JPMorgan Chase & Company (JPM) — Q1 2026 Earnings Call Transcript

Thank you very much, and good morning, everyone. This quarter, the firm reported net income of $16.5 billion and EPS of $5.94, with an ROTCE of 23%. Revenue of $50.5 billion was up 10% year-on-year, primarily driven by higher Markets revenue, higher Asset Management and Investment Banking fees and higher NII, driven by the impact of balance sheet growth, predominantly offset by the impact of lower rates. Expenses of $26.9 billion were up 14% year-on-year, largely driven by higher compensation, including higher revenue-related compensation and growth in front office employees, as well as higher brokerage expense and distribution fees. The increase also reflects the absence of an FDIC special accrual release in the prior year. And credit costs of $2.5 billion with net charge-offs of $2.3 billion and a net reserve build of $191 million. In terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 14.3%, down 30 basis points versus the prior quarter as net income was more than offset by capital distributions and higher RWA. This quarter's standardized RWA is up $60 billion, primarily driven by the Markets business, reflecting higher client activity, seasonal effects and higher energy prices which resulted in higher RWA across market risk and credit risk ex lending. Now let me spend a few minutes on the recently released Basel III endgame and G-SIB reproposals. I'll start by acknowledging that this has been a long journey and getting it done across multiple regulators and applied to the full set of U.S. banks is unquestionably a difficult task. With that said, we do have some concerns with elements of what's been put forward primarily with the G-SIB proposals. On the left-hand side, we show you our preliminary estimate of the impact on JPMorgan Chase next to what the Fed has disclosed for the Category I and II banks in aggregate. Our results are worse in each category, estimated RWA is higher, G-SIB is worse. And because our CCAR losses are below the floor, the Fed's reduction is not going to apply to us. The result is that under the proposed rules, our CET1 capital would increase around 4%, while the Fed's estimate for large banks is about a 5% reduction. Our long-standing position has been that the agency should calculate each component of the capital requirements correctly without regard to what that may mean for any specific firm or for the broader industry. And to the extent regulators want to add conservatism, they should make that explicit rather than embedding it in methodological choices. Turning to G-SIB on the right. The surcharge from the reproposed rule looks quite high when placed in the historical context as the chart clearly illustrates. As many of you know, we have been on the record for the better part of this last decade, advocating for averaging smaller buckets, GDP scaling and reweighting short-term wholesale funding to 20%, and we were glad to see many of those concepts in the NPR. However, while we have every reason to believe that the Fed's published estimate of a 3.8% reduction in capital associated with the G-SIB NPR is accurate when defined narrowly, it's important to understand that under the current rule, the surcharges for almost all of the G-SIB banks are scheduled to increase meaningfully over the next 2 years, simply as a result of recent growth in the system despite, in our view, no change in real-world systemic risk. In addition to that background increase, the proposed change in the short-term wholesale funding methodology adds about $22 billion of G-SIB specific capital, principally to the money center banks, of which we represent about $13 billion. While in the process, making the methodology less risk sensitive and less consistent with the Fed's original rationale for including it. This could have been addressed by better adjusting for growth in the system, but it wasn't enough. The net result is that we need to plan for 5.2% in 2028, a 70 basis point increase from the current 4.5% requirement, which, when combined with the RWA increase from the Basel III endgame NPR results in a total increase of about $20 billion of G-SIB capital based on our current balance sheet. This persistent miscalibration of the U.S. surcharge is obviously bad for international competitiveness. But more importantly, domestically, this means that the cost of credit from JPMorgan Chase to U.S. households and businesses is likely higher than it is from other domestic non-G-SIB banks. We recognize that we are larger and more systemically important than even large domestic peers. But in the end, the question is, how much more should the cost be? It is very hard to reconcile the principles articulated in the 2015 Fed G-SIB white paper with an outcome where JPMorgan Chase has $109 billion of G-SIB surcharge. Obviously, the rules aren't final yet, and this is what the common process is for. As Jamie wrote in his Chairman's letter, everyone wants to move on. So our comments will be very focused. But we feel strongly that the framework should be coherent and the system would therefore be better off with these outstanding points addressed. Now moving to our businesses. CCB reported net income of $5 billion. Revenue of $19.6 billion was up 7% year-on-year, predominantly driven by higher Card NII and largely on higher revolving balances and higher operating lease income in Auto. A few points to highlight. Notwithstanding the recent volatility in market and gas prices based on our data, consumers and small businesses remain resilient with consumer spending growth continuing above last year's pace. Average deposits were up 2% year-on-year and quarter-on-quarter, driven by account growth and moderating yield-seeking flows. Client investment assets were up 18% year-on-year, driven by market performance and healthy net inflows. In Home Lending, originations of $13.7 billion increased 46% year-on-year predominantly driven by refi performance. Next, the CIB reported net income of $9 billion. Revenue of $23.4 billion was up 19% year-on-year, driven by higher revenues across the businesses. To give a bit more color, IB fees were up 28% year-on-year, driven by strong performance across M&A and equity underwriting, partially offset by lower debt underwriting. Looking ahead, client engagement and pipelines remain healthy, but of course, developments in the Middle East could have an impact on deal execution and timing. In Markets, fixed income was up 21% year-on-year with strong performance across the businesses, partially offset by lower revenue in rates. Equities was up 17% from increased client activity. Turning to Asset & Wealth Management. AWM reported net income of $1.8 billion with a pretax margin of 35%. Revenue of $6.4 billion was up 11% year-on-year, predominantly driven by growth in management fees on strong net inflows and higher average market levels as well as higher brokerage activity. Long-term net inflows were $54 billion with continued strength across fixed income, equity, and multi-asset. AUM of $4.8 trillion was up 16% year-on-year and client assets of $7.1 trillion were up 18% year-on-year, driven by higher market levels and continued net inflows. And before turning to the outlook, Corporate reported net income of $699 million on revenue of $1.2 billion. In terms of the full year 2026 outlook, we continue to expect NII ex Markets to be about $95 billion. We now expect total NII to be approximately $103 billion as a function of market NII decreasing to about $8 billion, predominantly due to rates, which we expect will be primarily offset in NIR. The adjusted expense outlook continues to be about $105 billion and the Card net charge-off rate continues to be approximately 3.4%. With that, we're now happy to take your questions. So let's open the line for Q&A.

So maybe to start on the AI cash tool, which, Jamie, you commented on in your letter. There's been lots of focus on this particular at least launch given that this is a tool which could potentially result in some consumer deposit pressure as well as drive some impact on increased competition as well as higher deposit betas. I was hoping you could just speak to how you see deposit competition unfolding as similar smart tools become more widespread?

Yes. So it's a great question. And obviously, there's early stages for this particular product. So you have to look at it literally segment by segment, how people manage their money, how they want to manage their money. People are pretty astute at it, particularly the higher net worth. They have tons of choices. They often have money at many different places. And so the question for us is, how can we make it easier for them to manage their money in a way they're comfortable? Most of you on this call, you have in your mind, how much days in a checking account and then you write a ticket to a money market fund or a deposit account, something like that. And that's all we're trying to do. And we provide great values to people. If you're a customer of JPMorgan, I remind people, if you have this product, you have ATMs, you've got branches, you've got advice, you have instant payment systems like Zelle. So we look at the whole basket, how we can do a better job for the client. And yes, it may squeeze some margin somewhere and create more competition somewhere, that's life. Jeff Bezos has always said, "Your margin is my opportunity." And I kind of agree with that. We're trying to look at the world from the point of view of the customer, what more can we do with them. And this is really early stages. And as you know, there's tons of competition out there for the money.

Yes, exactly. The only thing I wanted to add is that it's understandable this has attracted attention because of its connection to AI, which is intriguing. But as Jamie mentioned, and as you pointed out in your question, competition for deposits has always been fierce and remains intense. We face both external and internal competition from higher-yielding alternatives, and people tend to optimize their choices, which is part of running the business. Additionally, as Jamie noted, this initiative isn't fully operational yet and is aimed at a very small segment of our client base, particularly those with investments where we see an opportunity to capture a greater share of their investments. So, while it's reasonable to be interested, I believe the best way to view it right now is as an experiment.

No, that's helpful context. And maybe switching gears just to the Basel III capital proposal. Certainly helpful in terms of how you frame some of the shortcomings, some potential areas for improvement. But maybe just focusing in on the RWA inflationary impacts. Does the guidance that you've laid out contemplate any mitigating actions you might pursue? Is there any potential mitigation that you envisage? And do you have any preliminary views just on the magnitude of SCB relief that you could see from the removal of some of the double counting of markets or operational risk? I recognize that piece is a little bit more opaque.

Yes. I mean those are interesting questions. I think, obviously, we are kind of well-practiced over the course of the last 1.5 decades on understanding the rules in detail. And ensuring that we're using our financial resources efficiently to support the client franchise. And I think the hope is that the rules land in a stage where there is nothing in them, which sort of takes an otherwise good and healthy business and makes it completely non-economic. I think we've alluded to a couple of areas where if you look at the presentation slide on the bottom right-hand side, we talked about targeted RWA clarifications needed. There's this issue with like high-yield repo collateral and some stuff about advised lines where the proposal is a little bit unclear about what the actual impact would be, and in some versions of the world, we think it creates irrational results. But broadly, I don't think this is a story about optimization at this point. I think this is a story about a rule set that is converging to a place and then we need to just grow the business and deploy the resources to serve our clients. Obviously, we have said a lot about G-SIB on this page. And I guess I don't really have more to say unless you ask a big question on G-SIB, but that is the one area where we think it's kind of a significant disincentive to a particular type of business, in particular some markets business. And I guess I would just make the point that we've often made publicly that the depth and breadth of U.S. capital markets is a key competitive national advantage. And regulatory capital rules that at the margin discourage a dynamic secondary market in the United States with active participation by banks is, in our view, sort of not great. So that's part of the reason that we're so focused on G-SIB because it disproportionately affects that business.

And anything you could speak to just in terms of the removal of the double counting?

Yes. Sorry, I forgot about that part of your question. Yes. So as you know, like we're currently below the floor, right? So obviously, if that is like the new normal, then if the double count is addressed by removing further things from stress testing, it wouldn't have any impact. If the double count is addressed by modifying the operational risk calculation in RWA, then it might have some impact. And obviously, it's far from guaranteed that we will be a bank that is permanently below the floor. But I suspect that issue is more relevant for institutions whose business mix is such that they're going to tend to structurally be above the floor. It's a little bit unclear for us as things settle down, whether we're going to bounce around above and below the floor or tend to be structurally above the floor. We'll see. But I think removal of the double count is definitely something we support. It's probably not our #1 priority at this point because some progress has been made on that front.

Yes. I would like to mention that the global market shock is unprecedented. Throughout the years, even during COVID and before the major crisis, we have never experienced anything like this. We currently have around $80 billion to $90 billion in capital for the trading books, which makes these figures seem completely out of touch with reality. Operational risk capital is, in my opinion, an overly complex and rarely seen issue. Moreover, it generates artificial risk-weighted assets. Every company faces operational risk, yet these calculations create risk-weighted assets that don't actually exist, tying up capital and liquidity unnecessarily. While I acknowledge the reality of operational risk, there are genuine ways to measure it that move beyond these overly complicated academic approaches. We should be focusing on reducing actual operational risks, including managing late margin loans and the use of subprime versus prime collateral. The current calculations are unchangeable; for instance, if a company exits the mortgage business, the impact remains. It’s time to address these issues properly.

Jeremy, my first question is for you. You modified the Markets NII outlook given the change in rates between end of February and today. I'm wondering, as we think about the ex Markets NII number of $95 billion, you retain that. What are sort of the offsets to higher rates and the asset sensitivity if we don't have cuts for the rest of the year?

Yes, sure. So it's a good question because I think we have said that we're asset sensitive and rates are a little bit higher as a removal of the cuts in the back half of the year. And so you might have otherwise expected us to revise the NII ex Markets up a little bit. But just to do a little mental math, the EAR that we've just disclosed is $1.8 billion. As a result of the fact that the cuts were pretty backdated, the impact on the full year average is only about 20 basis points. So the amount of upward revision that you might have otherwise expected is really quite small when you do that math. And there were some other bits of up and down noise, and some rounding effects. So that is essentially the reason the numbers aren't changed. So I don't think there's too much to read into it.

Got it. Perfectly clear. And my second question is for Jamie. Of course, we were all unpacking your Chairman's letter from a few weeks ago. And one of the topics that you wrote about and you've spoken about at length in the past, is on private credit. And I think we fully appreciate what JPMorgan's view here is. But given all of the headlines that this topic has garnered, I guess the question here for you and your team is, if we do have a recession and higher defaults and higher severity and cumulative losses in leveraged lending, what is the ultimate loss back to the banks? Because as we understand, the banks are fairly well protected in terms of structure. And while you addressed this in your letter for those that maybe hadn't had time to read it and that are listening to this call, do you think that if we do have a default cycle in private credit, that it will be systemic?

No, I was quite clear that I don't think so, and I provided the major numbers. Private credit leverage lending is about $1.7 trillion, high-yield bonds are around $1.7 trillion, bank syndicated leveraged loans are about $1.7 trillion, investment-grade debt is $13 trillion, and mortgage debt is also around $13 trillion, along with much more. I've noted that there seems to be some weakening in underwriting, not just within private credit but also elsewhere. A credit cycle will occur eventually, and I believe when it does, the losses will be worse than anticipated. However, I don't see it as systemic given the scale relative to other things. When recessions hit, values decline, and borrowers refinance at higher rates, there will be stress in the system. Are people ready for that? I can't speak for other banks, but most of these issues require significant losses in private credit before banks feel substantial impact. It doesn’t mean there won’t be some stress that might require action, but I'm not especially concerned about it. My greater worry is how a credit cycle will affect the broader system. In general, corporate debt levels aren't too high, and consumer debt isn't excessive either. Most of the excess debt right now lies within government debt. There are both positives and negatives to consider regarding what could happen in a cycle, and we always have concerns about the implications. As I mentioned, I believe it could be worse than anticipated based on past cycles and their effects on various credit types and industries. Typically, there’s always an industry that surprises observers. For instance, in 2000, utilities and telecoms caught people off guard, while in 2008, it was media firms and newspapers. This time, there’s speculation surrounding software, but we’ll have to wait and see. Unexpected events always arise in credit.

I wanted to ask a question about reserves. Could you talk about scenario weighting and how you're evolving views on the macro risks out there factor into your reserve setting process and how that played out this quarter?

Yes, John, that's a good question. At a high level, the allowance is relatively small, and you might be curious about that considering the situation in the Middle East and our historical preference for a conservative stance regarding geopolitical issues. To clarify, we start the reserve calculation process with a model-based approach that relies on economic forecasts. To get right to the point, we actually did not alter the weights this quarter. Consequently, with unchanged weights, the economic outlook led to a decrease in the weighted average unemployment rate in the allowance calculation from 5.8% to 5.6%. This created some positive effects, particularly in consumer and a bit in wholesale. We also experienced a minor release in consumer for Home Lending, around $150 million or possibly $110 million, due to an HPI upward revision, which is somewhat unrelated to other factors. Behind the scenes, there are some increases in wholesale driven by loan growth and a few isolated downgrades, but nothing significant. In the areas where we would expect allowance increases, we are observing some growth. However, we had an in-depth discussion as a company regarding whether we should incorporate a downside bias to the weights this quarter, considering the current events. Ultimately, we decided that the conservative bias already present in the allowance was adequate, and we would monitor how the situation evolves. If, unfortunately, we experience some of the downside scenarios with rising energy prices that affect the overall global economic outlook, that would naturally reflect in our process. We'll see how that unfolds.

Okay. And then separately, I was wondering about any changes to your outlook for loan and deposit growth, your balance sheet growth was very strong this quarter, a lot of it seeming to be in the Markets business. So I'm just looking for more color on the drivers of growth this quarter and how it affects your outlook for loan and deposit growth this year?

Sure. So I would say that this quarter's growth, yes, as you said, primarily Markets, primarily low-density stuff that's not contributing a lot to RWA, secured financing of various sorts, and a lot of that is seasonal. So there is a sort of background trend of growth in the size of the Markets business and in the size of the Markets balance sheet, but I don't think that anything happened this quarter that was sort of particularly off trend in that respect. In terms of the firm-wide overall outlook, I think, arguably the single most significant number is what we said about Card loan growth expectations at Company Update, which is that we said we expected 6% or maybe a little bit more. and that hasn't really changed. That's still kind of our core expectation. In the rest of the franchise, it's really pretty modest growth overall. We actually have some headwinds in Home Lending as a result of some First Republic portfolio roll-off and stuff like that. But to a significant degree, some of that's going to get driven by acquisition financing that we hold on balance sheet for a while, that some of that's a little bit of a driver this quarter as well. And of course, if things deteriorate, which we very much hope they don't, that tends to produce lower loan demand. So we'll see what happens there, but we're going to be there for our clients for whatever they need. And then the final building block of this is Markets, which, as you know, has been actually, interestingly enough, the primary driver of wholesale loan growth recently. But there, it's going to be very opportunistic. A lot of it is kind of the data center lending type stuff and related things where we're going to participate when the terms make sense, but we're going to be very willing to walk away if we don't like it. And so that's going to be more a matter of just seeing what the opportunity set looks like and how we feel about the risks.

Jamie, Jeremy, you have excellent insights into the U.S. consumer. You noted that the economy is resilient and the consumer is in good shape. Can you provide us with more details on what you're observing? How strong is consumer spending and credit if energy prices stay elevated? Are you noticing any signs of weakness?

Yes. So it's a good question. It's the right question. It's a question we get a lot, and I sort of struggle to say something new and interesting every quarter. There really is not anything new or interesting to say this quarter. We've looked at it through every angle. Early roll rates, delinquency rates, cash buffer, spend, discretionary spend, non-discretionary spend, it all looks consistent with prior trends and fundamentally, healthy. So let me add maybe just a little bit of nuance in the context of energy prices and what's going on this quarter. So I think gas or energy cost is something like 3% of the typical consumer's expenditure, at least in our portfolio. So it's not nothing, but it's not overwhelming. We've looked to see if there's kind of evidence in there of people trading, decreasing other discretionary spending to adjust for higher gas prices, but it's just kind of not enough yet to be visible. I would caution, though, I think it remains fundamentally the case that the biggest single reason that the consumer credit performance is healthy is that the labor market is strong. And if you get bad outcomes in the Middle East, much higher energy prices or other problems that sort of do eventually track what has been, I think, from many people's perspective, a surprisingly resilient American economy and a very resilient U.S. consumer, and that winds up having knock-on effects on the labor market, then you will see that come through, clearly. But right now, in the end, the story remains the same, which is resilient consumer that's doing fine despite higher gas prices.

Yes. And I would just add, we're really getting too fine-tuned here, but it's being helped right now by higher tax refunds too.

That's really helpful. I have a follow-up regarding the trading business. Are you observing any signs of bad volatility, or were conditions in March still favorable? Additionally, it seems that trading assets increased significantly quarter-over-quarter. Was there something specific in the environment that contributed to this, or was it just business as usual? Is this related to the ongoing deployment of excess capital that Jeremy has mentioned?

Okay. So sorry, I think there are several embedded questions in your follow-up questions. So let me try to do this efficiently. So in short, no, we haven't really seen any so-called bad volatility. I mean, I'm sure there are pockets of that in some markets. But broadly at a high level. I think what we mean by that is the types of extremely gappy discontinuous markets with low liquidity that keep clients on the sidelines. And as I say, I'm sure there have been pockets of that in certain subsegments of certain asset classes. But in general, that has not been a characteristic of this quarter, which is, I think, part of the reason that the performance has been very good. On trading assets, as I said a second ago, I think that was mostly BAU growth, mostly seasonal, low-risk density, and not particularly a function of capital deployments one way or the other. I think to the extent that, that plays out, that will be a longer-term phenomenon. And just to refer you back to my comments at Company Update, I think, to really get that right, you need both to free up capital, but also to free up liquidity to allow banks to deploy against the broadest possible set of opportunities to support the real economy, not just kind of high-risk density opportunities that require less liquidity per unit of capital.

Jamie, in your CEO letter, it was mentioned, you talked about private credit, and you mentioned the $1.7 trillion private credit market, which didn't really exist 2 decades ago, as you know, how much of that $1.7 trillion would you say is a substitution effect from banks to private credit? And how much of that might be types of credit you never would have originated in the first place? And with the regulatory changes and with what's happening in the market, do you think you can recapture some of that share? And more generally, what are you doing with regard to the collateral? There was news headlines in this past quarter that you're becoming more conservative with that? And lastly, what kind of spreads are you getting? Are the spreads improving on this or staying the same?

Yes, those are all great questions. The trillions were always there, and banks previously engaged in this sort of activity. It was somewhat of an arbitrage situation because banks were hesitant to do leverage lending beyond a certain level. However, in a competitive market, new approaches emerge, and we're not opposing their methods. There's some degree of rate arbitrage and various related factors. It's difficult to quantify, but perhaps half of it could be attributed to arbitrage that banks might access. Banks also have a different perspective on relationships. When a bank provides a loan in middle-market leverage lending, it's part of a broader relationship, encompassing payments, custody, and asset management services. Some of that activity may return, but I am not particularly worried. Spreads are variable; different banks handle them in their own ways, adjusting based on their concerns and pricing for private credit. Private credit spreads and the charges to clients have fluctuated, and we've noticed loans shifting occasionally between private credit and bank syndicated lending. We'll keep an eye on that. We maintain marking rights to assess the underlying collateral, which protect our interests. Overall, even if credit conditions worsen, they haven't deteriorated significantly, despite some areas seeing more decline. Credit spreads in general haven't worsened much, though there are exceptions. We are monitoring the situation closely and believe we're in a good position. It's uncertain at this point, but I don't see a systemic issue. I believe the credit cycle is influenced by factors like underwriting, leverage, PIKs, and competition. We've been in this cycle for quite some time, and while many are entering late, I don’t anticipate that all players will perform similarly. Some may not excel, leading that business to potentially return to banks.

And then separately, Jeremy, you mentioned no change in the core NII despite being asset sensitive. And in terms of the deposit growth, you had some really amazing deposit growth and then you kind of hit an air pocket for a little while in this quarter, consumer deposits were up 2%. I guess taxes probably helped that out. Is this the start to getting back on that higher deposit growth path or not yet? Well, I think air pocket is a little bit of a strong word, but fair enough. I recognize the dynamic that you're describing. And I think it's a little bit too early to sort of say, like, yay, like we're back with like super robust consumer deposit growth, partially because of your point actually about tax. I think you're right, that probably is contributing a little bit right now. But at a high level, we talked about at Company Update, our consumer deposit growth expectations being low to mid-single digits. And I think that is still the belief, and I think we'll be a little bit more confident in that, as you say, once we get through tax season. So maybe we'll know a little bit more next quarter. But I will say that through the lens of like net new checking accounts, where I think we said in the EPR that we did over 450,000 this quarter. So that driver of sort of long-term consumer deposit franchise growth is in place. And it just becomes a question of at the margin, how yield-seeking flows develop and what that does to kind of balances per account as we talked about at Company Update. So it's the right question, something we're watching a little bit early, but unchanged expectations and some signs, as you point out, that the trends might be improving slightly. And then just to complete the picture, on the wholesale side, as you'll recall, last year was an exceptionally strong year for wholesale deposit growth. So our expectations for this year were a little bit more modest. Actually, the year is starting out pretty well, some of the typical year-end seasonal increases that we tend to see roll off have not quite rolled off to the extent that we would have expected. So I still think the core view is for significantly less robust growth than last year. But from a core franchise perspective, things feel pretty good there.

Jeremy, obviously, the first quarter, the expense levels were a little elevated relative to the full year guide, if you annualize it out, of course. Can you give us some color that how you're going to bring down the following three quarters to be able to hit the year-end guide that you gave us at about $105 billion?

I would advise against annualizing the quarterly expense run rate because there's significant seasonality affecting the volume and revenue, particularly in the Markets revenue. Additionally, that’s not how we approach managing the company. The implication of your question suggests that if expenses are high in the first quarter, we might try to cut costs to meet our guidance, but we manage expenses in a comprehensive manner every day. However, I understand your point; given the strong performance of the Markets and Banking business this quarter, one might expect us to raise the full-year expense guidance. Realistically, it’s hard to believe we could have anticipated the level of performance we achieved this quarter in Markets and Banking.

No. What I'm saying some of it's expected to be quite good. I hope every quarter is this good, and then our expense target, we would be, love to spend more money because we did so well.

Okay. But I still want to make my point, which is that, Gerard, I would discourage you from drawing the conclusion that for the purposes of the whole year, we are going to see the amount of implied internal offset between volume and revenue-related and other expenses that is implied in the failure to revise the guidance this quarter. It's just a little early in the year. So let's see how things play out in the next quarter or so.

I would say that if volumes continue as strong as this quarter, we will spend more than $105 billion for a very good reason.

Yes. No question about that. Yes.

The $105 billion is not a promise, it's an outcome of business results.

Which you've said in the past, Jamie, good expense growth, we all completely understand. As a follow-up question on digital assets, stablecoin, on the continuum that we're on for adopting these types of new technologies. Can you guys give us an update where you see this moving in terms of deposit impact possibly. But more importantly, payments, obviously, you're a very large payments company. And how are you guys assessing it?

Sure. There's a lot to discuss regarding stablecoins. There's significant legislative and regulatory activity happening. Gerard, your question seems focused on the long-term impact on the payments ecosystem. From that perspective, I would begin with our wholesale business and highlight the innovations we've implemented to modernize payments through Kinexys. These developments are exciting for our customers, offering features like programmable money, flexible hours, and tokenized deposits. We are thrilled to engage with this innovation. The main question is how this relates to our existing offerings in wholesale payments, which I see as an integral part of our overall product lineup. Some people may believe that stablecoins could radically change the wholesale payments landscape, but that's not entirely accurate. The wholesale payments sector is already highly efficient, low-margin, and serves sophisticated clients. This isn't a situation where one party's margin is another's opportunity; it's a technologically advanced and low-margin environment where we consistently deliver innovative solutions, including applying new technologies. On the consumer side, people often question what the consumer use case for stablecoins is. One potential case is digital cash, but there are clear KYC implications to consider. This connects to ongoing legislative and regulatory discussions regarding the payment of rewards or proxy for interest. This could potentially turn stablecoins from an innovative concept into a means for regulatory arbitrage, allowing operations similar to a bank without adhering to critical regulatory protections for both consumers and prudentially. We're eager to compete and innovate, and we are making progress across various fronts. We certainly advocate for clarity from legislation. As we approach final decisions, it's crucial that similar products and risks are regulated consistently, avoiding a situation where stablecoins create a loophole for interest payment prohibitions. We will see how this evolves.

Actually with Jefferies. So I wanted to follow up on the consumer deposits. So interest-bearing deposit costs were down nicely in the quarter. Could you talk about the opportunity going forward in light of the changes in the forward curve?

Okay. That's an interesting formulation. I sort of don't actually know the number you're quoting, but I suspect it's just a function of the rate curve and at the tops that came through last year. Go ahead, Jamie.

I would just keep it simple. The margin would be about what it is today, give or take, a couple of basis points up or down. There are a lot of factors in there, like what kind of accounts you're opening, tax refunds and all that kind of stuff. But roughly the same for now.

Yes, I was going to shift to the broader question regarding opportunity. There is the yield curve impacting the high beta parts of the deposit franchise, and then there's the low-beta part, where I wouldn't say there’s much chance to reduce pricing because it's already quite low. However, it's within the context of an overall service bundle that provides significant value to many clients with relatively low balances. So, I will leave it at that.

And then shifting over to a follow-up on private credit. So there's still a lot of attention on this in the banks. I think the banks are well protected. But can you remind us of the structure of these loans in terms of typical advance rates and embedded credit enhancement that protects your position?

I think you're asking for too much information. They are seeing their loans on top of leveraged loans, so you're senior to the actual loans themselves. And each one is different, the loan-to-value, the triggers on loan-to-value and all the things like that. But you can probably figure those out or if you look at the disclosures on the BDCs, et cetera.

Yes. I do think it's reasonable to sort of remind, I guess, the market of some things that we've said before about this space, right? So yes, each client, each relationship is a slightly different structure. But at a high level, as Jamie points out, it's a senior position. The portfolios are well diversified. There are a number of protections that we have, conservative advance rates, good underwriting, sector concentration caps, cash flow traffic mechanisms, et cetera, et cetera. So as we often say, nothing that we do is riskless, but this is a space that we're quite comfortable with as a function of very close scrutiny on the way that we do the business and ensuring that the underwriting is high quality and then we've got a bunch of structural protection in place.

The BDCs have statutory rules that limit the amount they can lend at the parent level, which can vary from time to time.

I guess just one question on AI, one on the risk side, one on the opportunity side. On the risks, maybe Jamie or Jeremy, if you can just give us a sense of it's very hard for investors and for us from the outside to handicap cyber risk. We saw the headlines last week around LLM-enabled cyber risks being discussed in D.C. Like is this a different level of risk? And how would you characterize the preparedness of the banking system to handle this if something were to happen and we see headlines, I'm just wondering what would be the implications of that as we think about just systemic risks, et cetera.

We've been discussing cyber risk for a long time, and as I mentioned in the Chairman's letter, it is our largest risk. Each industry faces this issue differently, but I believe JPMorgan is well-protected. We invest significantly in this area, have top experts, and maintain constant communication with the government. While we regularly update our systems, AI has complicated the situation and made it more challenging. We are currently testing new technology, which may introduce additional vulnerabilities, but could also offer better protective measures in the future. Cyber risk is not exclusive to banks; it affects nearly every industry. Additionally, banks are connected to exchanges and other entities that contribute to further risks, so we collaborate with many partners to enhance our protection. This is a complex issue that requires continuous effort on our part. While we strive to leverage AI's benefits, we remain highly aware of cyber risks. The government is also cognizant of these threats. There are cyber criminals and state-sponsored cyber activities present everywhere, necessitating caution. Overall, banks are relatively well-protected, but that doesn’t guarantee that all systems they rely on are equally secure.

Yes. And I think there's one just minor extension of what Jamie said that is worth pointing out, which is, obviously, he's specifically been talking about the importance of being prepared for cyber risk for many, many, many years. But I think even more recently, even before this sort of latest set of headlines around the latest Anthropic models, there's been a clear understanding that AI and generative AI, in particular, brings both risks and opportunities from the cyber risk management perspective. So it's not like this is the first time that anyone's thought about the way in which these more recent generative AI tools can both make it easier to find vulnerabilities, but then also potentially be deployed by bad actors in attack mode. So obviously, now you've got an even higher level of attention as a result of the apparently much greater capabilities of the latest models, but that is still happening on a continuum that we've been engaged with for really quite a long time.

And then for everyone on the phone, I think it's also important to look at, a lot of it is hygiene is your new software being tested before it goes in place? Did you ask them to do certain things to protect their company? How do you protect your data, how do you protect your networks, your routers, your hardware, changing your pass codes? I mean, a lot of it is just doing all those things right can dramatically reduce the risk. And you've seen a lot of banks they haven't had some of those risks like ransomware and things like that, at least not that I know of.

Yes. Knock on wood.

No, that was helpful because I think it's something that investors struggle with. On the opportunity side, it feels like the productivity boost, which for us translates into what the long-term efficiency ratio could be, is significant from AI deployment due to the rapid evolution of the technology. Maybe you can discuss that further, and also, does it create new business opportunities where JPMorgan's business could expand into areas that were previously challenging but are now easier to develop and grow, thanks to AI-driven technologies?

So on the first question, I think it's a bad idea to think you're going to deploy AI and improve your efficiency ratio because in the competitive world, I'm going to do it, everyone else is going to do it, and the benefits will be passed on to the marketplace. It's not like you're entitled to have your ROE go to 50%, and that will stay there because you do it better than everybody else. You may get a head start, you want a head start, but I think that's just not a rational thing that somehow that will be the ultimate outcome. But the second question, absolutely, it creates opportunities because if you just take our consumer business, it's true in all businesses, but just take the consumer business with the data you have and now we call it Connected Commerce, where you do travel and offers and all of these various things that people want. So you can use your relations with the clients, the data you have to make the client happier. We do a lot to reduce risk and fraud and scam by using AI. We do a lot better job of prospecting. We offer AI services to clients, et cetera. So it will enhance a lot of things you can do directly, and it will create more adjacencies in my opinion, if you can use it quickly and wisely.

I want to start with a big picture question on trading. It's been amazingly strong this quarter, the last few years, really no matter whether markets are good or bad. We've had shocks in commodities this quarter, rates, credit, equities, and it's not just you and others kind of managing well, but it does seem like the client base is also managing it very well. And just wondering if you have any thoughts on that, on why it's been so consistently strong across a variety of environments.

Yes, to give you an overview, our team does an outstanding job, and meeting them would show you their expertise and intelligence. We engage in transactions amounting to nearly $4 trillion daily. Each time we buy and sell, we earn a small profit, while also managing exposure and risk effectively. Occasionally, we might find ourselves on the wrong side of a trade in areas like credit or commodities, which is simply part of doing business, much like a retailer holding unsold inventory. The essential question is whether we provide excellent products, service, and execution to our clients, and the answer is affirmatively yes. Currently, we are experiencing increased volume and volatility, which usually benefits us by widening spreads. There will be moments when volatility negatively impacts us if we're on the wrong side, but in general, we cater to significant investors globally managing $350 trillion and offering numerous products and services. Trading is our business. It's comparable to what you see at Home Depot, where they manage inventory, adjusting prices up and down without labeling it trading, but it involves risk management. Our team is dedicated to serving clients and is mindful of the risks they take. Sometimes we make decisions that don't pan out, and that's acceptable. We don't lament being on the wrong side of a trade; instead, we focus on helping our clients, even if it means taking positions we may not prefer. In summary, it’s a very solid business.

And just one minor extension of that I think supports the larger point is the thing we've said a couple of times now, which is, yes, the revenues have been great and the performance is very good. We're deploying a ton of capital in this business actually and a lot more over the last few years. And I think the returns that we're getting are good there, they're actually below the 17% for the company as a whole, that's fine, and we're serving clients and it's much better than alternative uses of capital. But I think the important thing to understand is that it's not as if you're getting giant amounts of revenue growth with the same capital base in ways that you might think are unsustainable. Part of what's going on here is that we're deploying more capital and getting healthier returns on it.

Jamie, in your letter, you mentioned that the market might be a little too relaxed about higher for longer rates. And I'm curious how you see that playing into all these direct lending double-B and single-B credits that need to get refinanced. And while we're at it, the follow-up is, can you size your private credit exposure? So sorry to smush that all together, but I'll end it on that.

So Jamie, sorry, if you don't mind, let me just answer Glenn's second question first because I think it would be useful for the market to have the size number out there. So Glenn, let me just frame this in context because I think the question of private market exposure and the definition of that. It means, as you know, a lot of different things, a lot of different people. So let me just quickly run through. You remember, last quarter, we did a walk in the context of NBFI from the $330 billion in the Call Report to the $160 billion that we consider core NBFI exposure, which we defined in that context, I won't go through that again. So inside of that $160 billion, there's about $50 billion that we would call private credit, and it's essentially the portion of that $160 billion of NBFI, which involves leveraged loan investors. So that's some of the stuff that we've been talking about on this call in terms of back leverage and BDC lending that has all these characteristics in terms of underwriting, diversification, cash flow trapping, et cetera, which is why we're broadly comfortable with it. So I just thought it would be worth sizing that in that context. There are obviously other pieces of that, like direct lending or subscription lines that are variously in or out of various different measures and that you could consider like in a broader definition. But our sense is that thing that the people are interested in is this kind of leveraged loan, back leverage type stuff and that's about $50 billion for us.

Yes. So the way I look at it, so banks aren't going to warehouse very long-dated stuff in their balance sheet. But when you have investment-grade, even large non-investment-grade, private markets and public markets are going to come together. The people have to make markets on those things, do research and those things. I think it's going to be harder for private credit to do, not all of them, but to do large investment-grade stuff, though, they've done it. But like I said, they have to compete with us on that, and we're willing to do it too. We always take the customers too. They want to do a large direct lending, investment-grade deal, we will present that side-by-side with a banks syndicate alone or something different. But I do think you're going to see a lot of creative capital, a lot of creative financing. A lot of the institutions out there need long-dated assets, think of pension plans and social security plans, all these various things like that. So our job is to intermediate, to come with the ideas to turn it over, sometimes put it on the balance sheet. The stuff in the balance will be shorter dated, but it's all opportunity. And I think the requirements of the world are going up fairly dramatically in the infrastructure at large. Almost everything is infrastructure today, you have utilities and roads and bridges and data centers and GPUs and so it's all there, but we're going to do a great job serving clients. And so we're not worried about that. But I do think you'll see in certain categories, private markets and public markets come a lot closer in how they look at value and trading and secondary markets, et cetera.

Yes. I just to chime in there, the higher-for-longer part, and if that has an impact on some of that single-B, double-B paper that's coming due for refinancing?

Yes. Glenn, that's fundamental risk management. When we assess the current environment, it's essential to consider the potential outcomes of a recession. I'm not making any predictions, but for JPMorgan, we need to be ready for a recession and the possibility of stagflation. If stagflation occurs, along with prolonged higher interest rates and widening credit spreads, it will create significant stress for companies with leverage as they refinance. This situation often leads to either increased capital investment or reduced capital expenditure plans. It's not an immediate catastrophe, but it would increase pressure on businesses. I believe if a credit cycle occurs, it may be more severe than anticipated given the circumstances. While it's not catastrophic—we're familiar with credit cycles and will manage through it—asset prices will decline, and credit spreads will narrow. People might feel uneasy about certain aspects, but we don't see this as a systemic issue; rather, it's more aligned with typical recessionary behavior.

Just maybe a quick question on Investment Banking. It seems like activity held up pretty well in March. But just wanted to get your thoughts on that. Has there been any pushing out of any pause on activity levels and pushing out of the pipeline? Just any thoughts on the pipeline and how you're looking in the near to intermediate term?

Sure. Yes. I mean I think it's true that activity held up well. The other thing that I think is worth noting is that some of the robust result this quarter is the result of actually accelerated timing on M&A deal closures and some of that was as a result of faster-than-expected regulatory approval. So that's obviously all to the good. But I think it's sort of unrelated one way or the other to overall sentiment. On the question of overall sentiment on the pipeline, I would describe it as resilient, maybe surprisingly resilient, given everything that's going on. But I also think the time lines in the Middle East are kind of quite short. There are deadlines or negotiations. I think it's reasonable for people to kind of proceed with their plans in the hope or maybe expectation that we get relatively quick resolutions. But if things start getting derailed, I would be surprised if you don't see some impact on sentiment and on deal decision-making. But for right now, it seems quite resilient.

Okay. And just a follow-up on the balance sheet growth in markets. It has been strong, I think, up over 20% year-on-year. Would you saying when you think about the impact of the G-SIB surcharge on JPMorgan specifically, does that start to impinge your ability to grow that as much as you want? How is that factoring into your capital decision in the Markets business?

I believe the answer is yes. That's a significant reason we discussed the issue regarding the surcharge today. It mainly affects the Markets business and particularly impacts the low risk density types of products that our clients currently need and prefer. Therefore, we believe it's crucial for regulators to carefully consider their actual objectives in this matter.

I'll add one other thing. We will obviously use our brainpower to do something I don't like doing, which is trying to find a lot of ways to serve our clients properly and reduce the G-SIB charge, which is usually called arbitrage. So I'm not sure the outcome is great for the system, but we will find ways to do it.

This is Kunpeng of China Securities. I have a quick follow-up on private credit. I totally agree with Jamie that there is no systematic risk at this moment, as long as we assume that every type of capital expenditures continue with good yield outlook. So it comes down to the company-specific questions, like how does JPMorgan ensure its capability of selecting the top-tier projects? How do you ensure you stay with those good guys and stay away from those bad guys?

Yes. We maintain a disciplined approach to credit. There are specific situations we choose to decline. We prefer to avoid unfavorable covenants, underwriting conditions, or scenarios that could lead to the movement of assets out of a secured company. We're also okay with a decrease in our balance sheet if we believe that credit is becoming risky; we will refrain from making loans not out of desire but because we refuse to accept those terms. Our underwriting process evaluates various aspects, including the company, the loans, and the covenants. Credit management is a discipline for us, and loans are a byproduct of sound business practices. If our loan book were to decrease by 10% next year, we would be perfectly fine with that if it meant avoiding irresponsible loans.

Yes, yes.

Thanks very much. Thanks everyone...

Thank you, everybody.