Earnings Call Transcript
JPMORGAN CHASE & CO (JPM)
Earnings Call Transcript - JPM Q3 2024
Operator, Operator
Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s Third Quarter 2024 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. The presentation is available on JPMorgan Chase's website. Please refer to the disclaimer in the back concerning forward-looking statements. 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.
Jeremy Barnum, CFO
Thank you, and good morning, everyone. Starting on page one, the firm reported net income of $12.9 billion, EPS of $4.37 and revenue of $43.3 billion with an ROTCE of 19%. Touching on a couple of highlights. In CCB, we ranked number one in retail deposit share for the fourth straight year. In CIB, both IB fees and markets revenue were notably up year-on-year reflecting strength across the franchise. In AWM, we had record quarterly revenues and record long-term flows. Now turning to page two for the firm wide results. The firm reported revenue of $43.3 billion, up $2.6 billion or 6% year-on-year. NII ex-markets was up $274 million or 1%, driven by the impact of balance sheet mix and securities reinvestment, higher revolving balances in card and higher wholesale deposit balances, predominantly offset by lower deposit balances in banking and wealth management and deposit margin compression. NIR ex-markets was up $1.8 billion or 17%, but excluding the prior year's net investment securities losses, it was up 10% on higher asset management and investment banking fees and markets revenue was up $535 million or 8% year-on-year. Expenses of $22.6 billion were up $808 million or 4% year-on-year, driven by compensation including revenue related compensation and growth in employees, partially offset by lower legal expense. And credit costs were $3.1 billion, reflecting net charge offs of $2.1 billion and a net reserve bill of $1 billion, which included $882 million in consumer, primarily in card and $144 million in wholesale. Net charge offs were up $590 million year-on-year, predominantly driven by card. On to balance sheet and capital on page three. We ended the quarter with the CET1 ratio of 15.3% flat versus the prior quarter as net income and OCI gains were offset by capital distributions and higher RWA. This quarter's RWA reflects higher lending activity, as well as higher client activity and market moves on the trading side. We added $6 billion of net common share repurchases this quarter, which in part reflects the deployment of the proceeds from the share from the sale of Visa shares as we have previously mentioned. Now let's go to our businesses starting with CCB on page four. CCB reported net income of $4 billion on revenue of $17.8 billion, which was down 3% year-on-year. In Banking and Wealth Management, revenue was down 11% year-on-year, reflecting deposit margin compression and lower deposits partially offset by growth in Wealth Management revenue. Average deposits were down 8% year-on-year and 2% sequentially. We are seeing a slowdown in customer yield-seeking activity including CD volumes and expect deposits to be relatively flat for the remainder of the year. Client investment assets were up 21% year-on-year, driven by market performance and we continue to see strong referrals of new wealth management clients from our branch network. In home lending, revenue was up 3% year-on-year driven by higher NII partially offset by lower servicing and production revenue. Turning to Card Services and Auto. Revenue was up 11% year-on-year, driven by higher card NII on higher revolving balances. Card outstandings were up 11% due to strong account acquisition and the continued normalization of revolve. And in Auto, originations were $10 billion, down 2%, while maintaining strong margins and high-quality credit. Expenses of $9.6 billion were up 5% year-on-year, predominantly driven by higher field and technology compensation, as well as growth in marketing. In terms of credit performance this quarter, credit costs were $2.8 billion driven by card and reflected net charge offs of $1.9 billion, up $520 million year-on-year and a net reserve build of $876 million predominantly from higher revolving balances. Next the Commercial and Investment Bank on page five. The CIB reported net income of $5.7 billion on revenue of $17 billion. IB fees were up 31% year-on-year and we ranked number one with year-to-date wallet share of 9.1%. In advisory, fees were up 10% benefiting from the closing of a few large deals. Underwriting fees were up meaningfully with debt up 56% and equity up 26%, primarily driven by favorable market conditions. In light of the positive momentum throughout the year, we're optimistic about our pipeline, but the M&A regulatory environment and geopolitical situation are continued sources of uncertainty. Payments revenue was $4.4 billion, up 4% year-on-year, driven by fee growth and higher deposit balances, largely offset by margin compression. Moving to markets, total revenue was $7.2 billion, up 8% year-on-year. Fixed income was flat reflecting outperformance in currencies and emerging markets and lower revenue in rates. Equities was up 27%, reflecting strong performance across regions largely driven by a supportive trading environment in the U.S. and increased late quarter activity in Asia. Securities Services revenue was $1.3 billion, up 9% year-on-year largely driven by fee growth on higher market levels and volumes. Expenses of $8.8 billion were down 1% year-on-year with lower legal expense predominantly offset by higher revenue related compensation and growth in-place, as well as higher technology spend. Average banking and payments loans were down 2% year-on-year and down 1% sequentially. In the middle market and large corporate client segments, we continue to see softness in both new loan demand and revolver utilization in part due to clients' access to receptive capital markets. In multifamily, while we are seeing encouraging signs in loan originations as long-term rates fall, we expect overall growth to remain muted in the near-term as originations are offset by payoff activity. Average client deposits were up 7% year-on-year and 3% sequentially, primarily driven by growth from large corporates in payments and security services. Finally, credit costs were $316 million, driven by higher net lending activity, including in markets and downgrades, partially offset by improved macroeconomic variables. Then to complete our lines of business, AWM on page six. Asset and wealth management reported net income of $1.4 billion with a pre-tax margin of 33%. For the quarter, revenue of $5.4 billion was up 9% year-on-year, driven by growth in management fees on higher average market levels and strong net inflows, investment valuation gains, compared to losses in the prior year, and higher brokerage activity, partially offset by deposit margin compression. Expenses of $3.6 billion or up 16% year-on-year, predominantly driven by higher compensation, including revenue-related compensation and continued growth in our private banking advisor teams, as well as higher distribution fees and legal expense. For the quarter, long-term net inflows were $72 billion, led by fixed income and equities. And in liquidity, we saw net inflows of $34 billion. AUM of $3.9 trillion and client assets of $5.7 trillion were both up 23%, driven by higher market levels and continued net inflows. And finally, loans were up 2% quarter-on-quarter, and deposits were up 4% quarter-on-quarter. Turning to corporate on page seven. Corporate reported net income of $1.8 billion. Revenue was $3.1 billion, up $1.5 billion year-on-year. NII was $2.9 billion, up $932 million year-on-year, predominantly driven by the impact of balance sheet mix and securities reinvestment, including from prior quarters. NIR was a net gain of $155 million, compared with a net loss of $425 million in the prior year, predominantly driven by lower net investment securities losses this quarter. Expenses of $589 million were down $107 million year-on-year. To finish up, let's turn to the outlook on page eight. We now expect 2024 NII ex-markets to be approximately $91.5 billion and total NII to be approximately $92.5 billion. Our outlook for adjusted expense is now about $91.5 billion. And given where we are in the year, we included on the page the implied fourth quarter guidance for NII and adjusted expense. And note that the NII numbers imply about $800 million of markets NII in the fourth quarter. On credit, we continue to expect the 2024 Card net charge-off rate to be approximately 3.4%. So to wrap up, we're pleased with another quarter of strong operating performance. As we look ahead to the next few quarters, we expect results will be somewhat challenged as normalization continues. But we remain upbeat and focused on executing in order to continue delivering excellent returns through the cycle. And with that, let's open the line for Q&A.
Operator, Operator
Thank you. Please stand by. Our first question will come from the line of Jim Mitchell from Seaport Global Securities. You may proceed.
Jim Mitchell, Analyst
Hey, good morning. So, Jeremy, as you highlighted, full-year NII guidance implies a sizable drop in Q4 NII ex-markets, about 6%. So can you just maybe discuss what are the largest drivers of the sequential decline, including any initial thoughts on deposit behavior and pricing since the 50 basis point cut? And since it's related, I'll just throw out my follow-up question. I realize the forward curve is moving around a lot, but since Dan brought it up a month ago, can you frame how you're thinking about the NII trajectory for ‘25? Thanks.
Jeremy Barnum, CFO
Yes, sure, Jim. I'll try to answer both questions together, the best of my ability. So as we sit here today, the biggest single driver is of the sequential declines is in fact, that we're expecting, is in fact the yield curve. So that yield curve has changed a little bit since Daniel made his comments at the conference earlier in the quarter, but not that significantly. In terms of deposit balances, which is obviously another important factor here in light of beginning the cutting cycle. It feels to us like right now, as I mentioned in my prepared remarks for consumer, we're pretty much in the trough right now as we speak. When you look at yield-seeking behavior, that has come down quite a bit. So that's no longer as much of a headwind all else being equal. And then if you look at checking account balances, those have been pretty stable for some time, which we see as an indication that consumers are kind of done spending and building cash buffers. So that's kind of supportive for consumer deposit balances. And in that context, the other relevant point is the CD mix, where with the rate cuts coming, we expect CD balances to price down with pretty high betas and probably the CD mix actually peaking around now. And then as you move to wholesale, we've actually already been seeing a little bit of growth there. And when you combine that with the sort of increasing view that many people in the market have that it's likely that the end of Q2 will be announced sometime soon, that's also a little bit supportive for deposit balances. So maybe I'll, well I guess then you also asked me a little bit about next year. So I guess one thing to say, right, is that we did have a sequential increase in NII this quarter. And as you may recall at Investor Day, I said that there was some chance that we would see sequential increases followed by sequential declines and that people should avoid kind of drawing the conclusion that we'd hit the trough when that happened. So that's essentially exactly what we're seeing now. But from where we sit now, given the yield curve, assuming the yield curve materializes, obviously, we do see a pretty clear picture of sequential declines at NII ex-markets. But the trough may be happening sometime in the middle of next year, at which point the combination of balances, card revolve growth, and other factors can return us to sequential growth. Obviously, we're guessing it's pretty far out in the future, and we'll give you formal guidance on all this stuff next quarter, but I think that gives you, you know, a bit of a framework to work with.
Jim Mitchell, Analyst
All right. Thanks a lot.
Jeremy Barnum, CFO
Thanks.
Operator, Operator
Thank you. Next, we will go to the line of Steven Chubak with Wolfe Research. You may proceed.
Steven Chubak, Analyst
Hi, good morning. So Jeremy. Hi, how are you? So I did want to ask on expenses just in light of some of the comments that Daniel had made recently, just noting that contentious expense forecast for next year looked a little bit too light. I believe at the time it was just below $94 billion. If we adjust for the one-timers this year, that would suggest a core expense base that's just below $90 billion. So a pretty healthy step up in expenses. I know you've always had a strong commitment and discipline around investment. Just want to better understand where those incremental dollars are being deployed and just which investments are being prioritized in particular looking out to next year?
Jeremy Barnum, CFO
Sure. So, good question and I agree with your numbers. I agree with the way you've normalized this year for the one-time type of significant items, and also where the consensus was when Daniel made his comments. And while we're at it, I would also just remind you on the NII comments at the time, the consensus for this year was $91.5 billion, and for next year it was $90 billion. So that was implying at the time a sequential decline of $1.5 billion. And it was because we thought that decline wasn't big enough that we made the comments that we made. So I'm happy to expand more on that. But anyway, to expenses, yes, so if you start for the sake of argument with a base of $90 billion, obviously inflation is normalizing and obviously we're always trying to generate efficiencies to offset inflation. But, you know, that having been said, if you assume 3% for the sake of argument on that base, that's a few billion dollars right out of the gates that we're working against, so that's one thing. The other thing is that we have continued to execute on our growth strategies this year, so there's a not insignificant amount of annualization. You can't quite see that in the fourth quarter numbers, because of the seasonality of incentive comp, but if you were to strip that out, you would see probably some sequential increases and so there's some manualization as an additional headwind. The other thing that's worth noting is that we do expect fees and volume-related businesses to grow next year. And so all else being equal, that would come with a higher expense loading. So when you assemble all those, that goes a long way to explain why sort of that consensus number that is slightly below $94 billion just seemed light. In terms of priorities and investments, really nothing has changed. Like the strategy hasn't changed. The strategy hasn't changed and the plans haven't changed and we're just kind of executing with the same long-term perspective that we've always had. I would note that relative to NII, obviously we're in the third quarter now and not the fourth quarter. In the old days, we did used to give you the guidance until investor day in late February. So we will give you formal expense guidance next quarter for both well for expenses and NII next quarter, but especially on expenses we are in the middle of the budget cycle right now so we probably have a little less visibility there than we do at the margin on the NII.
Jamie Dimon, CEO
And can you just give your view of expense a little bit? You call expenses very often. I call them investments. And if you actually go back to investor day, that you'll see that we're adding private bankers in asset wealth management. We're adding ETFs in asset wealth management. We're adding private bankers in international private banking. We're growing chase wealth management. We've added some branches across the United States. We think there are huge opportunities in the innovation economy that takes bankers and certain technologies, stuff like that. Our goal is to gain share, and everything we do, we get really good returns on it. So I look at that, these are opportunities for us. These are not expenses that we have to actually punish ourselves on. And we do get, and we show you kind of extensively, you know, the cost and productivity on various things. And also AI is going to go up a little bit. And I would put that as a category that's going to generate great stuff over time.
Steven Chubak, Analyst
No, thank you both for the color. Just a quick follow-up from me just drilling down into NII. It appears you redeployed a fair amount of cash or excess reserves at the Fed into securities. We saw the yield expand, which was encouraging despite the pressure at both the long end and SOFR contraction in the corridor. I was hoping you could just speak to your appetite to extend duration in this environment? I know that you've had some aversion to that in the past, but do you anticipate redeploying additional access liquidity just amid the expectation for deeper rate cuts?
Jeremy Barnum, CFO
Yes, sure. So on extending duration, Steve, you know this obviously, but I just think it's important to say that all SQL, extending duration doesn't change expected NII if you assume that the policy rate follows the forwards, right? So point one. Point two, I think the curve remains inverted and so even if you don't believe that the policy rate follows the forwards, extending right now is actually a headwind to short-term NII. Like that's not, that wouldn't be a consideration for us either way, but I just think that's worth saying for the broader audience, it's quite different from the situation that you have with the numbers. Now, so when we think about the question of extending duration and really managing duration right now, a couple of things to say. So obviously a lot of different versions of duration, but one number that we disclose is the EAR. When the 10-Q comes out, you'll see that that number is a little bit lower. It'll come down from 2.8 to about 2.1 if our current estimates are correct. That's for a number of reasons, some of which are passive, but some of those are active choices to extend duration a little bit. And in the end, the choice to manage and extend duration is really about balancing the volatility of NII against protecting the company from extreme scenarios on either side. And so right now, if we wanted to expand as a result of different factors, we certainly could. We have the capacity inside the portfolio. But, you know, for now, we're comfortable with where we are.
Jamie Dimon, CEO
And the one thing I can assure you is the forward curve will not be the same forward curve in six months.
Steven Chubak, Analyst
Well said. Well, thank you so much for taking my questions.
Jeremy Barnum, CFO
Thanks, Steve.
Operator, Operator
Thank you. Next, we will go to the line of Erika Najarian from UBS. You may proceed.
Erika Najarian, Analyst
My first question, and thank you very much for answering all the NII questions so far, Jeremy, is just I guess another follow-up. As you can imagine, once Daniel said what he said on stage in September, everyone's trying to figure out the over-under for net interest income next year? So maybe a two-part first question. The second being inspired by what Jamie just said number one, you know, NII is expected to be down 6% sequentially in fourth quarter. I think year-over-year in ‘25, consensus has it down 4% from your new level. So it sounds like consensus still has room to come down and based on the forward curve, Jeremy, it could be a little bit worse year-over-year than the fourth quarter sequential rate. But that being said, as Jamie noted, like we have no idea what the curve is going to look like, right? I mean, it's gyrated so much. And so, as we think about the curve, is it better for JPMorgan to have more cuts in the short end, but steepness or less cuts but a little bit of a flatter curve?
Jeremy Barnum, CFO
Right, okay. You threw a curveball at the end there, Erika. I wasn't expecting that to be the end of your question. But let me answer the beginning of your question and then I'll also answer the end of your question. So we see the current 2025 consensus for NII ex-markets to be currently at 87%, which is obviously lower than it was at the conference earlier in the quarter. So we're happy to see that move a little bit more in line to us. That still looks a little toppy, but it's definitely in the ballpark. Now, that consists of, I already mentioned previously, that we sort of expect the NII trough sometime in the middle of the year. So you can kind of assemble the parts. You've got a fourth quarter run rate. You've got some sequential declines. You've got a trough in the middle of the year, and you've got a rough ballpark for the full-year. So you can imagine that the trough probably is a little lower than those numbers and then to the extent that growth revolves, resumed in the back half of the year, both deposit balances and the ongoing tailwind of card revolve over that tailwind will be a little bit less than you might have otherwise thought I mean sorry a little bit less than it was this year, but still a tailwind. You know obviously the mix of those things will play out in different ways and as you point out who knows what the yield curve will wind up doing. But on our current assumptions, on the current yield curve, and remembering that we're in the third quarter now, so we're doing this kind of early, that's what we think. Now…
Jamie Dimon, CEO
Could I mention that next time, we should provide you with the number. I don't want to spend the entire call discussing guesses about what NII will be next year. Also, I want to highlight that NII is just one number, but circumstances are never the same. If we face a recession, the impact of the yield curve will differ significantly compared to a period of growth. We are continuously making decisions based on market conditions. I feel like we spend too much time discussing this aspect. You can get a figure for your model, and it is likely to be less than 87% next year, though the specifics are uncertain and depend on the environment.
Jeremy Barnum, CFO
Good. Okay. To address your question about the EAR, I would like to share a few points. As I mentioned earlier, when the data is released, it will reflect a figure of approximately $2.1 billion. It's essential to note that our empirical EAR tends to be significantly higher than our modeled EAR, which we previously disclosed. The primary reason for this difference is that retail deposit betas are, in reality, lower than the modeled deposit beta. Therefore, you'll need to adjust the EAR figure upwards for these and a few other reasons, including some complexities related to dollar and non-dollar sensitivity interactions. Regarding your inquiry about the front end versus the back end, we observe that the front end EAR has decreased, with most of the EAR now situated in the back end. Consequently, all else being equal, a steeper curve works in our favor. However, I would also like to point out that this discrepancy between empirical and theoretical adjustments is primarily observed in the front end. Thus, to answer your question, while we prefer a steeper curve, having the Fed implement cuts beyond what the yield curve currently indicates will pose some challenges for us in terms of next year's figures. We remain sensitive to Fed cuts.
Erika Najarian, Analyst
And if I can ask my second question, and Jamie, I completely understand your frustration. And to be fair, your long-term shareholders really don't care about whether it's 87% or 85%, right? They care about your return on equity. To that end, I mean, it's insane how much capital you generate each quarter, 72 basis points this quarter. And so beyond the standard boilerplate questions you're going to get on buyback and organic growth, yada, yada, dividend increases, how should we think about JPMorgan deploying this capital? I mean, the world is generally your oyster, right? You're dominant already and you could use this capital to further enhance your business. And again, beyond that boilerplate conversation that you always get every quarter, how should your shareholders think about how you're thinking about the opportunities to deploy this capital?
Jamie Dimon, CEO
First of all, I want to emphasize that using the term "dominant" requires caution. We face significant competition from various fintech companies, direct lenders, and other players around the globe. My main focus is always to serve our clients. When I mention expenses, I see them as a deployment of capital. Opening branches incurs initial expenses, but over time, we need capital to support deposits, as well as for the innovation economy and private banking. Currently, we have a minimum of $30 billion in excess capital. I don't feel pressured to rush its deployment; it's reasonable to wait if we can't properly utilize it at this moment. I believe the future could be quite unstable, and asset prices may be inflated. While I'm not certain whether they are significantly inflated or just somewhat, I prefer to hold off for now. Our shareholders will benefit from this patience. Although we could quickly increase our net income by purchasing $100 billion in 6% mortgages, we prioritize serving our clients, building technology, and similar initiatives. We are also still assessing what constitutes our true excess capital. Therefore, we will remain patient, and we are committed to this approach. If anything changes, we will communicate that. We frequently engage with our shareholders, and they recognize that buying back stock at more than twice its tangible book value might not be the best choice. We believe we will have better chances to redeploy that capital or buy back at lower prices in the future, as markets don't remain high indefinitely.
Erika Najarian, Analyst
Thank you.
Jamie Dimon, CEO
And one last thing. Cash is a very valuable asset sometimes in a turbulent world. And you see my friend Warren Buffett stockpiling cash right now. I mean, people should be a little more thoughtful about how we're trying to navigate in this world and grow for the long-term for our company.
Operator, Operator
Thank you. Our next question comes from Glenn Schorr from Evercore ISI. You may proceed.
Glenn Schorr, Analyst
Hi, thanks very much. So glad Jamie didn't say what he's about to say because that's the answer to this question. So we've seen a couple more banks entering partnerships with alternative managers. We've seen limited loan growth for a few years now, market-related also. Limited flows into fixed income funds, yet plenty of growth in private credit in general. And you're one of the best asset managers on the planet, but in my view, less dominant in all things private credit. So maybe you could talk about what things you're working on and why that's too narrow, the view of your ability to serve all parts of clients' lending needs, not just the public markets and public lending side. Thanks.
Jamie Dimon, CEO
Certainly. I want to take a moment to discuss this because it has become increasingly important. Conversations are centered around growth and partnerships. First and foremost, we aim to provide our clients with a broad perspective on the best products and services available to them. When a client approaches us, we will present options for both direct lending and syndicated lending or other specialized types of lending, each with their own advantages and disadvantages. Direct lending may be quicker and simpler in terms of covenants, but it can also come at a higher cost. We're committed to offering our clients what is truly in their best interest and explaining the various options available. Previously, we communicated our commitment of $10 billion in capital for direct loans, and we've already deployed a significant portion of that capital, with some loans already paid off. Our approach allows us to operate at this level without limitation. Today, we are extending our capabilities significantly; we are prepared to do $500 million, $1 billion, or even more, whether independently or in partnership. Importantly, we will not restrict ourselves to a single partner, which enhances our flexibility and capacity. We have announced several co-lending collaborations that will further support this strategy. We will maintain our independence and not slow down our process by seeking approvals from multiple partners. JPMorgan can take the lead on underwriting and owning loans similar to bridge loans, then syndicate them later. We will use our own risk assessment measures to ensure we serve our clients effectively. Our strategy involves diversifying our partnerships with capital providers to avoid limitations in what we can offer our clients, allowing us to be competitive on pricing and deliver tailored solutions. Despite current challenges like capital arbitrage, particularly the differences in requirements between banks and insurance companies, we remain dedicated to prioritizing the client's needs. Our business relationships extend beyond just loans, as we generate additional revenues from these connections. We are confident in our ability to compete effectively and have recently expanded our lending platforms and capacities. I hope the press has taken note of these developments.
Glenn Schorr, Analyst
All right, thanks for all that.
Operator, Operator
Thank you. Our next question comes from the line of Gerard Cassidy from RBC Capital Markets. Your line is open.
Gerard Cassidy, Analyst
Good morning, Jeremy, and good morning, Jamie. Jeremy when you guys look at your current capital ratios, they're obviously very healthy. Can you guys give us some color on the new Basel III? We don't know what the specifics are, but as Vice Chair Barr touched on some of the specifics, it looks like capital requirements for yourself and your peers will come down a fair amount from the original proposal. How are you guys thinking about that? Do you have any insights on how much it may fall from the original proposal to where you are today?
Jamie Dimon, CEO
Yes. When I said we're at $30 billion excess, that is assuming Barr speech that the $20 billion goes $12 billion wherever it is more. But it will be more than that because there are other factors involved. Now I would just give you the minimum excess capital. In my view, it would be more, but it is what it is, and we'll wait to see the final numbers.
Jeremy Barnum, CFO
But Gerard, maybe to give you a bit of color. So yes, obviously, everyone paid a lot of attention to that speech. It was an important speech. But in the end, we actually just really need to see the proposal, because the details matter a lot for this stuff. And so our focus is on hoping to see the proposal, so that we can process the detail and continue advocating as appropriate. I note that you talk about requirements coming down relative to what was originally proposed, which is obviously true, part of the speech. But I do think we need to be a little bit careful not to fall into the trap of saying that, that's like progress just because the original proposal was so dramatically higher than what anyone thought was reasonable. And I would remind you, what you obviously know that before this proposal came out, it was our position strongly felt that our then prevailing capital requirements were, if anything, already more than we needed. So we've got a long way to go here. And I think our position, which Jamie has been articulating very consistently, is that they need to get it right, the right amount of work and importantly, do it holistically. So it's not just RWA, it's RWA, it's G-SIB, it's SCB, it's CCAR. So that's really what we feel strong.
Jamie Dimon, CEO
We just want the numbers to be done right and justified. If they had to go up, we'll be fine with that, too. I just think they should be done with real diligence and real thought and a little bit of thought about cost benefit, what it does to the economy, where it pushes lending and things like that. So we're anxiously waiting to see the actual detail because that's what's going to make all the difference.
Gerard Cassidy, Analyst
Very good. As a follow-up to your comments about direct lending and the excess capital, your current cash and marketable securities amount to $1.5 trillion on a risk-weighted asset basis, while the average loan stands at $1.3 trillion. Once everything is settled, you will know your capital requirements. Can you provide us with some clarity on whether leveraging the excess capital through additional loans might be an option over the next two or three years, considering your current mix? I understand you plan to grow your loans, but I'm focusing on the mix.
Jamie Dimon, CEO
Absolutely positively not. Loans are an outcome of doing good business. We want to do good business. If it grows our balance sheet, we're fine.
Jeremy Barnum, CFO
And I do think, Gerard, it depends a lot on what type of loans you're talking about, right? So I think in the end, as Jamie says, like it's capital, we're going to deploy it ideally to grow the franchise organically. And that could include loans that are almost good loans on a standalone basis, as well as loans that are part of an overall relationship where we're getting other revenue as part of that. So it's the same strategy that we've always had. But I wouldn't think of it as like excess capital to be deployed against a particular product. I would think of it as it's there for a rainy day. Let's hope the environment doesn't deteriorate a lot. But if it does, we'll be ready. And there'll be opportunities hopefully to deploy it against the client franchise or against the stock and if not, we'll return it.
Gerard Cassidy, Analyst
Very good. Appreciate the color and candor as always. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Matt O'Connor with Deutsche Bank. You may proceed.
Matt O'Connor, Analyst
Good morning. So lower rates was supposed to drive a pickup in loan growth and conversion of some of these investment banking pipelines. I mean, obviously, we just had one cut and it's early, but any beginning signs of this in terms of the interest in borrowing more and again, conversion of the banking pipelines?
Jeremy Barnum, CFO
I would say, Matt, generally no, frankly, with a couple of minor exceptions. It's probably fair to say that the outperformance late in the quarter in Investment Banking fees was significantly driven by DCM, as well as the acceleration in closing some M&A transactions. Some of that DCM outperformance is from opportunistic deals that aren't in our pipeline, often prompted by treasurers and CFOs noticing improvements in market levels and taking action. So it's possible that these cuts have had some impact. However, I noted that we did see a slight increase in mortgage applications, a little pickup in refinancing, and some signs of more activity in our multi-family lending business. But these cuts were heavily priced in already, given the curve has been inverted for quite some time. Thus, it's not obvious that you should expect immediate dramatic reactions, and that's not what we're observing.
Jamie Dimon, CEO
I noticed in the debt markets, rates came down, spreads are quite low and markets are wide open. So it kind of makes sense to people taking advantage of that today. Those conditions may not prevail, ongoing conditions late next year.
Matt O'Connor, Analyst
And then specifically in the debit and credit card spend that you guys break out, you had nice growth year-over-year, up 6%, flat Q-Q. I know there's a lot of seasonality 2Q to 3Q. I think last year, it was up about 1%. But are you seeing any kind of changes in the consumer spend, either the mix or some signs of a slowdown later in the quarter? Thank you.
Jeremy Barnum, CFO
I think what we can say about consumer spending is somewhat unexciting because it has become the norm. In other words, we are reaching a stage where discussing the pandemic feels unnecessary, but perhaps it’s worth mentioning one last time. There was a significant shift towards travel and entertainment as people traveled more, booked cruises for the first time, and dined out frequently. This led to a notable increase in travel and entertainment spending and a transition towards discretionary spending, which has now stabilized. Usually, a shift from discretionary to non-discretionary spending would indicate that consumers are preparing for tougher times ahead. However, given the initial spending levels, we interpret this as a normalization. Additionally, our data does not show any decline in retail spending. Overall, we view these spending trends as solid and aligned with the idea that consumers are financially stable, supported by a strong labor market and our general outlook of a gradual economic adjustment. However, we acknowledge that this is just one possible scenario among many.
Matt O'Connor, Analyst
Got it. Thank you.
Operator, Operator
Our next question comes from the line of Mike Mayo from Wells Fargo Securities. You may proceed.
Mike Mayo, Analyst
Hey. Jamie, I think I've seen you comment on government this year more than any other time in your career. And August 2, op-ed, Washington Post, Davos, you're talking about government. I think it was this week or last week on Bloomberg, you're saying bank mergers should be allowed. Your bus tour in August, you were asked, which is my question now, under what circumstances would you leave for government service? And your answer then was, I love what I do. We get it. You love what you do, but on what circumstances would you consider government service? It seems like you'd be more likely to go now than in the past just based on the numerous comments that you've made. Is that right, wrong? What's your thinking?
Jamie Dimon, CEO
I believe that prioritizing my country over my company is essential. The government's role is crucial, especially considering the current global landscape. It's vital that we get things right not just for the American economy but for the entire geopolitical scenario. We actively engage in policy-making at various levels—local, state, federal, and international—to support economic growth. My perspective and commitment remain unchanged; I feel it's critical to assist the government in performing effectively.
Mike Mayo, Analyst
So if you were asked by the next administration to serve the country, would you be open to considering it?
Jamie Dimon, CEO
I think the chance of that is almost nil, and I probably I’m not going to do it. But I've always reserved the right, I don't make promises to people. We don't have to. But now, I mean, I love what I do. I intend to be doing what we're doing. I almost guarantee I'll be doing this for a long period of time or at least until the Board kicks me out.
Mike Mayo, Analyst
Let me address the other side of the question for those concerned about your departure. In previous calls, you've mentioned that the stock is overvalued, which seems to suggest that the stock market as a whole is overvalued. You pointed out on this call the strengths in AI, technology, market share gains, and high returns. Do you think, in assessing the value, your pricing, and your capacity for buybacks, you're relying more on traditional models for evaluating your stock rather than adopting a more modern approach that aligns with tech-oriented companies, especially considering your advancements in AI?
Jamie Dimon, CEO
You raise a very valid point. We have an outstanding company and strong franchises, and the timing of buying the stock is important. However, I am not overly optimistic that tech valuations or any valuations will remain at these extremely high levels. We are taking a patient approach. Ultimately, you will need to evaluate our actions over time to see if we have made the right decisions. It's important to remember that we haven't lost any money; it's still there, waiting. The only situation where we might be at a disadvantage is if the stock rises significantly, forcing purchases at much higher prices. I remain cautious about that happening.
Operator, Operator
Thank you. Our next question comes from Ebrahim Poonawala from Bank of America. Your line is open.
Ebrahim Poonawala, Analyst
Hey, good morning. I guess I just wanted to follow-up. You talked about private credit and the disruption to bank lending. Another area I would appreciate if you can address is we've been hearing a lot about the likes of Jane Street and other market makers potentially disrupting fixed income trading? Is that a real risk? And is there an opportunity for a firm like JPMorgan to actually compete on the private venue side on market making beyond traditional sort of FIC activity?
Jeremy Barnum, CFO
Yes, Ebrahim, I would describe that not as a risk, but as a reality. We have consistently highlighted that we operate in a highly competitive environment, which is not only about competing against banks or traditional financial institutions but also includes fintech companies in the consumer space. In the market-making arena, we're seeing competition from the types of firms you mentioned. Many of these firms are also our clients, reflecting a dynamic similar to what we've seen in the private credit space we've discussed previously. Clearly, the ecosystem is evolving with new competitors, changes in market structure, and new dynamics. Like any business, we're innovating and adapting to ensure we can compete in both traditional and new ways. However, being a bank does present some challenges for us. One of the points we've raised regarding capital liquidity regulations is their impact on the U.S. capital markets ecosystem. This ecosystem has functioned effectively for a long time, combining activities within a regulatory framework alongside significant participation from unregulated capital sources. A shift that pushes more of these activities outside of bank market makers represents a significant and untested change to that structure, which we believe should be approached carefully. We have warned that if the aim of the regulations is to drive this change, it must be intentional and thoroughly researched. In the meantime, we will continue to adapt and compete as best as we can within the current regulatory framework.
Jamie Dimon, CEO
In the private markets, it's still uncertain how things will unfold. There's some activity, and discussions are ongoing about becoming more engaged in private markets. We are in a strong position to take advantage of this because it requires liquidity, market making, and both buyers and sellers to facilitate transactions. This aspect hasn't fully materialized yet. We may face competition, but we will be ready when the moment arrives. Regarding the public markets, you've noticed discussions about dealer inventories in both corporate and treasury sectors, which I believe have held us back somewhat. However, we focus on serving our clients, functioning as a significant market maker on both sides for credit and treasuries, unlike others who might trade solely for their own interests. While we acknowledge the competition, we are committed to our strategy and willing to invest more capital, even at lower returns, if necessary to meet client needs. We are acutely aware of the competition affecting both areas. As Jeremy pointed out, we discussed the digital transformation of our business ten years ago and have successfully adapted to that evolution.
Ebrahim Poonawala, Analyst
Got it. I have a quick question. Jeremy, you mentioned that quantitative tightening will stop at some point. We noticed a spike in the repo market at the end of September. What is your perspective on the risk of a market liquidity shock as we approach year-end? Do you think the Fed should recalibrate or stop quantitative tightening quickly to prevent any issues? Thanks.
Jeremy Barnum, CFO
Yes, it's a good question, Ebrahim. But I think you've kind of answered your own question in other words, like the argument out there is that the repo spike that we saw at the end of this quarter was an indication that maybe the market is approaching that lowest comfortable level of reserves that's been heavily speculated about and recognizing that, that number is probably higher and driven by the evolution of firms' liquidity requirements as opposed to some of the more traditional measures. And side point is just another reason why it's important to look at the whole frame more holistically when we think about the regulatory response in the events of two springs ago. You don't want those types of hikes, and it raises some questions about why there isn't more readiness to deploy into those types of disruptions, albeit this one was relatively minor. But in any case, when you put all that together, it would seem to add some weight to the notion that maybe QT should be wound down. And that seems to be increasingly the consensus that, that's going to get announced at some point in the fourth quarter. So final point was if you play that view through, it's a residual headwind for a system-wide deposit growth, which gets removed. And that's one of the reasons that we feel that we're probably in the trough of our deposit balances at the level.
Jamie Dimon, CEO
I want to mention a couple of policy points. I'm uncertain if they can actually implement these changes due to inflationary factors, partly caused by quantitative easing. Additionally, the market volatility poses a risk to the overall system rather than just JPMorgan. I've previously noted that banks face constrained balance sheets, which means they will have trillions of dollars in cash that they cannot utilize in the repo markets. Is it wise to assume that every time this occurs, the Fed will step in to provide flexible financing, since these interventions are completed safely and fully collateralized? This raises a policy concern: each time there's market fluctuation, people panic, prompting the Fed to respond. The question is whether they can consistently do this in a potentially inflationary environment. I believe we need to approach this thoughtfully, which is why we think adjustments to SLR, ECLR, and CET1 guidelines are necessary. I anticipate that this will occur again, though I can't predict when. However, I would be surprised if it doesn't happen again.
Ebrahim Poonawala, Analyst
Got it. Thank you, both.
Operator, Operator
Thank you. Our next question comes from the line of Betsy Graseck from Morgan Stanley. Your line is open.
Betsy Graseck, Analyst
Hello, hi, good morning.
Jeremy Barnum, CFO
Hey, Betsy.
Betsy Graseck, Analyst
Can you hear me? Hello?
Jamie Dimon, CEO
Yes, we can hear you. Yes.
Betsy Graseck, Analyst
Can you hear me okay?
Jeremy Barnum, CFO
Yes, we can hear you. Can you hear us?
Betsy Graseck, Analyst
Oh, yes. Thank you. So, one for Jeremy, one for Jamie. Jeremy and Jamie, sorry about the NII question I'm going to have, but it is more than half your revenue, so I kind of care about it. But when I'm thinking about the trough and then the buildup, QT ending deposit growth, I mean that's part of the calculation for improvement as we go into 2025, right? I should embed that outlook. Is that right? And that's embedded in how you're thinking about it. I know we don't have a number from you for NII for 2025, but it is in there, right?
Jeremy Barnum, CFO
Yes. To clarify, this relates back to my earlier point regarding consumer deposit balances. There are several offsetting factors at play. You've got the yield curve, card revolving balances, and overall balances, which have been a challenge but are now viewed as neutral and could possibly turn into a positive factor later this year. One reason for this potential shift could be the possible end of quantitative tightening, but I want to stress that it's still a possibility. Additionally, we are beginning to see some effects from fixed-rate asset repricing. While discussing net interest income, I want to highlight something that I didn't mention earlier, which is the implied fourth quarter run rate for Markets net interest income presented. If you annualize that, it shows a starting point that is significantly above current consensus and what we’ve experienced this year. In short, changes in Markets net interest income usually do not impact the bottom line and are balanced out in net interest revenue. I'm trying to assist you in refining your models, so it's important to consider that starting point, the number of cuts in the curve, and the sensitivity of that figure to liabilities historically. Feel free to draw your own insights about what that might imply. Ultimately, this shouldn’t alter your overall revenue expectations; it's more about categorizing it on the balance sheet and income statement. However, I wanted to make this point to help you clean up your models.
Betsy Graseck, Analyst
And so Daniel's comments in September were on NII in total or NII ex-Markets, could you...
Jeremy Barnum, CFO
Those were core NII or NII ex. So again, reiterating at the time, the '24 consensus was $91.5 billion, the '25 consensus was $90 billion on NII ex. And our point was that, that number, which remains an asset-sensitive number, indicated an insufficient amount of sequential decline year-on-year. The current consensus as we see it for NII ex-Markets is $87 billion. And as we've noted, that's closer, albeit maybe still a little bit toppy.
Betsy Graseck, Analyst
Okay. And then one for Jamie. Jamie, we did talk already quite a bit about the capital that you have, capital in store. Just wanted to understand how you're thinking about that opportunity set that's in front of you with regard to using it for potentially portfolio acquisitions. I realize that depositories are not on the docket, but we all know there's portfolios out there that might be looking for a home. And could you give us a sense as to how interested you might be in acquiring assets at this stage?
Jamie Dimon, CEO
Yes. I always emphasize the importance of considering asset acquisitions, and I want our team to keep those options in mind. However, based on what I've mentioned regarding my views on the current market, it's difficult for me to state that we will actively pursue buying credit assets.
Betsy Graseck, Analyst
What about...
Jamie Dimon, CEO
Creating credit assets to assist clients is a different discussion because we earn credit asset spread from our clients and typically have other factors to consider. If our bankers can allocate capital in that manner, we certainly want to pursue more opportunities. Our Chief Investment Officer has various ways to deploy capital, and we are likely to explore additional avenues. We frequently inquire about increasing our involvement in affordable housing and other familiar areas. If we can discover methods to allocate capital effectively, we would welcome the chance to do so. However, we are aware of the challenges in achieving that.
Betsy Graseck, Analyst
I'm just wondering about the private label credit card, for example. Is that something that would help clients?
Jamie Dimon, CEO
Almost no chance. However, it's very important to consider. I always encourage the management team to challenge my thinking. We've had experience with private label, and I have significant concerns about it. But it's possible for circumstances to change. Therefore, I don’t want to dismiss it entirely. If Marianne Lake were to tell me that I'm not seeing things clearly and that the situation has shifted, we would adapt. But for now, I would say there is no chance.
Betsy Graseck, Analyst
Thank you so much.
Operator, Operator
Thank you. Our final question will come from Saul Martinez with HSBC. Your line is open.
Saul Martinez, Analyst
Good morning. I’m not going to inquire about a specific NII in '25, but I wanted to discuss how to consider your deposit margin and volume dynamics in the CCB over the next few years. There has been noticeable pressure on the deposit margin, currently at 2.6%, a decrease of about 30 basis points due to declining deposit balances, impacting deposit NII. However, deposit margins remain significantly above where they were when rates matched the current forward curve. So, how do we assess both volume and margin dynamics if rates decline to align with the forward curve? I understand the forward curve may not be accurate, but it serves as our reference. Additionally, regarding volume offsets, you mentioned retail deposits could serve as a tailwind. How much of a tailwind could they actually be, especially as you anticipate gaining substantial market share in retail deposits? Please provide some insights on the factors influencing these dynamics that drive the value of the deposit franchise.
Jeremy Barnum, CFO
Sure. Thanks for the question, Saul. You've already outlined the key points. For simplicity, I'll address your question without mentioning the disclosed deposit margin number, as it reflects the rate paid on deposits and internal factors in a complex way. It's more beneficial to view this from a firm-wide perspective, focusing on the rate evolution in the context of policy rates, while setting aside duration management and similar factors. We've indicated that the deposit margin, for our purposes, is the difference between the policy rate and the average rate on consumer deposits, which has been unsustainably high and needed adjustment. This adjustment could occur through changes in product-level pricing for checking and savings, an increase in our CD mix, or a reduction in the policy rate. Currently, we make pricing decisions based on market competition and the deposit environment. We haven't needed to adjust pricing to maintain bank relationships, which has been our strategy. We haven't pursued unstable funding sources. We've concentrated on CDs, achieving a favorable mix which has been effective. With the policy rate declining, our margin is also decreasing, placing us in a strong position regarding pricing. We believe the CD mix has likely peaked; however, it won't return to the dismal levels seen at the start of this cycle. This change is important to note. All else being equal, it may lead to some margin compression. In a lower yield environment, we expect less outflow from consumer deposits, as we've noticed reduced yield-seeking behavior. Additionally, with our long-term growth strategy for consumer and commercial banking deposits, largely due to our branding efforts and the fact that only a quarter of our top 125 markets have reached that 15% market share, we see significant room for growth. We anticipate maintaining an average annual growth rate in share of about 30 to 40 basis points, similar to our historical performance. This combination should provide a favorable environment for normalized deposit margin and growth in consumer balances.
Jamie Dimon, CEO
Jeremy, please correct me if I'm mistaken. The unusual timeframe we experienced had rates between 0% and 1% or 2%. Aside from that, if you consider what typical deposit margins look like in standard banking operations, setting aside the pursuit of very attractive deposits, it's generally between 2% and 2.5%.
Saul Martinez, Analyst
Okay. That's helpful. So it sounds like you're a little bit above that, but there's still some pressure, but you're not dramatically above those levels.
Jamie Dimon, CEO
Very good returns in business in Banking & Wealth Management. We're growing market share. And when we build branches and stuff like that, we don't necessarily assume current margins. We look at what could be normal margins over time. We're very comfortable, very nice business for you all.
Jeremy Barnum, CFO
Got it. Okay, that's helpful. Thanks a lot. That's all I got.
Jamie Dimon, CEO
Thanks, Saul.
Jeremy Barnum, CFO
Thanks, everyone. Thank you.
Operator, Operator
Thank you all for participating in today's conference. You may disconnect at this time, and have a great rest of your day.