Q2 2019 Earnings Call

She said please standby we are about to begin good morning, ladies and gentlemen, welcome to JP Morgan Chase a second quarter 2019 earnings call. This call is being recorded your lines will be muted for the duration of the call. We will now go live to the presentation. Please standby.

At this time I would like to turn the call over to JP, Morgan Chase's, Chairman and CEO , Jamie Dimon, and Chief Financial Officer, Jennifer Peep Sac Ms. Peep SEC. Please go ahead.

Thank you operator, and good morning, everyone before I get started I'd like to thank maryann for nearly.

Years, as CFO and for her support of me over many years, but particularly her support during my transition into this role. So a huge thanks to Marianne good I just wanted to add my thanks to having Marin as you all know did a great job.

Smart.

On his thoughtful help make the company better company. So all the things got to Marianne and we also know the journey to do a great job too.

Thank you Jamie.

Okay. So now onto the presentation, which as always is available on our website and we ask that you refer to the disclaimer at the back of the presentation.

Starting on page one the firm reported record net income of $9.7 billion and EPS of $2.82 on revenue of 29.6 billion with a return on tangible common equity of 20%.

Included in these results are tax benefits of $768 million related to the resolution of a number of tax audits.

Adjusting for this as well as a few other notable items that largely offset we delivered an 18% ROTC this quarter.

Underlying performance for the quarter was strong with highlights including client investment assets in consumer banking up 16% largely driven by net new money flows.

In card, 11% growth in sales and 8% growth in Outstandings.

Number one in global IB fees year to date, gaining share across all products and regions.

Steady results in the commercial bank with net income of $1 billion, while continuing to invest in the business.

And then asset and wealth management record long term inflows AIU and client assets.

Overall for the firm total loan growth was 2% year on year, but down 1% sequentially important to note here that these variances include the impact of loan sales at home lending as we continue to optimize our usage of capital and liquidity across the firm.

Credit performance remained strong across businesses and we delivered another quarter of positive operating leverage.

Now on to page two and some more detail about our second quarter results.

Revenue of $29.6 billion was up 1.2 billion or 4% year on year as net interest income was up approximately 900 million or 7% on balance sheet growth and mix as well as higher rates.

And non interest revenue was up approximately 300 million year on year, largely driven by the absence of the card rewards liability adjustment we took in the prior year.

Excluding that variance in the other offsetting notable items I mentioned noninterest revenue was about flat with strong performance in consumer across auto lease home lending production and consumer and business banking offset by lower markets revenue and IB fees as previously guided.

Expenses of 16.3 billion were up 2% related to continued investments in our businesses, partially offset by a reduction in FDIC charges of approximately $250 million.

Credit remains favorable with credit costs of 1.1 billion down 5% year on year.

In consumer credit costs of 1.1 billion were flat as higher net charge offs were offset by net reserve releases.

And in wholesale credit performance remains favorable with net charge off rate of eight basis points, which was fully reserved for in prior quarters.

Once again, we do not see any signs of broad based deterioration across our portfolios both consumer and wholesale.

Now onto the balance sheet and capital on page three.

We ended the second quarter with a CPT one ratio of 12.2% up more than 10 basis points versus last quarter.

In the quarter, the fern distributed $7.5 billion of capital to shareholders and as you know the fed did not object to our 2019 see CCAR capital plan.

We are pleased to have significant flexibility with gross repurchase capacity of up to 29.4 billion over the next four quarters and the board announced its intention to increase the common dividend to 90 cents per share effective in the third quarter.

Now on page, four and consumer and community banking.

CCB generated net income of $4.2 billion and an ROI, we have 31%.

Loans were down slightly year on year, driven by home lending down 7%, reflecting the loan sales I. Just mentioned however card loan growth was healthy above 8% business banking loans were up 2% and auto loans and leases were flat.

We saw strong deposit and investment growth year on year with deposits up 3% and client investment assets up 16% growing across both physical and digital channels.

Our sales were up 11% as growth remains strong across key products.

And across the franchise active mobile users were up 12% year on year given continued engagement in our new features.

For example, customers have opened over 2 million checking and savings accounts digitally.

Activated over 60 million shaped offers and our enrollment in credit journey now exceed 18 million.

Revenue of 13.8 billion was up 11%. This increase included two notable items that largely offset.

First the current quarter included a negative MSR adjustment in home lending driven by updates to our model inputs and in the prior year as I mentioned, we had a rewards liability adjustment in card of approximately 330 million.

Consumer and business banking was up 11% on higher deposit NII driven by margin expansion.

Home lending was down 17%, although excluding the MSR adjustment I just mentioned revenue would have been up 4% driven by higher net production revenue on better margins and higher volumes, largely offset by lower eni on spread compression and lower balances.

And card merchant services and auto was up 18%.

Excluding the previously noted rewards liability adjustment revenue was up 11% driven by higher card and I on loan growth and margin expansion and the impact of higher auto lease volumes.

<unk> expenses of 7.2 billion were up 4% driven by continued investments in the business and higher auto lease depreciation largely offset by efficiencies and lower FDIC charges.

Oh, no the overhead ratio was 52% and we delivered significant positive operating leverage.

On credit this quarter included a reserve release in the home lending purchase credit impaired portfolio, a $400 million, reflecting improvements in delinquencies and home prices, which was partially offset by reserve building part of 200 million. This was primarily driven by growth and to a lesser extent mix as the newer vintages naturally season and become a larger part of the portfolio.

Net charge offs were up 212 million, excluding the recovery on a loan sale in home lending in the prior year net charge offs were up 80 million driven by card as we continue to grow the portfolio.

Now turning to the corporate and investment bank on page five.

See I'd be reported net income of 2.9 billion and in early 14% on revenue of $9.6 billion.

As a reminder, our performance was particularly strong last year, which featured record or near record revenues in overall IB fees and equity markets.

With that in mind for the quarter Ivy revenue of 1.8 billion was down 9% year on year in a market that was also down.

Advisory debt underwriting and equity underwriting fees were down 16, 13, and 11% respectively.

Reflecting lower levels of deal activity as well as a 10 year record share in equity underwriting in the prior year.

It's worth noting on a year to date basis, we continue to rank number one overall and have gained share across all products and regions benefiting from our continued investments in bankers.

In advisory, we grew share and announced deal volume and announce more deals than any other bank in debt underwriting. We also ranked number one benefiting from our strong lead left physicians and leveraged finance.

And then equity underwriting we have seen significant pickup in activity since the first quarter and we continue to benefit from our leadership positions in tech and healthcare, where there has been robust activity.

Looking forward the overall R&D pipeline is healthy the lower compared to the elevated activity, we saw last year and with fewer acquisition financing and refinancing opportunities and debt underwriting.

Dialogue with clients remains active and we expect strong deal flow to continue.

Moving to markets total revenue was 5.4 billion, which was flat year on year.

Our results include a notable gain in fixed income from the IPO of trade web.

Excluding this gain markets revenue would have been down 6% year on year against a strong second quarter performance last year.

Fixed income markets was down 3% on an adjusted basis with relative weakness in EMEA, partially offset by increased client activity in North America rates and agency mortgage trading due to the changing rate environment.

Equity markets was down 12% against a record second quarter last year.

[noise] subdued client activity and a tough compare contributed to a year on year decline in equity derivatives that said cash and prime remained stable with client balances and prime reaching an all time high.

Treasury services and security services revenues were 1.1 billion and 1 billion down four and 5% year on year, respectively, with organic growth being more than offset by deposit margin compression.

As a reminder, similar to last quarter deposit margin was primarily impacted by funding basis compression rather than client basis and at the firm wide level. There is an offset.

Sequentially Treasury services was flat and security services was up 3% on higher balances and fees.

Finally, <unk> expenses of five and a half billion were up 2% compared to the prior year with higher legal expenses, partially offset by lower performance based compensation expense.

And the comp to revenue ratio for the quarter was 28%.

Now moving onto commercial banking on page six.

Commercial banking reported net income of $1 billion and an ROI, we have 17%.

Revenue of 2.2 billion was down 5% year on year predominantly driven by lower investment banking activity due to our outperformance last year and lower Eni on slightly lower deposit balances.

Also worth noting here gross IB revenue of 1.4 billion was up 8% year to date on strong syndicated lending and M&A advisory activity and we continue to aggressively toward our long term 3 billion dollar target.

Deposit balances were down 1% year on year, and importantly up 1% sequentially as balances has will have largely stabilized in total although we continue to see migration from non interest interest bearing deposits.

Expenses of 864 million were up 2% year on year, driven by ongoing investments in banker coverage and technology.

Loans were up 1% and see an i. loans being flat or up 3% adjusted for the continued runoff in our tax exempt portfolio.

The story here remains unchanged, we saw solid growth in areas, where we've been investing including expansion markets and specialized industries.

Offset by lower acquisition related and short term financing activity.

CRT loans were up 2% with modestly higher activity in commercial term lending where clients are taking advantage of lower long term rates offset by declines in real estate banking, where we continue to be selective given where we are in the cycle.

Finally credit costs were 29 million with a net charge off rate of three basis points now on to asset and wealth management on page seven.

Asset wealth management reported net income of $719 million with pre tax margin NR, we have 27%.

Revenue of 3.6 billion for the quarter was flat year on year as the impact of higher average market levels was offset by lower investment valuation gains.

Expenses of 2.6 billion were up 1% year on year as continued investments and advisors and technology were partially offset by lower distribution fees.

For the quarter, we saw record net long term inflows of $36 billion driven by fixed income and we had net liquidity inflows of 4 billion.

Hey, you end up 2.2 trillion and overall client assets of three trillion. Both records were up 7% driven by cumulative net inflows into long term and liquidity products as well as higher market levels globally.

Deposits were up 2% sequentially and up 1% year on year and similar to the commercial bank balances in total have largely stabilized.

Finally, we had record loan balances up 7% with strength in both wholesale and mortgage lending.

Now onto corporate on page eight.

Corporate reported net income of 828 million, including the vast majority of the tax benefits that I mentioned earlier.

Revenue was 322 million up $242 million year on year due to higher net interest income driven by higher rates and balance sheet mix, partially offset by net losses on legacy private equity investment in terms of net gains in the prior year.

And expenses of 232 million were down 47 million year on year.

Finally, turning to page nine and the outlook.

On this page I'll, just comment on Eni, which should not be surprising given the changes to the rate environment.

As you can see we are updating our 2019 full year and <unk> outlook to about 57 and a half billion.

The reduction is based on multiple scenarios, which assume among other things lower long end rates and up to three rate cuts this year, which is consistent with current market sentiment.

And as a reminder, this compares to rate scenario that assumes zero sites at the time the first quarter earnings.

So to wrap up.

The U.S. consumer remains healthy overall credit is in great shape and the earnings power of the company is evident we delivered strong returns this quarter and the diversification and scale of our business model positions us well to outperform in any environment.

Understanding there's some macro uncertainty and potential headwinds from the rate outlook, we still expect to grow the franchise and will continue to strategically invest in our businesses in technology bankers and beyond.

And with that operator, please open the line for Tonight.

Okay.

Our first question comes from Jim Mitchell of Buckingham Research.

Hey, good morning.

I noticed that.

Card loan growth was particularly strong this quarter just wanted to get a sense of what you feel is driving that uptick on that do you think how sustainable is it sort of 8% year over year growth.

Sure so on card loan growth.

We feel very good about what we're seeing there and we talked about at Investor day, we have a real off.

Our existing customers and we talked about how our existing customers have about 250 billion of borrowing off us about 100 billion of that is squarely within our existing buyback. So you can think of this.

Highly targeted to high quality existing customers and for the first time, we're actually seeing loan growth in card the majority of it coming from existing customers versus new customers and so we're really shifting the paradigm there and we feel great about being able to harvest the opportunity that we talked to you about at Investor day.

All right and should we expect I'm just sort of the you to continue to reduce the mortgage footprint in this rate environment.

So the and on the mortgage business I would say it was a good quarter on the back of the rally and so we didnt see volume increase and a and we saw some margin expansion as well and so obviously highly rate dependent but I would say the structural challenges in that business to remain unchanged and so we continue to focus on optimizing the balance sheet across capital and liquidity and so looking at loan sales and.

Thinking about you know de risking the portfolio from a servicing perspective, so good quarter on the back of the rally, but doesn't change the overall structural challenges.

Okay. Thanks.

Our next question is from Erika Najarian of Bank of America.

Hi, good morning.

Hi, Anthony.

Hi, I'm. So I just wanted to go back to what you were saying earlier in that your guide or your your guide lower is including up to three rate cuts. This year, which would suggest to me that your net interest income was quite defensive in the face of rate cuts I guess my first question is could you give us your primary assumptions for that $500 million swing, particularly on deposit pricing.

Okay sure. So first I'll take you back to the first quarter, where our guidance was 58 billion loves and we talked about some pressure on the long end at that point that pressure has persisted and in fact increase and so we pulled the impact of the long end through in terms of our outlook and then on the short end range of outcomes are obviously quite broad and so we saw about a range of outcomes of one to three rate cuts and so you can think about is one if its one cut 57, and a half billion plus and if it's more 57 and a half billion minus and then based on current implies you know you can think about the third quarter as being 100 250 million below the second quarter, and then a bit more than that in the fourth quarter. Given we would have a full quarter at that point.

Oh, and then in terms of on Betas I mean, largely speaking you can think of betas as being symmetric and so on the consumer side, we saw little repriced on the way up and so there is not a lot of opportunity on the way down on the wholesale side. If you look at large institutional businesses like a treasury services and security services. We are largely at full reprice, there and so there should be opportunities are there and then in places like the commercial bank and asset and wealth management. We are still ahead of what the model would have assumed but we have started to see reprised pick up there.

But importantly, I would say, we're not going to lose any valuable customer relationships over a few ticks a beta and so you know, we'll see how it goes its own button or something and it's all embedded in.

Okay got it and just you know going back to Jim's question I noticed that.

Investment Securities balances continue to go up and mortgage loans were down another 5% you know should we think about this is part of the overall you were saying optimizing capital and liquidity and therefore as we think about it going forward you know we could also expect to see.

Perhaps some relief and R.W. wage growth and some relief in the continued reserve release as part of the optimization.

Sure. So on the orderly way side, yes that is that is precisely why we're doing it and so when you see the loan sales and home lending yes. They are all set in securities purchases, which are more efficient from a capital perspective as well as the liquidity perspective, So yes, having said that on on reserves I mean reserves are not necessarily going to be too to be impacted directly by that because of course that will depend upon the environment and the mix of the portfolio that remains what we just said our standardized capital ratios. The Torpoint too. This is 13 advances obviously have formed were important broader economic number it's simply does not make sense to hold our own on mortgages, where you could favor standardized they kept secured does.

Got it thank you.

Our next question comes from Mike Mayo of Wells Fargo.

Hi, so the efficiency ratio went from 56% to 55% year over year and I guess, that's with some accelerated tech spending. So do you plan to keep this pace of tech spending going and what is the current update on that tech spending where is it connecting where is it not connecting because I think you said.

You'd accelerator for a couple of years and maybe we'd see more of the results and 2020 2021.

So clearly we're going to take us.

So.

It's about 11 and a half billion dollars today I think it was a little bit lower last year.

If we had to say where are you today for next year will be something like 11 to have.

And I think it's becoming only becoming more efficient we really haven't taken so things are becoming cheaper overtime.

And then you're also investing money all the time, which we're going to do regardless of the environment. So were not good color.

Things were trying to build very good my my rewards programs and Chase Malone and and the credit journey, because there is a recession or something like that so you know Daniel Gordon will tell you right now that they didn't get worked to get more efficient spin.

And we shouldn't tobi or whatever you want but we will have to spend to winning this business in there. We're very efficient recovered course about always better technology, we're going to do it regardless of the environment and we'll try to get more theres been touched on too that's right in our investments in technology create capacity in terms of productivity to continue to invest in and we've talked a lot about AI machine learning. It's early innings, there and there's a lot that we're going to be able to do to invest there and become more productive and then cloud a you know developers can become more productive using the cloud it look it's amazing or fraud costs with all the pretty girl in the world today are Dan because especially because they've done historically.

And so its hard to complain about the new ones as you look at our current especially as it grew 16%.

A portion of that was you addressed but obviously you would of course, what does she leaves dollars to build so you got it you got to put all these things in perspective about how your drug business isn't going forward.

And then follow up Jimmy you mentioned the environment all the things taking place in the World. How is the environment now I mean on the one area you have trade war you have lower interest rates you have capital markets, which are down for the big banks you have a lot of pessimism.

On the other hand, you highlighted your results whatsoever.

The only thing that when you take the temperature of the environment, what's the temperature.

It's not that bad uncertainty is a constant but one thing in life is you'll notice that the uncertainty going forward and geopolitical tension is kind of a constant those things, maybe a little bit higher now than normal.

But I think we see his global growth is north of 3%.

You kind of expect United States between 4% this year the consumer the United States are doing fine business sentiment is a little bit worse, mostly probably driven by the trade war and when you travel around the World you know the Japan has grown in Europe is going a little bit Brazil's gone from negative or zero.

A lot of countries of opportunity to expand that I'm doing great. They should be doing better or Mexico, Turkey. So I wouldn't get too pessimistic, yet and obviously the fed will act to would be the database in those as more important what's going on than just what the fed does assist pretty races are going to recession, that's not a good rate cut.

As the fed actually raises rates one data there, but that's not so bad.

All right. Thank you.

Our next question comes from Glenn Schorr of Evercore ISI.

Hi, Thanks.

I'm not sure if I missed it but I forget total average loans were up 2% year on year, but that was impacted by the loan sales.

Can you tell us either sides of loan sales or what average loan growth was up year on year without that.

So yeah, there's a few things going on in loan growth as you as you say Glenn So we have the loan sales. We also have the run off of the tax exempt portfolio. So you can think about loan growth probably closer to 4%. If you adjust for those items and importantly, as we always say loan growth is an outcome not an input and we feel good about the loan growth that we're seeing in terms in the areas, where we're investing and then and you know for the full year. You can think about a number if you adjust for the loan sales and see I'd be a of 2% to 3% full year.

Okay.

I appreciate that and then just curious on the noninterest bearing deposits only being down 2% year on year, we've seen a lot bigger numbers that some peers.

Is that just strength of JP Morgan franchise or work.

Are you doing anything actively to try to manage that lack of mix shift.

So as I said.

We are seeing balances stabilize in a commercial bank and ADW M., we are still seeing some migration.

Noninterest bearing interest bearing but largely we're seeing those balances stabilize and then we do before US have continued growth in the consumer bank and the second quarter is typically seasonally high in the consumer bank. So we have some growth in noninterest bearing there and and even in the consumer bank, where we've seen growth decelerate that largely as a result of consumer spending so that feels healthy as well.

Okay, maybe last one.

On on appreciate the guide on 2019, because that's a.

Half.

If you look forward into 2020 with no incremental rate cuts is it remotely linear in other words, if we think about if the ongoing rate and curve environment persists into next year. After the two or three cuts this year.

Are we looking at a billion or is that way too complex to to oversimplify it like that.

Yeah, it's probably more complicated Glenn and so just given the range of outcomes are as broad as they are and importantly, if we're looking at costs that are insurance costs that sustain the expansion versus cuts that may be in response to a broader economic slowdown.

There are other things that we wouldn't be talking about so we're not going to give further guidance on 2020 until we know more.

Okay. Thank you appreciate it.

Our next question is from Gerard Cassidy of RBC.

Thank you good morning.

When you take a look at your merchant services business you had some really strong growth year over year I think it was up 12% and then your card volumes. Excluding the commercial card were also up very strong can you share with us what's driving that strong growth double digit rent growth.

Thanks for noticing.

[laughter].

Thank you for those I I would say that is firing on all cylinders. So its brand its people its products.

It does certainly help to have the backdrop of a healthy U.S. consumer as well and in fact retail sales. This morning, I'm looks strong. So you know we can we can expect that to continue.

Is it more the market as you just referenced the retail sales. They were strong is it more that are you guys also seeing gains in market share that gives you an added boost.

Yes, we have taken share in a little bit of share in part as you know we're number one in sales there I think importantly was helpful. In card is that.

We don't even need to take share to grow just given the secular tailwind that we have in the card business on the electronification of cash.

Great and that.

And we're taking share in merchant acquiring yet we expect to do take more share in the future.

[laughter] speaking in the future.

Can you guys give us some color on what your first read of LIBOR is that the Facebook announcement about the process payments system that they're going to initiate.

Yes, so just to put it in perspective, there has been talk about.

Block chain for seven years, and verticals happened I mean, it could become or Libra three years ago. So I wouldn't spend too much time, but we we don't want competition.

And the request is always to be the same as the governments are going and we want a level playing field.

Governments are going is that people, who hold money or lose money only recording the rules, where they have the right. So controls in place no one wants to aid that terrorism or criminal activities and thats can be true for everybody involved in this and obviously banks have been doing to the K Y anyway CBSA about for a long period of time and those theaters I think what's become for everybody is important and they should.

Thank you.

Our next question is from John Mcdonald of autonomous.

Hi, I wanted to ask.

About the C car and you got a big authorization. This year, how did you approach to seek our plan. This year in relation to your long term CTO onto the 11 and 12 that you've talked about.

Sure. So as we think about capital distribution first.

We would start by always saying that we prefer to use our capital to invest and grow our businesses.

And then to have a competitive all the competitive and sustainable dividend and only then to return excess capital to our shareholders and so we are pleased with the approval and the additional capacity.

To to return that 29.4 billion to shareholders, having said that we are still targeting the upper end of the 11% to 12% range. We're always going to want to have a management buffer because as I had said you know our first priority will always be to invest and grow our businesses and then of course there remains a you know a lot of uncertainty in terms of the regulatory capital framework and then importantly, we wouldn't actually need to make that decision for a few more quarters given the way the capital distribution plan laid out over the four quarters.

But as of now we are still targeting the upper end of 11% to 12%.

Okay. Thanks, Chen and any updated thoughts on T cell or could you remind us of what your thoughts on initial impact there. Thanks.

Sure. So I haven't changed from Investor Day, our range continues to be four to 6 billion then.

You know we're prepared for.

January one implementation.

Just to.

Hey, good chance or C car is one test a year on stress, we do 120 a week.

And so we're always prepared for stress Seacor has us losing $23 billion in nine consecutive quarters I want to remind you all that in the nine quarters. After Lehman real dress event, we made $20 million to $30 million.

She court shoes are going to grow your balance sheet assume you've got to continue your dividends and stuff like that we have plenty of capital I mean, our capital costs run it over and we prefer to deploy that capital I remember things like opening branches. Every branch will eventually you attend the $10 million capital to afford a branch. So eventually $4 billion of capital. So restraints on growth also restraints on capital usage and the ability to finance the us economy. So we're really optimistic about ability to somehow use our capital equivalent isn't that acquisition. We just did our existing closes sometime soon so.

Our next question is from Betsy Graseck of Morgan Stanley .

Hey, Good morning, Jimmy you mentioned about block chain, we've been hearing about it for seven years and not much has happened, but I think you.

JPM have built.

A block chain solution for at least your correspondent banks and I guess I wanted to understand where you think you're planning on taking that right now it's just a A.M. okay. We see.

A use case, but is that something that you think you could deliver more functionality over overtime.

Well, we think the watching it real but and the reason it takes a long aggressive people agree the protocol to write a lot of codes and get into it but what are you referring to high end is the information that we are the banks are right now based transfer a lot of information among each other.

Trade finance correspondent bank and stuff like that so I think we have like a 120 banks signed up were going to afford us. So right now it's four bank wholesale use.

To have immediate information, we all have the same information you can move things, but eventually you bill money quicker with data. So yeah. We're we're optimistic about that and we're going to roll that out as soon as we can and costly tested mixture of secured all that remind people when it comes to moving money JP Morgan Chase moved six trillion dollars a day quite securely and quite.

Quite cheaply.

So you got to look at the problem you are trying to solve for people to Jimmy said, well you Didnt have real time payments that was true and now we do affect the resolve repeated PDP and now we do effectively some goodwill coal RGB real time payments through TCH. So we are building the things that the future is going to want to.

Block chain ledgers that have much more data real time movement of money that also goes to four checks et cetera. So we're quite optimistic about us take a while to get everyone uses one day, we will have to be opened up for border customers and possibly.

So one of the things that's coming out in these you know Senate and House financial services Banking Committee meetings is this in a desire for real time payments a desire for a cheaper solution for payments.

And that Sina supposedly what LIBOR is going to offer but to your point. It seems like you're already doing that the question is how do you how do we think about the outlook for interchange and is there.

And what's your strategy towards interchange pricing here as we go over this.

Through this period interest rate there is real time, PDP free shape and secure call Jill.

So when people say doing thats, what he does does not cross border. So we there are people who might want to do their cross border remember course border remittances have much much smaller than actual use of debit card credit card payment systems here and the Vegas and build a real time payments with respect to already in use.

And to me. This is there's going to be brought down to make sure. It real time payments you also put through effectively real time, a fortune and stuff like that so.

In the United States credit card debit card. These are people love. These cars the beneficiaries the consumer they always remember that's what we're here to serve and someone is going to pay you eventually for services provided but people like their credit cards that use the credit cards for the user debit cards.

Maybe I don't remember last arguments to the court.

Yeah, we get rewards it's great.

Okay, Thanks, and adjacent JP Morgan, maybe getting more free stuff to get free either buying some stock for free. We just gave you a very good it's got rolled out we only have a few accounts, but robo investing very cheap very clear so we're going to take and give our clients more and better and faster cheap all the time and how we package that was self funded bank sapphire corridor or discounts in mortgages, although it remains to be seen but.

The future is very bright because if we can do more for our customers as a very good thing.

And don't forget on credit cards, you get charged back rights and you get the flow.

Right and you get you go on if you're chased customer you get your FICO score for free you're going to be able to figure out the retail customers a great perfumes education, how they could improve their FICO score.

You get offers are just chase towards other countries was about I think is I mean, we market has really taken off and sure. She's always you talked about that at Investor day, like a really powerful flywheel, where we can we can deliver.

Value to our large merchant clients in terms of being able to bring a very large customer base to them and then we can deliver that value to our customers at zero cost to us and so as I said in the presentation. We've had over 60 million Chase offers activated and so this is really powerful and benefits not just our consumers by our large merchant clients and zero cost.

So the message of more efficient less cost maybe needs to get hurt on the hill as well.

Yes, and we talked a little time and a lot of people is there and then of course, they always wanted to do a better job for consumers, which we agree with them.

Yes, I guess the final question here is just on the Underbanked is there something or is there an offer that you have for them are you considering that cause that I'm, just thinking about where fin techs trying to exploit you and I know, it's a catch phrase underbanked.

That is being used by labour doesn't necessarily to me seem like it's it's.

Solving anything for them, but maybe you've got a better solution that we just don't focus on so we have since October district, mergers, we have 25% or brands Alomar neighborhoods. When we go to those neighbours. We do some philanthropy were doing more and more financial education, which I think is really important that I. Just mentioned are the FICO score, but think of it might be on the things. We can do we do chased chats or get people into the branch to educate them about saving FICO scores, we need to do to to get a mortgage to buy a house or stuff like that and then we have a product for treating is grateful secure banking and think it was a card but it's the full thing you is you can't overdraft I think is for 95 a month.

But you can use ATM as you can have direct deposit you could do.

Online mobile payments and stuff like that so we got a great product for the under banked them thats going down 25% or.

And we're kind of push that a little bit more so we always want a good thing and then we also have special footwear cycle venture banking the upper collar fund were making loans authors of color that we are not traditional bank loans, but help them grow their businesses. So we're quite a lot of ways to do it and we do a lot of holding conferences and I would say we're at the forefront of that.

Fintech of course, obviously, you're trying to your lunch and Thats I think thats. Good its called American capitalism, we have boosted our toe to compete.

But we are like.

But.

Jim as a car GRC rolled out last year announced the Westchase My plan and chased by loans. So that people can use their credit balances immediately to do what they want to do and do it.

Well, we rolled outsell PDP that's good for everybody. So if you have a bank account you can move money to your friends and relatives, who pay the $10 money change your fees and stuff like that so we're all in and try to do a better job of American consumers. We think we do a great job for them and with the legitimate complaints will fix it.

That's right and you mentioned the 25% in Elmira.

Our branch footprint in our expansion markets that's 30%.

Yes.

Thanks.

Our next question is from Ken Huston of Jefferies.

Thanks, a lot good morning.

Just wanted to ask on the balance sheet last year, so you've seen a huge jump in the trading related assets and I know you had the accounting change that you mentioned in the supplement but can you talk about is that related to.

Market share gains is it related to just.

Specific strategies with regard to managing liquidity and how and it doesn't seem to be equally growing on the asset side and the trading liability. So just can you explain the dynamics behind that now that adds to the net interest income story. Thanks.

Sure. So in terms of the balance sheet growth that you saw quarter over quarter that was primarily related to our balance sheet intensive businesses in the markets businesses.

And then we were down on a spot basis quarter over quarter, but we start with deposit growth and so we have had strong deposit growth and so you see that reflected on the balance sheet side as well and you would have seen security balances as well as some of that is adding duration and some of that and short duration securities that are higher yielding than we are and yes. So.

Okay. So it is part of the liquidity management strategy Okay.

John did you say, what the amount of the gains that you had on the loan sales this quarter.

This is just liquidity choice if you get a higher return on repo you get I owe you are you going to do that if you get a higher return to standardize using standardized capital on securities and Youre unemployed whole loans are going to do that and that's what you're seeing in some of these things that's right. The screens from I should have mentioned.

Home sales and home lending.

Right. Okay got it that makes sense did you did you say what the amount can you tell us what the amount of the gains on the loan sales. This quarter were if they were above trend.

We havent disclosed the amount of the games and we had some loan sales in the fourth quarter that first quarter and the second quarter. The first and second quarter in terms of the notional amount that first quarter was about $7 billion in the second quarter was about $9 million or just a little bit more beginnings as important net network, but they show up in different places, but not yet material yes.

Got it and lastly, just any thoughts on the investment banking pipeline and just the continuation of.

The outlook on across the buckets there. Thanks.

Sure. So in terms of the investment banking pipeline I'll, just remind you that the third quarter is typically a seasonally lower quarter and so sequentially you should think about IB fees being down event.

That said the pipeline is healthy although off a record performance last year, which is a function of a reversion to more normal levels activity as well as some overhang from macro uncertainty.

In M&A still feels very healthy and it's still a space where companies.

Looking for synergistic opportunities for growth, especially in North America, perhaps year end a bit more muted and DCM. We had a very strong second quarter. So that will taper off in the second half of it but I would say deals are getting done well in the current environment and then DCM DCM will be more subdued reflecting a slowdown in acquisition financing activity as well as refinancing opportunities, but albeit with a good backdrop for new issuance given the rate environment.

Our next question is from Matt O'connor of Deutsche Bank.

Good morning.

So I realize rate expectations can change quickly, but how do you think about managing the company in a rate environment that follows the curve that's out there for three to four cards.

And you said earlier you would have cut back on technology, but are there other areas and expenses do you think about managing the balance sheet and liquidity a little bit different.

Sure. So in terms of balance sheet management, we manage the balance sheet in both directions.

It's a negatively convex balance sheet and so all else being equal as rates are declining we would naturally just drift shorter driven both by asset and liability. So you would expect us to add duration, which we did this quarter, but we're not going to change the way we run the company because of the rate environment, we're going to continue serving our clients investing with discipline and managing the balance sheet across all dimensions that being capital liquidity and duration and then in terms of expenses again, we're not going to change the way we run the company because open interest rate environment and I'll, just say again that there is a range of outcomes are very broad here and so.

You know, it's it's if we end up with insurance costs.

It's a temporary headwind and if we end up with costs in response to a broader economic slowdown there will be a lot more to talk about but as Jamie always says, we're not going to change the way we run the company because of the.

Macro environment that said in a broader slowdown obviously there are natural levers on volume related expenses.

And we read decision a large part of our investment portfolio on an annual basis, we will always continue to invest in the things that we think are important but we would have that opportunity depending upon the opportunity to take a look at that.

Member in a real recession, but there are always opportunities reduce your costs.

As vendors follow themselves to give you better deals and stuff like that they are also huge off to spend your money wisely. So sapphire card was bird in the overnight.

And you could imagine that it was not we have a great opportunity, we're not going to take it and so I think you've got to be very careful because it is marketing money is usually better Spencer the downturn.

The returns on a newly double.

And you talked about the capital and your thought process. There obviously the authorization of the buyback is a very big number is that your.

Expectations that you'll use at all or is that still to be determined based on balance sheet growth stock price on the environment.

I would say still to be determined our first choice will always be to use our excess capital to invest and grow our business. So still to be determined and as you know it's over four quarters and so we have time to think about it but obviously pleased to have the flexibility.

Because the timing of that even or.

Is there flexibility there to.

It has been in the past, but thats, we can change that every day.

Our next question is from so Martinez of UBI, yes.

Hey, good morning.

Couple of questions first on the NII outlook beyond this year and I fully appreciate you.

You are not giving guidance beyond this year.

But you do have the the guidance from Investor day out there of a sustainable Eni of 58 to 60 billion that was set in a very very different rate environment.

If we were to see multiple rate cuts, how do we think about that guidance and.

How I mean, what are some of the.

Some of the moving parts that might get you perhaps to the lower end of that 58 to 60 billion is it simply.

Dependent on how the economy responds deposit pricing. If you can just kind of outline what you think some of those moving parts are.

Sure. So the guidance again, I mentioned, an NDC 50, 60, I would say largely still Dan importantly, because when we talked about that at Investor day, we weren't assuming any further benefit from rate. So we were assuming that any incremental increases in rates would be offsetting reprice and so the majority of that growth was going to come from balance sheet growth and mix and if you remember the slide there were a number of arrows on the slide even even at that time, which was obviously a different rate environment.

We were implying that there were a number of different paths to get there and so that obviously continues to be true and so there may be a different path to get there. It may take a little bit longer, but we still believe in that steady state number because we still believe in the growth of the franchise.

Okay. Okay, that's helpful, but could change gears a little bit you.

You recently announced that you're closing thin you close fan.

And I think Thats. The stated logic is you learn that millennials don't need a separate brand or or experience, but can you just elaborate on the logic, there and what you learned from that experience because it does seem to maybe fly in the face of.

What some other.

Entities are financial institutions are doing with their digital banking strategy.

Destruction.

I was just to say, we learned a lot and fan.

Instead, it you know that we learned that support our chief than certainly means that we don't need a separate brand. We also learn about a number of features that our customers love and we were able to reuse those features and port them over to the chief mobile App and so I think we always need to be testing and learning and doing things like this and not afraid to shut them down when we've learned what we needed to learn and can serve our customers during the primary change mobile app.

Hi, it's would be reasonable outlook as to how to do digital account openings only digital can you do it out of a retail bank you tend to rely what you already have sort of a lot of lessons. There. We we always going to be running some kind of skunk works and learning from things like that and so we'll look at those kind of things like failures at all that is how you learn and Jeff Bezos will tell you we own mistakes are good mistakes are what make you smarter and better and so I hope we made some really good mistakes.

They can teach us all of our business at one point the people do and did a great job there embedded and by the way you can open to chase account now and never going to branch.

I mean, you could open I kind of want to takes over to Kathy committed to open an account. So we got much better digital only but we don't separated from the physical branch system yet in the digital account opening is now about 25% of our new account.

And we're doing we'll be doing that small business and merchant processing all these various things.

Got it okay. Thanks very much.

Our next question is from Eric Compton of Morningstar.

Good morning, Thanks for taking my question, so the especially kind of ties into some of the items already mentioned the longer term kind of tech focus and also related to fin.

So there has been some press recently about reasons for closing down the fund up in.

One of the items that was mentioned was it some of the difficulties banks can potentially run into with their legacy platforms, which for the most part are built on COBOL, which has been around since the sixties and depending on who you talk to these legacy platforms can either be.

You know like huge problems for banks or not really a big deal. So I guess from the outside at least for me can be kind of hard to tell what really is going on there. So my question is as you compete with Fintech firms, who are building new platforms from scratch, how do you strategically view dealing with your own legacy platforms or is there a need to kind of redo. These things eventually in order to actually compete with newer tech overtime or do these legacy platforms.

Really hamstring you in any way.

Or is the hype around those issues really over done and if so why thanks.

The hype has been around now for the better part of a decade, right and we seem to be doing fine, but there is true and somebody's legacy platform is also the reason why you have 50 million customers, but it is true that overtime the platform be reformulated re factored into the cloud eligible and things like that and those things are more efficient. So your cost will go down your ratio go down so I would the way I would look at a little bit as we run like six or 7000 applications overtime, Dolby Modularized and being re factor to the cloud eligible was our own private cloud very public cloud and yes, there will be more efficient and we also have tons of of your digital platforms that are built around these things are due to customer service, but side that they see it open accounts in minutes you get your free credit journey that we can modify some of these things and.

Days and weeks as opposed to years, because you're not.

A monkey with the old legacy system, and so it's a little bit of both but but those numbers are better nortechs Doug.

The re factoring building data centers, you know getting better.

I'd already in those numbers.

And we have no further questions at this time.

Okay. Thank you very much and you did a great job portola quarter through pricing.

Thank you for participating in today's call you may now disconnect.