Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's 4th Quarter 2019 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation.
Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon and Chief Financial Officer, Jennifer Pieczak. Pieczak, please go ahead.
Thank you, operator. Good morning, everyone. I'll take you through the presentation, which as always is available on our website and we ask that you please refer to the disclaimer at the back. Starting on Page 1, the firm reported net income of 8,500,000,000 dollars EPS of $2.57 and revenue of $29,200,000,000 with a return on tangible common equity of 17%. Underlying performance continues to be strong.
Deposit growth accelerated in the 4th quarter across consumer and wholesale with average balances up 7% year on year. We saw solid loan growth with card and AWM being the bright spots as average loans across the company were up 3% year on year excluding the impact of home lending loan sales in prior quarters. Client investment assets in consumer and business banking were up 27% and asset and wealth management AUM was up 19%, reflecting stronger market performance versus the prior year as well as organic growth. We ranked number 1 for the full year in global IBCs with 9% wallet share and gross IB revenue in the commercial bank was a record $2,700,000,000 In CIB markets, we were up 56% year on year compared to a weak Q4 last year. However, it's important to note the quarter was very strong in absolute terms, in fact a record 4th quarter.
And credit performance continues to be strong across the company. On to Page 2 and some more detail about our 4th quarter results. Revenue of $29,200,000,000 was up $2,400,000,000 or 9 percent year on year with net interest income down $220,000,000 or 2% on lower rates, largely offset by balance sheet growth and mix and higher CIB Markets NII. Non interest revenue was up $2,600,000,000 or 21% on higher revenue in CIB markets and AWM and continued strong performance in home lending and auto. Expenses of $16,300,000,000 were up 4% on volume and revenue related costs.
Credit remains favorable with credit cost of $1,400,000,000 down $121,000,000 or 8% year on year, reflecting modest net reserve releases and net charge offs in line with expectations. Turning to the full year results on Page 3. The firm reported net income of $36,400,000,000 EPS of $2.72 and revenue of $118,700,000,000 all records and delivered a return on tangible common equity of 19%. Revenue was up $7,200,000,000 or 6% year on year with net interest income up $2,100,000,000 or 4% on balance sheet growth and mix as well as higher average short term rates, partially offset by higher deposit pay rates. Non interest revenue was up $5,100,000,000 or 9% driven by growth across consumer and higher CIB markets revenue.
And expenses of $65,500,000,000 were up 3% year on year, driven by continued investments as well as volume and revenue related costs, partially offset by lower FDIC charges. Revenue growth and our continued expense discipline generated positive operating leverage for the full year. And on credit, performance remained strong throughout 2019. Credit costs were $5,600,000,000 In consumer, credit costs were up $210,000,000 reflecting an increase in card due to balance growth, largely offset by lower credit costs and home lending. And in wholesale, we were up $504,000,000 largely due to reserve releases and higher recoveries, both in 2018.
Moving to balance sheet and capital on Page 4. We ended the 4th quarter with a CET1 ratio of 12.4%, up slightly versus last quarter. The firm distributed 9,500,000,000 of capital to shareholders in the quarter, including $6,700,000,000 of net repurchases and a common dividend of $0.90 per share. And while on the topic of capital, it's worth noting given the actions we have taken, we fully expect that we will remain in the 3.5% GSiP bucket. Before we move into the business results, I'll spend a moment talking about CECL on Page 5.
As you know, the transition to CECL was effective on January 1, and therefore there is no impact to our 2019 financials. On the page is the CECL adoption impact, an overall net increase to the allowance for credit losses of $4,300,000,000 which is at the lower end of the range we provided. This was driven by an increase in consumer of $5,700,000,000 mostly coming from card, partially offset by a decrease in wholesale of 1,400,000,000 dollars In card, the increase is a result of moving to lifetime loss coverage versus a shorter loss emergence period under the incurred model. Whereas in wholesale, modeling changes like using specific macroeconomic forecasts versus through the cycle loss rates under incurred result in a decrease, especially given the forecasted credit environment. Recognition of the allowance increase has resulted in a $2,700,000,000 after tax decrease to retained earnings as you can see on the page.
Also important to note, we have elected to use the transition approach to recognize the impact on capital. And now turning to businesses, we'll start with Consumer Community Banking on Page 6. In the 4th quarter, CCV generated net income of $4,200,000,000 and an ROE of 31 percent with accelerating deposit growth of 5%, client investment assets up 27% and total loans down 6%. For the full year, results in CCV were strong with $16,600,000,000 of net income, up 12% and an ROE of 31 percent on revenue of $55,900,000,000 up 7%. 4th quarter revenue was $14,000,000,000 up 3% year on year.
In Consumer and Business Banking, revenue was down 2% driven by deposit margin compression, largely offset by strong deposit growth and higher non interest revenue on the increase in client investment assets as well as account and transaction growth. Home lending revenue was down 5%, driven by lower NII on lower balances, which were down 17%, reflecting prior loan sales and lower net servicing revenue, predominantly offset by higher net production revenue reflecting a 94% increase in origination. And in card, merchant services and auto, revenue was up 9% driven by higher card NII on loan growth as well as the impact of higher auto lease volumes. Card loan growth was 8% with sales up 10% reflecting a strong and confident consumer during the holiday season. Expenses of $7,200,000,000 were up 2% driven by revenue related costs from higher volumes as well as continued investments in the business including market expansion, largely offset by expense efficiencies.
On credit, this quarter CCD had a net reserve release of $150,000,000 This included a release in the home lending purchase credit impaired portfolio of $250,000,000 reflecting improvements in delinquencies and home prices, which was partially offset by a reserve build in card of $100,000,000 driven by growth. Net charge offs were $1,400,000,000 largely driven by card and consistent with expectations. Now turning to the Corporate and Investment Bank on Page 7. For the 4th quarter, CIB reported net income of $2,900,000,000 an ROE of 14% on revenue of $9,500,000,000 a strong finish to the year. For the full year, BIB delivered record revenue of $38,000,000,000 and an ROE of 14%.
In Investment Banking, IB fees reached an all time record for the full year. We maintained our number one rank in global IV fees and grew share to its highest level in a decade. For the quarter, IV revenue of $1,800,000,000 was up 6% year on year, outperforming the market, which was flat. Advisory fees were down 3% following a record performance last year. On a sequential quarter basis, fees were up meaningfully as we benefited from the closing of some large transactions and for the year we ranked number 2 in gainshare.
Debt underwriting fees were up 11% year on year due to higher bond issuance activity as clients accelerated their funding take advantage of attractive pricing conditions to strengthen their balance sheet. And for the year, we maintained our number one rank overall and we were number 1 for lead best positions in both high yield bonds and leveraged loans. Equity underwriting fees were up 10% year on year reflecting strong performance in the U. S. And Latin America.
The new issuance market continues to be active and for the year we ranked number 1 in equity underwriting as well as IPOs. Our overall pipeline continues to be healthy as strategic dialogue with clients is constructive, equity markets remain receptive to new issuance and the rate environment is favorable for debt issuance. Moving to markets, total revenue was $5,000,000,000 up 56% year on year driven by record 4th quarter revenue in both fixed income and equity markets. Fixed income markets was up 86%, benefiting from a favorable comparison against the challenging Q4 last year, but also reflecting strength across businesses, notably in securitized products and rates, driven by strong client activity and monetizing flows. Equity markets was up 15% driven by strength across cash and prime.
Treasury services revenue was $1,200,000,000 down 3% year on year, primarily due to deposit margin compression, which was largely offset by organic growth, while security services revenue was $1,200,000,000 up 3%. Expenses of $5,200,000,000 were up 12% compared to the prior year with higher legal, volume and revenue related expenses, as well as continued investments. Now moving on to Commercial Banking on Page 8. Commercial Banking reported net income of $938,000,000 and an ROE of 16% for the 4th quarter. And for the year, dollars 3,900,000,000 of net income and an ROE of 17%.
4th quarter revenue of $2,200,000,000 was down 3% year on year with lower deposit NII on lower margins largely offset by higher deposit fees and a gain on the strategic investment. Gross Investment Banking revenues were $634,000,000 up 5% year on year, driven by increased large deal activity. Full year IB revenue was a record $2,700,000,000 up 10% on strong activity across segments with record results for both middle market and corporate client banking. Expenses of $882,000,000 were up 4% year on year driven by continued investments in banker coverage and technology. Deposit balances were up 8% year on year as we continue to see strong client flows.
Loan balances were up 1% year on year. C and I loans were up 2% driven by growth in specialized industries and expansion markets, partially offset by the runoff in our tax exempt portfolio. CRE loans were up 1% where we continued to see higher originations in commercial term lending, driven by the low rate environment, offset by declines in real estate banking as we remain selective given where we are in the cycle. Finally, credit costs were $110,000,000 with an NCO rate of 17 basis points, largely driven by a single name, which was reserved for in prior quarters. Underlying credit performance continues to be strong.
Now on to Asset and Wealth Management on Page 9. Asset and Wealth Management reported net income of $785,000,000 with pre tax margin of 28% and ROE of 29% for the Q4. And for the year, AWM generated net income of $2,800,000,000 with both pre tax margin and ROE of 26%. Revenue of $3,700,000,000 for the quarter was up 8 percent year on year as the impact of higher investment valuations and average market levels as well as deposit and loan growth were partially offset by deposit margin compression. Expenses of $2,700,000,000 were up 1% year on year.
And for the quarter, we saw net long term inflows of $14,000,000,000 driven by fixed income and multi asset and we had net liquidity inflows of $37,000,000,000 AUM of $2,400,000,000,000 and overall client assets of $3,200,000,000,000 Oath Records were up 19% 18%, respectively, driven by higher market levels as well as continued net inflows into long term and liquidity products. Deposits were up 8% year on year, driven by growth in interest bearing products. And finally, we had record loan balances up 8% with strength in both wholesale and mortgage lending. Now on to corporate on
Page 10.
Corporate reported a net loss of $361,000,000 Revenue was a loss of $228,000,000 for the current quarter driven by approximately $190,000,000 of net markdowns on certain legacy private equity investments. Sequentially, revenue was down $920,000,000 due to lower rates, the benefit recorded in the prior quarter related to loan sales as well as the PE losses I just mentioned. Year on year revenue was down also primarily driven by lower rates. Expenses of $343,000,000 were down $165,000,000 year on year due to the timing of our contributions to the foundation in the prior year. And turning to Page 11 for the outlook.
At Investor Day, as always, we'll give you more information on the full year outlook. However, for now, I'll provide some color and reminders about the Q1. We expect NII to be approximately $14,000,000,000 market dependent, adjusted expenses to be about $17,000,000,000 And as a reminder, the effective tax rate in the Q1 is typically impacted by stock compensation adjustments and as a result is currently estimated to be approximately 17% with the managed tax rate about 500 basis points to 700 basis points higher. So to wrap up, 2019 was a year of record financial performance across revenue, net income and EPS. Our outlook heading into 2020 is constructive underpinned by the strength of the U.
S. Consumer and despite expected slower global growth drop of geopolitical uncertainty, we remain well positioned as we continue to build on our scale and benefit from the diversification of our business model. And with that, operator, please open the line for Q and
you. Our first question comes from Ken Usdin of Jefferies.
Hi, Ken.
Thanks. Good morning. Hi, Jen. How are you? Jen, I was wondering if on terms of the NII outlook, you talked about the $14,000,000,000 level, obviously getting to a point of stability.
Can you help us outside of day count, can you help us understand just where we are in terms of repricing of the balance sheet? What happens if rates generally stay flat from here just in terms of the rate side of the equation if we hold volume aside?
Sure. As we look at rates paid, on the retail side, we didn't obviously have reprice on the way up and so there's little to do on the way down. In fact, there from a rate pay perspective, we continued in the Q4 to see rate paid pick up a little bit on migration from savings to CDs. And then on the wholesale side, we did see rates paid come down as you would expect and we did see betas accelerate after the second cut. So there we saw more of a decline in CIB than we did in CV or AWM as you might expect.
Importantly though, as we always say on the wholesale side, we price client by client and so we're not going to lose any valuable client relationships over a few ticks of beta. And then I would just say in terms of the outlook with the Fed on hold, the implied do still have one cut later in 2020 and based on the latest implied, we'll give you more detail at Investor Day as we always do. But I would say NII for the full year of 2020 flat to slightly down as the headwinds from rates will be offset with balance growth.
Yes, got it. And just one question on just the volume side of things. Ex the mortgage loans sales last year, you were still in that like 3% core growth. And obviously, you talk a lot about the environment and how there's been some settling out, but at a lower level. Just what's the status of just corporate and commercial customers now that we're closer to Phase 1 getting finalized, UMCA is on the table?
What's the backdrop of just economic activity as you guys see it?
Sure. So the Q4 definitely, I would say stabilized, Things trade certainly stabilized. Things broadly speaking stopped getting worse. And so we saw sentiment improve a bit, which I think contributed to the overall success of the Q4. And then, certainly there are some puts and takes.
I mean, the U. S. Consumer remains in very strong shape, both from a credit perspective, sentiment spending, obviously, labor market is very strong and the Fed and the ECB on hold and then capital spending is still a bit soft, but sentiment is at least certainly better than it was 6 months ago. So we have a broadly speaking constructive outlook headed in as we're heading into 2020 here.
Our next question is from Saul Martinez of UBS.
Hi, good morning. I have a question on credit and CECL. And you guys have been pretty clear that your business decisions are based on economic outcomes or economic outcomes and not accounting outcomes. But CECL does materially change the way in which timing that change the timing in which earnings accrete to book value and capital, obviously with a higher upfront hit. But you guys have also been shifting your loan book pretty materially towards cars, which have a much higher loss content than your total book.
So I guess twofold question. One is, how do we think about provisioning in this context? Should we think provisioning is going to be well above charge offs as your reserve ratio moves up? Because I would think your ALLL ratio post CECL adoption, which I think is about 1.8, 1.9, it should move up as cards, which have a much higher loss content that continue to grow in the mix. So just how do we think about provisioning in the context of the mix shift and CECL's adoption?
And then I guess secondly, if there is a change in the macro environment and the credit environment does get worse and CECL that inflection goes through your reserves and your provisioning, is there a point where CECL actually does change the way you think about pricing and underwriting in that environment?
Sure. So I'll start with the provisioning. So look, I think it's fair to say under CECL, you could have incremental volatility given that reserves are more dependent on specific macroeconomic forecasts. But there that would depend of course on our ability to have foresight into the timing and extent of those downturns. In cards specifically, as you say, in any one period of growth or a downturn, you could see an increase in reserve since that we're taking life alone versus the next 9 or 12 months.
So that's true. And then on the wholesale side, you could see some differences, of course, because there are modeling differences between specific macroeconomic forecasts and through the cycle. Having said that, that incremental volatility would be material for us. And of course, net charge offs are not changing. And then from a pricing perspective, we don't foresee in the near term any pricing changes.
The cash flows with the customer have not changed. And so we don't see any, but it is true, as you rightly point out, that there is an increased cost of equity in the sense that we're taking reserves upfront versus through time. So over time, you could see that, but we're not expecting it in the near term.
Got it. And I guess on the provisioning side, my question is more just on an ongoing basis. Is the mix changes more towards higher loss content lending, which obviously has higher margins and higher profitability through the over the course of the loan, theory. But like in that context, I would is it fair to say your provisioning levels also could be materially above your charge offs because I would think that your reserve ratios, your ALLL ratios do have to move up, is that mix changes on your balance sheet?
It could be. It could be. Also, that's just timing, particularly on the card side, it's just timing. But it's difficult to know again because it relies on our ability to have perfect foresight into the timing and extent of a downturn.
Got it. No, that's fair. Thanks a lot. Appreciate it.
Sure. Our next question comes from Erika Najarian of Bank of America.
Hi, good morning. Hi, Erika.
So I was hoping to get a little bit more credit on what happened in the quarter to produce such stellar results. Understand that obviously the Q4 2018 comp was light, but $3,400,000,000 is still a pretty heavy number for a 4th quarter for JPMorgan. So any color you could provide would be very helpful, Jennifer.
Sure. So you're talking about markets, Erica? Market. Thank you. Yes.
Okay, sure. So there, at Golden in early December, I did say we expect it to be up meaningfully. I would say the performance was broad based. In rates, we call out securitized products I'm sorry, in fixed income, we call it securitized products and rates, which were bright spots. But broadly speaking, obviously, equities had a very strong quarter as well.
So, it's really across the franchise and we saw very strong client flow and we had success monetizing those flows. So just a very healthy environment for us and really strong performance.
Got it. My follow-up question is that a quarter ago or 2 quarters ago, the revenue backdrop for banks in general, the outlook was starting to deteriorate. And I think management had got gave us some color that you'll continue to invest your efficiencies and initiatives no matter what the changes are in the revenue environment, but you could cut back on certain expenses if revenue environment was changing. That being said, your revenue production seems to always outperform to the upside. So as you think about 2020, is the best way to think about expenses just that 55% overhead ratio?
So look, on the efficiency ratio, I would say that like we run the company with great discipline, whether it's relentlessly pursuing expense efficiencies or investing with discipline through the cycle. But because the efficiency ratio is an outcome, not an And as And as we always say, we're not going to change the way we run the company for what could be temporary revenue headwinds. And on expenses, I would just say that at Day last year, Mary Anne told you that we expected the cost curve to flatten post 2019. In 2019, adjusted expenses were up 3%. 2020, we expect them to be up less than that.
Our next question is from Mike Mayo of Wells Fargo Securities.
Hi. Is Jamie on the call? Yes. I'm sorry?
Yes, it is.
Okay. So just a question for Jamie, because in your the first paragraph, you mentioned easing trade issues helped market activity. And I know this is a very simple question, but can you talk about the connection between easing trade issues and better trading and you said that was better toward the end of the year. Is this something that you expect to remain or is this a one off quarter?
That's a really hard question to answer, Mike. So obviously, trade caused a lot of consternation that has eased off a little bit. I don't think it's going to completely go away because you still have potential ongoing trade issues with China and Europe and stuff like that. I think because that sentiment got better, trading got better, how long that continues, we don't know.
And then, Jennifer, you mentioned expense growth was 3%. It should be less than that this year. You guys had also mentioned that your technology spending might be leveling off. So if that levels off maybe you see paybacks from prior investment. Any sense of where tech spending will be this year versus the prior year and how you think about that?
And I know we'll get more at Investor Day.
Sure, of course. So I think you can think about tech spending on a fully loaded basis being in line with what I described for the company. And we continue to realize efficiencies from investments in tech. But as you well know, we continuously invest in tech. And so there's a fair amount of velocity in the investment portfolio there as investments roll off.
And we're investing in new technology and innovation. So you can think about tech spending as being broadly in line with how I describe the company in terms of trend.
Our next question is from Betsy Graseck of Morgan Stanley.
Hi, good morning.
Hi, Betsy.
Two questions. 1 on asset growth. In the last couple of years, Q4, you have to go through this exercise of trying to squeeze down to hit the G SIB target. And then in addition this year, I think you sold some residential mortgage loans to investors or at least the investors are taking the risk of it. And then you're requesting to have regulatory capital reflect that transfer of risk to an investor pool while you're keeping the customer relationship.
When I see these things, I'm wondering, how you're thinking about how much room you have for asset growth as we go into 2020? And is there an opportunity to potentially do more of this residential mortgage loan trade to free up space for growth? Maybe you could speak to that.
Sure. So I mean, we're bound by standardized capital. And so, of course, that is a consideration for us and one of the reasons that we're looking to structure loan sales, as you described, in the mortgage business. So we think that there's more we can do there. And then on G SIB, we remain hopeful that we will see the refinements there and recalibration
And And as I think about CECL, appreciate the commentary you had earlier on the call. I'm just wondering a couple of things. One, why do you think you ended up towards the low end of your $4,000,000,000 to $6,000,000,000 increase in reserves that you outlined earlier? And what kind of estimates you have for the economic outlook? You've got the assumption for the economic outlook in the reasonable, supportable period, And so I'm just trying to understand what kind of forecast you have in your model so that I understand what's embedded in your scenarios and in your ALR ratio?
Sure. So, we I think we ended up at the low end as we through the year continue to get more certainty around what the macroeconomic forecasts were going to look like. And so I think that's really what's driving it. Obviously, portfolio mix as well continue to be very strong in terms performance of the portfolio. And then on the estimates for the economic outlook, as you rightly say, there is the reasonable and supportable period, which for us is 2 years.
And so we do use multiple weighted scenarios there. So we wait multiple scenarios with the one most likely getting the greatest weight and that's where you end up with what looks like a reasonably benign outlook for the reasonable and supportable period, which also obviously would contribute to us hitting the low end of the range.
Hey, Chad, are we going to disclose some of those variables over time?
That's a great point, Jane. I should say that. Yes, I mean, there will be more disclosure about CECL in Q. It
means all the banks will be showing these ridiculous forecasting going forward and the differences and we'll spend time talking about that as opposed to the actual business. Right. But we'll disclose we need to know to make it clear what we're doing and why we're doing it.
That's right.
But you'll see more in the Qs.
Our next question is from Matt O'Connor of Deutsche Bank.
Good morning. Two quick follow ups to some themes that have been talked about. I guess first on expenses, the full year outlook was pretty clear, less than 3% growth, but the Q1 seems a little bit higher than maybe I would have thought of 4% year over year. And I don't know if that's just rounding and I'm getting too obsessed over $100,000,000 here or there or if you're up funding some investment spend and if so, what that's for?
Sure. So the Q1 tends to be a bit higher for us if you look through history. And so but there you can think about it comparing it year over year. We have volume and revenue related expenses increasing a bit of an increase on investments, but both are being partially offset by expense efficiencies.
Okay. And then the other follow-up question is just on capital allocation. Obviously, it's a good problem to have, but the ratios keep going up, the capital generation keeps going up, the stock keeps going up. You're obviously buying back a lot of stock. The goal is to get the dividend, I think higher over time.
But maybe just talk about how you think about buying back stock at these levels, if there's other, call it, creative uses of capital? Like I always think about all the money you spend with technology. Does it make sense to buy technology versus do it organic? So just maybe address some of those things. Thank you.
Sure. So on the ratio, I'll just remind you that, of course, we have our capital distribution plan approved once a year. And so since our last CCAR filing, we have realized some RWA efficiency and we've out earned relative to the assumptions in the CCAR filing. And so that's part of the reason why we've seen the ratios load up there. On stock buybacks, as you rightly point out, our first priority is always going to be to invest for organic growth.
And so we are always looking to do that 1st and foremost, and then to have a competitive and sustainable dividend and only then to distribute excess capital to shareholders through buybacks. And we have said that it makes sense to continue to do that at or above 2x tangible book, which is about where we are now. We will obviously, when distributing excess capital, always be looking at the alternatives. But at 17% ROTCE and 2% or 3% dividend payout ratio, there is a high bar for the alternative.
Next question comes from
You're absolutely right about acquisitions. We did do InstaMed this year, which hooks up is electronic system that hooks up providers and consumers of healthcare. Well, I think the numbers are 80% or 90% is still done by check. So if there are opportunities like that, we absolutely would be on the hunt for them.
That's right. We pay last year, yes.
And we pay the year before.
Yes. Our next question is from Gerard Cassidy of RBC.
Hi, Jennifer.
Hi, Gerard.
Question on credit. You obviously put up some real good numbers once again on credit quality. And I noticed that you had a nice material decline in the wholesale non performing assets quarter to quarter. Can you give us any color on what brought that down? And could you tie in also any concerns that you may have about the energy portfolio?
I know it's not material, but there is some concerns out there about energy credits?
Sure. So on wholesale non performing loans in the CIB that was some name specific upgrades that we had in the CIB. And then in the commercial bank that was related to charge offs taken in the quarter. And then on energy, really nothing there thematically, I would say, like any sector. We have upgrades and downgrades and this quarter was no exception, but I wouldn't say anything thematically in our portfolio that we're concerned about.
Very good. And then I don't know if I heard you correctly in the last answer to the stock repurchase program. I understand, of course, it's driven by your CCAR results. But if the price of the stock and it's a good problem to have gets to a level that you consider to be too high, I think you may have said 2 times tangible book value. What then happens if the price of it gets to a point where you guys think it's just too high to buy it back?
What do you do with the excess capital at that point? Have you given that much and again, that's a good problem to have, I understand that. But have you given any thought to that?
Sure. We give a lot of thought to it and I agree it is a high class problem. And so we've said that at or above 2 times tangible book makes sense. If it continues to go up, we're going to continue to look at alternatives. Most importantly, within the company in terms of how we should really think about the returns on buying our stock back at a higher level versus perhaps thinking about the returns a bit differently in terms of organic growth.
Damian, I don't know if there's anything you want to add.
That is all.
Our next question is from Steven Chubak of Wolfe Research.
Hi, good morning. So Jennifer, I wanted to start with a question on capital. Corals indicated in a recent interview that he plans to implement the bulk of the SCB in 2020 CCAR. Also alluded to the possibility of deploying a countercyclical buffer as part of that. I'm just wondering if the countercyclical buffer is actually deployed or incorporated within the test.
Is that something that's underwritten as part of your 12% CET1 target? And are you anticipating changes to the G SIB coefficient calculations that you alluded to earlier in the call as part of the coming cycle as well?
Thanks, Stephen. So I mean, you touched on a number of things that are all important. And I think what's most important to us is that we end up with a cohesive framework across all of them. The comments from the Vice Chair have been constructive in the sense that he always reiterates that he thinks the level of capital in the system is about right. And so we'll have a firmer view when we see a final rule.
As you say, we do expect to see something in 2020 based upon the comments that we have heard, just like you have. And we expect that our 12% target will not be impacted because we do constructively hear Levi's share say over and over that the amount of capital in the system is about right. And then but we can't have a firm view until we see the final rule. And then on G BIB, we remain hopeful that we're going to see the refinements that the Fed has been talking about, perhaps not full recalibration until about before, which is what the Vice Chair recently said. But certainly there are a number of refinements that we've been talking about and the Fed has been talking about for years and we remain hopeful that we'll see them very soon.
Thanks for that color, Jennifer. And just one final one for me. We saw really strong FICC results as well as really strong institutional deposit growth. I was hoping you could speak to what impact the Fed balance sheet growth is actually having on all of your different businesses or how that's manifesting because it seems to be providing a pretty nice tailwind whether it's some increased activity, as well as some benefit in terms of deposit growth that you're seeing across the overall franchise, but institutional in particular.
Sure. So you're absolutely right. On the wholesale side, the Fed balance sheet expansion was for sure a tailwind for us. Although I would say the more meaningful portion of our deposit growth on the wholesale side in the quarter was from strong organic growth and client acquisition. As mentioned was a tailwind and elsewhere, I would say obviously it was the right thing to do and provided stability in the repo markets
Hey, good morning. A quick question on the deposit cost. Could you just break down maybe by segment where the big drivers were that saw you saw have the big reduction in deposit costs linked quarter? Was that in Security Services? Was it Wealth Management?
Sure, Brian. So, on the I'll start with retail where we saw rates paid tick up a bit and that's on migration from savings to CDs. We have seen CD pricing come off its peak, but continued migration from savings to CDs. And then on the wholesale side, you see bigger declines in rates paid in treasury services for sure and then a little bit less so in the commercial bank and AWM. And again, as we always say, these are name specific client by client decisions.
And while we feel good about where we are, these are decisions we make client by client and we're certainly careful and have a lot of discipline, not going to lose valuable relationships over a few ticks of beta.
And then a separate question. In the commercial bank, I mean, you've seen loans come down quarter on quarter for end of period and generally modest growth year over year. I mean, what's the sentiment now in the middle market and the corporate client? Is it a sentiment issue? Is it just timing issue there for seeing better loan
growth? Sure. So there are obviously some puts and takes, which I'll run through. But broadly speaking, I would say what we're seeing is more a function of our own discipline than it is a function of demand. And in T and I, we feel good about the growth that we're seeing in the areas where we're focused in specialized industries and market expansion.
But of course, that's offset partially by the tax exempt portfolio that's running off. And then in CRE, good growth in commercial term lending as we continue to have opportunities there given the rate environment. And then that is offset by real estate banking where we are very disciplined given where we are in the cycle.
I would just add, when capital expenditures come down, all things being equal, but they're not, but all things being equal, you're going to see a reduction in some lending. These companies need less money if they have receivables and inventory and plant and equipment.
Our next question is from Glenn Schorr of Evercore ISI.
Hi, Glenn. Hello there. Hi.
A quick question on open APIs and what the big picture is here and how it impacts you and the rest of the banking industry, meaning there's concerns over data security and things like that. But JPMorgan has some plenty of agreements with some of the bigger providers. I'm just curious to get your big picture thoughts on what level of concerns we had, what's the good and the bad?
Yes. I mean, there I would say, Glenn, our customers' data privacy and security is of utmost importance to us. And we think over time, the best way for us to do that as securely as we can is to have 3rd party apps only access data through our APIs. And so we are working name by name to get those agreements in place and we hope through time that is exclusively the only way that third parties can access our customers' data. We think that's the most secure way to do it.
But very importantly is that, that data is the data the customer agrees to give them on the basis they agree to give it to them, does not unlimited access to customer data and the customer will have the ability to turn it off. As opposed today, if you gave your bank passcode to someone, they're taking the data every day, maybe even every minute, and you don't even know about it because you forgot.
Great point. We're going to make it super easy for our customers to be able to do
that. So you will give them the tools to control that?
Yes. You can imagine a dashboard
where they will have the That is the full intent.
Yes.
And then just curious if you've seen any follow on impacts that you've seen some repricing on parts of the illiquid markets and for specifically some of the unprofitable parts of those companies? And is that just the repricing and everybody that owns them will take some hits a little bit slower progress on banking front and that's it? Or is there anything bigger there to worry about with what's going on in the illiquid side?
Are you talking about the private companies?
Yes, I am. Sorry.
Yes. Look, this they're glitched. A lot of private companies, a lot of them do well, some don't, some will fail, some have access to capital now, they won't have access to capital in a downturn, but it's not a systemic issue. It's just the capital markets are a lot of private companies and so I don't think it's that big a deal. You just have an adjustment in access to capital that will happen periodically.
Our next question is from Marty Mosby of Vining Sparks.
Thank you. Jennifer, you were kind of foreshadowing lower tax rate as you kind of move into the Q1 and then the tax rate here in the Q4 was a little bit lower than what we expected. Is there anything that's permanent here or are there some things that are just kind of rolling through these 2 quarters?
Yes, I wouldn't say there's anything permanent there. The Q1 is typically lower for us, Marty. You can think about full year 2020 as being 20% plus or minus and of course that would depend on any non recurring items we might have or any change in regulation, but 20% plus or minus. And then of course, the managed tax rate is typically 500 to 700 basis points higher than that.
And then a bigger question, when we came into 2018, the net interest margin was around 2.5%. And then now as we're coming out of 2019, the net interest margin has fallen below 2.4%. So interest rates went up 100 basis points and then down 75 basis points and we've netted down a negative 10 basis points. So I was just curious in that path, it's either the way the Fed kind of inflected very quickly that created a little bit more pressure in the net between deposit pricing and loan pricing? Or do we think that this is probably just some of the competition that came in after the tax reform and maybe this is just the evidence of some of that competition with the increased profitability that we got from the benefit from the taxes?
Yes. So there, I would say, Marty, on the sort of the last several hikes, there was some catch up there because we know we had some lags on reprice in the rising rate environment. So if you're just looking at the last few hikes, the betas would certainly be higher than what we're seeing in terms of the first three eases here. But broadly speaking on NIM, I mean, we don't NIM is an outcome for us, not an input. And as we think about looking certainly the environment is very competitive.
It always has been. And NII, the outlook for 2020 is at this point based upon the implied flat to slightly down and we do expect balance sheet growth.
Our next question is from Andrew Lim of Societe Generale.
Hi, morning. Thanks for taking my questions. Wondering if you could give a bit more color on your markets performance there. Obviously, it's done very well. Geographically though, is there much more weighting there on the U.
S. Versus Europe and APAC?
I would say, Andrew, that it was broad based. We can have Jason and team follow-up specifically on a geographic breakdown, but it was largely broad based.
Right. And would you say with confidence that you're gaining market share in both territories there?
Again, I don't have the split on market share by region, but Jason and his team can certainly follow-up on that.
I'm not sure we want to start disclosing that regularly. But I do believe that market share went up pretty much in most markets, but you can't say most markets in all products.
Yes.
And our next question is from Allison Williams of Bloomberg Intelligence.
Good morning. So I had a similar question just circling back to trading and the CIB more broadly.
So obviously, the bank
has gained share, but can you speak to future opportunities and runway? And maybe this is more of a question for Investor Day, but specifically businesses like cash management, transaction banking and corporate clients in general, you're a leader in the U. S. Anecdotally, we hear U. S.
Banks have been making gains in Europe. Can you speak at all to that opportunity?
Sure. So as you said, we'll give you more color at Investor Day. For the Treasury Services business, we feel really good about where we're positioned. I think going forward, there will obviously be some rate headwinds there, which we think can be offset by organic growth. But given the investments that we have made there, Jamie mentioned InstaMed earlier, we feel really good about the capabilities that we're adding and what we're seeing in terms of organic growth there, but we can talk to you more about that at Investor Day.
Okay. Thank you.
And we have no further questions at this time.
Okay. Thanks everyone.
Guys, we'll see you. Thank you.
I'll see you guys tomorrow.