JPMorgan Chase & Co. Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 13, 2022

There are 12 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2022 Earnings Call. This call is being recorded. Your line will be muted for the duration

Speaker 1

of the call. We will

Operator

now go live to the presentation. Please standby. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Speaker 2

Thanks, operator. Good morning, everyone. The presentation is available on our website and please refer to the disclaimer in the back. Starting on Page 1, the firm reported net income of $8,300,000,000 EPS of $2.63 on revenue of $31,600,000,000 and delivered an ROTCE of 16%. These results include $900,000,000 of credit reserve builds, which I'll cover in more detail shortly, as well as $500,000,000 of losses and credit adjustments and other in CIB.

Speaker 2

Regarding loan growth, we're continuing to see positive trends with loans up 8% year on year and 1 Quarter on quarter ex PPP with the sequential growth driven by continued pickup in demand in our wholesale businesses, including ongoing strength in AWM. On Page 2, we have some more detail on our results. Revenue of $31,600,000,000 was down $1,500,000,000 or 5% year on year. NII ex markets was up $1,000,000,000 or 9% on balance sheet growth and higher rates, partially offset by lower NII from PPP loans. NIR ex markets was down $2,200,000,000 or 17 percent, predominantly driven by lower IB fees, lower home lending production revenue, Losses and Credit Adjustments and Other in CIB as well as Investment Securities losses in Corporate.

Speaker 2

And Markets revenue dollars or 2%, predominantly on higher investments and structural expenses, largely offset by lower volume and revenue related expenses. Credit costs were $1,500,000,000 for the quarter. We built $902,000,000 in reserves, driven by increasing the probability of downside risks Due to high inflation and the war in Ukraine, as well as builds for Russia associated exposures in CIB and AWM. Net charge offs of $582,000,000 were down year on year and comparable to last quarter and remain historically low across our portfolios. On to balance sheet and capital on Page 3.

Speaker 2

Our CET1 ratio ended at 11.9%, down 120 basis points from the prior quarter. As a reminder, we exited the 4th quarter with an elevated buffer to absorb anticipated changes this quarter, The largest being SAKAR adoption as well as some pickup in seasonal activity. In addition to those anticipated items, there were a couple of other drivers. The rate sell off led to AOCI drawdowns in our AFS portfolio, but keep in mind, all else equal, these mark to market losses accrete back to capital through time and as securities mature. And price increases across commodities resulted in higher counterparty credit and market risk RWA.

Speaker 2

Well, of course, the environment is uncertain, many of these effects are now in the rearview mirror. And as a result, we believe that our current capital Our earnings profile position us well to continue supporting business growth while meeting increasing capital requirements as we look ahead. With that, let's go to our businesses, starting with Consumer and Community Banking on Page 4. CCB reported net income of 2,900,000,000 on revenue of $12,200,000,000 which was down 2% year on year. In Consumer and Business Banking, revenue was up 8%, Predominantly driven by growth in deposit balances and client investment assets, partially offset by deposit margin compression.

Speaker 2

Deposits were up 18% year on year and 4% quarter on quarter, consistent with last quarter. And client investment assets were up 9% year on year, largely driven by flows in addition to market performance. In home lending, revenue was down 20% year on year On lower production revenue from both lower margins and volumes against a very strong quarter last year, largely offset by higher net servicing revenue. Originations of $24,700,000,000 declined 37% with the rise in rates. And as a result, mortgage loans were down 3%.

Speaker 2

Moving to card and auto. Revenue was down 8% year on year, primarily on strong new card account originations, leading to higher acquisition costs. Card outstandings were up 11% and revolving balances have continued to grow, ending the quarter above the Q1 of 'twenty one levels. And in auto, originations were $8,400,000,000 down 25% due to the lack of vehicle supply, while loans were up 3%. Touching on consumer spend, combined credit and debit spend was up 21% year on year with growth stronger in credit As we see a continued pickup in travel and dining.

Speaker 2

And as the quarter progressed, we saw a robust reacceleration of T and E spend, up 64%.

Speaker 1

Expenses of $7,700,000,000

Speaker 2

were up 7% year on year, driven by higher investments and structural expenses, partially offset by lower volume and revenue related expenses. Next, the CIB on Page 5. CIB reported net income of $4,400,000,000 on revenue of $13,500,000,000 for the Q1. Investment Banking revenue of $2,100,000,000 was down 28% versus the prior year. IB fees were down 31% year on year.

Speaker 2

We maintained our number one rank with a wallet share of 8%. In advisory, fees were up 18% and it was the best first quarter ever benefiting from the closing of deals announced in 2021. Debt underwriting fees were down 20%, primarily driven by leveraged finance as issuers contended with market volatility. And in equity underwriting, fees were down 76% on lower issuance activity, particularly in North America and EMEA. Moving to markets, total revenue was $8,800,000,000 down 3% against a record Q1 last year.

Speaker 2

Fixed income was relatively flat driven by a decline in securitized products where rising rates have slowed down the pace Mortgage production, largely offset by growth in currencies and emerging markets and commodities on elevated client activity in a volatile market. Equity markets were down 7% against an all time record quarter last year. This quarter, however, was our 2nd best With robust client activity across both derivatives and cash and prime continued to perform well with client balances hovering around all time highs. Credit adjustments and other was a loss of $524,000,000 driven by funding spread widening as well as credit valuation adjustments Relating to both increases in commodities exposures and markdowns of derivatives receivables from Russia associated counterparties. Let me take a second here to address the widely reported situation in the nickel market as it relates to our results this quarter.

Speaker 2

We were hedging positions for clients closely linked to nickel producers who generally sell forward a portion of the coming year's production. The extreme price movements created margin calls, which we and other banks are helping to address. Because this is counterparty related, not trading, It appears in the credit adjustments and other line where it contributed about $120,000,000 to the reported loss I just mentioned. It also drove approximately half of the increase in market risk RWA that I noted on the capital slide and was a driver of higher reported VAR, which will also be elevated in our upcoming filings. Payments revenue was $1,900,000,000 up 33% year on year or up 9% Excluding net gains on equity investments, driven by continued growth in fees, deposit balances and higher rates.

Speaker 2

Securities Services revenue of $1,100,000,000 was up 2% year on year, driven by higher rates and growth in fees. Expenses of $7,300,000,000 were up 3% year on year, mostly due to higher structural expenses and investments, largely offset by lower volume and revenue related expenses. Moving to Commercial Banking on Page 6. Commercial Banking reported net income of $850,000,000 and an ROE of 13%. Revenue of $2,400,000,000 was flat year on year With higher payments revenue and deposit balances offset by lower Investment Banking revenue.

Speaker 2

Gross Investment Banking revenue of 729,000,000 It was down 35%, driven by both fewer large deals and less flow activity. Expenses of 1,100,000,000 We're up 17% year on year, largely driven by investments and volume and revenue related expenses. Deposits were down 2% quarter on quarter as client balances are seasonally highest at year end. Loans were up 5% year on year and up 3% quarter on quarter excluding PPP. C and I loans were up 3% sequentially ex PPP, reflecting higher revolver utilization and originations Across middle market and corporate client banking, CRE loans were up 3%, driven by strong loan originations and funding across the portfolio.

Speaker 2

And then to complete all lines of business, AWM on Page 7. Asset and Wealth Management reported net income of $1,000,000,000 with a pretax Revenue of $4,300,000,000 was up 6% year on year as growth in deposits and loans and higher management fees and performance And alternative investments were partially offset by deposit margin compression and the absence of investment valuation gains from the prior year. Expenses of $2,900,000,000 were up 11% year on year, predominantly driven by higher structural expenses and investments, as well as higher volume and revenue related expenses. For the quarter, net long term inflows of $19,000,000,000 were positive across all channels, With strength in equities, multi asset and alternatives. And in liquidity, we saw net outflows of 52,000,000,000 AUM of $3,000,000,000,000 and overall client assets of $4,100,000,000,000 up 4% and 8% year on year respectively were driven by strong net inflows.

Speaker 2

And finally, loans were up 3% quarter on quarter with continued strength in mortgages and securities based lending, While deposits were up 9%. Turning to corporate on Page 8. Corporate reported a net loss of 856,000,000 Revenue was a loss of $881,000,000 down $408,000,000 year on year. NII was up $319,000,000 due to the impact of higher rates and NIR was down $727,000,000 due to losses on legacy equity investments versus Gains last year as well as approximately $400,000,000 of net realized losses on investment securities this quarter. Expenses of $184,000,000 were lower by $692,000,000 year on year, primarily due to the contribution to the firm's Next, the outlook on Page 9.

Speaker 2

We still expect NII ex markets to be in excess of $53,000,000,000 and adjusted expenses to be approximately $77,000,000,000 And we'll update these and give you more color at Investor Day next month. So to wrap up, once again this quarter, the company's performance was strong In a particularly volatile and challenging environment, we helped our clients navigate very difficult markets, provided support to relief efforts And implemented economic sanctions of unprecedented complexity with multiple directives from governments around the world. And of course, Our thoughts remain with everyone, including our employees affected by Russia's invasion of Ukraine. Looking ahead, the U. S.

Speaker 2

Economy remains robust, We're watching high inflation, the reversal of QE and rising rates, as well as the ongoing effects of the war on the global economy. With that operator, please open the line for Q and A.

Operator

Please standby. Our first question is coming from John McDonald from Autonomous Research. Please go ahead.

Speaker 3

Thank you. Good morning, Jeremy. I was wondering about the net interest income outlook. I know it sounds like we'll get more at Investor Day, but it's very similar to what you gave in mid February and obviously rate expectations have advanced since could you give us a little bit of color on what kind of assumptions are underlying the net interest income ex markets outlook?

Speaker 2

Yes. Good morning, John. Good question. And yes, look, obviously, given what's happened in terms of Fed hike expectations and what's getting priced into the front of the curve, We would actually expect the excess part of in excess of $53,000,000,000 to be bigger than it was at Credit Suisse. So to size that Probably a couple of $1,000,000,000 but we don't want to get too precise at this point.

Speaker 2

We want to run our bottoms up process. We there have been very big moves and we kind of want to get it right. And So we'll give more detail about that at Investor Day.

Speaker 3

Okay. And then to my follow-up, could you give us some thoughts About the markets related NII, what things should we think about there, whether it's seasonality or how it's affected by rising rates?

Speaker 2

Yes. I guess I would direct you to my comments, I think 1 or 2 quarters ago on this. Generally speaking, that number is pretty correlated To the short term rate, so all else equal, you'll see a headwind in there as the Fed hikes come through, which In general, in the geography, we would tend to expect that to be offset in NIR. But it's noisy. It can shift as a function of Obscure balance sheet composition issues as I've mentioned in the past.

Speaker 2

And so that's why we don't focus too much on that number.

Speaker 3

Okay. Thanks.

Speaker 2

Thanks, John.

Operator

The next question is coming from Ken Usdin from Jefferies. Please go ahead.

Speaker 4

Hi, thanks. Good morning. Jeremy, just wanted to follow-up on your comments about capital and being able to provide room For organic growth, with 5.2 SLR, 119 CET1 versus your longer term targets, Can you talk about what that means in terms of the buyback potential from here? And do any of the RWA inflation items come back off that you just saw in the Q1. Thanks.

Speaker 2

Yes, thanks. So let me just give some high level comments about the CET1 So as you know, we went into the quarter with elevated buffers, knowing that we would have denominator growth As a result of the adoption of SAKR and

Operator

so of

Speaker 2

course that happened and we would have expected roughly to be at 12.5 right in the middle of the range for this quarter. Of course, it was an unusual quarter in a number of ways. And so we saw RWA inflation from market risk, which we've talked about, And the AOCI drawdown and a number of other slightly smaller factors Producing the 11.9. From where we sit here, to your point, a number of these items are in fact going to bleed back in relatively quickly, So we would expect a significant portion of the RWA inflation to bleed out, obviously to decay out. The AOCI drawdown We'll obviously come back over time.

Speaker 2

And probably most importantly, to the prior question, the higher rate outlook It's improving the revenue outlook, which will of course accrete to capital. So then if you line that up against the sort of Rising minimums, of course, we have the increase in the G SIP requirement in the Q1 of 'twenty three coming in. And then there's the question of SCB, where we don't know obviously, but given the countercyclical nature of the stress And the fact that the unemployment launch point is a lot lower and that the unemployment rate is floored in the Fed scenario, you might expect SCB to be a little bit higher when it's published in June, effective in the Q4. But that gives us time to make any adjustments So I guess to summarize, when we put all this together, between improved income generation, Some of the denominator decay effects and the various levers that we have available to pull across the dimension of time as new information comes into play, We really feel quite good about our capital position from here and the trajectory as we look forward and minimums evolve.

Speaker 4

And just a follow-up there too, is there anything you need to consider structurally in terms of like adding preferreds to help bridge the gap? Or is it just going to be enough to Organically build back with possibly just utilizing less buybacks will allow things to just grow back?

Speaker 2

Yes. I think the our action I guess, in general, we haven't wanted to say a lot publicly about our As you know, some of these instruments are callable and we have choices to make about whether or not we call them To adjust to different situations, so I think that's an example of the types of levers that we have available to pull as the environment evolves. But from where we sit today with the numbers that I'm We have a pretty clean trajectory to get to where we want to be.

Speaker 4

Okay. Thanks, Jeremy.

Speaker 1

Yes. The

Operator

The next one is coming from Betsy Graseck from Morgan Stanley. Please go ahead.

Speaker 5

Hi, good morning.

Speaker 2

Good morning, Betsy.

Speaker 5

I had a question for Jamie. In your annual letter, you mentioned How you expect to achieve double digit market share over time in payments? And what I wanted to understand is if you could Unpack that a little bit because when I look at payments, you've got a lot of different sleeves. For example, in consumer credit card, you're at 20%, 25% In treasury, I think you're at 7%. So could you give us a sense as to where you think you are in this Total payments category you're talking about, what you're expecting in terms of drivers to get to double digit and what kind of timeframe you're thinking about there?

Speaker 5

Thanks.

Speaker 1

Yes. So, yes, Betsy, so that number, the double digit is relaying just to wholesale payments, not to consumer payments, Which obviously we already have a fairly significant share. And we've gone from 4.5% to something a little bit north of 7% over the last 5 years. And we're just building out and I gave Some examples, when I give a lot and then you have Investor Day coming up, we're building all the things we need, real time payments, Certain blockchain type things, wallets, there's a couple of acquisitions that are building out our wholesale capabilities To do a far better job for clients globally around the world and supported by what I say very good cyber risk controls, which clients really need to by the way. So It's kind of across the board.

Speaker 1

There's nothing mystical about it, but it's an area we want to win in.

Speaker 5

Okay. And getting to double digits is over the same kind of Timeframe with the same pace going from 4 to 7 or you think you can accelerate that because I think we

Speaker 1

I wasn't meaning to put a timeframe, I would say 5 years. You'll get more update on this in Investor Day.

Speaker 5

Okay. And then just the follow-up Here is on the NII outlook where you indicated the curve suggests the plus side and Is it a couple of $1,000,000,000 And I guess the question I have is, historically, you've been looking to reinvest that benefit From rising rates, you did that last cycle as well. What I hear what I'm hearing is that Maybe you don't want to size it for us right now today because you plan on investing it and explaining that

Speaker 6

at Investor Day. Is that a fair takeaway or no?

Speaker 1

No, no, no. No. We don't look at it that way like we're reinvesting NII. The investing stuff we look at all the time, we're investing and we're investing a lot of money

Speaker 2

I mean, I think fundamentally, We have had confidence in delivering our 17% RTCE through the cycle. We talked a little bit over the last couple of quarters about At the time, some short term headwinds to that mostly as a function of the rate environment and a couple of other things. The investment plan is a Strategic plan that recognizes that sort of confidence in the 17%. The fact that that moment may be getting pulled forward as a result The Fed's reaction to the economy has no impact on how we think about spending.

Speaker 5

Okay, great. Thanks for that.

Operator

The next question is coming from Steve Chubak from Wolfe Research. Please go ahead.

Speaker 7

Hey, good morning. So wanted to start off with a question on QT. In the past, you've spoken about the linkage between Fed balance sheet And deposit outflow expectation for yourselves in the industry. And with the Fed just outlining a more aggressive glide path Per balance sheet reduction, how should we be thinking about deposit outflow risk? Any views on how betas may differ versus last cycle given a more aggressive pace of Fed tightening?

Speaker 2

Hey, Steve. So this is a fun question. So let's nerd out a little bit. I'm sure Jamie will And then that's the point. Yes, exactly.

Speaker 2

Okay. So look, I think we've talked a little bit about what happened in the prior cycle, Right. So you had QE and then you had big expansion in bank deposits, system wide expansion. And then at the tail end of that cycle, You had RRP come in and then RRP has gotten sort of quite big as QE finished. And so now as you look at potentially Kind of running that whole thing in reverse, you might actually expect that the first thing that would happen is that RFP would get drained and only later would bank deposits Start to shrink.

Speaker 2

But I think you correctly point out some of the nuances in the Fed minutes. And when you Sort of combine all the effects together, you realize that there's a lot of interacting forces here and it's really, I think, very intelligent people differ on their And just to outline a couple of those. So it's worth noting for starters that in general industry wide loan growth Look is quite robust and that should be a tailwind for system wide deposit growth. So as you note, yes, QT will start in May in all likelihood For the minutes, headwind, then you just have to look at what's going to happen in the front end of the curve, particularly in bills. So the Treasury Has to make decisions about weighted average maturity and what makes sense there.

Speaker 2

There's obviously a little bit of shortage of short dated collateral in the market right now. That might argue for wanting more supply there. The Fed has to make decisions about portfolio management. They talked in the minutes about Using bill maturities to fill in gaps and so on and so forth. And so those things are going to interact in various ways.

Speaker 2

I think one thing that's worth noting though is that If you wind up in a state of the world where bank deposits drain sooner than people might have otherwise thought, in all likelihood, that's going to be the lower value Non operating type deposits, so in any case, we'll see. But to simplify it for a second, our base case remains modest growth in deposits for us As a company and just pivoting away for a second from the system to us, from a share perspective, we've taken share in retail deposits and we feel great about that. And in wholesale, we've had some nice wins and a nice pipeline of deals there. So that's the current thinking on that topic.

Speaker 1

So the answer is we don't know. Okay. And you guys should read Economist Reports. But the fact is initially it probably won't Come out of deposits. Over time, it will come out of wholesale and then maybe consumer.

Speaker 1

We're prepared for that. It doesn't actually mean that much to us in the short run. And the beta effectively, we don't expect to be that different than what in the past. There are a lot of pluses and minuses, you can argue a whole bunch of different ways, but The fact it won't be that much different, at least the first 100 basis point increase.

Speaker 7

No, that's really helpful color. Thanks for allowing us to nerd out with you guys on that. Just one more topic or follow-up, I should say. Jamie, just in the shareholder letter, you had spoken about how the market is underestimating the number Fed hikes that might be needed to curb inflation. And what's your expectation around the level of Fed tightening?

Speaker 7

I know it's difficult to make But maybe if you could just help us understand, given your own rate outlook, how that's informing how you're managing excess liquidity, Given the significant capacity that you have to redeploy some of those proceeds into higher yielding securities.

Speaker 1

Yes. So I I think the implied curve now is like 2.5% at the end of the year and maybe 3% at the end of 2023. And look, We no one knows and obviously everyone does their forecast. I think it's going to be more than that. Okay.

Speaker 1

I give you a million different reasons why because of inflation and we just about deposits And we've never been through ever QT like this. So this is a new thing for the world and I think it's more substantially important And other people think is the huge change of flows of funds it's going to create as people change their investment portfolio, stuff like that. We're going to be fine because we're going to serve the health of our customers and gain share. So what does it do for JPMorgan Chase? J.

Speaker 1

C. Or Chase, we'll be fine. We're playing capital, playing with all great margins. We already have the returns we want and all the things like that. So I just I would just be cautious.

Speaker 1

I think what you should expect is volatile markets. Again, that's okay for us. And the Fed we each think the Fed needs to do what they need to do to try to manage this economy and try to get to a soft landing If possible.

Speaker 7

And any appetite to deploy the excess liquidity?

Speaker 1

No, don't expect that. Yes. Okay. Yes, we can leave it there.

Speaker 7

Okay. Thanks so much.

Operator

The next question is coming from Glenn Schorr from Evercore ISI. Please go ahead.

Speaker 8

Hi, thank you. I wonder if you could talk through the changes in the macro assumptions to capture that downside risk in Just because what I want to get to is where we came from, where we're at now and then we can impose our Thoughts on each quarter? Yes.

Speaker 1

Guys, I don't want to spend a lot of time on CECL. I think it's a complete waste of time. Basically, all we said is the chance of a Adverse or severe adverse event is 10% higher than it was before. That's all we did. Very basic and that led to It

Speaker 2

really is that simple.

Speaker 1

And we don't know and it's a guess. It's probability weighted, hypothetical, Multi year scenarios that we do the best we can, but to spend a lot of time on earnings calls about CECL swings is a waste of time. It's got nothing to do with the underlying business. Charge offs are extraordinarily good. Matter of fact, way better than they should be.

Speaker 1

I mean, middle market, one basis Credit card 1.5%. We would have told you the best it will ever be is 2.5%. So credit is very good, that will get worse, NII is going to get much better, We're still earning 16% or 70% on tangible equity. And obviously, you have really yes.

Speaker 8

Yes. The 10% is what I wanted because your guess is better than my guess. So I appreciate that.

Speaker 1

I don't Brian, with all due respect, I do not believe it is.

Speaker 8

Okay. We'll have a pinky bet. So I think you might have just answered, but I want to make sure I ask it explicitly. The follow-up I have on credit and I know it's in much better shape and it depends on the go forward, but Are you seeing any stresses in the levered parts of the debt markets, meaning levered loan, high yield, CLO, private credit, anything in there That makes you like turn a side eye.

Speaker 1

Just spread widening a little bit less liquidity.

Speaker 8

It doesn't sound so bad. And maybe just one Yes. No, I mean,

Speaker 2

Glenn, I think, look, no one likes to be complacent about this type Obviously, in this environment, everyone's looking very closely everywhere for any risks and trying to steer on the corner. But as of right now, we're really not seeing of concern and the kind of spot metrics, so to speak.

Speaker 8

Maybe the last quickie on credit is just With everybody having a job and there's wage inflation and excess cash, are there any buckets of income that You're seeing early stage delinquencies picking up?

Speaker 2

In short, no. It is an interesting question as you look across Our customer base, particularly in card and you sort of the heavily debated question of real income growth and Gas prices and what's that doing to consumer balance sheets. And so we're watching that, especially in the kind of LMI segment of our customer base. But right now, we're not actually seeing anything that gives us reason to worry.

Speaker 8

Thank you for all that.

Speaker 2

Thanks, Glenn.

Operator

The next one is coming from Gerard Cassidy from RBC Capital Markets. Please go ahead.

Speaker 9

Thank you. Good morning, Jeremy. Jeremy, can we follow-up on your comments about building up the Reserves, I think you said it was $902,000,000 that you guys built up and it was due to high inflation in the war in the Ukraine. How much was it due to inflation? And when you made that comment, is it because you're concerned about the lower end consumer spending more money for Fuel and food that may lead to greater delinquencies down the road and how much was it due to the Ukraine situation?

Speaker 2

Yes, Glenn, it's really a lot more general than that. So just to repeat, 900 build, 300 name specific, primarily related to Russia associated individual names. The other $600,000,000 is portfolio level. And as Jamie just said, it simply reflects increasing the probability from a very low probability to a Slightly higher probability of a, you might call it, Volker style Fed induced recession in response to current inflationary environment, which obviously is in part driven by commodity price increases, which are in part driven by the war in Ukraine. So but it's not a super micro portfolio level thing except to the extent that our models handle that.

Speaker 2

It's a Top down modification of the probabilistic question.

Speaker 1

One of the things I hated when CECL came out is that we spend a lot of time in every call yapping about CECL. I just think it's a huge mistake for all of us to spend too much time on it.

Speaker 9

Understood. And then as a follow-up, Jeremy, if we look at the AOCI number that you gave us and you were very clear about it, it's I'm going to creep back into the capital as those securities mature. Two things. Is there anything you can do assuming if the long end of the curve Continues to rise and probably giving you maybe a bigger hit on AOCI as we go forward. Is there anything you can do to mitigate that whether to shrink that The available for sale portfolio, which looks like it was $313,000,000,000 at the end of this period or do you just have to grow the revenue as you pointed out is another way of growing Your capital?

Speaker 2

Yes. I mean, I think that, obviously, we always try to grow revenue sort of independently of anything else. I think the large point here is, yes, there are some things that can be done To mitigate this, but the big picture is that the central case path is one that gets us to where we want to be when we need to be there in terms CET1 and leverage. And if things don't play out as along the lines of the central case, we have tools and levers available to adjust across a range of dimensions.

Speaker 9

Okay. Thank you.

Operator

The next one is coming from Mike Mayo from Wells Fargo Securities. Please go ahead.

Speaker 6

Hi. I have a question for both Jeremy and Jamie. Jeremy, I guess the SLR 5.2% close to the minimum. You explained that, but since the quarter end, AOCI probably has gotten worse, but I'm guessing your SLR might be very Even closer to that minimum. So I understand your central case, it's fine.

Speaker 6

Your outlook is good. But at what point do you say do you stop buybacks? Or do you think you'll buy back maybe half of The $30,000,000,000 authorization or does JPMorgan even put on asset caps given just the amazing Asset growth over the last 3 months. So that's my question for Jeremy. But the bigger picture is for you, Jamie, your CEO letter, The takeaway was in the eye of the beholder like Jamie is really worried about a recession this year.

Speaker 6

No, he's not. So the first question certainly ties into the second. So Jeremy, plan for buyback, stopping at asset caps and then Jamie, your view The broader economies and that feeds into your expectations for capital growth. Thank you.

Speaker 2

Okay, Mike. So let me take this Capital One. So first, let's not talk about asset That's just not a meaningful thing. I think that's a distraction and the terminology is unhelpful. Then in terms of the leverage ratio, Just remember that the denominator of that number is so big that it actually takes like pretty big moves to move the ratio.

Speaker 2

So, 5.20 is actually still pretty far away from 5%. And of course, there are relatively easy to use tools to address that as well as was alluded to earlier. In addition, I do think it's worth just reminding everyone of how the ERI restrictions work Now relative to how they were at the beginning of the crisis. Just briefly, just to remember that based on the redefinition, If you drop into the regulatory buffer zone, you're subject to the 60% restriction, which based on our recent historical net income generation, Still gives us like ample, ample capacity to pay the dividend and so on. So it's obviously not part of the plan, but It's just worth remembering that the cliff effects that we had in there at the beginning of the pandemic are no longer there.

Speaker 2

And then in terms of buybacks, just a reminder The $30,000,000,000 authorization is a non time bounded SEC requirement. It's not the old CCAR So it's just a signal that we want to have that capacity and that flexibility, but it doesn't really say that much about how much we're actually planning to do in the near term.

Speaker 6

Are you allowed to say what you're planning to do in the near term? Like just like if you're kind of like half the level last year, do you think you can keep that? Or does it Slow down or you're not giving guidance?

Speaker 2

Yes. So let's talk about buybacks for a second. So in the kind of post SEB world, we haven't been Guiding a lot on the pace of buybacks, mainly because, as you know, they're at the bottom of our capital stack. So we're focused on investing in the business, Providing capital to support growing RWA, acquisitions when they make sense, etcetera, etcetera and buybacks are an output. As we've discussed, In the current environment, the rate of buybacks is clearly going to be less than it was in the 2021 period As a result of the interaction of all those effects, and that's a good thing.

Speaker 2

It means that we have better uses for the capital. And if things evolve one way or the other, then The rate of buybacks will be an output, but it's one of the tools in the toolkit.

Speaker 1

Mike, I would just add, if you look at liquidity and capital, it's extraordinary. We don't want to have buffers on top of buffers. So we're going to manage this pretty tightly over time. And obviously, when you have AOCI and earnings and CECL and all that, But being conscious of all that, we can manage through that and we've done some acquisitions this year. And so and plus we are adding We're planning to have to have more capital for the increase in GSIPI down the road, which reduces stock buyback.

Speaker 1

But the amount I'd look at the amount of liquidity, the earnings, the capital, that's the stuff that really matters. And at the end of the day, it's driving customers. We serve customers, which is why we're here. We don't serve managing SLR. That's kind of an output of stuff we do.

Speaker 1

And so And then your question about, I think it was about recession basically. Yes, do you want to repeat the question?

Speaker 5

Yes. No, I mean, if you

Speaker 6

read your CEO letter, and that's great. You're the Chief Worry Officer. You're the Chief Risk Manager. You're bringing up all the things that keep you up at night, Which is great, but you can read it one way and say, hey, Jamie and JPMorgan thinks there's going to be a recession this year and you can read it in other ways saying, hey, Things are fine, but these are some tail risks. So do you think and I'll repeat what Glenn said, your view is better than mine and I'm Not going to accept anything else.

Speaker 6

You have a lot of people, a lot of resources. Do you think the U. S. Is going to have a recession this year based on everything you know?

Speaker 1

Yes, I don't, but I just want to question this. First of all, I can't forecast the future any more than anyone else. And the Fed forecasted and everyone forecasts and everyone's wrong all the time. And I think it's a mistake. We run the company to serve clients through a thicker thin.

Speaker 1

That's what we do. We know they're going to be up, we know they're going to be down, we know the weather is going to change and all that stuff like that. But I have pointed out in my letter is very strong underlying growth Right now, we should go on. It's not stoppable. The consumer has money.

Speaker 1

They pay down credit card debt. Confidence isn't high, but the fact that they have money, they're spending their money, they 2,000,000,000,000 still in the savings and checking accounts, business are in good shape, home prices are up, credit is extraordinarily good. So you have this That's one factor. That's going to continue in the Q2, Q3. And after that, it's hard to predict.

Speaker 1

You've got 2 other very large Countervailing factors, which you guys are all completely aware of. 1 is inflationQT. You've never seen that before. I'm simply pointing out that we've never that those are storm clouds in the horizon that may disappear, they may not. That's a fact and I'm quite conscious of that fact and I do expect that alone will create volatility and concerns and endless printing and endless Headlines and stuff like that.

Speaker 1

And the second is war in Ukraine. I pointed out in my letter that war in Ukraine, usually wars don't So you affect the geo the global economy in the short run, but there are exceptions to that. This may very well be one of them. I don't I'm not looking at this on a static basis, okay. So you're looking at this war in Ukraine and sanctions stay with the others.

Speaker 1

Things are unpredictable. Wars are unpredictable. Wars have unpredictable outcome. You've already seen in oil markets, the oil markets are precarious, Okay. So I pointed that out over and over that people don't understand that those things can change dramatically for either physical reasons, cyber reasons For just supply demand.

Speaker 1

And so that is that's another huge cloud in the horizon. And we're prepared. What we understand and we're just I can't tell you the outcome of it. I hope those things all disappear and go away. We have a soft landing and the war is resolved.

Speaker 1

Okay. I just wouldn't bet at all that. I just we and of course, being a risk manager, we're going to get through all that. We're going to serve our clients And we're going to gain share, we're going to come to that earning tremendous returns on capital like we have in the past.

Speaker 6

All right. Thank you.

Speaker 1

You're welcome.

Operator

Next one is from Matthew O'Connor from Deutsche Bank. Please go ahead.

Speaker 10

Good morning. I was hoping you guys could comment on the there are some articles on the nickel exposure and how The losses could have been significant if the trades hadn't been canceled and some of the actions that were taken. And then just as a follow-up, you guys have talked about kind of looking at that business And reevaluating just how you think about some of the outsized risks and maybe you can update us on that process.

Speaker 1

We've already told you we're helping our clients get through this. We had a little bit loss this quarter. We're going to manage through it. We'll do postmortems on both what we think We did wrong and what the LME could do differently later.

Speaker 6

We're not going to do it now.

Speaker 10

And then I guess, I mean, more broadly speaking, given what we just saw where it was probably a several standard deviation event and kind of, As you mentioned, markets might do more of these unusual things, like does it make you step back and look at other portfolios, other businesses and

Speaker 1

In my life, I've seen so many tense standardization events will be shocked. Obviously, we're aware of that all the time in everything we do.

Speaker 2

Yes. And I would take it one step further. I think the whole paradigm of saying it's a 10 center deviation Van, it's naive, right? We know that returns are not normally distributed. We know that, regulators know that, the capital framework recognizes In a broad variety of ways, including things like stress far.

Speaker 2

So I don't think of course, you can't predict where and in which asset class and in which But the framework recognizes in a range of ways That's the case and that's how we manage risk and that's how we're calculating.

Speaker 1

Okay. So we do CCAR 1 series you guys see, but now we We run a 100 different various dress tests every week with extreme movements and things. And that's what we do. And we're always you always could be a little surprised somewhere, but we're pretty conscious of those risks. And all events like this, we always look at everybody, it doesn't have to happen to us, it can happen to someone else.

Speaker 1

We still analyze everything that maybe we were on the wrong side of something too. But at the end of the day, in all of our businesses, we are here to serve clients all the time. That means Taking rational, thoughtful, disciplined risk to do that.

Speaker 10

And then just separately, you had mentioned earlier that You weren't looking to deploy large amounts of your liquidity. And I guess the question is, you might get the rate benefit just from Fed funds going But is there an opportunity to accelerate that benefit just by moving from cash into shorter term drive rates? We've obviously had a big move and

Speaker 1

Guys, we're just talking about this rate is going up maybe more than 3%, convexity is going up, AOCI is going up, all these there are all these various reasons not to do that. We're not going to do it Just to give you a little bit more NII next quarter.

Speaker 2

Yes. And Steve, just to just go one level deeper there for a second, right? So you're talking about deployment. Of course, as Jamie says, we're always going to take relative value opportunities in the portfolio. Mortgage spreads have widened.

Speaker 2

There's interesting stuff to do. So in that sense, Yes, deployment out of cash into various sorts of spread product that looks more interesting, we do that all the time. The high level simple question of buying duration, as Jamie says, balance sheets extend a little bit. That was never We weren't planning through that much of that anyway. And frankly, given the timing and expected speed of the rate hikes, Increasingly, it just kind of doesn't matter that much.

Speaker 2

And yes, so I think that's just helpful to keep that in mind.

Speaker 10

Okay. Thank you.

Operator

The next question is coming from Jim Mitchell from Seaport Global Securities. Please go ahead.

Speaker 9

Hey, good morning. Maybe you could just talk about how you're thinking about the trajectory of loan growth from here, Where you're seeing the biggest pockets of strength and specifically the cards, is the significant year over year growth driven more by Slowing pay downs or is that increasing demand or a combination of both? Thanks.

Speaker 2

Yes, sure. So You'll remember in the Q4 that we talked about the outlook based on sort of high single digit loan growth for the year. And this quarter, we've Roughly seen that. Interestingly, it's a little bit more driven by wholesale this quarter, which sort of brings us to your question of card. So overall card loan growth is reasonably robust when you adjust for seasonality and so on.

Speaker 2

And that's Really primarily driven by spend, which as you know is very robust. The question inside of that is then what's going on with Revolve. And I think our core revolve thesis of getting back to the pre pandemic levels of revolving balances by the end of the year is still in place To a good approximation, at the margin, we probably saw the like takeoff moment delayed by 6 weeks or so because of Omicron. But some of that's reaccelerating now. We see that in some of the March numbers.

Speaker 2

So we'll see how it goes. But also just a reminder that There's a very, very close linkage between what we see in Revolve and what we see in charge offs. And so In the moments where Revolve is lagging potentially, certainly that was true throughout the pandemic period relative to what we had thought, we also saw Exceptionally low charge offs. So on a bottom line basis, the run rate performance, there's significant offset there. But the core thesis is still there.

Speaker 2

Spend is robust. We are seeing spend down. Some of the cash buffers in the customer segment attempts to evolve. So More or less as anticipated, I would say.

Speaker 9

Okay. And then maybe just on skipping over to trading, clearly a stronger quarter, it must So finished off strongly in March, so any confirmation of that? And how do we if you're expecting more volatility around Fed and QT, Is it should we be thinking that this could be a better than normalization year? How are you thinking about trading, I guess,

Speaker 1

going forward?

Speaker 2

Yes. I mean, you know that we're going to be reluctant to like predict the next 3 quarters of trading performance. Yes.

Speaker 9

I could try.

Speaker 1

Yes. Obviously,

Speaker 2

But just to your point about normalization, right, we've been saying that, of course, we expect some normalization. The question is, If you define normalization as a return to kind of like 2019 type trading run rate levels, we never Because there's been a bunch of organic growth in the background, some share gains. And we had said that as we emerge from the pandemic And monetary policy normalized, that was going to add volatility to the markets and that with any luck and good risk management that would net net help a little bit to Mitigate what we might otherwise expect in terms of the drop from the very elevated levels that we saw during the pandemic. So obviously, there are some particular things that played out this quarter, but one of those was more volatile rate market and that helps So, yes, all else equal, the much more dynamic environment right now Would mute the normalization you would see otherwise, but our core case is still that the pandemic year period market's performance was It's not repeatable.

Speaker 1

And I'll just add to that. I cannot foresee any scenario at all where you're not going to have

Speaker 2

a lot of volatility in

Speaker 1

the markets going forward. We've always spoken about the enormous strength of the economy, QT, inflation, war, commodity prices. There's almost no chance you won't have volatile markets. That could be good or bad for trading, but there's almost no chance it won't happen and I think people should be prepared for that. All right.

Speaker 1

Appreciate the color.

Operator

The next one is from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead.

Speaker 11

Good morning. I guess just one more question on the macro outlook. I guess we can debate whether or not we get into a recession over the next year. But Jamie, would love to hear your thoughts around as we think about just the medium term, do you see a better CapEx cycle for the U. S.

Speaker 11

Economy? We've heard a lot about reshoring, labor productivity, how companies are dealing with it. Just given the lens you have in terms of large corporates, middle market customers, Do you see some pent up demand for CapEx spending that's going to be a big driver of growth, maybe not for the next 6 months, but as you think about the medium term next few years?

Speaker 1

Yes, in general, because as people are spending money and they need to produce more goods and all that, yes, and generally see CapEx Going up and I forgot the exact number. You're better off looking at our great economies forecast for that than asking me. And we see in

Speaker 2

the borrowing a little bit Yes.

Speaker 1

We do see

Speaker 2

a pretty nice Loan growth in the commercial bank. I mean, there's a bunch of different factors there. It could be some inventory effects and so on, but we'll see. But yes.

Speaker 11

And just on that front, like have you seen any improvement in supply chains? And how big a setback was the Russia war 2 supply chain improvements?

Speaker 1

It's very hard to tell. There was some improvement and then there was Ukraine and now it's all mixed again. So it's hard to tell.

Speaker 11

Got it. And if just one follow-up around you launched the UK Digital Bank last month. Any early wins in terms of how that's Playing out any perspective on what the markers are as we think about how that strategy plays out? I'm sure you're going to talk about that at Investor Day, but Just wondering any early thoughts?

Speaker 1

We'll leave that to Investor Day.

Speaker 5

Thank you.

Operator

And the next question is coming from Erika Najarian from UBS. Please go ahead.

Speaker 5

Hi, good morning. My questions have been asked and answered. I'll see you guys at Investor Day.

Speaker 2

All right. Thanks, Erika.

Operator

And there are no further questions in the queue.

Speaker 2

Folks, thank you very much. Thanks very much.

Operator

Thank you so much, everyone. That marks the end of your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your

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Earnings Conference Call
JPMorgan Chase & Co. Q1 2022
00:00 / 00:00