JPMorgan Chase & Co. (NYSE:JPM) Barclays 21st Annual Global Financial Services Conference September 11, 2023 1:00 PM ET
Company Participants
Jamie Dimon – Chairman and CEO
Conference Call Participants
Jason Goldberg – Barclays
Jason Goldberg
Thank you, everybody. It’s a very, very distinct pleasure of mine to introduce the preeminent leader of our industry, person who’s been the preeminent leader of our industry for many decades, Jamie Dimon, it’s an even greater pleasure when he was your former boss. So Jamie, thank you. Thanks for coming.
When I say Jamie has been a leader of this industry, it’s not just that he has run the largest bank in the world, the most excellently run it, shown us how to do it. But it’s also he’s been a leader for the way the industry should think about the business and the business of banking through the financial crisis, through the European crisis and this year, through what happened with the regional banks. And that’s very important for us to keep in mind. And it’s also the basics of what good banking is about, disciplined growth, good risk management, the importance of technology and systems. He was talking about it a lot before many people did.
I know you all want to hear from him. I’ll just say 1 more thing, which is that when I used to work at JPMorgan, often we’d ask ourselves the story whether we were going to take something to him or not, face a problem, but, what would Jamie think, what would he do?
To my surprise, and it should not have been my surprise, I found that I continue to do it afterwards. And I’m not the only bank CEO who does it. And there can be no greater tribute to a person than to say that you’ve taught us. So Jamie, thank you for coming.
Jamie Dimon
Thanks, Jas [ph]. Thank you very much for the kind words. Thank you.
Question-and-Answer Session
Q – Jason Goldberg
If we could just put up the first ARS question as we get going. But Jamie, thank you for taking the time. I appreciate you being here. I really want to do focus on JPMorgan this afternoon, but I’d remiss if I didn’t ask you about your macro view of the world, perhaps on the consumer side, 80 million consumer customers, 12% deposit market share, over 20% card share. You must have a well-informed real-time view of the health of the consumer. So we’d love to hear about it.
Jamie Dimon
Sure. Well thrilled to be here. Jason, one of the great analysts in banking, I read all your stuff, as you know. And Venkat, thank you for those kind words. I’ll tell you by the consumer, but there’s a big but. So I want to be — it’s pretty good. They have more money than they’ve had, home price has gone up for the last 15 years.
Asset prices have gone up. Their balance sheet is in great shape. Their incomes have gone up. They’ve got more cash in their checking accounts than pre-COVID. It was a lot more, and it’s been coming down so that excess — we call it excess savings seems to be normalizing. Wages are going up, particularly at the low end. It’s pretty good, which is why you have a pretty good economy.
And there are huge buts here. And I just think people make a mistake to look at real-time numbers and not look at the future. And the future has quantitative tightening. We’ve been spending money like drunken sailors around the world, this war in Ukraine is still going on. Those are really big buts. To say the consumer is strong today, meaning you got to have a booming environment for years is a huge mistake.
Jason Goldberg
And then maybe shift gears leading positions on the wholesale front. I was hoping you could take that as well.
Jamie Dimon
Well, same thing. If you look at wholesale, and we were quite honest about it, we’ve been over-earning on credit. We’re over earning credit. You see it in credit card, where we all would probably said the lowest credit card loss will ever go, norm is 3.5. The lowest I would go is like 2.75. They hit 1.50. Now they’re going back to the 250, 300, just the normalization.
Wholesale had the same thing. We had the lowest wholesale credit losses we’ve ever seen. Literally, probably in the history of banking, we had middle market losses 0 for the better part of 5 or 6 years, and it’s still good, it’s normalizing. Downgrades are being upgrades, there’s a little more stress and strain, particularly in certain sectors like real estate, you’re getting a little more stress and strain in subprime auto and stuff like that. But it’s — I call it more of a normalizing process.
If and when you have a recession, which your best you’re going to have, you’ll have a real — a normal credit cycle, which I think is quite predictable. In a normal credit cycle, something always does worse than normal. So this one, the obvious one is office real estate, but there’ll be a couple of other industries that probably do worse than normal this time around, too.
Jason Goldberg
And maybe just offer your high-level perspective.
Jamie Dimon
Again, think of it, it’s the same thing. I really — the fiscal spending deficit spending is higher than it’s ever been as a percent of GDP other than more time. People — and that’s before all the additional communities to the green economy, the remilitarization of the world, the IRA Act, the Chips Act, Europe financing the energy crisis, which they did last winter, God knows what it’s going to cost them this winter. There’s a lot of fiscal stimulus taking place out there. And the large as from COVID is still running through. The largest QE is still running through. So we’re still living on that, and that’s really strong. And of course, that drives everything, including business results.
So businesses feel pretty good because they look at their current results, they’re not so bad. But those things change. And we don’t know what the full effect of all these things are going to be 12 or 18 months from now.
Jason Goldberg
I guess maybe talk how you think the banking industry are performed against that backdrop? Obviously, March was a many crises you dealt with. We have this interest rate environment to stick out a bit. Maybe you talked about potential CRE losses, which I know is a major concern for JPMorgan, but could obviously weigh on others.
Jamie Dimon
The banking industry is quite strong, and we call it mini crisis because the only so many banks were outside of interest rate exposure and which everyone knew, by the way, isn’t plain sight, HTM and incented by regulations to put your money in HTM, less capital requirement, didn’t have the market-to-market.
Of course, accounting is not the marketplace. The market makes its own decisions about what they really think about accounting. And as you know accounting it could be a fiction like with the fiction with the HTM and AFS and all that. I never particularly like HTM. Why would you be better off tying your own hands and what you can do with securities? I just never quite understood that concept.
But that crisis was the runnable deposits. Runnable deposits it’s not the same thing as uninsured. There are a lot of banks that uninsured deposits are quite sticky and so you got to be — we got to be a little more analytical that. I hope we don’t overdo things and regulations around that, too.
But the thing about the banking crisis, and I would tell us about the economy in general is if rates go up and I give that higher odds and other people. I think that the fiscal stimulus, QT, the change of flows around the world, there’s chance that rates go up. But if rates go up more than 50 basis points that will cause more issues with banks, more issues with real estate. And if you have that with the recession, yes, you’re going to see a little bit more stress and strain in the system.
And then the banking system, which I think is rather sound, a lot of these banks that you see are streaming themselves today by buying back less stock, beefing up capital, reducing the duration on the AFS portfolios. But you will see that stress to strain elsewhere, too. That will be Warren Buffett’s famous tide going out. There’s going to be a lot of people swimming naked.
And so I, again, as a risk manager, I look at that, and you should be prepared for it. Every bank should be prepared for it, some won’t be, but — and so should other companies. There’ll be leveraged companies, possibly private credit, if that happens. And I’m not saying it’s going to happen. We don’t know, I don’t spend a lot of time guessing about outcomes of soft landing, medium recession, harbor recession, because nobody knows. I do think we prepared for the details that’s actually that we’re kind of prepared for. And I think other people should be too.
Jason Goldberg
I usually don’t start with capital, but given the Basel III and game proposal came out late July, I’m sure you spent all summer, 1,100 pages’ worth.
Jamie Dimon
1,100 pages after 10 years, I mean, honestly, like this has been a lot for too long, but.
Jason Goldberg
Maybe at a high level, what were your main takeaways?
Jamie Dimon
Let me count the ways. Hugely disappointing for the following reasons. So think of strategically, what I would love to know what they really want to accomplish. If they want the mortgage business outside of banking. They should say it, raise the capital, put operational work against it and push it out. I think in order to do that, just tell us not do any mortgage anymore. If they want private credit, leverage lending out of the system, that’s fine. But I think what is it they actually want? Do they want banks never to fail? I never thought that was the goal. But if they want things never to fail, this isn’t going to do it, we should do something else. They look at other alternatives.
Do they actually learn the right lessons from Silicon Valley Bank and First Republic, like I think they have enough authority to tell banks, you could take this much interest exposure and not that and that were to solve some of these problems right there? So it was never a capital problem. And so I like what do they want?
They look at comprehensively. I would love to know the cost benefits to society of pushing some of these things out. I look at this major issue about, we’ve gone from an American 1996, 7,300 public companies to something like 4,500 today. So it shouldn’t have gone from 7,300 to 14,000. But to grow the economy of growth, private equity has got from 1,000 to 10,000. Why is that?
Are we better off by having less transparent private markets than public markets. So I think there’s a whole bunch of strategic issues they should have asked, thought, analyzed, shared some of the cost benefits, shared some of their thinking about all that kind of stuff.
Then there’s what I consider more tactical? Like I’ve always thought G-SIFI is an asinine calculation. Operational risk is even more asinine. Do you like diversification? I think diversification is a wonderful thing. But G-SIFI, so some stress enough to testing because that actually incorporates and operational risk is anti-diversification. And operational risk are all revenues equally bad really? Like, honestly, I look who did that, what person and what Ivory Tower thinks that, that is a rational thing to do.
And then I would prefer more transparency, not like on the miles. I mean no one is going to try to game it, but a little more transparent, but the process they went through. Did all have a point of view? I’d like to know the other government think. I want to know and go back to strategic. I’d like to know why on the international side, if you look at the numbers, Barclays and us, you may not know this yet. But — no, but we would have to hold 30% more capital than the European bank. Is that what they want it, is that good long term? Why? Didn’t we say we have international? What was the goddamn point of Basel in the first place?
And I look at all that, like that’s like, what we’re actually trying to do. And so it’s by the way 25 we think, like I said the 1,000 pages, and we haven’t been built the detail, but we take it the way it is, basically what we think today is 30 more RWA. I don’t know where they came to the ’19. I just — I’m missing that, and it’s 25% more capital.
And the other — so we will be forced to optimize in a million different ways. And the MPR probably won’t be all the way there. But every single thing was put in the outlier. Like G-SIFI was supposed to be adjusted by their own rules for the size of the global economy. It wasn’t. It would be half what it is if they did that. And so I don’t mind the changes they didn’t make, which I just can add a little bit of capital for us. I’d like to know why they didn’t make the other adjustment. If that’s the adjustment they should make, they should simply make it FSRT. So capital — the FSRT, not against property capital, but doesn’t CCAR, G-SIFI, operational capital, FSRT all double account the global market shock in CCAR?
What really do is I just — all I want is fairness, transparency, openness and institution like the United States of America. I’m not sure they did to most what I just said.
Jason Goldberg
Lot of follow-up.
Jamie Dimon
Hurdled that, too, by the way. And the bank’s quite upset, and that’s also — I’m not sure it’s a great thing that we have this constant battel with regulators as opposed to open thoughtful things. We used to have real conversation with regulators, there is none anymore in the United States. Like we virtually none. This stuff is just all from up top and pose down below. And then you got, of course we simply have to take it there, judge, jury and hangman and that is what it is. JPMorgan will just — will survive will do fine. It will have unintended consequences that they may not like. Including one day, I think you’re going to see much more volatile in the market, like you’re saw in COVID in February 2019. And they won’t realize that they actually closed that.
Jason Goldberg
I guess, are there any lines of business you feel need to cut back on or get out completely lied about that?
Jamie Dimon
I’m not going to sit here and tell you where to cut backs lines of business. But yes, we might, you have every one of us will have to optimize different products, services, client’s locations, but me give us time, we got to go through all the rules in detail, they’re probably going to clarify with some markers, some are not completely clear yet. And then we’ll figure it out. Look, all these banks are smart people.
And it also, in my view, causes a little bit of this herd thing where the Federal Reserves have a little humility. They’re the ones that tell the world rates aren’t going up. And it wasn’t the Federal Reserve in general, is each one of them independently. Factors each central bank. So if I was in my have a little more humility over stuff like this.
Jason Goldberg
So you’ve been pretty open with your views with us today. I suspect over last month or so, you’ve expressed these views with other regulators.
Jamie Dimon
I was on vacation.
Jason Goldberg
So you haven’t done that?
Jamie Dimon
I am trying to de aggravate myself from this kind of thing like. I want them to do the right thing. It’s just clear to me that they didn’t. And now we have to go through all these rig NPRs. Do you think these NPRs going to make shit of difference? It’s my academics argue with your academic and they could do what they want anyway. That’s all that’s going to happen. Unless some other Fed governors or other people decide to get deeply involved and try to do what’s right and fair and they think about what’s good for the country, not just can they stop themselves ever from being blamed for a bank failure.
Jason Goldberg
All right. So I guess I won’t ask the question, where do you think you have the greatest chance to make progress?
Jamie Dimon
I expect no real progress.
Jason Goldberg
I guess, in that backdrop…
Jamie Dimon
Unless some of these other regulators get tougher and decide they should be pushed around by 1 or 2 people in the Federal Reserve.
Jason Goldberg
So I guess if we take what you said RWA is up 30%. Now was that for JPMorgan, you were talking about…
Jamie Dimon
At JPMorgan.
Jason Goldberg
RWA is up 30%…
Jamie Dimon
But I don’t know — and my reference is roughly the same. RWA and CET1 have done slightly differently in this thing because CCAR is absolute dollars. And so it’s slightly different. That’s why one is 30, one is 25.
Jason Goldberg
So I guess you’ve talked about this 13.5%?
Jamie Dimon
But all of this, honestly, like, say, you feel good this do they want banks that are to be investable again. If I look at my money because I’m not going to sell stuff like that. I think we would to navigate it. I wouldn’t be a big buyer of banks.
Jason Goldberg
All right. So let’s unpack that. So RWA is up 30%.
Jamie Dimon
Look, I’d be no better than equal way, whatever you call it.
Jason Goldberg
So RWA is up 30%. I assume you keep a 13.5% CET1 ratio, your 17% ROE target goes — RTC target goes to 14%. So…
Jamie Dimon
Quick. I noticed.
Jason Goldberg
So I guess there’s couple of things. So is 13.5% the right number? Or could that come down? Or what could you do to kind of work around that?
Jamie Dimon
Well, I first say is that we’re retaining more capital because we don’t wait the end of this thing to phased all in. We still buy back some stock, approximately the rate we’re doing it today and get there by the end of 2024, the new rules. Obviously, you just did a calculation, the MPR may change a little bit. But I agree that’s the right place to start. And then we will optimize differently. So we will get back some of that, maybe not all of that.
I also think that the short run, like the next couple of years is very different than you look at the long run, I think of American banks have to hold 30% more than competitors around the world. That is a huge negative over a long period of time. It may not be a negative over a short period of time because of the position we all built up. But basically, it means — what it should mean is I’m going to have certain things should not be held in the banking system. That’s what it means. Almost all loans are bad. Just let’s face it, almost all loans are bad.
And the other thing you have to look at is what does it mean for the consumer, like small businesses, mortgages, middle market loans, and it will cost more in credit. And I haven’t done the economic analysis about what that cost is growth for America and stuff like that. So — but we’ll optimize. We’ll get back some of that. Some of it, like I said, will have unintended consequences. It may cause more concentration in banking by client.
So I can envision to a bunch of things where it’s going to happen is that the big guys will get more of it for a whole bunch of different reasons, not less of it, even though I just said loans could be bad because you’ve got to earn it back elsewhere. So most people wouldn’t make loans to be in the loan business anymore.
Jason Goldberg
Why don’t we put up the next ARS question? So I’m not going to let you get off the hook that easily, Jamie. But — so 17% goes to 14%, then there’s minification, optimization, change in business practice, potential market share gains, reprice. What do you think that 17% number?
Jamie Dimon
I really don’t know. 17% is pretty good. I’m not — like my own people, they say, “Oh, 17%, we’ve done in a couple of years. I did these numbers myself because people question these things, we used, I think, in our proxy 12 peers. And how many years over the last 10 years did a company earned over 18% even once. Those 120 years. If I remember correctly, it was 5 or 6, and we were half of that or something.
And how we earned below 6% in those years? It was 30 or 40 times. And so if you can — if we could earn 17% for the rest of my life, I would take that in a second. I push that button right now on the tire. I mean — and that 17% would probably be 50 years someone here can do the numbers, would probably be half of the global GDP.
So then. So is that’s a good number and if it’s a little bit less, we can deal with that. Jeremy, when we — obviously, we’re doing a lot of work now and we do our quarter we’ll probably give a little bit of update what we think about it. But it’s not over yet. The NPR tends to change. I don’t think it’s going to change a lot, but it will tend to change a little bit.
Jason Goldberg
I guess on the screen now, but the audience was roughly 50% — 15% and then 25% each 14% and 16%.
Jamie Dimon
I’m not going to target 14%. You can take that off the table, okay?
Jason Goldberg
Okay. We’ll take mid-teens plus. I guess also, we didn’t talk about the new GC rules. But with the proposed changes it seems the practice of GC Management will be harder to achieve and seems like you’ve kind of had this upper trajectory there? Any kind of increased ability to manage that more effectively.
Jamie Dimon
No, the same thing. We take every one of these things are going to manage it down to the product level, the regional level and the client level. So we’re going to do our homework and each one, including G-SIFI operational risk capital. So operational risk capital, and I don’t know the instances yet, we’ll affect mortgages, which is already a business. And it’s not what they really want to do. So I don’t know. And then like I said, it comes to optimization, whatever it is, if we could earn different types of revenues in that client or that products like that, you may be able to make up for some of it.
Jason Goldberg
Got it. And then I guess before moving on.
Jamie Dimon
But I think they did two right things in G-SIFI, like the bucket is 10 basis points and the average has done slightly differently. Even though — believe it or not, that’s worse for us because it takes our 4.5 up a little bit.
Jason Goldberg
And then in next month, the SEB actually falls from 4% to 2.9%, I guess, against the new Basel reforms…
Jamie Dimon
I’m not sure it going up to 4% should have ever happened, and it shows you about SEB. Again, that was never meant to be a regulatory capital regime. Why it’s being added on top of those capital is going to be meet at this point. And also I think having that kind of thing up or down 1% in a year, so it was not a good idea. And then maybe where they got to that 19% number, they took credit for that in the 19% number, which to me wouldn’t have been completely honest.
Jason Goldberg
I guess could buy back share repurchase continue or that goes on hold, until we figure this all out.
Jamie Dimon
Are we — anyone here from Investor Relations? No I mean, we are buying back stock at a lower level, and that can continue all the way to the end of ’24, and we can meet our new capital requirements. So it will be less than you might otherwise have done. But right now, I’ve rather wait and see. I’m also quite cautious occasionally and getting about the environment. More cautious and other people. I think there’s more potential of accident or some sort than other people think.
Jason Goldberg
I guess maybe shift gears maybe to the business against that. And maybe just start on the top of the house and just net interest income just share kind of macro thoughts in terms of loan growth, credit card has been strong. Most other areas have been subdued, economy is slowing, RW amortization becomes top of mind. Just kind of what your outlook for here.
Jamie Dimon
Yes. I don’t worry — loan growth is always an output. It’s not a goal. We don’t look for it. So credit card is going up again, is mostly normalized or revolvers go up and revolving, there’s notion that revolvers are higher, they’ve really been not really true, it’s actually if you just the economy decide, the average revolver balance is still lower than pre-COVID. Even though we’re back at the number of total revolvers before.
The other loan areas are although real estate down a little bit, some levelizing middle market down a little bit, some because they used public market, the public markets have opened up. So a bunch of industries that just sold bonds and paid off loans and stuff like that, which is completely normal.
And NII, I think we have given your numbers as they haven’t really changed that much, you have them, right, whatever they are, they’re the same as they were before. But I caution you we’re still over earning in that number. And we’re probably going to do a little bit better than we told you, but think of quarter-by-quarter because the uncertainties are so large competition, the ability to move money, QT.
And QT has been all over the place, like first it happened and when the bank failures happen, they basically reversed some of it. The Fed sold a lot of T-bonds, a lot of it came on RRP, not at a bank deposits. But bank deposits are going to come down with QT. At one point, you’ll see reduction in deposits and there’ll be more competition.
Lot of banks don’t need the money, so they haven’t been competing, but if you look at bank competition is very regional, and its very bank-specific, these bank wanted money, these banks doing CDs. I just think what’s going to happen with NII, we know it’s going to come down to a different level. We just don’t know when, and I don’t want to predict one.
Jason Goldberg
I still got to ask a follow-up.
Jamie Dimon
We still can earn good money. It isn’t like — we’re just giving back the earning part.
Jason Goldberg
You said a little better. So your guidance was $87 billion for 2023. So you’re seeing a little bit better than that?
Jamie Dimon
Could be a little better than they are.
Jason Goldberg
And then you’ve also talked about the mid-$70 billion number at some point in the future. Although I think when you gave that number that was before First Republic, I just.
Jamie Dimon
I think, yes, that’s before First Republic.
Jason Goldberg
I guess do you want to opine on that figure?
Jamie Dimon
I’ll let Jeremy do that when he does quarterly earnings. We’ll give you an update, but I still think there’s the over-earning component. And I think I’m quite cautious about that, too.
Jason Goldberg
I guess you touched on deposits in terms of dealing with QT and money fund competition paid has kind of been, I think, lower than expected at JPMorgan, so far? I guess your mid-70s number implies a catch up in here. Just maybe talk to in terms of how you manage the balance sheet backed up.
Jamie Dimon
I hate this deposit beta number because it includes small business, large corporations, it’s all over the place. We have a huge payments business. I would say it’s been what you would expect in everything other than consumer, which is the bulk of it. So large corporations and businesses to move money pretty actively, we had to compete for that.
Is the consumer side where JPMorgan isn’t as competitive in other banks? We’re retaining a lot of the deposits anyway because we have other programs or stuff like that, but that’s the one, at one point you’re going to have to increase it. And even inside, in my own company Jen and Marianne will X, I’ll say Y, Jeremy will Z. The all-in point, we don’t know. I don’t even care that much. It is what it is, it will be what it is, we’re still going to earn money. I just want to acknowledge the over earning part. Right now, we’re retaining more NII we would expect to had than be a normal thing in that. I think every bank is in a different position what they need or don’t.
Jason Goldberg
Got it. And then maybe shifting gears to trading and investment banking. I have to get the regulatory, how is the quarter going question out of the way?
Jamie Dimon
I always hate this one, too. Because really, like it’s not over yet, quarter-over-quarter, year-over-year, down 1% or 2% in trading. And I think it’s something like that in investment banking. Pipeline is as strong, but I always remind people, I never took up pipelines. You know why — pipelines like open and close. They don’t really tell you what’s going to happen for equity or certain types of debt or stuff like the M&A. There’s a lot of people talking about it, that’s not stuff taking place in market.
Jason Goldberg
The trading?
Jamie Dimon
Trading is doing fine.
Jason Goldberg
With down 1% or 2% year-over-year.
Jamie Dimon
I think that’s what I said.
Jason Goldberg
And investment banking?
Jamie Dimon
I’m sure, my own people to correct me on that. I think roughly equivalent to last quarter something like that.
Jason Goldberg
Flattish sequentially? These are the questions I get asked, I won’t going to start buzzing if I don’t get clarity.
Jamie Dimon
That’s the momentum hedge fund guys. Those of us who build businesses or jobs to serve clients through thick or thin regardless of whether we’re going to earn our fair share of our clients’ revenues overtime.
Jason Goldberg
So, we could pull off and talk big picture if you prefer. But if you look at aggregate, the big 5 U.S.-based trading banks, this will likely be the fourth straight year trading revenues in the $100 billion to $110 billion band. That number used to be in the $70 billion, $80 billion band, kind of pre-pandemic maybe the medium term or longer term, what do you think is the right number?
Jamie Dimon
Yes. I think that — and that $70 billion to $80 billion was down for a much bigger number before that. So you did have a huge over a long period time down that coming down, some derivatives, some CLOs, some CMBS. A lot of stuff went away. I think the — in my own view is a little low. This is more normal.
Here, you can go from here. But it’s trench work there, where we have to compete with Goldman Sachs and Morgan Stanley, Bank of America and Wells and Citi. But from here, that wallet may very well grow because remember, assets of the world grow and products grow and investment grow, international flows grow. So I think it’s a possible grows from here. If you have a recession, it’s one thing, but if you have growth or some other things I mean we hope to eke out share gains. That to me is the most important overtime.
Jason Goldberg
And I think you mentioned pipelines on the investment front, is clearly, post-Labor Day, it feels like there’s some big IPOs in the market. DCM issuance was very active last week. M&A feels like it’s coming back in terms of talk to kind of green shoots and what you’re seeing there?
Jamie Dimon
And again, you’re just guessing the weather here. But DCM is a steady amount because people be financed. Sometimes CFO sentiment, they wait because they think rates are too high or too low. I think they make a mistake if they do that. I wouldn’t spend too much time speculating about what you’re going to do.
The DCM component, which is episodic is M&A related. So that will follow more M&A. And a lot of talk taking place whether they get finished or not, I don’t know. And ECM, you saw — to give you some numbers, I think in 2021, 400 IPOs. 2022, 40. This year, I don’t know if somebody remember 70, 80 so far this year. It’s open. But the open is much more for companies earning money, more legitimate stuff like that.
When I hear that — and more people are having those conversations, companies going public that it’s going to be a down round, but grow up on that one, too. Not a down round. The last one was overpriced. And so yes, ECM is open. That can stay open until it doesn’t.
And that’s the most — that’s the pipeline like an accordion, it opens and closes over time. And when it opens up and values are pretty good, which they are today, and it closes when people think they can get a much a weight. Then my advice to a company, you can’t go public, you want to go public, you need to go public, don’t wait too long. There’s no — I wouldn’t — I think the uncertainties out in front of us is still very large and very dangerous.
Jason Goldberg
Because, again, that expenses in the first half of the year, $40.3 billion, even if adjusting for First Republic, you’re kind of running better than your $84.5 billion guide?
Jamie Dimon
It’s rough, yes. When you say better, that bounces around a little bit as roughly that maybe to get better than that.
Jason Goldberg
But. I asked — we had Daniel here last year, I asked a similar question.
Jamie Dimon
Next year, he said something like that.
Jason Goldberg
Well, I pointed he ended up beating last year by $1 billion. So are you going to be — I mean.
Jamie Dimon
I don’t know.
Jason Goldberg
You don’t know?
Jamie Dimon
I like spending money now that.
Jason Goldberg
Yes.
Jamie Dimon
No, I think what we’ve guided before is still where we are today. But I also caution from people here, we are a company that’s not afraid about spending more if we think it is good for a long-term shareholder. I was separate expenses into waste cutting, like BS, full shed, meaning too much, for pontine read and then investments.
To me, opening a good new branch or building new good new system or iron bank is the country with wealth management bankers or best bank where now you’re going to do okay. It just is okay in the 12-month time period. Accounting is a fiction. 12 months means nothing to me. So to me, I always look at what is this and if that’s going to pay off on expense, it’s a good thing to do.
And also, by the way, bad revenues. Warren Buffett always says, he was in the insurance business, sometimes you’re better off taking your sales force and paying them, but paying to play golf. That’s any underwriting that happens the loan business too. And the way we avoided a lot of problems and high leverage loans is we got priced out, we weren’t doing. And those are good non-revenues.
Jason Goldberg
I guess, as you kind of think about the ’24 budgeting process, are there any particular areas you like you feel like needed investment and I think consensus has an $88 billion number out there is that’s you think got it..
Jamie Dimon
I think roughly equivalent, but the budgets are they’re in phase right now and people are doing it. And I think we’ve laid out to guys a lot the investments, where we’re adding technology, AI, branches, bankers, some of those investments, I can’t tell you exactly with the terms, you know exactly what the term is going to be so. And I think those ads will be roughly similar this year than they were last year, roughly. Something is up, something is down, on the First Republic obviously changed a little bit where we have to deploy some of our resources.
Jason Goldberg
I guess speaking of First Republic, can you maybe provide us an update in terms of employee customer retention, system integration. Any update to what look us as constitutive assumptions around that deal?
Jamie Dimon
Yes. They’re still conservative something around that deal. And again, Jeremy will update you more, a little bit better on retention. I mean we’ve been losing a bunch of people, but they were almost all — from the time we did it, they were almost have signed out beforehand. Better retention of assets we might have thought, better retention of deposits that we might have thought. More business the consumer related.
We closed, I think, 20 of their branches like literally this week, so we’re keeping 60, very happy with some of the stuff we found. Remember, very clean assets, very good clients, some very good bankers all across the board. They did some wonderful things in how they handle the clients. So we’re trying to figure out how we can do that and have some of our offerings and stuff like that.
Marianne and Jen have been doing a great job and the integration side is very basic. There’s already so many apps, almost everything they did was outsourced. Some are going to be done through [indiscernible], some are going to be done through actual conversion and stuff like that. But we’ve done this before and hopefully get them all done by the end of 2024. I’m sure we’ll get some more done with 2024. I tell Jen and Marianne, we got one we’ve done in nine months. So let’s move on to the bureaucracy.
Jason Goldberg
This would be easier.
Jamie Dimon
It should be easier.
Jason Goldberg
You have been touched a little bit on your instruction around credit quality, but you talked about credit card charge-offs being 2.6% this year, 3.5% normalized.
Jamie Dimon
You say that, but go ahead.
Jason Goldberg
Well, not today, but July, Jeremy said in July. Is that wrong?
Jamie Dimon
No, it is correct.
Jason Goldberg
What would you say?
Jamie Dimon
Jeremy is usually roughly accurate.
Jason Goldberg
I guess we’ve talked about this normalization and deterioration and also one of this normalization process, any signs of deterioration.
Jason Goldberg
Just very modest. I already mentioned, we look at like downgrades and upgrade in middle market wholesale, more downgrades. You see — you’ve all seen deterioration. We’re not big in auto subprime, but you’ve clearly seen it there. It’s explainable. So I don’t think it nothing like the early indicators when subprime started going bad in the mortgage business in 2007. So there’s a little bit — a little bit on some leverage companies.
So yes — but again, if rates go up, and things get more recessionary, you are going to see more people out your problems. Part of that will be completely normal, part of that will be worse than normal because of the rates like. People just not ready or used to 6.5% rates.
Jason Goldberg
And then you mentioned it’s kind of…
Jamie Dimon
That’s possible. The other thing about the rate side, keep in mind is because people look at the treasuries, they were at 4.2% treasury, 10-year treasury, but credit spreads are low. You look at the — okay are you ready, Okay. I’ll ask you a question. This is when I asked the people like, high yield credit spreads today or what?
Jason Goldberg
Not that wide.
Jamie Dimon
I’m going to say like 450 or 500, something like that. What were they — what’ the worst they ever got before the grade financial crisis?
18%. And when I got to JPMorgan, I had them stress test 18%. They’ll never happen to again. Well, maybe not, you’re going to stress test 18%. What do they get to in the great financial crisis? 20%.
At 20%, one or two people making markets in those bonds, you couldn’t sell them anyway. So it should happen, folks. And when spreads are very narrow and sentiment changes rapidly and governments have to sell, the United States, governments have to sell either they’re going to have to sell net new bonds of $2 billion net, $2 trillion next year and roll over another $5 billion.
Central banks, governments assign more bonds they have sell before central banks can be selling more bonds. And then some natural buyers like China and Japan with buying less, if not shown. So I’m cautious side on all that stuff.
Jason Goldberg
I guess…
Jamie Dimon
Including credit spreads. I would not be a buyer of treasuries at 4.2%, nor would I buy credit spreads at these spread levels. So against that backdrop you’ve added over $4 billion or ACL. You’re kind of modelling the 5.8% unemployment up 20 basis points from where last print was with the advent CECL, how much is the reserve building process already happened and how much?
Jamie Dimon
A CECL is one of those huge errors and mistakes. So that 5.8% is we have scenario planning. And I do the scenario planning, because like you said I would be putting up preserves. Okay, I can’t. I am quite cautious about what’s going to happen in credit stuff like that. I can’t. Our top economists, always folks look at it and you do which the percent is going to get better, what percentage of the same? What percentage is going to adverse, which the percentage would be superior adverse and those percentages average to 5.8, which means it is worse than it is today? And that means our reserve today can handle that 5.8%.
The $4 billion that you had, I think, roughly $2 billion simply relates to the increase in credit card standards. So it’s not part of changing anything. And I portion, I’ve got the number relates to First Republic, close to $1 billion. And the others, then we idiosyncratic, so upgrades, downgrades, those are name-by-name specific.
So — it’s hard to say that you can look at the environment today to add more reserves today. And it’s hard to say the environment in be worse, but that’s why mostly different like CECL bounce over the place. And I remind people from March — I mean, from January — the beginning of the year 2020 to June, we put up $15 billion. And then from June to the end of the year, we took down $15 billion. So CECL is just a hypothetical number. It’s very unfortunate it’s incorporated in accounting.
Jason Goldberg
I guess maybe bringing kind of this whole discussion together. One of my takeaways from your Investor Day was I think these big four businesses.
Jamie Dimon
The other thing about our company, this is important. It relates to all these regulators, too. We already run the company as if you run it through an average cycle, I we’re including a stress portion. We look at credit, reserving, underwriting and trading, we don’t say things are great and we will put up more capital later. We say, no, we manage the through the cycle so we can bank our clients in good times at bad times. We don’t have to react in bad times, it sometimes you got to pull back dramatically. And so we’re trying to incorporate all in how we run the company.
Jason Goldberg
Putting that together, I guess looking out maybe what do you think are the 2 or 3 biggest growth opportunities in the next two years payment management International or you tell us?
Jamie Dimon
It’s literally, it’s — I think, in general, in investment banking, it’s fighting to gain a little bit of share here and a little bit share, it’s area by area, country by country, segment by segment, industry group by industry group, FX in Asia, G10 here like it is, but we think we can fight and gain share, that’s the goal.
Payments, we’re doing quite well. Our share has gone up dramatically. We hope to do that. We have a bunch of the markets services coming. Custody, we think we’ve gained some share. We have new products and services coming. Asset management, if you look at what we’re doing, we’re just building a private bank, and we’re building asset management. Asset management more is about products, so we’ve done a damn good job on certain new products and certain these active ETFs stuff like that.
But on the private banking side, it’s more bankers and more areas. And you can see, we show you the head count we had. That’s kind of the investment in that kind of area. All these areas is technology investments. And then in commercial banking, obviously, Silicon Valley Bank, we gained a lot of clients very quickly, but we’re building what we call the innovation economy to do a better job and we’re where First Republic at Silicon Valley Bank was a big less than us, how to recover those clients.
So we are putting more bankers on the ground to cover some of those clients, changing some of our own policy and procedures. Middle market banking is still growing, and we have that commercial banking effort overseas. I just was in London, and it’s working. We are covering more clients overseas in commercial banking.
And then consumer, we gained share in auto. It has its own issue and stuff like that. We’ve actually gained a little share recently mortgage, tough business, but hopefully, we’ll look at how these regulations turn out. We’re gaining share in credit card, we’ve added by coal ancillary services in consumer the travel, mining stuff, which we have a new great lounge coming at LaGuardia.
You’ve been in Boston, you have seeing ours and we’re gaining share in consumer banking, small business banking we got products and service in those areas we are still opening branches. We are still in products and services adding better digital stuff, both management is a big area. I think we’ve really under — not under performing. We could do so much more there in terms of gaining share. So you see — and you’ll see that by — mostly by assets under management and head count we’re adding in branches around the country, et cetera.
And then some non-branch headcount we’re adding the consumer clients you might have these great ads. We contribute digital and remotely too. So a lot of stuff there. I think we grow in every single area. And of course, we have real competition to us to I’m quite cognizant of that.
Jason Goldberg
Pull up there about 5 minutes left to see if there’s any questions from the audience.
Jason Goldberg
Thanks for your time. I’d love to hear your thoughts on bank M&A and maybe, yes, just size of banks out there, yes.
Jamie Dimon
Yes. So I mean I hear people come up banking act like a static thing. Bank conversions are just bigger. Go back to 2007, a lot of the big banks got smaller quickly, called failure. And so it isn’t — it’s like the system static. You have some banks doing well, bigger ones. Some not doing so well and you’re going to continue to have that. I think they should allow bank M&A so they could compete. That’s not knowing self-interest. I think it’s a good idea.
If you’re two banks, you think together, you’re better off than separate, you should. And then you have new community banks all the time, like nonstop, you also have nonbanks, but PayPal, Square, Apple, Chime, Dave, Sofi, that’s — it’s a dynamic system. You have lot of stuff taking place. And we’ve got to compete with some of those people in some areas and some in a lot of areas. And so I think there will be bank M&A.
And I think Janet Yellen actually came out, and so they should allow it. The politicians say it shouldn’t be allowed understand the dynamism of companies. And yes, some bank M&A will fail, but there’s nothing wrong with failure. You don’t want to stop people from doing what they think is a good thing with their capital and their companies.
And as you know, mergers are tough, so if we’re advising the company I know you’ve got to be prepared for a bank merger has a lot of complexity around technology, sociology, all these various things management capabilities, et cetera. So — but it should definitely positively be allowed. I think it will be because it’s better for the system.
Jason Goldberg
I got one over here, sorry. To your left in the back. So very quickly, you mentioned a few times that you are more bearish than most over here, sorry. You mentioned a few times that you’re more bearish and you have made couple of comments over the last couple of months the hurricane comment, obviously. Is there something in your business specifically that you’re seeing? Or is it more your take on the macro indicators that a lot of other people are seeing as well and making similar comments?
Jamie Dimon
It’s literally the extent of the fiscal deficits — the fact that we’ve never been through quantitative tightening before. So I think there’s a full sense of security that those 2 things will end up being okay. I don’t know. I just — there are big, huge semi tectonic shifts that we’ve seen. Remember, governments, you also have the IRA Act, the remilitarization of the world, green economy. You’ve got a lot of stuff which is very different than the past. It looks more like the 70s to me than else.
And then there’s war. Obviously, it’s humanitarian crisis, but it is affecting all global trade, all global alliances, all global investing, America with the Middle East, America to China. And obviously, oil prices, energy prices, food prices, all of which could be hugely disrupt into geopolitics.
And I just put those category things in this bucket that says that is a tough thing, maybe they all resolve and sort themselves out, maybe they won’t. And I — it just puts me on heightened edge of caution. And we could be sitting here a year and I wouldn’t be surprised if those things have the 10-year bonds at 5.5%. Or oil is at 1.20% or 1.50%. And it’s only that. I don’t know. I just in the back of my mind, I have to say that’s not — these things are tectonic differences that you’ve experienced since 1945. That’s what it is.
Jason Goldberg
One more here. So on geographical tensions, I think it just came back from China, what’s the takeaway from the trip how do you think U.S. trying to edition would govern here?
Jamie Dimon
Well, I’d put that highly cautious. So when I went there on that trip, the most noticeable thing to me, which now you kind of know a little bit is a lot of folks in Asia think that America wants to contain and maybe for China, which I don’t think it’s true about. I think the American government has been quite clear that isn’t the goal. The goal is to protect national security, American competitiveness and hopefully, that will be done in a way that’s fair and reasonable and with our allies.
Other big takeaway by the way, is that the Chinese people are worry about China. We’re worried about China, America, but they were more worried about China. So you’ve seen FDI drop like a stone, FDI and an internal domestic thing. So I think it’s an issue, but I think finally the American government is doing right thing. Gina Raimondo was there, Tony Blinken was there, Johnny Young went there. The President will hopefully meet with President Xi soon. And they should have very rational private conversations, not installed in each other.
Both countries can do unilateral things. Just remember that, China has for years. America kind of didn’t and now we are kind of visits off, but or their own medicine. I’m hoping it will sort out. In terms of our own business, the risk-reward, which was very good, has now become okay. The risk is bad. Like again, I don’t expect work Taiwan, but you have to say this can go south.
How many kitchens have spoken about this now it’s far more about international relationships with geo parks, I do, he’s quite worried that we’re off track with China, there could lead to outcomes. But the other good news is 4 years from now, they’ll probably be in a fully industrialized nation, the big GDP per person, maybe not big in America, by the way.
I think people have been a little bullish on how they — China is a 10-foot giant because China has got serious problems of their own, not of our making, including geopolitical kind of pissed off all their neighbors a little bit, all from a rearming — they’re not rearing because the America did. They’re on the arm because China is scaring them with their behavior in this outside, et cetera. But the fact is the probe large industrial nations.
So we’re there. We’re very cautious we’re managing our risk, but here in China, hundreds of multinationals outside of China. We serve Chinese companies going out, which as long as we’re not violating European or American sanctions and rules we intend to continue to do. And then we also bank companies in China.
And we won’t — there will be certain restrictions on what we can do. What only you can do in China and the government is trying to sort out exactly what it wants to limit or not limit. I hope they’re quite careful about it.
Jason Goldberg
Seeing we’re out of time, please join me in thanking Jamie for your time today.
Jamie Dimon
Thank you very much. Good luck to you all.
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