JPMorgan Chase & Company (JPM) — Q3 2021 Earnings Call Transcript

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 $11.7 billion, EPS of $3.74 on revenue of $30.4 billion, and delivered a return on tangible common equity of 22%. These results include a $2.1 billion net credit reserve release, which I'll cover in more detail shortly, as well as an income tax benefit of $566 million. Adjusting for these items, we delivered an 18% return on tangible common equity this quarter, touching on a few highlights. It was another strong quarter for investment banking, including an all-time record for M&A. And while loan growth remains muted, we see a number of indicators to suggest it has stabilized and may be poised to begin more robust growth across the Company and particularly in card. Consistent with last quarter, credit continues to be quite healthy. In fact, net charge-offs are the lowest we've experienced in recent history. On Page 2, we have some more detail. Revenue of $30.4 billion was up $500 million or 2% year-on-year. Net interest income was up 1% with balance sheet growth and higher rates primarily offset by mix and lower CIB Markets net interest income. And net interest revenue was up 3% driven by solid fee generation across investment banking and Asset and Wealth Management largely offset by net securities losses in corporate versus gains in the prior year and lower revenue in home lending. Expenses of $17.1 billion were up 1% year-on-year on continued investments and higher volume and revenue-related expenses, predominantly offset by lower legal expense and the absence of an impairment in the prior year. Credit costs were a net benefit of $1.5 billion driven by the reserve release. But it's also worth noting that net charge-offs of just over $500 million were approximately half of last year's third-quarter number. Let's cover reserves on the next page. We released $2.1 billion this quarter driven by less severe downside scenarios as the macro environment continues to normalize. Reserves stand at $20.5 billion, which still accounts for elevated uncertainties surrounding COVID, and the current labor market dynamics, including the expiration of expanded unemployment benefits. Now moving to balance sheet and capital on Page 4, we ended the quarter with a Common Equity Tier 1 (CET1) ratio of 12.9% down modestly primarily on higher Risk-Weighted Assets (RWA). The firm distributed $8 billion of capital to shareholders this quarter, including $5 billion of net repurchases and the common dividend was increased to $1 per share. With that, let's move on to our businesses starting with Consumer and Community Banking on page 5. CCB reported net income of $4.3 billion, including reserve releases of $950 million on revenue of $12.5 billion down 3% year-on-year. Deposits were up 3% quarter-on-quarter, indicating some deceleration as excess deposits are stabilizing. Notably contributing to this growth, we ranked number 1 in retail deposit share based on the FDIC data, and we're the only large bank to show meaningful share growth up 70 basis points year-on-year. Similarly, client investment assets were up 29% year-on-year. And while market performance was a driver, retail flows in both advisor and digital channels were strong. Touching on spending, combined credit and debit spending was up 24% versus the third quarter of 2019 and in line with last quarter, within that data, travel, and entertainment spending was up 8% versus 3Q 2019, which closely tracked the patterns of the Delta variant within the quarter, softening in August and early September, and reaccelerating in recent weeks. Card outstandings were up 1% year-on-year and 4% quarter-on-quarter, benefiting from higher new account originations. And while the payment rate is still very elevated, it's come down from the highs and revolving balances have stabilized. When we look inside our data, we see evidence of excess deposits starting to normalize in segments of the population that traditionally revolve. So as a result, we're optimistic about the growth prospects of revolving card balances. Moving to home lending, average loans were down 6% year-on-year but up 2% quarter-on-quarter with portfolio additions now outpacing prepayments. It was another strong quarter for originations totaling nearly $42 billion, up 43% year-on-year, reflecting record purchase volume and share gains in the refinancing market. In Auto, we had $11.5 billion of originations, second only to last quarter's record. Overall, loans were up 3% quarter-on-quarter on the growth in card and home lending I just mentioned. Expenses of $7.2 billion were up 5% year-on-year, driven by investments in the business, including marketing. More generally, we continue to see that the acceleration in digital adoption during the pandemic has persisted with active mobile users up 10% year-on-year to almost 45 million. Looking forward, we are encouraged by our household growth and balance sheet trends. However, we expect it to take some time for revolving credit card balances to return to pre-pandemic levels, given the amount of liquidity in the system. In the meantime, credit losses and delinquencies remain extraordinarily low. On a year-to-date basis versus 2019, low charge-offs more than offset lower net interest income. Next, the corporate and investment bank on Page 6, CIB reported net income of $5.6 billion on revenue of $12.4 billion. Investment banking revenue of $3 billion was up 45% versus the prior year and down 12% sequentially. IB fees were up 52% year-on-year, driven by strong performance in advisory and equity underwriting, and we maintained our number 1 rank with a year-to-date wallet share of 9.4%. Advisory had an all-time record quarter benefiting from the surge in M&A activity, and we almost tripled fees year-on-year in a market that doubled. Debt underwriting fees were up 3% driven by an active leveraged loan market primarily linked to acquisition financing. In equity underwriting, fees were up 41% primarily driven by our strong performance in IPOs. Looking ahead to the fourth quarter, the overall pipeline is healthy and the M&A market is expected to remain active. If so, investment banking fees should be up year-on-year, but down sequentially. Moving to Markets, total revenue was $6.3 billion, down 5% compared to a record third quarter last year. Notably, we were up 24% from 2019, driven by the continued strong performance in equities and spread products. Fixed income was down 20% year-on-year due to ongoing normalization across products, particularly in commodities, as well as an adjustment to liquidity assumptions in our derivatives portfolio. Equities was up 30%, a record third quarter, with strength across regions reflecting higher balances in prime, strong client activity in cash, as well as ongoing momentum in derivatives. In terms of outlook, keep in mind that it will be a difficult comparison against the record fourth quarter last year, but the current environment continues to challenge our ability to forecast revenues. Wholesale payments revenue of $1.6 billion was up 22%, or up 10% excluding gains on strategic equity investments. Year-on-year growth was driven by higher deposits and fees, partially offset by deposit margin compression. Security Services revenue of $1.1 billion was up 9%, primarily driven by growth in fees on higher market levels. Expenses of $5.9 billion were flat year-on-year as higher structural and volume and revenue-related expenses, as well as investments, were offset by lower legal expenses. Credit costs were a net benefit of $638 million, driven by the reserve release I mentioned upfront. Moving to commercial banking on Page 7, commercial banking reported net income of $1.4 billion on revenue of $2.5 billion, which was up 10% year-on-year due to higher investment banking and wholesale payments revenue. Record gross investment banking revenue of $1.3 billion was up 60% primarily driven by increased large deal activity with continued strength in M&A and acquisition-related financing across both corporate client and middle-market banking. Expenses of $1 billion were up 7% year-on-year, predominantly due to investments and higher volume and revenue-related expenses. Deposits were up 4% sequentially, mainly driven by higher operating balances, while loans were down 1% quarter-on-quarter. C&I loans were down 3%, but up 1% excluding PPP, driven by higher originations. Notably, consistent with last quarter, we are seeing a slight uptick in utilization rates in the middle market. Those among larger corporates seem to have stabilized albeit at historically low levels. CRE loans were flat with modestly higher originations in commercial term lending offset by net payoff activity and real estate banking. Finally, credit costs were a net benefit of $363 million, driven by reserve releases with net charge-offs of 6 basis points. Completing our lines of business, Asset and Wealth Management reported net income of $1.2 billion with a pretax margin of 37%. Record revenue of $4.3 billion was up 21% year-on-year as higher management fees and growth in deposit and loan balances were partially offset by deposit margin compression. Expenses of $2.8 billion were up 13% year-on-year, largely driven by higher performance-related compensation, as well as distribution fees. For the quarter, net long-term inflows of $33 billion continue to be positive across all channels, asset classes, and regions, with notable strength in equities and fixed income. Assets under management of $3 trillion and overall assets of $4.1 trillion, up 17% and 22% year-on-year respectively, were driven by higher market levels and strong net inflows. Loans were up 3% quarter-on-quarter, with continued strength in custom lending, securities-based lending, and mortgages, while deposits were up 5% sequentially. Turning to corporate on Page 9, corporate reported a net loss of $817 million, including $383 million of the $566 million tax benefit that I mentioned upfront. Revenue was a loss of $1.3 billion down $957 million year-on-year. Net interest income was a loss of $1.1 billion down $372 million, primarily reflecting limited deployment opportunities as deposit growth continued. We realized $256 million of net investment securities losses in the quarter compared to $466 million of net gains last year. Expenses of $160 million were down $559 million year-on-year, primarily driven by the absence of an impairment on a legacy investment in the prior year. On the next page, let's discuss the outlook. Our full-year outlook for 2021 remains largely in line with our previous guidance. We still expect net interest income to be approximately $52.5 billion and adjusted expenses to be approximately $71 billion. But as you'll see on the page, we've lowered our outlook for the card net charge-off rate to around 2% as delinquencies remain very low. To wrap up, we're pleased with this quarter's performance as we approach what we hope is the tail end of the pandemic. The strengths of the Company, both in terms of our diversified business model, as well as our fortress balance sheet, talent, and culture, have enabled us to perform well through this difficult period while continuing to serve our clients, customers, and communities. As we look ahead and the environment normalizes, new challenges will undoubtedly arise, but we feel confident with the position of the Company and the strategy going forward. With that, Operator, please open the line to Q&A.

Good morning, Jeremy. Wanted to ask about the net interest income guidance for the year. It seems to imply a nice step-up in NII for the fourth quarter to roughly $13.5 billion. Was wondering what do you expect to be the drivers of that sequential step-up and would you see the fourth-quarter NII as a good starting point for us to think about our 2022 NII forecasts?

Yeah, John. Good question and good catch there. It's true, that is quite a bit of sequential growth. If you do the math, it suggests about $350 million. In reality, if you think about what we've been saying about the outlook for increased revolving and deployment and so on, the increase is non-intuitively high. So just to explain within that, there are a couple of factors. One, there's actually a meaningful amount of growth between the third and the fourth quarter, which in general we would sort of encourage you to ignore. There's also some sequential increase in NII from PPP forgiveness contributing to the fourth quarter number. If you strip those two out, you still see a little bit of modest growth, which is a little bit more consistent, I think with the overall story we’ve been tying, which is that the real acceleration in NII, especially from higher card revolve, is a 2022 item. In that context, then if you take that sort of lower number and thinking about annualizing that, I think it's fair to assume that would be a lower-end estimate for the 2022 number in light of what we believe will happen with card revolve. Obviously, we'll give you a little bit more color about 2022 next quarter.

Okay. And as a follow-up, your cash balances continue to grow and you have been conservative on liquidity appointments. Could you update us on your thinking around liquidity deployment, pacing that, and what factors you're balancing?

Yeah, totally. At the highest level, I would say that nothing's really changed, meaning we're still all else equal, happy to be patient. We still believe in a robust global recovery. We are still a little bit concerned about inflation, I think relative to the consensus. All of that contributes to a willingness to be relatively patient about deployment. But it's also fair to say, that relative to last quarter, rates are obviously higher. We're starting to see central banks around the world normalizing their policy stance a little bit, so the market-implied rates are coming a little bit more in line with our view and given that, it wouldn't be surprising if we saw some more opportunities for front-end deployment, cash, and cash-like activity, as well as possibly some duration management.

Hey. Good morning. Just first on loan growth. As you noted, the auto has been a strong card starting to show signs of life, but it looks like outside of acquisition, finance, C&I still seems a little weak and we've got ongoing supply chain issues. I don't know, as we think about the big picture, how are you seeing, I guess loan demand trends playing out, and what are you expecting as the next 12 months progresses?

Yeah. So let's go through loan growth because obviously, that's one of the areas that everyone's interested in. If we start with a card, which is obviously the one that's going to amount of the most in terms of NII impact, as you said, we see some signs of life and we believe that recovery is strongly underway and it seems hopeful like Delta is really fading, so that's going to help. If you just look forward just to the holiday season, we would expect to see normal seasonality, normal growth there. The question really for Card, as we've talked about a lot, is whether that growth in spend and in card outstanding translates into revolve. But as I noted in the prepared remarks, when we look inside the data and we look at the customers who have both deposit accounts with us and our Card customers, and we look at those who would typically be the ones that are most inclined to revolve, we actually do see slightly faster spend down of the excess deposit balances there. So that makes us relatively optimistic about both the potential for card outstanding to grow with the higher spending, but also for increased revolve and lower pay rates as we go into next year. It's going to take time obviously, but that is the core view. In-home lending broadly, we expected this quarter's trend with portfolio additions outpacing prepayments to continue. In C&I, which you mentioned, just a reminder, that as you go to the higher end of the spectrum in terms of the size of the C&I customers we are eager to lend to them as a key part of the franchise. But from a financial performance perspective, that's more of an outcome rather than a goal. We do, as I noted up front, see a little bit of an uptick in utilization rates amongst smaller corporates. So that's consistent with a theme we've been seeing, which is that the smaller you are, the less likely you are to have benefited from the wide-open Capital Markets, and the more likely you are to be borrowing. We hear a lot about supply chain issues from that customer segment. So it's going to be interesting to see how that plays out. In CRE, we see quite a robust origination pipeline, as we've fully removed any pandemic-related credit pullbacks, and we're leaning into that and we do expect to see a little bit of net loan growth going forward. I would note that we do see some loan growth in markets actually, and we generally discourage you from focusing too much on NII and loan growth within markets, but it is an indicator that there are some opportunities there that we're taking advantage of, in the usual kind of nimble way that you would expect us to do in markets.

Okay. That's all very helpful. And maybe just a follow-up on the expense side. You and your peers have all seen higher expenses this year, higher capital markets, and incentive expenses, and increased investment spend. But as we think about going into next year, our capital markets activity normalizes as many expect. Can we start to see expense growth slow or are there other considerations to think about whether it's investment spend or inflation pressures that we should consider?

Yeah. So it's a little bit of an all-of-the-above story I would say. First of all, we're still in the middle of budgeting and it's sort of a little early to be giving you 2022 expense guidance. We'll do more of that next quarter, but realistically, expenses are going to be up next year. To your point about capital markets-related expenses, it's obviously true that we pay for performance and in light of the very strong performance over the last couple of years in both Banking and Markets, we have seen increased compensation expense on the way up. Therefore, as a function of the amount of normalization that you see in 2022, you're going to see that come down in line all else equal. Obviously, I would point out that I think that the amount of growth in that number that we've seen through the pandemic is less than a lot of people would have expected. Therefore, on the way back down, you would also potentially expect less participation, not to mention just the timing dynamics associated with the treatment of stock-based compensation investing. So all of that aside, at the same time, we are still investing. We still see significant opportunities. We still see marketing opportunities in the card, and yeah, labor inflation is a question. You saw us raise wages in parts of the U.S. at the entry level. That just came into effect this September. As we look out, we see a lot of churns. As Jamie was saying, it's good stuff, it's normal, it's understandable in this environment. Labor inflation is definitely a watch item for us. So when you put all that stuff together, as I said, we'll update you more next quarter, but that's how we see the expense outlook for next year.

Hi, there are a couple of events during the quarter that I wanted to ask about, and specifically, how has the tech strategy evolved? One, you made the announcement that you're changing the retail bank core system entirely to the public cloud. That's a big change. Jamie, I would love to hear your comments on that. And then second, your expansion in the UK with digital banking, what metrics are you shooting for? And third, your recent Fintech acquisitions, to what degree are there synergies among the acquisitions in addition to JPMorgan? Thanks.

Okay, Mike. Hold on. I'm noting down your questions to keep track. Let's begin with the Cloud. You may have seen some media coverage regarding our partnership with Thought Machine. At a fundamental level, there is nothing new here. We have been dedicated to the Cloud for a significant period. When I refer to the Cloud, I mean both private and public Cloud. Our core strategy focuses on fully embracing both and being agile in our approach. This is crucial for us as a regulated entity, especially regarding our resilience. The motivations behind this are the usual reasons for adopting cloud technology and tech monetization. We aim to innovate rapidly and deliver custom products to consumers more swiftly. Additionally, we want to operate multiple products on the same platform. As I mentioned, resilience is essential. More and more, we intend to run the bank in real-time instead of relying on batch processes. APIs are fundamental to our entire strategy in this context. That's what I wanted to convey about that. Now, yes, Jamie.

Thought Machine serves as the central general ledger. It differs from previous conversions in that it allows for segmented transitions, enabling parts to be completed at different times rather than all at once as was necessary during large mergers in the past. This approach reduces the risk for the Company. However, the core strategy remains unchanged.

Okay. Regarding international consumers and acquisitions, you may have noticed that we recently rebranded NutMeg as a JPMorgan Company just a couple of days ago. It’s still early to provide significant updates, but the initial response has been positive. Our offering appears to be distinctive and innovative, and we will share more details about it over time. Generally,

I just again, this is a 10-year game plan. We're not going to worry that much about metrics in the next month or two. This is the long-term work to try to get this thing right because if we're ever going to be retail overseas, it's going to be digital. We're going to be very patient. At one point, Mike, we will report some metrics so you can see them, but they're not going to be material to the firm's numbers for years.

Yes, that's certainly going to take time. More generally, regarding our acquisition strategy, we've mentioned this before. We're not suggesting we have a comprehensive top-down acquisition approach. Overall, we're pursuing opportunities that make sense. There are some recognizable themes, such as focusing on bolt-on acquisitions and enhancing our capabilities. For example, in Asset and Wealth Management, you’ll notice a consistent trend of integrating ESG-related capabilities. You’ve pointed out our international expansion and growth potential, which will be a long-term endeavor, as Jamie noted. There is also some fintech narrative associated with our efforts in the corporate and investment bank. In the consumer segment, our recent initiatives center around creating more integrated and holistic experiences for our customers. We're proud of the value we provide, especially with our Card product, and we believe we can enhance that through initiatives related to lounges and customer loyalty. I think I covered everything there, Mike.

That you certainly did. And just as a follow-up, we see the results, the marginal efficiency in the businesses where you're growing has improved. And we just don't have the why. So how much of that is tech-driven versus other reasons? I guess you have metrics internally that we just don't have. But your marginal efficiency is what or your unit costs are going down or any additional color as to why the marginal efficiency is improving?

Yeah. I mean, reasonable people can differ on how you talk about this stuff, especially in terms of what parts of the expensive space we see as a little bit more fixed versus a little bit more floating. I would have said that, in reality, marginal expense increases as a function of most types of marginal revenue are actually lower than a lot of people think. The operating leverage you see, especially in the type of environment we’ve had with really big increases in revenue on the capital markets areas and on the NRR site, is actually relatively consistent with what I would have expected. A little bit to your point, Mike, what's also true is that we're a big organization. There’s a scale play here. We have a big fixed cost base and a lot of the modernization agenda is about making sure that that doesn't creep and that it's as expensive as possible so that it can be as nimble as possible. That marginal efficiency over time is as good as possible, but that's a long play there.

All right. Thank you.

One of the things you should think about is you people worry about the forecast for next year and stuff like that. We're playing the game for ten years here. We're not going to disclose certain things like margin byproduct or something like that because it's competitive information. In the long game, we're competing with some very large, talented, global players, who are not even in banking today. We are going to compete in that. Some of these acquisitions are more about that than around what I consider traditional banking. Throughout my whole life, we've been modernizing technology every year, every month, every quarter. That's like a permanent state of affairs. Obviously, now it's to the Cloud and stuff like that. Those things are critical to do to be competitive going forward. That was true, by the way, 20 years ago.

Thanks. Good morning. I wanted to ask if you can expand a little bit more upon card fees and card revenue rate. We all certainly expected that the marketing expenses to go up inside that line. Just wondering if you can help us understand how much of that was captured in the third quarter and just what your general outlook is for the fee line and the underlying overall revenue rate. Thank you.

Yes. Ken. You're right. Part of the drop in the revenue rate this quarter is a function of higher card marketing spend, which you would have expected. As a result of what we said last quarter in terms of the importance of getting our fair share of growth and spending as we emerge from the pandemic and the fact that we're out in the market with a lot of offers that are seeing good uptake, and we're seeing nice growth there. So that's expected. I think that card marketing number will actually remain elevated and if anything tick up a little bit sequentially just based on how the amortization there works. You should expect to see that continue. But in addition, this quarter, we have an adjustment to the rewards liability, which is contributing to the drop this quarter as well. That is not something that we see continuing, so that should come out of the run rate as we look forward.

Can you help us understand what the magnitude of that is and what you think about the overall Card revenue rate going forward?

I mean, we don't really manage the Card revenue rate, so it's not a number that I'm eager to guide to. But I think, if I remember correctly, the rewards liability adjustment this quarter was of the order of approximately $180 million, so we'll confirm that, but I believe that's right.

Hi. I have 2 questions: one, just following up on the Card discussion regarding the fees and the roughly $180 million on the rewards adjustment. I mean, it still leaves us with a pretty big decline in Q-on-Q. I'm trying to think through that a little bit because I know marketing rewards, etc., is up. But was there anything in particular that would have driven a one-timer that is unlikely to persist or not? I realize that cashback is a little more expensive, so maybe that's a piece of it and it's a one-time move or is it more a function of, hey, we're going to be ramping our offerings here. So, you should expect that the forward look is a step-down from what you had been seeing in 2Q?

Yeah. So, Betsy, in short, it's really the latter. The only thing that is one-time-ish in nature, for lack of a better term, is the rewards liability adjustment. The rest of it really is marketing spend. We see that as a critical investment at this moment of high engagement with the product, and we're very committed to making those investments. So that is going to remain elevated, and if anything, tick off a little bit as we look forward.

Okay. Thanks. And then separately, I think today is the last day of the Vice-Chair of Supervision, Randy Quarles as Vice-Chair. The question is, how should we be thinking about how you are positioning for an environment where maybe these rules don't change, right? Like the LCR, the SLR, other things that we had been hoping might have some changes in them. Should we be anticipating that in order to help deliver the growth that you're looking for, that we should anticipate more preferred issuance going forward?

Yeah. I think, obviously, we're a little disappointed that we haven't seen some of the changes on the non-risk sensitive size-based constraints that we'd expected. But we're still hopeful that that will come soon. We know the staff is hard at work on the final rule, and that's complicated stuff, and it may be the case that some of those things are connected. Our strategy on preferred issuance has been to try to balance giving ourselves the capacity that we want to deal with the SLR constraints, without over issuing and therefore being stuck with a high-cost product that isn't callable for 5 years. That's part of the reason why we're operating a little bit above our CET1 target right now, and we're just going to continue to be nimble in that respect.

Good morning. So, Jeremy, you provided some helpful detail on the drivers of loan growth by category. Just looking ahead, is your expectation that loan growth begins to keep pace with GDP or economic growth? Or is there anything that would actually justify more meaningful acceleration in lending activity, whether it's just greater pent-up loan demand, normalization of the card payment rates, or something else?

Good question, Steve. But I think you're sort of potentially leading me into giving fairly detailed loan growth guidance for 2022, which I'm not really in a position to do. Let me see if I can answer this at a high level. We’ve talked a lot about spend driving card loans higher, so that's one piece, and the revolve story within that is a function of the spend down and cash buffers, especially in our revolving segment of our customers. As you know well, if you think about our NII as the sum product of the NIM and the outstandings in the various loan categories, it is really disproportionately card that drives things. Meanwhile, if you move a little bit away from consumer to the larger wholesale system, in a world where even if tapering sorts relatively soon, if that plays out over roughly eight months at $15 billion of decrease a month, you still wind up with another $0.5 trillion of quantitative easing. We're dealing with a system that has a lot of surplus liquidity, and in that context, realistically, it's hard to imagine seeing a lot of wholesale loan growth at a minimum. But frankly, that's not really a big driver of performance for us. Not sure if that helps.

Thanks, Jeremy. It absolutely helps. And just one clarifying question on the liquidity commentary. You noted this quarter's result included an adjustment to liquidity assumptions in the derivatives portfolio. Maybe you can help unpack what that adjustment entails, what prompted it, and could you help size the impact in the quarter?

I could help unpack it, but it would take another 20 minutes which we don't really have. It's just bog-standard liquidity evaluation type stuff in the derivatives book in terms of as we revise our assumptions about what the potential transaction costs would be associated with transferring certain types of positions. It's normal course stuff that just happened to be a little bit bigger. I think fixed income was down 20% and I think without that it would have been down 15%. So if that helps.

Hey guys. I was hoping to follow up on the capacity to deploy liquidity. If we look at the growth in deposits, and I know some of them are considered non-core, but take out the loan growth and the growth in the securities book since COVID. It's about an extra $500 billion of deposits. How much of that do you think can be deployed into securities? Understanding that you expect loan growth to pick up, so that'll go to some. But is there a way to size that $500 billion capacity in terms of buying securities?

Yes. I think there's a lot of factors that come into what the deployment decision is at any given moment. Obviously, as you said, loan growth, but also we will always make these decisions on a long-term economic basis, not for the purpose of generating short-term net interest income. When you do that, you have to think about capital volatility, drawdowns, and frankly, whether or not you see the value. That, if anything, is probably the biggest single factor right now. As I talked about earlier, it is true the market has come a little bit more in line with our views at least from a rate perspective. That may lead to a little bit more deployment, all else equal right now. When you start talking about spread product, for example, in light of the liquidity environment that we're in and the QE numbers I mentioned a second ago, that remains very, very compressed, and there’s just not a lot of value there. We're always going to try to be long-term economically motivated there, considering all the scenarios, considering risk management, considering the convexity of the balance sheet, looking at value, and being tactical there. So that's really how I would think about that.

I mean, I just did on a near-term basis, but I think a lot of investors are sitting here saying if the 10-year or really any part of that curve hits that magic point for you, what is this at capacity? So for example, if the 10-year gets to say 3%, and your confidence is not going to go to 5, do you have $100 billion capacity, is it $300 billion? Just any way to frame it longer-term appreciating that it's not what you're looking to do at this moment at these levels.

No, I get the question.

We could easily do $200 billion.

I get the question. I get why you want to know, I just think, for a Company of our sophistication and given how carefully we think about this stuff, the idea of a particular target at which we would deploy a particular amount. Of course, Jamie is right, but it's always going to be situational, it's always going to be a function of why the rate is where it is. In your question you alluded to it, if the 10-year note's at 3 and we're sure it's not going to 5, but then where's the rest of the yield curve, what are the other options, what's going on at that moment. Always situational and tactical.

That's helpful. You've announced several relatively small acquisitions this quarter and throughout the year. Can you provide some insight into the capital impact of those acquisitions? I know many details weren't disclosed, but any perspective on the capital and financial effects would be appreciated. Lastly, can you remind us what factors drive your decision-making when evaluating potential deals? Some of the deals seem to raise questions about how they align with the broader JPMorgan Chase strategy. Thank you.

The capital impact in total isn't that big a deal, and we're not going to disclose any more nor is the immediate financial impact. Each one is different. So in Consumer, Jeremy already said, it's more about lifestyle, travel, lounges, millennial stuff like that. In Asset Management, there was ESG products, timber products, stuff like that. Between NutMeg and C6 and stuff like that, that is a longer-term view of us trying to get positioned in retail overseas over 10 years if we can.

Thank you. Good morning. Jeremy, when we were discussing the potential SLR changes earlier, we noticed that there haven't been any new rules released today. However, you mentioned perhaps shifting focus towards the Basel III end game, which is approaching quickly. Could you share your insights on what aspects of the Basel III final rules and regulations you are concentrating on that might impact your growth moving forward?

The Basel III end game requires addressing the Basel floors, the Basel standardized floors, and the Collins floor all at once. The staff working on this faces a significant challenge because it's complex and technical, which explains why the process is taking longer than expected. In terms of its impact on our long-term growth, it’s unlikely to be substantial. A related issue is whether there will be changes to non-risk-sensitive size-based constraints like GSIB, which has become quite extreme due to growth in its score that isn't related to the original design of the metric. This increase is largely due to the system expansion we've observed over the past 18 months, and we believe this should be tackled as intended originally. With potential changes, we might optimize our approach accordingly. The Basel III endgame could lead to varying capital efficiency for different products. However, as a large diversified company, we're adept at navigating these situations, and when we gain clarity, we'll make necessary adjustments.

Very good. Thank you. You in the industry have seen really good deposit growth on a year-over-year basis. I think your deposits are up 20% overall. You talked specifically about retail being the number one market share in retail deposits. When the Fed ends QE, assuming it does sometime by the middle of next year, and I'm not asking you to forecast what your deposits are going to be, but just higher level, should we anticipate that deposits could decline? Or, know that they are going to be so sticky even with the liquidity that everybody carries, that we shouldn't really see a decline in deposits after QE and this let's call it second half for next year?

I think there are a couple of factors in here. So let's, for the sake of argument, set our RP aside for a second and hold that constant. If you just look at the impact of QE on system-wide deposits, we talked about tapering, but as I said earlier, tapering still involves another $0.5 trillion of system expansion between now and the end of tapering, or rather between the start of tapering and the end of tapering. The Fed follows the same trajectory as it did last time, there would be an extended pause between the end of QE and the beginning of QT. Setting our IPO aside for a moment, it would only really be with the beginning of QT that you'd expect the size of the system deposit base to start shrinking, and I think the timing last time was something like 22 months between the end of QE and the beginning of QT. RP could bounce around and there could be other factors, but at a high level, that's how we're thinking about it.

I'll just add my two cents. I think that they'll have to go quicker than that, and they'll have to reverse some of it. So you're talking about we're still going to increase deposits for a year, and then there will be a fairly large reduction over a 2 or 3-year period, which we should be prepared for.

Yes. Good morning. I wanted to get a progress report on your new headquarters building. Specifically, what's the projected move-in date, or has that been affected by the pandemic? Secondly, are there costs, noticeable costs, running through 2021, expense structure for that build-out? And does that tick up noticeably when you move in? And then thirdly, what's the plan for unloading the properties that you'll be vacating and how is that being affected by the current real estate market? Thank you.

So the plan is on schedule, move-in date is 2025. There are no material expenses, of course, it's duplicate expenses and we have to sell the building and stuff like that, but nothing material to our shareholders that we need to disclose. Operator, are there any other questions?

Hi, good morning. Thanks for taking my questions. You put, Jamie, about how you all are focusing on inflation. I'm wondering if you could outline what you're looking at exactly metric-wise across your businesses to signal to you that inflation is actually materializing with concern. And how will that payout versus your expectations? In terms of how we deal with this if it does materialize as concerned, is there anything that you can do to try and protect the bank against inflationary forces there?

We should consider the overall situation, which is important. Two years ago, we were dealing with COVID and a global pandemic that felt like a great depression. Thankfully, that’s behind us now. I believe that a year from now, we won’t have supply chain issues and the pandemic will shift to an endemic state. We are experiencing healthy growth, and with unemployment at 4%, it’s positive that jobs are available and wages are increasing. There's a tendency to focus too much on certain aspects, but these factors do not change how we operate our business. We continually add clients across various sectors such as consumer, card, auto, deposits, real estate, small business, and large companies, which are the backbone of JPMorgan. It’s not about slight adjustments in interest rates. Regarding inflation, we've noted it at 4%, which has persisted for a while and may not drop below that soon. The question is whether it will stabilize as supply chains improve and more people seek employment, or if it will continue to rise. We prepare for different outcomes, including the possibility that inflation may climb higher than expected, which could lead to adjustments. I doubt this will occur before late 2022. Nevertheless, it’s impressive that we’ve emerged from this period with 4% unemployment. We can achieve good growth even with some inflation, and that’s acceptable. The focus tends to be too much on immediate worries. Even with 4% or 5% inflation, we will still open deposit and checking accounts and grow our business. I want to emphasize that we generate about $30 billion in revenue, including $20 billion from subscription services. Our sectors such as asset management, commercial banking, and consumer banking are performing well. Wholesale payments, security services, and custody also contribute significantly, and we are effectively achieving more customers, accounts, and market share. Ultimately, that drives our success.

Okay. That's great. It seems like you're taking a benign view, manageable, it's not getting out of hand. Which is fair enough.

I don't have a definite answer for you. We are ready for all possibilities. Inflation could be a concern. Regarding our balance sheet, it's important for banks to be cautious about high inflation and interest rates. We have maintained strong liquidity, which gives us protection against these and other challenges.

I believe the central case has likely worsened slightly from the previous quarter due to changes in the GDP outlook. The analysis also includes various probability-weighted scenarios. As mentioned earlier, the less extreme downside scenarios played a role in this quarter’s adjustments. Overall, the balance remains somewhat elevated compared to what it would be in a typical economic environment without the unusual COVID-related factors, such as uncertainties surrounding the virus, labor market conditions, or the moratorium on mortgage foreclosures, student loans, and rents, which will remain in effect until later this year. These factors continue to contribute to slightly higher reserves than we would generally expect. As these situations evolve, we will monitor their developments.

Jeremy, just to interrupt real quickly. I got to go because I am out of town, I have meetings I have to go to. You guys should continue and folks, thanks for listening to us and we'll talk to you all soon.

All right. Thanks, Jamie.

Okay. Thanks very much.