Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's 3rd 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. Ms. 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 $9,100,000,000 and EPS of $2.58 on record revenue of $30,100,000,000 with a return on tangible common equity of 18%. Underlying performance continues to be strong with highlights including client investment assets in consumer banking up 13%, strength in our consumer lending businesses in particular on higher origination volumes in home lending and auto and healthy growth in sales and outstandings in card.
Number 1 in global IB fees year to date with over 9% wallet share and record gross IB revenues in middle market. And in Asset and Wealth Management, we saw record AUM and client assets. Overall for the firm, total loans were flat year on year, which includes continued mortgage loan sales. FC sales loans were up 3% on healthy growth in card and AWM. Total deposits were up 5% with strength across wholesale and retail.
And credit performance remains strong across businesses. On to Page 2 and some more detail about our 3rd quarter results. Record revenue of $30,100,000,000 was up $2,200,000,000 or 8 percent year on year as net interest income was up $293,000,000 or 2% on balance sheet growth and mix, partially offset by higher deposit pay rates. Non interest revenue was up $1,900,000,000 year on year or 14% driven by strong performance across fixed income markets and consumer lending, which included a gain on mortgage loan sales of approximately 350,000,000 dollars Expenses of $16,400,000,000 were up 5% on volume and revenue related expenses as well as continued investments, partially offset by lower FDIC charges. Credit remains favorable with credit costs of $1,500,000,000 reflecting modest net reserve builds and charge offs in line with expectations.
And as we mentioned last quarter, we do not see any signs of broad based deterioration across our portfolios, both consumer and wholesale. Now on to balance sheet and capital on Page 3. We ended the Q3 with a CET1 ratio of 12.3%, up about 10 basis points versus last quarter. The firm distributed $9,600,000,000 of capital to shareholders in the quarter, including $6,700,000,000 of net repurchases and a common dividend of $0.90 per share. Now on to Page 4 for a look at our businesses, starting with Consumer and Community Banking.
CCB generated net income of $4,300,000,000 and an ROE of 32% with continued deposit growth and total loans down 4% year on year. Revenue of $14,300,000,000 was up 7% year on year. In Consumer and Business Banking, we saw strong deposit and investment growth year on year with deposits up 3% and client investment assets up 13%, reflecting continued growth across both physical and digital channels. Revenue was up 5% driven higher NII on deposit growth and margin expansion as well as higher non interest revenue on higher transaction volumes. And even though the deposit margin is higher year on year, not surprisingly, it is down 13 basis points quarter on quarter given the current rate environment.
Home lending revenue was up 12% on higher production volumes and margins, partially offset by lower NII on lower balances, which were down 12%, reflecting loan sales. With regards to these loan sales, it's important to note the net impact to home lending revenue is minimal with the gain on sale being offset by a funding charge from corporate. And in card, merchant services and auto revenue was up 9%, driven by higher card NII on loan growth and margin expansion as well as the impact of higher auto lease volumes. Card loan growth was 8% with sales up 10% and merchant processing volume was up 11%. Expenses of $7,300,000,000 were up 4% year on year driven by continued investments and higher auto lease depreciation, partially offset by expense efficiencies and lower FDIC charges.
On credit, starting with reserves, this quarter, CCB had a net reserve build of build of $50,000,000 which included a building card of $200,000,000 largely offset by releases of $100,000,000 in home lending and $50,000,000 in business banking. The build in card was primarily driven by mix as the newer vintages naturally season and become a larger part of the portfolio. Net charge offs were $1,300,000,000 largely driven by card and consistent with expectations. Now turning to the Corporate Investment Bank on Page 5. CIB reported net income of $2,800,000,000 and an ROE of 13% on revenue of 9,300,000,000 dollars Investment Banking revenue of $1,900,000,000 was up 8% year on year in a market that was down.
It was a record 3rd quarter for Investment Banking fees driven by strong performances in debt and equity underwriting, partially offset by lower advisory. Year to date, we continue to rank number 1 in overall IB wallet and gain share across products and regions, benefiting from our leadership positions in the technology and healthcare sectors. In advisory, we were down 13% year on year reflecting lower deal activity compared to a strong prior year. However, we continue to gain wallet share driven by our strategic investments. In debt underwriting, we were up 17% year on year in a market that was down.
Here, we benefited from our participation in some large transactions and increased activity in investment grade bonds. In equity underwriting, we were up 22% year on year, significantly outperforming the market, driven by our strong performance in IPOs and convertibles. And for both the quarter and on a year to date basis, we ranked number 1 in wallet share for overall ECM and IPOs. We expect 4th quarter IV fees to be down both sequentially and year on year, driven by strong performances in the Q3 and prior year. However, the pipeline remains healthy as strategic dialogue with clients is constructive, equity markets remain receptive to new issuance and the lower rate environment has made debt issuance more attractive.
Moving to markets, total revenue $5,100,000,000 up 14% year on year. Fixed income markets was up 25%, a good result, which also benefited from a comparison to a somewhat quiet quarter in the prior year. This quarter was characterized by strong client activity across the board with outperformance in agency mortgage trading and improved flows in rates and commodities. Equity markets was down 5% against a very strong Q3 last year. Equity Derivatives performance was challenged by lower client activity and unfavorable market conditions, but prime remained strong and cash outperformed relative to the prior year.
Treasury Services and Security Services revenues were 1,100,000,000 and $1,000,000,000 down 7% and 2% year on year respectively. The rate environment remains a relative headwind, primarily from the funding basis compression we've been talking about, which is largely firm wide neutral and to a lesser extent, client specific repricing and treasury services. But importantly, the organic growth in fees and balances continues to be strong. Expenses of $5,300,000,000 were up 3% compared to the prior year with investments and higher revenue related expenses partially offset by lower litigation and FDIC charges. And finally, credit costs were $92,000,000 driven largely by reserve bills on select emerging market client downgrades.
Now moving on to Commercial Banking on Page 6. Commercial Banking reported net income of 937,000,000 dollars and an ROE of 16%. Revenue of $2,200,000,000 was down 3% year on year with lower NII driven by lower deposit margins, partially offset by higher non interest revenue due to strong Investment Banking performance. Gross Investment Banking revenues were $700,000,000 up 20% year on year on increased M and A and equity underwriting activity. And we saw revenues increase for both large deals and flow business with a record quarter in middle market.
Expenses of $881,000,000 were up 3% year on year as investments in the business were largely offset by lower FDIC charges. Deposit balances were up 3% year on year on strong client flows. Loan balances were flat year on year across both C and I and CRE. In C and I, while we are seeing pockets of growth in select industries like financial institutions, technology and energy, there does continue to be significant run off in our tax exempt portfolio. And in CRE, although there was higher origination activity in commercial term lending, it was largely offset by declines in real estate banking as we remain selective given where we are in the cycle.
Finally, credit costs were $67,000,000 with a net charge off rate of 9 basis points. Now on to Asset and Wealth Management on Page 7. Asset and Wealth Management reported net income of $668,000,000 with pre tax margin of 25% and ROE of 24%. Revenue of $3,600,000,000 for the quarter was flat year on year as the impact of higher average market levels as well as deposit and loan growth were offset by deposit margin lower distribution and legal fees. Partially offset by lower distribution and legal fees.
Credit costs were $44,000,000 driven by net charge offs as well as reserve builds on loan growth. For the quarter, we saw net long term inflows of $40,000,000,000 driven by fixed income and net liquidity inflows of $24,000,000,000 dollars AUM of $2,200,000,000,000 and overall client assets of $3,100,000,000,000 both records were up 8% and 7% respectively, driven by cumulative net inflows into long term and liquidity products as well as higher market levels. Deposits were up 4% year on year driven by growth in interest bearing products. Finally, we had record loan balances up 7% with strength in both wholesale and mortgage lending. Now onto corporate on Page 8.
Corporate reported net income of $393,000,000 Revenue was $692,000,000 up $795,000,000 year on year, primarily due to higher net interest income driven by higher balances and balance sheet mix as well as the funding offset from the mortgage loan sales that I mentioned earlier, all of which was partially offset by lower rates. This quarter also included small net gains on certain legacy private equity investments compared to approximately $200,000,000 of net losses in the prior year. And expenses of $281,000,000 were up $253,000,000 year on year, primarily due to higher investments in technology and a prior year net legal benefit. Finally, turning to Page 9 and the outlook. Our full year outlook remains in line with previous guidance.
We expect net interest income to come in slightly below $57,500,000,000 based on the latest implied and adjusted expenses to be approximately 65,500,000,000 dollars So to wrap up, the U. S. Economy is on solid footing and while global growth is slowing, the U. S. Consumer remains healthy.
Despite continued macro uncertainty and headwinds from the rate environment, this quarter showcases the diversification and scale of our business model. We remain well positioned to outperform in any environment and will continue to strategically invest in our businesses. And with that, operator, please open the line for Q and A.
Our first question is from Glenn Schorr of Evercore.
Hi, thanks very much. Curious your take on everything that went on in the repo market during the quarter. And I would love it if you could put it in the context of maybe the Q4 of last year. If I remember correctly, you stepped in, in the 4th quarter, saw higher rates, threw money at it, made some more money and it calmed the markets down. I'm curious what's different this quarter that did not happen?
And curious if you think we need changes in the structure of the market to function better on a go forward basis?
So, if I remember correctly, you got to look at the concept of we have a checking account at the Fed with with a certain amount of cash in it. Last year, we had more cash than we needed for regulatory requirements. So repo rates went up, we went from the checking account, which is paying IOER into repo. Obviously, makes sense, you make more money. But now the cash in the account, which is still huge, it's $120,000,000,000 in the morning, it goes down to $60,000,000,000 during the course of the day and back to 120 at the end of the day.
That cash we believe is required under resolution and recovery and liquidity stress testing. And therefore, we could not redeploy it into the repo market, which we would have been happy to do. And I think it's up to the regulators to decide if they want to recalibrate the kind of liquidity they expect us to keep in that account. And again, I look at this as technical, a lot of reasons why those balances dropped to where they were. I think a lot of banks from the same position by the way.
But I think the real issue you think about is what does that mean that we ever have bad markets? Because that's kind of hitting a red line in the Fed checking account, you're also going to hit a red line in LCR, like HQLA, which cannot be redeployed either. So to me, that will be the issue when the time comes. And it's not about JPMorgan. JPMorgan will be fine in any event.
It's about how the regulators want to manage the system and who they want to intermediate when the time comes.
And it's worth noting, Glenn, that the overall impact to JPMorgan from the events in mid September was not material one way or another to our Q3 results.
Yes. I feel bad for whoever borrowed at 10%. Okay. Just as a quickie on NII, I heard you on the full year 2019 commentary and I don't think that's surprising maybe even a little bit better. Have you done much repositioning on the balance sheet as we look forward in 2020, which is looking like an obviously lower rate backdrop.
I want to ask you what your thoughts are on 2020 NII, but I'd rather hear the soft color because I know you're not going to give it to us.
Well, I'll try. So in terms of balance sheet positioning, as you know, we have a negatively convex balance sheet. We manage it in both directions. Some moves in interest rates are hedgeable and some are not in a quarter like we just had with the rally that we had. You would expect us to buy duration and we did.
And so but in terms of 2020, the way I think you can think about it is we've given you full year 2019, which implies the Q4 of just under $14,000,000,000 Frankly, that's not a bad place to start. There will be some puts and takes. Obviously, you would have to get the full run rate of the October cut because, of course, this is all based on the implied. And then there's one more cut next year, but an offset to that, at least a partial offset to that would be balance sheet growth and mix. So we'll give you more color at Investor Day as we always do and we'll be in a better position then.
But the Q4 of 2019 in terms of run rate is not a bad place to start.
Our next question is from Betsy Graseck of Morgan Stanley.
Hi, good morning. Hi. A couple of questions. One on your GSIB bucket. I know as of the end of June, it showed that you had bumped up into the next GSIB bucket.
And I wanted to understand how you're thinking about managing that as we go into year end? And is there a plan to get back down? And how would you affect that?
Sure. So as it relates to G Fib, we fully intend to be in the 3.5% bucket for year end. As you know, most aspects of G Fib are on a spot basis. So we will manage it like we do any scarce resource and fully intend to be in the 3.5% bucket for year end.
I mean, is there a does that impact just your market position in general? Is there anything that you would be looking to doing to get there that might reduce your positioning in some of the businesses that you're involved in, for example, things like derivatives, etcetera? Or is it really not is it going to be something that we're not going to see in the revenues because it's too small to matter to you?
You're not going to see.
Yes. What we need to do across the various G SIP buckets will not be obvious in our Q4 results. But like I said, we will be managing and fully intend to be in the 3.5% bucket. It's more than just leverage.
Our next question is from Erika Najarian of Bank of America Merrill Lynch.
Yes, good morning. My first question is a follow-up to Glenn's question. As you think about the crosscurrent of resolution planning, LCR and liquidity stress testing, could you help us what is the level of excess deployable cash at JPMorgan?
We said we have $120,000,000,000 in our checking account at the Fed and it goes down to 60 and then back to 120 during the average day. But we believe the requirement under CLAR and resolution recovery that we need enough in that account such as there's extreme stress during the course of the day, it doesn't go below 0. Go back to before the crisis, you go below 0 all the time during the day. So the question is, how far is that as a red line with the intent to regulate between CVR resolution that to lock up that much of reserves in account of the Fed and that will be up to regulators to decide. Right now, we're going to we have to meet those rules and we don't want to violate anything we've told them we're going to do.
Got it. And as my follow-up, Jen, you said something about the offset to the 2 Fed cuts that are in the forward curve would be balance sheet growth and mix. Could you give us a little bit more color on how you're expecting those dynamics to play out, particularly given slightly lower core loan growth this quarter and 22% increase in investment securities balances?
Sure. I think, well, I'll come back to investment securities balances. But in terms of balance sheet growth in 2020, you can think of that largely in deposits. And just as one example, obviously, the rate environment and the economy will matter a whole lot. But just in a declining rate environment, the higher yielding alternatives for consumers are less attractive.
And so, we do expect to continue to grow the franchise and we could see healthy growth in the deposit base. So that's what I was referring to. In terms of investment securities, when you look at the increase this quarter, there's a few things going on. As I said earlier, we did by duration, but importantly, what you see in investment securities are also cash deployment strategies as well as actions we took on the back of the mortgage loan sales. So there's a few things going on in investment securities this quarter.
In some cases, securities had a higher return on standardized capital than certain mortgage loans did.
Our next question is from Mike Mayo of Wells Fargo.
Hi. So you, I guess, lowered your guidance for NII, but also lowered your guidance for expenses. So how much of that lower expense guidance is due to the deployment of technology? Or just more generally, at every Investor Day, you tell us you're going to spend, what, dollars 12,000,000,000 on technology, and we don't really have a lot of insight into the traction that those technology investments are getting. So what's working technology wise?
What's not working? And how much of that can contribute to your improved expense guidance?
Okay, sure. So I'll start and see if you can add. So I would say, Mike, the NII guidance is not lower. At the Q2, we said $57,500,000,000 plus or minus. At the time, the implied had 3 rate cuts, July, September December, and we said if there were 2 or more, then it would be 57.5 minuteus, and if less than that, perhaps 57.5 plus.
And so we are kind of right where we said we would be. And we're a little bit higher than what we said earlier in September at Barclays and that's because we got a little bit of a tailwind on the 10 year and some balanced growth and one less cut in December. So I would say NII guidance broadly in mind. On expenses and technology, there's a few things you can think about. First of all, broadly speaking, on expenses, I would say we remain committed to what we said at Investor Day in terms of the cost curve flattening from here.
But importantly, you have to look at the underlying story, which I know is what you're getting at, which is there are volume or revenue related expenses and we're always looking for productivity there. And but they will be what they will be and they will come with top line growth. In terms of investments, we will continue with the discipline we always have around business cases and net present value and payback periods, but we will also always invest in the things we think we need to even if they are table stakes. And so and then there's productivity, which is your point. And so we continue to realize productivity in our investments and we continue to think we have opportunity ahead.
We haven't laid that out in terms of quantifying it, but some of the things you can think about are robotics replacing repetitive processes. You can think about machine learning or AI in fraud. So machine learning assisting us in decision making processes. Our call centers are always getting more productive. As Gordon said at Investor Day, our cost to serve in the consumer businesses are down 15%.
And then digital capabilities that we're rolling out to our customers in terms of self-service is not only better for them, but more efficient for us. And so, we have realized significant productivity to date in not only in our technology investments, but other investments and think we still have room to run.
I would
just add merchant process, new systems, API store for the CIB, the stuff we've built to hook in Aladdin to our custody business. So you can go business by business and see the extension of that stuff we're rolling out. And it's All right.
Let me have one follow-up then. So I mean how many call center personnel do you have or how many data centers do you have and how does that compare to the peak?
We're building brand new data centers as we speak. I've got the total number, but it's quite a few. The new ones will be better and more efficient and more expandable and safer and more secure, all that kind of stuff. And we have to build that infrastructure to have the best in the world. We're not going to ever scrimp on something like that.
And maybe at the Investor Day, we can go a little bit more into how we try to manage the technology budget.
Yes, I'd like to do. And then on call centers, Mike, we don't necessarily think about it just in terms of the number of people. We think about the productivity of the people. So the number of calls that they are able to take because you may have more people because of more volume, but that's good healthy volume with top line growth, but we're always making sure that the people in our call centers and the overall productivity of the call center is increasing.
And with all the cyber stuff you read about, our fraud in card and consumers come down, not gone up, because of some of these deployed technology in call centers. I won't take you through all of them, but then we're telling them bad guys are secrets. But there are a lot of ways to stop some of the bad guys now.
Our next question is from Saul Martinez of UBS.
Hi, thank you. Good morning. Start off with sort of a broader question on just the macro outlook. I think Jen you mentioned that you feel the economy the U. S.
Economy is on sound footing. The consumer is obviously strong, but we are seeing some softening in the economic data. What are you hearing from clients? What are they telling you about whether they're concerned or whether there's an increasing concern on policy, macro uncertainties and how you're thinking about that going forward?
Sure. So on client sentiment, I think it's fair to say that perhaps the marginal investment is being impacted by trade fatigue in terms of the uncertainty. But broadly speaking, while it's slower growth, it's still growth. As I said, the U. S.
Consumer is incredibly strong. Consumer spending is strong. Sentiment is strong for the consumer. Credit is good. And it is true that if you look at the ISM surveys, both manufacturing and non manufacturing, they were recently disappointing.
So I would say, no doubt cautionary signs, but credit remains very good and there's still very healthy business activity.
Okay, great. That's helpful. On NII, just going back to NII, specifically in the CCB, if you adjust for the 350, you actually grew sequentially, which was a pretty strong result. And I know guidance is at the consolidated level, but how do we think about the glide path in that business going forward in some of the puts and takes? Deposit pricing came in a little bit at the consolidated level.
I suspect some of that's commercial. But how do we think about that business in the NII trajectory? And is it possible that you can continue to grow that?
So I mean, there's no doubt that the business will be impacted by rate headwinds if the implied play out. We're not immune to that. But as I said earlier, there is at least a partial offset to that in growth. And so we still feel very good about the underlying growth that we're seeing there. And then just in terms of reprice, obviously, there's very little movement on the back of the Fed EASE, given there is very little movement on the way up.
And in fact, quarter over quarter, we saw rates paid in the consumer businesses tick up a little bit on slight migration that we continue to see into interest bearing. But we love the platform. The branch expansion is going very, very well. And so we feel great about the continued growth there, but we won't be immune to rate headwinds.
Our next question is from Gerard Cassidy of RBC.
Good morning. Can you guys give
us some additional color on the Investment Banking backlog that you may have at the end of the Q3? And then second, if you take a look at the success that you had in investment banking grabbing more wallet share, is it coming here in North America or in Asia? Can you give us some color there as well?
Sure. So on the, IB pipeline, I would say it's healthy, although we do expect to be down in the Q4, both sequentially and year on year on very strong performances in the Q3 as well as Q4 of last year, but overall it feels healthy. And I would say geographically, largely it's on strength in the U. S.
And then following up in the markets business, again you had good numbers. How important is the technology spending that you've been doing in markets leading to grabbing more wallet share in both equity and FIC?
I think it's critical. When you walk on the trading floor today, the deployment of technology in automated trading algorithms and swaps and FX and equities. It's making its way into corporate bonds, but I think it's critical to keep up with the technology in a very competitive business where market share matters.
Our next question is from Eric Compton of Morningstar.
Thanks for taking my question. So I just want to step back and real big picture here. I mean net interest income, you're already starting to see some pressure there. Just I think the general commentary in the industry is the banks are just under pressure seemingly almost everywhere. You got to focus on expenses and yet you guys are still hitting returns on tangible of 18%.
So just stepping back, I mean, you still have a couple of billion to play with before you even start getting to that 17% long term goal level. Like what worries you about potentially pushing you under that 17% level? It just seems like even with all the pressures in the industry, you're still even exceeding it. Other than one time credit events, really, I guess, stepping back, what worries you about pushing the bank to that or even below that from your perspective?
I think you're overdoing the pressures in the banking industry, okay, because we've had growth in the United States for the better part of 10 years. And I'd say that the credit is extraordinarily good. So if you look at consumer credit, commercial credit, wholesale, it's extraordinarily good. It can only get worse if you have a cycle. So our 17% is we always try to plan us through the cycle.
We're at the over earning part of the cycle in credit today. At one point, we'll be at the under earning part on credit. And of course, when you have a recession, it affects volumes, all these other things. So that's 17% through the cycle and time today, not that bad.
Our next question is from Martin Mosby of Vining Sparks.
Thanks and good morning. I was I wanted to ask you 2 kind of different venues of questions. First is if you look at the balance sheet, security yields came down pretty significantly this quarter. Just wondered how much you had in premium amortization that was embedded in that? And then as you look at the interest bearing deposit cost, we didn't get much traction on the first cut, but did you get a little bit more traction on lowering those rates as you went into the going into the Q4?
Okay, sure. So first on security deals, so that did play a role, Marty, but more importantly, the impact on securities deals came from mix and just lower rates overall. So predominantly mix and lower rates and then to a lesser extent your point on prepays as well as a little bit of day count. And then on betas, broadly speaking, we say betas are symmetric. And so if you look at the retail side, as I said before, very little movement on a FedEase and we did see rates paid even tick up a little bit there quarter on quarter.
Wholesale, there's obviously more opportunity to re price, but we do that client by client and we're not going to lose valuable client relationships over a few ticks of beta. And so what we saw there as you might expect in CIB, rates paid down quarter over quarter. And then we also saw rates paid down in both AWM and the commercial bank, but a little bit less so.
And then would you see retail improving next quarter? And then Jamie, I wanted to talk to you about liquidity. Two things, 1, we saw the repo market and as you looked at Volcker and the liquidity covered ratios, you've kind of taken the big banks out of participating in being able to solve for some of those liquidity issues. So the Fed has kind of put a ring fence around just putting that all on their shoulders versus letting JPMorgan or Goldman Sachs or Bank of America jump in and help in those processes? And then when you sold the loans this quarter, those mortgage loans and replaced them with securities, was that related to liquidity or just the decisioning process on that?
Thanks.
So the loan decision is because we are at standardized capital now, which I think by the way risk weighted out, I think the advance is far more important and we should probably report more on that because that's a 13%. But when you're when we're constrained by standardized, there are points in time of putting mortgages on your balance sheet just gives you a very low return. And of course, you have a portfolio decision, you can sell it or put it in your balance sheet. If you sell it, you're going to probably reinvest in securities. So, it's a pure economic calculation would give you a better return.
That's why I think you need some fixes in the mortgage market about securitizations, because I think we point out if you had real good securitizations, you have a healthy mortgage market, you can keep some of that on your balance sheet, you can sell some of the risk and you wouldn't have to sell these mortgages per se. And I do think and the liquidity we focus a little bit on liquidity at the Fed risk account. We have $400,000,000,000 of cash, T bills, repo, deposit to Fed and they all live under certain constraints. So you want banks to have proper liquidity, but I should also point out that those things go into multiple GCP calculations, multiple other calculations. So you try to calibrate across all those things and optimize across all those things.
But I do think you're correct, the banks are at the point now where they will not be able to redeploy a big chunk of that $500,000,000,000 that we have in other markets when the time comes. It's not Volcker per se. Volcker is a slightly different thing.
And then, Marty, I think you asked about Q4. We do think we'll continue to see deposit margin compression there on the retail side. We have come off the peaks in terms of CD pricing, but you still have slight migration there into interest bearing products.
Our next question is from Ken Usdin of Jefferies.
Hey, thanks. Good morning. Jen, you had mentioned earlier just the point about that next year's earning asset growth will be led largely through deposits. But with all this mixing into your last point there about where the deposit margin pressure comes in, do you expect the constitution of deposit growth to change at all, whether it comes from the consumer business, wholesale or the wealth management complex? Thanks.
Sure. So look, I think it's difficult to know. I think in a declining rate environment, as I said, I think the higher yielding alternatives are obviously less attractive for consumers. We do still see good organic growth in wholesale as well in both treasury services and security services. So I think it's difficult to know.
The macro environment will be a big determinant.
Got it. Understood. And second question, the card revenue margin you mentioned, it's kind of flattened out. And I'm just wondering, can you just walk us through the NII versus fee components there? Any is it partially because of the obvious NII challenges or also any changes with regards to just the underlying card fee activity?
Thanks.
Yes. There is really just timing. There's just seasonality there. So at Investor Day, we said that the card revenue rate would be 11.50 plus or minus. The 4th quarter is a seasonal high quarter for us, and so we do still expect to hit that 11.50 plus or minus for the full year guidance.
So just seasonality.
And that NII there doesn't have the same compression
Yes, very different dynamics there.
Our next question is from Matt O'Connor of Deutsche Bank.
Good morning. I just wanted
to follow-up on you talked about the 4th quarter net interest income just under $14,000,000,000 and that's not a bad place to start for next year. You highlighted balance sheet growth and mix and kind of some puts and takes, but it's probably not as bad as I think some would have thought. Think about that $14,000,000,000 ish as potential run rate plus or minus. I'm just trying to better understand like what's the rate assumption that you have and how much of a swing factor is the duration change you did in the Q3 helping that?
So, I mean, we're doing that based on the latest implies and it's obviously early days. We're working through our budget process as we speak. So it's based on the latest implies, which have a cut in October and a cut in April and 10 year, call it 170 plus or minus. So relative to where we might have been just a couple of months ago, even weeks ago, it might have been a different outlook. So I think it's important to take it with the health warning that it's on the latest implied because that is, of course, what we know.
And it's assuming some balance sheet growth. And it's assuming As opposed to all things being equal.
That's right.
That would be worse.
That's right. It would be worse. Balance sheet growth is partial offset to a larger impact from just rates.
And what is the rate sensitivity at at this point and how is that split between the short and long end? Thank you.
There I would just say you can look at the earnings at risk that we'll have in the queue. I think that's probably the best way to think about it because that is not an NII sensitivity, but is an interest rate sensitivity. And so that will be out in a few weeks.
Our next question is from Mike Mayo of Wells Fargo.
Hi, thanks for allowing my follow-up question. But Jamie, this is the first earnings call we've had since the business roundtable came out with its new statement that it's not about shareholder driven capitalism, it's about stakeholder driven capitalism. And I was hanging out at the New Yorker Festival over the weekend and your name came up and at least one author said he spoke to you. And the real question is, what is the political and regulatory risk to JPMorgan's earnings as we look out over a year? You're having the presidential debates.
Over the weekend, people talked about and the politicians talk about wealth tax, a transaction tax, a change in corporate tax, personal tax, basically flattening the pyramid and seems like a lot of people point their fingers at the banks, including JPMorgan. So my question to you is what are you doing Pointing the
fingers by what? Pointing the fingers by the banks by what?
As part of the cause, part of the cause of inequality in America, banks should be doing more to help out the situation. And again, it's a whole this is just one example. Mike, the way I saw this at the New Yorker Festival, this was kind of the intellectual underpinnings of a lot of the policies that are being introduced today. And so you're seeing that in the politician statements about wealth tax, changes to the bank business model, too much deregulation. And it's just an environment, I mean, here we are 10 years after the financial crisis, where what I would summarize it as very anti bank.
And I know JPMorgan's had proposals to help move the company and the country ahead. But how do you, as Head of the Business Roundtable, help the industry and Corporate America manage these concerns about income inequality and these other topics that come up in the presidential debates? I know it's a big question, but hey, you're in that role with the Business Roundtable.
Okay. So the business roundtable didn't get rid of shareholder value, basically said shareholder value and the customers and employees and communities, which essentially has been how many of these banks have been running for years. I think part of the statement was a lot of the world looked at shareholder value and they hear we're patience profit seeking, whereas most CEOs are thinking pretty long term, building people, taking care of their employees, their customers. And we can highlight all the great things we do for our employees, huge training, health, wellness, retirement, sharing the wealth inside the company and we do do all of that. And most of these companies do that.
A lot of these larger companies, they are great community citizens when it comes to trying to participate and help and stuff like that. So I do think so as a JPMorgan matter, we're going to grow our businesses and serve our clients as best we can whatever the environment is. That environment changes politically, it changes economically, it changes geopolitically, but we're going to navigate to do the best we can serving our clients best we can. And I do think that we try and I'm speaking for a lot of clients, we've tried to do a tremendous amount to help the communities because there have been people left behind. The inner city schools are not failing because of banks, okay.
And infrastructure is not failing because of banks. So I think we can help build infrastructure, help train people, get more skills, get involved in education systems, like all the kind of stuff that a lot of us all doing in Detroit, we can lift up society. And I think it's good for us to lift up society. And when society does better, everyone does better. If you don't believe me, look at Venezuela, Argentina, Cuba, North Korea, etcetera, that doing well is a good thing for society and you could share the wealth a little bit.
So, I'm not going to respond to specific political statements out there, but we'll do our part to be a great community citizen and serve our shareholders at the same time.
All right. Well, thanks for that response. Could I put words in your mouth? I mean, doing well for the communities and employees and all the other stakeholders is good for the shareholders long term. Is that
Yes. And Mike, I actually gave examples in the crisis about the amount of people that we financed at markets way at prices way below the market. What we do in that is to make repages profit seeking? No. And that included states, cities, hospitals, businesses, consumers, etcetera.
And so you won't be repaged, but our attitude is no, we're going to help our clients get through this tough time. It wasn't about our profitability. Our profitability dropped dramatically and we were fine. I think that was long term thinking. We never got sued over that.
So, same for how we do employees. We're constantly investing in employees and branches and jobs and training. That stuff will benefit 3 years out, 5 years out, 10 years out, 20 years out.
All right. Thank you.
Yes. Our next question is from Brian Kleinhanzl of KBW.
Great. Thanks. A quick question on equity trading. I know you gave an update on where you thought the revenues have come in mid September and looks like they came in worse than what you were looking for. Is there a way to kind of break out what was the impact of potential marks on investments versus true equity trading revenues?
Sure. In equity derivatives, it was a combination of weaker client activity and some losses on inventory, but it wasn't meaningful. Those losses were certainly not meaningful in the grand scheme of things, but they were part of the equity derivative story.
But there wasn't any other additional investments in there that had marks on them impacting the number? No. Okay. And then separately on CECL, I know you've been doing parallel runs as all banks have been. Are you at the point now we can kind of give what the pro form a provision would be for CECL?
Or do you plan on doing that prior to the adoption date?
So as we said at Investor Day, the range is $4,000,000,000 to $6,000,000,000 We've done a ton of work, as you say, and a lot of modeling. The range is still between $4,000,000,000 $6,000,000,000 and we'll be able to be more precise obviously as we prepare for the January 1 implementation.
Our next question is from Betsy Graseck of Morgan Stanley.
Hi, thanks. One follow-up on the equity. I mean, I know DB books were in the market and I believe that you were a winner of some of that. Is that in these numbers in 3Q or that comes in 4Q?
That was some prime balance that you're referring to. I don't know the answer to
It was not meaningful. Not meaningful. Whatever it is.
Okay. All right. And then separately, there's been some news obviously on discount brokers cutting commissions to 0. I know you have UInvest and that that's a recent launch, but how do you think about how that impacts your business model? Is it just something that you would consider is specific to UInvest?
Or do you think that that's something that would have a bigger impact and potentially more optionality for your clients across your wealth spectrum?
So the majority of our customers in UInvest already trade for free, and so we're pleased to see the market moving toward us. As we think about UInvest, it is one component of our broader investment strategy. And as I said, we're really proud of this quarter's results with client investment assets being up 13%. It was an important product launch for us in terms of meeting an unmet need with our existing customers, but we're pleased to see the market moving toward us. Yes.
And we're strengthening you invest. We still are improving the product over time. We haven't done a tremendous amount of marketing, I want to get it all right, both you invest and you invest portfolios, and then we'll figure out all the exact specific pricing around it.
And we have no further questions at this time.
Okay. Thank you.
Thank you.
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