Good morning, ladies and gentlemen. Welcome to JPMorgan Chase and Co's 2019 Investor Day. 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 and Co's Head of Investor Relations, Jason Scott.
Good morning. Good morning. Good morning, everyone. I'm Jason Scott, Head of Investor Relations for JPMorgan Chase. I'd like to sincerely welcome you to Investor Day 2019 and thank you for coming to join us today.
I know it's early. I know you had to navigate a construction zone with sidewalk bridges and sheds and barricades to get even the door even. So I know you really want to be here or somebody forced you to come, but either way, we're glad you're here. And now that you're through the gauntlet and in the room, I just want to ask you to stop for a second, look around, pause. For most of you, this is the last time you will ever be in this building.
A lot has happened here over the decades. Company has grown to what we are today. But I think it's pretty clear, you can see outside, we meant it when we said a year ago, we're taking this thing down. And we're moving forward with the new headquarters, that's the right thing for JPMorgan Chase going into the future.
But before we get a
few years ahead of ourselves here, let's start with why you're here today. You're our largest shareholders, debt holders, you're the folks that write about us and analyze us every single day. So you need to know what we're up to in really quite a lot of detail to even do your job. And so you'll get to hear from some of our business heads, hear them talk about what they do every day to make this company a leader across businesses, how they invest, think about long term strategy and success. And you'll definitely hear about our leading financial performance and how we continue to drive value over time for you all.
So now the only thing standing between you and all of that good stuff, just a few logistical items. 1st, brakes. For those of you online and in the room, we'll do the first two presentations before taking a short 15 minute break around 9:45 and then another at 11 am. Then we'll pause for our traditional lunch with senior management about 12:15 before concluding the day with remarks from our Chairman and CEO, Jamie Dimon. I hope everyone sticks around for the whole day.
A lot of good stuff happening. Hope you listen to the presentations from all our businesses, ask lots of good questions. And now last but not least, please turn off your phones or silence them now. And remember, for those of you in the room, when you ask a question, we got thousands of people on the cast. So please wait for the mic, introduce yourself, your name and your company.
And don't forget to take a quick look at the forward looking statements. So again, thanks very much for coming today. I also want to thank my partners that make this happen for the firm. Now let's go ahead and get started with our CFO, Mary Anne Lake.
Good morning, everybody. Good morning. I will start the firm overview where I always do by reminding you of the unwavering tenets and the operating principles of the firm. First, we are complete, global, diversified and at scale. We are committed to the completeness of our platform, importantly providing our customers with everything they need to properly operate their lives and their businesses.
And we believe that this is a source of strength and diversified earnings through the cycle. We've said it before, but scale has never been more important. Scale isn't only necessary in order for us to serve our global clients, but it also helps create operating efficiency, which is to our customers' benefit. And whether we are a leader or whether we're a fast follower, we're able to disrupt at scale through unique product offerings and capabilities through competitive pricing and rapid adoption. Next, we operate with fortress principles writ large, and that includes capital and liquidity, but also includes risk management, governance, conservative accounting and more.
And finally, we are religious about investing over the long term and not being distracted by the weather over the short term. Our investment in customer experience and innovation is working and customer satisfaction is at or near all time highs across all of our businesses. We believe that our ability to continue to invest through all parts of the cycle is also a core strength. So together, these are the consistent operating principles. You've heard me say them year after year.
And this is why we believe we have had and will continue to have leading financial performance. And 2018 was obviously no exception. You can see that on Page 2. 2018 was a record year, record revenue and record net income for the company, but also for each of our businesses, and that is either with or without the benefit of tax reform. We saw nearly $112,000,000,000 of revenue last year, $32,500,000,000 of net income and a 17% return on tangible common equity.
And on capital distribution, we delivered significantly higher net payouts over the last 2 years, have consistently increased our dividend, all while maintaining a CET1 ratio of 12%. So 2018 was another record year on an absolute basis. So let's just spend a moment on a relative basis on Page 3. You can see that we continue to be a leader among peers across virtually all measures on the page and it is driven in large part by the long term investments we've been making. We have consistently invested.
We've invested in customer experiences, adding bankers, advisors, opening new branches, entering new markets and innovating our products and services. But we don't take these leadership positions for granted. We do know that complacency is the enemy. And so we are also acutely focused now more than ever on eliminating and busting bureaucracy and waste and speeding up decision making and time to market. So let's take a quick look at the strength of our client franchises and those leadership positions then on Page 4.
As we said before, we serve over half of America, that's over 60,000,000 U. S. Households, including 4,000,000 small businesses. We do business with more than 80 percent of Fortune 500 Companies in 100 markets globally. In the commercial bank, we support 17,000 commercial and industrial clients, as well as 34,000 real estate owners and investors.
And we have relationships with more than half of the world's largest pension funds, sovereign wealth funds and central banks. In our consumer bank, within our footprint, we have number 1 primary bank share. We are the leader in deposit growth and the number 1 U. S. Credit card issuer.
In the Corporate and Investment Bank, we're number 1 in global IBCs consistently, the leader in overall markets revenue, number 1 in U. S. Dollar payments volume and top 3 in each of treasury services and custody. In the Commercial Bank, we are the leading U. S.
Multifamily lender and our Commercial Bank clients accounted for $2,500,000,000 of investment banking revenue last year. And finally, in Asset and Wealth Management, our number one private banking franchise in North America, coupled with our strong investment performance in Asset Management, contribute to consistently strong asset growth. So we are starting from a strong pace. But the only way to know if we are continuing to make progress day by day is to focus on market share, which you can see on page 5. And the upshot here on page 5 is that we have maintained or gained share across our businesses.
And where we've lost share, it's been intentional. It's been in order to preserve returns or to a lesser extent, because we walked away from business that was outside of our risk appetite. If you start with the CIB, you can see that we gained 60 basis points of share in IBCs year on year, which is itself significant. And we gained share across all regions last year for the first time in 10 years. We've continued to grow share in markets revenue, including in FICC where we were already at the high water market mark, as well as net the equities complex, which had a record year given the investments that we've made.
In CCB, we continue to grow our deposits more strongly than the industry. We've gained some share in credit card sales from a clear number one position and our focus on card balances is paying dividends. And while you can see on the page that in headline terms, we have ceded overall share in mortgage, auto and for that matter in commercial bank lending in areas where we've chosen to, we've seen growth at or above the industry. So in mortgage, in the consumer purchase market, in auto with our manufacturing partnerships and in the commercial bank in our expansion markets. In Asset and Wealth Management, we've maintained share in both active AUM and client assets.
And from a standing start, you can see that last year, we hit number 4 in U. S. ETF net flows last year. So finally for this section, let's look at the growth metrics relative to our peers on the next page. These are also things that we have shown you year after year and here too the story hasn't changed.
We continue to lead the pack in most areas today, but importantly consistently through time. With both core loan and deposit 5 year CAGRs of over 9%. Overall share in markets of 11.6%. Share in IBC is up significantly year on year, as I said, and in both cases with a large gap to number 2 spot. In the top right chart, we have generated nearly $450,000,000,000 of total net client asset flows over the last 5 years and consistently delivered double digit growth in all of card sales, active mobile customers and merchant processing volumes, all while importantly continuing to be a peer leader in customer satisfaction, which you see in the bottom right.
Okay. So enough then of a history lesson, let's talk a bit about the context, talk about how we're managing company over the medium term. And so we'll turn to Page 7 and the macro landscape. Coming into 2018, it's true that we were expecting global synchronized growth. And while the U.
S. Did indeed show strength on the back of tax reform and other fiscal stimulus, supporting 4 rate hikes last year, global growth while positive was disappointing relative to expectations coming into the year. And of course, overall confidence took a knock in the 4th quarter. But coming into 2019, the situation has stabilized with generally solid U. S.
Data prints and a more dovish Fed narrative, indeed a Fed that's likely to be on pause for a while, which could have the natural consequence of elongating the cycle. But against that, there continues to be some noisy data on the global growth front, coupled with some political uncertainties, including trade and Brexit. So then as a setup to the rest of the discussion, you can see on the top left chart that the path of interest rates is reasonably uncertain from here. The market is assuming that the rate hiking cycle is effectively over and in fact pricing an ease into 2020. Against which our house view is relatively optimistic, we do expect a long pause this year, but we still believe ease.
But either way, there will be implications for deposit reprice on the top right, and that will be important to the path of net interest income over the medium term, and we will discuss that later. In addition, while we do believe there's more room to run this cycle and we are optimistic that global growth will stabilize, on the bottom left, you can see that those recent declines in business sentiment have driven recessionary indicators higher. They are not flashing red, but they are off the floor. So it's clear therefore today that risks are much more symmetric than they have been or perhaps the Fed put it well in their minutes last week when they said the balance of risks is harder to characterize given the level of uncertainty. But we remain constructive.
And the data here in the U. S. Is supportive of solid growth, albeit lower. The U. S.
Economy is consumer led and consumers remain strong and healthy. So given that macro environment, let's talk just for a moment about our balance sheet on Page 8. Looking at the chart on the left hand side. You can see that running up to and including 2016, we were able to optimize our balance sheet such that we kept advanced and standardized risk weighted assets broadly in line with each other, which did allow us to continue to predominantly allocate capital on a risk based view. However, we have to recognize the reality of the capital regime that we live in.
And as a result of growing a high quality loan book across our businesses, you can see that today there's a sizable divergence between the two measures. And given the Collins floor here in the U. S, we are clearly bound by standardized capital. And staying just on loans for a moment on the right hand side of the page. We saw that core loan growth in 2018 was in line with our expectations.
But with growth decelerating across the board, home lending being a clear driver, but it wasn't the only one. And while loan growth has been a key focus area for all of you and for good reason, looking at 2019 and looking forward, it shouldn't be the singular focus when you also take into account other balance sheet trends. So from here, both as a result of a macro environment, but also potentially as a result of balance sheet optimization decisions, which I will talk about in a moment, we do expect lower loan growth in 2019. But you can't look at loans just in a vacuum and they will potentially be offsetting growth in our investment securities portfolio. So moving on to those other balance sheet trends and moving on to deposits on Page 9.
Focusing on the top row on the left hand side, the row excluding non operating deposits. You can see that from 2014 through 2018, total deposits grew at an 8% CAGR. In 2018, while deposit growth was solid at 4% year on year, similar to loan growth, it meaningfully decelerated. Consistent with the industry and consistent with a period of quantitative tightening and higher rates. Consumer is slowing, but we continue to expect to exceed the industry given the investments we've made.
Over the last couple of years, Asset and Wealth Management and later the Commercial Bank saw migration out of deposits into investments in higher yielding assets, the majority of which we believe we kept. And we think that most of this migration is behind us, we have a reasonably flat outlook from here. And in the CIB, operating deposits grew on strong business growth, while maintaining discipline on non operating deposits. So looking forward then into 2019, we estimate that industry deposit growth will be in the low single digits, will be about 2%. And our forecast is broadly in line to a little better than that.
We do continue to expect generally slower growth in retail across the industry as well as deceleration in wholesale as reserves in the system shrink. But if we step back, and I think it's important to do that, we did anticipate these trends. These trends are playing out consistent with our expectations. And as such, they have been contemplated in our balance sheet management through time. So moving on then what this might mean in terms of balance sheet optimization on page 10.
Deposits are, of course, our most valuable source of liquidity. And as deposit growth slows, liquidity increasingly becomes more binding. And differently from capital, we can't earn more of it and the next dollar of it is significantly more expensive. It's a step function change. So as we grow our businesses, in addition to relative value marginal decisions increasingly matter.
And at the extreme, you could assess them through a fully standardized capital and fully wholesale funded lens. And you can see this illustration here on the page. But what it clearly shows is that on a stand alone basis, not all, but many loans when measured through that rather at free lens would not produce returns above our cost of equity. And in many cases, securities may look more favorable. So of course, lending is an important part of overall client relationships and the franchise value of continuing to provide credit to our core customers should not be underestimated and we will continue to be there for them.
But this is just to say that decisions at the margin do matter. And all other things equal, they may favor a mix shift between securities and loans in order to maximize FBA. So let's move on then and talk just for a moment about the regulatory landscape on Page 11. So going on a bit of a journey, in 2010, when Dodd Frank was passed, it predated any form of GSIB surcharge. It predated years of investment in risk management and governance and controls across the industry.
And it predated a plethora of layered new rules, which you're familiar with, including CCAR, new liquidity requirements, TLAC, resolution recovery and more. And Dodd Frank introduced the Collins floor, which was a blunt instrument appropriate at the time. Think of the Collins floor as a legislative down payment towards End State Capital. So that was then, but this is now. And in the middle of the page, you can see 3 foundational principles that we think should be preserved.
1st, global consistency and harmonization for a level playing field 2nd, coherence and simplification of rules and third, more coordinated regulatory supervision. And on the right hand side, you can see that as rules are finalized here in the U. S, we believe that all elements of such an integrated regime relate closely to
each other and have to be considered together and appropriately calibrated in order to support the proper
functioning of the markets and the stepping back, importantly, we are not arguing for overall capital levels to be lower necessarily. But we do believe that capital in the system is more than adequate and neither should the direction of Cavill be higher. Given that, we'll look at our implied capital trajectory from here on the next On the far left hand side of the page, you can see our current regulatory minimum, which includes our management buffer, is obviously still at 11%. You can also see that as recently as in 2017, even under the FCB proposal as it's currently drafted and without recalibrating the U. S.
G SIB surcharge, our minimum capital would also have been about 0 point 11 dollars But what is new is that when you contemplate using stress results as part of baseline capital, then volatility in the stress severity, including importantly countercyclicality would imply additional capital from here absent any offsets. Back to that point about all aspects relate to each other. So the volatility worsened the magnitude of stress results materially last year, not just for us, but for all GSIBs. So as we look forward, it does feel that there has been a generally warm reception to industry feedback and we expect that incremental stress should be offset by other factors. Most notably, we continue to call for a fundamental rethink and recalibration of the U.
S. G SIB surcharge. In light of both economic growth, but also the cumulative effect of post crisis reform. Secondly, it should be recognized that countercyclicality has been embedded into the test to a significant degree. And finally, it will be important to work out the interplay between the final Basel III floor and the Collins floor here in the U.
S. But as such, we still believe that 11% to 12% capital remains an appropriate through the cycle range for us. However, we are bound by CCAR and we are bound by the volatility embedded in the test. And so at this point in the cycle, we expect the company will run towards the top end of that range. This would be consistent with continuing to support overall modest RWA growth and also support payouts of about 90% plus this year consistent with analyst estimates and obviously continuing to be CCAR results dependent.
Having said that, repurchasing shares, as you know, is at the bottom of our capital hierarchy in terms of uses. 1st and foremost, we will invest in our businesses, in our clients, our communities and our employees. So then rounding out the capital conversation with capital allocation to our businesses on the next page on Page 13. A reminder in the top on the bottom left that we have a multi metric capital allocation framework that incorporates 5 key capital measures reflecting resource scarcity. And one of the benefits of this framework, which we implemented in 2017, is that it is dynamic and flexible and will evolve with our changing capital position.
And so while we continue to believe in the importance of risk based capital and the return on risk mentality, and as such, this does remain a foundational pillar in our framework. This year, in order to recognize the firm's most binding constraints, we have increased the relative weights ascribed to standardized risk weighted assets and performance under stress. And given that we are not expecting to be at 11% CET1 in the near term, we are increasing the line of business capitalization rate used within the framework. So if you look at the right hand side, you can see that overall firm retained equity is relatively flat year on year. But the consequence of these changes is to reduce the excess that was previously retained in corporate and to allocate more to the businesses, principally the CIB, driven by stress as well as growth, and the Commercial Bank and Asset and Wealth Management due to the increased emphasis on standardized risk weighted assets.
And while there is a healthy mix of both science and art in this framework, overall, we do believe that these incentives properly align with the overall firm's objectives and ensure that decisions we're making today are informed by an appropriate forward looking view of their risks and their costs. And while the overall return on tangible common equity target for the company remains unchanged at 17%, Accordingly, the CIB has revised their medium term target down to 16% and Asset and Wealth Management down to 25% plus, which are still healthy return targets for these businesses. Next, let's get to the forward looking financial performance view. We'll start with net interest income on Page 14. When looking at the journey on net interest income, it's instructive to start with 2015 as a baseline, given that it preceded the normalization cycle and we had $45,000,000,000 of NII in 2015.
In 2019, we are expecting NII of $58,000,000,000 plus That's a cumulative increase of more than $13,000,000,000 over 4 years, including about $2,500,000,000 this year, which is driven by the annualization of higher rates delivered last year as well as continued net growth. And if you look at the drivers in the walk on the page, you can see that the combination of higher rates and balance sheet growth and mix have been very significant. In fact, between them delivering core net interest income growth of close to $17,000,000,000 But importantly, I do note that we have benefited to date from deposit reprice lags, which we would expect to give back over time. So given that, what do we expect from here? Moving on to the next page.
Starting on the left with our 2019 outlook of $58,000,000,000 plus and looking forward to a steady state, which might be a few years away. You can see that we may end up in about the same zip code, between $58,000,000,000 $60,000,000,000 but the journey to get there will likely be interesting. In the walk first in green, time is definitely our friend, and we've previously said that balance sheet growth and mix has become a bigger part of the story. And when combined with the compounding effect of higher long end rates, together those could drive up to $2,000,000,000 of incremental NII each year. But against that, our current run rate still incorporates meaningful deposit reprice lags relative to our through the cycle assumptions.
Now we believe that lags are just that and that most or all repricing may work its way through by the end of the cycle, But the timing of that will matter. I'm reminding you of the chart from the top right of Page 7 and just to help you, here it is, top right of Page 7, you can see that reprice meaningfully accelerated after the last hike in the last cycle And you can see that in that cluster of dots up on the top right. So the only thing that we can be certain of is it won't be linear. And further, in green, there is still an open question as to whether we will hit those through the cycle reprice assumptions at all or whether we'll do better. And that question may be even more pertinent if in fact the cycle has effectively ended with Fed funds at only 2.5%.
So that is all to say that the path of net interest income over the next few years is very dependent on the pace and the ultimate level of reprice. And so on this page, we're showing just for illustration 3 paths and there's clearly a lot of distance between them. On the one hand, if there is more room to run this cycle, if there are more rate hikes in our future and if in the past or if today like in the past, the most significant reprice happens after the end of the cycle, then you may follow a line that's closer to the top line on this page. But on the other hand, if we are potentially towards the end of the cycle and the Fed is on pause and that's more like the implied curve, then we could be in a grind higher scenario, something more like that gray line in the middle. And without discounting the possibility that reprice could accelerate in the short term, we would think that the bottom line is a lower probability outcome.
But in all cases, on that top right, the case for higher, you can see that we still have the open question about what the ultimate level of deposit reprice will be. And here too, it is worth reminding you that steady state net interest income of between $58,000,000,000 $60,000,000,000 at the end of this cycle is completely consistent with what we have been telling you, with what we told you last year and at previous Investor Days. So in many ways, although the path will be interesting, there's nothing new to see here either. Spending a minute then on non interest income on Page 16. And of course, no good ever comes from trying to forecast fee revenue over a short time frame, given the obvious impact that markets revenue and markets levels can have.
But if you look through that, you can see in the walk on the page that volume driven growth in 2018 of about 5% was the most material driver last year. And if you look at the bottom of the page, you can see that core business drivers do continue to grow consistently. Daniel will give you guidance on fee and trading performance later. But the point on this page is that market independent, you should expect underlying non interest revenue to grow solidly at about a 3% CAGR over time. Next then, we'll move to expense on Page 17.
2018 adjusted expense was $63,300,000,000 with an overhead ratio of 57%. You will recall this time last year that we talked about the fact that we saw a significant opportunity to accelerate and increase investments across the board in order to drive long term growth and profitability and a differentiated customer experience. And we continue to believe that that's the case. You can see on the walk that investments remain the biggest driver of year over year expense growth in 2019. From the left, first, you can see we have a net incremental about $600,000,000 of new technology investments.
But importantly, we're seeing the benefit of previous investments rolling off and on a gross basis, we're able to decision that and reinvest that plus into new opportunities. And you'll hear my partners later talk about those opportunities. I could characterize them as broadly reflecting our continued focus on digital, on customer experience, on resilient and scalable infrastructure and obviously, cybersecurity and controls. And this brings our total technology spend for the year to about $11,500,000,000 and it's now split about equally between Run the Bank and Change the Bank. Moving on, we have $1,600,000,000 of incremental non technology investments this year, driven by a combination of consumer marketing, of continued front office hiring, of new branches entering new markets and this year expensing the demolition of 270 Park Avenue.
Next, you can see revenue related growth. And to be clear here, these are expenses for which you can draw a direct line between each incremental dollar of expense and $1 plus of revenue, the largest driver of which is auto lease depreciation. Finally, of the remainder of the biggest change is the impact of lower FDIC fees this year, which brings us to a total outlook for adjusted expense in 2019 of less than $66,000,000,000 performance dependent. But importantly, underlying this walk at the grassroots level, we continue to operate with discipline delivering core efficiencies, which allows us once again this year to self fund broader underlying growth. Think about more households, more accounts, more transactions.
And while it is not on the page, just a moment on the forward trajectory for expense beyond 2019. We feel really good about the investments that we've made over the last several years, and we will always take a long term view in our investment agenda. However, we do expect the cost curve to flatten out from here and do not expect net incremental investments to be higher over the next couple of years. Let's move to credit then on the next page on Page 18. Starting on the left hand side with 2018 actual net charge offs, which were 53 basis points for the firm, a little less than $5,000,000,000 of charge offs, substantially all driven by card.
Today, we are not seeing signs of fragility in our portfolios. And so we expect 2019 will look very similar to 2018 with charge offs of less than $5,500,000,000 which are higher year on year but on growth. Importantly, we expect card charge off rate this year to be relatively in line to the strong performance we saw last year, albeit that over time, we would still expect the card charge off rates tick up modestly as expansion vintages do become a greater portion of the portfolio. Before we leave credit, a moment on CECL, the current expected credit loss framework on Page 19. After decades under today's loan loss accounting regime, the U.
S. Will be implementing a new life of loan reserving standard at the beginning of 2020. Based upon what we know today, our central case for credit, as I said, is to remain relatively benign over the next couple of years. And based upon that outlook, our current implementation estimate is to increase reserves by about $5,000,000,000 plus or minus, with the largest driver being card. In card, today we have a little over $5,000,000,000 of reserves.
And remember that we are currently reserving for about 12 months of losses, while the weighted average life of revolving balances is closer to 2 years. So obviously, the modeling is considerably more complicated than that, but about 2 times our current reserves seems reasonable. And while there will be other pluses and minuses across the remaining portfolios, In these cases, current reserve estimates, including qualitative elements are much closer in terms of their coverage today to CECL estimates. So rolling forward, if 10 months from now when we implement, if then recessionary indicators are indeed flashing red, then obviously our estimate of lifetime losses would be higher. And to the right, you can see a range of adverse outcomes, implying a larger implementation adjustment of up to $10,000,000,000 With respect to the capital implications of CECL, there is, as you know, a 4 year transition period for the implementation adjustment, which is helpful, but only to a point.
And to date, there's no proposal on permanent capital release. In practical reality, a lifetime standard will likely create significantly more stress or set a higher capital drawdown in the 1st few periods of a real or a simulated downturn, which when taken together with higher launch point reserves could mean that even in benign periods, it has the effect of requiring permanent capital to support an effectively stressed outcome. So while it is definitely true that cash flows haven't changed, implicitly the economics might have. And this could have unintended consequences for the pricing or availability of credit at potentially the worst point of a cycle. So bringing all of this together then with the medium term outlook for the performance of the company on Page 20.
So we did deliver a 17% return on tangible common equity in 2018. And from here, we've already talked about the fact that risks are more symmetric. So there is, of course, a wider range of possible outcomes as you look forward over time. However, if the environment remains constructive, if Fed policy stays relatively accommodative and credit benign, all of which we relatively expect, we may over earn against our target for the next few years. But notwithstanding, 17% remains our base case over the medium term.
So the good news is we're there, we're at 17% and we are showing steady growth across our businesses, growing dollars of SEA. And we expect to be able to sustain that level absent a significant change in the environment. So in conclusion, we delivered record performance in 2018 on many levels and are delivering significant shareholder value with peer leading returns. Customer satisfaction is high across all of our businesses and we continue to invest and we continue to gain share. Years of relentless execution hopefully give you the confidence we will continue to deliver strong financial results no matter the macro environment.
But as I said, based upon what we can see today, we do expect to continue to deliver 17% returns over the medium term. So with that, I have a little bit of time. It's not like me to go slow. I have a little bit of time for questions.
Mike, we're here. Mike.
Mike Mayo with Wells Fargo Securities. Just to follow-up on the 17% ROTCE targets. Just said you're gaining share, you're making investments for more growth, credit quality is still good, efficiency is getting better. It seems like it's all going right, but you keep the RTCE target at 17%. Why not increase that?
Yes. So I would tell you that as we sit here today, when we have an outlook that is more symmetric, I mean, interest rates being one example, but not the only example and where we are arguably later in a cycle. It is definitely the case that if things continue to be constructive and we have no reason to believe that they will change, that there is a case to earn higher than that over the next year or 2 or maybe even longer. But the further out you go, the less confidence we can have that we won't see the end of the cycle. So we like to take an appropriately sort of conservative view and say, almost notwithstanding, unless we see something that is significantly different, continue to deliver returns at that 17% rate, which we should take a moment to celebrate that it's the first time I haven't had to put a walk on the page to get there because we're there.
And we are growing our businesses pretty steadily. So we are growing dollars of shareholder value even if we were at 17% return over the course of the next few years. But we're at that point in the cycle where you might think we'll over earn for a period, maybe we will, right? But we're not going to sort of run the bank that way.
Hi, Betsy Graseck, Morgan Stanley. Mary Anne, question on your comments on the securities portfolio. You talked about how the decisioning might be a little bit less loans, more securities. Could you give us a sense as to what the dynamics are around that decision and what type of securities you're talking about? Is it more duration risk?
Is it more credit risk? And are you going for yields there?
Yes. So I would I think maybe the broader point is that if you have if you believe our industry expectation that deposit growth is going to be, call it, 2%, and we might do a little better than that. But if you believe that, then naturally, almost regardless of whether you say it's loans or anything else, your sort of interest earning asset asset growth is going to be meaningfully lower year on year, so at or less than 5% in totality. And then if you look at the fact that because deposit growth is slowing, just naturally, we have less incremental dollars of deposit liquidity to put to work. And so when you look at that now and compare it to the demand we have for loans and the spread we can earn on investment securities, on a completely standalone basis, you could favor security over a loan.
Many, many loans, we don't think of on a standalone basis. If they come, think about that client ROE concept that we talked about historically, where we look at the franchise value in totality of the relationship we have and we're also willing to invest through the cycle in relationships. So not at every point in the cycle does everything have to be accretive. But on a purely standalone basis, loan only business can start to look less attractive. And it could be a pure swap from take the example we have on the page here just conceptually is a mortgage loan on our balance sheet compared to a non agency RMBS in our portfolio.
And so it could be recycling the balance sheet for sort of just basic capital efficiency and liquidity efficiency, a loan on our balance sheet that is a high liquidity. Glenn, right over here. Hey, Glenn. Hello. Glenn Schorr, Evercore, Evercore.
Glenn Schorr, Evercore ISI. You talked about the importance of the repricing cycle on the net income walk and therefore every other target walk. Maybe can you talk about how much JPMorgan has done is doing that can influence the repricing cycle versus just being a victim of the competitive environment? Thanks.
So I would say that the best thing that we can do to influence and we don't really think about it that way, but the best thing we can do is to do a great job for our customers. Because if you think we've been talking for years now about what's the case for lower versus higher, well, the case for lower reprice is all the other value you're adding, right? So it's integrated products and services, it's rewards and benefits more broadly, it's convenience, it's brand, it's all of those things. And so the best thing we can do to end up in a different situation is just to continue to invest in that kind of ecosystem where there's more and more and more value for our customers outside of rate. And so rate becomes increasingly less of a significant driver.
And I wouldn't say when we think about it, we think about customer behavior drives that outcome. How we how we think about it. I'm out of time. I will be here all day. So thank you very much, and I'll welcome Daniel and his team to the stage.
Okay. Good morning. Thank you all for being here. This year, I'm also joined by my partners, Taki Georgakopoulos, Global Head of Wholesale Payments and Troy Robach, the Global Head of Markets. So we are going to cover the following today, in the next hour.
So I will look I will talk about financial overview and give you a brief update on each of the lines of business. Then Troy will cover some specific areas in markets, including the progress that we have made in the Equity division and our vision for the future. We'll talk about the impact of electronification with particular emphasis in the fixed income business, and then we'll talk a bit of the client franchise. So then Tagris will talk about the wholesale payment business. We recently combined all our wholesale payment assets.
So change merchant services, security services sorry, treasury services and commercial car. Doug is leading that effort reporting to Gordon and myself. And then finally, we'll come back. We'll talk a bit about the financial outlook, a bit of an idea of the strategy going forward and give you the color of what we see for this Q1 of 2019.
Where is the clicker?
You have it here? Okay. That's it.
So we discussed our strategy in the over the last few years to be global, to operate and scale, to be complete and diversified. That has produced a good performance and returns that allow us to invest in the franchise. Last year was very, very strong. We have record revenues, dollars 36,400,000,000 at record net income at $12,000,000,000 We have record revenues in the Equity division, in the Banking Group, including in M and A. So we have delivered over the year very strong returns and last year was 16% over on the $70,000,000,000 of capital.
So when you look at the components of the business, so you have the investment bank markets and Investment Banking. We have very stable returns over the years and probably best in class returns as well. And then on the transaction banking, TS and Security Services, we have a couple of years in 2015 2016 where the very low level of interest rates combined with the work that we were doing in stabilizing the platforms and improving our client experience and client satisfaction forced us to slow down the growth of the business. And but that work is all done. Now that interest rates are going up or have gone up and growth is back.
So we have delivered 16% return on equity in 2017 of those combined business and 20% last year. And this is not just about interest rates going up. That will explain roughly 60% of the improvement. The other 40% is pure business
growth.
Now into expenses. So we discussed with you in 2014, our expense program management program. So we went the target was to go from $22,000,000,000 of adjusted expenses at the time to $19,000,000,000 The $19,000,000,000 was achieved in 2016 and pretty much maintained in 2017. Last year, expenses gone up by $1,300,000,000 and these are the reasons. So $500,000,000 is related to growth in revenues.
And particularly, it's all driven by volume driven transaction costs. It is related to other items as well, including paying for performance with compensation. So let me point it out that the comp to revenue ratio is being stable from 17% to 18% at 28%. Next column is additional investments in technology. This number is a net number.
When you add to that number, the role of projects that we finalized last year and we reinvest that talent into new projects and we continue finding efficiencies in the technology organization, the amount that is really invested in new projects in technology is around $800,000,000 So then non tech additional investments and extra $300,000,000 There are several items here. One of them is Brexit. We are getting prepared. We have some expenses in 2018 and we will have some more in 2019. We appointed last year, Mark Long to run our China franchise.
He was a co head of Equities, the Global Division of Equities and now he's fully focused in running China. Clearly, we are working in the expansion there. We did a very good job in China over the years. Our top line in China related business has gone up almost like 50% in the last 4 years, but we think that there is a lot of more growth going forward. So that take us to $20,700,000,000 in investment in 2018 in expenses in 2018.
So going to return on equity, in 2017, we delivered 14.5% return on equity. So going into 2018, so revenues, increasing revenues has contributed by 130 basis points, particularly driven by a very strong performance in the equity division, security services, treasury services and banking. And in fixed income, clearly it was another tough year where the wallet has gone down by 10%, our revenues remain flat by increasing market share. So rates or increasing rates provide 80 basis points of tailwind. We already talked about expenses, a headwind of 170 basis points.
And then tax reform give us 110 basis points to deliver close to 16% return on equity on $70,000,000,000 of capital last year. So let's talk about the progress in the franchise across business. Our market share from 14% to 18% across the CIB franchise was increased by 160 basis points. That is moving from 7.3% to 8.9%, including on the 160 basis points, 50 basis points in 2018. And when you go to the right hand side of the page, I will drive your attention to the blue part of the circle.
So we use Coalition here that divides the Corporate Investment Bank franchise in 24 lines of business. In 2014, we were the leader, the number 1 in 8 of them. Last year, we were the number 1 in 2018 in 16 of them, so we doubled it. And when you think about what is the main driver of that increase in performance and market share is particularly the bulk of it is in markets was across equities and fixed income and the progress that we have made in those businesses. Now going into the lines of business, So starting with Investment Banking.
The wallet in Investment Banking has been relatively stable in the last 5 years, but our market share has grown from 8% to 8.7%. And as Marianne mentioned, we've been increasing market share in all the regions, 40 basis points in America, 90 basis points in EMEA and 110 basis points in Asia. And then on the right hand side of the page, when you think about the different products, M and A, a wallet that has been growing substantially in the last 5 years, has been accompanied by a substantial increase in market share. You may remember that we discussed in the past that a portion of our investment plan was to add senior bankers in areas or industries where we felt we have some weakness or in regions. And we have done that.
Clearly, the results are very clear. So debt capital markets, a very stable wallet over the year and a very stable market share for us. This is a tough business as the cost of participating in the revolver facilities of different companies is going up. And then companies have to reward the banks that participate in those, they tend to appoint more book runners in each transactions that we do. So it's a bit tougher business.
We've been number 1 all along and we continue to do so, but the market share there has an increase. In Equity Capital Markets, we have the last 3 years a good business, but a bit of a challenge in the wallet. So the wallet the average wallet in the last 3 years has been lower than the wallet in 2014 2016, but we sort of counterbalance that by an increase in market share, particularly last year at 9.1% from 7% in 2014. So this is a great business, Carlos and Christine, they have done an amazing job here. We think that is still upside here and we will continue to selectively banking talent in areas as we did in the past in areas where we believe is necessary.
Now a brief summary on markets. So our market share in markets from 2014 to 18 has gone up by 2 80 basis points, including 90 basis points last year. The wallet, top left of the page, the wallet in equities has been stable over the year and our market share has gone up from 7.9% to 11.2%. When you think about and it's not just in one particular area of the business, it's all across, it's in cash, it's in prime, it's in financing and it's in derivatives. So Jason and his team have done a great job here to really take us to this point.
And we think that there is still more to do. Fixed income, in 2014, we have 9.2% market share and last year we have 11.9% market share. So the wallet has reduced to $96,000,000,000 for $118,000,000 in 2014. So if you want to be a bit more depressed, so if we started the series in 2010, so the wallet was $160,000,000,000 and our market share was 8.6%. So it is a challenging business for the industry overall, but not so much for us.
When you think about the bottom if you look at the bottom right hand side of the page, so our marginal return on equity in both of these businesses is very high. But also the fully loaded return of business of both of them in equities is being very good. It is like something between 12% to 18%. And in fixed income, it's been in the name in probably low to mid teens and probably a very strong year like 16 that produced 18% return on equity. So this is at our scale, the wallet and continue growing market share, the wallet hasn't been too much of a challenge.
Obviously, we would have preferred the wallet to grow, so it didn't, but it's a perfectly valuable business. It's very important for our clients. We were committed in the past and we'll continue to be committed in for those businesses in the future. So now going to treasury services and the view here is the portion of treasury services that gets reported in the Corporate and Investment Bank. So revenues has grown from $3,600,000,000 to $4,700,000,000 a 14% CAGR and expenses they've been largely flat.
So the revenues in this business, 2 thirds of the increase is related to increase in rates. The other third is pure organic growth. On the expense side, though expenses have been flat, it doesn't mean that we haven't invest. We increased our headcount in sales, product innovation by 20%. We also increased our investment in technology, change the bank technology by 15% by and the increase in those investments is purely funded by operational efficiencies.
On the right hand side of the page, we have the deposits picture. Deposits have been growing at a CAGR of 9% overall sorry, 7% overall and operating deposits have grown at 9%. So very strong performance. On the bottom of the page, corporate deposits have grown at 6% and fixed deposits at 8%. We discussed in the past that a lot of the focus of this business was to grow the international business without really discounting the U.
S. Business, but we're already a leader here. So when you think about where the policies have grown, it's right essentially outside the U. S, in EMEA, Asia Pacific and Latin America. So I really very excited about the future of this business.
So it's a very fragmented wallet. When you look at the TS business across the Corporate Investment Bank and the Commercial Bank, we have a global wallet share in the neighborhood of 6%, 6.5%, very fragmented overall. And when you think about the amount of investment in technologies that we have the ability to invest, our great progress in cyber and the fact that we can put all these wholesale platforms together, I really like our hand in terms of growth for this business going forward, because I do believe that the industry in this space will tend to consolidate rather than remain as fragmented as it is today. Security Services, Page 8. We have been executing a multiyear strategic investment program here to deliver better products and services to our clients.
So Teresa runs this team, has done a very good job with her team. And we particularly focus in a bunch of areas. 1st, CTS, we focus in growing in emerging markets. We believe that it makes sense to have a scalable middle office outsourcing platform and we are building it. We are focusing the alternative space that we didn't do much of that in the past.
We are working in replatforming all our infrastructure and clearly creating a great client experience. And that has delivered. Asset under custody from 2016 to 2018 has grown 13%. Revenues have gone 18% from 3.6% to 4.2%. And this number, the component of rate increase is half of the explained half of the increase in revenues.
The other half is organic growth. And our operating margin has gone up by 9 points. So this is also a very strategic business. As you think about what the asset management industry is going through with asset versus active playing out and a contraction in margins, there is no doubt in our mind that asset management will have to outsource more and more of the functions that they are doing today. So you want to have a platform that is able to cater for that in a very scalable way.
And that's exactly what we are building here. So the last page of the session, I want to talk a bit about technology. I will not focus in the top of the page. Essentially, those are the areas of the main things that we're investing towards. You will not be very surprised about that.
The key is here, how do we pay for this, because we need to go faster and faster. There is no doubt Laurie and her team have done a very good job finding more and more efficiencies, essentially creating a better output for every dollar of expense in the technology organization. But we need to do more. And in the way that we think about it is in the following way. There are the boxes at the bottom of it.
And we have this program that we are working on and we've been working on for a period of time, where first is about including improving the efficiency of our software engineers. And this is about giving tools to our managers to understand why certain developers or team of developers produce more than others. And it's not necessarily have to be because the talent is better in one place to the other, though it may be one of the reasons is about the obstacles that we can put in place, the way that they generate their they develop their technology, so the bureaucracy that they may be facing. So we are really going very deep into organization to understand the productivity of small group teams in order to really address those issues and improve. The second one is about platform simplification.
And this is about driving agility, modernize infrastructure, including the adoption of cloud, internal or external. I have a consistent architecture for data and applications that will avoid duplication and increase usability going forward. We need to avoid building everything from 0 to 100 every single time. We want to really use what is being developed and each developer build on top of it rather than going from 0. So this will drive results.
I don't know if there is 10% more here or is 40% more. What I do know is there is no 0. So we need to if we want to win going forward, we need to really address this issue and really deliver a lot of more for every dollar of expense in the technology organization that we are delivering today. And we have made progress and there is a lot of more published progress to come. So I will stop here and now we go to markets with Troy.
Good morning, everyone. Daniel has discussed markets overall. So for the next 15 minutes, I'd like to cover 3 topics in more detail. 1st, a deeper dive into the performance of our equities business with a focus on cash Equities and Prime Finance electronification in our FIC business, focusing on the drivers, pace and impact on our franchise and finally, highlight the growth of our client franchise across markets. The Equities franchise is reaping the rewards of our multiyear investment in technology, talent and execution capability.
These investments have led to market share gains in all equities products across every region during the past 4 years. As you can see on the left hand graph on Page 11, since 2014, we have gained market share by over 330 basis points, more than our top 3 competitors combined. These gains have also begun to accelerate with 130 basis points coming in the last year alone. On the right hand graph, it shows the 250 basis points or greater growth by major product, cash, derivatives and prime. Also, each major region has experienced 200 basis points or more of growth.
All of this has allowed us to close the overall wallet gap on our largest competitors by $1,000,000,000 We've maintained the number one equity derivatives business since 2015. This remains a core focus of our business as indicated by the market share gains. But today, I want to focus more on the performance of cash equities and prime finance. Despite a shrinking industry wallet, our revenue has grown since 2014. As you can see on Page 12 on the left, our revenue growth in cash equities has been 7% versus down 6% for the industry wallet.
The acceleration in revenue growth from 2016 to 2018 has been driven primarily by low touch and program trading. We've consistently invested in the technology and execution capabilities needed to improve our low touch business. This combined with our improved global coordination across cash and prime has yielded an average of 25% growth per year in low touch. This focus on low touch has not been at the expense of our other businesses. In particular, program trading has experienced 30 percent average growth over the past 4 years.
In the case of a high touch, where absolute revenue has dropped, we've still been able to gain share on our largest peers. As you can see on the right hand side of the page, our growth in share of volumes has been driven primarily by low touch and particularly from our investments in EMEA and APAC. Going forward, we will continue to invest across all aspects of our cash franchise. As many of you remember, our original prime business was a U. S.-centric cash business inherited from Bear Stearns.
We undertook a systematic multiyear investment plan to build out the overall offering, most notably international product, synthetics and direct market access capabilities. These efforts are bearing fruit. We've been able to onboard clients that have historically not been interested in our more limited platform. The pipeline of new business is very robust across all geographies and all products. As mentioned in the previous slide, we've also developed a much more coordinated approach across cash and prime.
These efforts and investments have resulted in record balances in revenues in all regions and products. As you can see on the left hand side of the graph, while maintaining our strong North American client footprint, we've significantly grown balances in EMEA and Asia, 15% 36%, respectively. Overall non U. S. Balances have grown from 22% to 32% in 2018.
On the right, you can see as a result of the investment in our Synthetic product and international growth, our prime revenues have grown by an average of 13% per year over the last 4 years. At the bottom on the right hand side, we are showing an improvement in our balance sheet ratio, down by 12 percentage points over the last 5 years. This lower percentage is driven by 2 things: 1, optimized inventory management and second, the growth in synthetics. The latter has offered more netting and off balance sheet opportunities, thereby improving our bottom line returns. However, despite this improvement, our balance sheet footprint will remain large due to both the overall size of the business and our large North American cash product.
Again, going forward, we will continue to invest and focus on international growth, most notably in APAC and synthetics. To conclude on equities, while we hope to continue harvesting the benefits of our multiyear investments, our high level strategy remains unchanged. We will invest in products and technology. Specifically, we are committed to increasing the adoption of advanced analytics and AI across our sales and trading functions. We will expand scale and reach.
Scale will continue to be a major differentiator in this business. We will look for specific opportunities at a granular level by product and by region to ensure we have the largest diversified client base client service is a critical component along with scale and execution. Successfully executing on this strategy is the key to our equities franchise. Moving on to Electrification and FIC on Page 15. We believe there have been 2 primary drivers, the first being organic.
For some years now, we've continued to see client demand for choice, transparency and efficiency. As a result of that, for some asset classes, electronification has been a longer term trend. For example, in FX Cash, increased electronification has been occurring for over 20 years. That percentage is beginning to stabilize at the moment, but however, it is still a long term trend. However, this need for more sophisticated tools to manage high levels of electronification is still very much increasing.
Clients are deploying much more sophisticated tools, specifically algos. As you can see in the last year alone, our algo driven FX execution volumes are up 44% despite an overall growth of only 8%. This is creating new opportunities for us and I'll come back to that in a minute when we cover Algo Central. The second is regulatory change. We've also seen in many cases regulations act as the primary driver for electronification, first with Dodd Frank here in the U.
S. And most recently with Mid Fit 2 in EMEA, which has caused higher levels of electronification in asset classes like euro and sterling swaps. We've seen an even faster growth in RFQ or request for quote to 1, which is an indication that clients are meeting regulatory demand and using electronification for efficiency. But this is step 1 and a crucial building block for greater electrification of those asset classes. We continue to invest in the most sophisticated execution tools and we are leading with our investment in Algo Central.
As electronification continues to deepen across asset classes, especially in relatively small ticket flow businesses, we believe new tools such as Algo Central are crucial to our clients. Algo Central is currently available in FX, but ultimately, we will roll it out across all asset classes. Its key features are the ability to access all master orders at a single point of entry the ability to apply cutting edge analytics across pre trade, trade and post trade you can manage multiple orders and strategies simultaneously and you can amend these strategies on the fly. It's available not only on our JPMorgan Markets proprietary platform, it's available on approved 3rd party platforms as well. This is just one of the many tools we are developing internally, and we are looking to offer them across asset classes to our clients.
3 years ago, we shared with you during Investor Day our expectations for electronification across some of the FICC asset classes. We wanted to revisit that and do a quick mark to market. So on Page 17 on the left are our expectations from 2015. Surprisingly, we were totally wrong in many cases. In the middle are the current levels of electronification.
We've highlighted 4 areas: interest rate swaps, FX cash, FX options and EM local currency bonds. In the case of IRS, it's been much less than expected. FX Cash has been broadly in line with our expectations. FX Options, a nonlinear product, has been much more than we expected. And in the case of EM Local Bonds, there's been very little to no electronification, which came to us as a big surprise when you compare it to developed markets.
The point of this slide is you cannot predict the pace of electronification. You simply have to invest across the full spectrum in order to be prepared. So our expectation is all products will continue to broadly electronify at an ever increasing pace and we will invest accordingly. So we've also discussed the effect of electronification on the revenue of markets, particularly FICC. While there has been a clear headwind, it has been broadly offset by the gains in market share that Daniel mentioned.
We expect further quantification to continue to be manageable from a revenue perspective. Finally, moving on to clients. We consistently maintain a strong and leading client franchise across both institutional and corporate clients. Within the institutional client segment, we've been consistently ranked number 1 over the past 5 years. As you can see, we have a balanced and well diversified franchise with both institutional clients and have gained market share across all segments of this category.
Asset and Wealth Managers are historically a strong client segment for us, yet we still managed to gain 2 70 basis points of wallet with this client segment since 2014 and remain ranked number 1 in this segment. The increased cost AUM changes, fee pressure and evolving liquidity needs of this client base has allowed us by close coordination to build and strengthen our partnership with them, which has enabled us to gain share and solidify our number one ranking. Additionally, as Operation Alpha becomes more important, our ability to bring integrated solutions across underperformed relative to our largest peers in the hedge fund sector. We've been able to gain 220 basis points here since 2014 and are now ranked 2nd in the category. We've also gained 140 basis points with banks, insurance companies and our public clients since 2014 and remain ranked number 1 in this segment as well.
Beyond institutional clients, JPMorgan has simultaneously grown its market share with the corporate client base, gaining 120 basis points of market share with corporate since 2014. We will continue to partner with the Global Corporate Bank and our Treasury Services franchise to capture more opportunities, particularly in EMEA and Asia. Our clients are transforming consolidation, margin compression and the shift to passive. Understanding these evolving challenges of our clients is critical. We are prioritizing investments to make sure we stay ahead of our clients' needs, particularly our ability to deliver top quality end to end digital experiences.
Capital and risk solutions will increasingly require next gen analytics, enhanced client interactions and best in class execution. Our investment agenda prioritize all of these. I won't go through them, but the examples are we will continue to deliver best in class analytics, provide the most sophisticated execution tools, and finally, deliver an industry leading client service model. Thank you very much for your time this morning, and I'll turn it over to Tacos.
Thank you, Troy. I'm going
to spend the next few minutes talking about our current position and our vision on wholesale payments, which as Daniel mentioned, brings together the largest transaction bank in the world, Treasury Services, with more than $1,000,000,000,000 in annual processing volume, with more than $1,000,000,000,000 in annual processing volume together with our global trade business and our U. S. Commercial card business. We have a great starting point. These businesses collectively generated more than $11,000,000,000 of revenues in 2018 across our CIB, CB and CCB franchises, an increase of 30% over the past 2 years.
And our goal as the only bank that can bring together an in house merchant services business and a treasury services business is to deliver a unique wholesale value proposition to our clients and I'm going to go through some examples later on. We serve the entire suite of clients of JPMorgan from the very large to the very small, including 80% of the global Fortune 500, including tens of thousands of small business and middle market companies in the U. S. And including almost every major bank, insurer and asset manager around the world. Our aspiration is to deliver an integrated set of client journeys for our clients across sales, onboarding, pricing, servicing and at the same time to bring together technology and operations even more than before across those businesses to generate even higher scale benefits.
Focusing on Treasury Services for a minute. Daniel spoke about the CIB portion. This page shows the firm wide view, including revenues across CIB, CB and CCB. In 2016, our revenues were $6,300,000,000 In 2018, that number was 8.8, an increase of 40%. And when you look at our largest competitor, their revenue growth was 25%.
That difference between $40,000,000 $25,000,000 translates into an $800,000,000 swing, which is what took us from the number 2 position to the number 1 position. And while our revenue growth was supported by rates, more than a third for CIB clients was organic growth, translating into higher balances, higher fees and higher effects, and we gained market share in every customer segment and every region. That said, there is still a lot of upside in that business, both because as Daniel said, it's very fragmented, but also because when you look at the CIB portion, which is the dark blue and compare it to the darkest to the dark the largest dark green bar on the page, there is still a $1,000,000,000 gap between us and number 1 on the CIB side, most of it having to do with corporate clients and their business outside the U. S. And we expect half of that opportunity to be addressable over the next few years.
In terms of our wholesale value proposition to our clients, we focused on what we are going to deliver to them and what is the underlying infrastructure that will allow us to deliver it efficiently. In terms of what we deliver, we have 3 key pillars. We want to allow our clients to accept and collect from anywhere in the world in any currency, including real time payments and including wallets. We want to allow our clients to connect to us in the way that makes sense, whether it is customized front ends, whether it's APIs or over time, whether it's open banking solutions. And we want to be able to deliver to our clients real time insights to help them optimize and simplify their operations.
We want to deliver that through global platforms that provide the lowest cost in the industry, complete set of capabilities and maximum flexibility to change things over time. We will deliver it with our best in class controls, leveraging the strength of JPMorgan around things like cyber, AML, fraud, etcetera, with the ability to customize those tools and capabilities for the benefit of our clients. And we want to deliver it with the best available technology, whether that's built in house or through Fintech partnerships. And just last year, we initiated 14 new Fintech partnerships that are either live or at the testing phase today. In terms of our platforms, in a previous Investor Day, we talked about the cornerstone of our payments platforms, graphite and glass.
Graphite is our global liquidity platform. Both of them are multiyear investments, both of them are live today. Graphite and glass are live in 10 countries today, including our new Luxembourg branch, which provides 40 currencies, very late cutoff times, virtual accounts and instant payments. And we will continue that rollout around the world and over time begin to decommission our legacy platforms. Helix is our new merchant acquiring platform, which will allow us to expand our reach into Asia and Latin America and we expect to pilot to start piloting with clients in the second half of twenty nineteen.
We will continue that rollout over time, but at the same time, we are investing in our U. S. Small business offering leveraging our WePay acquisition. These are the existing platforms. We are also investing for the future leveraging our leadership in distributed ledger technology.
We've spoken before about our in platform, the Interbank Information Network, our blockchain platform for our correspondent banks. This platform is live today being tested and used by several banks and almost 200 of our correspondent banking clients have signed letters of intent to join and we expect more than half of them to be on board by the end of this year. The first application that's live on in allows the real time information exchange on sanctions screening question. Every single day, JPMorgan stops 50,000 payments for sanctions screening. And there is a manual process involving emails and calls, etcetera, across multiple banks to resolve those.
Through in, these will be resolved real time, solving a problem, not just for us, but for the whole correspondent banking industry. And we have a lot more applications that we are thinking of and developing and we will open the platform for other banks and other partners that are on the network to deliver their own applications. We also launched our JP Morgan coin a couple of weeks ago as a prototype and this was done in response to real institutional client demand. And it was based on pain points that our clients had and questions like, how can large complex multinational company. And we think that over time, the coin can provide solutions to some of those questions.
At a more tactical level, we also delivered a number of new products over the past 12 months and this is a sample list of some of those. We went from laggards to leaders in low value cross border payments. We had 18 currencies 18 months ago. We have 50 currencies today with plans to continue to grow. That's our global mass pay product.
We are live with virtual accounts, which is one of the big innovations of the industry. We are live around the world in Western Europe, in Singapore and Hong Kong, in the U. S, in Canada, in Mexico and with 40 currencies. And we build virtual accounts in a way that it fully integrates payments, receipts and reporting across real and virtual accounts, making it easy for our clients to switch and generate efficiencies. And we will continue to expand our capabilities for different customer segments and different use cases.
We have more than 30 live APIs and more importantly, we've created a sandbox in which our clients can test the APIs in a matter of minutes and can be live in a matter of days. And we continue to work with ERP providers and TMS providers to provide more flexibility for our clients and we are also working closely with other partners on open banking in Europe. We've been investing quite heavily on digitization and automation and today 70% of our new accounts in the U. S. Are opened in 70 seconds or less.
We continue to invest in machine learning and artificial intelligence. We've launched a multi language virtual assistant and an AI tool for email routing, but we see a lot of opportunities to continue to generate efficiencies and automation both for us and for our clients. And finally, real time payments. We are very excited about the advent of real time payments and the proliferation of real time payment options around the world. We are the 1st bank to go live in dollars, euros and pounds and we continue to monitor the industry and we want to be there in each and every market that launches real time payment systems.
I want to spend a minute more on real time payments in the U. S. Because it's kind of an exciting new development in the United States for the first new payment system over the last 40 years, which allows secure payments 24x7x365 final in 15 seconds. We recognize the importance of that product early on and we started investing in 2017. We went live with Penny testing in November 2017 and live with our first clients in April of 2018.
We also worked with Chase at the pilot stage to allow individuals to initiate real time payments through their Chase account to another bank account. By next month, we expect the full rollout across all of our clients. To give you a sense of the volume, in the Q4 of 2018, our volume was 6 payments a day as we were testing and learning and improving the infrastructure. In January of 2019, it was 40 payments. In February, it was 700 payments.
And by May, the 1st full month of going live, we expect that number to be 48,000 payments a day. That represents 1% of the overall processing volume that we do in the U. S. In the 1st month of that product going live. So we believe that there is real potential here.
I want to pause for a second here and just remind you that all of the things that we talked about across platforms, block chain, new product development, real time payments, etcetera, were all done by dedicated teams that were built over the last couple of years. And all of that, as Daniel said, was self funded by efficiencies that we generated in other parts of the business. I want to switch gears for a minute and talk about e commerce because e commerce provides a great case study of how we can bring together our Chase Merchant Services and our TS business for the platform. The middle is the payments infrastructure that the e commerce platform provides for their clients. And then on the right side, we have the payout, which is how the merchants or sellers get paid.
The left side of the page is the domain of merchant services. We are accepting all methods of payments and we continue to build our connectivity to popular e wallets around the world and we provide guaranteed effects rates for the merchants. On the middle, we've developed multi currency key wallets, one for each seller that keep funds within the client's ecosystem and allows the merchants to decide payout time, currency and format. And then on the payout side, we accept all methods of payments through our global mass pay solution and over time more and more real time payment systems. Because we are able to see both sides of that equation, both the pay in and the payout, we are able to deliver a unique set of services to the e commerce platform.
Things like integrated reporting and reconciliation, the ability to optimize liquidity through products like just in time funding and the ability to use the liquidity balances generated in that process to offset fees. And let me finish with the upside. We see opportunities for continued growth in our business in every customer segment. In the middle market and small businesses, we see very large opportunities on merchant acquiring, but we see opportunities across all of our products. We believe that the solution here is to deliver simple bundle solution focusing on a digital and simple experience for our clients.
On large multinational clients, the answer is likely to be much more bespoke and much more consultative because each customer is different. And we work very, very closely with our corporate banking and investment banking partners. And we see opportunities in many segments and parts of the world. Daniel mentioned China. We talked about e commerce, Open Banking in Europe.
We see opportunities all over the world. And then on the FICC side, we are the leader in FICC payments, but we still see more opportunities. We are the leaders in global clearing. We have deep expertise in every customer segment and every region, and we continue to deliver innovation to the industry. So when I look across all three, I see a lot of upside.
Over the past 2 years, we've grown our market share of the overall revenue pool of the industry by about 90 basis points. We think we can continue to grow at that same pace over the next 3 or 4 years. Let me stop here. Thank you very much. And I'm going to turn it over to Daniel for closing remarks.
Thank you.
Thank you, Takeda. Thank you, Troy. So now we're going to talk a bit about 2019 beyond and sort of discuss our priorities going forward. So first on expenses from 2018 to 2019, so 20,700,000,000 dollars and we're expecting to finish this year around $21,000,000,000 So $100,000,000 of that is revenue related volume driven transaction costs. And then into technology, we have planned net investment of $300,000,000 but an overall investments, including roll ups, as we discussed before, and efficiencies of $900,000,000 in new projects in technology.
Non tech investment, a couple of $100,000,000 here, they are driven exactly by the same items that we discussed from 2018. And then we have $400,000,000 of tailwind that is our share of the removal of the FDIC surcharge. So before we go to the next page, so let's talk about the next couple of years after 2019, where we expect net investments in technology and non technology to be flat. So just to be precise, 0 net investment. It doesn't mean that we are not going to invest.
What it means is that we are going to finance those investments by efficiencies and reinvest the freedom of talent that comes from Roll Ups. And this is very on the technology side is very related to the page of efficiency in technology that we talked a minute ago. So now on returns going forward. So last year 2019, Page 31, we produced close to 19% return on equity. Going forward, in the medium term, we are expecting a 300 basis points increase on return, mainly coming from increase in pretax income.
So our capital, as Maryann mentioned, is going up by $10,000,000,000 from $70,000,000,000 to $80,000,000,000 to 3 quarters of it, 75% of it is related to the recalibration of the firm multi metric framework for allocation of capital and the increase in severity in our thicker stress. So this is more capitalization for the existing So now on the last column, the 50 basis points, we have this headwind, which is essentially related to taxes and the temporary effects of related tax reforms and gone. And this as we move through the conversion long term expectation of tax, give us a small headwind of 50 basis points for driving us to reduce our target to 16%. And it's only 100 basis points because some of these items we did plan for that in the past. So I forgot to mention, in the 300 basis points of net income growth that will be aligned with $40,000,000,000 see in the bottom right of the page, aligned with $40,000,000,000 of revenues and a cost income ratio of 54%.
So this will be all depending on what happens in the market in the next 2 or 3 years that clearly is not a walk in the park. So now on some of the things that we see for 2019. So for banking, if Coalition still have done some analysis and they expect that the wallet in banking, investment banking will go down by 5% or 6% that we largely agree. So we think that probably M and A and equity will go down and probably that will be from flat to slightly up. So considering that our market share in 2018 was 8.7% and if all this holds through, for us to maintain planned revenues, it will require an increase in our wallet share slightly above 9%.
For markets, Coalition sees the wallet being stable across income, fixed income and equities. But I do believe that they are when you go granularly in the different components of this business, there is still areas where we can improve. And for transaction banking, TS and Security Services, the last few years, the last couple of years I will discuss, it was about increasing rates and organic growth, probably 2019 will be more about organic growth, assuming that the rate story is probably finished. So now let's go specifically about Q1 expectation for the markets division, this Q1. So last year, Q1 was very strong and mainly driven by 2 components.
We have the gains related to change in accounting standards. And second one, it was a very, very strong performance in markets across the franchise. This year, our core performance is weaker, driven mainly by 3 factors. So we have a very tough comparison in the currency and emerging markets business. It was very strong in the Q1 of last year.
We have a slow start in the equity business and overall we see lower, weaker client activity. So that drive us to think that our forecast for the full first quarter on a reported basis will be down on the high teens and on a core basis will be down in the low teens. So now to finalize on strategy. I will always discuss with our team that the journey forward from here is going to be a lot more different, more difficult than the journey that took us to the degree of success that we have today. That's why we need to be very focused.
And we think about how we are going to focus, how we are focusing going forward, essentially in 3 pillars. 1st is maintaining the day to day discipline. This is about continue leveraging the great franchise that Doug is having in the having in the commercial bank, delivering better and better services to his client base and the same for Mary in the private bank. So continue having a great client experience and make it easy for our clients to trade with us, to have a flawless execution about every lines of business. And as we walk in the next 2 or 3 years towards the end of the cycle, the economic cycle.
So the discipline about credit risk management, market risk management, optimizing capital and liquidity and discipline expenses will be very, very important. 2nd pillar is optimizing on the current model and there are plenty of opportunities there. So if you look at on the 2018, the green bar there that says $3,650,000,000 This is what is addressable wallet in areas within our strategy that we are on a granular level that we are not number 1 at the moment. So we are addressing all that. And that if we do a good job and we have done some of that in the past, so it will give us upside almost in all lines of transactions in both business of transaction services all over the place.
And this number doesn't include at all any increase in wallet or any increase in wallet share in areas where we're already number 1. So there is upside here too. The most important part is how do we prepare ourselves for the transformation coming in the future. So clearly, being very tough about not being complacent, fighting bureaucracy, delivering at speed, embracing innovation, disruption are going to be the key elements to win. How do we take advantage and invest in new technologies to future proof our infrastructure and really create more and more operational efficiencies to do a lot of more with the money that we invest today.
So reshaping our approach to data to really take full advantage of new technologies like machine learning and artificial intelligence and develop new lines of business. So Tagus talk about the interbank network. Troy talked about all the work that we are doing in having great better and better algorithms, that we don't have today. And also be aggressive in the sense that if we are going to be disintermediated, it's always be disintermediated in your own platform than in someone else. So we need to be disruptive in the way that we think about all the lines of business.
So clearly, we believe that we have a very, very good hand. We have delivered best in class returns in an industry with a challenge wallet and never ending increase of capitalization and increased operational increased regulatory costs. So we think that it will deliver on this. We will maintain and increase our leadership position that we have today for the future. So I will stop here and we have few minutes for questions.
Okay. Right up here.
Thanks. Guy Moskalski with Autonomous Research. My question is about FICC and the electronification of the wallet. You showed us how the FICC wallet surprisingly that some of the key areas have not electronified as quickly as you might have thought a few years ago. All of us, I think, have thought that some of the contraction of the wallet is due to electronified pricing.
But given that maybe that hasn't been that big a deal, maybe you can give us a sense for how much of the contraction in the wallet has come from electronic pricing, other pricing impact and just volumes?
Difficult really to go so precise. But as you remember, last few years ago, and it's a similar picture now, when we look at around probably that were $19,000,000,000 to $20,000,000,000 of market revenues, dollars 5,000,000,000 of that was subject to electrification. And we said then that the range of drop in revenues by electrification would have been something between $200,000,000 to $800,000,000 Some of that has happened for sure. I think that is still probably more to come and we compensated all of that by increasing in market share. So I always saw then that the fixed income wallet will remain stable and there is some possibility to grow as the world grows in Europe and all that story that hasn't happened so far.
So the last year drop in wallet after 3 years of relatively stable wallet is I think that there is bad for everyone in general, but particularly it's a lot of work for people that have a lower market share because their business will get a bit more challenged. And overall, it's bad for the whole market because a new play and more and more players exit the market or reduce their commitment to the market, it creates an issue with liquidity and we have sign of that taste in what has happened in December. So that's why I'm saying that the story of the wallet that we all want to go up is being not such a big issue for us. Electronification, it may be that some places being higher or lower, but overall, it hasn't been such a big issue for us either.
Can you do maybe one more if there's one out there?
That's it. Hold on one sec.
The mic. That's the graphic, Morgan Stanley. So as a result, I mean, you mentioned earlier that you expect to maintain or maintain your position. I'm just trying to understand going forward, do you expect more spread compression as electronification continues throughout these products with the subtext that you do anticipate gaining enough share in all of these products to enable your revs to be at least flat, if not grow a little bit? Or are you saying that you think spread compression is going to be decelerating even though electronification increases?
I think that and I
may be totally wrong here, but in my view, spread compression has little to do with electronification. It has something to do, but not 0. And it's by far more a factor of what market volatility. So in spreads go up or down as volatility goes up or down. So that's why I think about it.
So, electrification is a headwind in terms of the overall as an average, but really would move spreads a lot of more volatility than electrification.
So same question, volatility declines and as a result, your market share has to go up to offset that?
I think that our market share is being growing up and probably I really honestly, I saw that in 2017, we had very good market share. So in 2018, we increased our market share by 90 basis points at a very high base across markets, but equally in fixed income and equities. So I don't see why as we go deeper and deeper into the different lines of business where we see weakness, we can increase a bit more. So just keep in mind that it's stable and we don't change our market share at all, our business is perfectly profitable on a marginal basis and an overall basis. So obviously, we get more market share grade even if the wallet grows great, but if it doesn't, so it's still perfectly fine, a very good returns.
Okay, great. Thank you. Thank you, Daniel.
Thank you very much.
The JPMorgan Chase and Co 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co.
2019 Investor The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly.
All right, guys. Can we get you to grab your seats? Mr. Diamond, if you could lead the way and grab the seat down the front here. I have to heckle him once every so often.
Thank you. Thank you. Thank you. Welcome, welcome back, Jamie. Welcome back.
All right, everyone. Welcome back from the break. Welcome to the Consumer and Community Banking section of the 2019 Investor Day. I'm going to be joined this year as in prior years with some terrific members of the team. Cassandra Duckett, who is the CEO of Retail Banking, will join me in just a few moments or 2 Mike Weinbach, CEO of Home Lending and Jennifer Piepzak, who is the CEO of the Credit Card Business.
So you will hear from them all over the course of the next hour or so. So in terms of the priorities, which we have set for the business for 2019 2020, very consistent with what you've seen today. And I hope the theme of our presentation will also be consistent both strategically in terms of consistent execution and focus on the customer. And talking about the customer, the first bullet point, one chase making sure that the customer feels that whatever products they're using from us has a consistent touch and feel in the design of the product. And then as we move down to interoperability to make sure that whichever channel the customer chooses, and that's important, whichever channel the customer chooses to interact with us, whether it's over the phone, whether it's on the mobile device or coming into one of our branches that it feels entirely consistent with the Chase branding and strategy.
Expense management has been an area of intense focus, I'll show some numbers in a moment or 2 over the last number of years and has allowed us, given us the capability to keep investing in these businesses, in fact, in an accelerating way. Focused intently in the risk and control environment, we'll continue to do that. And then, of course, in a world of cybersecurity and customer privacy, acutely important that we're protecting the firm and critically important protecting our customers. And as you'll see, some of them today retaining and acquiring the best talent that we have in the industry. So if we look at some of the progress that we've made, find my cup of tea, it's the morning.
Thank you. If you look at some of the progress that we've made over the course of the last year or 2, you heard from Marianne more than 50% of all U. S. Households, 25% of which have a multiple line of business relationship with us, which I look at as good momentum, but a tremendous opportunity that it is only 25%, we can do so much more. We've been growing retail deposits at twice the rate of the industry and continue to enjoy the number one slot in both outstandings and sales in the credit card business.
Interoperability between the channels, I'm not going to go through all of these bullet points. An important example, customers have historically always opened their bank accounts, whether it's a primary checking or a savings account. When they walk into a branch, they can now do that walking into a branch or they can do that on the mobile device, if they would like. And over the course of the last 12 months since we've launched that capability on the mobile app, we've added 1,500,000 accounts and accelerating. So that's really exciting for us, particularly as you'll hear from T that we get into the expansion markets.
We have made really nice progress, I think, on the overhead ratio, 400 basis point improvement since 2014 and expect that momentum to continue. And we've meaningfully increased our investments in both marketing and technology. I'll show you how our expense base is beginning to evolve and change a little bit over time. And obviously, continuing to de risk the mortgage business, which you'll hear a little bit more from Mike as move through the presentation. Also, just I'm going to make a slight point on credit.
We are not waiting for a recession. We're not waiting for a recession then to act on a recession. We monitor credit performance hourly, daily, weekly, monthly, review them in our business reviews and take action as we go along and make surgical pushbacks pullbacks as you see at the bottom of Page 2. Turning to Page 3, actually, I really like this page this year because you could take it and lay it against the page from last year and you would think that it was almost identical. So very little change in terms of our guidance, a slight improvement.
The prior year target was $11.25 in net revenue rate for card plus or minus. We are raising that to $11.50 plus or minus. Marianne, again, talked about the credit performance. It just looks very strong. I would not candidly and I'm not sure anyone else in the industry a number of years ago would have expected us this far into an expansive economy to have performed as well as we are, and we expect those numbers to remain very consistent in 2019 with the 2018 performance.
For those of you who are looking at the return on equity targets of 25% plus for CCB. Of course, you'll note we were above 25% in 2018. And so I would emphasize the plus, our expectation is to continue to be greater than 25%, 25% as we go forward through 2019. And we will continue to improve the overhead ratio and drive operating leverage. So as we turn to the key metrics that we drive, and again, you'll hear a little bit more about some of these, but run your eye down them.
I use this chart fairly consistently, continue to drive active mobile users at a good hefty clip, up 11%. At some point, we will retire this particular metric because we'll have reached the penetration that we want, but it will be relevant, I think, for at least the next kind of couple of years or so. You saw deposit growth was strong both in consumer and business banking. It's a tough market. Mike will talk about the home lending market.
It is a difficult market. He and his team, I think, have been doing a terrific job de risking our business and preparing it for the long term, but it is a tough time to be in the mortgage business. And despite that, in CCB and across, of course, the company, we've been able to deliver a very strong performance despite a challenging mortgage market. Credit card sales up 11%, looking strong, by the way, in both January February, merchant processing volumes. You heard a little bit from TACUS and we've seen a slight acceleration from the 15% level as we enter into the beginning of this year and loan lease originations flat to down.
Revenue, if we look at kind of the major drivers of revenue, volumes, the largest single driver at 3,300,000,000 dollars The second, the obvious impact is $1,900,000,000 in terms of the movement in rates over the course of the last year or so, we really built this business aggressively when rates were close, close to 0. We invested heavily, and now we're starting to see really meaningful returns as a result of rates starting to move. So as we look at 2017 over 2018, very strong performance from a revenue perspective. We expect strong performance to continue in 2019. Expenses up from $26,100,000,000 to $27,800,000 I think we guided you to $28,000,000,000 for 2018.
And we expect $29,000,000,000 in 2019, about $1,000,000,000 of the $3,000,000,000 that Marianne mentioned for the overall firm. And it's important to note that for 2020 2021, if we separate out auto lease expenses, we would expect our overall expenses to be flat ex that particular line. So that will continue to drive overhead ratio improvements. And interestingly, our the number of people involved in CCB is down year over year from 140 to 135,000. Those of you who've been coming to this meeting for a while will remember that the headcount when we first put CCB together as a business was over 180,000 people.
Now the businesses are more than a third larger than they were then. Clearly, a large piece was as we de risk the mortgage business, but effectively we're down from 180 to 135 over 180 actually and that number will continue to contract. Reduction in the cost to serve, effectively what we try to do here is just to kind of look at the expenses of pure day to day to support the business. What do those costs look like when we separate out the marketing expense, we separate out the investments that we're looking for, that we're making in terms of digital and mobile and the broader technology. And so the core cost of serving our customers on a day to day basis has dropped 15% from 2014 to 2018, and I fully expect that trend to continue.
Looking to the right, customer behavior greater than 80% of transactions are now completed through self-service channels. And this is kind of interesting, at least it's interesting to me. Inbound call volume is down 3% despite the growth in business. So an absolute number of phone calls coming into our call centers is down 3%. But this is the interesting piece that the actual cost of those calls is down 7%.
Why is it interesting? Because typically self-service transactions are easier, leaving the more complex call to be dealt with by a call center team. And that then, of course, then drives up unit costs. But we're so we're managing to get the best of both worlds here, which is actually volumes and unit costs coming down fairly meaningfully. And then as I said, as we begin to position the workforce differently, technology and digital headcount is up 2,000, but our operations headcount is down over 7,000.
Now of course, there's a different unit cost, 1 versus the But the way I think about this would be, again, going back to the left hand chart, that when we have operations teams, they're covering the day to day activities of a customer. So that's kind of core operating expense required to support the business. And the technology and digital and mobile people are building the company for the future. I think there's quite a difference in the way, at least I would think about those 2 expense lines. So as we put these investments to work, I think the exciting thing is we have the ideas and we have the 2018 vintage of investments, So if we took the 2018 vintage of investments, over the course of the next 5 years, they'll generate more than $1,000,000,000 of annual and sustainable run rate savings with a return on investment of greater than 2x, created many more user experiences for the digital customer to keep having them returning to our digital app.
I'll show you in a moment or 2 the type of impact that that's happening. But
marketing dollars that we put to work
as an investment, The marketing dollars that we put to work as an investment and not as a spend, as Kristin Lemkow, our Chief Marketing Officer, always likes to highlight quite appropriately, drove 8,000,000 new card accounts and with a forecasted $80,000,000,000 of spending associated with those accounts going forward and 2,000,000 new consumer bank households, which are expected to drive about $15,000,000,000 in average deposits. You're going to hear much more from T about what we're doing with branch expansion. But if you think about where we now have regulatory approval, where we started opening branches and where we have regulatory approval, opens up about an opportunity pool of $700,000,000,000 of deposits. And obviously, we will be competing aggressively to win a meaningful share of that. So exciting development for us, I think.
And we will, of course, continue to uplift our cybersecurity and risk and control infrastructure. In the world of risk and control, we spent substantially more than $1,000,000,000 over the last number of years, substantially more than $1,000,000,000 We will continue to invest heavily. We've made enormous progress for both cybersecurity and, of course, the control environment an area that we can just never take our eyes off. I'm turning to Page 9 for those of you who are following us on the Internet. And as I alluded to earlier, our digital platform really is embedded in the day to day lives of our customers.
And you can see the number of digital logins, how frequently people are interacting with us between 2016, 2017 2018, rose 7% between 2016 2017, a further 8% between 2017 2018, and I expect that trend to continue to accelerate as Bill Wallison and his team keep bringing new functionality to the market. Now if you move to the right hand side of the page, of course, there's a cause and effect and now best customers tend to gravitate towards the mobile capabilities. But when you just look at the types of behaviors that we see, net promoter score, our key measure of the customer experience is 10 points higher for digitally engaged customers. In Jennifer's business, in credit card, they tend to spend twice as much as customers are not digitally engaged, and they tend to have twice the number of cross business, cross line of business relationships with us. So I'll come back at the end after you've heard from the other members of the team and we'll do questions.
But I feel and I hope you do that the businesses really have tremendous momentum and that is accelerating. So without further ado, please welcome Tassandra to the stage.
All right. Thank you, Gordon, and good morning, everyone. As Gordon said, I'm Tashanda Brown Duckett, CEO of the Consumer Bank. I'd like to start with a few strategic priorities that might look familiar. 2 years ago, we told you that we would acquire and deepen relationships, increase client engagement and improve efficiency.
And that's exactly what we did. Since 2014, we increased balances by over $200,000,000,000 and acquired 2,500,000 net new households. The incremental deposits we acquired in this time alone would be enough to create the 7th largest U. S. Bank.
These new customers are quick to take advantage of our digital capabilities, with 75% becoming mobile within 6 months of opening their account. And we're doing it all more efficiently than ever before. The variable cost per household has decreased 14% as our customers continue to transition to self serve. Looking at Slide 11, we continue to lead the industry in deposit dollar growth since 2014, growing at twice the industry average. We've been successful because we've won at both acquiring new relationships and satisfying existing ones.
Our customer satisfaction is at an all time high and our client attrition is at record lows. We've acquired 23% of new primary bank customers over the last 2 years within our footprint, And the quality of these new relationships is excellent, with new household checking balances 40% higher than they were 4 years ago. So going forward, we will continue delivering against our priorities through the strength of our industry leading omnichannel offering, constant innovation and expansion into new markets. On Slide 12, you can see that we've invested heavily in digital and it's paying off. We have the largest and fastest growing active mobile banking customer base in the country.
Our digital offerings have transformed how our customers interact with us, leading to deeper, more frequent engagements and greater convenience at a lower cost. We're seeing that our customers are logging into Chase on their mobile app more than 5 times a week. We have grown QuickPay active users by almost 2,000,000 customers in the last year. And more customers are using their Chase app to deposit checks. That means time saved for our customers and our tellers.
Our physical network has been critical to achieving industry leading deposit growth. The progress that we've made in digital has made it easier for our customers to self serve, and we have seen this shift happen gradually across all age groups. But even as customers continue to use their mobile app more often, they still value our branches. Convenient branch locations are still the top factor for customers when choosing their bank. Our strong network is a big part of why we are number 1 in acquiring new primary bank relationships and footprint.
In fact, over 21,000,000 households visited our branches last year. To put that in perspective, that's over 80% using our physical network. And these are some of our best customers, as 70% of our deposit growth can be attributed to households who visit branches frequently. So we are well suited to meet the needs of our customers today and tomorrow. We continue to keep a close eye on our customers' preferences and behaviors, and we put ourselves in a flexible position to pivot as needed in the coming years.
In fact, over 75% of our branches can be exited in 5 years and over 85% can be extended for more than 10. We're rolling out new smaller branch formats and standalone ATMs to maintain our physical convenience and doing it more efficiently. Our omnichannel strategy has been an important driver of our success, but we aren't getting complacent. 2018 has been a year of innovation across the customer lifecycle. We're making it easier for customers to get started with us.
And as Gordon just mentioned, since launching digital account opening last year, we opened 1,500,000 accounts. The majority of these accounts are incremental to our already strong branch production. We're also making it easier for our customers to manage their money, helping us increase digital engagement by 10 percentage points since 2014. And we're making it easier and more rewarding for our customers to deepen with us. New products like Sapphire Banking are delivering the combined value of our card and consumer franchises.
These multi line of businesses households are 2.5 times more profitable than households with only a banking relationship. So we're taking these innovations on the road as we expand our network to new attractive markets. We're able to expand more effectively than ever before for four key reasons. 1, we're bringing Chase to 93% of U. S.
Households, including 3 of the top 10 U. S. Markets, which alone represents over 4 $100,000,000,000 in deposit opportunity. 2, we are engaging a large base of our existing CCV customers eager to deepen their Chase relationship. We have over 6,500,000 card customers in our new markets.
These customers already have an affinity for the Chase brand and have 2.2 times higher response rate for Chase offers. 3, our omnichannel approach works well in both acquiring and deepening with our customers. And we're already seeing this in DC. Over half of our in branch account openings are new to bank, while 60% of our digital acquisitions are from existing Chase customers. So by combining the strength of our physical presence and our digital capabilities, we're able to reach even more customers faster.
And then lastly, 4, we are getting smarter with branch and ATM placement by using our card transaction data to understand exactly where our customers live, work and shop, enabling us to strategically optimize our footprint. So our playbook is not just working in new markets, it continues to work in our existing markets. Across the top 10 deposit markets, we have increased share from 13% to 16%, while decreasing branch share at the same time. So to wrap up, we will continue to deliver on our key strategic priorities to acquire and deepen relationships, increase client engagement and improve efficiency. This is just the beginning for us and we are excited for what's ahead.
And with that, let me turn it over to my colleague, Mike, to give an update on our home lending business. Thank
you.
Thank you, Tee. Good morning, everybody. I'm picking it up on Slide 17. And for the last several years, we've talked to you about our strategy to build a high quality customer focused home lending business. It starts with maintaining excellent origination credit quality, improving the quality of our servicing portfolio and derisking the business, all while remaining relentlessly focused on delivering for our customers and investing in the significant opportunity we have to innovate and win with our primary bank customers.
Before I get to our results, just a quick check-in on the state of the industry. Over the last couple of years, interest rates have risen, and the size of the origination market has declined significantly, driven by a very large decline in refi. We expect origination volumes to remain near cyclical lows in the near future. And the combination of a smaller market and increased digitization has contributed to excess capacity across the industry. This has pressured spreads and margins, while the cost to originate loans continues to increase as the industry absorbs the impact of new regulations.
So in light of this challenging environment, we're being intentional in our positioning across the business. We make choices based on quality and returns. We do not chase growth at all costs. And you can see our origination volume was down 19% last year versus a decline of 10% across the industry. But within these results, there's 2 very different stories.
In our correspondent business, where we purchased loans originated by others, we let considerable share go that didn't meet our return hurdles, and we are down 28%. In our consumer origination business, where we make loans primarily to Chase customers through our retail and direct channels, we were down only 5% and gained share. In our servicing business, you'll see the significant declines in our foreclosure inventories and delinquent loans against a relatively flat servicing book. And the mix of our core loans continues to improve in our portfolio, and our net charge offs continue to be very, very low. In fact, for 2018, we had a slight net recovery.
Taking a deeper look at our portfolio, you can see the substantial rebalancing that's occurred over the last 4 years. In 2014, we had $69,000,000,000 of core loans, accounting for less than 40% of the portfolio. Fast forward to the end of last year, our core loans increased to $188,000,000,000 representing almost 80% of the portfolio. You'll also see the share of the loans that we originate that we retain in our portfolio varies year to year based on market conditions and what represents the best both across the home lending business, but as Mary Anne mentioned earlier, both across the home lending business, but as Mary Anne mentioned earlier, across the broader JPMorgan Chase balance sheet. The credit quality of our portfolio is extremely strong and continues to improve.
You'll see that our 30 plus delinquency rate ended below 1% last year, and our net charge offs have declined from 50 basis points in 2014 to that slight net recovery that I mentioned earlier at the end of last year. We're also constantly stress testing our portfolio and looking at layered risks that may come under pressure during a downturn. And you'll see on the chart on the right the percentage of our portfolio with FICO's below 700 and LTVs above 80 has declined by 90% over the last 4 years. It's not just our portfolio, but we also continue to derisk our servicing business. Over the last 4 years, you can see we added about 1,600,000 loans to our servicing book through a combination of new originations and selective acquisitions.
At the end of last year, those new loans had delinquency rate of less than 1%, significantly lower than the 10 percent plus delinquency rate of the loans that exit our portfolio over the last 4 years. This has contributed to a And this is important because the cost of servicing delinquent loans, the And this is important because the cost of servicing delinquent loans and the risks associated with servicing delinquent loans are considerably greater than those of performing loans. And you can see in the chart on the right the combination of our improved mix and other operational efficiencies, it contributed to a 30 percent decline in the servicing cost per unit over the last 4 years. It's not only our absolute performance but our relative outperformance versus the industry that's improved. From 24 basis points in 2014, it's tripled to 72 basis points last year.
So despite the challenging market and our efforts to manage risk, we remain intently focused on our customers. You can see our Net Promoter Score has doubled over the last 4 years. And in fact, we've had record customer satisfaction across just about every part of our home lending business. And this is important because our customers that are highly satisfied, we show you here customers that give us a 9 or 10 out of a 10 point scale in our customer satisfaction surveys, are 2 to 3 times more likely to open checking accounts, savings accounts with us. Not only that, our existing customers that are highly satisfied who choose Chase for their mortgage exhibit significantly lower deposit attrition rates and significantly higher investment growth rates.
So as we look to
the future, we think we have a significant opportunity to grow our business with our Chase customers. For the last several years, we've talked to you about our now 62,000,000 households, half of which own homes and have mortgages, but only 4000000 to 5000000 of those customers have their mortgages with Chase. We're further focusing on 3 core customer segments where we think we have a significant opportunity to grow. The first are the 4 +1000000 customers that already have a mortgage with Chase. Yet today, when they get their next mortgage, yet today, when they get their next mortgage, they're only choosing Chase 20% of the time.
We have roughly 6,000,000 customers where Chase is already their primary bank, but they have a mortgage elsewhere. And when these customers get their next mortgage, they're only choosing Chase 10% of the time. And we have roughly 3,000,000 customers where we are already at a primary bank, and we believe they're likely to become first time homebuyers over the next several years. And again, historically, these customers have only chosen Chase 10% of the time. We're already seeing success within this customer base.
We grew our purchase originations with primary bank households 30% over the last 2 years, which is more than triple the rate of the industry. But we believe we're only scratching the surface of this opportunity. It's not hard to imagine significantly greater capture rates with each of these customer segments as we reach our customers earlier within the Chase ecosystem and deliver a differentiated offering that's better than anything else available to them in the marketplace. So how are we going to capture this opportunity? By simplifying and innovating.
We recently rolled out Chase My Home, our digital mortgage offering. It replaces piles of paperwork that customers need to sign and fax and needing to call us to see where they are throughout the process, some of the most frustrating aspects of buying a home with a process that is much more transparent, where a customer can access where they are anytime, anywhere from any device, e sign all documents and upload any information they need to get to us. We just rolled this out in the second half of last year, and already in the Q4, 40 percent of our funded loans use Chase My Home. And we're seeing greater than 20% faster cycle times, and it's contributing customer satisfaction at record highs. But even more importantly, it lays the foundation for us to do even more for our customers.
We can pre sell applications and automatically verify income and employment, further simplifying the process of getting a mortgage. And for our very best customers, we can deliver personalized preapproved home lending offers so they can go to an open house with the confidence of a cash buyer knowing they can close in days or weeks versus months. We're already seeing great progress in terms of closing times, so much so that earlier this month, we rolled out an on time closing guarantee, where we guarantee we'll close a mortgage for a Chase customer in 3 weeks or give them $1,000 in their checking account. These innovations not only are going to continue to improve the customer experience, but they also significantly reduce the cost to originate a new loan. So in summary, what you should expect from us is to continue to manage intelligently in a challenging environment while remaining relentlessly focused on delivering and innovating for our customers to capture the significant opportunity ahead of us.
And with that, I'll turn it over to my partner, the CEO of Chase Card, Jen Pieczak.
Thank you, Mike. Good morning, everyone. Today, I'll take you through our card strategy and share how we are really bringing it to life to drive results and continue our growth trajectory. We start by building scale with great products and marketing. We then engage our customers to drive profitability and lower attrition, both of which enable us to deepen relationships across the franchise.
So I'll talk through each of these. First on scale, on Slide 28. Over the last few years, we have built tremendous scale with a dozen or so product launches and refreshes across both our branded and our co branded portfolio. And this has made us number 1 in credit card spend in OS with 40,000,000 active credit card accounts. And in 2018 alone, Gordon said it, but it's worth repeating, we added 8,000,000 new accounts and we processed 9,000,000,000 credit card transactions.
On Slide 29, our scale drives sustained growth in top line metrics. Beginning on the left, you can see since 14, we have grown active accounts by 6% CAGR, sales volume by a 10% CAGR OS by 5%. And on revenue, even with the headwinds of renewing our cobrand portfolio and the competitive environment we've been in, we've grown revenue over this time. And as you heard from Gordon, we do expect our revenue rate to increase from here. Our scale also gives us strong operating leverage.
As you can see on the upper left here, our already healthy overhead ratio has improved since 2014, and we do expect that to continue into 2019. And on the upper right, as Gordon said, it's not just about leverage, it's about operating efficiency. And this is just one example, our contact cost per statement. So that's the cost of a customer calling us or emailing us, and that's down 10% since 2014. In the bottom left, you can see we've improved marketing efficiency.
And in the bottom right, we have reduced our fraud loss rate by 29% since 2014. This is in part due to innovative machine learning that we have been able to apply to the vast amounts of data that we generated. This saved us more than $200,000,000 in 2018 alone and is a much better customer experience as we drive fraud out of the system. So on Slide 31, now turning to engagement. Why does engagement matter?
Well, our experience shows us that a more engaged customer is a more profitable one. This is just one example of a Points redeemer versus a non redeemer. Here you can see that a Points Redeemer has more than 4 times the sales of a non Redeemer. They have 2 times the revenue and much lower attrition. So how do we think about engagement?
Well, there are really 3 pillars: innovative products loyalty beyond just the points that we offer and experiences that give our customers a reason to keep coming back to Chase. So I'll start with innovative products. Here, we are excited to announce 2 new product features that we'll be rolling out later this year, both of which are geared to making borrowing easier for our existing customers who have $250,000,000,000 of borrowing off us. So our existing customers have $150,000,000,000 of borrowing on us. Those same customers have $250,000,000,000 off us.
And we know to realize this opportunity, we need to offer a holistic set of borrowing solutions. So we start with My Chase plan. My Chase plan is a product feature that will allow our customers to finance a specific purchase. So think a TV or refrigerator, something that costs, say, between $503,000 They'll do this using a fee based payment plan, and this will allow us to compete in the point of sale financing space. So I have a quick video to share the customer experience.
Take a look.
Introducing My Chase plan, a new way for card members to pay off large purchases over time in fixed equal payments for a low monthly fee with no interest. Say you buy a TV with your Freedom card. Simply open your Chase app, select your eligible purchase, and choose the payment option that works for you. It's that easy. Plus, you still enjoy rewards on your purchase.
Not to mention 4 k Ultra HD streaming with well, you get the picture. Make it happen with My Chase plan.
The other product feature we're introducing later this year is MyChase Loan. MyChase Loan will allow our customers to borrow against their unused credit limits and pay back in fixed amounts. Again, unused credit limit that we've already underwritten. This will be for larger purchases such as a kitchen remodel and will be at a competitive APR and allow us to compete in the personal loan space, importantly, without taking any incremental risk as this will be a targeted product feature for our existing customers. So I have
a video for this one too.
Introducing MyChase Loan, a convenient way for card members to get a loan from their card's available credit limit with a lower APR and equal payments for the offer term you choose.
It's time
to update that old kitchen. Now you can get the money you need in just a
few taps. Here's how.
From your Chase app, enter your desired amount, then choose the payment option that works for you. That's it. The money will be deposited directly into your selected checking account, all with no application, credit check, or loan origination fee. So tap into a lower APR financing option with MyChase Loans.
As you can see, we are building simple, frictionless experiences to make borrowing easier for our customers. So now on to loyalty and experiences. I have three examples. The first is Chase offers. We introduced Chase offers in the Q4 of last year.
This is a platform of personalized offers for our customers, importantly, fully funded by merchants. This creates a powerful flywheel where Chase can bring value to our merchant clients through our scale. They in turn bring value to our customers and create an additional revenue stream for us. This product has scaled very quickly. In just a few months, we've seen 7,000,000 cards activate more than 25,000,000 offers, again, in just a few months.
Next, our Credit Journey free credit score platform has been a big success and a phenomenal way to not only engage our customers, but support credit education. This in turn makes our customers better consumers, which is always good for our franchise. We're going to continue to invest in this platform, building best in class score monitoring capabilities and much, much more. And again, this scales very quickly. We have more than 15,000,000 customers and non customers enrolled in Credit Journey.
And last, tap to pay. We also introduced tap to pay in the Q4 of last year. And like some other initiatives, we are not always first, but our scale allows us to invest with discipline as a fast follower and see rapid customer adoption. And what we're seeing here is that for customers who have a Tap2Pay card, so they have the choice between Tap to Pay and a mobile wallet. These customers are choosing Tap to Pay at a rate that is 2 point 4 times that of a mobile wallet, again, in just a few months versus mobile wallets that have been in market for years.
Now on to deepening on Slide 38. We know that an engaged card customer is more likely to adopt a second product from Chase. Here you can see that a high spend engaged card customer is 1.5x more likely to take a second product a mobile active customer, 2x more likely and a card customer who has enrolled in Credit Journey is also 2x more likely. And when you combine that with Tashanda's point around the response rates from our card customers, this is an incredible opportunity for us. And you can see at the bottom here, when we get it right, these customers are much more profitable and much more satisfied than our card only households.
Now on to deepening. When we deepen, we also make better risk decisions. We start with a strong foundation of detection, decisioning and execution capabilities. But when you add the powerful data set that comes with a deposit relationship, we are able to increase our approval rate by 2.5x and decrease our card NCO rate by 30%. Just to double click on risk on Slide 40.
Our portfolio is much stronger today than it was pre crisis, but our capabilities are also much stronger. We have better data to decision and monitor. We have more prudent product to sign, specifically as it relates to our balance transfer product. We have enhanced segmentation and we have a better view of our customers' balance sheet. This has allowed us to do surgical pullbacks over the last few years, pullbacks that have not compromised our growth in a meaningful way.
And you can see here on the right hand side of the page, the solid line is our NCO trend through time. The dotted line is what it would have looked like had we not done these pullbacks, and that relationship will continue to expand through time as those vintages mature. But as you well know, even small differences in our NCO rate can have a meaningful impact on our lost dollars. So to wrap up on card, we have a moat that is difficult to replicate. We have powerful distribution through our Chase owned channels as well as our partners.
We have a fortress balance sheet and world class risk management, and we have a broad banking franchise to serve our customers beyond cards. So to summarize, we have a clear strategy, a robust and risk resilient portfolio and continued runway for high quality growth. So before I turn it back to Gordon, I'll close on behalf of CCB. So on behalf of my great partners, Shashanda and Mike and of course, Gordon, we remain focused on continuing to deliver across the board. We will continue to bring the full power of One Chase to our customers now more so than ever as we expand into new markets, acquiring new customers and deepening with existing ones.
We're increasing our engagement with our customers with new products and experiences across both our physical and our digital channels, all while becoming more efficient in how we serve them. So our growth opportunities are unmatched in scale, and we are well positioned and confident that we can capitalize
Great job, guys. Well done. And while Jason is just teeing up the first question, I just want to make a point on diversity. So half of the CEOs of our businesses are women. Our CFO is a woman and French.
Our Chief Marketing Officer is a woman and our Head of Strategy is a woman and I'll have forgotten somebody and we'll get real heat later on. But I think it's an important point.
Okay. Mike? We'll go with Mike. Mike?
Okay. I'll ask one easy question, one hard question. The hard I don't know why nobody
That those little models that you had yesterday?
Work with me here, Gordon. Okay. What percent of mobile banking wallet share do you have? Nobody seems to disclose that information. And you talked about a saturation point.
So how large is the market and how far are you getting there?
Yes. Listen, it is a really hard number to calculate because we don't have other people's data to be able to figure out kind of where exactly we are in scale. But everything we look at in terms of usage, when we take something like QuickPay with Zelle, we know as we launched into the broader Zelle rollout a year and a half ago, we were half of the industry traffic, half of it, just Chase. So I think we have a pretty meaningful position. It's I'd love to better give you a precise answer, but we feel and I hope you felt it from the presentation, really excited about the momentum that we're growing.
And this is why it's important the traffic that I mentioned backwards and forwards to the mobile app is if you go back half a dozen years or longer, people may have had 5, 6, 7, 8 pages of apps that they were carrying on their devices. It's not true today. It's half that. And so being the resident banking application on a customer's phone is really powerful. And I think you saw some examples of how we're able to drive engagement more aggressively.
We have a bunch of stuff in the pipeline for this year and next, which I think will just pick up the pace on that.
And
then as a follow-up, as you expanded to the new markets, so you said there's 80,000,000 new potential customers, 6,000,000 of which are credit card customers today. How many other of the 80,000,000 dollars are digital banking customers, auto loan customers, mortgage customers? How many do they how many know you already? And what role is marketing and brand as part of this expansion? You didn't mention marketing as part of your strategy.
Yes.
Well, I think what we're seeing and I almost thought that using some index data to show how the new branches are performing, but currently with just a few short months of data, well beyond our expectations, firstly, and beyond the performance that we see from opening new branches in our existing footprint. That's very encouraging in any way we look at it. As we dig into it, we look at and card is by far the largest, then it drops down pretty significantly to mortgage and auto that there seems to be, again, in the very early going, a demand for customers who have really liked their Chase products, haven't felt they've been able to bank with us because we haven't had the branch network there. And that's where I think we're seeing the acceleration of growth. No numbers because it's too early.
And as we know in the first 90 or 120 days, you can be misled. So all I would do is rather than mislead is say that we're quietly optimistic about what we're seeing so far.
Saul, over here.
Saul Martinez from UBS. How do you think about what the optimal branch footprint is? And what's the outlook for overall branch count? Because on the one hand, you're obviously growing your branch network in new markets to grow your new client base, but you're gaining share in your legacy and you're optimizing your branch network. And it does seem like there are opportunities there to continue to pair the network.
So should the branch count actually continue to fall even as you open new branches?
Yes.
Listen, I don't want to be cute in the answer to this, but the simple answer is the optimal size of the network is exactly what the customers want. And so we look at this again with great, see and I look at this on a monthly basis and folks and the organization look at it much more closely. But every single branch we have is a P and L. As at now, we have less than 10 branches which are unprofitable, less than 10 from over 5,000. And so we're just kind of constantly evolving it for customers.
It isn't one thing I would never lay out a target and I can think of somebody who would be on my case if I did to say, we will be down by X branches. And Jamie is right. His point is always, don't make your expense targets by cutting branches. It's the easiest thing to do. We have 45 1,000 people there.
We've got real estate costs, which is why we measure their profitability and we constantly evolve to the needs of the community, including looking for areas and it doesn't happen in the tri state area, which is so densely populated very often. But if you travel to most other parts of country, you can go down to Florida, you can go out to Arizona and so on and so on and so forth. And there are whole new communities developed, where new homes are being built and restaurants and shop in malls, and we go build branches in those places to serve those communities. So it's very much a piece of living analysis, but it's entirely focused around the customer and what our customers need. Tia, would you want to add anything to that?
You have a mic there.
I have a mic, but I have this mic on.
Yes, you have one steady,
don't you?
What I would say is just a couple of things. We've been investing in different formats. So what that means is when you look at the investments we've made in our ATMs, that can do more than 70% of what a teller can do. And when you look at our Express branches, which are smaller, highly digital, with less staff, that allows us to optimize the credit card data that I mentioned earlier. So that as we look at where customers live, shop and work, we're able to look within our portfolio and say what is the right asset for that particular And so you should expect that discipline to continue, but you should also expect the power of our data and the investments we've made in our digital assets and physical assets will allow us to be much more optimal as we go forward.
Chris? Yes. Mary Anne alluded this morning to Chris,
could you hold the mic? No. There
you go. All right. Marianne alluded to prospect likelihood whatever of deposit repricing. And it seems to me what we've seen thus far, it's kind of like this bifurcated world where if you're a wealth management customer or a corporate customer, your deposit rate is almost like a money market, it goes point for point. But if you've got $3,000 or $5,000 or $10,000 in a money market account that's tied to MobilePay, it hasn't moved at all.
And I guess what is the prospect for keeping that customer base in the not moving at all? And to what extent are all these new digital banks a threat to that?
Yes. Listen, I think Marianne put this very well earlier, Chris. But I think the first point I really want to make here to augment what Mary Anne said is that when we do business with customers and we're attracting more But it's very easy
just to go and get deposits. We can price
for those. But it's very easy just to go and get deposits. We can price for those and then it's very easy to lose them because somebody else can price and the money flows around the system. So our primary focus is to engage the customer as their core bank. And then I'm obviously not going to get into details about pricing strategy, but we have a team who are constantly looking at where we're priced, how competitive we are by very, very finely sliced segments.
And we just we can make adjustments and do very quickly.
Betsy here and then Nanchem.
Hey, Gordon. Two quick questions that are related. One is that we haven't heard yet from you guys about Fin. And is that still something that you're focused on because we heard that really with new branches that's where you're getting the market share pickup. So how should we be thinking about Fin?
And then separately, on the investment spend in the branches, we know about the 405 or so that you're looking to expand over the next several years. Only 10 of your branches are unprofitable today. Should we be expecting a net increase in branch growth? And with some of the consolidations that are going on in competitors, are you bringing that forward? Is that going to be a little bit sooner?
Yes. So here's
what I would say about kind of new product launches. As we lay out the financial metrics for all of you, we try to lay into those financial metrics, obviously, a little bit of a perspective on what we think the environment is going to be that we're going to operate in. But more specifically, what do we think the performance is going to be of our existing book of business, of the new products that we're going to launch, of the return on investment, we think we're going to get from the technology investments and the marketing investments. We pull all of those things together and you get the outcome that you saw on the slides. This year and to some degree last year, we tried to pull away a little bit from product specific details.
Why? Because we think it's really valuable for our competitors, to be able to see what have we tested, what return did we get on those tests, what do we think about those tests. I would much rather our competitors spend their own money, I would encourage them to do that, to spend their own money on their own learnings. So whether it's Fin, whether it's Sapphire Banking, all of those things, think about them as rolled into that expectation that we get greater than 2x return on our investment. And when we look at those investments that we're making kind of overall the book, if you like, the team go through a very rigorous process that's run by Sarah, which looks at what do we think the return is going to be.
We measure what it actually is a year after, 2 years after, 3 years after and then constantly adjust to it. So not going to give out specifically how individual products do, but you'll get a good sense of kind of what we're committing to as an outcome from them.
Ken, over here.
Thanks. Ken Usdin from Jefferies. I have one question risk management capabilities changing. Can you just elaborate a little bit more on the risk management capabilities changing. Can you just elaborate a little bit more on what does the pullback mean in terms of what would you attribute this to, I guess, the continued flatness outlook for card loss rates?
I guess, if you can give us a little bit more detail what are the most important indicators, I guess, that you're trying to early warning identify ahead of that? Yes.
And actually Betsy, I realize I didn't answer the second part of your question, so I'll come back to that in a second. So firstly, I think we're in a very strong economy. Employment rates are extremely important and they remain robust, very robust actually. And I think if we if I look back at of the back half of twenty eighteen and to present, there have been some meaningful issues, which I think have begun to generate a little bit of a question in business' mind, in business people's minds about the future prospects of the economy. Obviously, the government shutdown does not help, does not help in any way.
So there have been a number of different things, I think, which begin to question people's confidence. But I think that said, the consumer continues to look really strong. We look at our credit performance at a very granular level by product, by geography, by tenure of the customer, by acquisition vintages, by channel of vintage, and we just make kind of very slight adjustments. So Mark O'Donovan is over here, he's the CEO of Auto Finance. And late last year, we were looking at the returns that we were getting in some of the prime and super prime segments of the auto market.
And we looked at it and said, if you expect over the duration of a loan of 2.5 to 3 years, if you expect there to be some type of recession, be it moderate or severe over that duration, the returns that we were seeing were so modest that we backed off, and we have remained backed off at this point. And Mike reinforced the point, we'll enter back in if we see those returns start to improve. But we don't set specific loan goal targets for the business, and we'll pull back when we see either returns or credit issues that we don't like. Betsy, in terms of the branch, I kind of answered that question a little bit earlier, the second piece of your question, which is just to kind of constantly be refining the branch. And I think Tia said in her answer that as we expand into the new geographies, we typically have a smaller footprint.
This footprint typically has fewer people in it, so the cost to run the branch is a lot lower. And we have, of course, all the latest technology, which helps to drive down those costs. So just constantly evolving the network over time and it's not something we look at and say 2 or 3 years from now we'll have 300 or 500 fewer branches or 300 or 500 more. One of the things we do in our business reviews is we ask all the regional heads, because I don't know, Tee doesn't know, we sit here in New York. We don't know if there's a segment of a community that is not being well served because it's just been it's just grown through construction, but the local people do.
And so they'll raise up for us and say, listen, we should do this or we should do that and we'll go try. Okay. I think I'm out of time. We are out of time. Thank you, guys.
Go to break now.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co.
2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly.
Okay. Getting ready to start the next section here. Grab that coffee, come on back in. Give everybody a second. Okay.
Before we start the next set of presentations, just a couple of things to note. First, hopefully, you saw a survey that we have on the table. Please take time to fill it out today if you can or there'll be an online version as well. That'll be available tomorrow. We really appreciate the feedback, anything you have for us.
So you can take the time to fill that out either today or tomorrow in subsequent days, that would be terrific. For those of you in the room, if you haven't already received an e mail, you will receive an e mail by the end of these sessions with your lunch table assignment for today. Lunch will take place on this floor here back mostly around the backside of the conference center over that way. So please make sure to check your e mail before we get to the end of this session, so you know where to go, which room to go to. And then once we finish, we'll go straight to lunch.
Be sure to come back here and get in your seats on time because we plan to start the last session with Jamie promptly at 1:30. I know we're running a few minutes late. We're not pushing that later. We're starting this thing at 1:30. So get back here because that session will get rolling.
So with that, I will pass the mic to Mary Oates, CEO of Asset and Wealth Management.
All right, everybody. So this morning was really great. Mary Anne setting the stage with the numbers and Daniel Gordon and their team is doing such a great job walking us through the 2 extra large businesses here in the bank. The next session between now and lunch is going to be me and Doug Pettenau, who are going to cover what I call the more specialty businesses in the firm. And so we're looking forward to taking you through those.
As the headline says, and I think this is really important, we believe the way that you run a successful asset and wealth management business is 1st and foremost focusing on client outcomes and secondarily focusing on financial outcomes. And as a fiduciary, if you do those the other way around, you will likely erode the foundation that necessary to run a long term sustainably competitive investment management business. And so what I'm going to take you through today are basically three themes about how the Asset and Wealth Management franchise is run. 1st and foremost, it's a very consistent business. If you do, as I mentioned on top, a constant focus on investment performance, 1st and foremost, your revenues and your pretax will just naturally follow.
And because we take investments in other people's money, we use very little capital from the firm. And so what flows from that is a very high ROE for the firm. But secondarily, you must always, and you've heard it in everyone's presentation, business started in 18/81 and is still in existence today. It started when the English wanted to invest in the emerging markets country of America, buying railroads and cattle ranches. If you continue to innovate, you can take your clients through a journey all the way through the centuries to now investing in things like ESG and other things that are very important.
But you can only do that if you're investing in the deepest subject matter expertise that's going to be able to manage those portfolios through time. And you have to obsess about that client journey. We heard about everything from the account opening, which in our line of business in the worst of times used to take weeks. We're now down to minutes. And being able to manage those clients' life cycle all the way through to some of the most sophisticated stress testing that we do as a get to be complex portfolio.
And then that's always keeping an eye on the future. So it's always having that look towards everything that we're going to do for them. We've talked about digital everything, machine learning, AI, big data, but we believe that is not sufficient. Digital everything for us is in conjunction with the human. It is the human and the computer that make for the winning formula.
And we will continue to take that winning formula, not just here and everything that you see, but around the world as our clients need our advice. And so when you look at the bottom, you've always heard us say, we will never stop investing in this business. But it's most important the first set of metrics on the left. Nothing else matters in this business unless we get the people right. The single most important metric that we look at each and every day is the retention of our top talent.
If you get that right, which is still remains at 95% and above for the past several years, you will continue to have the second, which is you have trusted advisors that clients come to because they like and they trust them. And in fact, we've had positive flows every single year for the last decade. But we will never stop both waste cutting and investing in the business to make sure that we know how to make it more efficient, more effective and not lose our edge. So I talked about you always have to put investment performance first, financial performance second. This is a financial room, so we're going to do financial performance first and get that out of the way.
So how have we done over the last 5 years? Over the last 5 years, you've come to know this business as being one that's consistent, reliable growth engine, And we have done that. How did we do in 2018? I would say, okay. Yes, we had record revenues.
Yes, we had record profits. Yes, we had a record lending business. But the Q4 was really tough. AUM and AUS dropped. And you can see by the combination of the 3% revenue growth and the 2% income CAGR that our concentrated effort in heavily investing in both people and technology with eyes wide open, we have to understand that the payback time is longer than this window of time.
So let's drill down on both the expenses and the revenue, and we'll go through the next two pages on that. Let's look at the revenue walk, which on the left hand side over the last 5 years, we've grown revenues by $3,000,000,000 and decreased them by another $1,000,000,000 for a net of 2. Looking at the left hand side, the growth in revenues have come 1st and foremost from the benefit of rates as well as the growth of our loan and mortgage business for the banking sector. The second comes from the AUM that we have that benefits from markets increasing. Over that time, our composite of what we have invested in is up 3% on a CAGR.
And then equally important, equal to the market's benefit are the $440,000,000,000 in flows that we've attracted over the last 5 years and the revenues that have been added because of that. Purposely decreased revenues on the right are 1st and foremost decreasing pricing proactively on behalf of our clients as well as business simplification. This has mostly been done in the asset management side. Chris Wilcox, who's here, runs our asset management business, and he has embarked on something called simplify to grow. Simplify for growth is something lots of our competitors in the asset management business talk about.
It is really hard to do. All of you know this who run portfolios. It is really hard to shut a fund where a client doesn't want you to. There are clients that want you to run something for a long period of time even though you think you might not have the edge or it might not be the right long term strategy. And what's even harder is the portfolio manager.
The portfolio manager who says just one more year, this is my year where I'm going to get that outperformance and I'm going to turn this around. And those are very hard to do. He and his team have done it quite successfully. So let's look at the results on the expense side and the walk there. To simplify for growth, we have increased our expenses by $2,500,000,000 on the left side and taken them down by $800,000,000 on the right side.
Let's walk through that. The first red bar is the enterprise. Think of that as an increase in the support and protection of both our firm and our clients. The second is coated in an orange because I call that a good guy revenue. Those are revenues that increase when we have revenue share that we pay out to other wealth management firms who invest in our mutual funds.
Also, the other third comes from strong investment performance related comps. And the second orange bar is another good guy that will show up in future growth as we invest in technology, advisors, new solutions and alternatives, beta and other places. You will see us continue to make these investments, but you should not expect these expenses to grow materially from here. The Simplify for Growth has begun to show itself in the $800,000,000 of decrease, and I want to take you through some of those examples on the next page. Just in the last 2 years, what have we done?
Well, we've launched lots of new things that our clients have asked for. We've launched 125 new funds as we've seen opportunities in the marketplace and our clients have requested that. But at the same time, we've shut down 30% of our mutual fund spectrum. 229 funds have been shut or merged. Why?
Because it's just what we just talked about. They were out of favor. They are underperforming and they're not coming back and that's the judgment of our investment committee or they just lost their edge. Those are really hard things to do. They're really important for the long term franchise.
When you do that, you have other consolidation. On the bottom of the next section is offices closed, 21 offices closed or consolidated, mostly on the asset management side because of that simplification, which allows us then to pull that other muscle on the top, which is to continue to grow and increase where we are in other locations. Just like we talked about on the retail side, as the footprint expands, we want to go as a whole firm. And together, we can make a much greater impact on those markets. Then if you look at the far right, that's really the technology transformation that Mike Arcioli, who runs Technology for Asset and Wealth Management, has helped us embark on.
He's helped us to transform ourselves into a modern infrastructure. That modern infrastructure, very importantly, allows us to hire what I call modern talent, the best tech talent out there. They can work in an agile development environment. We can have a follow the sun workforce. Therefore, we can do weekend sprints to be able to solve for a problem or create an app to be able to help either internal clients or external versus the months long that it would take when you had to do it on the side and then get back in the queue to be able to release it in the enterprise system.
All of these things here, they're sort of nice to show at an Investor Day. They're really hard to do both of those muscles at the same time, and the team is doing a really good job at that. These are focused for our bottom line, for the bottom line of asset and loss management. But we spend just as much time and energy focusing on the bottom line of our clients and their net returns. And so I want to take you to the next page, which are things we're doing on behalf of the clients.
We talked already about the purposeful reduction in JPMorgan fees. We've reduced fees on our top 10 U. S. And international mutual funds by 20% over the last few years, saving our clients $350,000,000 a year. The second one is where we really used our scale and those technology investments that I have referred to.
Christian West runs our equity investments platform. As an example, his equity trading basis points for cost for a trade is down almost 50%. The traders on his desk do twice the volume they did just 4 years ago. We have machine learning that helps us to execute the when, the where, the how across the 70 markets that we operate in around the world. It has drastically reduced our error rate on the trading desk.
And proudly, for the 3rd year in a row, we've been rated the Best Buy side desk on The Street by Markets Media. And then the last one is also important. Brian Carlin, who runs the investments platform for the wealth management side, negotiates very hard with our size and scale for our external managers. On beta alone, it's 50% of what it used to cost just a few years ago. That is a straight increase to the bottom line of our clients and $75,000,000 a year in savings.
These are the kind of things that the clients come to expect from JPMorgan. And so that's why they entrust us with their assets not just for quarters or years, but for generations. And we tell our clients the most important thing when you choose an asset manager is that you get strong net of fee performance. That's the bottom line. And so the next page is really just that each and every day, these are on our screens, not in these nice bar charts.
They're fund by fund, PM by PM, region by region, location, client type, size, and you have to keep a strong focus on this long term AUM. These are mutual funds because they're publicly traded every day. And you can see that the 5 10 year numbers are really quite strong. The 1 and the 3 year, they're coated yellow, still 2 thirds to 3 quarters of them are outperforming their peers, but 25% to 35% of them are below their peers. They're under intense scrutiny every day just as we talked about, and we have to figure out did they lose their edge or are the markets just veering for a little bit here and we can hold for a little bit longer time.
But clients will vote with their feet. So all of that taken into consideration will either lead to positive flows or not. And that's really what I think is the Holy Grail here, this page. You all know the Holy Grail for asset allocation is finding uncorrelated sources of returns. For running an Asset and Wealth Management business, the Holy Grail is finding uncorrelated sources of flows.
When you do that, it doesn't really matter what the numbers are. It's really a sea of green with interspersed red. There's not a consistency of red anywhere whether you look at it by asset class or whether you look at it on the channels of the regions. Look at the strength of wealth management in retail green all the way across each and every year. Look at the strength of the regions, U.
S, LatAm and Asia, green all the way across the years. That's led us, as Mary Anne pointed out in the beginning of our presentation, with $443,000,000,000 of flows to be number 2, that is importantly only against publicly traded peers that doesn't include Vanguard. But just like I said, that profits have to come secondarily to performance. The thing that you would hear if you were inside of this firm every morning in a morning meeting or in our business reviews is, this business does not and cannot strive to be the biggest asset manager. It has to strive to be the best.
If you do it that way, you may end up very big, but if you reverse that order, you have a less likelihood of ending up being the best. And so that's how we keep ourselves focused and that's why the core components of what we do are worth diving into just a little bit here. I want to just drill down a little bit on equities and fixed income, which are the core components of the asset management performance. Paul Quincy, who runs our equities business and Bob Michael have continued to generate 85% over peers in the equity side, 78% over peer average on the fixed income side. The growth of those also continues to be at industry average.
If you stripped out the passive managers, we would be growing at about twice the rate of other active managers in the equity space and 50% faster in the fixed income space. But if you look at things and you drill down, look at emerging markets, 81% outperforming peers. We just celebrated, I think this month, our 50th year of being in the emerging markets sector. We have several top decile funds across China and Asia Pacific region. If you look at the U.
S. Equity number, 96% is really firing on all cylinders here. Our Equity Income Fund has just come into the top 10 of all income funds in the United States. It was number 1 in flows for this past year. And also on January 31, that fund has now become the largest equity U.
S. Equity fund in the world run by a woman. I'm quite proud of that. But those have changed. People come to us much less for a style box.
I need a mid cap value manager and this is the search. They do that some, but much more often they are coming to us to solve a problem, which is why the solutions business is growing so fast. If you have the core components and they are very strong underlying, you will grow that business quite quickly. We've doubled those assets across the core solutions, Smart Retirement and Insurance. If you look at things like Smart Retirement, that's where the power of the firm really comes to play.
We run Smart Retirement trying to project what you need and what you're going to think about in 20, 30 or 40 years from now. But we have that data on the Chase side. We have the anonymized data from Chase that tells us a couple of years before you retire and a couple of years after you retire, you actually spend a lot more money than you think. But something else also happens. No matter what your wealth level is, you never spend as much in later years as you did before, even with health care costs.
That data and understanding the granularity of how it plays out as you get to retirement and then people pick their retirement date allows us to manage those target date portfolios in a much more sophisticated manner and not be focused on the traditional sixty-forty, etcetera, and how we're going to land that plane. On the insurance side, we also use that sophisticated technology we talked about to be able to apply our risk management tools and help them to do regulatory and ratings capital stress testing, doing peer analysis. And you should expect to see that continue to grow as 2019 we've already had a lot of awarded but unfunded wins there in that sector. When you take each and every one of these and you think about also adding the niche products that we do, I'm just going to take you to the next page here to do a little bit of a deeper dive. Those are the core components.
Where is the market moving? Well, in the state that we're in and the uncertainty in the equity markets, the hedged equity sector has become one of the most important and fastest growing. This is our hedged equity portfolio, which is in the 3rd percentile. Over the past 5 years, we continue to generate very strong returns relative to our peers. We've had number 1 inflows in 2018.
Our Sharpe ratio is a 0.85 versus our peers, which is a 0.19, 4 times that of our peers. Very importantly, in the month of December, rough for everybody, we were down less than 2%, that's 500 basis points greater than our peers, and only 20% of the S and P drawdown. So we continue to That's grown twofold up to $20,000,000,000 Anton Pill, that's grown twofold up to $20,000,000,000 Anton Pill and his team of people across the alternative space, not only do the traditional operating companies, leasing companies, but it's very heavily skewed now towards ESG, wind, solar, water companies and super exciting for lots of our clients. Then if you look on the far right, this is another very good example of something where it's a very fast growing sector of the market. Why?
Because of the structure of the fixed income markets today. John Donahue runs this strategy. It's in the 6th percentile of performance. Last year, it had 0 assets in it. It went from 0 to over $5,000,000,000 in 1 year.
Why? Because we have superior risk management you can see by the drawdown. The more important thing is all of those little bars to the right are $10,000,000,000 $20,000,000,000 funds. There's a huge amount of runway here for us to be able to continue to grow. And if you take what George Gatch does, who runs our distribution across the Global Asset Management business and you put him against strategies like this, he will continue to grow this business at the clip that you've seen.
But all of them have the same theme that runs through them, which is we apply our subject matter expertise, but also our really strong risk management. And that's why you see the protection of capital on the downside. And that protection of capital also extends itself to how we manage clients other side of the balance sheet. So let's just look at the banking in a little bit more detail here. Mary Anne went through deposit migration at the beginning.
When you look at what we've done within the deposit side, dollars 50,000,000,000 of net new money has come in from new clients and $20,000,000,000 we asked to exit. Remember non operating deposits, we exited the bank. So all of the rest of that money has stayed in house. It stayed in house because we have the great advantage of running everything from deposits to money market funds to core fixed income to a long term balance portfolio to alternative to options, you name it, we've got it. What we want to do and Gordon pointed this out on the ability to attract assets, once we attract those assets, making you a client for life is our job.
That's what we work on. It's not about cross sell. It's about helping you through your journey. And we work very hard on that, and you can see from those numbers that we're able to retain those assets. On the other side, the lending is a very strong growth rate, 9% versus our peers who are growing at about 5%.
Look at that growth and you always wonder how is the credit book being managed. It's an intense rigorous credit analysis and very, very deep due diligence with these clients. And that's why our net charge off rates are so low. We often think about all that that we do on the risk management side, how do we think about turning that and pacing it out towards our clients. And this is where we get to the digital side and I want to take you through 2 examples.
The first one is on the left, okay. So as an asset management firm, our job is They come to us and we help them manage different components of their portfolio. They come to us and we help them manage different components of their portfolio. But because of all the things that we do across solutions and risk management, they have also come to us over the past several years and said, how can you help us to look at these portfolios just to stress test them and to tell us what else we might want to add or subtract from these portfolios. And so just like everything else we used to do in life, they would fax us, they would email, we'd have to retype, send them to our systems and do that analysis.
And then we started plowing money into investment tools that they could put on their own desktops. That is now a tool that is out to these FAs at these firms that we serve. We're just since we launched it this summer, we've done over 20,000 analyses. In December alone, one of the FAs ran 500 of them And he discovered that it was a great tool for prospecting because they take sample they take the portfolios from some other firm and they bring them in, they download them and then they're able to show the client what it is that they should add or subtract is very important. And of course it's also what they've come to expect from their relationship with JPMorgan.
And then on the far right is our YouInvest platform. You know that we launched that this summer. It's very early days. The stats are not something as we talked about that we want to go through in a large audience. So we're not going to go into that kind of detail.
It is important to know, however, that 89% of the net new assets are first time investors with our firm. And that is a very, very impressive lead as to what's going to come later this year. We'll be launching UInvest portfolio. And so that will be another part of the disruption that one of the things people worry about is do big banks have the ability or the DNA to disrupt. And hopefully, you have seen from everything today that this whole team of people and this leadership group that is sitting in this room with you has that DNA.
It doesn't just exist in the FinTechs. And it's very important that we know that we are doing it and we're doing it in our own way, very methodically, very thoughtfully. But it's not just these technology tools. So it is the combination. And as we go through just these last two slides, it's the combination of the human and the computer.
The far left is a picture of when we first began to offer investments into the branch. Think of the branch as really being, as we talked about, a transactional in nature place many years ago. Advice was a very small component in the back. Today, the branch is becoming an advice center. It's becoming a place where you can talk about home lending, you can understand the debts on your credit card, can you turn that into a loan as you saw with the combination of the asset management investment expertise where the Chase Wealth Management investors are sitting in, I think it's about 2 thirds of the branches that we have out there in the field.
And you can think about how you take all of that data and help the client to make better decisions. I just want you to think about one thing. All of the outside FinTechs ask you very important questions so you can make smart investment decisions. The 2 main ones they ask you are how much do you make and how much do you spend. There is almost nobody that answers that correctly.
How much do you make is the gross number that's in your head pretax and how much do you spend is woefully underestimated. When you do that, you can get very dangerous suggested outcomes. And so the ability for Chase to take all that data that we have from you and be able to use and put it all together to help you understand how to manage your financials better, and put it all together to help you understand how to manage your financials better is the reason that we want to get down the spectrum to people who are earlier in their life cycle of how to save smartly. And that's our journey and we're really excited about what we're doing there. But it's not just the spectrum of people there.
When you think about the wealth management spectrum, at the very high end, we've already talked about it many, many years. We do a terrific job. We have a very strong market share. At the mass affluent end, we've talked about it from a chase. In the high net worth, think about the young titans.
We describe young titans as basically the people in this room, all of you, people who have a very strong career, income, but they still ask those same questions. Number 1, how much do I need to retire? Some of you ask that to yourself every day. And the second is, will I outlive my income? And those are very important questions and that's where that middle comes into play.
That middle needs the combination of the advice and technology and the tools and that's what we do on the wealth management side. We will continue to grow that and to extend it both in the U. S. Where you can know that those numbers are continuing to grow, but also overseas where the number of millionaires in China and in India that will triple in just in the next 10 years. And so that's where our opportunity is.
You have seen us spending on those advisors and we will continue to do And that's where you're going to see the continued growth in this market. So on this last page, how have we done? We have laid out over the long term, our medium term targets have been 4% in long term flows, 5% in growth for revenue, 10% in pretax income growth, 30% pretax margin and 25% ROE. How have we done? Well, over those 3 years, if you have a green circle, it means you hit it at least one of those 3 years.
If I were grading it, I would tell you we haven't met it on the pretax income growth and the pretax margin. We're not where we will be in the coming years when all those investments that we've made in people and technology will come online and the results will be in line with the medium term targets. We're not concerned about it in the short term. It's something that we work on each and every day. We have ROIs on each and every investment down to the person in the office in a seat.
And we will continue to invest in this business, which I happen to think is a gem of a business with one of the most special client franchisees that we have here in this firm. And with that,
we'll take a couple of questions.
Gerard?
Thank you. Gerard Cassidy, RBC Capital Markets. Mary, on Slide 6, you showed us the reduction in the fees for the large equity funds down 20%.
Can
you give us a little more color? Is it evenly spread, everything down 20% or some funds seem a greater reduction?
Yes. And so it's a great question. It's across the board. I just took an example of the top 10 funds both in the U. S.
And international to show you. The job of the investment committee of JPMorgan Asset Management is to ask itself the following question every single day. Do your alpha targets, net of fees generate excess return enough to be able to sustain themselves over time. You have to ask yourself that on a forward looking basis every day. And if that changes, you have a fiduciary obligation to change that.
And that's how we hold the standard for ourselves and that's how we go through each and every fund and I just use those as 2 examples.
Right up here, front, Jamie.
Hey, Mary, it's Jimmy Hanna. Just a question on corporate solutions type business. So I haven't heard JPMorgan talk about this before, but I'm curious your if there's aspirations to be bigger in the business, where you are in the business, if it's something that's appealing because there have been some transactions recently targeting corporate solutions.
What do you mean by corporate solutions?
So it
would be a corporate client base and helping their employees with asset management type solutions, investment products, maybe using UInvest?
Well, I think that's a lot of what we do in the 401 space. Is that what you're referring to?
Yes, the 401 space is 1.
Yes. So it is. I don't drill down on those numbers, but when you look at the retail, remember all those green circles that go across the page, those are embedded in there. And we have a whole team that goes after those small and medium sized companies to be able to help them to think about that, both for existing companies as well as when you're in a transition, which is one of the most important times you can help them.
We got one more over here in the back, Brian.
Yes. Brian Kleinhanzl with KBW. A quick question on the increase in capital to the business. Was that just a change in methodology for the increase in capital, so it was retroactive? And then 2, when you look at the ROE targets, it went from 30 percent to 25 percent plus, but just that change in capital alone was only 500 basis points that should have gone really just 35% to 30%.
So what's the extra five 100%?
Great question. So the answer to the first question is, the reflection of capital, which again is both art and science as Mary Anne walked us through, is the combination of the reflection of the standardized capital as well as the growth in our lending and mortgage books. And that's a combination and that's the capital that we think is appropriate, not just for today, but for the near term. And then in terms of the targets, it was just more in line with what I think it was the CCB that had 25 plus. So you should expect it to be higher than 25%.
Okay. A couple of questions. One, there were some rumors that the firm was looking at some beta providers like WisdomTree. And just wanted to understand, is that accurate or you want to comment on it because I noticed that you had quite a few funds that you launched that are beta. So what's the logic or rationale around even thinking about something else since it seems like you already have in house?
So we're always looking for M and A activity, but that's because we want to keep ourselves in the market. All else equal, in an asset management business, it is much better to organically grow, hands down. It's very difficult to be able to do M and A on the asset management side, but that doesn't stop us from looking and when something is attractive or appealing to us, we will. And so that's what you'll see us in the marketplace doing. Otherwise, our own growth profile is just fine and our plans are very strong.
Good
morning, everyone. I guess almost good afternoon. I want to add my thanks to all of you for joining us today. We really appreciate having you here. You've been super generous with your time this morning, so hang on, I'll get you to lunch.
And it's really great to see all of you here joining us today on this important session. In Commercial Banking, you didn't hear from me last year, but we've continued to execute our long term strategy. And I'm pleased to be here this morning to tell you about how we've been relentlessly focusing on our clients, thoughtfully expanding our franchise and investing in our capabilities to deliver more value. With these investments, we're building upon our core strengths to further extend our competitive advantages And as you would expect from us, we're maintaining our fortress principles and through the cycle discipline. All of this has led to continued strong financial performance.
And while we're quite proud of these results, we're even more excited about what's ahead for Commercial Banking. To get us started, I'm going to take you back 10 years and I'm going to do that for three reasons. The first is in 2008, we integrated the commercial term lending business from Washington Mutual. It's actually hard to believe it's been that long. The second reason is, during this timeframe, we commenced our middle market expansion efforts, and I'm going to speak to that in much more detail in a moment.
And finally, our strategy in commercial banking is to invest in the cycle, take a long term view and a 10 year context provides the right perspective. Over this period, we're proud of how our team has executed and the market leadership positions we've established. We've opened up 67 new locations across the United States and we've added 650 net new bankers. And you have seen the outcome in our numbers. We selectively have gained share across all of our businesses and this has added high quality loan growth and high quality deposit growth.
Net charge offs have been less than 10 basis points for each of the last 7 years. Revenues have nearly doubled over this 10 year period and our net income has tripled. A key part of this success has been our targeted organic middle market expansion strategy. We have created a nice sized bank from scratch and we are now local and active in 39 new MSAs. And through these efforts, we've added 2,800 new clients, built a $15,000,000,000 loan portfolio and an $11,000,000,000 deposit franchise.
It's not lost on us that others are watching in attempting to replicate our strategy, but we believe we have a winning model and we believe success for us will continue in these new markets, given the quality of our team and given the quality of our brand in these communities, our comprehensive platform that's specifically designed to serve middle market clients and our unique ability to grow with all of our clients over time. And as you can see, we're nearly 2 thirds of the way towards our stated $1,000,000,000 revenue target here and the overall potential that's remaining is tremendous. Note that we specifically did not set a timeframe to hit this target as we're going to continue to build and execute with patience and discipline. I want to point out that when we enter these new markets, we invest for the long term and over time as we gain share, we achieve significant operating leverage. So just in the last 3 years, we opened 22 new locations across the country.
And when we do this, we connect all the dots and we deploy our proven formula. We're truly active and engaged in our communities, we're delivering the full platform and power of JPMorgan Chase, and our goal is to build the best team and bank only the best clients. The foundational investments we make upfront are meaningful and are now largely in place. Our bankers, the support teams, the real estate, essentially our operating infrastructure. So as our presence matures, these newer markets will drive revenue growth, margin growth and returns for many years to come.
It's important to point out that while we're currently in each of the top 50 MSAs and only about half of them were a new entrant. The growth opportunity for our middle market business is not simply limited to this expansion strategy. As you can see from the map, the potential nationally is enormous. The orange represents 38,000 prospective clients identified, prioritized and cataloged based on data driven analysis. Notably, some of the most exciting opportunities are in our legacy markets, like right here in the New York City area where we've been for many, many years and also are clearly a market leader, we've identified over 1500 great potential clients.
The same is true for many of our other heritage markets, notably Chicago, Dallas, Houston and others, markets where we've been for over a century. We're also well positioned in cities with high concentrations of specialized industries, so technology hubs like San Francisco, Seattle and Austin and we're in life science cluster cities like Boston, Philadelphia and Los Angeles. So overall, we now have teams in 116 locations and these markets account for about 70% of the U. S. GDP.
So, we have boots on the ground on top of the U. S. Economy. 75% of these markets are within our retail branch footprint and this helps us tremendously. Many of our clients actively use these branches.
It underscores our presence and our commitment to these communities and this benefit is only going to increase over time as Gordon and Tee move into many more attractive markets. We're equally excited about the opportunity to grow our commercial banking business internationally. So right now, we serve U. S. Clients overseas.
This is a big competitive advantage for us. It's a big differentiator for us to be able to follow our clients in international markets. We also cover U. S. Operations of foreign multinationals, but to date we have not focused on the parent companies in country.
So to capture this opportunity, late last year, we announced our plans to serve these non U. S. Headquartered companies in select geographies. We believe now is a great time to do this. The banking landscape globally is highly fragmented.
Many of our competitors in these countries are distracted at the moment and we believe there are few that are capable of serving these clients the way we can. Moreover, fundamentals are quite supportive as the market for international midsized corporates is expanding and foreign direct investment into the United States right now is $4,000,000,000,000 and increasing. So we recently established teams across 6 countries in Europe and we're targeting high quality mid corporate companies. Many of these names I'm sure you've heard of, many have been in business for 100 of years. And just like in the U.
S, we're looking to bank only the best clients. We're not going to limit this simply to Europe. The work is underway to do the same thing selectively across the Asia Pacific region. This is a natural extension of what we do today. It follows our successful U.
S. Model and it lets us build upon our existing in country capabilities and leverage JPMorgan Chase's global platform. So we're off to a great start. The reception in these markets has been quite positive and we're looking forward to banking this exciting and growing client segment. So as many of you know, over the past several years, we established 17 industry specific coverage teams.
These teams provide deep sector expertise and deliver specialized solutions. Importantly, this has also helped improve our ability to manage risk through dedicated industry underwriting channels. And this was certainly evident during the recent oil and gas downturn where our credit performance clearly benefited from the expertise of our seasoned energy specific underwriting team. We are excited about the opportunities that we're seeing across all 17 of these industries, but I just want to highlight 2 in particular this morning, starting with our Government Banking segment. So in many regions around the country, we've been unable to serve state and local municipalities without a physical branch presence.
So now with CCB's branch expansion, we'll be able to support meaningfully more local government and higher education clients in these markets. And this will represent a significant expansion in the addressable market for our government banking team. 2nd, we're investing in specialized bankers and solutions for the rapidly growing innovation economy. So think life sciences, technology, disruptive consumer companies. The opportunity here is massive.
As an indicator of that, last year, Venture Capital invested about $100,000,000,000 in just in the United States just in a single year. This is also a sector where the competition is much more concentrated, but we believe given the breadth and quality of our capabilities no one is better positioned to support these high growth companies. 1 of our biggest competitive advantages, especially with these fast growing clients, is our unmatched ability to serve them throughout their lifecycle. We can support our clients' needs at every step along the way, from opening up their first operating accounts, to expanding overseas, to funding an important acquisition or to taking their business public. And because we can deliver is
truly
impossible for our clients to outgrow us. It is truly impossible for our clients to outgrow us. To further this advantage, we are investing across the treasury management continuum. And you heard from Takas this morning, we're making significant investments in our digital and payments capabilities and this work is critical to our value proposition. It serves to greatly de commoditize our overall offering to our clients.
But more importantly, as Taka said this morning, it allows our clients to accept any method of payment in any currency across the globe, allows them to connect with us in whatever way they want from a single global exchange to APIs and it lets them use our data driven insights to optimize their business. Moreover, in commercial banking, we have dedicated specialists that are working directly with our clients providing focused consultative coverage and this is driving real value for our clients. It's enhancing their working capital, we're improving their cash management processes, we're lowering their treasury operating costs and we're protecting their businesses. These capabilities allow us to build extremely deep, extremely close relationships with our clients, earning the foundation for gathering and retaining long term core stable operating deposits. So Investment Banking, our partnership with the Investment Bank continues to be highly successful.
We've showed you the slide versions of this slide over the past several years, we're quite proud of it. Our teams are very well connected. And it's actually a key growth driver for both of our businesses. Last year, Commercial Banking contributed about 40% of CIB's North American Investment Banking fees. And for us, being able to deliver the number one investment bank locally deepens our strategic dialogue and it completely separates us from most of our competitors.
And even while these are market dependent revenues and as Daniel described, the wallet has not been growing, in fact contracting in many years, we have grown investment banking every year since the JPMorgan Bank 1 merger in 2004. And 2018 was no exception. We generated a record $2,500,000,000 we completed 900 Capital Markets financings and we advised on 100 mergers and acquisitions. We're especially delighted with the progress we're making in small business and middle market. Our revenues here have grown 20% on a compounded annual growth rate over the last 3 years.
So even though we're facing a shrinking wallet, we're looking forward to continue to grow and we expect to head to march towards our $3,000,000,000 target and we're excited about the overall potential here, especially as we continue to add great clients. We also think the expansion of our business internationally is going to be a big contributor to our Investment Banking business. So let's switch gears to a commercial real estate. As all of you know, growth for us here has been highly selective, deliberate and disciplined. We are the number 1 multifamily lender in the United States.
We have relationships with top tier developers and investors in very targeted markets and asset classes and our community development banking team has been quite active in helping transform properties in distressed neighborhoods around the country. Commercial term lending, we have a huge scale advantage and we're continuing to invest to deliver even more value. An excellent example of this is our proprietary loan origination system, Krios. We've talked about Krios at prior Investor Days. Today, we're using it to process 100% of our commercial term lending volume and loans that go through Creos, 40% of them close in less than 30 days.
This is dramatically faster than anywhere else in the industry. Speed and certainty of execution are critical to this client base because it allows them to be nimble when pursuing opportunities. So, we give them a simple documentation, a straightforward process and let them focus on running their business. And our strategy here has always been to deliver the superior execution and client experience rather than compete on pricing, terms and credit. Let's talk about credit.
In commercial banking as it is across the company, credit is a common language. Credit discipline is core to our culture. For us, loan growth is an outcome. It's not a strategy for the business. We take a through the cycle approach and it all begins with banking the right clients.
And for us, this has led to continued strong credit performance, consistently ranks along the best in the industry. Since 2008, our average overall net charge off rate has been just 25 basis points. Our underwriting teams are highly experienced and embedded in the markets and the industries they support. So as we look forward, we're continuing to be highly selective, we're staying true to our underwriting discipline, we're monitoring new originations, maintaining our discipline, not competing on structure and leverage and we're avoiding the riskier financings of the market. We do recognize that we're in the late stages of the economic cycle and market conditions, credit conditions aren't going to they're not going to remain this benign forever.
So as such, like many of my partners, we've been taking steps to prepare for whatever might come. We've developed detailed playbooks for a variety of downturn scenarios. Importantly, we've significantly reduced or eliminated those activities across commercial banking, which contributed to about half of our net charge offs in 2,009 2010. And as I mentioned earlier, we've also expanded our specialized industry underwriting channels. This is something we didn't have going into the financial crisis.
So, now 40% of our C and I loans are underwritten by an industry specialist. So, all this downturn conversation aside, we don't see any broad signs of stress right now and we would expect our 2019 credit performance, as Mary Anne alluded to, we would expect it to look very much in line with what we saw last year. Talk about C and I. In C and I, our clients overall are in excellent shape. Business sentiment is upbeat, clients are benefiting from tax reform, sustained low rates and stable economic fundamentals.
As such, we feel very good about our portfolio. It is well diversified across both geography and industry. It's highly it's high quality and granular and the financings are very well structured. Nevertheless, here we are consistently looking for possible signs of weakness or stress at a very detailed granular level. We're focusing specifically on sectors that are under change or feeling pressure, industries like auto, retail and energy, for example.
And we're watching for clients that could possibly be impacted by ongoing geopolitical dynamics, a major change in tariffs globally or Brexit. But right now, we aren't seeing any major signs of stress. We have no signs of any concern in the portfolio. We remain very confident in our underwriting. If you look at 2018, our C and I loans grew 3% and for us this feels about right, especially given where we are in the economic cycle.
We're especially pleased with the growth we're seeing in areas where we've chosen to invest, specifically our specialized industries and our new markets. And while competition for high quality assets remains quite strong, we are finding attractive opportunities to lend and spreads in our markets have since stabilized and felt a lot of pressure earlier in the year. More broadly, as we step away from our portfolio directly, more broadly, we continue to believe that the riskiest part of the C and I loan market relates to financing the buyouts of
small private
companies. And as we've stated in the past, this is intentionally not a market that we've prioritized. I'd also say that non bank lenders remain quite active, but also here they typically focus outside of our core risk appetite. So it's a similar story in our commercial real estate business. We're maintaining our underwriting discipline, conservative approach.
We're examining market fundamentals very closely and staying close to the loans and markets that we know best. Generally, we believe we're in an extended peak in commercial real estate. This is being supported by strong employment and steady wage growth. However, we are seeing some signs of late cycle characteristics. Some non standard transactions are creeping back into the market.
Competition has remained extremely elevated, especially from the GSEs and other non bank lenders. And we're watching certain commercial real estate sectors, specifically in some sectors and regions, notably retail or suburban office properties. As in C and I though, we continue to feel very good about our portfolio. Our commercial real estate business is designed to thrive through the cycle. We're supporting high quality investors and developers.
We've intentionally targeted cycle resistant sectors and regions with limited exposure to some of the more volatile asset classes. And I should note that our construction portfolio, you should expect that to continue to contract as we maintain selectivity at this point in the cycle. If you think about commercial real estate for us overall, remember that 2 thirds of our portfolio is related to commercial term lending. These are funded term financings for stabilized apartment buildings with predictable cash flows and low leverage. They're typically B and C type properties.
We're targeting large densely populated markets. These markets are supply constrained, markets like New York City and Los Angeles. They're rent by necessity, markets with high construction and land costs. The portfolio is highly diversified and granular. Our average loan size is about $2,000,000 And if you look at our originations in commercial term lending last year, the average loan to value was less than 50% and the average debt service coverage was better than 1.5 times.
And importantly, as you look at this underwriting, our underwriting does not assume rents are rising and also factors in a cushion for underlying rates. So for Commercial Real Estate overall, we're very pleased with how the business performed in 2018. We had originations of $24,000,000,000 loan growth of 4%. We did as I mentioned earlier, we did see some significant spread compression earlier in the year, I think in the wake of tax reform. But across commercial real estate, those we have since seen spreads stabilize as 2018 progressed.
And for the commercial bank overall, if you look at our credit portfolio and the fundamentals, we feel, as I said, very comfortable in our underwriting and quite confident in the overall portfolio. Let's talk about expenses for a moment. Being a part of JPMorgan Chase gives us a tremendous scale advantage and our relentless focus on expenses has led to our industry leading cost structure. Nevertheless, we're working very hard to transform several critical processes, so onboarding, service and credit. And we think this will bring significant incremental efficiency across our business.
We are fortunate to have the capacity to make smart long term investments regardless of the macro environment. And as you've heard from me this morning and as I've described, there are significant growth opportunities right in front of us. So therefore, you should expect us to continue to make these strategic investments to grow and improve our franchise while maintaining an efficiency ratio target of 35%. This sustained investment has been a key driver of our strong performance and it reinforces our strategy. We are spending more and more time with our clients and our prospects.
In 2018, we hired 150 new bankers, we made 30,000 more client calls and to no surprise, we added over 1200 new relationships. This client focus helped us deliver terrific financial results last year, record revenue of $9,100,000,000 up 5% year over year. Net income grew 20 percent to a record $4,200,000,000 and our credit performance remained excellent with net charge offs of just 3 basis points. Overall, the growth in the business and our credit expense and capital discipline led to a 20% return on equity. So if you look forward for Commercial Banking, we're making steady progress against all of our financial targets.
We're maintaining our $1,000,000,000 target for our middle market expansion effort and our $3,000,000,000 target for Investment Banking Revenues. For international, given our new broader global coverage efforts, we're increasing our target from $500,000,000 to $1,000,000,000 to include all of our international activities. And as I just mentioned, we continue to target a 35% efficiency ratio. We believe this is the right cost structure for the business. And finally, we believe we can maintain very strong returns even with higher capital and have kept our 18% medium term return on equity target.
So to wrap up, I hope you can see why we're both incredibly proud of the business and the franchise and excited about the opportunities ahead for us. Our clients are choosing us because we have an exceptional team. We're local, they're specialized, they're engaged in their communities. We're supporting them with comprehensive solutions and we have the ability to grow with our clients as they grow. We're not standing still, we're making strategic investments across our business to deliver them even more value.
And we're doing all of that while providing the safety and security that they expect from JPMorgan Chase. All of this ultimately comes down to us helping our clients succeed and we never lose sight of that. So thank you all again for being here today. I'd be delighted to take any questions.
Mike?
Well, I'm excited and nervous about your expansion. So excited to the extent that maybe you can help out Gordon Smith's area. You're already in Boston and Philly and Washington, D. C. So to what degree can you help with the new market retail expansion?
And the nervous side is the expansion into what Italy, UK, Spain, Germany with commercial banking. So that's a newer area with new risk.
Are there a couple of questions in there or you stop? So we having Gordon's expansion is fantastic for us. And Jamie said it many times, you would not have a middle market business without branches, 18,000,000 branch transactions a quarter. The other thing would we're in Boston, but we don't have a business banking, small business franchise there. It's a huge pipeline for us as companies grow out of business banking and come in the middle market.
And when we all lock arms together in all four lines of business or in the same city, it's pretty hard to be us. We have philanthropy, we have local engagement, we're touching the whole value chain across consumer and wholesale, it's a pretty powerful thing. So I don't know, I am not actually benefiting more from Gordon than I am helping him I think in this case, but I think when you put the 4 pieces together in any one of these new markets, it's going to be hard to stop us. On international, look, nobody is more cautious and concerned about that than I'm going to be. I intentionally try to point out these are household names.
And we've covered Daniel covers large corporates in these markets and he has for decades. So, just think one notch below. There's a full set of clients that our global corporate bank has not covered and they're active in we're going to serve them the way we're serving the large corporates that Daniel is covering already. We're going to rely heavily on the compliance risk and control architecture and infrastructure in those countries. We're going to be very careful.
It's not a loan we don't think this is going to be a loan driven business. We think our competitive advantage is their inbound U. S. Treasury, Investment Banking and Risk Management, so foreign exchange and commodities and currencies, and we'll keep you posted. But we share the same concern.
It's a step out for us, but I have a passport. We've been to these countries and J. B. Morgan Chase has been in every one of those countries for a long, long time. And we're working hand in glove with Daniel's team and we have the right risk people wrapped around it.
Any other questions?
Back here.
Steve Chubak, Wolfe Research. So Doug, first question I had is about the credit outlook. Charge offs continue to be quite low. Last year, you guided to about 10 basis points in terms of medium term charge off guidance. I'm just wondering as we get deeper into the cycle, how you're thinking about through the cycle loss expectation for both the CRE and the C and I channels?
Well, I mean, I think it's going to depend on when a downturn happens, if it happens, how severe it is. I think we all reflect on the global financial crisis as being sort of the proxy for what the next recession might be. If you look, our peak charge offs in the crisis, it was 1% in 2,009. Our average, as I said, since 2,008 is 25 basis points. So without knowing the duration or the severity of the downturn, it's really hard to have perfect predictive capability on what our losses might be.
But what I would say is, I'd reiterate the points I made earlier. We've taken significant steps, in my view, to make the portfolio even stronger. Better industry underwriting, we eliminated activities that caused us issues in the past. We have more loans, I think we have a higher quality portfolio. And many of my partners presented, we are not waiting around for it to happen.
We're getting ready. We're understanding where risks might rise. We're looking for weakness in our portfolios. We're working very closely with clients to make sure they have capital structure and financings that can get them through whatever kind of economy comes down the road. So I would just I would point you to our historical performance as the best proxy for what you might expect going forward, but much depends on what we see in terms of a downturn.
I'll attempt for one more if there's one. Okay. And let's break for lunch. See you at 1:30 sharp.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin
shortly.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co.
2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin
shortly.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co.
2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly.
The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co. 2019 Investor Day Conference Call will begin shortly. The JPMorgan Chase and Co.
2019 Investor Day Conference Call will begin shortly.
Okay. Come on in. We are less than a minute away from 130. So it is about time to get going. Get in.
It's starting at 130, if not sooner. We've got Jamie Dimon coming up. Speak for a few minutes and then I would assume you're going to take a bunch of questions.
Jason, thank you very much. Welcome everybody. Thank you for coming today. There's going to be plenty of time for questions. I only have a few comments I want to make and of reiterate some of the theme we heard today.
Theme number 1, we run the company to serve customers. A lot of the things that end up are outputs, some of the loans, some of the products, some of the services, some of the results. We are adults about the outcomes. Obviously, a lot of things you could do, they can manage risk, prepare for things like Brexit or trade wars, etcetera. But at the end of the day, our job is to service clients extensively through a series of time with people, technology, branches, and we're always going to be relentless on that.
There are things I'm not particularly worried about, but there are risks you always ask what are you worried about. There's a growing list of things that you would put on the list and Ashley worries about all the time and it's Brexit, trade, China, Italy, Saudi Arabia, Eurosclerosis, it's FinTech competitors, they're all there, they're all things that the company's got to worry about all the time. We do, but it's not the thing we worry about the most. The thing we worry about the most, and if you're on the management team, you've heard me talk about this before, is complacency, arrogance, bureaucracy that stop us from facing these other issues. We're prepared to face them and we know they're.
We are prepared for a recession. I saw one of the things that came across the tape saying that JPMorgan is preparing for a recession that we're not predicting a recession. We're simply we're pointing out that we are very conscious about the risk we bear as a company when it comes around particularly credit, markets, etcetera, and manage the risk exposure. You should know that in the recession, okay, we're adults, we're going to continue to service our clients, we're going to manage the risk. Obviously, financial results will get a little bit worse, but it's also an opportunity to shine for your clients and your communities.
And so and one of you also mentioned about this competition is very important. Boy, we've got competition from the Chinese, the big Chinese bank, Tencent, Alipay. You saw a whole bunch of people announcing FinTech companies and there's going to be fee compression in every business we're in for the rest of our lives. So I look at that as people remember what you say, yes, there will be fee compression in every business we're in for the rest of our lives. It's called capitalism.
That is what happens. You have to give your customer more, better, faster, quicker in one way or another to do a better job. I do want to mention we don't run the company for accounting profits. We are fanatics about accounts. Nicole Giles is here and Catherine Kaminski is here, our fabulous Chief Order from Pricewaterhouse and our Controller.
We want to book every asset properly, every liability properly, we want to recognize things. I prefer to defer profits and to book profits upfront. I think you've seen a lot of companies do some really stupid things to get results. But I do want to point out that accounting profits, okay, can sometimes be a fiction. I'm going to point out a few little things.
In the credit card business, you heard Mary into our CECL. We have to put up reserves kind of for the lifetime of credit cards. But you don't present value the revenues, present value the losses. Worse than that, when you built the Sapphire card and it costs $400 or whatever cost to market a Sapphire card, someone came up with the idea that marketing for credit cards you expense over 12 months as a contra to revenues. I personally don't understand it, but do you think we care about the $400 marketing expenses opposed to the NPV of the card?
So we're going to run the company for actual things. One other negative about these accounting things is accounting is also going to models, they're going to GSIFI, they go from the CCAR and they're inaccurate. You saw a bunch of people talk about TS today, the $11,000,000,000 of revenues. TS, custody, asset management, they're like annuity streams. They provide a huge base of earnings for this company that we can grow.
We don't present value the revenues and present value the expenses and put it on as a revenue or something like that. Of course not. We do an MSR. Why that I know why that happened years ago. But so again, my point is we will look at what's the real risk, what are we doing, how are we serving the clients.
And recession plan does not mean, okay, that we're stopped building our branches, stopped spending marketing, stopped growing our bankers. It does not mean that. It's the opposite. We will take advantage of recessions to hire better bankers, to have more effective marketing, hopefully to do things and hire people we maybe couldn't do before. And so we kind of look at it a little bit different ways sometimes.
Corporate Social Responsibility, Peter Scheer is here, who runs that. I think it's become, I put it, an integral part of our company. We have never been confused between how to do a good job for a shareholder, a good job for a customer, a good job for our employee and a good job for our community. They're all the same to us. They're part of the fabric that makes JPMorgan involved in it and it's far more focused.
So as opposed to be charitable giving for certain things around things that JPMorgan can uniquely provide capital to special capital for affordable housing, for work skills, for jobs, you can do it around the world and it works in conjunction. So we have things like the you've heard about the amount of women who work here. We have the women in the move. We have the advancing black leaders and the advancing black path that we're particularly proud of. But those things are extensive, multiyear sustained efforts to better job for parts of the community who need a little bit of help.
So one really creative thing is Entrepreneur of Color Fund. We tried, Mayor Duggan came up with the idea, it wasn't a JPMorgan person, that entrepreneurs of color have a hard time getting capital to grow their small business because they don't necessarily have the family to fall back on or the house network to fall back on. So we're starting to do some what I call non standard financing, which makes it far more sustainable for entrepreneurs of color women, women's small businesses and possibly even affordable housing and possibly some infrastructure, etcetera. That's become a critical part and lifts up our company, lifts up our communities. We are cloud.
Laurie is here too. We didn't have a tech session here, but I think you should look at it as we are devoted to investing in tech relentlessly over time, okay. We are probably a little bit slow and not slowing everybody else, slow in cloud and I am the guy to blame. I kind of just I couldn't stop looking at anything but outsourcing by other name, but the fact is we're doing it as rapidly as we can, both internal cloud, external cloud done the right way. There's no reason to hesitate on cloud, agile and AI itself, you call it AI machine learning, big data is real.
It's used extensively ready for fraud marketing, underwriting, prospecting, but it's really it's the tip of the iceberg what those things can do. And then HR, there's nothing more important than our people. We're going to be prepared. Going to take away jobs, which very well might, where robots and AI can handle call center jobs to retrain our people, use attrition as our friend and train those people there for both jobs inside JPMorgan and possibly outside of JPMorgan. I think the most important thing that I hope you saw today is the management team, which is hard to see it all the time, but it's open.
It's usually the good, the bad and the ugly. They all work well together. They all help each other, these businesses. When we go into a town, think of these you heard about the D. C.
Branches, now Boston, Philadelphia, all over, but we go to town, basically everyone goes in. And we kind of go in with philanthropy, we go in with small business, LMI lending, we go in with commercial banking, private banking, high net worth banking. It does work and the town is better off. And so it's early stages of those expansions, but I think they can pay off enormously over time. So I'm going to stop there and open the floor to questions or comments, whatever is on your mind that you want to expound upon.
Mike? Yes, Michael.
Yes. So Mike Mayo Wells Fargo Securities. You spend $11,000,000,000 a year on technology. How do you know if it's effective spending? And also, why not expand the mobile digital banking outside the United States?
Yes. So in the first one, I mean, the biggest question, not just technologies, are you getting what you need? So my view is, we are going to build what we need to build to be the winner. No one in the management team is allowed to come in and say, well, we couldn't afford it. Not on the list.
I can't get around to it. We may not get around to it because we can't sequence it properly, but you can. But the biggest part, I think you heard Daniel mentioned, Gordon mentioned, is we review very rigorously everything to do, what we're getting, how we're getting it, can we do it faster, we can make it more productive. You'll never be perfect. You mentioned in your report, which I thought was quite good by the way, that 20% or some of that text is open thrown away.
I think you're absolutely right. I think it's just a diligent management with the right people in the room over and over, acknowledge your mistakes quickly. Every now and then we screw up a technology build. You've been building for 2 years, but for technology, you probably knew a year earlier and you could have made a different decision. So it's just trying to get disciplined around doing it.
I think we're quite good at it by the way, but you always get better. I think some of these new tools do make it far more efficient than in the past. And getting people in one set of platforms, tools, etcetera is going to be critical too. The second question was, yes. So retail, we've always said we're not going to retail banking outside of the U.
S. Because we didn't have a reason to win. We opened these 400 branches. On average, we call the 4 walls. Inside, it costs $1,500,000 whatever the structure is, something like that.
Everything else we do, take a statements risk, fraud, audit compliance, AML, etcetera, isn't necessarily incremental cost, huge economies of scale. We wouldn't have and we have brand recognition, etcetera. If we went to a foreign country, remember, you have different languages, different statements, different systems, different laws, different compliance, we'd have to build the 4 wall cost and everything else and we'd be losing money for the rest of our lives. That's why we don't do it. And you've seen people try that.
And by the way, there's no reason if you go to India and ICICI or China, China Merchants Bank, ICPC, etcetera, that you would move to Chase. I mean, there's no reason to do it. So it doesn't make you have a real competitive advantage as opposed to Washington, D. C. It is possible digital changes there.
It is possible in the new world though you have a lot of digital competitors out there and I've yet to see like blockchain, it's a lot of talk, but not a lot of action. Jamie.
I just wanted to drill down a little bit on payments and you obviously have taken a piece of this tech budget to build out a terrific payments network both on the wholesale and the consumer side. Do you have a significant amount of room to leverage that internally? Do you feel that it's something that you could white label to others? Do you expect over time to have that be the primary tool for your clients to deliver international payments to their suppliers and distributors?
Kind of yes, yes and yes. So, we have digital payments, look at the industry, okay, we made a mistake not to do Zelle 2 years earlier or 3 years earlier. And that was always it almost had the existing things you needed to do P2P. And we do it for free, but it's an important thing that customers want to be able to send money to friends and each other and eventually C2B, etcetera. So absolutely, real time payments were up and running.
That was done by the TCH, though JPMorgan is the first to go. JPMorgan Coin could be internal, could be commercial, could one day be consumer, etcetera. But we think of payments both consumer and wholesale is kind of one of the most important things we do is moving people's money in a sound, secure, safe way, which we already do. Some of these things just reduce the cost and make it easier. So I just we just consider it critical.
And most of the people in the management team that were up here and most of the other people in the room serve on some form on payments committees, strategic payments committees.
Do you think that you can max out in the current structure or is there the biggest network in the world already. That's a good question. I've
the biggest network in the world already. That's a good question. I don't have the answer to that. So if you raise that question here, I say to you, answer the question. So, Taka's can go answer that question.
No, not me. Go figure out. If we could find a way to do something that's major to JPMorgan Chase by white labeling something, we consider doing it. The biggest issue I've always had with something like that is distracts your own company from your own purpose as you're building out something for a third party, usually very demanding if it's in the wholesale business. So I'm always a little question that, but I'd be open minded.
I should mention by the way that you talked about stuff, I mean, you went pretty quickly through you invest. But I look at a little bit that this company that can offer, what's it called, contactless cards, UInvest, payment systems, answering questions on the phone, linking into your small business, bill pay, and we have these other things we're working on to make bill pay easier for C2C and I mean B2B and stuff. I think those things are all critical to building a better company. How you design those products in a continuum, that may change over time, but we kind of have everything. And the investment side, total deposits in the United States are $10,000,000,000 or $11,000,000,000,000 of which $8,000,000,000 or something is retail or $9,000,000,000 Total assets under management of customers is $40,000,000,000,000 It's a pretty big market, which we have a very small share.
Yes. So, it sounds like
we always have to ask regulatory and capital questions. I picked up on something that I think Mary Anne talked about earlier, which is that the Fed, the regulators apparently seem reasonably receptive to the commentary on the volatility, the stress capital buffer as laid out. And I was just wondering if we could get a little bit more of a sense of where you think that might go. And then a follow-up there is, we talked earlier about CECL and the impact on availability and pricing of lending during a downturn under that regime and what kind of reception are you getting from regulators when you talk to them?
Yes. So again, I want to just we don't run the company for regulatory stuff, but we satisfy regulators. We're going to build clients. And if you saw it, tons of organic possibility. That's what we do and all of the stuff we kind of try to navigate around.
So I think, look, if you look at the regulatory, I don't think a lot has changed in the last 9 months. I think that the Fed has pointed out a lot of issues that they understand around G SIFI, CCAR, FRB, LCR, which countercyclical, which procyclical. The systems we built are hugely procyclical now. They're procyclical in 'eight, they're even worse today. And CCAR and they're inconsistent.
CCAR has a countercyclical buffer in right, because it's guessing what you can do. But I always say, what are you going to do with CCAR when there is a recession? Are you going to double down? Are you going to go from 9% unemployment to 16? If you do that, every base will pull back going into recession because they can't handle the next C car.
CECL makes that worse. If they actually build it in, so think of JPMorgan, it's unlikely that we won't make the economically right decision for a client regardless of the accounting. But I would tell you if you're a midsized bank, we have 100% loans to deposits and you're going into this and a lot of their loans have higher loss rates. So their loan loss reserves will have to go from 2% to 4% to 6%, they may have to pull back dramatically to free up capital. And so I don't know what the regulator is going to do.
I think the folks at the Fed are very smart. They're going to think it through. I don't think these things have been calibrated or thought through. So CCAR has a countercyclical buffer in it, G SIFI has none. G SIFI isn't risk weight at all.
The U. S. Regulators goal play G SIFI. Randy Quarles who now runs the U. S.
Regulatory supervisory regime is running FRB. And I think it will be obvious to him that a lot of GCIP was set up as a way to hurt American banks. That's why it was put in place in the 1st place and I could do all my due diligence, the e mails, I can probably prove that to you. Okay. Gerard?
Thank you. Gerard Cassidy, RBC Capital Markets. Jamie, I know you're not predicting a recession, you're preparing for 1. Can you compare this time period to prior cycles? Does this feel more like 'four to you maybe or 1996 when the Fed obviously in those time periods ended their tightening cycles?
Yes. So if I make a list of risks, Mike Sembles, I don't think he's here, made a list of all the geopolitical crises since World War II, almost like 50. And you have multiple wars, our Vietnam War, China Vietnam War, India and Pakistan both nuclear powered had battle skirmishes, China had battle skirmishes with Russia, there have been 7 or 8 Middle East crises. You have multiple Afghanistan, multiple right, you're around the world, only one affected global economy. So I'm telling you that geopolitics is a risk, but you have to look at that relative to the context, etcetera.
Now you have a whole bunch of other ones in my opinion, like I put Brexit in that category. We don't expect a hard Brexit, but that would be really difficult for Britain and Europe if that happened. You have Italy, where their banking system is under stress. You have QT. I look at that a little bit as we don't know exactly what QE did.
So we don't know exactly what QT is going to do. It's a legitimate thing for people to worry about. I think the Fed would be very responsive and thoughtful, so I'm not worried about it, but it may have consequential liquidity, etcetera. You do have consequential liquidity of all these regulatory systems and rules, etcetera. So those are and some of those, a lot of them are man made, okay?
You have less American leadership in the world today. How would you factor that into risk? That to me may be the biggest risk out there, okay, that both the U. K. And the United States, who used to be kind of world stable leaders, are no longer.
I think the U. K. Was very important to how the EU is structured. So I do think there's a mounting series of risks and the next recession may be caused by some cumulative bunch of things that we just don't understand today. Think of straws and the camel's back.
It may not be one thing. If you look at prior recessions, there were like 4 or 5 ultimate causes. 1 was geopolitical, which is the 1973 Middle East crisis. 1 or 2 were traditional, which is that industry was expanding and spending money, but inventory started to go up, they had to pull back, confidence went down, industries pulled back, wages went down. I'm going to call it a typical one.
Once or twice is because of fiscal tightening. Is that possible? Today is possible. And a couple are because our traditional Fed tightening. The Fed wants to slow down growth because inflation is picking up and they want to slow it down.
Take that whole bunch, fiscal, Fed, industrial, I don't know. I think this one will probably be different than almost any of those and it may just be cumulative effect of policies around the world and their effect on confidence. And remember confidence, consumer confidence was an all time high, consumer and business and now it's off 20%. It's still in the upper quartile. But confidence is one of those things that it goes down quickly, people do pull back, stop spending, stop doing things, companies get nervous, stop hiring and it's self fulfilling.
John?
Jamie, he's got a great management team. It's really helpful for us to see him each year here. Can you remind us how you and the Board think about succession planning, making sure the team gets exposure to all the different businesses and how you feel about enjoying your job and what not going the George McGovern route and that you've talked about and what you'd like to do.
George McGovern route? He lost.
Not starting a restaurant.
Not starting a restaurant, yes.
I'm not going to start a restaurant. I made a joke once that I like Cheers, you know the show Cheers, that you like to be able to walk in the actually know who you are. And I think the best way to do this is to own one. So, but I love my job, that's not the issue. The Board, succession is a Board level issue, okay.
Succession is not up to me. The Board meets every single time without me and every single time they meet, I'm told, they talk about succession. The best way they should do success and I think we have you've seen tons of I think we have lots of people, direct reports and who can succeed me and non direct reports. The Board knows them all. They've all these people presented to the Board many times.
They've been at dinners. They can see them. They're free. It's completely open. They get to present.
They get to ask me, would you bring so and so back? So they have hit by the truck plan. They have a plan that they look at more 3 to 5 years out, which might be slightly different. And it's kind of an ongoing process. It's a living, breathing type thing.
The biggest fear, if you were at the Board, you're also going to worry that we lose our good people. The other way around
too. If I can just follow-up on that, John's question. So if the Board wants you to stay and if the company is performing well, how much longer do you think you'll be CEO?
5 years, maybe 4 now. You want to turn to 4? Look, I may look, to me that's not the important thing. The really important thing is that the company, the next person be the right person and that I would not lose the right person so I could stay an extra year or 2. I think that is a mistake.
And I think we have some great people. And also to me, it's the culture of our company that the people are smart, they talk to each other, they're honest, they don't have a lot of special deals, they don't worry, they understand that you heard it over, fortress balance sheet, proper accounting, serve the heard it over, fortress balance sheet, proper accounting, serve the client, don't overreact. If you most of these the reason I guess forecasting earnings is how many people have because they're going to recession, they got to maintain this, got to hit their numbers, have pushed stuff in the retail channel, got more aggressive in accounting, not hired the people, slowed down the branches, cut back in the sales meetings. And that's it's all wrong. It's just a terrible way to run a company.
So to me, that culture is the most important thing that is sustained. The company itself is in great shape. The company, we're going to win or lose some of these battles against FinTech and competitors, but not all of them, and we're going to be fine. So it's really the quality of the people over time. But I guarantee you, there's going to be a CEO standing up one day and they're going to be worried about what next quarter looks like and they'll be making a mistake.
What they should tell you all is, I don't care. I don't. I never have. Matt will counter back over that. Like you guys focus on thick.
We have one of the best fixed income business in the world, went through a lot of change, it's still one of the best, we've gained shares, it's very consistent, okay. We do a great job serving customers with execution, research, technology, bankers, traders, corporations. We've got unbelievably smart people running the areas. I know Jason Sippel is still here, who did a great job building up this equity business, building all the things to serve our clients really well. We don't know if that's going to have a fee compression, volume, the wallet size.
But I do know that one thing for sure, the fixed income markets and FX markets and swap markets and all those things will be double the size in 15 to 20 years. Companies will still need to hedge, swap, buy, sell as will institutions. JPMorgan will be right there doing it for them. And some of these things that we do electrification, the revenues drop, so does capital. The returns to the company could be better depending on how we how it all turns out.
Matt O'Connor, Deutsche Bank. I want to follow-up on a comment from Mary Anne. She talked about the cost curve flattening out after this year. And then essentially technology and other investments would self fund and it would increase. So I want to clarify, does that imply flattish costs as we think 2020 beyond besides to support revenue growth?
That's the first question.
I think she showed you 63 something to 66 in 2019 and that some of the trends should flatten out from there. I don't think it is necessarily all flattish costs. Plus, again, listen very closely I'm about to say. I don't want to tell you there will be flat even we thought so in 2020 to 2021 because our opportunities may be very much bigger than you think. If we need to spend $1,000,000,000 to build technology, do better job for clients around the world, we are going to spend it.
If we see an opportunity to open another 1,000 branches somewhere, we are going to build them. We're not going to be constrained by things which are bad for long term health of the company, so we can meet a long term a short term expense target, which includes 2020, by the way. So we don't really know, but we want to be really diligent how we spend our money.
And then just a follow-up, I understand you don't want to sacrifice long term investments for short term We
will not sacrifice long term investments for short term earnings.
Or even medium term looking at 1 or 2 years. But as you look out at the revenue environment, it seems like the outlook is for slower revenue growth most likely. And does that come into play as you think about the medium term outlook for expenses?
No. Maybe I'm just I don't care. Doug Pettenau is going to cover more clients next year.
He's going to do loans intelligently. He's going to do TSS.
He's going to try to do some of their investment banking business. We know it's the right thing to do, and yet the rates will be higher or lower than we thought. He can't determine exactly how much they may borrow. He can't determine how many bankers he have and how many cities, how many clients he wants to bank them. So I think the tail is not going to wag the dog here.
Jamie, you mentioned complacency and arrogance being the biggest risk factors for the organization. But it does
for any organization, by the way, but go ahead. Fair enough. Where do you work?
I'll continue with my question.
Embarrassed,
I forgot what I was going to ask. But you're hitting all cylinders. It feels like you're hitting all cylinders across the organization. But what, if anything, do you feel like JPMorgan doesn't do? Where do you think maybe and ask that in the broadest sense possible, whether it's it could be from a product standpoint, from a cultural standpoint, what do you think you can do better?
Yes. So I think, first of all, one of the things about the management team, which you see sometimes, but if you actually sat down with Gordon, Daniel, Mary, Doug and the operating committee members here, That's more we talk about the meetings. You think at the business meetings, you think we're doing terribly sometimes, like we're feeling at this, we're feeling in this country, we didn't have those bankers, we didn't build a system and this was late. So we actually focus a lot on the negatives, what's not working, why it's not working. We look at a lot of your other companies and say, they did a better job than we did.
And I don't want to go through each one, but we study all the competitors and they built this better digital thing, they're quicker to market with that, they're a little bit smarter at that. And so we actually do those things and it gets kind of micro. You got to go almost country by country in FICC. You got to almost go branch by branch in Gordon's world, by product and credit card. And some of the things we've done, we don't know yet, like you and VAS, Fin.
We know digital account opening is a home run. We know that bundling certain things is a home run and we know and a lot of things we do, we know we're going to do anyway, but we can't actually tell you how efficient they are. So I think this thing about speed, complacent, I think it's true for all institutions. And my observation has been that most companies are slowing down all the time and they're getting more bureaucratic, but a lot of people in companies are bureaucratic, they're not bad people and the meetings take too long, things don't get done, there are no follow ups. It's easy, you come into a JPMorgan, wherever you are, you inherited one of the best companies in the world to think that you actually did all of that, you didn't.
And I hearken back, I mean, a lot of people have gone to work with a place where you had your business card and it wasn't like a JP Morgan or Goldman Sachs or Morgan Stanley or Bank or something like that, it was a lot harder to get business. And you got to learn how to hustle and stuff like that. So I just think those things matter. I just don't know how you measure them really well.
Marty? Marty Mosby with Vining Sparks. Jamie, I got two questions. One is a big strategic question. So as JPMorgan has turned into a market disruptor in the financial services industry, who are you disrupting and what type of company would be in pass way or in harm's way as you all are rolling forward with this momentum you got right now?
Yes. That one, I'm not going to mention companies, but I'm going to just mention, I believe so we've looked at certain companies out there that did stuff that we should have done. I'll give you an example Square. Here we are, great merchant processing, best in the world, e commerce. They come up with this little dongle to process stuff.
It was a great idea, that isn't how they won. They morphed into something different, which was, I'm going to call it, the adjacencies, okay? So what did a small business want? They wanted to process cash and check and debit on the same machine. We didn't give them that opportunity.
Square did. And then Square said they also want data. What time do I sell my tacos? What's my inventory? So they gave an iPad with kind of software to give them the data.
Then they also said, you know what, since we know that company and they need at this time of year, they might need an advancement of $10,000,000 $50,000,000 $100,000 So they did all stuff we could have done that we didn't do. I actually call it all adjacencies or something like that. But the biggest opportunities for us is the $40,000,000,000,000 investments. So you've already heard, we went from 1 private client branch, it was an experiment and a test, I forgot the year, probably 'eight or 'nine or something like that. And in fact, it didn't work at first.
And a bunch people want to close it down. I was like, we're not closing it down. We put it in White Plains, which is probably one of the wealthiest districts in the world, and we kept on modifying it, eventually started to work. And we now have something like 3,000 and we've only got 1% market share of what you would call that segment, okay, 1%. Now of course, it's not that hard to say, why not 10?
I don't think we're accomplished 10 in 2 years, but the folks here, why not 10? And branches, why not 8,000? They may be different, they may be smaller, they may be in buses, for I know. But the fact is, there's a lot more to go and people need help. They need advice, they need so we rolled out we haven't priced our robo investing yet, but people need to learn how to invest money.
Financial education, I mean, America, we do a terrible job. I think it actually got to start in high schools, but we do a terrible job, particularly for lower income folks. We have new products coming for So I think there are all opportunities. I don't think I mean, he can grow twice as fast as the economy. This is Doug at the commercial bank.
I think it's going to be tougher for Daniel, but he's got countries that shares are 2%, it could be 8%. It might be in FX, it might be in swaps or it might be in credit. Gordon is already open to 12 new markets whatever and a whole new product set. So there are all these opportunities around the world. Moving money, I put down as 1.
Improving bill pay is 1. JPMorgan already gives you a tremendous amount of cyber and privacy, but I look at that a little bit as why not more. So a lot of clients, Doug told me, we go to a lot of clients, we educate them in cyber and we don't charge them for that, not something we do, but there are people who say, you don't want to leave your money at JPMorgan. They've got protections like you wouldn't believe in cyber, and we call them up and tell them we see problems in your computers or how you're moving money and take privacy. I look at that a little bit as if that's a real opportunity.
People actually trust banks. They need more privacy. If you look at how a lot of these things are designed around the world, they enter the world sometimes through a bank where they're in a private system. And it's already been they already know who the person is, you've already been authenticated and then you could travel around the Internet. So there are tons of things that we think openly.
We might create new products and services that you haven't even dreamed of today.
The second question was when we first went through the rising interest rates on the short end, deposit betas performed a lot better and that was an unknown and it became better and so we got NII growth that wasn't expected. Right now, with the pause, the longer term interest rates with our loans and our securities still can reprice because we've never been in an environment where rates were this low for that long until they started going up. So there's still a lot of innate repricing with funding that just doesn't reprice DDA's equity, now accounts, things are on the balance sheet with those longer term. So given that momentum, in there a little bit more balance sheet or NII momentum that's kind of just embedded if everything kind of just stays where it is right now?
Yes. So I would have told you, I thought, Marion, we were a little more conservative side, but our folks very correctly have also pointed out with lot
of
2%. And so the goal for us just isn't just the deposit, it's keeping the account, keeping the money, as Mary said, etcetera. So we don't exactly know. And I think we still may be a little concerned in there. So we are still building in that even if rates don't change, some of the the deposit pricing benefit will disappear if you will compete more for deposits.
And we do see that. So if
you actually sat down with Gordon,
went through the pricing means, the CDs, and maybe, there's some people doing it. There are online banks doing it. There are a whole bunch of online banks doing it. And so they this happened every time I've ever been around that banks do it. So and remember, the last thing is we can change some of this overnight.
Marion has given you a viewpoint of where it is today and how we're running the company, but we can change how you can run the company. And so we can move those numbers around a little bit. And at the end of the day, we run the company to serve our clients. This is kind of more of an outcome to manage the risk than it is trying to guess about interest rates.
Got it.
Betsy here and then Ken.
Thanks, Jamie. On China, you've talked in the past about the opportunity that China presents to you and they just recently had a weekend forum talking about new deregulation on the financial services side in addition to other things. Could you just give us your kind of mid term and long term sense on what parts of JPMorgan Chase do you expect are going to be able to leverage opportunities in China? And maybe if you can give us some color on as to whether or not it's likely to be material or just nice to have?
So China, the biggest issue China right now is trade. I'm going to talk about 2 things, trade and then China itself. So trade, the President, the administration has correctly pointed out always around trade IP, non tariff barriers to owned enterprises, subsidies, lack of reciprocal investment rights. They have 100 industries which protected. You cannot buy control of the industries.
And a lot of the complaint about IP force transfers that you have a 49% owned division and you got to put your IP in and of course that can is used by the people you're giving away for free effectively. And those are serious issues. And I think we've kind of expected the outcome now, which is they're making progress, they're going to delay this tariff. I think it's very important. I think if they put that tariff in place, it would be a real problem.
And then hopefully get to a real agreement, I don't know if it could take 60 days, 90 days, etcetera, and resolve the current trade issue. I think the trade issue, by the way, the United States is supported by Japan and Europe. I think the Chinese know is very serious. I think they're very smart. I think they understand it.
I think both parties want to overcome it and move on. China has other issues, which are quite serious, okay? And so you shouldn't overlook them. They have 400,000,000 or 500,000,000 people live in poverty. They've got huge corruption.
Their state owned enterprise is usually inefficient. A lot of American companies complain about state owned enterprises, very few state owned enterprises successful. And but they have been subsidies. If you're having subsidies and dumping and IP transfer, you can imagine it being quite exciting for people. And the Chinese know all this.
They know that they need reform. They talk about it all the time. Reform is pretty basic. If you look at the United States of America, we're the widest, deepest, most transparent financial markets the world's ever seen. Banks, non banks, shadow banks, direct lenders, venture capital, private equity, etcetera, they were given arm and transparency, rule of law, collateral, certain rights, they give an arm and light for that because that plus Standard Enterprises and corruption all relate, all related.
When you tear at that, if you go back to the United States many years ago, we had multiple of those problems too at the same time. So and they have a democracy, not democracy, they have a communist party that has 100,000,000 people in it. So my own view, okay, is that they will become a fully developed nation in 15 to 20 years. Their GDP will be bigger than ours in 2015 or some number like that. Our stock markets were $25,000,000,000,000 and our bond market, I forget, is $100,000,000,000 Their stock market is worth $4,000,000,000 or $5,000,000,000 and we're probably a bit the same size as ours and their bond market is probably the same size of ours, including their corporate bond market is like a 3rd or fourth of ours today and that they will house 40% of the Fortune 3000.
They will create, I forgot how many billionaires we have listed there too. So it's a huge market and a huge opportunity. I think the biggest difference is there's no way that that's going to be a straight line. So if you are making big long term investments in China, you have to be prepared for not being a straight line. The most prosperous economy the world has ever seen is the United States of America and by no means is that a straight line.
And so you have to put that in perspective. So if you had a dream, and I think we'll eventually get the right to own 100% of a company. Right now, we can own 49% of a company with very limited rights. 100% would be a company in Shanghai and we have 100% that we can buy and sell stocks and bonds, we can do research, we do M and A, we can do capital advisory. It's all technologies.
Look, we can do TS loans all hooked to our systems around the world. In 20 years, it will be as big as we have here. This the nation will be as big as we have here. So today, we cover 100 and 20 year companies or something in China. I've got a number, we probably cover 3,000 companies here who do investment banking type stuff.
It might be 3,000. It could be competitive. The Chinese banks are bigger than we are. And if you're going to build something like that, you better be prepared for those ups and downs. I don't expect the ups and downs in the next couple of years because they have the wherewithal to force growth.
They can macro manage growth, okay? But at one point, they won't be able to do that. They won't be able to control markets. They might have a democratic upright, I'm not talking about a revolution, but democratic uprising where people demand more vote. However they do that, it won't be America, it won't be the Chinese way.
So my view is build for the long run and be very careful to manage those risks as you go through them. Be prepared for them, so when the eyes open, amount of China testing, multiple tests to make sure that whatever think of whatever the worst outcome is, JPMorgan handled that. Not your predicted bad outcome, not severe not adverse or severely adverse, the worst that we can handle that. Well, yes, they right now, the convertible currencies when you can buy it, you get their currency, you can do what you want with it, like buy and sell stuff and securities and moving in and out of the country, you can't do that. So they've kind of gone from here, here.
And they have a long way to be convertible, including not only the right to do that, but to own your collateral, rule of law, governments can't just go take your money, etcetera. And I think they want to. I think they just have to it's a long step to be fully convertible. Before you have what I talked about that kind of economy, where you right now, if you have a U. S.
Dollar, you can buy and sell whatever you want in this country for the most part and convert it out for the most part. You have an RMB, you fundamentally have to ask their permission to do something. And that's a whole different thing. So yes, I think in 30 years. But remember, for a country like that to give up control to markets, which is what it's doing, it's going to be hard to do.
That's why I'm saying it's going to have some bumps in the road, but that's not in 3 years. Ken?
Thanks. Ken Usdin from Jefferies. Jamie, now that we've gone a little bit further away from that 4th quarter disruption in the markets, can you give us a little more thoughts on just how the markets have just opened back up, especially you talked earlier about how people trust banks and we saw a little bit of the back to banks, you can help clients one way or the other, whether it's banking, lending or capital markets. But just the non bank competitive set versus the bank landscape and where you guys sit, just how does the market feel? And again, how intense do you think that non bank lending pressure will continue to be just as you look longer term?
Yes.
So the Q4, it was interesting because part of it was completely rational that basically had Japan slowdown, Germany slowdown, United States slowdown, some people thought we were on the way to recession, we didn't. But you had the shutdown, you had a lot of anxiety over the trade talks, then you had to talk about QT and the balance sheet scared people, markets closed. I've seen that happen many times, particularly IPO markets and high yield markets. I was kind of like the tip of the spear. People panic, of course, in December, I mean, my guess is half the traders weren't even there.
All those automatic machines were turned off, and so it's kind of easier to have some of that inflection that issue. The other half is just hysteria. I mean literally the it just shows the amount of sentiment that goes into pricing of securities, just about anything by the way. And so once January happened, I forget the 1st week or something like that, I think it was Bank of America, they won little bond yield, high yield. That was it.
Things opened up. IPOs will took a while because the SEC was out of work. So think it does show you the overreaction of markets sometimes, which basically is an opportunity for those who can keep their heads. But the question is about competition with lenders. I don't think you got back to banks for that disruption.
I think part of the let me just give you some numbers about leverage lending and stuff like that because now there's this recent austerity about leverage lending. So remember, the markets the mortgage markets in 'eight were like $11,000,000,000,000 and something like $1,000,000,000,000 went bad. A lot of that $1,000,000,000,000 was leveraged. It was in things where people had to sell. And so it was that deleveraging process which usually causes a real panic in markets.
Just like because when you had the market crash to 'eighty seven and the Internet bubble burst in 'o, I mean, people lost $1,000,000,000,000 when the Internet bubble went down. You know what I said? They didn't lose $1,000,000,000,000 They never had it. It went from here to here to here. I mean, you've got to be quick to have seen it.
And it wasn't leveraged. If people borrowed money to buy those stocks, you would have had the same crisis in 'two that you had in 'seven, 'nine. And now the next one is leverage lending. Total leverage lending, I think these numbers are accurate, is not quite $2,000,000,000,000 okay? The book that's in the banks is generally the 8 pieces, the healthier pieces, the senior pieces, which is about $800,000,000,000 or $900,000,000,000 and that's 80% banks.
Then move over to the other side, there's 80% or 800, 900, dollars which is more than BBB, sub pieces, the senior pieces, CLOs and stuff like that, and that's like $800,000,000,000 or $900,000,000,000 dollars 500,000,000,000 is direct lenders of names you know, okay? They're smart people. They have more long term capital. They do it slightly differently. Their average loans are $10,000,000 to $50,000,000 $100,000,000 In some ways, sometimes they compete with us.
Sometimes we don't want that. And I think the CLOs are 400, 500 now something like that. 600. 600, but they're actually far better structured in the past. They also have permanent capital.
They have more equity. They have more sub debt, etcetera. I do think it's an issue, which if I was the regulator to think about, I don't think it's systemic that when things get scary, will the people lending to the riskier part be there for them? And my experience is not really. Now I don't think they're going to panic, they have permanent capital, they don't have to sell And the CLO manager generally locked up for 5 or 6 or 7 years.
So but that is meeting a land. They may pull back and wait to see how things sort out and very often their investors tell them to do that, not the CLOs, but the hedge funds, etcetera. And so I think that might be an opportunity when the time comes. I think banks one of the things we do and I really do mean this, you want JP Morgan, Bank of America, Wells Fargo, Citi, Goldman, you want us lending when things get bad. That's what you want.
You don't want every capital provider to pull out the second thing and think something's wrong because that's when you have a crisis. The only people lending in 'nine were some of the strong banks, JPMorgan, some others and the Fed. And if banks aren't there, it will be the Fed. They will be the only one who can do it. So, and I think some of these rules have created this circumstance, which would be hard to lend both the liquidity rules when things get bad.
Then it could be CECL, it could be a whole bunch of other things. And then for us, I would talk to Doug and say, Doug, go get back to clients you want. And they'll realize having us through thicker thin may be more important than getting slightly better deal or slightly less of a covenant.
Jeff Hart back over this way.
Hi, Jeff Hart, Sandler O'Neill. So deepening client relationships has done kind of a recurring theme. And I guess I'm thinking more on the consumer side of the business. But I've always thought in consumer banking, the Holy Grail was to get clients to want to consolidate their relationships with you as opposed to the bank pushing it through cross selling. Can you talk a little bit about the trends you've seen over time as far as how effective deepening efforts have been in consumer?
And then secondly, has that changed much recently? I guess I'm ultimately trying to ask there, has technology and digital actually brought us closer to that Holy Grail where clients are going
to be demanding it? Yes.
So if you look at it, it's just 2 business wholesale. In the wholesale business for the most part, you price stuff by the drink. You pay for Sam, you pay for Sam, you pay for a trade, you pay for this, you pay for even in TS, you price almost every little part of it. It's very competitive and stuff like that. In the consumer businesses, it's basically it's kind of been bundled pricing before, say, in consumer banking.
So in consumer banking, when I started as a kid, you got a checkbook, didn't even have a debit card. And then we came with a debit card, and then they came with online bill PIN, they have more branch, they had ATMs, and then they had all these things. So more and more services for that same thing, all linked in together. And I think this digital is just making an extension. So Jen didn't show you, but the credit card imagine I find it's unbelievable.
You guys did a credit journey and basically go on and get your credit score. Is it 10,000,000 people? 15,000,000 people and we don't really market the thing. And have you all checked your credit scores recently? Well, if you were a Sapphire account for free and we even tell you how to improve it.
Like I said, if you actually pay this bill or don't do this, you don't file for other credit cards like that, you can actually prove it. But and then Gordon and Gordon is always right for this, I love the fact you can do you invest, buy and sell stocks, have your credit card, LinkedIn, do all these various things, track your kids, automatically fund their accounts, watch where they're spending on their debit card. I think it is great. Now our problem is keep it simple while you build these connections. Keep it simple.
And you saw these auto pre fills of accounts and how to improve those. So I do think digital makes it easier to do a better job for the customer in the way they want to be served in a way they're maybe not used to. So like take UInvest, we're not really out there marketing UInvest in a big way, but we do have quite a few accounts and we're looking at how people use it. But at one point, it might be it's just so good, the price is right, that you want to add it to what you're doing for the bank. So I do think digital is going to make that work better, digital account opening, digital authentication, knowing that you're safe.
Steve? So Jamie, along those same line of questioning, I'm just wondering how you think the competitive landscape is going to evolve? And in particular, how are the small regional banks going to compete given limited capacity to support that same level of digital investment that seems to be required?
I think it's I think it's I've been very we're the biggest banks of community banks and we supported the reforms then. I do think some of the regulations, compliance codes that have made it excessively burdensome. Remember, they have benefits, too. So they have people outside, think of FinTech, Fiserv, people who build things for them that get the economies of scale because they sell it to 50 banks, whereas we tend not to do that. And so I think they will find ways to compete and they're on the ground, they're smart, they have different cost structures, sometimes different product and services, sometimes they won't do real estate the way they do it.
So they'll find a way to compete, but I do think competition is tough. I expect this to be a battlefield from which we emerge victorious. But it is going to be tough. We have 5,000 banks in America. It's the least consolidated banking system in the world for developed nations other than Germany.
And so in America, they talk about the consolidation of banks, the big banks here, but less market share. If you go around Canada, Japan, Australia, France, UK, Spain, Hong Kong, they're much more consolidated because they have because they realize the economies of scale and banking are pretty large. So that's why my guess is, you all know the business as I do, that you'll see more of these bank mergers. Bank mergers are hard mostly for social reasons, But they are if you can execute them properly, they do deliver shareholder value and customer value over time. Remember, like I said, our competition is also you say, FANG, my view is they're all coming one way or another.
That's we should be prepared for that. So in some ways, we have to do some of the stuff to protect ourselves. So Apple announced something recently. Yes. So these folks, they all want to have embedded payments.
They don't have to do the payments, but they want to have embedded payments. They want the knowledge of payments, which I think is going to be hard to do. Some of them are asking for, well, you can embed your payments, but we want to know everything that person has ever done with you, which of course I think is board is unethical. But so you can embed payments. Everyone's going to want that when you go into any ecosystem, whether it's a store or Facebook and I see what Daniel bought, I can click and it gets shipped to me and pay for.
1, just push the button. You don't have to actually do anything because you've already been authenticated. And then people will white label. There are a couple of people who start to they white label, which means they've got someone else, the bank is kind of on the back, which is not necessarily legal, but the bank will white label it and basically do it like a private label card. We're just processing the business for credit card, debit cards, credit and you may use different vendors there.
I think it's hard to do because it's hard to link up. And then people will try other things, just fully digital banks, fully online banks. If you travel around the world, people have done very different schemes to try to build businesses in bankingpaymentinvestments. Again, we have huge strengths, but we have to make sure we stay on our toes.
Jamie, long time investor and I've got to say that whenever I hear you speak, I get really excited to have you as the CEO of this company. But also as an American, I can't help but get excited about thinking about what it can mean to have a leader like you in the White House.
I mean, I've been taught It wouldn't be as
if
I by me and I think would resonate with a lot of Americans. And I guess I ask, why not be that man
in the arena right now? I love what I do, and I think there would be tilting of windmills.
Anybody else? Who wants to go after that?
So let me just end by first thanking the management team here, who does a tremendous amount of work to put this on for you and try to get it clear and consistent. In the room, I know the operating committee here, but you also have a lot of other senior management, so I just deeply appreciate They break their backs to build these businesses around the world. And then to all of you long term shareholders, we really appreciate it and we are working hard for you. Thank you. See you next
year.