Good morning, ladies and gentlemen. Welcome to the First Quarter 2023 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Thanks, and 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 $12.6 billion, EPS of $4.10 on revenue of $39.3 billion and delivered an ROTCE of 23%. These results included $868 million of net investment securities losses in corporate. Before reviewing our results for the quarter, let’s talk about the recent bank failures. Jamie has addressed a number of the important themes in his shareholder letter and the recent televised interview, so I will go straight to the specific impacts on the Firm. As you would expect, we saw significant new account opening activity and meaningful deposit and money market fund inflows, most significantly in the Commercial Bank, Business Banking, and AWM. Regarding the deposit inflows, at the Firm-wide level, average deposits were down 3% quarter-on-quarter, while end-of-period deposits were up 2% quarter-on-quarter, implying an intra-quarter reversal of the recent outflow trend as a consequence of the March events. We estimate that we have retained approximately $50 billion of these deposit inflows at quarter-end. It’s important to note that while the sequential period-end deposit increase is higher than we would have otherwise expected, our current full year NII outlook, which I will address at the end, still assumes modest deposit outflows from here. We expect these outflows to be driven by the same factors as last quarter as well as the expectation that we will not retain all of this quarter’s inflows. Now back to the quarter touching on a few highlights. We grew our IB fee wallet share. Consumer spending remained solid with combined debit and credit card spend up 10% year-on-year. And credit continues to normalize, but actual performance remains strong across the Company. On Page 2, we have some more detail. Revenue of $39.3 billion was up $7.7 billion or 25% year-on-year. NII ex markets was up $9.2 billion or 78%, driven by higher rates, partially offset by lower deposit balances. NIR ex markets was down $1.1 billion or 10%, driven by the securities losses previously mentioned as well as lower IB fees and lower auto lease income on lower volume. And markets revenue was down $371 million or 4% year-on-year. Expenses of $20.1 billion were up $916 million or 5% year-on-year, driven by compensation-related costs, reflecting the annualization of last year’s headcount growth and wage inflation. These results include the impact of the higher FDIC assessment I mentioned last quarter, which, of course, is unrelated to recent events. And credit costs of $2.3 billion included net charge-offs of $1.1 billion, predominantly in card. The net reserve build of $1.1 billion was largely driven by deterioration in our weighted average economic outlook. Onto balance sheet and capital on page 3. We ended the quarter with a CET1 ratio of 13.8%, up about 60 basis points, which was primarily driven by the benefit of net income less distributions and AOCI gains. And in line with what we previously said, we resumed stock buybacks this quarter and distributed a total of $1.9 billion in net repurchases back to shareholders. Now, let’s go to our businesses, starting with CCB on Page 4. Touching quickly on the health of U.S. consumers and small businesses based on our data. Both continue to show resilience and remain on the path to normalization as expected, but we continue to monitor their activity closely. Spend remains solid, and we have not observed any notable pullback throughout the quarter. Moving to financial results, CCB reported net income of $5.2 billion on revenue of $16.5 billion, which was up 35% year-on-year. In Banking & Wealth Management, revenue was up 67% year-on-year, driven by higher NII on higher rates. Average deposits were down 2% quarter-on-quarter, in line with recent trends. Throughout the quarter, we continued to see customer flows to higher-yielding products, as you would expect but were encouraged by what we are capturing in CDs and our Wealth Management offerings. Client investment assets were down 1% year-on-year, but up 7% quarter-on-quarter, driven by market performance as well as strong net inflows. In Home Lending, revenue was down 38% year-on-year, largely driven by lower net interest income from tighter loan spreads and lower production revenue. Moving to Card Services & Auto, revenue was up 14% year-on-year, largely driven by higher Card Services NII on higher revolving balances, partially offset by lower auto lease income. Credit card spend was up 13% year-on-year. Card outstandings were up 21%, driven by strong new account growth and revolve normalization. And in Auto, originations were $9.2 billion, up 10% year-on-year. Expenses of $8.1 billion were up 5% year-on-year, reflecting the impact of wage inflation and higher headcount. In terms of credit performance this quarter, credit costs were $1.4 billion, reflecting reserve builds of $300 million in card and $50 million in Home Lending. Net charge-offs were $1.1 billion, up about $500 million year-on-year, in line with expectations as delinquency levels continue to normalize across portfolios. Next, the CIB on Page 5. CIB reported net income of $4.4 billion on revenue of $13.6 billion. Investment Banking revenue of $1.6 billion was down 24% year-on-year. IB fees were down 19%. We ranked number 1 with first quarter wallet share of 8.7%. In advisory, fees were down 6% compared to a strong first quarter last year. Our underwriting businesses continued to be affected by market conditions with fees down 34% for debt and 6% for equity. In terms of the outlook, the dynamics remain the same. Our pipeline is relatively robust, but conversion is sensitive to market conditions and the economic outlook. We expect the second quarter and the rest of the year to remain challenging. Moving to Markets. Total revenue was $8.4 billion, down 4% year-on-year. Fixed income was flat. Rates were strong during the rally early in the quarter as well as through the elevated volatility in March. Credit was up on the back of higher client flows, and currencies in emerging markets were down relative to a very strong first quarter in the prior year. Equity Markets were down 12%, driven by lower revenues in derivatives relative to a strong first quarter in the prior year and lower client activity and cash. Payments revenue was $2.4 billion, up 26% year-on-year. Excluding the net impact of equity investments, primarily a gain in the prior year, it was up 55%, with the growth driven by higher rates, partially offset by lower deposit balances. Securities Services revenue of $1.1 billion was up 7% year-on-year, driven by higher rates, partially offset by lower deposit balances and market levels. Expenses of $7.5 billion were up 2% year-on-year, as higher headcount and wage inflation were largely offset by lower revenue-related compensation. Moving to the Commercial Bank on page 6. Commercial Banking reported net income of $1.3 billion. Revenue of $3.5 billion was up 46% year-on-year, driven by higher deposit margins. Payments revenue of $2 billion was up 98% year-on-year, driven by higher rates. And gross Investment Banking revenue of $881 million was up 21% year-on-year on increased M&A and bond underwriting from large deal activity. Expenses of $1.3 billion were up 16% year-on-year, largely driven by higher compensation expense, including front office hiring and technology investments as well as higher volume-related expense. Average deposits were down 16% year-on-year and 5% quarter-on-quarter, predominantly driven by continued attrition and non-operating deposits as well as seasonally lower balances. Loans were up 13% year-on-year and 1% sequentially. C&I loans were up 1% quarter-on-quarter with somewhat different dynamics based on client size. In middle market banking, higher rates and recession concerns have decreased new loan demand and utilization, which is also leading to weakness in CapEx spending. In Corporate Client Banking, utilization rates increased modestly quarter-on-quarter as capital market conditions led more clients to opt for bank debt. CRE loans were also up 1% sequentially, with higher rates creating headwinds for both originations and prepayments. And given the recent focus on commercial real estate, let me remind you that our office sector exposure is less than 10% of our portfolio and is focused in the urban dense markets, and nearly two-thirds of our loans are multifamily, primarily in supply-constrained markets. Finally, credit costs of $417 million included a net reserve build of $379 million, predominantly driven by what I mentioned upfront. Then to complete our lines of business, AWM on page 7. Asset & Wealth Management reported net income of $1.4 billion, pretax margin of 35%. Revenue of $4.8 billion was up 11% year-on-year, driven by higher deposit margins on lower balances and a valuation gain on our initial investment triggered by taking full ownership of our asset management joint venture in China, partially offset by the impact of lower average market levels on management fees and lower performance fees. Expenses of $3.1 billion were up 8% year-on-year, predominantly driven by compensation, reflecting growth in our private banking advisory teams, higher revenue-related compensation and the run rate impact of acquisitions. For the quarter, net long-term inflows were $47 billion, led by fixed income and equities. And then liquidity, we saw net inflows of $93 billion, inclusive of our ongoing deposit migration. AUM of $3 trillion was up 2% year-on-year, and overall client assets of $4.3 trillion were up 6%, driven by continued net inflows into liquidity and long-term products. And finally, loans were down 1% quarter-on-quarter, driven by lower securities-based lending, while average deposits were down 5%. Turning to Corporate on page 8. Corporate reported net income of $244 million. Revenue was $985 million compared to a net loss of $881 million last year. NII was $1.7 billion, up $2.3 billion year-on-year due to the impact of higher rates. NIR was a loss of $755 million compared with a loss of $345 million in the prior year and included the net investment securities losses I mentioned earlier. Expenses of $160 million were down $24 million year-on-year. And credit costs of $370 million were driven by reserve builds on a couple of single-name exposures. Next, the outlook on page 9. We now expect 2023 NII and NII ex-markets to be approximately $81 billion. This increase in guidance is primarily driven by lower rate paid assumptions across both consumer and wholesale in light of the expectation of Fed cuts later in the year as well as slightly higher card revolving balances. Note that in line with my comments at the outset, recent deposit balance increases are not a meaningful contributor to the upward revision in the NII outlook, given that we expect a meaningful portion of the recent inflows to reverse later in the year. I would point out that this outlook still embeds significant reprice lags. We think a more sustainable NII ex-markets run rate in the medium term is well below this quarter’s $84 billion as well as below the $80 billion that is implied for the rest of the year by our full year guidance. And while we don’t know exactly when this lower run rate will be reached, when it happens, we believe it will be around the mid-70s. And of course, as we mentioned last quarter, this NII outlook remains highly sensitive to the uncertainty associated with the timing and the extent of deposit reprice, investment portfolio decisions, the dynamics of QT and RRP, the trajectory of Fed funds as well as the broader macroeconomic environment, including its impact on loan growth. Separately, it’s worth noting that markets NII may start to trend slightly positive towards the end of the year as a function of mix and rate effects. Moving to expenses. Our outlook for 2023 continues to be about $81 billion. Importantly, this does not currently include the impact of the pending FDIC special assessment. And on credit, we continue to expect the 2023 card net charge-off rate to be approximately 2.6%. So to wrap up, our strong results this quarter once again highlight the earnings power of this diversified franchise. We have benefited from our fortress principles and commitment to invest, which we will continue to do as we head into an increasingly uncertain environment. With that, operator, please open the line for Q&A.

From the line of Steve Chubak with Wolfe Research.

So, Jamie, I was actually hoping to get your perspective on how you see the recent developments with SVB impacting the regulatory landscape for the big banks. In your letter, you spent a fair amount of time highlighting the consequences of overly stringent capital requirements, the risk of steering more activities to the less regulated nonbanks. What are some of the changes that your scenario planning for, whether it’s higher capital, increase in FDIC assessment fees? And along those same lines, how you’re thinking about the buyback given continued strong capital build, but a lot of macro uncertainty at the moment?

Well, I think you already kind of completed answering your own question there. Look, we’re hoping that everyone just takes a deep breath and looks at what happened, and the breadth and depth of regulations already in place. Obviously, when something like this happens, you should adjust, think about it. So I think down the road, there may be some limitations on held-to-maturity, maybe more TLAC for certain size banks and more scrutiny and history exposure, stuff like that. But it doesn’t have to be a revamp of the whole system. It’s just recalibrating things the right way. I think it should be done knowing what you want the outcome to be. The outcome you should want is very strong community and regional banks. And certain actions are taking, which are drastic, could actually make them weaker. So, that’s all it is. We do expect higher capital from Basel IV effectively. And obviously, there’s going to be an FDIC assessment. That will be what it is.

And just in terms of appetite for the buyback, just given some of the elevated macro uncertainty?

Well, we’ve indicated that we are aiming for $12 billion this year. Clearly, our capital exceeds that, and we initiated some buyback this quarter. However, we will remain cautious. We are comfortable holding onto our resources. You’ve seen us take this approach with our investment portfolios, and we are prepared to do the same with our capital.

The next question comes from the line of Ken Usdin with Jefferies.

Hey, Jeremy, could you provide us with more details on the lower funding expectation points you mentioned? Is it related to what you can offer the client that might help maintain a lower beta? Also, could you include your overall beta expectations in that updated information? Thank you.

Yes, sure. So let me just summarize the drivers of the change in the outlook. So the primary driver really is lower deposit rate paid expectations across both consumer and wholesale, which, as you mentioned, is driven by a couple of factors. So the change in the rate environment with cuts coming sooner in the outlook, all else equal, does take some pressure off the reprice. And as you said, we’re getting a lot of positive feedback from field on our product offerings. The short-term CD, in particular, is really getting a lot of positive feedback from our folks in the branches. It’s been very attractive to yield-seeking customers. So, that’s kind of working well. And then on the asset side, we are seeing a little bit higher card revolve, which is helping. And I’ll just remind you that at a conference in February, I suggested that we were already starting to feel like some of the uncertainties we mentioned when giving the guidance had started all moving in the same direction, and that was one of the things that contributed to the upward revision, like all the uncertainty kind of went through the same way. But as Jamie has pointed out, like those uncertainties are all still there. We highlight them on the page. And as we look forward to this year and into next year in the medium-term, we remain very focused on those.

Yes. As a follow-up regarding expectations about interest rates potentially decreasing sooner, how do you perceive the implications for the broader economy? Is this primarily due to declining inflation, or do you believe it's a response from the Fed to a more challenging economic situation, considering some lingering uncertainties? I’d like to hear your overall thoughts on how lower rates occurring more quickly might impact the wider economy.

I find it hard to fully believe the current situation. The Federal Reserve's forward short-term rate curve is nearly 1% higher than the market predicts. We must always be prepared for anything since we cannot accurately forecast the rate curve for next year. Consequently, we are taking a cautious approach. Currently, there is a higher risk of recession indicated in the short-term data, but we expect inflation to decrease somewhat. However, inflation could prove to be more persistent than anticipated, which may result in a slight increase in the rate curve.

The next question comes from the line of John McDonald with Autonomous Research.

Jeremy, I wanted to follow-up again on the drivers of the NII revision and the lower rates paid assumption. You mentioned the Fed cuts coming sooner and positive feedback on the customer offers. What about the March events? Do the bank failures that happened in March, in your view, do they slow the reprice intensity because folks are moving other than price reasons, or do they intensify it industry-wide, because smaller banks have to reprice to keep their deposits? How do those events influence your view of the reprice?

Yes, John, that's a great question, and we’ve certainly considered it. As we sit here now, I have two main points to make. First, it isn't significantly impacting our current outlook; we don't see it as a major factor. Additionally, regarding the broader dynamics you've mentioned, it's still a bit early to assess fully. However, based on our current position, the baseline expectation is that there will be no substantial impact.

Okay. I wanted to ask Jamie about the narrative suggesting that the industry could experience a credit crunch, with banks potentially stopping their lending, as even Jay Powell has pointed out. Do you observe anything in lending that supports this possibility, and do you think it's logical for banks to considerably reduce lending? Are you concerned about the implications of a credit crunch for the economy? Thanks.

I wouldn’t use the word credit crunch, if I were you. Obviously, there’s going to be a little bit of tightening. And most of that will be around certain real estate things. You’ve heard it from real estate investors already. So I just look at that as a kind of a thumb on the scale. It just makes the finance conditions a little bit tighter, increasing the odds of a recession. That’s what that is. It’s not like a credit crunch.

Our next question comes from Erika Najarian with UBS.

My first question is you mentioned that your reserve build was driven mostly by worse economic assumptions. I’m wondering if you could update us on what unemployment rate you’re assuming in your reserves.

Yes. So Erika, as you know, we take the outlook from our economists. We evaluate various scenarios and weigh them. The central case outlook from our research team hasn’t changed. However, in alignment with what Jamie mentioned regarding some tightening due to the March events, we decided to give a bit more weight to our relatively adverse case. This adjustment altered the weighted average expectation. Currently, we are estimating a weighted average peak unemployment rate of approximately 5.8%.

So, as we think about all of what you’ve just told us, so $81 billion of NII this year, and who knows when medium term is going to happen is mid-70s, the clear strength of the franchise producing 23% ROTCE in a quarter where your CET1 was 13.8% and a reserve that already reflects 5.8% unemployment. As we think about recession and what JPMorgan can earn in a recession, do you think you can hit 17% ROTCE even in 2024, assuming we do have a recession in ‘24 as everybody is expecting, given all these revenue dynamics and how prepared you are on the reserve?

Yes. I mean, that’s an interesting question, Erika. I guess, I’ll say a couple of things.

It’s a great question. Jeremy answers it.

Okay. Let’s take a crack. Let’s see what the boss thinks. I think, number one, we believe, have said and continue to believe that this is fundamentally a 17% through the cycle ROTCE franchise. So number one. Number two, as Jamie always says, we run this company for all different scenarios and to have it be as resilient as possible across all scenarios. On the particular question of ROTCE expectations in 2024, contingent on the particular economic outlook, obviously, it depends a lot on the nature of the recession. I think we feel really good about how the Company is positioned for a recession, but we’re a bank. A very serious recession is, of course, going to be a headwind for returns. But we think even in a fairly severe recession, we’ll deliver very good returns; whether that’s 17% or not is too much detail for now.

The next question comes from the line of Jim Mitchell with Seaport Global Securities.

Could you share your thoughts on the deposits? You've experienced some inflows. Why do you think you might lose them in the future? Also, could you discuss the pricing dynamics? Given the inflows, do you believe larger banks have some pricing power?

Yes. A couple of things there. So first of all, we don’t know, right? The deposits just come in. We don’t know. We’re guessing. Number two, the deposits just came in. So by definition, these are somewhat flighty deposits because they just came into us. So, it’s prudent and appropriate for us to assume that they won’t be particularly stable. Number three, there’s a natural amount of internal migration of deposits to money funds. So you have to overweigh that, and that’s embedded in our assumptions. And number four, it’s a competitive market. And it’s entirely possible that people temporarily come to us and then over time, decide to go elsewhere. So for all of those reasons, we’re just being realistic about the stickiness of that.

I would say that in the current category, the bigger banks lack pricing power. When we assess pricing sheets, we observe that each bank has a slightly different standing, and they are all competing over savings rates in varying time frames, such as 3 months, 6 months, or 9 months. Additionally, there are online banks, treasury bills, and money market funds to consider. While banks do not have pricing power, we recognize that we have different franchises and slightly different positions in the market.

All fair points. And maybe just a follow-up on John’s question on the lending environment. You talked about the industry likely pulling back. Are you changing your underwriting standards in any way? Just trying to think through, is there a potential for some market share gains given your strength of capital and liquidity, or how are you thinking about the loan environment?

We say very modestly, but we look at that all the time.

Yes. And we always say, right, we underwrite through the cycle. And I think notably, we don’t loosen our underwriting standards when all the numbers looked crazy good during the pandemic. And we’re not going to overreact now and tighten unreasonably. Some of that correction happens naturally. Credit metrics deteriorate for borrowers, whether in consumer or wholesale, and that might make them leave our pre-existing risk appetite. But we’re not running around aggressively tightening standards right now.

The next question comes from the line of Gerard Cassidy with RBC Capital Markets.

In your comments about your CET1 ratio, obviously, came in strong at 13.8%. You’ve got the G-SIB buffers obviously going up next year. And we have the stress test coming this summer or in June, the results, which maybe will lead to banks including yours having a higher stress capital buffer. Where should we think about that CET1 ratio being by the end of the year, do you think?

Yes, there are a few points to address, Gerard. We previously stated that we are targeting a 13.5% in the first quarter of 2024, based on the assumption that the SCB remains unchanged, the G-SIB buffer increases, and operating with a 50 basis point buffer. As Jamie mentioned earlier, given the current environment, Basel IV, and our available resources, it’s uncertain how we will adjust that moving forward. However, this remains our base case assumption. Regarding the stress test, contrary to some opinions, our ability to predict the SCB in advance by running our own processes is quite limited. Last year, we did forecast an increase, yet we underestimated its magnitude by nearly a factor of two, which was a significant surprise for the entire industry. Therefore, we aim to be modest about our predictive capabilities concerning the SCB. Nevertheless, for now, we are assuming it will stay unchanged. There are some potential benefits through OCI, but we anticipate some offsets due to tougher credit shocks. So, for our planning at this moment, we are assuming the SCB will remain flat, and we will know the actual number soon.

Sure. And then just as a follow-up, if I heard you correctly, can you give us a little more color? I think you mentioned in building the loan loss reserve this quarter, you identified some one-off credits. I don’t know if that’s how you said it. There’s some larger credits. Were they commercial real estate-oriented? Were they commercial? Any more color there?

No, it wasn’t commercial real estate. It was just a couple of single name items in the Corporate segment.

Leveraged loan type items or just regular corporate credits?

Regular corporate credits. I’d rather not get into too much detail…

Okay, very good.

Gerard, sorry. Thanks.

The next question comes from the line of Ebrahim Poonawala with Bank of America Merrill Lynch.

I guess, maybe one question, Jeremy, you reminded us of the relatively low office exposure for JPM, but obviously, you’re big players in the CRE market. So give us a sense of when you look at the two pressure points on CRE 1, how much is oversupply, and that probably goes beyond office into apartments, how much of an issue is oversupply in the market as we think about the next few years going into a weakening economy? And how much of a risk is higher for long gates in that, if the central banks can’t cut rates in the next year or two, we will see a ton of more pain because of the refi wall that’s coming up?

Yes. Ebrahim, let me sort of respond narrowly in connection with our portfolio and our exposure, right? So really, the large majority of our commercial real estate exposure is multifamily lending in supply-constrained markets. And I think it’s quite important to recognize the difference between that and sort of higher-end, higher price point, non-rent-controlled, not supply-constrained markets. So, our space is really quite different in that respect. And I think that’s a big part of the reason the performance has been so good for so long. So, of course, we watch it very carefully, and we don’t assume that past performance predicts future results here. But I think our multifamily lending portfolio is quite low risk in the scheme of things.

Just to add also, housing is in short supply in America. So, it’s not massively oversupplied like you saw in 2008.

Yes. And then, in terms of the office space, as you know, our exposure is quite small. Yes, Jamie has also mentioned all the refi dynamics that you mentioned too are something that the office space is processing one way or the other. Our office exposure is quite modest, very concentrated in Class A buildings and sort of dense urban locations where the return to the office narrative is one of the drivers is generally in favor of high occupancy. So again, launching it. There are obviously specific things here and there to pay attention to, but in the scheme of things, for us, not a big issue.

As a follow-up, I believe another risk of prolonged higher rates is the economy's and the financial markets' ability to maintain a Fed funds rate above 5% for an extended period. What other areas are you monitoring, such as duration mismatch and bank balance sheets, with the commercial real estate market being one? Are you concerned about the nonbank sector, which has grown significantly over the last decade, particularly regarding risks if rates do not decrease? Also, could you discuss how this could impact banks, given the leverage they provide to nonbanks?

Yes, I'd like to respond to that. There is a risk that interest rates will remain high for an extended period. It's important to consider more than just the Fed funds rate; for our planning purposes, I would be thinking about a potential rate around 6% and considering the 5- and 10-year rates, which might hover around 5%. I'm not saying this will definitely happen, but it's wise to be prepared for such scenarios. We have seen the volatility that can arise when rates exceed expectations, as evidenced by the issues in London and some banks here. It's crucial for everyone to be ready for the possibility of sustained high rates. If this occurs, it could create challenges for those who are overly reliant on floating rates or are facing refinancing risks, which will affect various sectors in the economy. Therefore, I advise all our clients to take action now to mitigate this risk. Avoid placing your company, business, or investment funds in a situation where the risk becomes too significant. As for the second point, this situation will not revert to JPMorgan. While we do extend credit to what are known as shadow banks, we believe it remains very secure. However, that doesn’t mean other credit providers won't face challenges.

The next question comes from the line of Mike Mayo with Wells Fargo Securities.

Hey, Jeremy, you mentioned a degree of reintermediation to the lending markets. You said capital markets activity has gone to bank lending. And I’m just wondering, as part of your $7 billion increased NII guide, are you assuming better loan spreads? And on the topic of the loan pricing, why aren’t your credit card yields going higher than where they are today? Thanks.

Yes, Mike. I believe you are referring to my earlier comments about the larger corporate segment in the Commercial Bank, which usually has access to both capital markets and bank lending. Currently, this segment is opting to draw down on revolvers instead of tapping into capital markets. This trend isn't a significant factor behind the increase in our NII guidance. There are various smaller elements at play, but the main factors are what I pointed out. To be honest, I haven't specifically checked the status of card yields, but I would assume they've increased slightly in line with interest rates. However, I'm not certain. We should look into that.

All right. And then one for you, Jamie. I guess, taking the 10,000-foot level, I guess, when you look at asset liability management or AUM, you could call this Nightmare on Elm Street, and you’ve seen some big problems at banks. And I guess, how would you evaluate yourself, I guess, with this $7 billion higher NII guide? Probably is good. But to what degree are you willing to sacrifice JPM shareholder money to help rescue problem banks that do not get their asset liability management correctly?

We have two distinct questions. We have maintained a cautious approach regarding interest rates and our portfolio investments, as well as our stress testing expectations. The CCAR stress test anticipated a decline in rates, while I have always prepared for an increase, regardless of possible outcomes. We have acted conservatively and are willing to continue this approach because retaining excess capital is beneficial. It can be deployed later, potentially at a more advantageous time. We want to assist the system when needed, and many banks share this sentiment. I was impressed by the collective efforts to support one another during difficult times. Although it's uncertain how successful these actions will ultimately be, the intention to help is clear. The current banking challenges are detrimental to banks, and I recognized this immediately upon seeing the headlines, such as with Credit Suisse. We desire strong community and regional banks and are committed to helping them navigate through these difficulties. Our financial system is the strongest in history, which doesn’t mean it won’t face issues or that reforms aren’t necessary. However, it is reasonable for us to support each other in tough times, just as we did during COVID and the financial crisis, and I expect that spirit of cooperation to persist.

Jamie, your CEO letter said the banking crisis isn’t over. So, what do you mean by that, or was that dated 2 weeks later and talking contagion or what?

The number of banks facing significant interest rate exposure, ATM issues, and uninsured deposits is limited. There may be some additional bank failures that are yet unknown. However, regional banks are expected to report solid numbers next week, and many will take steps to address some of their challenges moving forward. We've seen a significant improvement in deposit flows. Warren Buffett mentioned that he would bet $1 million that no depositor will lose money in America, and most people recognize his wisdom. This crisis is temporary and will eventually pass. It's important for individuals to prepare for potential interest rate increases rather than hoping they won't occur; if they don't rise, it would be a fortunate outcome.

The next question comes from the line of Betsy Graseck with Morgan Stanley.

I do want to unpack the question here on the possibility of higher for longer rates and how that impacts you in your non-markets NII...

Betsy, did we just lose you? I feel like you just dropped.

Now you hear me? Hello?

Yes, you’re back now. You’re back.

I wanted to discuss the potential impact of sustained higher interest rates on your net interest income because your guidance appears to be based on the forward curve. If we do experience these higher rates for an extended period, how significantly would it affect your net interest income excluding market factors? I'm trying to understand if there might be a reduction in deposits but if we have higher rates for a longer time, shouldn’t we anticipate that the trajectory for net interest income would increase this quarter rather than decrease? That's my question.

Go ahead, Jeremy. And I’ll...

Betsy, your question is very insightful. If we consider how our outlook evolved last year, it was clear that we were quite sensitive to asset changes, particularly regarding the one-year forward EIR measure. Currently, our EIR reflects a slight negative number, indicating some liability sensitivity. I won’t delve into the details on why this might not be a reliable short-term predictor. However, it's essential to recognize that the current interest rate levels are significantly different from last year. At these rates, the connection between our short-term net interest income evolution and the rate curve can be unclear at times. This situation is complex and can result in irregular behavior, influenced by the competitive environment for deposits, which does not follow a predictable mathematical model based on the rate curve. Thus, we are highlighting the various factors that contribute to the uncertainty surrounding our net interest income outlook.

Yes. So, I would just add, so next quarter, we kind of know already, two quarters out, we know a little bit less, three quarters out, we know a little bit less, and ‘24, we know very little. That number, you can imagine, this is a little inside baseball now, the number that we’re talking about for 2024 is not based upon an implied curve. It’s based upon us looking at multiple potential scenarios, leveling them kind of out and saying this is kind of a range. And you’re absolutely correct. You could have an environment of higher for longer that might be better than that. But remember, higher for longer comes with a lot of other things attached to it, like maybe a recession, taxation, lower volume. So I wouldn’t look at that as higher flows a positive. It might be a slight positive in that line. It probably be negative in other lines.

Yes. Got it. Okay. That’s super helpful to understand how you think through that. And then the follow-up is just on the buybacks. So, do I take your comments to mean that you’re on pause now? And if that’s the case, what would be the driver of restarting?

Yes. No, we’re not on pause now. We’re doing a little bit now. We obviously have a lot of excess capital. We also like to buy our stock when it’s cheap, not just when it’s available. And we’re also peering ahead, looking at those a little bit of storm clouds, so we’re going to be kind of cautious. So we’re going to make this decision every day. We also don’t like to tell the market what we’re doing, just so you know.

Yes. And then can you give us any sense of what Basel IV endgame means to you in your RWAs? How much should we be baking in for this?

Yes, Betsy, we don’t have any new information on that. A year ago, we were more optimistic about it being closer to capital neutral across different areas. Now, it seems likely to be worse than that, though hopefully not by too much. I want to remind you that there are many different factors at play. The NPR will only be part of the picture; there will be other elements, such as the holistic review, and it will take time to implement. We’ll have the time to adjust, and we’ll know more when we know.

I just recall that they were meant to express a positive outlook regarding banks in relation to the shrinking global economy, and G-SIB is expected to be adjusted accordingly. This could lead to variations. While we anticipate an increase, there are numerous reasons why it may not happen. Regarding JPMorgan, the issue is not capital since there is an abundance. Even with some banks that have sufficient capital, the challenges were not related to it but stemmed from other factors. I hope regulators proceed thoughtfully. Additionally, they need to establish their stance on banking at this stage. I've clearly indicated that in the current banking environment, no bank should retain a loan if possible due to the significant capital now required for loans.

...on the current rule set.

Yes, the market is pricing in that it can take loans at much lower capital ratios than what banks are required to maintain. This is specifically about loans only. Consequently, a significant amount of credit is flowing to nonbanks, and this shift is happening quickly and extensively. If you’re a regulator, you need to consider whether this is beneficial for the system. If you believe it is, then raising the capital requirements will result in more credit being pulled from the system, which is acceptable if that’s the intention. However, this should be done with careful consideration rather than by accident.

I like the NII from loans better than the gain on sale. So I’ll prefer the former, not the latter. But thanks, appreciate it.

Yes.

We have no further questions.

Excellent. Well, thank you very much.

That concludes today’s conference. Thank you all for your participation. You may disconnect at this time.