JPM - JPMorgan Chase & Co.

Operator: Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Third Quarter 26 Earnings Call. This call is being recorded. Information concerning forward looking statements and non GAAP financial measures included in this presentation can be found in JPMorgan Chase's earnings press release, and investor presentation posted on the Investor Relations website. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and James Dimon. And Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.
Jeremy Barnum: Thank you very much, and good morning, everyone. The firm delivered net income of $15.3 billion, EPS of $5.57, and an ROTCE of 20%. These results included $658 million of net investment securities losses in Corporate. Revenue of $50.9 billion was up 8% year on year. Excluding the net investment securities losses, revenue was up 9% year on year, largely driven by markets revenue, higher deposit balances and higher asset management fees in AWM and AWM. Expenses of $27.3 billion were up 12% year on year largely driven by higher volume and revenue related expense as well as front office hiring and wage inflation. And credit costs were $2.7 billion with net charge offs of $2.2 billion and a net reserve build of $539 million. In terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 13.9%, down 30 basis points versus the prior quarter, as net income was more than offset by OCI losses, higher RWA and capital distributions. You will note that we have updated the categories on the RWA walk to make it a bit more useful. This quarter's standardized RWA increase of about $52 billion predominantly driven by an increase in lending across banking, markets, and AWM, as well as the impact of higher energy prices and increased market volatility. Now moving to our businesses. CCB reported net income of $5.7 billion Revenue of $21.2 billion was up 9% year on year. Predominantly driven by higher balances and yield at card. Asset management fees, deposit balances, and auto lease income. A few points to highlight Debit and credit spend grew 10% year on year, with continued momentum across spending categories, including gas and travel, supported by consumer demand. Deposit growth of 4% year on year was stronger this quarter as we continued to grow our customer base across consumer and business banking, and we retained our number 1 position in retail deposit share based on FDIC data. And client investment assets crossed $1.4 trillion, up 15% year-on-year, driven by market performance and strong flows. Next, the CIB reported net income of $8.2 billion. Revenue of $22.7 billion was up 14% year on year on strong performance across the businesses. IB fees were up 14% year on year, reflecting strong performance across products, notably in advisory. While our outlook remains constructive, supported by ongoing client engagement, evolving market conditions have recently slowed activity a bit, so we will have to see how the quarter develops. Markets, fixed income was down 4% year on year, lower revenues in commodities, rates, and credit, largely offset by higher client flows in currencies and emerging markets. Equities was up 49% year on year, with continued outperformance across the franchise, notably in prime and derivative. Turning to asset and wealth management. AWM reported net income of $1.8 billion with pretax margin of 36%. Revenue of $6.9 billion was up 14% year on year, predominantly driven by growth management fees on higher average market levels, strong net inflows, as well as higher loan balances. Long term net inflows were $51 billion largely driven by continued strength in fixed income. AUM of $5.2 trillion was up 13% year on year, and client assets of $7.9 trillion were up 15% year on year, driven by continued net inflows and higher market levels. Finally, corporate reported a net loss of $455 million included the net investment securities loss, as mentioned earlier, on revenue of $93 million. Turning to the outlook. I am going to update the full year guidance by giving you the fourth quarter. Implied full year numbers are on the page. We expect fourth quarter NII ex-markets to be approximately $25.5 billion and fourth quarter total NII to be about $28 billion. And as we have done for a couple of years, you will note we gave you a central case for 2027 NII ex-markets of approximately $107 billion, which we will refine further next quarter. it is important to remember that this central case is based on a series of assumptions that are obviously highly uncertain, even under the best of circumstances. On expense, we expect the fourth quarter to be about $27.5 billion with the implied full year increase reflecting higher volume and revenue related expense driven by continued elevated activity levels. Finally, we continue to expect the card net charge off rate to be approximately 3.2%. With that, we are now happy to take your questions.
Operator: So let's open the line for Q&A. Thank you. Participants dialed in on the analyst side of today's conference call, we kindly request that you ask 1 question and only 1 related follow-up. If you would like to ask an additional question, please press. Our first question comes from Ebrahim Poonawala with Bank of America. Your line is open.
Ebrahim Poonawala: Hey, good morning. I guess maybe 1 question. Just. there is been a lot of discussion around all things AI. Over the last couple of months. And maybe if there are 2 things that you can address specifically. 1, when we think about the disruption risk to agentic AI, I know you have talked about in the past, Maybe just frame that given your visibility into the technology, how you think about that, and also the challenge of implementing agentic AI inside a bank given the emergence of all the rogue agents, and does that make it harder for a bank? To actually deploy agentic AI as we think about just competitive challenges?
Jeremy Barnum: I will start and go on to the front. Yeah. Okay. So on the disruption point, couple things. there is obviously been a lot of focus on smart cash solution, which I think is a small piece of the overall story. But that is, live now, actually, as of the last couple weeks. Very, very early days, and it remains a kind of targeted pilot type thing. But it was interesting to learn some things about what clients care about and sort of see how it works to sell a product like this in the field. So I mean, more to come on that in the future, early days, interesting so far. I think the bigger picture here is around. You know, there have been a couple of releases of personal agents this quarter, which have really gotten a bunch of attention in the market and saw a little bit of a response. And you know, bank stocks around those real pieces. And I guess the way we think about that from our perspective is that on the 1 hand, it is nothing new, and that-- But that does not mean that we are complacent about it. So if you think about what is the nature of the competition that comes from these agents, it is really the intersection of 2 things that we have been talking about for a long time. 1 is yield seeking flows, So obviously, we deal today and have dealt with all the various rate cycles. A lot of competition from yield-seeking flows. And our strategy remains focusing on primary bank share, not chasing every dollar of yield seeking money. So that does not mean that competitive pressure is not real. It just means not particularly new. The other piece is, you know, competition from fintechs for innovating and providing great customer experiences. And we have also been talking about that for a long time. And the criticality of ensuring that we have parity with them and that we are leading and often to make sure that we are giving people the experiences that they want through all the various channels, including digital. And so in that sense, the kind of agentic personal agents, whatever stuff, it is just the intersection of those 2 things, and it is not new. As I said, that does not mean we are complacent about it. We are spending a lot of time on it. it is going to be interesting to see how the space develops and what we ourselves offer there at some point. But, you know, when you take a really big step back from a competitive position, I think we really like our hand in no small part because of the sort of multiple decades investment and the branch network, the value proposition. And not least, trust that our customers have in us.
James Dimon: Yeah. I understood. Internally, we use agents to do things here, and we are going to continue to do that. And we do. We will use it for customers, but our focus would always be do a great job for customers. And so we are not against agents or for agents, something like that. They are tools. You use them for the customers. There is a defensive side, which is you gotta make sure our customers are not hurt by it. And so that is a-- of concern, but that is-- think of that as an AI agenda concern, which is heightened because you do not want rogue agents, and there could be thousands of them. And so we have always been literally on the side of the client. The people are using them. They stand the risk. there is a liability transfer. They should not stand the liability transfer. If that is being misused, they should understand it is being misused. So, we have to make sure we protect our customer in the right kind of way. So we will give-- we are building tools to do that too. In the meantime, we are not gonna allow just any agent to come, outside agent to come inside the company because it is just too risky for clients and for JPMorgan.
Ebrahim Poonawala: Got it. that is good color. And just separately, I think as we assess the risk of interest rates maybe moving even higher than what we saw in the third quarter, Maybe your latest thoughts around how you assess the resiliency of the economy to handle maybe 6% rate on 10-year and just the Fed hiking a few times? Do you think the risk of a market event or just stress on the economy is meaningful as we kind of discount that.
James Dimon: I think you have to-- we always prepare for all different events. You know? And that is not the same as predicting them because we wanna be a strong company, helping our clients, our communities, countries around the world through thick or thin. So, of course, things like that could happen. I would never take it off the table. And they can happen for good reason, which a lot of demand for capital, lot of productivity, and things fine. Can have a bad reason. And sticky inflation around the world, It can happen not because of what is in the United States. It can happen because of what happens overseas. So we are not predicting it. You know, I have always thought there is a higher chance than other people. I still kind of think that, but that is not a prediction. that is just-- think of that as cautious preparation. Got it.
Ebrahim Poonawala: Thank you.
Operator: Thank you. Our next question comes from John McDonald with Truist. Your line is open.
John McDonald: Hi, good morning, Jeremy and James. I was hoping Jeremy, you could unpack the new outlook for 2027 NII, the central case that you gave, including some of the assumptions around the balance sheet growth, deposit pricing and the impact of higher rates?
Jeremy Barnum: Yeah. Sure, John. No problem. So if you start with what we have given you as the NII ex-Markets guide for fourth quarter, which is 27.5, and you annualize that, you get something like $102 billion. So we are essentially giving you know, guiding to $5 billion of growth from that to the 107. That $5 billion, probably about a quarter of that, I would say, is related to the yield curve. So we remain asset sensitive and probably a little bit more asset sensitive than the EAR shows just because of the lower than modeled smart deposit betas. So, you know, about a quarter of that is the hikes that are currently in the forward curve. I think there is 1 in December and then 2 through the first half of the year. And the rest of it, I would actually describe pretty straightforwardly as just a continuation of the balance sheet growth and mix trends that we have seen this year. So both continued-- you know, modest consumer deposit growth, continued wholesale deposit growth, probably the wholesale a bit weaker than what was very strong this year, but we do not actually know. And then card loans, which obviously can be a big driver of NII, continued at comparable levels. So actually a pretty straightforward story, I would say, on. Okay.
John McDonald: Thanks.
Jeremy Barnum: Caveats, but, you know, I gave you the caveats in the prepared remarks.
James Dimon: I mean, on 1 hand, I think there is more uncertainty around that number than normal. Because of all the things going on around the world. So obviously, it also relates to what we do. Which we could change at any point in time.
John McDonald: Okay. that is helpful. Thank you. And Jeremy, on expenses, we move over to there, do you have any preliminary thoughts on your investment spend plan for next year, the other drivers of expenses? How those might line up with the current Street forecast for expenses next year?
Jeremy Barnum: Yeah. So, you know, we try to draw a little bit distinction between NII and expenses in the sense that despite James's comments, which are obviously true, that we can modify the structure of the balance sheet to change the NII in general, undisturbed, the NII is a kind of property of the balance at a given point in time, and it is not that sensitive. To the budget cycle. And, therefore, we feel like we do not have a very good excuse at this point in the year for pretending that we do not have an opinion about 2027. Expenses are a little different in the sense that they are still sensitive to the budget cycle, and there are a lot of discretionary decisions that get made in there. While we have some preliminary views, we are kind of not done with that. And you will remember, obviously, John, last year, we did point out that our preliminary read on expenses suggested that the market's consensus was a bit off. That seems to be quite a bit less true this year, so we see the consensus right now for 2027 expenses being around $114 billion and our current preliminary read is not too far from that. So kind of no news on that front, I would say, and let's see how the budget cycle finishes and, as Jamie points out, I think the uncertainty is not just about the macro environment. it is also about how dynamic the investment picture is and the effects of AI etcetera, etcetera, etcetera. So a lot of moving parts. But for now, the consensus does not seem too far off.
John McDonald: Okay. Got it. Thank you. Thanks, John.
Operator: Thank you. Our next question comes from Erika Najarian with UBS. Your line is open.
Erika Najarian: Yes, thank you. Good morning. My first question is just on capital management. We were fielding a lot of inbound questions from investors in terms of the $1 billion buyback versus the normal cadence of around $7 billion. And I know that there is no normal cadence, I know that buyback is the last priority. But perhaps, take us through how you should think. We should think about your capital priorities, particularly given that we are hearing that Basel III endgame and GSIB should be finalized at year end?
James Dimon: Yeah. So I think we have told you all that we have probably $30 billion or something of excess capital. Roughly, just estimating where all those endgames are, which we do not know. But that is plenty. The capital hierarchy has always been the same. I mean, after you pay your dividend, which hopefully will be steady, we would like-- we really like investing in organic growth. That is the highest and best use of capital for a shareholder. And obviously, buyback comes after that. Particularly when stock prices are up. So the positive news is the main reason the buyback is down is that it is got nothing to do with AOCI or guessing about the environment, even Basel III. We believe now, which is different than we told you in the past, that we can redeploy that capital at very good returns over time. And redeploying that capital at very good terms over time is far better than buying stock at a 6% or whatever the earnings yield would be if you bought it today. And that is simple. I mean, that is good. that is good for shareholders. I will give you 1 example, and I think there are many more. But you know, the security resiliency initiative, we told you all we deployed $1.5 trillion over 10 years. And we have not I do not think we disclosed the number, but the first year is probably over $200 billion already. And we will disclose that and do some work on it. But I guess it will be considerably more than that. And that the world needs capital. The world needs advice. The world is becoming more complex. You know, assets under management around the world are bigger. And so we think that is a good thing, that is good news in the long run. And we cannot tell you what it means for the next 6 months, but that is why we are doing it. We hope to deploy it very well for our shareholders.
Jeremy Barnum: Yeah. And the only thing I would add to that, Erika, is just that if you notice what the journey has been on the CET1 ratio, I want to say started at something like 57. And we are now at 13.9%. During a period during which we have done a ton of internal deployment. So there is been a lot of organic growth in the RWA and some of the investments that James alludes to. And during that period, we have also done a bunch of buybacks So. But at this point, you know, we are-- as Jamie says, it, the speed with which we have been able to deploy organically relative to the amount of access we have and the environment, seems pretty clear that it makes sense to keep dry powder.
James Dimon: I am going to grab in the investment bank a little bit. So they have hired a tremendous amount of very talented people in SRI and we are lucky to have Todd Anthony Combs here, you know, invest in some of the capital They have had a lot of ideas. it is not just meetings, at this point. They have helped fund some interesting types of things. We have more ideas. They are doing a really great policy around it too, which is what can you do to accelerate you know, security resilience in the United States around with chip building or we had a big announcement in Philadelphia So I just. I am proud of them. You know? We have had a bunch of people who retired who raised their hand. They are coming back, you know, more for patriotism than anything else. And so it is just a great effort for the company. And as we pointed out, it is global, and the global response has also been exceptional. We have something across my desk, which is alone over $10 billion or $20 billion of financing in 1 country. So a lot more to come here. And I would put in the same category, American Dream Initiative, the Innovation Economy Initiative, the commercial banking initiative around the world. These things are working. We think we are doing the right kind of good business and good returns.
Erika Najarian: So as a follow-up here, that all sounds very positive for activity levels going forward. In a very broad way. And, James, I know that you did some media over the past few weeks and talked about the pipeline. And maybe in that context, especially given market fears, that the bond market route around the world, it has a chilling effect on activity levels, Maybe talk about what the pipeline looks like for activity levels in both you know, the investment of both, quote, Wall Street and Main Street?
James Dimon: Well, it is very good. I do think that the bond volatility, the market, the fear is not going to change what we do. We serve clients through thick or thin. We know the I call some of economic winds. it is the weather. But that is not exactly referred to The pipeline is fine. But I pointed out many times before the pipeline is like an accordion. It can open and close pretty quick. You have seen in the United States, it is been built-- I-- As Jeremy says, it was delayed. Probably. We do not really know, and you-- we will see. And I was in Europe recently, and you know, the pipeline there is actually quite healthy and even more so in IPOs than we would have thought. So we just do not know, and serving the clients and doing a good job is the most important thing. Our pipeline. We always forecast the pipeline what you call the probability The probability. And we know and we know 1 thing for sure. It will be wrong.
Jeremy Barnum: More to emphasize, like, when James and I talk about not knowing, I think we mean we do not obviously know exactly what investment banking fee revenue is going to be in the fourth quarter. I think that we do know that the overall environment is robust and supportive, and there is a lot of business that wants to get done and needs to get done. And as you point out, Erika, not surprisingly, given the rate sell off, you are going to have the market take a little bit of a breath and a pause to make sure buyers and sellers can meet on valuation terms. And so we did see a little bit of that slowdown in, you know, the second half of September, basically. And we will see how that plays out in December. But. I mean. Sorry. Fourth quarter, but the big picture, I think, is pretty clear.
Erika Najarian: Thank you.
Operator: Thank you. Our next question comes from Chris McGratty with KBW. Your line is open.
Chris McGratty: Great, thanks. Just following up on the capital allocation, maybe a comment or 2 on where you are less comfortable allocating capital to. It seems like there is plenty of opportunities to deploy. Where are you pulling back? Where are you seeing structures or peers maybe doing something you may not wanna do? Thank you.
James Dimon: I am not gonna give you very specific stuff, but we are tightening up a little bit credit. I think some of the credit terms have got a little bit loose. And you have heard us talk about that before and other people. Know, a little too much vehicle, too weak covenants, a little too much priming good assets, all too much. Pushing on it, You know, we just feel you have to chase that kind of stuff anymore.
Chris McGratty: Okay. Great. And then secondarily, the health of the consumer, is getting a lot of attention. I guess the question is durability to withstand these kind of rates. I think you talked about 10% year on year spend in debit and credit. If we are a year from now and we still have rates where we are, like, what is your expectation for the ability for the consumer to hold on? Thanks.
Jeremy Barnum: I mean, you know, obviously, if you keep real rates, very, very high for a long time, at some level, know, that is designed to slow down economic activity to fight inflation, and that is hard to imagine that would not have an impact on the consumer. So far, what we see in the current data and what is been true, I would say, for the last few years consumer has been quite resilient in the face of a number of headwinds that under different circumstances you might have expected. Would present a challenge. But, you know, I think that the con. The conditional expectation of consumer credit health as a function of higher rates is a fairly nuanced question. But fundamentally, the picture is pretty simple. Mike, the consumer is currently very healthy. Primarily because of a healthy labor market. But, you know, if the central bank needs things to cool off and that involves a aggressive extended rate cycle almost by definition. that is gonna involve higher unemployment, which will produce weaker consumer credit results. Thanks a lot.
Operator: Thank you. Our next question comes from Ken Usdin with Autonomous Research. Your line is open.
Analyst: Thanks. Hi, good morning. On consumer side, I to see the 4% year over year CCB deposit growth. Just wondering, aside from agentic, just are you seeing in terms of either rate seeking behavior? Is it the deposit margin has been for the last few quarters, which is also good see. And I am just wondering, any change in your expectations for either growth or how you are adjusting to the current marketplace and competition for deposits?
Jeremy Barnum: Sure. Yeah. it is an important question. it is a good question. I think the simple answer is no significant change to our core expectations here. I think we seen kind of the reassertion of consumer deposit growth over the last couple of quarters as the yield seeking flows have faded and that continues to be our basic expectation. So that is the big picture. I do think that, you know, since that outlook was shaped, we have seen a somewhat higher rate environment, and that does raise the question of what will be the impact of that on consumer deposits. So in the normal course, you will obviously have higher rate paid from the high beta products from CDs and premium deposits. And all else equal, you would probably expect some amount of additional internal migration out of checking and savings into, you know, CDs or simplicity resulting in higher weighted average rate paid. And maybe you see a little bit of additional outflow pressure you know, which results in, therefore, slightly weak deposit growth. So that is all totally speculative. And it is very much a function of which side of the argument you land on in terms of some people believe, well, all the cash sorting that gonna happen has already happened, and therefore, you know, these things are relatively insensitive to slightly higher rates. I do not personally believe that. I it is probably a little bit more on a continuum than that, and, therefore, I would expect little bit of additional pressure. But in the end, it is a matter of degree. No 1 really knows, and the good news, I would say, is that the core franchise performance is exceptionally strong. Driven, you know, no small part by the net new checking account acquisition, which I think we have, like, 650 thousand this quarter or something. So it is really been very, very strong, and it is proof of kind of the value proposition and the engagement that we are seeing through our marketing efforts and the power of the brand. So from a long term perspective, that is the most important thing, and the impact of rates in the near term will just be what it is. Excellent. Thanks, Jeremy. 1 follow-up on the markets business. Obviously, we are seeing quite a bifurcation of just the continued strength in equities. And as you mentioned earlier, just some tougher comps, I guess, and the impact of higher rates on FICC. Any change to just client demand for balance sheet usage? Kind of insatiable as it seems to be in the equities business? Just the state of things in the markets business in terms of activity and kind of your willingness to we will provide balance sheet, but more so the demand side too. Thanks. Yeah. So at a high level, I think the simple answer is no real change. So I like your it is high. Yeah. I like your insatiable towards the street. Yeah. Exactly. I like your insatiable for capital point. That feels about right. I have not heard anything to the contrary, frankly, recently. But, you know, to James's point about tightening up credit, you know, that is a little bit of a overall point about just making sure we are really scrubbing everything. And in this moment where, you know, AI is such an overwhelming theme, it is producing so much innovation and so we need to kind pockets. there is capital being tapped, all kinds of different mechanism. Just need to be really, really on top of things. To make sure that nothing slips through. Thank you.
Operator: Does that conclude your question? Thank you. Next question comes from Mike Mayo Thank you. Our next question comes from Mike Mayo with Wells Fargo Securities. Your line is open.
Mike Mayo: Hi. Can you say the degree that AI helps out JPMorgan? I saw you were ranked highly in a recent AI and bank poll. But, you know, I squint and I look at the earnings release. I am trying to find the benefits, and I am not sure if I can. I think. And you can update these numbers. You spend, what, $2 billion in AI, and you have, like, $2 billion of benefits or maybe that is stale. If you could update that and then also address the risk that, AI agents will, you know, take deposits out of JPMorgan. And as far as that answer, maybe you can talk about that value proposition and the trust and the way you protect customers' privacy and the value they place on that.
Jeremy Barnum: Yeah. So, Mike, let me just tidy up a couple of things. So first of all, on the AI expense, you are right. I think we did say that some media setting at some point. I think it is not exactly right, and I think we corrected it later. I think the at the time, and I think it is a little sill at this point, the AI expense number was significantly less than that. I wanna say something like 700 annually or something like that. But more importantly, like, there is a lot of counting effect there. Right? If you sort of price out the amount of time we are all spending thinking about it, you know, you should probably get a higher number too. So it. it is, at this point, like, not really something that you can ring fence pretty well diffused inside the whole institution, and it is obviously, like, a very, very high priority. On the question of benefits, you are right. We have quantified that in the past. I am really trying to move away from that. I think that old quantification was accurate and correct as far as it went, but it included a lot of what you might call more general AI machine learning type stuff that is particularly significant in consumer fraud prevention and so on. And while that is relevant, I think when you and others ask about AI in the current moment, you are really asking about the impact of generative and agentic AI on productivity on the expense line, across a range of places, especially software engineering, but also other places. And maybe you are asking about new exciting revenue opportunities at the margin. And so that, I think, is the more relevant focus right now. And I am just very reluctant to spend a lot of energy quantifying it because it winds up wasting a lot of people's time inside the institution when we actually need to get them to focus on doing things. So on that point, and in terms of the visibility of the benefits, I think you are right to point out that the benefits are not observable in our current quarterly earnings. And I think that is probably not that surprising because as much as important and dramatic and exciting this. As this theme is, it takes a long time to really do things that are visible at an institution of our size. I can tell you that just anecdotally for me personally, the types of use cases and benefits that I am starting to see even in my own technology organization that supports finance, are increasingly exciting. We have done some experiments of some minor legacy tools that needed to be rewritten and trying to see if we could essentially 1 shot the rewrite and, like, couple weeks and you know, it did not work perfectly, but you are you are starting to see some really exciting opportunities for acceleration and productivity change. So how long it is gonna take for that to show up, we will And, obviously, some of those benefits are gonna be offset with token cost, which is a whole other conversation. But know, we are excited. there is a lot going on. And I guess your other question was, the agenda question and the trust question. I think I addressed some of that earlier. Already. But at a high level, as James pointed out, the true north here is protecting the client. So And the company. And the company, obviously. But not really focusing on you know, agents giving customers access to money movement in their accounts. I think right now, some of the services that offer that do it through credential sharing, and we have a long record of being against that way of doing things. Screen scraping, etcetera. it is not secure. And so to the extent that we are able to block those, we are blocking them protect customers and protect ourselves. And it is important that customers understand that if they give up their credentials to the agent and the agent does something that they do not want, that is gonna be on that. And that is sort of not an ideal state of thing. We are working on being able to do this correctly. So that is a piece of the puzzle. And in the big picture, you know, trust is clearly an asset, and we have spent decades building it. And as I said previously, we like our hand in that respect. But we need to be clear that the fact that we are trusted is not an excuse for complacency or a reason to provide mediocre customer experience. So we really need to do both at the same time.
Mike Mayo: And 1 short follow-up on the token costs. Do you get a benefit from scale with the token cost, say, versus a small bank? And are you also transitioning more toward kind of open model AI systems that can cost a lot less?
Jeremy Barnum: it is a little bit of everything. I would say our strategy is quite focused on minimizing lock in and maximizing optionality and the ability to manage costs. So part of the strategy is model agnosticism, harness agnosticism, and ability to run both proprietary models, but also open weight and open source models, some of which we have run on our own. So it is very much an all of the above strategy designed to get the best of what is available at the best price and control our own investment.
James Dimon: And there are tools coming that model routing, which send it to the best, quickest, cheapest We do not need the most expensive thing for every query you have, and very often people just use the 1 they are comfortable with. So that is all coming, you know, to have that, of course, under control.
Mike Mayo: Great. Alright. Thank you. Thanks, Mike.
Operator: Thank you. Our next question comes from Gerard Cassidy with RBC Your line is open.
Gerard Cassidy: Hi, Jeremy. Hi, James. Can you guys share with us the deposit beta outlook Obviously, interest rates are starting to go up. The Fed fund futures are suggesting more rate increases over the next 3 to 6 months. And with your growth in your consumer deposit base since the last tightening cycle in 2022-2023, How are you guys thinking about what you might see this time around? And, also, obviously, we are starting from a much higher interest rate level than we did in 2022. So could that mean deposit betas may not be as high this time around for you folks?
Jeremy Barnum: So it is a very good question, Gerard. And I think it is an important thing for people to be thinking about because you know, this particular rate cycle, this latest rate cycle is arguably even more unprecedented than the last 1. Mike, we just do not have a lot of historical data about how people behave when you see rate hikes from the launch point that we have seen this cycle. So it is been an unusual you know, 10-plus years, I would say, and I think it is quite important for people to realize, especially people who are doing this by, you know, training models on historical data, that the historical data sets just not that rich. So it is very important to be kind of thinking out of the box. In that context, though, I think locally, our beta story is pretty easy, actually, in the sense that you can almost think about the franchise as pretty barbelled between a bunch of very high beta deposits, like most of wholesale, as well as CDs and premium deposit and consumer, and then a stack of very low beta deposits. And the question is probably less the pricing of any given product, although that is always been a respond to competition and to market conditions. And more a sort of migration behaviors across products in this cycle And, you know, I do not think we have like. Our local expectations are that it is going to behave roughly the way it has been behaving. But I do think it is right to note that this is different cycle, and therefore, we have to be thinking about all scenarios as we always do.
Gerard Cassidy: Very good. And then pivoting over to a different question, the IMF came out very recently this month with the global stability report. And they have talked about how the hedge fund industry has grown dramatically and now their eyes, a systemic risk Leverage finance in particular was highlighted as another high risk Obviously, that is your against wheelhouse as with your peers and competitors. Can you share with us your insights on how you are managing these risks and what do you worry about since the, you know, these businesses now are so much bigger today than they were 10 or 15 years ago.
James Dimon: We could say we worry about a lot of stuff Now what the IMF thinks about it. Got it.
Jeremy Barnum: But, I mean, they are not wrong because it is a lot of leverage or something. This stuff. So. Yeah. Yeah. I mean, it is it is not wrong, but it is also a little bit obvious. And I would also say it is not really new. Right? I mean, the hedge fund the hedge fund industry has been relevant to our franchise for decades now, and a source of risk for the system for a long time now, and everyone knows that, including the hedge funds themselves that are increasing institutionalized with very professional risk management and you know, control over their margin relationships and stuff like that. So you know, there is risk. Obviously, that is the business. it is knowing it and managing it and preparing for the unknown. But I would say that, you know, hedge fund leverage as a contributor of risk to the system is very much in the category of known fund no. Does not mean it is riskless, but we kinda know what it is.
James Dimon: There are couple of unwise that happened recently, not huge, some of the equity side, some of the fixed income arbitrage type of side, and they were handled pretty easily by the street.
Gerard Cassidy: Mhmm. Very good. Thank you.
Operator: Thank you. Our next question comes from Glenn Schorr with Evercore. ISI. Your line is open.
Glenn Schorr: Hi. 1 quickie follow-up on the whole agentic and AI impact across the positive portfolio. My question is, your comfort level and ability to protect from the standpoint of how you and the regulators thinking about liquidity stress testing and liquidity risk management and just by the nature of the technology existing, do things change? I do not know if I am being too much into the future here, but Yeah.
Jeremy Barnum: No. I understand the question, Elena. I mean, you can argue that it is sort of downstream of the narrative that you know, the SVB run was a sort of social media phenomenon. And you know, we were never big buyers of that idea. I think the better way to understand that situation was as extremely concentrated and undiversified deposit base that was wholesale non op and kind of monoculture in terms of who are shaping the thinking around that. And so, arguably, you know, in a world with TV and fax machines, I think you probably would have gotten, you know, essentially the same answer in terms of speed of the run. You know? It might have been the processing of the fax machines into wires. Might have taken an additional 8 hours, but the core ingredients there were the same. So I think everyone's pretty eager to tell a sort of fast deposit run story in this new technology enabled world. I am just a little bit less persuaded that you really have the effects there. And sure. Therefore, like, in the in a world with agenda consumer cash movement, you know, it is easy to create a story where it becomes even easier to move cash under certain types of crises, but I think the right way to sort of ensure that your deposits are stable is to run the company with fortress principles so that people are confident in you. And the ease. You are probably not supposed to be hoping that your deposits are stable because the money is difficult to move. Yes, is what I would say.
Glenn Schorr: I think that is fair. I appreciate that.
James Dimon: 1 If you take a big step further, we have $1.5 trillion of cash in Mary securities. So not worried about changing our liquidity. But make a big step back. Banking services are necessary. You know, credit cards and debit cards and money and insured deposits and you know, need the branches. And 1 of the ways you earn that is NII from, you know, money that sits idle. But if you could not do it that way, you would. Over time, you would do something different. You know, subscription, of course, you are getting investment accounts combined with checking accounts. And so over time, they will be. It will adjust. We wanna do a great job for our clients. It will cost a lot of money to run these banking systems. Most of it is a fixed cost. So we are not worried about over time. But in the short run, of course, you gotta figure out how you wanna handle that kind of stuff. And I do think you raise an issue which is different, which is should regulators be thinking about what they are gonna do with some these things? Yeah of course, they should. No. The. We. it is a new world, and you know, and with all these bots and agents and stuff like that, could someone get hurt and cause a problem? Maybe. If I was already, tried to be prepared for that. Gotcha.
Glenn Schorr: I 1 question on concentration risk. The public equity markets do not know anything about that and do not care. But bank loan books and bond books and insurance portfolios do So I guess my question is this amazing hyperscaler race to expand compute power, and everybody wants to finance it. The money in capital's there, but from your vantage point, can we finance it without breaking some concentration limit issues? Mike, can the market digest what the cue powder suggests for the spend.
Jeremy Barnum: Yeah, it is a really good question, right? Because I mean, we think a lot about our current exposure to that. But arguably, the more important question is, our appetite for future exposure in light of the kind of announced amount of CapEx that needs to happen in this ecosystem and the associated demands or requirements for capital. From the financial system. So I guess a couple of things. 1, clearly, single issuer concentration is the thing that is gonna get managed. And clearly, given the nature of these structures, you have to be sophisticated about assessing both your indirect exposure or your direct exposure, you know, you sit on the capital structure, the value of the collateral. Mike, there is a lot of nuanced credit analysis that needs to be done correctly. To assess your individual issuer exposure across the ecosystem. And you can assume that institutions are gonna contain that and I guess 1 thing that we have seen over the last year is just increasing usage of different parts of the capital markets ecosystem to get as much diversified financing of this build out as possible. And there is a lot of capital out there waiting be deployed, so some of it will be from the banking system. Some of it will be from elsewhere. But you know, I think at the system level, you know, I do not know. Some people are talking about crowding out effects, so that will interesting to see. But, anyway, I think for us, we need to focus on our institutional risk appetite and I think they are addition to the obvious single name focus, the other thing to be very careful about is just the AI theme. Because the AI theme so broadly diffused into the marketplace. it is not just you know, traditional you know, construction lending. Now increasingly, it is working capital revolvers. You have also get the equity markets. it is kinda everywhere. And so you really need to be running stresses that test your resilience to a meaningful change in overall thinking across the entire enterprise. And that is something that we spend a lot of time thinking about. You know, currently, our exposures are still quite modest in the context of our overall wholesale exposure, but that is not the same as saying that we would be immune to a major change in sentiment in the AI space. I think I would be surprised if anyone, frankly, was immune to that. This point. that is great. Thanks so much, Jeremy.
Glenn Schorr: Thanks, Glenn.
Operator: Thank you. Next, we will go to the line of Manan Gosalia from Morgan Stanley. Your line is open.
Manan Gosalia: I wanted to check-in on the commercial banking side. What are you seeing with your core middle market client? Is there an insatiable demand for capital there too? Or as short end rates move higher, the value of the curve moves higher, are you seeing any pullback in demand there?
Jeremy Barnum: Yes. I do not think that when we talk about the insatiable demand for capital, we are talking about our core middle market clients. I think their the theme for some time now has been people worried about other people while doing fine themselves. You know, the theme is always like, oh, you know, we run these surveys, and they are always like, oh, I am worried about this. I am worried about that. And like, how are you doing? Oh, I am doing great. You know? So it is kind of an interesting dynamic there. You know, no question that higher rates, I think input costs, inflation, the diesel narrative, like, these things are tough. For middle market clients, and so we see them trying to manage that to the best of their ability. And I think it does create a little bit of caution in that space. But I think balance sheets are strong. You know, people have been through a lot over the last few years, so they are well prepared. But, yeah, I do not think insatiable demand for capital applies to that subset of the client base.
Manan Gosalia: Got it. And then separately, Jeremy, the on liquidity side and the past, you have noted that you need to see changes in liquidity rules to fully realize the impact of freeing up excess capital. As we get closer to the regulators coming out with new liquidity, proposals, And if you do get more credit for discount window readiness, how would that change how you manage the balance sheet and over what time frame?
James Dimon: I just know the I think it is right for the regulators to look at all these things again. And it is not just the discount window. it is FHLB. Inconsistencies between resolution recovery, it is what counts as HQLA to start with. How you do LCR. I think they should look at all that because with the view that I think you can create safer banks with more deployed capital and more liquidity if you use intermediate markets. And that should be the goal. But you really hard to answer the question because this is going to be up to them. Either way, we will serve our clients and do a good job take care of and do what we are supposed to do. But think they should be doing that. So we will see. We do not have to speculate what they are gonna do. There are a lot of proposals out there are part of international rules I applaud them for looking at it.
Jeremy Barnum: Yeah. Now I think the. I agree with everything James said, and it is it is really particularly complicated across a range of dimensions. I will note that at company update, we actually talked about this and in some sense kinda gave you the answer. What we said at the time was that the problem with the situation where the system has a healthy amount of capital was relatively pretty constrained is that just at the margin, leads you to have your asset deployment be in much higher risk density instruments, essentially. And so a place where you are a little bit more balanced would tend to move you towards lower risk density, and it just enables you to serve broader part of the economy, you know, including mortgages, consumer lending, also some of the more secured C and I type structures. Yeah. Those are. If they wanna reduce the size of Fed balance sheet, they are going to make some changes. Yep.
Manan Gosalia: Got it. Thank you.
Operator: Our next question comes from Matt O'Connor with Deutsche Bank. Matt O'Connor: Good morning. I was hoping you could talk more about how you are growing noninterest bearing deposits when a number of peers And then just how you are thinking about that specific bucket of deposits in a higher rate environment if you can continue to grow them?
Jeremy Barnum: Yes. I mean, think I have sort of addressed that point to some degree and connection with the. I think my answer to John's question on the 2027 NIA outlook and how we are feeling about consumer deposit growth. But I guess just to reiterate a couple of points. Mike, number 1, our net new checking account growth has been exceptionally strong, 650 thousand this quarter. So people are reacting. They are responding well to the marketing. They are responding well to the brand, the value proposition, to the multi-decade investment in the product bundle that we offer our consumers. So I think that is really good news and has been a contributor to the kind of reassertion of consumer deposit growth. As I noted, you know, the question a little bit in this rate hiking cycle is going to be how those balances behave and how pricing pressure behaves and how much migration we see to higher beta products and so on. And you know, we will see. I think we are relatively optimistic right now. And we would not expect radical changes for, like, small local moves but we do think a lot about the different rate regimes and how that can affect deposit beta. I think that is part of just being prepared for everything. Matt O'Connor: Okay. And I guess I was thinking more specifically the noninterest bearing deposits, which I think are more kind of in the commercial corporate side of things. So I was just trying to see if there is any color there in terms of, like, cash management products. You know, things that have been a key driver.
James Dimon: The cash. The. Most of the non interest bearing is consumer. And that is because we are growing the business. And, you know, different products for different types of consumers, and I think the wholesale side, commercial side is much more competitive than that.
Jeremy Barnum: Yeah. No. I think, to be honest, the reporting is a little confusing in part because of the famous ECR product that sometimes makes it look like on the wholesale side, there are more non-interest bearing deposits than there actually are. that is just an artifact of the rules for how we have to report. So you wanna get more color on that, Matt, you can with the IR team. But at a high level, I would say that wholesale deposits have been, continue to be, and in fact, at the margin are a little bit more competitive But the way to think about that is not that the product offering allows us to grow non-interest bearing deposits. it is. there is an overall margin that you earn on your deposits as part of the bundle of products, and that is a function of how good your service offering is. And we have quite a good track record there of winning share and winning mandates. it is a function of quality of our products. Matt O'Connor: Okay. Understood. Thank you. Thanks, Matt.
Operator: Thank you. Our next question comes from David Chiaverini with Jefferies. Your line is open.
David Chiaverini: Hi, thanks for taking the question. So JPMorgan's, ROTCE target through the cycle is 17% versus 21% today. Is there anything you are seeing either in the macro environment or competitive environment that could accelerate a path to 17%, or is that not anywhere on the horizon?
James Dimon: I always talked about the 17% being through the cycle. Things are pretty good now with high volume, high asset prices, and fairly low credit losses and all that. So if you could earn 70% consistently for a long period of time, that is a really good return for shareholders. that is our goal. I do not want to change every time, you know, something happens in the marketplace and so Yeah.
Jeremy Barnum: So, you know, so far, so good and we will go. Hopefully, we will enjoy this good environment for a while. We do not know when it is gonna stop.
James Dimon: And we do not want to be pointlessly negative, and I will not sort of bore you with the speech. But if you just look across the entire franchise, every single business is performing exceptionally well.
Jeremy Barnum: The conditions have just been exceptionally favorable.
James Dimon: Every company.
Jeremy Barnum: Yeah. it is not just us. And so, you know, that has not historically been true. Historically, you have tended to see a bit more internal diversification in high rate environments on business do better than others and vice versa. So the conditions that we have had recently were essentially every part of the franchise is, you know, beating records or not typical by historical standards.
David Chiaverini: Makes sense. Thanks for that. And then, shifting to credit quality, you the consumer side. Could you talk about the corporate credit health? It looks like you have built some reserves on the wholesale side. Curious on your comments there.
Jeremy Barnum: Sure. Yeah, the wholesale build is actually just from new activity. So it is not downgrades or change in the Outlook or anything like that. So I would say that the corporate credit outlook is currently pretty stable. But, obviously, there are issues out there, and we will have see how those flow through. The performance of our borrowers, you know, energy prices, fuel inputs, higher rates, you know, these are all things that will create challenges in different pockets of the economy and C and I space. As well as the CRE space for that matter. So we will see. But so far. I mean, it is very early, But in general, we think corporate balance sheets are in quite good shape. And so there is been resilience. But there are a lot of pressures. Building up. So we will have to see what happens.
David Chiaverini: Great. Thank you.
Operator: Thank you. Our final question comes from Kunpeng Ma from China Securities. Your line is open.
Kunpeng Ma: Hi, good morning. Good morning, James and Jeremy. This is from China Securities. I have a question on the revenue of the market business. Does it-- We have seen some volatilities in the market revenue across quarter. So I do not know whether we have a meaningful estimate of the flow-- Through the quarter. Market business revenue. And, also, if we can. If you can provide us with some of your thoughts. On the key business momentum. Supporting such kind of estimate? That will be very helpful. Thank you.
Jeremy Barnum: Yeah. So I had trouble exactly following your question, but I think you are asking me for a fourth quarter outlook for the market's revenue. And so as you know, we do not actually guide to that. it is it is obviously very, very hard to predict and essentially a function of outside enforces. But just a reminder that you do tend to see significant seasonal decline between the third and the fourth quarter. And also a reminder that in recent years, we have had some slightly unusual seasonal patterns between the third and the fourth quarter. So our base case assumptions right now, all else being equal, are normal seasonal declines between the third and fourth quarter and make sure that you interpret normal with the right amount of historical context. And all the usual caveats apply. it is. We have seen a lot of volatility. there is a lot going on, and anything can happen.
James Dimon: Think the fourth quarter will have not the same seasonal decline. First, interesting. Too much going on in the world.
Kunpeng Ma: Thank you. Thank you so much. Thanks very much.
Operator: Thank you. that is all the time we have for questions today. Thank you very much, everybody. Thank you all for participating in today's conference. You may disconnect at this time, and have a great rest of your day.