
An extraordinary amount of fiscal and monetary stimulus still in the system.
Jeremy Barnum: So we're being very clear that we are not predicting when, you know, when is going to be a function of the marketplace and the rate environment and competitive dynamics and so on and so forth. So we're just really just trying to remind everyone not bank on the current bond rates, which we just don't fundamentally think are sustainable. You'll be aware that, you know, before investor day last earlier this year, we tried to quantify what we thought that kind of normalized range might look like and we put a sort of mid 70s type number out there.
And and you can't look at and of course, it can drive markets instead of Minton sales and profits and all that but if you can't stay like this forever between Q2, if you've never had.
Speaker 12: You can't look at it and of course it can drive markets, incentive and sales and profits and all that, but you can't stay it like this forever. Between Q2 if you've never had, and how much the fiscal stimulus can continue at this rate, a full half of the crowd are going out.
And how much the fiscal stimulus could continue at this rate before you have a kind of a crowding out.
Speaker 12: kind of factors so i just i think you have to be very questions of course the deal pops i think it's extraordinary issue we have to deal with how do you prepare the company for that you know we do a hundred stress tests a week you know and we do
Kind of factors. So I, just I think people would be very questions and of course, the geopolitics I think is just extraordinary.
Issue, we have to deal with how do you prepare the company for that you know, we we do stress tests a week.
Jeremy Barnum: And at investor day, we talked about how the acquisition of first public was going to push that number up a little bit. Although there was some overlap, so on and so forth. So anyway, with the benefit of time and, you know, having everything settled in a little bit. If you sort of push us for that kind of what is that number now look like, we think it's probably closer to about 80 with all the obvious caveat that this is a gas and we don't know when, but we're just trying to point out that it's quite a bit lower than the current one.
And we do multiple views of it you know recruiting geopolitical problems are interest rate problems, but usually geopolitics presents itself as usually as a as a deep recession or a mild recession recession part of the world or where market is going down a lot.
Speaker 12: views of it, including geopolitical problems or interest rate problems, but usually geopolitics present itself as usually.
Speaker 12: as a deep recession or a mild recession, a recession part of the world or Mark is going down a lot. And because Mark is due well is not a reason ever to say that he could continue to do well. If you don't believe me, remember 1987, 1990, 1994, the year 2000, the year 2009, and people don't predict those inflection points.
Because mortgage do well is not a reason ever just said you could continue to do well. If you don't believe me remember 1987, 1990 1990 for the year 2000, 2009 and people don't predict those inflection points.
Jeremy Barnum: Inside the company, some people think it will happen sooner, i.e, me, some people think over half a later, i.e. Jen and Mary and a jam. That was not where there was in that camp, but I don't know, I don't know.
Speaker 12: I just, you know, but my question is that we are facing so many uncertainties out there. You just got to be very close to your facing.
But my question is that we are facing so many uncertainties out there you're just going to be very cautious, but you're facing.
Speaker 12: And like I said, the other thing about the green shoots, regardless of that, we try to run the company so that we serve the clients staying in and day out, better products and better services.
And like I said.
But the green shoots regardless of that we try to run the company. So that we served our clients day in and day out with better products and better services.
Jeremy Barnum: And then on the loan growth side, industry loan growth has slowed significantly this year. What demand are you seeing for loan growth across the different categories? And I know it might be too early to talk about next year, but directionally, how should we think about loan growth given where we are in the cycle and the higher capital requirements coming? Yeah, sure. So on loan growth, the story is pretty consistent with what we've been saying all year.
Speaker 12: Security safely and all those things and that's the ultimate goal. We know there gonna be bad time
Securely safely and all those things, but that's the ultimate goal, we know they're going to be bad times, it's not as surprised as it could be bad times I don't always know, how they're coming to where they're coming from.
Speaker 12: That's not a surprise, it's gonna be bad times. I don't know, there's no how they're coming or where they're coming from, but, uh...
Speaker 12: We can keep on serving clients, do good business, you can build a good business, kind of separate from what it does to your returns. That's a lot of different issue at this point, but we'll do with that too. We'll make sure you got what to do. The thing is, in this exclusive booth, we've been building this company for 30 minutes.
We can keep on serving clients to give them. Some clients you can build a good business kind of separate from what are your thoughts your returns.
Jeremy Barnum: So we've first seen very robust loan growth in card, and that's coming from both spending growth and the normalization revolving balances. As we look forward, we're still optimistic about that, but it'll probably be a little bit more muted than it has been during this normalization period. In auto, we've also seen pretty robust loan growth recently, both as a function of so slightly more competitive pricing on our side as the industry was a little bit slow to raise rates, and so we've lost some share previously, and that's come back now.
Or are they different issue at this point, but it will do with that too when we figure out what to do.
Thank you for all that.
Thanks Glenn.
Speaker 2: Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. You may proceed.
Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities You May proceed.
Jeremy Barnum: And generally the supply chain situation is better, so that's been supported. As we look forward there, it should be a little bit more muted. And I think generally in wholesale, the loan growth story is going to be driven just by the economic environment, so depending on what you believe about soft landing, mild recession, no lending, you have slightly lower or slightly higher loan growth, but in any case, I would expect it to be relatively muted.
Hi.
Speaker 13: I understand the NII strategy benefited from first-re? public assets, the sensitivity, CD strategy, money emotion. And I'm curious to how much is the NII increase and the deposit benefits a function of the $67 million digital banking customers.
I understand the NII strategy benefited from first Republic asset sensitivity C. D strategy money in motion and I'm curious to how much is the NII.
Increase in the deposit.
Benefits.
A function of the $67 million digital banking customers.
Speaker 13: Do you have more digital banking customers than branch customers now? If you just refresh that. And then a more general question, I guess I first went for Jeremy. The second one for Jamie, you know, you have record tech spend. What's the benefit of having record tech spend? If you can kind of mark to market your thoughts there as it relates to AI, as it relates to maybe wasted spending, your outlook for next year, and does it really help to be the biggest tech spend or the banking industry?
Do you have more digital banking customers in branch customers now if you can just refresh that and then a more general question I guess first one for Jeremy and the second one for Jamie.
You know you have record tech spend what's the benefit of having record tech spend if you can kind of mark to market. Your thoughts there as it relates to AI as it relates to maybe wasted spending your your outlook for next year and does it really helped to be the biggest tux vendor the banking industry.
Jeremy Barnum: And of course, on lending remains fairly constrained both by rates and market conditions, but also, and I think this is true across the board, you know, we will be managing things actively, as we mentioned in line of fossil three, which may not change origination, but it will change what we retain.
Speaker 4: Yes, let me do digital banking. I spent some time on this actually a couple of weeks ago. And it's interesting to note this sort of extent towards the growth in digitally engaged consumers is higher than the overall growth in consumer accounts, meaning that you're continuing to increase the percentage of our consumers that are digitally engaged. And it sort of goes back to my prior point about the percent who were digital only.
Yes, let me do digital banking, Mike I spend some time on this actually a couple of weeks ago, and it's interesting to note there sort of extent to which the growth in digitally engaged consumers is higher than the overall growth in consumer accounts, meaning that you can continue to increase the percentage of our consumer if there are digitally engaged.
Unknown Attendee: Okay. Thank you.
Gerard Cassidy: Our next question comes from Gerard Cassidy with RBC. You may proceed. Good morning, Jeremy. How are you? Hi, Gerard. Jeremy, you guys have put up a really strong ROTC number of 22 percent for the quarter. And when you dive into your different segments, what really jumps out at us is the 40 percent X-first for public ROE and consumer and community banking. I know you and Jamie have talked about your over earning on credit.
And it sort of goes back to my prior point about with the percent who are digital only is much lower than that for sure for sure which actually links to the broader point that you know what in terms of your question about how much is this helping the current NII story. It goes to the larger point of it holistic through the site.
Speaker 4: which actually links to the broader point that
Speaker 3: You know, what in terms of your question about how much is this helping the current NII story, it goes to the larger point of it holistic through the cycle, multi-channel, fully engaged customer strategy, which requires a lot of investment in branches, obviously, but also in digital services of all sorts. So in many ways, you know, you can see the current environment as...
A multichannel fully engaged customer strategy, which requires a lot of investment in branches, obviously, but also in digital services of all sorts. So in many ways. You know you can see the current environment is a little bit of a payoff of that investment, but that's not like.
Gerard Cassidy: We get that. But in view of all of these fintechs and all these other non-bank competitors that we're all supposed to pick away at everybody's market share, you guys have put up great numbers here. What's the drivers behind an ROE, even when you take that credit over earning out? What's driving this business profitability at such high levels? Yeah, Gerard, I'd say a couple of things there. So first, it's not just credit, it's also deposit margin.
Speaker 4: a little bit of a payoff of that investment, but that's not like, therefore, we stop investing, obviously.
Therefore, we stop investing obviously.
Speaker 3: So I guess that's part of the answer and I guess your other question is
So I guess, that's part of the answer and I guess your other question as you know the benefits of being the biggest tech spend are I, just think like it's sort of mandatory right. I mean, we're big and it was the right technology centric business and the world is competitive and.
Speaker 3: the benefits of being the biggest tech spender, I just think like it's sort of mandatory, right? I mean, or big and it's the right technology centric business and the world is competitive and...
Gerard Cassidy: When we talk about over earning on NII, a disproportionate amount of that is coming out of the consumer franchise for all the reasons that we've talked about. But I would also point out, sometimes we don't like the word over earning because right now customers are happy and they're doing CDs.
Speaker 12: Everything's changing, younger generations of different expectations and we have to be nimble and we have to be on our front foot. And otherwise, you know, we risk getting severely disrupted. So I don't know if Jamie wants to add anything. Just, you know, the competition we look at is it's well, you know, coming back, which I'm happy for you guys.
Everything is changing younger generations have different expectations, and then we have to be nimble and be able to be on our front foot and otherwise we risk getting severely disrupted so I don't know if Jamie.
Jeremy Barnum: And the broader answer to your question about why we're able to effectively really come back to a decade, two decade long history of investing to the future and recognizing that there's a holistic value proposition here that includes branches and the app and all the online services and the entire suite of products and services that is around the center prize which drives engagement and customer loyalty. And we're seeing some of the benefits of that now that we're not complacent.
As you know the competition, we look at it is its wells you know who's coming back, which I'm happy for you guys. It's it's obviously Marcus it's Apple it's chime, it's Dave it's there's.
Speaker 12: It's obviously Marcus, it's Apple, it's Chime, it's David.
Speaker 12: You know, a lot of people coming up these businesses in different ways. But some have been quite successful. It's stripe in payments. And so we want to be very good and very competitive. Some of that text spending is things which are almost a sin of quantum, which is, you know, cyber.
A lot of people come into these businesses in different ways, there's something we've been quite successful at stripe and payments and so we want to be very good and very competitive some of that tech spending as things mature almost a cynic whatnot, which is cyber security.
Speaker 12: you know, data center resiliency, regulatory requirements, and things like that, which we simply are going to do and be very, very good at to protect the company.
You know data center resiliency regulatory requirements and things like that which we simply are going to do and be that'd be very very good at to protect the company.
Jeremy Barnum: The composition is still there, the fintechs are still there. And we know we need to continue investing to preserve the value and it's also true that the particular circumstances of the current rate and credit environment mean that the earnings are a little bit above normal, but that core franchise is extremely robust. Very good, and then there's a follow-up which ties into your answer on the deposit margin and consumer and your earlier comments, you and Jimmy about the internal debate inside JP Morgan about the migration of rates going higher on the funding side.
Speaker 13: As it relates to AI specifically, which is the talk of the town, I guess the consensus among people outside the banking industry is that banks will not win that battle, including Jake DeMorgan, you won't control the front end. What are you doing with AI to make a difference now, or is this just simply a moonshot? Well, I don't agree with...
As it relates to AI, specifically, which is the talk of the town.
I guess the consensus among people outside the banking industry is that banks will not win that battle, including JP Morgan you won't control. The front end what are you doing with AI to make a difference now or is this just simply a moonshot.
Well I I don't agree with that statement.
Speaker 12: Banks have an extraordinary amount of proprietary data. In addition to when you do a large language model, that's public data. It's got, you know, looking at everything in the internet or are these ever been published or something like that. But AI is an extraordinarily good tool to use.
Banks have an extraordinary amount of proprietary data. In addition to what you do like a large language model that's public data that's good.
Jeremy Barnum: But your non-interest bearing deposits, I think are around 28% of total deposits, which is slightly above the 26% you guys had back in 2018 or 19, or pre-pandemic, is this expectation that you're going to see more of the non-interest bearing deposits going to interest bearing or is it just the repricing of interest bearing deposits that have some of your folks inside JP Morgan a little more cautious on that net interest income number? Yeah, that's a good question, Gerard.
Looking at everything in the Internet or there's ever been published or something like that but AI is a extraordinarily good tool to use.
Speaker 12: We just put a woman who's running it at our cable. So it's data, analytics, AI, et cetera. And there are multiple types of AI. So we use AI for risk, fraud, marketing, prospecting. And the management team is getting better and better to say, how can we use the data to do a better job to reduce errors, to serve clients better, to have a salesperson have co-pilot, so they know why even the client's calling or something like that. And so we simply have to do it. Does it create opportunity for...
We just put a woman who is running it at our table. So it's data analytics, AI et cetera, and there are multiple types of AI. So we use AI for risks broad marketing prospecting.
And you know the management team is getting better and better and say how can we use the data to do a better job to reduce errors to serve clients better to have a salesperson have.
Jeremy Barnum: I think it's a little bit bigger picture than that and I'm not sure, I get your question, it's a good question, but I'm not sure that the reported interest bearing non-interest bearing split is the best lens to look at this group for a couple of reasons. So first, between wholesale and retail, we've got some amount of non-interest bearing and wholesale that's part of the UCR product, so you see some dynamics there that play out.
So pilots they know why isn't the clients, calling us something like that and so we simply have to do it does it create opportunity for.
Speaker 12: for disruptors to come in, yeah, of course. And that's always been true with technology, and we'll be quite good at it.
For Disruptors to come in Yeah of course, that's always been true with technology and what do you know what it will be quite good at it.
Speaker 13: And then lastly, I think you made a mention at a conference about investment spend or tech spend over the next year. Where do you stand on that?
And then lastly, I think he had made a mentioned at a conference about investment spend our tech spend over the next year, where do you stand on that.
Jeremy Barnum: And in consumer, in a world where savings is paying a relatively low rate paid across checking and savings, the migration dynamics are probably not that different right now. But then of course, even within consumer across both consumers and small businesses, you've got slightly different dynamics in terms of how people manage their operating balances. So I would tend to zoom out a little bit and see this as a holistic answer that's driven by internal migration from checking and savings to CDs, from ECR to interest bearing and wholesale.
Yeah, no. So because you did ask a little bit about the expense outlook for next year. So I think at the conference. We said I think the consensus was 88 billion, but we're still going through the budget process etcetera etcetera. So that's still true I think we're still kind of in the ballpark, but I would say at the margin there's going to be a little bit of upward pressure on the other two are known this.
Speaker 3: Yeah, no, because you did ask a little bit about the expense I'll look for next year. So I think at the conference, we said I think the consensus was 88 billion, but we're still going to budget process, et cetera, et cetera. So that's still true. I think we're still kind of in the ballpark, but I would say at the margin, there's going to be a little bit of offer for sure over two or two. Yeah, this is all now, including for public. And I think there'll be a little bit of offer pressure on that as we sort of do our usual thing and look at all the up.
I'll now, including first Republic, and I think there'll be a little bit of upward pressure on that as soon as we sort of do our usual thing and look at all the opportunities that we see in the investments that we want to make so no surprise in that sense that we're going to invest prudently nothing dramatic, but probably a little bit of upward pressure on the margin.
Speaker 4: and the investments that we want to make. So no surprise in that sense that we're going to invest prudently. Nothing dramatic, but probably a little bit of effort.
Jeremy Barnum: And then our potential response to the rate environment, the competitive environment, the overall level of system-wide deposits in terms of product level repriced that may or may not happen at the moment in the future. Great. Thank you.
Alright, thank you.
Yeah.
Speaker 2: Thank you. Our next question comes from Jim Mitchell with the Port Global. You may proceed.
Thank you. Our next question comes from Jim Mitchell with Seaport Global you May proceed.
Jeremy Barnum: Our next question comes from Erica Najiri with UPS. You may proceed. Hi. Good morning. I'm Jeremy. My first question is for you, again, sort of maybe re-reacting the question a different way. Your new guide for non-interest income for this year would imply an exit run rate of 22.9 billion in the fourth quarter. As we think about the dynamics and higher for longer, on one hand, your fixed rate assets will continue to reprice.
Speaker 14: Hey, good morning. Jeremy, do you think there's any receptivity among regulators regarding the double counting, not only of operational risk, but I think you alluded to this earlier in the market for business, but there's clearly double counting and market risk in the trading book. Is there any rest receptivity?
Hey, Hey, good morning.
Jeremy do you think there's any receptivity among regulators regarding the double counting not only of operational risk, but I think you alluded to this earlier in the in the markets business, but there's clearly double counting in market risk in the trading book is there any risk receptivity.
Jeremy Barnum: On the other, you've been asked a lot about the deposit dynamics that continue to creep higher. How do you think about those puts and takes as we think about that relative to that exit rate of 22.9 billion in the fourth quarter? Yeah. So Erica, I think this simple answer to your question is, you know, those, I believe that fourth quarter exit number equates to a 90 billion dollar run rate on markets.
Speaker 12: I can't just answer it real quickly. We don't really know. It's a one-sided conversation, generally. They say, put in your comments, everyone's gonna put in extensive comments, kind of like you heard from Jeremy. And we don't really know. We don't really know what's going on inside the Fed, how many people get involved. And my view has become a very politicized process as opposed to the technical analysis that he's required to do it exactly right. So we'll see.
Great.
Real quickly, we don't really know.
So one sided conversation generally.
You know they say put it in your comments you know so everyone's going to put in extensive comments kind of like you heard from Jeremy and we don't really know we don't really know what's going on inside the fed how many people get involved in my view has become a very politicised process as opposed to the technical analysis that is required to do it exactly right.
Jeremy Barnum: And we're kind of saying that we have. Yeah. That's not what I meant to say. She said 22.9. Oh, I didn't hear that. Okay. So call it 90 billion run rate on an exit rate basis. And we're saying that we think, you know, something a bit more normal is closer to 80. So that's one building block underneath that. I think one thing that's interesting actually is that as the percentage of the deposit charge CDs increases the sort of balance between internal migration and betas and rate volume.
So we'll see.
Speaker 14: Okay, and then if it weren't to change and you talked about the negative potential negative impact on liquidity in the market business specifically, is that a JPM pulling out of certain businesses type event or is that, is it more a comment that there be fewer providers of liquidity as less scale players exit? And maybe that's all a sequel, a market share gain opportunity for JP Morgan in a smaller business.
Okay, and then if it if it were to change and you talked about the potential negative impact on liquidity in the markets business. Specifically is is that a J P. M pulling out of certain businesses type event or is that is it more a comment that there'd be fewer providers of liquidity is less scale.
Players exit and maybe that's all else equal a market share gain opportunity for JP Morgan and a smaller business.
Speaker 12: So if you look at markets alone, it's a huge, I think, 60% increase in capital. And if you look at it, you can do that by product, you know, for some products is worth and for others, but generally it's bad across all products. And market making, but the really important thing is market making is a critical function. And if you look at the world, only so many large market makers who can make markets for governments.
I think so if you look at markets alone. It's a huge I think 60% increase in capital. If you look at it you can do that byproduct.
So for some projects worth than others, but generally spread across all products and.
Jeremy Barnum: It's a little bit less binary and a little bit smoother. So, you know, when we look at this type of stuff and we model migration balances, product level reprise, you know, as you get out of that lower zero bound with a zero percent CD mix world, things get a little bit smoother, I would say overall. So it'll be interesting to watch that, but it's obviously one of the most important things for us as a company right now.
Market me, but a really important thing is more can baking is a critical function and if you look at the world. The way. So many large market makers, who can make mortgage for governments.
Speaker 12: hospital cities, school, states, IMF, World Bank, a black rock, black stone, and all those areas, things who buy in-sale for their clients in size. And market makers have a different function than hedge funds.
Hospitals City schools States IMF World Bank, Blackrock, Blackstone and all those various things to buy and sell for their clients in size and market makers have a different function than hedge funds.
Speaker 12: you know and and i don't know what the real intent was with this that this is another one i think needs to be really thought through what you trying to accomplish we do market making quite safe but you know we've never lost a kind of money that people talk about uh... in market making in the global market shock or something like that but the other thing about market making i do agree it could actually force some people out it will force lower positions which is why it is a little risky but it may also force more consolidation
Jeremy Barnum: And we do everything we can to manage it, but it's also worth remembering that the big picture point is just a client franchise. And as we've often said, we're very focused on primary bank relationships. And we didn't lose any of those in the last cycle. We're not planning to lose any in this cycle. And that's what sort of a long term focus means for us. And I would just say quantitative tightening there.
And I don't know what the real intent was with this this is another one I think needs to be really thought through what are you trying to accomplish we do market, making quite safe we've.
No we've never lost the kind of money that people talk about in market, making and the global market shock or something like that but the other thing about market, making I do agree it could actually for some people out it will force lower positions, which is why I think it's a little risky, but it may also force more consolidation.
Jeremy Barnum: That will be a large number and we don't exactly know the effect. We're, you know, host sale consumer. As you know, remember, also the Fed of the RFP program, which is also sucking money into the Fed directly, you know, and reducing deposits that's still actually into.
Erika Najarian: Thank you.
Speaker 12: And so clients, you know, since they needed so much, they, there may be consolidation in unintended way in market making and obviously more volatile markets because, you know, the constraints for the LCR, SLR, capital, et cetera, you will have to be up against limitations in what you can do.
And so clients since they needed so much they there may be consolidation.
Unintended way in market, making.
More volatile markets because it was all there Chris range, but the LCR SLR capital et cetera, you will cost can be lumpy against limitations on what you can do.
Jeremy Barnum: And my second question is, you know, maybe zooming out on the Basel III endgame impacts. You know, it's clearly complex, overly complex, and I completely agree with you that it is unnecessary at this point and very backwards looking. I guess what is not complex is the fact that you generated 75 basis points of CET1 this quarter, while your RWAs are down. And I guess my question here is, is that I understand that we're in the public advocacy process.
Yeah, and I think that last point of Jamie's is particularly important because sure. If you want you can you can construct is what I would consider a very optimistic argument that you know the higher cost of doing business will lead to.
Speaker 3: And I think that last point of Jamie's is particularly important because sure if you want you can construct it What I would consider a very optimistic
Speaker 4: that the higher cost of doing business will lead to smaller scale players to exit and that's a shared-in opportunity for us, but I refer back to the comments about the disincentives to beneficial diversification and scale, getting bigger, especially in markets, is quite expensive.
Smaller scale players to exit and that's a share gain opportunity across British I refer back to the comments about the disincentives to beneficial are.
Diversification and scale getting bigger, especially in markets. It's quite expensive from for example, a G. SIB perspective until you wind up kind of haven't been on all sides, which is one of the reasons why we're sort of highlighting that it does seem like you know the only way out sometimes when you look at the cumulative effect of everything that's happened in markets.
Jeremy Barnum: I hear you loud and clear in terms of how this could have harm in terms of pricing for Main Street and, you know, dislocating the pipes in American capital markets. But for JP Morgan, you know, this change your natural return profile of 17%. Jamie, I know you linger a little bit on 14 when you were at Barclays in September. But, you know, at the end of the day, it feels like, you know, you know, for your, for the portfolio managers that, you know, own JP Morgan through the cycle.
Speaker 4: From, for example, a juicive perspective. And so you wind up kind of hemmed in on the side.
Speaker 4: which is one of the reasons why we're sort of highlighting that it does seem like...
Speaker 3: The only way out, sometimes when you look at the cumulative effect of everything that's happened in markets for the last 15 years, is a fundamentally very...
Jeremy Barnum: It's boggled three endgame really harm your natural earnings power and returns. Yeah. Okay. That's a good question, Erica. I think there's a couple of pieces in there. So let me take those important piece first, which is 17% through the cycle target. Are we keeping that or not in light of the Basel III endgame proposal? So short answer is, we're not going to change that number today. But when you look at what we've disclosed about a 25% increase in capital, it's not, you have to start by acknowledging that that is a major advent of returns.
Last 15 years is a fundamentally very different system, and you know well, obviously, great great opportunity for European market makers.
Speaker 12: And, you know, well, obviously, great, great opportunity for European market makers. I mean, a great opportunity. They can do repo and effects and swaps and credit and stuff, you know, with 30% less capital. That is a big difference in, you know, that kind of business.
I mean, a great attitude.
They can do repo and in fact in swaps and credit and stuff, but you know with 30% less capital.
That is a big difference in that kind of business.
Jeremy Barnum: In simple terms, you know, you talk about earnings power and returns, but there are two different things, right? We have to be a little bit pedantic and do numerator and denominator here. Okay. So say the numerator doesn't change. If you just dilute down the numerator by the increased capital, that's a significantly lower return number. I would say that that's probably the lower bound in terms of the of the impact of the Basel III endgame for a couple of reasons.
Great that's helpful. Thanks.
Speaker 2: Thank you. Our last question comes from Matt O'Connell. O'Connell, excuse me, with Deutsche Bank. Your line is open.
Thank you our last question comes from Matt O'connor Oconnor excuse me with Deutsche Bank. Your line is open.
Alright, good morning.
Speaker 15: All right, good morning. Can you talk about increased investment spend in some areas in response to an earlier question, but just how do you think about cost control overall, looking at the median term? You know, the outlook for revenue is obviously the pressure that you saw in that just then come.
You talked about increased investment spend in some areas.
In response to an earlier question, but just how do you think about cost control overall looking at the medium term the outlook for revenues, obviously pressure at least on noninterest income.
Speaker 15: Fees might help but the backdrop is for potentially declining revenue or at least lattice revenue for a couple of few years So I know you all say you want to eventually a cycle and it's Really paid off over time, but how are you thinking about cross-controller next few years? I wish I had
These might help but the backdrop is for potentially a declining revenue or at least flattish revenue for a couple of few years. So I know you. All said you want or is that sort of cycle and it's really paid off over time, but how are you thinking about cost control. The next few years.
Yes, I mean, I wish I had sort of a.
Speaker 3: and answer that fit better into your framework, but in some fundamental sense, we just kind of don't agree with the framework in the sense that, you know, we've been through this over the last couple of years, right? In a world where rates drop, or is suddenly and recover like quite dramatically, and credit becomes abnormally good, and then rebounds, and you've seen these very significant fluctuations in capital markets, you know, we saw that.
And Angela that fit better into your framework, but in some fundamental sense. We just kind of don't agree with the framework in the sense that you know and we've been through this over the last couple of years right.
Jeremy Barnum: One is, we are hoping for changes. Two is, once the rule is final, we will seek to reprise in the places where we can. And that'll be different and consumer and wholesale, some of it will be product level, some of it will be relationship level. But, you know, that hopefully can mitigate some of it. But of course, the flip side of that is that's cost getting passed into the real economy. And that's part of the point that we've made about lowering availability of products and services and lending.
World, where rates drop rate suddenly and recover like quite dramatically and credit becomes abnormally good and then rebounds and you've seen these very significant fluctuations in capital markets. We saw that 2021 going into 2022, whereas the revenue environment can change a lot in the in the short term.
Speaker 4: 2021 going to 2022, where the revenue environment can change a lot in the short term for reasons that can be largely out of your control. And while of course there are parts of our expense base, which are in the short term directly sensitive to the revenue environment and some of those are just naturally and some of them we adjust more forcefully as a function volume.
Reasons that can be largely out of your control and while of course, there are parts of our expense base, which are in the short term directly sensitive to the revenue environment and some of those are just naturally and some of them, we adjust more forcefully as a function of volumes, but other things are much more structural and the goal is to make sure that those other things.
Jeremy Barnum: There may be some opportunities for costless optimization. I'm personally a little bit more pessimistic about those, but we surprise ourselves on those points in the past. So we'll see. And then finally, yeah, we may solve doing certain things and we may exit things. But I wouldn't necessarily assume that that's going to do a lot to preserve return to the 17%. That's going to be about exiting things that are, you know, shareholder destructive, but not necessarily, you know, producing much higher returns, if you know what I mean.
Speaker 3: But other things are much more structural and goal is to make sure that those other things
Speaker 4: are sized appropriately to what we believe sustainable food cycle returns are. So we're always very focused on costs. You can be rest assured of that. That discipline internally is...
Things are sized appropriately to what we believe sustainable through the cycle returns are so we're always very focused on costs you can be rest assured of that that discipline internally is.
Speaker 3: As aggressive as ever as we go through the budget cycle, but their long term plays and you know, you really shouldn't expect us to see trying to generate cosmatically lower costs and response to a lower revenue environment where we didn't balloon the costs when the revenue became, you know, as we've argued, understandably high.
As aggressive as ever as we go through the budget cycle, but they are long term plays and and you know you really shouldn't expect us to see trying to generate cosmetically lower costs in response to a lower revenue environment, where we didnt balloon the cost when the revenue became you know as we've argued unsustainably high.
Jeremy Barnum: So that's that. And then the other part of the question, implicitly, was talking about organic capital generation. And I think it's just very important to separate impacts on the economy and impacts on long term returns from our ability to meet the requirements. Of course, as Jamie says, Jamie Morgan is going to be fine. And we're building a lot of capital and we were managing capital conservatively and, you know, we'll be able to build the necessary capital in order to achieve on time or early compliance.
Speaker 15: She's up fair enough. And then if I could just squeeze in on the first republic, you know, obviously the contribution there is coming in multiple, highly expected. How do you think about the puts and takes in terms of, I think there's probably some runoff of loans still to come, but also opportunities to deepen relationships there.
Yeah Fair enough and then if I could just squeeze in on at first Republic, you know obviously the contribution there as it's coming in multiple harder than expected.
How do you think about the puts and takes in terms of I think there's probably some run off of loans still to come but also opportunities to deepen our relationships there.
Speaker 3: Yeah, so you're right about the contribution and about the runoff of the loans and it is, you know, notable, the net income, the first aerobic related netting.
Yeah, So you're right about the contribution on about the run off loans and it is notable the net income the first Republic related net income that we bring to this.
Jeremy Barnum: And so it was always what we strive to do. But that doesn't really have any particular bearing on the question of what the long term return target is or the impact, on the real economy. Got it.
Jeremy Barnum: Thank you.
Speaker 4: So the first thing to say is that we don't think that that first Republican-related net income number from this quarter is a sustainable indicator of the future run rate. Some of the same dynamics that we've just talked about in particular, over earning on deposits or sort of above normal deposit margins also apply to the first Republican rent, to some degree, so we would expect that to normalize. And probably more significant.
So the first thing to say is that we don't think that that first Republic related net income number from this quarter is sustainable indicator of the future run rate. Some of the same dynamics that we've just talked about in particular over earning on deposits are sort of above normal.
Glenn Schorr: Our next question comes from Glenn Schorr with Evercore ISI. You may proceed. Hi, thank you. Oh, I very much appreciate the comments in the release. On the big picture things that's going on in the world, the potential impact on markets, on food, markets, global trade, everything that you mentioned. And sadly, I agree about the most dangerous time in decades. The question I have is, does it surprise you that markets are hanging in that you yourself have a green shoots are still green shoots, type of mindset about banking while that's going on.
Margins also apply to the first Republic franchise to some degree so we would expect that to normalize probably more significantly as I think you alluded to we do have some accelerated pull to par on some of the commitments that we took on a fair value discount as part of the acquisition. So that's a short term tailwind in the revenues it will that will come out of that.
Speaker 4: We do have some accelerated pull to par on some of the commitments that we took on that of fair value discount as part of the acquisition. So that's a short term tailwind in the revenue that will come out of that over the next week.
Over the next few quarters.
Speaker 16: And yeah, in terms of how it's going overall, and deepening the relationships that remains focused, and I think that will happen as we continue the integration and we continue stabilizing. And yeah, I think as I said, I think on the press call, things are going well, arguably a little bit better than we'd sort of modeled as part of the acquisition, and we'll have you see that. Okay, thank you very much. Okay.
And yeah in terms of how it's growing overall.
And deepening the relationships that remains a focus and I think that will happen as we continue with the integration and we continue stabilizing and yeah I think as I said I think on the press call.
Glenn Schorr: And then maybe more importantly, if you believe what obviously what you wrote, what are you doing about it? How do you manage yourself conservative? Have you prepared for tougher times? Yeah. Go ahead, Jeremy. You want to start? Okay.
Things were going well arguably a little bit better than we had sort of modeled as part of the acquisition that you know we're happy to see that.
James Dimon: So, I mean, on green shoots, you know, you'll just note that our comments are cautious. I mean, there is momentum. I do think we are a little bit more optimistic than we were. But obviously, markets have been bumpy, both equity markets and rate markets have been very wippy recently. So, you know, we don't want to get too carried away with optimism here. We are coming in and off a very low base.
Okay. Thank you very much.
Thank you there are no further questions.
Thank you very much.
Speaker 2: Thank you for participating in today's conference. You may disconnect at this time.
Thank you for participating in today's conference you may disconnect at this time.
[music].
James Dimon: And so there's a hold and an expectation that we are on the path normalization and improvement. And of course, the overall economic picture at least currently looks solid. This sort of immaculate disinflation trade is actually happening. So those are all reasons to be a little bit optimistic in the near term, but it's tempered with quite a bit of caution. So, I would add caution, there has been an extraordinary amount of fiscal monetary stimulus still in the system.
James Dimon: And you can't look at it. And of course, it can drive markets and sentiment and sales and profits and all that, but it can't stay it like this forever. Between QT, if you've never had, and how much the fiscal stimulus can continue at this rate, before you have kind of the cracking out kind of factors. So, I just, I think people have to be very cautious. And of course, the geopolitics, I think it's just an extraordinary issue we have to deal with.
James Dimon: How do you prepare the company for that? You know, we do 100 stress tests a week, you know, and we do multiple views of it, you know, including geopolitical problems or interest rate problems. But usually geopolitics presents itself as usually as a deep recession or a mild recession, a recession part of the world or markets going down a lot. And you know, because markets do well is not a reason ever to say they could continue to do well.
James Dimon: If you don't believe me, remember 1987, 1990, 1994, the year 2000, the year 2009. And people don't predict those inflection points. I just, you know, but my question is that we are facing so many uncertainties out there. You just got to be very cautious with your facing. And like I said, the other thing is about the green shoots. Regardless of that, we try to run the company so that we serve the clients day in and day out with better products and better services, securely, safely, and all those things.
James Dimon: And that's the ultimate goal. We know there are going to be bad times. That's not as surprising as there are going to be bad times. I don't know, there's no how they're coming or where they're coming from, but... We can keep on serving clients, doing grocery clients, you can build a good business, kind of separate from what it does to your returns. That's a slightly different issue at this point, but we'll do with that too. We forget what to do. Thank you for all that. Thanks, Glenn.
Michael Mayo: Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. You may proceed. Hi, I understand the NII strategy. You benefited from first-rate public assets, sensitivity, CD strategy, money emotion, and I'm curious to how much is the NII increase and the deposit benefits, a function of the 67 million digital banking customers. Do you have more digital banking customers than branch customers now, if you just refresh that.
Jeremy Barnum: And then a more general question, I guess that first one for Jeremy, the second one for Jamie. You know, you have record tech spend. What's the benefit of having record tech spend if you can kind of mark to market your thoughts there as it relates to AI, as it relates to maybe wasted spending your outlook for next year and does it really help to be the biggest tech spend or the banking industry?
Jeremy Barnum: Yes, let me do digital banking Mike. I spent some time on this actually a couple weeks ago, and it's interesting to note this sort of extent to which the growth and digital engage consumers is higher than the overall growth and consumer accounts, meaning that you're continuing to increase the percentage of our consumers who are digital engaged. And it sort of goes back to my prior point about the percent who are digital only is much lower than for sure, which actually links to the broader point that, you know, what in terms of your question about how much is this helping the current NII story, it goes to the larger point of it holistic through the cycle, multi-channel, fully engaged customer strategy, which requires a lot of investment in branches.
Jeremy Barnum: It is obviously, but also in digital services of all sorts. So in many ways, you know, you can see the current environment as a little bit of a payoff of that investment, but that's not like, therefore, we stop investing obviously. So I guess that's part of the answer, and I guess your other question is, you know, the benefits of being the biggest tech spender, I just think like it's sort of mandatory, right?
Jeremy Barnum: I mean, we're big, and it's the right technology, centric business, and the world is competitive, and everything's changing, younger generations are different expectations, and we have to be nimble, and we have to be on our front foot. But otherwise, you know, we risk getting severely disrupted, so I don't know if Jamie wants to add anything. This, you know, the competition, and we look at it as well as, you know, coming back, which I'm happy for you guys, it's obviously markets, it's Apple, it's time, it's Dave, it's, you know, a lot of people coming up these businesses in different ways.
Jeremy Barnum: There's some who've been quite successful, it's striping in payments, and so we want to be very good and very competitive. Some of that tech spending is things which are almost as cynical on, which is, you know, cybersecurity. You know, data center resiliency, regulatory requirements and things like that which we simply are going to do and be very, very good at to protect the company. As it relates to AI specifically which is the talk of the town, I guess the consensus among people outside the banking industry is that banks will not win that battle including JP Morgan, you won't control the front end.
Jeremy Barnum: What are you doing with AI to make a difference now or is this just simply a moonshot? Well, I don't agree with that statement. You know, banks have an extraordinary amount of proprietary data in addition to when you do like a large language model that's public data. It's got, you know, looking at everything in the internet or are these ever been published or something like that. But AI is an extraordinarily good tool to use.
Jeremy Barnum: You know, we just put a woman who's running it at our table. So it's data, analytics, AI, etc. And there are multiple types of AI. So we use AI for risk, fraud, marketing, prospecting and the management team is getting better and better to say, how can we use the data to do a better job to reduce errors? To serve clients better, to have a salesperson have co-pilot so they know why even the clients calling us something like that. And so we simply have to do it. Does it create opportunity for disruptors to come in? Yeah, of course. That's always been through a technology and we'll be quite good at it.
James Dimon: And then lastly, I think you made a mention at a conference about investment spend or tech spend over the next year. Where do you stand on that? Yeah, no, so because you did ask a little bit about the expenditure for next year. So I think at the conference, we said I think the consensus was 88 billion, but we're still going to budget process, etc. So that's still true. I think we're still kind of in the ballpark, but I would say at the margin, there's going to be a little bit of opportunity over two or two.
James Dimon: Yeah, this is all now, including the public. And I think there'll be a little bit of upper pressure on that as we sort of do our usual thing and look at all the opportunities that we see and the investments that we want to make. So no surprise in that sense that we're going to invest prudently. Nothing dramatic, but probably a little bit of upper pressure at the margin. All right, thank you.
Jim Mitchell: Thank you. Our next question comes from Jim Mitchell with the Port Global. You may proceed. Hey, good morning. Jeremy, do you think there's any receptivity among regulators regarding the double counting, not only of operational risk, but I think you alluded to this earlier in the market business, but there's clearly double counting and market risk in the trading book. Is there any rest receptivity? I can't just answer it real quickly. We don't really know.
Jim Mitchell: It's a one-sided conversation, generally. You know, they say put in your comments, you know, so everyone's going to put in extensive comments, kind of like you heard from Jeremy. And we don't really know. We don't really know what's going on inside the Fed. How many people get involved in my view has become a very politicized process as opposed to, you know, the technical analysis that he's required to do exactly right. So we'll see.
James Dimon: Okay, and then if it weren't to change and you talked about the negative potential negative impact on liquidity in the market business specifically. Is that a JPM pulling out of certain businesses type event or is that is it more a comment that there be fewer providers of liquidity as less scale players exit? And maybe that's all a sequel market share gain opportunity for JP Morgan in a smaller business. I think. So if you look at markets alone, it's a huge, I think, 60% increase in capital.
James Dimon: And if you look at it, you would do that by product, you know, for some, for some products is worth it for others, but generally it's bad across all products. And market making, but the really important thing is market making is a critical function. And if you look at the world only so many large market makers who can make markets for governments, hospitals, cities, schools, states, IMF, rural bank, BlackRock, Blackstone, and all those various things who buy in sell for their clients in size.
James Dimon: And market makers have a different function than hedge funds, you know, and, and I don't know what the real intent was with this. This is another one I think needs to be really thought through. What are you trying to accomplish? We do market making quite safe, but you know, we've never lost the kind of money that people talk about in market making in the global market shock or something like that. But the other thing about market making, I think, I do agree, it could actually force some people out.
James Dimon: It will force lower positions, which is why I think it's a little risky, but it may also force more consolidation. And so clients, you know, if they needed so much, they, there may be consolidation in an unintended way in market making and obviously more volatile markets, because, you know, all the constraints for the LCR or SLR capital, et cetera, you will have to be up against limitations and what you can do.
Jeremy Barnum: Yeah, and I think that last point of Jamie's is particularly important because, sure, if you want, you can, you can construct as what I would consider a very optimistic argument that, you know, the higher cost of doing business will be smaller scale players to exit and that's a share of opportunity for us, but if I refer back to the comments about the disincentives to beneficial diversification scale, getting bigger, especially in markets, quite expensive. From, for example, a decent perspective.
Jeremy Barnum: And so you wind up kind of hemmed in on all sides, which is one of the reasons why we're sort of highlighting that it does seem like, you know, the only way out sometimes, when you look at the cumulative effect of everything that's happened in markets for the last 15 years, is a fundamentally very different system. And, you know, well, obviously great, great opportunity for European market makers. I mean, they can do repo and effects and swaps and credit and stuff, you know, with 30% less capital. That is a big difference in, you know, that kind of business. Right, that's helpful.
Unknown Attendee: Thanks. Thank you.
Matt O'Connell: Our last question comes from Matt O'Connell. O'Connell, excuse me, with Deutsche Bank. Your line is open. All right. Good morning. Can you talk about increased investment spend in some areas in response to an earlier question, but just how do you think about cost control overall, looking at the median term, you know, the outlook for revenues is, obviously, you know, pressure that leads on interest income. Feed might help, but, you know, the backdrop is for potentially declining revenue or at least flatish revenue for a couple of few years.
Jeremy Barnum: And then you all say you want to invest in a cycle and it's really paid off over time, but how are you thinking about cost control in the next few years? Yeah, I mean, I wish I had sort of a in answer that fit better into your framework, but in some fundamental sense, we just kind of don't agree with the framework in the sense that, you know, we've been through this over the last couple of years, right?
Jeremy Barnum: In a world where rates drop, or is suddenly and recover like quite dramatically, and credit becomes abnormally good, and then rebounds, and you've seen these very significant fluctuations in capital markets. You know, we saw that 2021 going to 2022, where the revenue environment can change a lot. In the short term, for reasons that can be largely out of your control, and while of course there are parts of our expense base, which are in the short term directly sensitive to the revenue environment, and some of those are just naturally, and some of them we adjust more forcefully as a function of volumes, but other things are much more structural, and the goal is to make sure that those other things are sized appropriately to what we believe sustainable through the cycle of returns are.
Jeremy Barnum: So, we're always very focused on costs. You can be rest assured of that. That discipline internally is as aggressive as ever as we go through the budget cycle, but their long term plays, and, you know, you really shouldn't expect us to see trying to generate cosmetically lower costs and response to a lower revenue environment, where we didn't balloon the costs when the revenue became, you know, as we've argued, understandably high. Yeah, fair enough.
Jeremy Barnum: And then if I can just squeeze in on the first republic, you know, obviously the contribution there is coming in multiple higher expected. How do you think about the puts and takes in terms of I think there's probably some runoff of loans still to come, but also opportunities to deepen relationships there. Yeah, so you're right about the contribution and about the runoff loans, and it is, you know, notable, the net income, the first republic related net income that we printed this quarter.
Jeremy Barnum: So the first thing to say is that we don't think that that first republic related net income number from this quarter is a sustainable indicator of the future run rate. Some of the same dynamics that we've just talked about, in particular, over earning on deposits or sort of above normal deposit margins also apply to the first republic friends to some degree, so we would expect that to normalize. And probably more significantly, I think you alluded to, we do have some accelerated pull to par on some of the commitments that we took on at a fair value discount as part of the acquisition.
Jeremy Barnum: So that's a short term tailwind in the revenue that will come out of that, you know, over the next few quarters. And yeah, in terms of how it's going overall and deepening the relationships that remains a focus, and I think more of that will happen as we continue the integration and we continue stabilizing. And yeah, I think as I said, I think on the press call, things are going well, arguably a little bit better than we'd sort of modeled as part of the acquisition. And, you know, we're happy to see that.
Jeremy Barnum: Okay, thank you very much.
Unknown Attendee: Thank you, there are no further questions.
Unknown Attendee: Thank you very much.
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