JPMorgan Chase & Co. (NYSE:JPM) Barclays 21st Annual Global Financial Services Conference September 11, 2023 1:00 PM ET

Company Participants

Jamie Dimon - Chairman and CEO

Conference Call Participants

Jason Goldberg - Barclays

Jason Goldberg

Thank you, everybody. It's a very, very distinct pleasure of mine to introduce the preeminent leader of our industry, a person who's been the preeminent leader of our industry for many decades, Jamie Dimon. It's an even greater pleasure when he was your former boss. So Jamie, thank you. Thanks for coming.

When I say Jamie has been a leader of this industry, it's not just that he has run the largest bank in the world, the most excellently run it, shown us how to do it. But it's also he's been a leader for the way the industry should think about the business and the business of banking through the financial crisis, through the European crisis and this year, through what happened with the regional banks. And that's very important for us to keep in mind. And it's also the basics of what good banking is about, disciplined growth, good risk management, the importance of technology and systems. He was talking about it a lot before many people did.

I know you all want to hear from him. I'll just say one more thing, which is that when I used to work at JPMorgan, often we'd ask ourselves the story whether we were going to take something to him or not, face a problem, but what would Jamie think, what would he do?

To my surprise, and it should not have been my surprise, I found that I continued to do it afterwards. And I'm not the only bank CEO who does it. And there can be no greater tribute to a person than to say that you've taught us. So Jamie, thank you for coming.

Jamie Dimon

Thanks, Jas. Thank you very much for the kind words. Thank you.

Question-and-Answer Session

Q - Jason Goldberg

If we could just put up the first ARS question as we get going. But Jamie, thank you for taking the time. I appreciate you being here. I really wanted to focus on JPMorgan this afternoon, but I'd remiss if I didn't ask you about your macro view of the world, perhaps on the consumer side, 80 million consumer customers, 12% deposit market share, over 20% card share. You must have a well-informed real-time view of the health of the consumer. Love to hear about it.

Jamie Dimon

Sure. Well, I’m thrilled to be here. Jason, one of the great analysts in banking, I read all your stuff, as you know. And Venkat, thank you for those kind words. I'll tell you by the consumer, but there's a big but. So I want to be -- it's pretty good. They have more money than they've had, home price has gone up for the last 15 years. Asset prices have gone up. Their balance sheet is in great shape. Their incomes have gone up. They've got more cash in their checking accounts than pre-COVID. It was a lot more, and it's been coming down. So that excess -- we call it excess savings seems to be normalizing. Wages are going up, particularly at the low end. It's pretty good, which is why you have a pretty good economy.

And there are huge buts here. And I just think people make a mistake to look at real-time numbers and not look at the future. And the future has quantitative tightening. We've been spending money like drunken sailors around the world, this war in Ukraine is still going on. Those are really big buts. To say the consumer is strong today, meaning you got to have a booming environment for years is a huge mistake.

Jason Goldberg

And then maybe shift gears, leading positions on the wholesale front. I was hoping you could your thoughts there as well.

Jamie Dimon

Well, same thing. If you look at wholesale, and we were quite honest about it, we've been over-earning on credit. We're over earning on credit. You see it in credit card, where we all would probably say the lowest credit card loss will ever go, and norm is 3.5. The lowest I would go is like 275. They hit 150. Now they're going back to the 250, 300, just the normalization.

Wholesale had the same thing. We had the lowest wholesale credit losses we've ever seen. Literally, probably in the history of banking, we had middle market losses zero for the better part of five or six years, and it's still good, it's normalizing. Downgrades are being upgrades. There's a little more stress and strain, particularly in certain sectors like real estate, you're getting a little more stress and strain in subprime auto and stuff like that. But it's -- I call it more of a normalizing process.

If and when you have a recession, which I bet you're going to have, you'll have a real -- a normal credit cycle, which I think is quite predictable. In a normal credit cycle, something always does worse than normal. So this one, the obvious one is office real estate, but there'll be a couple of other industries that probably do worse than normal this time around, too.

Jason Goldberg

And maybe just offer your high-level perspective.

Jamie Dimon

Again, think of it, it's the same thing. I really -- the fiscal spending, deficit spending is higher than it's ever been as a percent of GDP at any other [ph] time. People -- and that's before all the additional comments to the green economy, the remilitarization of the world, the IRA Act, the Chips Act, Europe financing the energy crisis, which they did last winter, God knows what it's going to cost them this winter. There's a lot of fiscal stimulus taking place out there. And the largesse from COVID is still running through, the largesse of QE is still running through. So we're still living on that, and that's really strong. And of course, that drives everything, including business results.

So businesses feel pretty good because they look at their current results, they're not so bad. But those things change. And we don't know what the full effect of all these things are going to be 12 or 18 months from now.

Jason Goldberg

I guess maybe talk at a high level how you think the banking industry performed against that backdrop? Obviously, March was this many crises you dealt with. We have this potential for high interest rate environment to stick with us for a bit. You talked about potential CRE losses, which I know isn't a major concern for JPMorgan, but could obviously weigh on others.

Jamie Dimon

The banking industry is quite strong, and we call it mini crisis because only so many banks were outside [ph] of interest rate exposure and which everyone knew, by the way, is in plain sight, HTM and incented by regulations to put your money in HTM, less capital requirement, didn't have the market-to-market.

Of course, accounting is not the marketplace. The market makes its own decisions about what they really think about accounting. And as you know accounting, it could be a fiction like with the fiction between HTM and AFS and all that. I never particularly liked HTM. Why would you be better off tying your own hands on what you can do with securities? I just never quite understood that concept.

But that crisis -- what we didn't know was the runnable deposits. Runnable deposits it's not the same thing as uninsured. There are a lot of banks that uninsured deposits are quite sticky and so you got to be -- we got to be a little more analytical about that and hope we don't overdo things and regulations around that too.

But the thing about the banking crisis, and I would tell us about the economy in general is if rates go up and I give that higher odds than other people. I think that the fiscal stimulus, QT, the change of flows around the world, there’s chance that rates go up. But if rates go up more than 50 basis points that will cause more issues with banks, more issues with real estate. And if you have that with the recession, yes, you're going to see a little bit more stress and strain in the system.

And then the banking system, which I think is rather sound, a lot of these banks that you see are straining themselves today by buying back less stock, beefing up capital, reducing the duration on their AFS portfolios. But you will see that stress and strain elsewhere, too. That will be Warren Buffett's famous tide going out. There's going to be a lot of people swimming naked.

And so I, again, as a risk manager, I look at that, and you should be prepared for it. Every bank should be prepared for it. Some won't be, but -- and so should other companies. There'll be leveraged companies, possibly private credit, if that happens. And I'm not saying it's going to happen. We don't know. I don't spend a lot of time guessing about outcomes of soft landing, medium recession, hard recession, because nobody knows. I do think we should be prepared for the tails. And such -- those are the tails we're kind of prepared for and I think other people should be too.

Jason Goldberg

I usually don't start with capital, but given the Basel III endgame proposal came out late July, I'm sure you spent all summer

Jamie Dimon

It did. What did it say?*

Jason Goldberg

1,100 pages worth.

Jamie Dimon

1,100 pages after 10 years. I mean, honestly, like this has been a lot for too long, but…

Jason Goldberg

Maybe at a high level, what were your main takeaways?

Jamie Dimon

Let me count the ways. Hugely disappointing for the following reasons. So think of strategically, what I would love to know what they really want to accomplish. If they want the mortgage business outside of banking, they should say it, raise the capital, put operational risk against it and push it out. I think in order to do that, just tell us not do any mortgage anymore. If they want private credit, leverage lending out of the system, that's fine. But I think what is it they actually want? Do they want banks never to fail? I never thought that was the goal. But if they want things never to fail, this isn’t going to do it. We should do something else. Did they look at other alternatives?

Did they actually learn the right lessons from Silicon Valley Bank and First Republic? Like I think they have enough authority to tell banks, you could take this much interest rate exposure and not that and that would have solved some of these problems right there. So it was never a capital problem. And so I’m like what do they want?

They look at comprehensively. I would love to know the cost benefits to society of pushing some of these things out. I look at this major issue about, we've gone from an American 1996, 7,300 public companies to something like 4,500 today. So it shouldn’t have gone from 7,300 to 14,000. But to grow the economy of growth, private equity has gone from 1,000 to 10,000. Why is that?

Are we better off by having less transparent private markets than public markets. So I think there's a whole bunch of strategic issues they should have asked, thought, analyzed, shared some of the cost benefits, shared some of their thinking about all that kind of stuff.

Then there's what I consider more tactical? Like I've always thought G-SIFI is an asinine calculation. Operational risk is even more asinine. Do you like diversification? I think diversification is a wonderful thing. But G-SIFI, some CCAR, some stress -- not the stress testing. That actually incorporates and operational risk is anti-diversification. In operational risk, are all revenues equally bad? Really? Like, honestly, I look at that, I think, who did that? What person and what Ivory Tower thinks that, that is a rational thing to do.

And then I would prefer more transparency, not like on the miles. I mean, I don’t -- no one is going to try to game it, but a little more transparent with the process they went through. Did all the governors have a point of view? I'd like to know what the other governors think. I want to know and go back to strategic. I'd like to know why on the international side, if you look at the numbers, so take Barclays and us, you may not know this yet. But -- no, but we would have to hold 30% more capital than the European bank. Is that what they wanted? Is that good long-term? Why? Didn't we say we have international? Just what was the goddamn point of Basel in the first place?

And I look at all that, it’s like, what is it -- they’re actually trying to do. And so it’s by the way 25, we think, like you said the 1,000 pages, and we haven't been through the detail, but we take it the way it is, basically what we think today is 30% more RWA. I don't know where they came with their '19. I just -- I'm missing that, and it's 25% more capital.

And the other -- so we will be forced to optimize in a million different ways. And the MPR probably won't be all the way there. But every single thing was put in the outlier. Like G-SIFI was supposed to be adjusted by their own rules for the size of the global economy. It wasn't. It would be half what it is if they did that.

And so I don't mind the changes they did make, which actually going to add a little bit of capital for us. I'd like to know why they didn't make the other adjustment. If that's the adjustment they should make, they should simply make it, FSRT [ph]. So capital -- the FSRT, I’m not against proper capital, but doesn't CCAR, G-SIFI, operational capital, FSRT all double account the global market shock that’s in CCAR?

What are they trying to do? I just -- all I want is fairness, transparency, openness and they should do what’s right for the United States of America. I'm not sure they did most of what I just said.

Jason Goldberg

Lot of follow-up.

Jamie Dimon

You can quote all that too, by the way. And the banks are quite upset, and that's also the other thing. I'm not sure it's a great thing that we have this constant battles with regulators and as opposed to open thoughtful things. We used to have real conversation with regulators, there is none anymore in the United States, like virtually none. This stuff is just all from up top, imposed down below. And then you got, of course we simply have to take it there, judge, jury and hangman and that is what it is. JPMorgan will just -- will survive, will do fine. It will have unintended consequences that they may not like. Including one day, I think you're going to see much more volatile in the market, like you saw in COVID in February 2019. And they won't realize that they actually caused that.

Jason Goldberg

I guess, are there any lines of business you feel need to cut back on or get out completely, right about that?

Jamie Dimon

I'm not going to sit here and tell you where I’m going to cut back lines of business. But yes, we might. You have -- every one of us will have to optimize different products, services, clients, locations, but I mean, give us time. We got to go through all the rules in detail. They're probably going to clarify with some marks, some are not completely clear yet and then we'll figure it out. Look all these banks are smart people.

And it also, in my view, causes a little bit of this herd thing where the Federal Reserves have a little humility. They're the ones who told the world rates aren't going up. And it wasn't the Federal Reserve in general, it’s each one of them independently. In fact, it was each central bank. So if I were them, I’d have a little more humility over stuff like this.

Jason Goldberg

So you've been pretty open with your views with us today. I suspect for the last month or so, you've expressed these views with other regulators.

Jamie Dimon

I was on vacation.

Jason Goldberg

So you haven't done that?

Jamie Dimon

Like trying to de-aggravate myself from this kind of thing like. But I want them to do the right thing. It's just clear to me that they didn't. And now we have to go through all this rigmarole and NPRs. Do you think the NPRs going to make a shit of difference? It's my academics argue with your academic and they could do what they want anyway. That's all that's going to happen. Unless some other Fed governors or other people decide to get deeply involved and try to do what's right and fair and they think about what's good for the country, not just, can they stop themselves ever from being blamed for a bank failure.

Jason Goldberg

All right. So I guess I won't ask the question, where do you think you have the greatest chance to make progress?

Jamie Dimon

I expect no real progress.

Jason Goldberg

I guess, in that backdrop...

Jamie Dimon

Unless some of these other regulators get tougher and decide they should be pushed around by one or two people in the Federal Reserve.

Jason Goldberg

So I guess if we take what you said, RWA is up 30%. Now was that for JPMorgan? You were talking about…

Jamie Dimon

That’s JPMorgan.

Jason Goldberg

So RWA is up 30%...

Jamie Dimon

But I don't know -- and my reference is roughly the same. RWA and CET1 have done slightly differently in this thing because CCAR is the absolute dollars. And so it's slightly different. That's why one is 30%, one is 25%.

Jason Goldberg

So I guess you've talked about this 13.5%?

Jamie Dimon

But all of this, honestly, like, say do they want banks ever be investable again? If I look at my money, of course, I'm not going to sell my stock and stuff like that. I think we’d navigate it. I wouldn't be a big buyer of banks.

Jason Goldberg

All right. So let's unpack that. So RWA is up 30%.

Jamie Dimon

Look, I'd be no better than equal way [ph], whatever you call it.

Jason Goldberg

So RWA is up 30%. I assume you keep a 13.5% CET1 ratio, your 17% ROE target goes -- RTC target goes to 14%. So…

Jamie Dimon

Quick, I noticed.

Jason Goldberg

So I guess there’s couple of things. So is 13.5% the right number? Or could that come down? Or what could you do to kind of work around that?

Jamie Dimon

Well, I first say is that we're retaining more capital because we don't wait the end of this thing to phased all in. We still buy back some stock, approximately the rate we're doing it today and get there by the end of 2024, the new rules. Obviously, you just did a calculation, the MPR may change a little bit. But I agree that's the right place to start. And then we will optimize differently. So we will get back some of that, maybe not all of that.

I also think that the short run, like the next couple of years is very different than you look at the long run. I think if American banks have to hold 30% more than competitors around the world. That is a huge negative over a long period of time. It may not be a negative over a short period of time because of the position we all built up. But basically, it means -- what it should mean is I'm going to have -- certain things should not be held in the banking system. That's what it means. Almost all loans are bad. Just let’s face it, almost all loans are bad.

And the other thing you have to look at is what does it mean for the consumer, like small businesses, mortgages, middle market loans, and it will cost more in credit. And I haven't done the economic analysis about what that cost is growth for America and stuff like that. So -- but we'll optimize. We'll get back some of that. Some of it, like I said, will have unintended consequences. It may cause more concentration in banking by client.

So I can envision a bunch of things where it's going to happen is that the big guys will get more of it for a whole bunch of different reasons, not less of it, even though I just said loans could be bad because you've got to earn it back elsewhere. So most people wouldn’t make loans to be in the loan business anymore.

Jason Goldberg

Why don't we put up the next ARS question? So I'm not going to let you get off the hook that easily, Jamie. But so 17% goes to 14%, then there's minification, optimization, change in business practice, potential market share gains, reprice. What do you think that 17% number is?

Jamie Dimon

I really don't know. 17% is pretty good. So I'm not -- like my own people, they say, “Oh, 17%, we've done it a couple of years. I did these numbers myself because people question these things. We used, I think, in our proxy 12 peers. And how many years over the last 10 years did a company earn over 18% even once, those 120 years. If I remember correctly, it was five or six, and we were half of that or something. And how many earned below 6% in those years? It was 30 or 40 times. And so if you can -- if we could earn 17% for the rest of my life, I would take that in a second. I'd push that button right now on the tire. I mean -- and that 17% would probably be 50 years someone here can do the numbers, would probably be half of the global GDP.

So then -- that’s a good number and if it’s a little bit less, we can deal with that. Jeremy, when we -- obviously, we're doing a lot of work now and we do our quarter we'll probably give a little bit of update what we think about it. But it's not over yet. The NPR tends to change. I don't think it's going to change a lot, but it will tend to change a little bit.

Jason Goldberg

I guess on the screen now, but the audience was roughly 50% -- 15% and then 25%, each 14% and 16% [ph].

Jamie Dimon

I'm not going to target 14%. You can take that off the table, okay?

Jason Goldberg

Okay. We'll take mid-teens plus. I guess also, we didn't talk about the new G-SIB rules. But with the proposed changes it seems the practice of [ph] G-SIB Management will be harder to achieve and seems like you've kind of had this upper trajectory there? Any kind of increased ability to manage that more effectively.

Jamie Dimon

No, the same thing. We take every one of these things, are going to manage it down to the product level, the regional level and the client level. So we're going to do our homework and each one, including G-SIFI operational risk capital. So operational risk capital, and I don't know the instances yet, will affect mortgages, which is already a shitty business. And it's not what they really want to do. So I don't know. And then like you said, it comes to optimization, whatever it is, if we could earn different types of revenues in that client or that products like that, you may be able to make up for some of it.

Jason Goldberg

Got it. And then I guess before moving on.

Jamie Dimon

But I think they did two right things in G-SIFI, like the bucket is 10 basis points and the average is done slightly differently. Even though -- believe it or not, that's worse for us because it takes our 4.5 up a little bit.

Jason Goldberg

And then in next month, the SEB actually falls from 4% to 2.9%, I guess, against the new Basel reforms…

Jamie Dimon

I'm not sure it going up to 4% should have ever happened, and it shows you about SEB. Again, that was never meant to be a regulatory capital regime. Why it's being added on top of those capital is kind of beyond me at this point. And also I think having that kind of thing go up or down 1% in a year, so it was not a good idea. And then maybe where they got to that 19% number, they took credit for that in the 19% number, which to me wouldn't have been completely honest.

Jason Goldberg

I guess could buy back share repurchase continue or that goes on hold, until we figure this all out.

Jamie Dimon

We -- is anyone here from JPMorgan Investor Relations? No I mean, we are buying back stock at a lower level. That can continue all the way to the end of '24, and we can meet our new capital requirements. So it will be less than you might otherwise have done. But right now, I'd rather wait and see. I'm also quite cautious occasionally and getting about the environment. More cautious than other people. I think there's more potential odds of accident of some sort than other people think.

Jason Goldberg

I guess maybe we shift gears maybe to the business against that. And maybe just start with top of the house and just net interest income, just your kind of macro thoughts in terms of loan growth, credit card has been strong. Most other areas have been subdued, economy is slowing, RWA amortization becomes top of mind. Just kind of what's your outlook for here?

Jamie Dimon

Yes. I kind of worry. Loan growth is always an output. It's not a goal. We don't look for it. So credit card is going up again, mostly normalized or revolvers go up and revolving, there’s notion that revolvers are higher they've really been, not really true. It's actually -- if you just the economy decide the average revolver balance is still lower than pre-COVID. Even though we're back at the number of total revolvers as before.

The other loan areas are all over, real estate down a little bit, some levelizing, middle market down a little bit, some because they used public market, the public markets have opened up. So a bunch of industries that just sold bonds and paid off loans and stuff like that, which is completely normal.

And NII, I think we have given your numbers as they haven't really changed that much. You have them, right, whatever they are, they're the same as they were before. But I caution you we're still over earning in that number. And we're probably going to do a little bit better than we told you, but think of quarter-by-quarter because the uncertainties are so large, competition, the ability to move money, QT. QT has been all over the place, like first it happened and when the bank failures happened, they basically reversed some of it.

The Fed sold a lot of T-bonds, a lot of it came out of RRP, not out of bank deposits. But bank deposits are going to come down with QT. At one point, you'll see reduction in deposits and there'll be more competition.

Lot of banks don't need the money, so they haven't been competing, but if you look at bank competition is very regional, and it's very bank-specific. This bank wanted money, this bank's doing CDs. I just think what's going to happen with NII, we know it's going to come down to a different level. We just don't know when, and I don't want to predict when.

Jason Goldberg

I still got to ask some follow-ups.

Jamie Dimon

We still can earn good money. It isn't like -- we're just giving back the earning part.

Jason Goldberg

You said a little better. So your guidance was $87 billion for 2023. So you're saying a little bit better than that?

Jamie Dimon

Could be a little better than they are.

Jason Goldberg

And then you've also talked about the mid-$70 billion number at some point in the future. Although I think when you gave that number that was before First Republic, I just…

Jamie Dimon

No, I think, yes, that's before First Republic.

Jason Goldberg

I guess do you want to opine on that figure?

Jamie Dimon

I'll let Jeremy do that when he does quarterly earnings. We'll give you an update, but I still think there's the over-earning component. And I think I'm quite cautious about that, too.

Jason Goldberg

I guess you touched on deposits in terms of dealing with QT and money fund competition, paid [ph] has kind of been, I think, lower than expected at JPMorgan, so far? I guess your mid-70s number implies a catch up in here. Just maybe talk to in terms of how you manage the balance sheet backed up.

Jamie Dimon

I hate this deposit beta number because it includes small business, large corporations. It's all over the place. We have a huge payments business. I would say it's been what you would expect in everything other than consumer, which is the bulk of it. So large corporations and businesses can move money pretty actively, we had to compete for that.

Is the consumer side where JPMorgan isn't as competitive in other banks? We're retaining a lot of the deposits anyway because we have other programs or stuff like that, but that's the one, at one point you're going to have to increase it. And even inside, in my own company Jen and Marianne will X, I'll say Y, Jeremy will Z. The all-in point, we don't know. I don't even care that much. It is what it is. It will be what it is, we're still going to earn money. I just want to acknowledge the over earning part. Right now, we're retaining more NII we would expect to, had there been a normal thing in that. I think every bank is in a different position what they need or don't need.

Jason Goldberg

Got it. And then maybe shifting gears to trading and investment banking. I have to get the regulatory, how is the quarter going question out of the way?

Jamie Dimon

I always hate this one too. Because really, like it's not over yet, quarter-over-quarter, year-over-year, down 1% or 2% in trading. And I think it's something like that in investment banking. Pipeline is as strong, but I always remind people. I never talk about pipelines. You know why? Pipelines like open and close. They don't really tell you what's going to happen for equity or certain types of debt or stuff like your M&A. There's a lot of people talking lot of debt, lot of stuff taking place and markets are open.

Jason Goldberg

The trading?

Jamie Dimon

Trade is doing fine.

Jason Goldberg

So down 1% or 2% year-over-year.

Jamie Dimon

I think that's what I said.

Jason Goldberg

And investment banking?

Jamie Dimon

I'm sure, my own people are going to correct me on that. I think roughly equivalent to last quarter, something like that.

Jason Goldberg

Flattish sequentially? These are the questions I get asked. My phone is going to start buzzing if I don't get clarity.

Jamie Dimon

That's the momenta [ph] hedge fund guys. Those of us who build businesses, our job's to serve clients through thick or thin regardless of whether we're going to earn our fair share of our clients' revenues overtime.

Jason Goldberg

So we could pull up and talk big picture if you prefer. But if you look at aggregate, the big five U.S.-based trading banks, this will likely be the fourth straight year trading revenues in the $100 billion to $110 billion band. That number used to be in the $70 billion, $80 billion band, kind of pre-pandemic maybe the medium term or longer term, what do you think is the right number?

Jamie Dimon

Yes. I think that -- and that $70 billion to $80 billion was down for a much bigger number before that. So you did have a huge over a long period time down that coming down, some derivatives, some CLOs, some CMBS. A lot of stuff went away. I think in my own view is a little low. This is more normal.

Here, it can grow from here. But it's trench work there. We have to compete with Goldman Sachs and Morgan Stanley and Bank of America and Wells and Citi. But from here, that wallet may very well grow because remember, assets of the world grow and products grow and investment grow, international flows grow. So I think it's possible it grows from here. If you have a recession, it's one thing, but if you have growth it's another thing. I mean we hope to eke out share gains. That to me is the most important overtime.

Jason Goldberg

And I think you mentioned pipelines on the investment front, is clearly, post-Labor Day, it feels like there's some big IPOs in the market. DCM issuance was very active last week. M&A feels like it's coming back, just in terms of talk to kind of green shoots and what you're seeing there?

Jamie Dimon

And again, you're just guessing the weather here. But DCM is a steady amount because people refinanced. Sometimes CFO sentiment, they wait because they think rates are too high or too low. I think they make a mistake if they do that. I wouldn't spend too much time speculating about what rates are going to do.

The DCM component, which is episodic is M&A related. So that will follow more M&A. And a lot of talk taking place whether it gets finished or not, I don't know. And ECM, you saw -- to give you some numbers, I think in 2021, 400 IPOs; 2022, 40; this year, I don't know, some may remember 70, 80 so far this year. It's open. But the open is much more for companies earning money, more legitimate, stuff like that.

When I hear that -- and more people are having those conversations, companies going public that it's going to be a down round, but that's to me is grow up on that one, too. It's not a down round. The last one was overpriced. And so yes, ECM is open. That can stay open until it doesn't.

And that's the most -- that's the pipeline like an accordion. It opens and closes over time. And when it opens up and values are pretty good, which they are today, and it closes when people think they can get a much thing if they wait. My advice to a company, you can't go public, you want to go public, you need to go public, don't wait too long. There's no -- I wouldn't -- I think the uncertainties out in front of us is still very large and very dangerous.

Jason Goldberg

I guess again, that expenses in the first half of the year were $40.3 billion. Even if adjusting for First Republic, you're kind of running better than your $84.5 billion guide?

Jamie Dimon

It's rough, yes. When you say better, that bounces around a little bit as roughly that maybe a teeny bit better yeah.

Jason Goldberg

But. I asked -- we had Daniel here last year, I asked a similar question.

Jamie Dimon

Next year, he said something like that.

Jason Goldberg

Well, I pointed he ended up beating last year by $1 billion. So are you going to be -- I mean.

Jamie Dimon

I don't know.

Jason Goldberg

You don't know?

Jamie Dimon

I like spending money, you know that, right?

Jason Goldberg

Yes.

Jamie Dimon

No, I think what we've guided before is still where we are today. But I also caution people here, we are a company that's not afraid about spending more if we think it is good for a long-term shareholder. I always separate expenses into waste cutting, like BS, bull shit, meaning too much, a point if you don't read, and then investments. To me, opening a good new branch or building new good new system or hiring bankers in the country with wealth management bankers are best paid, where now you're going to do okay. It just is okay in the 12-month time period. Accounting is a fiction. 12 months means nothing to me. So to me, I always look at what does this mean, and if that's going to pay you off it's not expense, it's a good thing to do.

And there are also, by the way, bad revenues. Warren Buffett always says, he was in the insurance business, sometimes you're better off taking your sales force and paying them, but paying to play golf. Not to do any more underwriting. That happens in the loan business too. And the way we avoided a lot of problems in high leverage loans is we got priced out, we weren’t doing. And those are good non-revenues.

Jason Goldberg

I guess, as you kind of think about the '24 budgeting process, are there any particular areas you like you feel like needed investment and I think consensus has an $88 billion number out there, is that’s how you think got it.

Jamie Dimon

I think roughly equivalent, but the budgets are -- they're in phase right now and people are doing it. And I think we've laid out to you guys a lot the investments, where we're adding technology, AI, branches, bankers. Some of those investments, I can't tell you exactly what the turns. Some of we exactly what the turns are going to be. And I think those plans will be roughly similar this year to they were last year, roughly, some thing's up, some thing's down, First Republic obviously changed a little bit where we have to deploy some of our resources.

Jason Goldberg

I guess speaking of First Republic, can you maybe provide us an update in terms of employee customer retention, system integration. Any update to what looked to us as constitutive assumptions around that deal?

Jamie Dimon

Yes. They're still conservative assumptions around that deal. And again, Jeremy will update you more, a little bit better on retention. I mean we've been losing a bunch of people, but they were almost all -- from the time we did it, they were almost -- had signed out beforehand. Better retention of assets we might have thought, better retention of deposits than we might have thought, more business related, consumer related.

We closed, I think, 20 of their branches like literally this week. So we’re keeping 60. Very happy with some of the stuff we found. Remember, very clean assets, very good clients, some very good bankers all across the board. They did some wonderful things in how they handle the clients. So we're trying to figure out how we can do that and hand some of our offerings and stuff like that.

Marianne and Jen have been doing a great job and the integration side is very basic. There's already so many apps, almost everything they did was outsourced. Some are going to be done through ACAT [ph], some are going to be done through actual conversion and stuff like that. But we've done those before and hopefully get them all done by the end of 2024. I'm sure we'll get some more done with in 2024. I tell Jen and Marianne, we got one we've done in nine months. So let's move on, not the bureaucracy.

Jason Goldberg

It should be easier.

Jamie Dimon

It should be easier.

Jason Goldberg

You have been touched a little bit on your instruction around credit quality, but you talked about credit card charge-offs being 2.6% this year, 3.5% normalized.

Jamie Dimon

I didn't say that, but go ahead.

Jason Goldberg

Well, not today, but July, Jeremy said in July. Is that wrong?

Jamie Dimon

No, it is correct.

Jason Goldberg

What would you say?

Jamie Dimon

Jeremy is usually roughly accurate.

Jason Goldberg

I guess we've talked about this normalization and deterioration and also one of this normalization process, any signs of deterioration.

Jason Goldberg

Just very modest. I already mentioned, we look at like downgrades and upgrade in middle market wholesale, more downgrades. You see -- you've all seen deterioration. We're not big in auto subprime, but you've clearly seen it there. It's explainable. So I don't think it nothing like the early indicators when subprime started going bad in the mortgage business in 2007. So there's a little bit -- a little bit on some leverage companies.

So yes -- but again, if rates go up, and things get more recessionary, you are going to see more people out there with problems. Part of that will be completely normal, part of that will be worse than normal because of the rates like. People are just not ready or used to 6.5% rates.

Jason Goldberg

And then you mentioned kind of…

Jamie Dimon

That's possible. The other thing about the rate side, keep in mind is because people look at the treasuries, it's 4.2% treasury, 10-year treasury, but credit spreads are low. You look at the -- okay are you ready, Okay. I'll ask you a question. This is when I ask to people like, high yield credit spreads today are what?

Jason Goldberg

Not that wide.

Jamie Dimon

Great. I'm going to say they are like 450 or 500 [ph], something like that. What were they -- what' the worst they ever got before the great financial crisis? 18%. And when I got to JPMorgan, I had them stress test 18%. They'll never happen to again. Well, maybe not, you're going to stress test 18%. What do they get to in the great financial crisis? 20%.

At 20%, they were only one or two people making markets in those bonds. You couldn't sell them anyway. So it should happen, folks. And when spreads are very narrow and sentiment changes rapidly and governments have to sell, the United States, governments have to sell either they're going to have to sell net new bonds of $2 billion net, $2 trillion next year and roll over another $5 billion.

Central banks, governments assign more bonds they have to sell before. Central banks can be selling more bonds. And then some natural buyers like China and Japan were buying less, if not selling. So I'm -- and this is cautious side on all that stuff.

Jason Goldberg

I guess…

Jamie Dimon

Including credit spreads. I would not be a buyer of treasuries at 4.2%, nor would I buy credit spreads at these spread levels.

Jason Goldberg

So against that backdrop you’ve added over $4 billion to your ACL reserve, I believe [ph]. You’re kind of modelling at 5.8%, unemployment up 20 basis points from where the last print was. With the advent of CECL, how much has this reserve building process already happened and how much?

Jamie Dimon

CECL is one of those huge errors and mistakes. So that 5.8% is we have scenario planning. And I don't do the scenario planning, because like you said I would be putting up reserves. Okay, I can’t. I am quite cautious about what's going to happen in credit stuff like that. I can't. Our top economists, always folks look at it and you do -- what's the percent is going to get better, what percent going to be the same? What's the percent is going to adverse, what's the percent going to be severe adverse and those percentages average to the 5.8%, which means it is worse than it is today? And that means our reserve today can handle that 5.8%.

The $4 billion that you had, I think, roughly $2 billion simply relates to the increase in credit card standards. So it's not part of changing anything. And a portion, I've got the number relates to First Republic, close to $1 billion. And the others, then we do idiosyncratic, so upgrades, downgrades, those are name-by-name specific.

So it's hard to say that you can look at the environment today you are going to add more reserves today. And it's hard to say the environment going to be worse, but that's why I mostly like [ph

CECL bounces over the place. And I remind people from March -- I mean, from January, the beginning of the year 2020 to June, we put up $15 billion. And then from June to the end of the year, we took down $15 billion. So CECL is just a hypothetical number. It's very unfortunate it's incorporated in accounting.

Jason Goldberg

I guess maybe bringing kind of this whole discussion together. One of my takeaways from your Investor Day was I think these big four businesses.

Jamie Dimon

The other thing about our company, this is important. It relates to all these regulators, too. We already run the company as if you run it through an average cycle, i.e. we're already including a stress portion. So we look at credit, reserving, underwriting and trading, we don't say things are great and we will put up more capital later. We say no, we manage the company through the cycle so we can bank our clients in good times at bad times. We don't have to react in bad times, or sometimes you got to pull back dramatically. And so we're trying to incorporate that all in how we run the company.

Jason Goldberg

Putting it together, I guess looking out maybe what do you think are the two or three biggest growth opportunities in the next two years payment, wealth management, international or you tell us?

Jamie Dimon

It's literally, it's -- I think, in general, in investment banking, it's fighting to gain a little bit of share here and a little bit share. It's area by area, country by country, segment by segment, industry group by industry group, FX in Asia, G10 here like it is, but we think we can fight and gain share, that's the goal.

Payments, we're doing quite well. Our share has gone up dramatically. We hope to do that. We have a bunch of products and services coming. Custody, we think we've gained some share. We have new products and services coming. Asset management, if you look at what we're doing, we're just building a private bank, and we're building asset management. Asset management more is about products, so we've done a damn good job on certain new products and certain these active ETFs stuff like that.

But on the private banking side, it's more bankers in more areas. And you can see, we show you the head count we had. That's kind of the investment in that kind of area. All these areas is technology investments. And then in commercial banking, obviously, Silicon Valley Bank, we gained a lot of clients very quickly, but we're building what we call the innovation economy to do a better job and where First Republic did and Silicon Valley Bank was a big lesson to us, how they cover those clients.

So we are putting more bankers on the ground to cover some of those clients, changing some of our own policy and procedures. Middle market banking is still growing, and we have that commercial banking effort overseas. I just was in London, and it's working. We are covering more clients overseas in commercial banking.

And then consumer, we gained share in auto. It has its own issue and stuff like that. We've actually gained a little share recently mortgage, tough business, but hopefully, we'll look at how these regulations turn out. We're gaining share in credit card, we've added by coal ancillary services in consumer the travel, new [ph] stuff, which we have a new great lounge coming at LaGuardia.

You've been in Boston, you have seeing ours and we're gaining share in consumer banking, small business banking we got products and service company. In those areas we are still opening branches. We are still adding products and services, adding better digital stuff. Wealth management's a big area. I think we've really under -- not under performing. We could do so much more there in terms of gaining share. So you see -- and you'll see that by -- mostly by assets under management and head count we're adding in branches around the country, et cetera.

And then some non-branch headcount we're adding that can serve clients. You might have these great ads. We can serve you digital and remotely too. So a lot of stuff there. I think we grow in every single area. And of course, we have real competition too, so quite cognizant of that.

Jason Goldberg

I'm going to pull up there. We have about 5 minutes left to see if there's any questions from the audience.

Unidentified Analyst

Thanks for your time. I'd love to hear your thoughts on bank M&A and maybe, yes, just size of banks out there, yes.

Jamie Dimon

Yes. So I mean I hear people talk about banking. They act like it's a static thing. Bank do mergers so just all getting bigger. Go back to 2007, a lot of the big banks got smaller quickly, called failure. And so isn't like the system static. You have some banks doing well, bigger ones. Some not doing so well and you're going to continue to have that. I think they should allow bank M&A so they could compete. That's not my own self-interest. I think it's a good idea.

If you're two banks, you think together, you're better off than separate, you should. And then you have new community banks all the time, like nonstop, you also have nonbanks, but PayPal, Square, Apple, Chime, Dave, Sofi, that's -- it's a dynamic system. You have lot of stuff taking place. And we've got to compete with some of those people in some areas and some in a lot of areas. And so I think there will be bank M&A.

And I think Janet Yellen actually came out, and said they should allow it. The politicians say it shouldn't be allowed. They don't understand the dynamism of companies. And yes, some bank M&A will fail, but there's nothing wrong with failure. You don't want to stop people from doing what they think is a good thing with their capital and their companies.

And as you know, mergers are tough. So if we're advising the company I'd say, no, you better be prepared for a bank merger has a lot of complexity around technology, sociology, all these various things, management capabilities, et cetera. But it should definitely positively be allowed. I think it will be because it's better for the system.

Jason Goldberg

I got one over here, sorry. To your left, in the back. So very quickly, you mentioned a few times that you are more bearish than most -- over here, sorry. You mentioned a few times that you're more bearish than most, and you have made couple of comments over the last couple of months the hurricane comment, obviously. Is there something in your business specifically that you're seeing? Or is it more your take on the macro indicators that a lot of other people are seeing as well and making similar comments?

Jamie Dimon

It's literally the extent of the fiscal deficits -- the fact that we've never been through quantitative tightening before. So I think there's a false sense of security those two things will end up being okay. I don't know. I just -- there are big, huge semi tectonic shifts that we've seen. Remember, governments, you also have the IRA Act, the remilitarization of the world, green economy. You've got a lot of stuff which is very different than the past. It looks more like the 70s to me than anything else.

And then there's war. Obviously, it's humanitarian crisis, but it is affecting all global trade, all global alliances, all global investing, America with the Middle East, America with China. And obviously, oil prices, energy prices, food prices, all of which could be hugely disrupting to geopolitics.

And I just put those category things in this bucket that says that is a tough thing, maybe they all resolve and sort themselves out, maybe they won't. And I -- it just puts me on heightened edge of caution. And we could be sitting here in a year and I wouldn't be surprised if those things have, the 10-year bonds at 5.5%. Or oil's at $120 or $150. And it's only that. I don't know. I just in the back of my mind, I have to say that's not -- these things are tectonic differences what you've experienced since 1945. That's what it is.

Jason Goldberg

One more here. So on geographical tensions, I think you just came back from China, what's your takeaway from the trip. How do you think U.S. [indiscernible] would govern here?

Jamie Dimon

Well, I'd put that highly cautious. So when I went there on that trip, the most noticeable thing to me, which now you kind of know a little bit is a lot of folks in Asia think that America wants to "contain and maybe hurt China," which I don't think it's true about. I think the American government has been quite clear that isn't the goal. The goal is to protect national security, American competitiveness and hopefully, that will be done in a way that's fair and reasonable and with our allies.

The other big takeaway by the way, is that the Chinese people are worried about China. We’re all worried about China and America, but they are more worried about China. So you've seen FDI drop like a stone, FDI and internal domestic thing. So I think it’s an issue, but I think finally the American government is doing right thing. Gina Raimondo was there, Tony Blinken was there, Johnny Young went there. The President will hopefully meet with President Xi soon. And they should have very rational private conversations, not insulting each other.

Both countries can do unilateral things. Just remember that. China has for years. America kind of didn't and now we are, kind of business with [ph] China is off, but part of their own medicine. I'm hoping it will sort out. In terms of our own business, the risk-reward, which was very good, has now become just okay. The risk is bad. Like again, I don't expect war in Taiwan and things like that, but you have to say this could go south.

Henry Kissinger has spoken about this. He knows far more about international relationships and geo parks than I do. He's quite worried that we're off track with China that could lead to bad outcomes. But the other good news is 40 years from now, they'll probably be a fully industrialized nation, a big GDP per person, maybe not bigger than America, by the way.

I think people have been a little foolish on how they look to China as a 10-foot giant, because China has got serious problems of their own, not of our making, including geopolitical. They've kind of pissed off all their neighbors a little bit, all from rearming, they're not rearming because America did. They're rearming because China is scaring them with their behavior in the South China Sea, et cetera. But the fact is they will be a large industrial nation.

So we're there. We're very cautious, we're managing our risk, but we serve in China, hundreds of multinationals outside of China. We serve Chinese companies going out, which as long as we're not violating European or American sanctions and rules we intend to continue to do. And then we also bank companies in China.

And we will -- there will be certain restrictions on what we can do, what all you can do in China and the government is trying to sort out exactly what it wants to limit or not limit. I hope they're quite careful about it.

Jason Goldberg

Seeing we're out of time, please join me in thanking Jamie for your time today.

Jamie Dimon

Thank you very much. Good luck to you all.