JPMorgan Chase & Co. Q4 2023 Earnings Call Transcript

Yeah, I'm not particularly updating, and I think you're referring to that $80 billion number that we've put out there. And you know, I wouldn't exactly describe that as an outlook. I think it's more just a number that we've put out there to try to quantify a little bit the extent of the over earning. So, not particularly necessary to revise the number. But, I just would point out, again as we highlighted on the page and as I highlighted in the prepared remarks that when you look at that $94 billion exit-rate and full-year guidance of $88 billion, that implies obviously exiting below $88 billion and some significant sequential decline. So in that sense, you can see us kind of marching on the path to that $80 billion. whether we ever get to the $80 billion or not and when, you know, is maybe a topic for later in the year or next year.

Yeah, good question, and I think you framed out exactly correctly, in the sense that we obviously have a lot of buyback capacity in general based on organic capital generation. So the normal capital higher if you will apply. But for now we plan to remain, you know, on a modest pace of buybacks consistent with that kind of $2 billion net buyback at quarter number that we've talked around, you've seen us do in light of, you know, probably the need to continue building to have a bit of a buffer as you said, the uncertainty about the finalization of the rules and also just as a reminder, you know, the SCB is probably a little bit low right now and has been quite volatile. So that's another factor that we need to keep in mind.

Thanks, Matt.

Yeah. Actually, John, this quarter that's all like pretty quiet. So, the weighted-average unemployment rate in the numbers still 5.5%. We didn't have any really big revisions in the macro outlook driving the numbers. And our SKU remains as it has been, you know, a little bit skewed to the downside, just recognizing that we still see risks being elevated, which obviously you can see that SKU and the difference between the weighted-average unemployment of 5.5% and what's in our central outlook, which I think is something like 4.6% peak of the current levels.

Sure. Yeah, happy to do that John. So, I think probably the best way to do this is to look at ARR [Phonetic] numbers. So as you know, we don't update that until the queue, but on an estimated basis its going to be a little bit lower, has been something like 1.9 [Phonetic] as opposed to 2.1[Phonetic]. so just round numbers about $2 billion in ARR. I think empirically the numbers maybe a little higher than that just because even though we do model lags in the ARR, we've been seeing the lag effect a little bit bigger. But just crudely, I think, you know, as I noted, we do remain asset-sensitive. That's one-way to quantify it. I would say the empirical number would maybe be a little higher than that, and hopefully that gives you enough to work with.

Yeah, both good questions. So let's just -- let's do reprice first. So, I think all else equal. You know, this more dovish Fed environment and these six cuts has the effect of taking a little bit of pressure off the reprice, especially product level reprice. At the same time, we do continue to expect internal migration, you know, particularly out of checking and savings into CDs and wholesale, a little bit of ongoing migration out of non-interest bearing into interest-bearing, and that trajectory I would expect to continue even in a lower rate environment.

So as a result, if you get a weighted-average rate paid, for example, for the consumer deposit franchise, we would actually expect that number to be a little bit higher even in a world with six cuts. And you know, that's actually intuitive when you think about as people continue migrating into CDs, but maybe a little monitor with if you're kind of trying to do beta type math with like, you know, change in rates and change in ready pay that gets over it, not into it.

And then in terms of balances. Yeah, you all know that I said that our outlook is for balances to be very modestly down, which when you consider the QT despite the various speculations about having a slow down later in the year continues and that loan growth in the system as a whole is expected to be quite muted, you know, it is a pretty modest decline outlook consistent with the lower rate. So I kind of agree with you that this environment is at the margin, a little bit more supportive for system-wide deposit balances. And then, obviously, we continue to be optimistic about our ability to take share in deposits, you know, based on our customer value proposition across all of our different businesses.

Right, okay, Ebrahim. So I think all those things aren't actually mutually exclusive. So statement one, I think it's uncontroversial that the economic outlook has evolved to include a significantly higher probability of a soft landing, that's I think the consensus at this point. So whether you believe it or not, that's a separate issue, but I think that is the consensus.

In terms of consumer resilience, I made some comments about this on the press call. You know, the way we see it, the consumer is fine. All of the relevant metrics are now effectively normalized. And the question really in light of the fact that cash buffers are now also normal, but that, that means that consumers have been spending more than they are taking in is how that spending behavior adjust as we go into the new year, in a world where there are cash buffers are less comfortable than they were.

So you know, one can speculate about different trajectories that that could take, but I do think it's important to take a step back and remind ourselves that consistent with that soft landing view just in the central case modeling, obviously we always worry about the tail scenarios is a very strong labor market. And a very strong labor market means all else equal, stop strong consumer credit. So that's how we see the world.

Yeah, so good question on the multi-family. And the short answer is that, for us, it's pretty un controversially, no. No bleed through it. And the reason is that while there is -- we do -- we are aware of some of the pressure on multi-family that's in kind of different markets from the ones that we are actually big in. So it's higher-end stuff in much less supply constrained markets that, you know, is under more pressure. And as you know, our multi-family portfolio is much more affordable, supply-constrained market and so the performance that remains really very robust.

Yeah. Erika, Its a good question and I understand what you're asking, why you're asking it. I think the answer is going to be a little bit unsatisfying, which is that this is classic decision-making under uncertainty and is kind of a probabilistic cloud of a variety of different factors, but all the ingredients that you've listed, all the right ingredients, right? Very strong organic capital generation, uncertainty about the finalization of the role, uncertainty about the SCB requirement, and obviously our normal capital hierarchy, which is the buybacks are always at the bottoms hierarchy after we're done using the capital for our other priorities. So, I think what I said previously stands, which is that we're sticking with a modest pace for now, but obviously we have a lot of flexibility to adjust that whenever we want under the current regime, and we may well do that.

A little bit of those in there, yeah. So you would see that we often talk about the volume and revenue-related category and I think in my prepared remarks, you will have noticed that I talked about a $1 billion increase in that category year-on-year as a result of an improved in ARR outlook. So, the hope and expectation of a continued rebound in the investment banking wallet and our share of that is part of that.

Yeah, Mike. Thanks for the question. And then, of course, you will as I noted, be hearing more from us at Investor Day and between now and Investor Day. But I will take a little bit of extra time here to answer your question because you're right, it's important to give you the transparency. And I'm going to follow the structure that we use on the page and go through each line of business.

So starting with CCB, it's the biggest dollar driver overall. It's an 8% [Phonetic] increase year-on-year, which is about the same as we had last year. One key driver is the branch strategy and the associated staff for that. In 2023, we've built a 166 new branches and we're planning about a similar number this year. Marketing is also a driver. We are seeing great opportunities, great demand and engagement in our card products. And so that shows up in marketing. And as you all know, our wealth strategy in CCB remains a big focus on priority.

You know, I think it's worth noting, here, right, as we've talked about and as you know, Mike. Some of our investments are designed to produce short-term pay-offs and some of them are much longer-term. And some of them are just table stakes, but we actually see quite a bit of evidence of current payoffs in our current results in the CCB investments.

So for example, in 2023 we had 2 million net-new checking accounts. We had an 80% growth in active card accounts and over the last three years, we've increased deposit market share by 180 basis points. So as we've often said about the company as a whole, we're very happy to be producing very good current returns and growth while investing for the future.

In AWM, continued client advisor hiring is a key driver as well as making sure that both the advisors and all their new clients have the support that they need. And a little bit to the prior question in AWM, we also have a little bit of volume and revenue-related driver tied to an improved revenue outlook.

The commercial bank is an interesting story in the sense that about half of it is the exit rate impact of adds that we did in the middle of the year based on market disruption and all the kind of new clients and new loans that we saw and the need to support that across the entire ecosystem, as well as the fact that, that created an opportunity in the middle of the year to accelerate our longstanding and pre-existing innovation economy strategy. So we took some opportunities to on-board some key teams in different parts of the franchise. And then you know as you look into 2024, it's really pretty consistent themes are the ones that we had before, including hiring bankers post both domestically and internationally.

The CIB story is a little bit different. The percentage growth there as lower, which recognizes, I think both are very-very strong share positions as a starting point and also the fact that we've been investing quite aggressively for some time in the payments business, which has produced, you know, meaningful payoffs already there in terms of significant share gains. So as a result, the biggest driver in the CIB is really generic inflation, including labor, as well as, again to the prior question, volume and revenue-related increases tied to the improved NII outlook. And I do want to say for the avoidance of doubt that despite all of this, our core strategy of looking very granularly at all the areas of strength and weakness and making sure that we're upgrading where appropriate to have absolutely the best talent in the CIB remains fully in effect.

Finally, you'll note that I haven't actually talked about technology in any of the businesses. And that's actually because, even though all of the businesses in various ways are investing in technology and spending money on it, the drivers are actually very consistent across the entire firm, even though as credit volumes are driven and those drivers are, you know, consistent with what they've been, new products, features and customer platforms, as well as modernization. So that's happening throughout the company both at the app level and otherwise.

And I will say actually in closing, talking about technology, which I think is interesting that to the point about a driver being growth at large, one of the things that we see is higher volume related technology expense throughout the company. So. Thanks for the question, Mike. It was a good opportunity to give you guys a bit more color here.

Sure.

Yeah, sure. So let me address the AI point and I think maybe I won't go into a lot of quantitative detail on this stuff. And I'll save that for Investor Day if you don't mind. But I will address the AI point. So as you maybe aware, we actually have to reach heights, rather now running the AI strategy for the company, you know, as a member of the operating committee, which I think is an indication of the priority that we've placed on this and in partnership with Lori and all of the technology organization.

So, I think that -- I think of this as being a little bit barbelled, where on the one hand we're very excited about this. There's clearly some very significant opportunities, not for nothing, starting with technology developers themselves in terms of the opportunity for significantly increased productivity there. At the same time, we're J.P. Morgan Chase. We're not going to be chasing shiny objects here in AI. We wanted to do this in an extremely disciplined way. It is very commercial and very linked to tangible outcomes. And so the current focus is on making sure we have a contained, well chosen list of high-impact use cases, and that we're throwing resources at those in the right way that's extremely pragmatic and disciplined and we're holding ourselves accountable for actual results.

Thanks, Mike.

Hey Gerard.

Yeah Gerard. I wish the answer will be more interesting, but it's our practice, we just always use the forward curve for our outlook. And that's what's in there.

Yeah, good question, Gerard. I mean I think you've heard Jamie talk about this a lot. Q3 [Phonetic] is obviously a big focus and one of the complicating elements that we have in the current environment. I think that the math is the math in the sense there is Q3 here all else equal is withdrawing from system-wide deposits. In the last six months of this year, that's been offset hopefully by a reduction in the size of ROP. And so that that's been supportive of system on deposits. As we go into 2024, our ROP is at lower levels and so that may be a little bit less of a tailwind. But it's also the case, as you know, that there is, you know, the market's expectation is that Q2 is going to start slowing down at some point this year or so.

And, you know, we still have reasonable levels of reserves and some cushion from ROP. So, you know, as part of the reason that our outlook is for deposits to be modestly down with the shrinkage in system wide deposits may be partially offset by our belief that we can take some share. But also, I think the second-half of this year is going to be interesting to watch in terms of what the Fed does.

Thanks, Gerard.

Yeah, sure. So as you know, all else equal, this more dovish rate environment is, of course, supportive for capital markets. So if you go into the details of that, if you start with ECM, you know, that helps higher and the recent rally in the equity markets helps. I think there have been some modest challenges with the 2023 IPO vintage in terms of post launch performance or whatever. So that's a little bit of a headwind at the margin in terms of converting the pipeline, but I'm not too concerned about that in general. So, I would expect to see rebound there.

Inn DCM, again, all else equal, lower rates are clearly supportive. One of the nuances there is the distinction between the absolute level of rates and the rate of change, or sometimes you see corporates seeing and expecting lower rates and therefore waiting to refinance and the whole book even lower rates. So you know that can go both ways.

And then M&A, you know, is this a different dynamic. I think there's a couple of nuances that are. One, as you obviously know, announced volume was lower this year, and so that will be a headwind in reported revenues in 2024, all else equal. And of course, we are in an environment of M&A regulatory headwinds as has been heavily discussed. But having said that, you know, I think we're seeing a bit of a pickup in deal flow and I would expect the environment to be a bit more supportive.

Yeah, it's a good question. I mean, I think, as you say, it's a little bit of a -- I mean I wouldn't necessarily say that like lack of that market access in the last year, that was more of an earlier effect in terms of having that drive valve utilization. I think the main driver there is just a little bit of residual anxiety in the C-Suite, which increases as the companies get smaller in size. So you know, this is really going to be a function of how 2024 plays out. The softer the lending is, the more supported the utilization should be I would think. If things turn out a little bit worse, I think management teams are going to be incrementally more cautious about capex and so on and so you might see utilization even lower.

Sure.

Yeah, thanks Glenn. So I think the last part of your question, as you say, is the most important part, which is this as an important factor in the competitive dynamic and what is one of the key things that we offer as a company. So it is -- it is a meaningful shift in the environment is something that we've been watching for some time. We have made some enhancements and some new initiatives to ensure that we can compete effectively both in our traditional syndicated lending businesses, but also go head-to-head with the private credit providers and these types of uni-tranche structures. If and when that's what the client actually wants, it tends to be a trade-off between the best possible pricing versus speed and certainty of execution, and we can provide both of our sort of exceptionally strong long-time DCM franchise.

So that's been a priority, and we're actually already starting to see some results from that across both the commercial bank and the CIB with certain client segments. And in the bigger picture, of course, in the context of the Basel III Endgame, people talk a lot about the risk of certain lending activity getting pushed out of the regulated perimeter. It's more than to be clear, right? These are important clients of ours too. We compete with them, they are also clients. And in the end, our point here is just people and regulators in particular should just be aware of the likely consequences of what's happening here and make sure that the results are intentional and that we're looking around the corner a little bit.

It's interesting, I haven't heard much about that, Glenn. So we're going to look into it for you. But to be honest, the fact that I haven't heard much makes me think that it's maybe not such a big driver right now.

Yeah, thanks Charlie. So one thing that we said when we kind of gave First Republic guidance at our Investor Day earlier this year is that while we understood that need to track that and we've been splitting out First Republic in our reported results in order to improve period-on-period comparability, we kind of want to stay out of the business of guiding on First Republic, and so we've really focused on having our guidance be firmwide, including First Republic, now that everything is embedded in the, in the franchise.

Having said that, let me just react to a couple of things that you said. So, again, I don't want to get into like micro validation one way or the other of some of your back-of-the-envelope math. But we did have some accelerated pull-to-par on some of the accretion of some of the loans that we purchased this year. So I think the annualization that you're doing is maybe a bit high for the 2024 number.

And then from a sensitivity perspective, I actually think I can simplify the math for you a little bit and just kind of direct you to the EAR from my response to the prior question because that EAR fully includes all First Republic assets and liabilities with all of the various dynamics. And so I think that's kind of like an easier way to think about it for the company.

It's kind of head matched the day we did it, so...

Yeah. I mean, I can probably answer that question if I think about it for a second, but it's sort of violates my prior statement that I really don't want to get into the business of guiding on First Republic. If I do the big picture, right? So big picture, 2023 we had eight months of First Republic NII. 2024, we're going to have 12. So all else equal, there's calendarization in there.

What's also true is that in 2023 as a result of the impact of the NII of the pull-to-par, certain relatively short-dated assets that we fair valued at a meaningful discount as part of the transaction, that sort of -- that pull-to-par happens quite quickly and therefore probably juice the 2023 number a little bit. So therefore, straight annualization is probably not the right way to think about it. Then you just get into the questions about the FTP, and the funding and whatever, and this like too complicated. So I rather not go there.

Okay. Thanks very much everyone.