Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's 2018 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's Head of Investor Relations, Jason Scott.
I've gone from a person of interest to a full-blown man hunt underway. I did what I did. I have no regret. When you cross the line, you get what you get. Now I bleed metal.
Okay. Good morning. Good morning, everyone. Welcome to Investor Day 2018. I'm Jason Scott, the Head of Investor Relations for JPMorganChase. I know most of you have been to our Investor Days before. You're used to this. You're probably noticing a few differences this year. New floor, shorter day on the agenda, one presentation instead of five. Frankly, more Q&A on the schedule than prepared materials. Look, we know we got a good thing going, still we like to disrupt ourselves, challenge ourselves, see if we can do it a little bit better for you. I know change is tough. Look, if you're excited about this, if you're nervous we're taking away a bunch of stuff from you, or even if you're just super curious how we're going to pull it off, don't worry.
You'll still hear a lot of strategic priorities, performance updates, financial outlook, and of course, targets. We're going to try to deliver it to you a little bit more efficiently. For those of you in the room, instead of breaking in the middle of the sessions to grab a bite, this year, we're going to end the day with our traditional management lunch around noon. Hope everybody sticks around. As usual, members of senior management will be at the lunch table, you can ask them all the questions then that you didn't get a chance to do during the sessions today. Just a couple things before we begin, please turn off your phones or silence them right now. Don't forget to look at the forward-looking statements in your materials.
With that, hopefully I've piqued your interest just a little bit about what's to come, and you're ready for Investor Day 2.0. Thank you very much for coming. We'll start with a quick video on the firm.
Oh, oh. Oh, oh.
We're respected, we're trusted, we're wanted. Our customers like us. Wherever I go around the world, presidents and prime ministers welcome us with open arms. What a company JPMorgan Chase is.
We live for the wild. We light up the sky.
Our size and scale is an advantage for us.
Our ability to deploy our resources, relationships with other big institutions, but most importantly, the expertise and passion of our people is truly unparalleled.
We can live free. We can live now.
We want to continue making sustainability a part of the DNA of the way we at JPMorgan Chase do business.
We have received the Queen's Award. The first time in 41 years that a financial services company was given the recognition.
We can live free. Oh, oh.
Supporting our communities is a fundamental business responsibility.
Oh, oh.
Thank you so much. You guys are unbelievable.
I'm a lettering artist from Detroit. I just wrapped a project that tells a story of the investments JPMorgan Chase has made in Detroit.
We're moving so fast, we never look back. Got no time to second guess.
What differentiates J.P. Morgan from other banks, we are client-driven and not transaction-driven.
Financial crisis of 2008. Who was there? JPMorgan Chase. They're there when you need them.
What the clients really like are companies like us that are going to be with them in the good times and in the bad times.
Oh, oh.
The fact that we are global and at the same time, as local as we are, that's what makes a difference for a lot of our clients.
Asia Pacific is the fastest growth region in the world.
JPMorgan is committed to China. I'm very excited.
We're taking the world, you and me, we can own it. We do what we want and we live in the moment. We're taking the world, you and me, we can own it.
I just really want to thank you for your treatment of our clients, the passion, and the energy that you all bring to this amazing company.
Oh, oh.
Good morning. We need to make the company feel more thriving for change.
We're understanding not only that we're using the latest technology, but we're really making an impact.
Oh, oh.
Thank you, Chase Pay.
We can live free. We can live now.
To have a company that treats everyone with respect. Respect also means you spend extra time with the people who are different than you. That's the door to diversity.
JPMorgan Chase, they're setting an example to show how to get involved with our military families and our veterans.
Companies that have women in leadership positions do better.
Happy Employee Appreciation.
Like this?
Yeah. Thank you.
You are the greatest ambassadors for this firm.
Oh, oh. We can live free.
Chase Sapphire has helped me to discover what's next in travel.
I don't think there's any brand right now that's more successful than Chase.
Find us, receive us, the ones who believe us. We can live free.
This year was amazing.
We take on big challenges, and we are never afraid to deliver on it.
I'm proud how we keep transforming our business.
Who doesn't like to make an impact? Cool.
I think the big accomplishment for 2018 will be to become truly client and customer obsessed
#teamwinning.
We are going to rock this year.
You've done a great job for your clients. You have worked hard. You have cared. We are thrilled. We are proud. Thank you very much.
Good morning, everyone. I'd like to be the second person to welcome you to Investor Day. I hope you liked the videos. By now, as Jason said, you will see that we're going to do Investor Day a little differently this year. We want to be responsive to feedback that we got from you, to be more efficient with your time, but also to try and lend a little bit of a different perspective to how we discuss the strategy of the company with you. Instead of having five presentations, we will have one formal presentation. We will address all of the usual firm-wide and business performance topics, but we'll also spend time on a couple of firm-wide strategic priorities that transcend our businesses. We hope you find it compelling. We do.
You'll have access to the full operating committee who is there, a number of other senior leaders in the company who will be here all the way through the Q&A. They'll also be here at lunch, so you can seek them out as well for their views. We thought, in particular, doing this presentation with an English accent would be a nice touch, and it seems I was out of the room when they all voted. I'm going to dive right in, and I'm going to start on page one. Our operating model, as you know, has been tried, tested, and proven in both good times and bad. We are, in fact, complete, global, diversified, and at scale, and those are attributes that increasingly matter across all of our businesses.
We've also spent the last many years evolving the company from one that was heavily business and product aligned, to one that we can say with confidence today is truly centered on our customers. It is in our DNA, it's in everything we do, and it's in every decision that we make. We've always known that if you build it, they will come, or if you build it well, they will come. You can see that across our businesses in market share gains and consistent customer satisfaction scores. Our user experience centers around mobile first, digital everything, and secure everywhere. We also want to give our customers choices, so our strategies are multi-channel. People are looking to their banking experiences to be deeply integrated into how they live their lives every day, and payments is at the heart of that.
Of course, underlying and enabling it all, we are investing in world-class technology and data capabilities that we think will differentiate us. We will keep adding bankers. We'll add branches. We'll add products. We'll open offices. As Jamie says, "Organic growth is hard, but it's also the best." Finally, last but not least, we continue to approach controls, capital, and expense with the discipline that you expect of us. Our brands have never been stronger, reflecting a relentless focus on the customer on page two. JPMorgan Chase is honored to have placed in the top 10 of Fortune's Most Admired Companies, and was named one of the most innovative companies of the year this year. We're also very pleased with the recognition we received for all of our work in Detroit, with Fortune having ranked us as the number one company changing the world.
While we don't normally like to brag, the accolades on this page are real. Chase was named Bank Brand of the Year, the number one in retail banking for five years in a row, and the number one primary institution for millennials, with our brand being number one or tied for number one across all key brand categories. J.P. Morgan was also named Best Global Brand and number one global research firm. This is who we are, and we operate with strong local, national, and global capabilities to serve our customers anywhere they are or anywhere they want to be. Starting with our national footprint, we have a presence in 125 cities and all top 50 MSAs in the U.S. In our wholesale businesses, we have 3,000 bankers across the country. We cover 21,000 clients and 34,000 real estate owners and investors.
We have 11,000 small business specialists and over 5,000 CTC and Chase Wealth Management advisors. The branch network, as you know, is still incredibly important to our customers, and we have 5,100 branches. Given our international reach, we also are well-positioned to help our clients with their global needs. We do business in 100 markets around the world. Over 50% of middle-market companies are globally active today, an additional 10% expected to be so within the next three years. The majority of the world's wealthiest families are our clients, as well as almost every central bank and sovereign wealth fund. In the CIB, custody and fund services covers more than 75 emerging markets, and Treasury services offers FX capabilities in 120 currencies. We have investment bankers, markets, and research professionals covering thousands of global companies.
Through our scale, we have built the best global banking platform for our customers. Before we look forward, let's do a review of 2017, starting with our financial performance on the next page. Just a note on this page that we have adjusted for the impact of tax reform for us and also for our peers. We continue to deliver strong, absolute, and relative performance and are at the top or among the best in class across all of these measures. With the highest revenue and the lowest overhead ratio of the group, and with positive operating leverage, even as we increase our investments. 2017 was a clear record year for us, both in terms of net income as well as EPS, which grew by 13% year-on-year and 5% CAGR over the last decade, the best of the group.
We created significant shareholder value, and you can see at the chart on the bottom left that we delivered a return that was meaningfully differentiated from the pack. Finally, we've grown tangible book value per share strongly and consistently, and we expect that to continue. We are operating from a position of strength across all key dimensions on page five. Of note, most of the ratios on this page are consistent year-on-year, but if you start at the bottom, you can see that we did have a meaningful decrease in stress loss rates year-on-year and an increase in our net payouts. If you go to the top, as we discussed last year, and as we expected, we did reach an inflection point of capital in 2017. Turning to page six.
There have been no new external developments on the capital front this year here in the U.S. What you see here is that we have narrowed the capital corridor in which we expect to operate to between 11% and 12% CET1. Given a reasonable expectation for growth, this is consistent with payouts over the next few years of 100% plus or minus, which is broadly in line with analyst expectations. Over the next two quarters, you will see our ratio go up as our approved CCAR payouts will be below 100% on higher earnings given tax reform. After which, we intend to move down into our target range over time. We haven't changed the order of priority for using our capital.
It has been, and it will always be, our first priority to invest and grow our business, and we're doing as much of that as we prudently can. It would also have been our preference not to be in the situation today where we did have significant excess capital, but we are where we are, and we expect to continue to buy back our stock as we still see good value in it, given the power of the franchise and the earnings potential I'll show you. We've made no change to our capital allocation methodology, and we've made no change to the allocated equity to each of our businesses for 2018, which you can see on the right. From here, we would expect the capital for each of our businesses to be more stable and to be a function of their growth.
Moving on to the next page and spending just a moment on GSIB. We have been very disciplined and made great progress in managing our GSIB score over the last few years, but the low-hanging fruit has gone, and it's increasingly difficult to create the capacity to grow. We ended last year above 700 points, and we expect continued upward pressure. We are not the only ones in this position. Many of our peers are similarly situated. You can see on the right that the 2017 green bars that represent the distance left to the next GSIB bucket, in most cases have shrunk considerably. While we do intend to remain within the 3.5% bucket at the end of 2018, we may allow the GSIB score to rise above the threshold temporarily, but that should be of no consequence given our capital levels at this point.
The issue at hand is that over the last four years, the U.S. economy has grown by over 11% with no change to the fixed coefficients of the score, and I think you would agree, no increase to systemic risk. The Fed has acknowledged that a bank GSIB score may be affected by economic growth, and they do have the ability to recalibrate those coefficients and to quote them, "To ensure that changes in economic growth do not unduly affect firms' systemic risk scores." If unaddressed at some point, this will become a barrier to growth. We estimate that recalibration of the score could alleviate this pressure by over 50 points for us and allow the largest U.S. banks to fully promote economic growth.
Now we're going to shift gears a little, I'm going to spend the next 30 minutes talking about our digital and payment strategies. We've chosen to discuss these with you because they truly transcend all of our businesses. We are looking through our customers' lens at how we can support all of the jobs that they need to get done every day in their lives. Supporting all of these customer journeys can, and often does, cross our line of businesses. Over the last several years, it has been a key driver of transitioning the company from one that was historically product-aligned, and we are increasingly integrating and blurring the lines between our businesses. The business case for digital everything is compelling, and you can see that on page nine.
Our customers are demanding digital capabilities in all of their interactions with us, both consumer and wholesale alike. They are changing how they engage and consume products and services. It's a generational shift. Think streaming films versus DVDs. Banking is no exception. As such, they are choosing a provider based upon their digital capabilities. The percentage of customers who would walk away from a bank that does not offer above-par digital services is quite high at about 60%. Based upon a survey of our FX clients, 61% of traders are extremely likely to use a mobile application to trade in 2018, nearly double from last year. 76% of corporates say that digital capabilities are very important when selecting a banking relationship. On the next page. Digital experiences drive increased levels of engagement. They create loyalty, and they give us more shots on goal to deepen relationships.
This drives higher volume for us, and leveraging our scale, that higher volume is much more profitable. Digitally engaged customers are also more satisfied, evidenced by higher net promoter scores, higher retention rates, and a higher share of wallet. Finally, of course, digital investments also drive business efficiencies and reduce costs. In a fully digital world, the marginal cost of transactions incrementally is close to zero. For example, we have seen the cost per deposit 94% lower through QuickD eposits, and in trading, the marginal cost of many trades approaches zero as we electronify. While lower costs may increase competition, we counter that with the power of scale. Our customers are at the center of everything we do across all of our businesses. Moving to page 11. We are executing on a clear strategy that is consistent across the firm with four common pillars.
Choice, what they want, when they want it, how they want it. We aim to engage with our customers, supporting everything they do with a complete set of products and services delivered through every channel, not just mobile, but eATMs, web, aggregators, APIs, and virtual assistants. To be integrated into their daily lives, in consumer, this means being a part of everyday activities that require payments. In wholesale, it means engaging in all parts of the life cycle, from onboarding through issuance, trading, and settlements. Being able to seamlessly support them as their needs become more complex. Safety and security. People look to their bank to provide them with trust and confidence. Ease. They want banking relationships today to be as easy as other great consumer experiences in their lives. User experience is now front and center broadly in our strategies and in our businesses.
We have dedicated client experience champions across each business. We're moving towards real-time services, leveraging new technologies to get better, faster, quicker, cheaper. Personalization. Our customers increasingly expect us to know them well, leveraging the data that we have to provide them with advice and insights that they just can't get anywhere else, tailoring the right products for them. We can do all of this leveraging our scale advantage. It all starts at the beginning with better onboarding experiences on the next page. The first opportunity that we have to delight or to upset a client is when they walk in the door, either physically or virtually. We are focused on making that first experience simple, fast, and convenient. On creating streamlined documentation and approval processes, expedited and increasingly digital account opening, and enabling data to be collected just once, but used across multiple processes.
Although we are still working on it, we have seen our investments in technology and training dramatically shorten the time for onboarding across our businesses. In the CIB, many of our clients have multiple banking partners who they work with simultaneously. Onboarding and user experience really matter, giving us an opportunity to differentiate ourselves in real time. We are investing here in biometrics such as Touch ID and facial recognition, along with other technologies. Through Data Once, we have shortened the time to open an account by 90% for treasury services clients. Also allowing them to manage their documentation and onboard digitally. Through the introduction in business banking of a single application for multiple products, we have seen a significant uplift in new multi-product relationships. Remember, when small businesses choose Chase for multiple products, it leads to significantly higher deposit balances and revenue. Our J.P.
Morgan Wealth Management advisor-supported client onboarding time is down nearly 85%, and you can now also open a self-directed investment account online in just minutes. Consumers are now able to open a bank account digitally also in minutes, both inside as well as outside our footprint. We are also focused on improving the in-branch onboarding experience. We have seen mass adoption of all things digital by consumers, turning to the next page. We are already deeply embedded in our customers' daily lives at a scale and a frequency that we believe is unmatched. In consumer, you can see circled at the bottom that nearly 47 million Chase customers do their banking through our digital channels. If you think about a day in your life, you can go get cash, you can buy your groceries, you can split a bill for lunch with your friends.
After that, you might deposit a check, review your investment portfolio. You might even get advice online digitally. All of that you can do securely without having to step into a branch or touch any paper. You can do it on our number one rated mobile banking app or at Chase Online, the number one most visited U.S. banking portal. Digital touches all aspects of your engagement with us across all transaction types. Importantly, digitally engaged customers interact with us much more frequently, typically averaging over 15 logins a month. They are more loyal. They spend more. We've seen card spend more than double with us, and for our primary bank customers, we get 40% more of their deposits and their investments. In the time that we have today, it's not going to be possible to outline all of our digital capabilities and strategies.
Over the next few pages, we're going to provide some examples of the frameworks and innovations in every business. Starting with a few examples in the consumer space on the next page. The solutions on this page, while they may be new or small, have already improved customer experiences and have the potential to enable new customer segments in new markets. Finn is still in R&D, but the capabilities are promising, and the ability to open a new digital bank account simply allows us to serve customers out of footprints. In order to be able to do this, we automated KYC AML, and we're now able to leverage that in digital account opening broadly across the consumer platform. Chase Business Quick Capital offers a great experience to access same-day, small-dollar credit, and the feedback from our customers so far has been outstanding.
We're now looking to scale that offering. Chase Digital Mortgage is able to offer customers a significantly enhanced home loan process, with mobile application, e-signature, and underwriting, digitally integrating our data with third-party data. Finally, Chase Auto Direct is in the early stages of our efforts to transform the car-buying experience, creating a single place where you can search for a car and also secure financing. Moving to investing on page 15. Nearly two years ago, we recognized we did not have competitive digital investment capabilities and announced a $300 million plan in digital wealth management solutions to close those gaps. We are well on that journey. Today, regardless of whether you're just getting started, whether you want to do it yourself or want to partner with an advisor, we are building tailored solutions for you.
We now have a new self-directed online trading experience available to all Chase Wealth Management clients. This will be coming to all of our Chase customers this summer. Through this, clients can open an account, trade securities at competitive rates, build their own portfolios, and move money seamlessly between banking and investing, a fully digital experience. We've seen great adoption. The percent of trades placed online has doubled to 55% since April of last year since we launched. For those who continue to choose to work with advisors, we're also providing digital portfolio insights and easier-to-use interfaces so that our advisors can focus on creating better portfolios. These capabilities help you become invested, so they'll allow us to attract new clients.
Importantly, less than 10% of Chase customers today have investments with us. These capabilities will accelerate our ability to capture more of their investments. Digital solutions are also equally important for our corporate clients, turning to the next page. We have a digital continuum for businesses of all sizes and of all complexities. Every interaction between our clients and the firm will be connected, digitized, and continuous across products and channels. You can see at the top of the page here that we have multiple portals for end users to connect with us. Each of them is targeted to a different client segment that has unique needs. We're not only building our capabilities for the end user, say, for the treasurer, we're also building them for developers.
Giving them direct access through APIs, making our products easy to integrate and to use, and exposing them in a simple and modern way, deepening our reach. On this page, we show the range of capabilities that support our corporate clients. It does start with the first experience through online account opening and self-service. We have the capability to allow them to make payments and move money real-time and around the world. Our online solutions provide clients with complete visibility and control of their liquidity, and real-time data enables them to improve cash forecasting, consolidate their balances, and optimize their returns on surplus cash. We provide custom reporting and analysis, and in areas with much more complex workflow, like in capital markets, we are building digital solutions for transactions like issuing debt.
In our markets business, we are also adapting to our clients' changing preferences, starting with electronification on page 17. Much of markets has already gone electronic. It shouldn't surprise you that within cash equities, nearly 100% of our tickets are electronic, representing 89% of client notionals. In macro, it's 97% of tickets driven by FX. Interestingly, even in FX, only 79% of volume is electronic because smaller ticket sizes lend themselves to electronification. That pattern applies across the macro space and is why you see only 46% by volume on the page. Spread is a slightly different business and is evolving at a different pace. Again, these numbers hide the significant electronification in certain products, like in credit index. We expect these trends to continue, in part due to secular drivers like MiFID II.
Last year, you may recall that Daniel showed you a slide that highlighted the amount of revenue that could potentially be impacted by further electronification. The conclusion of that slide was the same as the conclusion we reach here, which is, of course, there may still be some further revenue compression, but we think it would be relatively small. Electronification and digitization drives more value for our clients and opportunities for us to potentially gain share. We've invested heavily in electronic trading, but it isn't just about execution. Much as you wouldn't have a Chase banking app that wouldn't show you your balance, we need to complete the offering here, too, on page 18. We're transforming our markets business. We want to be relevant to our clients, and we want to grow share to benefit from scale.
We're already market leaders across the spectrum, what we can offer our clients today is incomparable. Here too, we are agnostic to channel. Whether our clients call us, log on to a browser, use a mobile device, integrate us into their platform using APIs, or trade through a third party, we want to offer them choice. We've developed this into modular components so that our clients can engage with us however they want. For example, you could read research online, but you could then place a trade directly on your mobile device. Deep integration with these clients, of course, starts with direct booking of trades, but also extends to post-trade and value-added services, including Prime and Custody and Fund Services, which taken together should translate to increased trading volumes for us.
To give you just a sense for the progress we're making, our biggest clients are using these services. 93% of our top 1,000 clients use J.P. Morgan Markets. We have seen 30% growth in users accessing pre-trade and 60% growth for post-trade analysis. Demonstrating success beyond execution, nearly half of our clients who use us for execution are also reading research on the platform. To wrap up on digital, as I said, digital capabilities will really differentiate players in our industry in the coming years. In a digital world, we are always open for our customers, continuously, 24/7. Although we can only give you a flavor of what we're doing, we do have a complete strategy, a plan for every customer type for all of their needs in each business and around the world.
We're executing with discipline and with urgency, we're also making the most of shared platforms and capabilities across the firm to accelerate time to market and reduce costs. While many of these investments may be table stakes, the combination of them all in totality, coupled with our scale, is differentiated. In consumer, we have a full suite of capabilities from digital banking through spending, payments, borrowing to own a car or a home, and ultimately advice and investing. In wholesale, we can similarly support businesses of all sizes and complexities, from small businesses through global asset managers and multinational corporations. We'll move on to payments, which is a natural extension of the digital conversation. Payments is, in many ways, one of the most important jobs to be done by our consumer and wholesale customers alike every day in everything that they do.
It's why our payment strategies matter so much to us. Payments are at the heart of being deeply integrated with our customers. At its most basic level, if you think about a checking account, it's not just a checking account, it's actually a payments account. Payments drive significant value to our core franchise through our retail and operating deposits. On the next page. The opportunity here is large, and it's growing. Payments is a business that has strong and stable returns. We're already mature and a market leader operating at scale across the continuum. In wholesale, we have a global footprint to serve our corporate, financial institution, and government clients. The market today is very fragmented. Cybersecurity and regulatory requirements are becoming ever higher hurdles, and they will drive industry consolidation, and we have everything we need to capture an increasing share.
For context, the global payments wallet today is nearly $300 billion. It's expected to grow 7% annually, and our share today is less than 3%. In consumer, of the total $10 trillion of payments, a quarter of them are still paper-based. This represents a significant opportunity. With credit and debit spend also expected to grow over 5% annually. Diving deeper into the consumer payment ecosystem on page 22. We've built our consumer payments franchise over a decade. We've been systematically investing and innovating, and it's working. You can see on the right-hand side of this page that we've outlined a few of the statistics that illustrate the tremendous reach that we have. The payments ecosystem we've built allows for deep engagement. 75% of CCB customers are active across card payments, digital wallets, and overall money movement.
Over 70% of our credit card customers have embedded our cards in mobile wallets, recurring bills, or merchant payments. You can think of our payment assets laid out on this page as foundational but complete building blocks. We also have truly impressive partners, including Amazon, British Airways, and Starbucks, to name just a few. Let's go through two of the most recent developments on the next page. Starting on the left with QuickPay and Zelle. QuickPay went live in 2010, and we integrated it with Zelle in the middle of last year, connecting our customers with those of 18 other major banks with real-time funds availability and backed by the security that the U.S. financial system can bring to bear.
Our Zelle volume of $41 billion represents 12% of the high-growth P2P market, and it represents more than half of the overall Zelle volume and more than Venmo in total. Since launching Zelle, our transaction volumes to non-Chase customers are accelerating at more than twice the pace of Chase to Chase transactions, which itself is growing at over 40% a year, demonstrating the real value proposition of at-scale networks. On the right-hand side, we acquired WePay last year to support our 4 million small business customers in their shift towards integrated payments and to become a major player in this segment of the market, which is growing at 4 times the average. We will deliver a differentiated payment experience for small businesses and for software partners, including immediate onboarding of our products.
Software providers will instantly be connected to our small businesses, and our small business customers will be able to seamlessly integrate our banking and payment products with the software that they use in their daily lives. Where do we go from here? Starting from the left, you can see that we have all of the payment capabilities our customers need. Moving to the right, the real opportunity is on the far right. By moving from transactional support to personalized, integrated experiences curated for our 61 million households. We can leverage both our proprietary data as well as external data to develop a deep understanding of our customers and to let them know, through all channels at all times, all of the products for which they are approved, and to reinforce the value of being a Chase customer.
Through ChaseNet, we can connect customers with merchants, which drives higher authorization rates and reduces fraud for merchants. We are building Chase Pay as a platform, where our customers will be able to easily pay for anything using all of our payment capabilities and get access to relevant merchant-funded offers. Our goal here is to make the act of paying seamless and rewarding. In recent pilots with Chase Pay, we've seen our repeat customers actually increase their spend and their engagement with us. Shifting to wholesale on page 25. It's not just consumers, but the needs of corporate treasurers are also changing as they are trying to support global growth, increase operational control, and improve cash visibility and efficiency. Our strategy can be described across the four pillars that you see here.
Zooming in a little bit on pillars two and three, global scalable platforms enable end-to-end functionality across payments, liquidity, analytics, and service. Although here I am talking about wholesale payments, as we move increasingly toward platforms, we are truly able to leverage the power of the company, building capabilities once and leveraging them multiple times. Over the last three years, our goal has been to transform the payments technology landscape into a modern, efficient platform to provide seamless and consistent experiences and the ability to deliver innovative solutions. An example, our global payments platform, Graphite, will first replace seven legacy international payment platforms. Later, it will be deployed here in the U.S. It will enable us to be much faster to market for new products and also to reduce infrastructure costs.
It's not just our core platforms that we can scale and leverage, it's also our data and our approach to innovation. In CIB, we have a single data platform, making all of our payments data available, accessible, and integrated. While it's true that anyone can use machine learning, if you combine those techniques with the volume and complexity of transactions that we see, at $5 trillion of payments a day in more than 120 currencies, it gives us a unique competitive position to significantly enhance our fraud detection and sanctions processing. In doing so, to provide greater service and greater protection to our clients. Through the in-residence program, we work with fintechs on co-creating products to address client needs. Our APIs strategy allows us to expand our open banking offering across wholesale.
Here, too, we also have a full suite of payment assets for wholesale businesses. The breadth of our products enable us to deliver unique end-to-end experiences. We have global reach, and clients can select us as a single provider. We're working to offer payment solutions across all payment types and in all regions. If you consider an e-commerce client, where our merchant acquiring business can help them to accept payments in digital form from consumers through their app, where our treasury services business is able to provide settlement of receivables, processing of vendor payments, reconciliation of accounts, as well as liquidity management to optimize cash balances. We can also provide supply chain finance to clients who need it. This is a journey we've also been on for over five years.
On the next page is just one example of how we are bringing emerging technologies into the equation now. In this case, blockchain and the Interbank Information Network. One of the most costly and time-consuming elements of executing cross-border payments today is in correspondent banks having to research and respond to compliance inquiries of each other. Today, that process is manual, it lacks transparency and delays payment. Think about sanctions or AML. Leveraging JPMorgan's Quorum blockchain technology is enabling a platform for encrypted peer-to-peer messaging between banks. A decentralized permission-based network where information can be exchanged or confirmed rapidly and securely. Today, payments that are flagged for compliance reasons can be delayed for up to two weeks, but this technology can reduce that to minutes, and the pilot is working.
Today it involves us with two third-party correspondent banks, there is a lot of appetite among banks and corporates alike to join the party. The Interbank Information Network represents just the first step in our ability to improve end-to-end wholesale payments, there's no end to the number of use cases for safe and efficient information exchange. All of this is to say that payment is a space that is going to experience a lot of disruption, and we are embracing that, and in many cases, we are uniquely positioned to benefit. On the next page. One of the most significant developments in this space is real-time payments. This is the first new core payment system being developed in the U.S. in more than 40 years, and we are leading its development across the industry.
Payments will be instantly available 24 hours a day, seven days a week, 365 days a year, and we have the underlying infrastructure to enable this. It's built, and it's ready. We are working with clients now to integrate with their business models, and we expect to have clients live on the platform in a matter of months, using real-time payments to settle claims, issue refunds, and move money anytime and instantly. We are building this across our businesses, connecting our wholesale clients to our expansive consumer base, truly demonstrating the power of the combined firm. The reach of our consumer franchise is an embedded differentiator. It's attracting businesses to change to this new payment method and to do that with us. Furthermore, we are able to share our technology capabilities across businesses and are collaborating with and shaping industry discussions.
Everything that we do, of course, digital payments and beyond, is underpinned by robust security and controls. On page 29. People are constantly attacking us, and they're getting smarter and more sophisticated. While there are obviously no guarantees in this space, we spend a lot of time and money to be well-defended. Nearly $700 million a year, an investment that is leveraged across the whole company. Our approach to managing cybersecurity risk isn't just defined by our ability to prevent and detect an attack, but also to minimize its impact, respond to and recover from potential threats. We are constantly monitoring the activity within our own environment as well as across the external landscape. Here too, we are embracing new technologies, such as in machine learning. We're partnering closely with our peers and with governments globally to collaborate on threat detection and response.
To wrap up on payments on the next page. The conclusion is as follows. We are the only U.S. bank with scalable businesses in every major payments vertical, allowing us to serve the 360-degree needs of customers in every segment. Although customers are different across our businesses, their needs are somewhat similar, and we are partnering across the firm to deliver solutions to them all. We've been systematically investing and innovating in this space to build a complete and unique set of assets that does position us to deliver differentiated solutions. Our ability to cross-leverage our consumer and wholesale core platforms and businesses itself creates incremental momentum. Today, we operate at scale in each of our payment strategies, I showed you that the opportunity ahead is large and it's growing, and we are looking to gain share.
This brings us to the midpoint of the prepared remarks, and it may feel a little early for a break, but we do want to give you some time to absorb what we've said. Before you leave the room or go grab a coffee, I did want to just ask our senior leaders in the digital and payments space to stand up and to introduce you to them, because they will be here during our Q&A session. They'll be here at lunch hosting tables. If you are interested in more detail, and there is a lot more detail, then you can seek them out. Quickly, in digital, you can see Bill and David, Jed, and Kelly. Then payments, Matt, Jen, and Takis. Please feel free to seek them out and have a talk about what you've just heard.
We'll be back in 15 minutes.
We will now take a 15-minute break.
I hope that you're coming to see. I'm waiting on a sunny day. Gonna chase the clouds away. Waiting on a sunny day. Watch time, baby, will it come to a stop? Sure as the ticking of the clock on the wall. Sure as the turning of the night into day. Your smile could bring the morning light to night. Yeah, throw away the blues when I write. I hope that you're coming to see. Oh, I'm waiting on a sunny day. Gonna chase the clouds away. Waiting on a sunny day.
I was scared of dentists and the dark. I was scared of pretty girls and starting conversations. All my friends are turning green. Yeah, the magician's assistant in their dream. Oh, oh, and they come unstuck. Lady, running down to the riverside. Taking a way to the dark side. I wanna see your last dance. I love it when you're singing that song and I got a lump in my throat 'cause you're gonna sing the words wrong. There's this movie that I think you'll like. This guy decides to quit his job and head to New York City. This cowboy's running from himself. She's been living on the highest shelf. Oh, oh, and they come unstuck. Lady, running down to the riverside. Taking a way to the dark side. I wanna see your last dance.
I love it when you're singing that song and I got a lump in my throat 'cause you're gonna sing the words wrong. I just wanna know. If you're gonna stay. I just gotta know. I can't have it any other way. I swear she's destined for the screen. Closest thing to Michelle Pfeiffer that you've ever seen, oh. Lady, running down to the riverside. Taking a way to the dark side. I wanna see your last dance.
Please continue to stand by. The presentation will continue shortly.
When I was young.
Okay, everyone. Can you take your seats, please? Thank you. I'm back. It's me again. Welcome back. We have about another 45 minutes. In this part of the presentation, we will go through a brief, but I think complete, update for each of our businesses, and then we'll end where we always end, by going through the financial outlook. I will start with the CCB. As you know, we have a powerful consumer franchise. We have relationships with about half of all of the households in the U.S. We bank about 4 million small businesses, and we have the largest active digital customer base. In serving those customers, we leverage firm-wide assets and capabilities, including the J.P. Morgan brand and investment expertise in Chase Wealth Management, and small businesses have access to treasury services.
The goal is to deepen relationships with our customers by being the easiest and therefore the go-to bank to do business with. As I said, it does start with digital account opening, the ability to pay with Chase wherever, whenever, and support all of our customers' financial needs and aspirations through banking and lending relationships. Coming into 2018, we feel on the front foot with strong momentum across the board. Beginning with consumer banking on the next page. At the top of the page, you can see that our strategy is working. 70% of our households use Chase as their primary bank, and since 2012, we've been an outperformer in retail banking customer satisfaction. In breaking news as of yesterday, we're delighted to now be ranked number 1 in retail banking advice in the U.S. by J.D. Power.
We've grown average deposits and client investment assets by over 60% and 70% respectively, and we rank number 1 in retail deposit growth with nearly 9% market share. In the chart on the left, over the last five years, we have led the industry in deposits with a 10% CAGR, gaining over 200 basis points of share as our customers ascribe value to their end-to-end relationship with us. On the right, our strategy is one of multi-channel engagement, and we are investing in both our physical presence and in our digital capabilities. Today, 70% of households are digitally centric or multi-channel. As mentioned, these customers tend to have higher spend and higher deposit and investment balances with us. While we have a prominent place on their phones, we are also connected to them in a deep and personal way through our branches and our people.
75% of deposit growth comes from households who use our branches. Spending a minute on our branch strategy on page 34. We continue to believe that a physical distribution presence is critical to the long-term strategy of this business, but we will always look for ways to optimize the network, enhancing our distribution density by constantly opening new branches as well as moving and consolidating them. Retail distribution is like a muscle, you have to exercise it or it will waste. We have optionality in our footprint. We have the flexibility to exit about three-quarters of our branches within five years, but we also have the optionality to extend control for more than 10 years in over 80% of them. I want to remind you that only nine of our seasoned branches today are not profitable.
There's still a lot of opportunity for us to expand, particularly in growth markets in which we do not currently have a consumer presence. You saw our announcement. We are excited to expand into 15 to 20 new markets with a total deposit base of $1 trillion. We're going to build up to 400 new branches, add nearly 3,000 jobs, and bring the full power of JPMorgan Chase to bear. Expanding our footprint, as you know, also provides direct benefits to all of our other businesses. CPC being a feeder to the private bank farther up the wealth spectrum, and the commercial bank will now be able to provide core operating services to governments and universities in these locations. Given our digital tools, customers are changing the way they use our branches, and in turn, we are exploring innovative formats.
Moving next to card and merchant on page 35. We are the number one credit card issuer, since 2012, we've improved our card net promoter score by 18 points, grown sales by over 60%, and added nearly 200 basis points of share. We are also the number one wholly owned merchant acquirer. We've grown our merchant processing volume by over 80% and added more than 600 basis points of share. We have a balanced portfolio of both proprietary and co-brand cards, including new products. In 2017, we finished the renewal of our co-brand card relationships, having completed the renegotiations with Disney, Hyatt, and Marriott. When you look at these partners, they represent some of the most admired companies ranked by Fortune. Looking forward, we are focused, as we said, on best-in-class digital and mobile capabilities, as well as integrated payment experiences.
We are also very focused on increasing engagement with our customers. Sapphire Reserve has been a great proof point there. To quote Bloomberg, "They've built a lifestyle brand. It's a part of your identity. It's like the clothes you wear." We are seeing more than 50% higher spend with these customers, which is not surprising given the value proposition of the card. These Sapphire Reserve customers, you can see their characteristics on the page on the left at the bottom. They're not only profitable as a single product relationship, but they are an extremely attractive base into which we will deepen. We are seeing an impressive more than 90% renewal rate for these cards. While we've only piloted CPC and mortgage offers to these customers so far, the results were very promising, you should expect more of that in 2018.
In total, we have more than 40 million card households, and only 14 million of them have more than one product with us. Broadening those relationships and making sure we remain top of wallet are key areas of focus as we look forward. Next on home lending. A decade since the crisis with housing at its core, we have executed on our strategy to reposition this business, focusing on high-quality customers and improved controls. The majority of our regulatory and control agenda is behind us, and we have seen a significant increase in customer satisfaction since 2012, driving growth and market share gains. On the left side of the page, we've been growing our core loans while also de-risking and maintaining strong credit discipline. Delinquency rates have declined significantly and net charge-offs today are negligible.
All positions us to go after the big embedded opportunity of being the go-to home lender for Chase customers. We are underrepresented today with a market share of 5.4%. Through our investments in technology and people, we are focused on gaining share. 30 million of our households have mortgages, and only 5 million of them have it with us. In order to capture this opportunity, we are increasing our advisor base. We grew advisors by 10% in 2017, and we have plans to add 500 new advisors over the next 5 years. We've also spent the last several years ensuring that our operational systems are ready to support an expansion. Now we deliver a simpler, faster, and better customer experience.
Standing here this time last year, Mike talked about a digital mortgage pilot, by the end of this year, all mortgage applications and processing will leverage our digital end-to-end solutions. Moving to auto on page 37. In auto finance, we are the number 3 bank lender, although our share is down a bit, we prioritize risk discipline over share. Our growth in auto across loans and leases has predominantly been driven by partnerships with our key manufacturers, like Subaru, Jaguar Land Rover, Mazda, and Maserati. These partner dealers drive higher volumes and efficiency for us. In 2012, we were under indexed relative to the industry on leases and we're now in line. We exercise great caution in growing here and only do leasing with our manufacturing partners, with appropriate residual risk-sharing and appropriately conservative accounting.
Going forward, we'll continue to invest in these partnerships, leverage our full suite of capabilities to deepen dealer relationships, and of course, provide an improved digital experience to our customers. Ending CCB with business banking on the next page. Back in 2012, we weren't punching at our weight in small business. Through a relentless focus on improving products and services, we've seen a substantial improvement in net promoter score, we've gained 250 basis points of share, which while leaving us in a number 3 position, puts us on a more equal footing with our peers. The strategy is clearly working. There's a lot of opportunity, we intend to continue to deepen relationships and grow. Year-over-year, we saw small business card sales up 12%, gaining 20 basis points a share.
Here too, we will add up to 500 bankers in support of small and middle-market business growth over the next 5 years, including entering new markets. Moving onto the Corporate and Investment Bank on page 39. We spent the last few years simplifying the business, optimizing against multiple constraints, and focusing on efficiency. Today, we are well-positioned as a global scale player with a complete set of products for our clients. We've been consistently investing in our platforms in modern technology, here too have seen significant improvements in client satisfaction and share gains. We are well-positioned to benefit from wallet expansion, driven by emerging markets over decades. We are focused on embracing change in this business and evolving the business across three horizons.
maintaining a day-to-day discipline, running a best-in-class business across all dimensions, while at the same time optimizing our current model to improve and integrate the way that we serve our clients. Ultimately, to transform what we are doing today by reimagining the future. Given that markets have been a particular area of focus in 2017, we'll start there on page 40. The strategy for markets hasn't changed. We've stayed consistent and committed to the long-term viability of the franchise. A lot of air time has been given to low rates and low volatility. Despite quiet markets last year, equities and fixed income markets delivered a 13% and 12% return respectively. Of course, scale really matters here, given that marginal profitability is quite high. Now bear with me because I want to make a nuanced point on this page. On the right.
Last year, we showed you this view of the markets franchise, you can see the largest revenue category is what you might call classic flow business, where the model is to earn commissions or bid- offer a spread by intermediating risk. In that flow segment, you clearly see the big drop from an exceptionally strong 2016. We dig deeper underneath that to understand what's going on with the client franchise. Is it healthy? We have an internal measure for client activity, to simplify the concept, just think of a lending business where you can take your revenue and separate it into rate and volume. You can think about our internal client activity measure as being a proxy for the volume-related part of that equation. Mix- adjusted, but with relatively stable margins.
On that measure, you can see that client activity has grown quite steadily over the last few years and was reasonably stable in 2017. Of course, the ability to monetize those flows does matter, and margins are impacted by volatility. We clearly care. The upshot of this is that we feel really good about the quality of the underlying client franchise. It is healthy, and when market conditions normalize, it will support strong revenue performance. Staying on markets and moving to page 41. If you look at the top right, it's all about completing the platform for our clients. Last year, in the last few years, we've made great progress, but we do continue to work on this. Last year, we retained our number one ranking in fixed income markets, and we tied for number one in equities for the first time.
The competition is back and complacency is the enemy. You can also see on the left side of the page that we did a good job preserving our market leadership in FIC from a high watermark in 2016, even as the wallet declined. We have a very positive story to tell on equities. Five years ago, we were behind, we've been focused on closing that gap. We finished building out our prime brokerage platforms in Europe and Asia, last year, we grew global prime balances by 28%. We now have a competitive and complete platform, our clients are demonstrating their desire for us to be their prime services provider, where we have over 13% share now, up from less than 11% five years ago.
We re-upped our focus here in 2014 and are now seeing the multiplier effect carry through to our cash and derivatives businesses, up 4% and 18% respectively in a wallet that has declined over that same period. Going forward in markets, we talked about it's all about innovating in our platforms to deliver a great customer experience, and that's totally within our control. Moving onto banking on page 42. In banking, a key priority for us over the last few years was to fill coverage gaps and improve the strategic dialogue at the CEO and board level. We feel much closer than ever today to having a fully complete top-tier banking platform. Here too, there is still opportunity for growth, as small share gains can add up quickly, and we remain focused on closing gaps.
We'll do this by making sure we continue to hire senior bankers in targeted areas and prioritize the right clients, with a key area of focus being on our global industry and cross-border collaboration. Moving on to Treasury Services on the next page. Over the last several years, Treasury Services have been challenged by the impact of low rates, as well as business simplification. In 2017, we delivered strong growth and believe we outperformed peers. 2018 is positioned for the same. Last year, revenue was up 15%, and although rates were a driver, organic growth was also a meaningful contributor. We grew operating balances by 10% and managed expenses down, while maintaining technology investments in strategic platforms across the space, including Graphite, which I talked about earlier.
As a result of those investments, we are making progress, and we are gaining share, and we have substantially closed the gap to number 1 in wallet this year. Security Services results are showing the same trends on the next page. In this business, you will recall, we spent the last few years being focused on the stability of the platform and addressing client experience issues, which required significant investment, and both our existing and new clients are feeling the benefit of those investments. In 2017, we turned the corner. We know that because the feedback from our clients has been very strong. We are seeing very high levels of retention, and based on our latest surveys, we have the highest level of client satisfaction in years.
We continue to be focused on aligning our investments with the priorities of our clients, and here, again, we want to complete our set of products and services. The financial performance of this business in 2017 was also strong, with revenue growth of 9%, and we finished the year with record levels of assets under custody at $23.5 trillion. Before I move on, we now have the highest firm-wide Transaction Services revenues, if you add across TS and SS, and we clearly have the broadest combined platform capabilities in the industry, reflecting the benefit of diversification. Moving on to the Commercial Bank on page 45. We take a long-term, disciplined view, and we have industry-leading differentiated capabilities, a local delivery model, and specialized expertise. Our goal here is to deliver superior client experience, providing simplicity, speed, and transparency. We're not standing still.
We are investing across the platform to add greater value to our clients. On the next page. 2017 was a great year for the commercial bank, and we are starting 2018 strongly. We are working to drive new relationships, adding bankers at a clip of over 100 a year for the last several years. Although digital is important, this remains a people and a relationship business. The momentum that we've seen on our client calls has allowed us to add over 1,000 new relationships in 2017. Remember, client selection is one of the most important things that we do here. These are companies with management teams and cultures that we like and in industries that we like. We entered six new markets in 2017, and we're now in all top 50 MSAs, marching steadily towards our $1 billion expansion market revenue target.
Moving on to the next page. Expansion is only one part of the story, but deepening relationships with the clients we already have is equally important. We can support businesses of all sizes. The needs of successful, fast-growing companies rapidly outgrow our regional banking competitors. Our ability to grow with them provides real value, creating deep, long-lasting relationships. Not many others can serve clients the way we serve ours, and you can see it on the page. Commercial banking clients have $135 billion of AUM managed by Asset and Wealth Management. They generate nearly 40% of all North America IB fees. Half of our C&I clients are covered by one of our specialized industry groups. We support more than 2,000 of them internationally in 24 cities around the world. 80% of them have deposits with Chase, and 90% of them use Treasury Services.
Obviously, a core part of the commercial bank is lending, with loan growth outpacing the industry on the next page. In C&I, the industry saw a deceleration in loan growth in 2017, which we believe is reflective of high levels of liquidity, access to capital markets, and where we are in the cycle. Optimism among our clients continues to be very high, and we've seen loan growth with a 7% CAGR since 2012, maintaining proven client selection, risk discipline, and credit quality that's among the best we've seen. We're not seeing any signs of fragility today. From here, a reasonable expectation for C&I loan growth for the industry would be broadly in line with GDP. Given our investments, we expect to continue to perform better than the industry over time.
Shifting to commercial real estate, we have a great story to tell here, and have grown the portfolio strongly, but with discipline since the crisis. Our CRE business is built to target the least cyclical segments of the market. The majority of our growth has been in commercial term lending, where we compete on speed and execution certainty, and we focus on the markets that we know. This is a diverse portfolio with average loan sizes that are small and strong debt service coverage. In real estate banking in 2017, we had limited new construction exposure and kept within a tight credit box. Here too, growth rates have slowed as rates are rising, and again as it is late stage in the cycle. Finally, shifting to Asset and Wealth Management on page 49. Client outcomes is our core focus in Asset and Wealth Management.
Everything starts and finishes with the strength of our investment performance, coupled with excellent client experience and constant innovation. We have a leading franchise with over $3 trillion in client assets, more than $120 billion in each of deposits and loans, and we are ranked the number one private bank in North America for the ninth year in a row. We're building out our digital and mobile capabilities, providing human and digitally enhanced advice, developing investments for everyone, solutions across the wealth spectrum, and both active and passive strategies. Finally, executing on a simplify for growth strategy, excelling where we can be a leader, and exiting where we don't have an advantage. Moving to the next page. Asset & Wealth Management has been a consistent growth business. In 2017, this business reached record levels for client assets, revenue, and pre-tax income.
You can see our client assets have increased at a 6% CAGR since 2012. One indicator of where this business is going is flows, we're very proud of ours. Looking at the bottom left, you can see that we're gathering between $1 billion and $2 billion on a weekly basis. However, as fiduciaries of our clients' assets, our goal is not to be the biggest, but it's to be the best. We define that as focusing on the client experience and on investment performance, which you can see on page 51. Consistent long-term performance drives client outcomes, the value our portfolio managers generate is evident in our strong five- and 10-year numbers, which you see on the left-hand side of the page. These are some of the industry's best, benefiting from a diversified business across geographies, client types, and asset classes.
When Mary stood here last year and showed you this same chart, the one-year performance was more challenged across the board. The environment at that time was tough, low volatility and high correlation, she told you that we believe the answer to the debate on active versus passive was active and passive, with people still playing a critical part in the equation. The last few weeks alone has demonstrated the opportunity for active strategies to generate alpha, our one-year performance is better across the board. On the top right, it is because of that consistent performance that clients continue to entrust us with their assets. We've seen positive client flows every year since 2004, and we rank number two in total net long-term asset flows over the past five years, generating nearly $400 billion of flows.
On the bottom right, we continue to innovate and refine our strategies. In 2017 alone, we launched over 70 new funds, a third of them in our beta strategies business, while also merging and liquidating over 70 funds to help simplify the platform. On to the next page. Across wealth management, we aim to be the bank of choice. The client relationship starts with banking, we've seen strong deposit growth with a 10% CAGR over the last five years, as well as with higher average balances. Lending relationships give us the most intimate understanding of our clients' needs, we have seen lending, including our mortgage book, also grow strongly. We're doing this in a very controlled way, with a consistently low net charge-off rate.
While we have demonstrated leading long-term performance and continue to grow on both sides of the balance sheet, there's still further room to expand on page 53. Last year, across our asset management and wealth management businesses, we generated the best pre-tax income of our publicly reported peers with the lowest number of advisors. That's the opportunity. Also on the right, we have improved the productivity of our client advisors by more than 50% and believe they are more productive than peers. Our job here is to deliver the whole firm to our clients, and in order to do that, we need to have more people telling our story. We will continue to hire advisors and to focus on their productivity to allow us to serve our clients better.
That concludes the line of business updates and brings us to the final section of the presentation, and I'll briefly set the scene for that on page 55. The strong synchronized global growth story we saw in 2017 has carried into 2018. Global GDP continues to be at multi-year highs. Consumer and business confidence and sentiment are very strong. We are close to full employment in many developed markets, which is all laying the groundwork for higher wages and a return of inflation. In terms of credit, the environment remains benign, and altogether, the risk of recession does not seem particularly high. All of this data remains constructive and supportive, and this is the backdrop for the outlook section. As you know, we always prepare for a range of outcomes. We'll start with loans and deposits, first with loans on page 56.
We've been steadily growing our core loans at 9% year-over-year if you exclude the CIB. We said before that loan growth in the CIB is an outcome of optimizing our client relationships. It's not a strategy. We've seen solid loan demand across consumer, and we expect that to continue. As previously mentioned, there has been some deceleration in the commercial bank in both C&I and CRE, given where we are in the cycle. All in all, we expect firm-wide core loan growth to be about 6%-7% in 2018. Moving to deposits on the next page. Deposit growth in total has been strong, but you need to get below the headline numbers to understand the underlying trends.
We continue to grow our retail deposit franchise more than twice the industry, based upon the investments that we've made in our brand, in marketing, digital capabilities, and in branches. While we have seen the early signs of an industry-wide slowdown, we do expect our deposit growth to remain solid and above the industry. As expected, given the level of rates, asset and wealth management has seen some deposit migration into money funds. Remember, we have one of the largest money fund complexes in the industry, and we've retained the vast majority of these balances. Moving to the bottom on wholesale, you can see that we continue to grow our operating deposits while maintaining discipline on non-operating deposits. While the impact of monetary policy normalization to date has been benign, we do anticipate changes to deposit flows on page 58.
Normalization will likely have two dampening impacts on deposit growth. First, Fed balance sheet shrinkage by $1.5 trillion will weigh on growth rates for the industry overall, but not dollar for dollar, we see this as a wholesale phenomenon. As you can see on the left-hand side of the page, as the Fed balance sheet grew, the impact on deposit growth was all in wholesale and largely non-operating. On the way down, we would expect deposits outflows to also be predominantly wholesale non-operating. We're expecting limited impact to retail deposits or to our liquidity position. Second, as rates rise and the gap between money market fund and deposit rates widens, history would suggest that we will see a migration of balances out of retail and into funds. While we would expect our funds to benefit from those flows, this will dampen retail deposit growth.
We are just reaching that point where the slowdown is starting. We do believe it will continue. Moving on to net interest income on the next page. Since 2015, to date, we have realized about $7 billion of incremental NII. It's mostly been rate driven, including the benefit of deposit reprice lags. Growth was also a factor, but less so than rate, markets NII has been and is expected to continue to be a headwind. In 2018, those themes are broadly consistent, and we expect that to translate to $54 billion-$55 billion of NII this year, assuming implies. Looking beyond 2018, the key message is that on a net basis, rate benefits may largely be over. Balance sheet growth and mix will become the more significant driver of NII.
Given my earlier comments on the likely changes in deposit flows, loan and deposit growth rates will have a degree more uncertainty. When all is said and done, cumulative betas could also have a meaningful impact on run rate NII. But I'll show you on the next page that we haven't changed our point of view on that. You can see in the green line on this chart that so far this cycle, we've seen less than 20% beta. If you look up to the orange line, that's broadly consistent with what we had seen in the last cycle at this stage. While there is a lot of debate about deposit reprice, we haven't seen anything yet that would lead us to change our opinion on how this will likely play out.
Which is to assume an appropriately conservative more than 50% deposit reprice beta for this cycle. You can see in the last cycle with the cluster of orange dots on the top right, that rates paid increased 70 basis points after the Fed's last hike. Much of the catch up will likely happen towards the end of rate normalization as product migration continues. If you dig under the 20% headline beta number, each of our businesses is clearly in a very different place. It's a continuum. We've seen very little price movement on retail deposits, on the other end of the spectrum, the change in rates paid for our largest wholesale clients has been much higher. While we do stand by our current assumption, there are differing points of view in the industry on whether reprice will be higher or lower than in the previous cycle.
The case for higher betas assumes that liquidity and funding requirements, as well as improved technology, will spur the demand for U.S. deposits and will allow customers to move money more easily and therefore to be more price sensitive. The case for betas being lower is that increasingly customers are actually less price driven and ascribe more value to great experience, best-in-class technology, and product solutions. While the topic is getting a lot of attention, we think of the value we provide to our customers much more broadly, with deposits being important, but only one piece of the equation. Moving on to non-interest revenue on page 61. We've been running hard to stand still on fee-based revenue for a number of years, absorbing significant headwinds. In 2017, we reached the inflection point.
NIR was up slightly for the first time in four years, as growth offset the cyclical impact of a smaller mortgage market, lower markets revenues, as well as continued investments in card. While the mortgage market is estimated to be near its trough, and therefore home lending NIR should be relatively stable from here, we do expect some reversal in 2018 of both card headwinds, as we have largely lapsed the impact of investments and of markets revenue, given the performance of Q1 to date. Albeit with all the normal health warnings about markets for the rest of the year. Together, these will likely contribute $1 billion plus to NIR in 2018, and that's before contemplating the regular BAU growth, which the drivers at the bottom of the page should support solid growth of up to $2.5 billion.
In 2018, we expect NIR to step up a little from 2017, with growth of about 7% year-over-year, after which returning to a growth rate of about a 3% CAGR, market dependent. You may recall that last year we also showed you a chart that normalized for NIR from 2011 and also showed an underlying 3% growth rate. Shifting to expenses on page 62. This year we feel that the overall environment presents us with the opportunity to significantly accelerate and increase our investments across the board. It's not just because of tax reform, but also given the strong economy, higher rates, driving revenue growth, positive operating leverage, and hopefully as we face a more constructive regulatory backdrop. We consider our investment agenda to be limited only by the opportunities in front of us and our ability to execute well against them.
Looking at the chart and starting on the left with 2017 adjusted expense of $58.5 billion. First, you see about $1.1 billion of efficiency, including lower FDIC costs, being offset by about $1.1 billion of growth, including the impact of FX or exchange rates. These are just the first order measurable efficiencies. Beyond that, as you know, the company is growing broadly and consistently across most measures, and the second order impact of that growth is also self-funded. Next, we are investing an incremental $2.7 billion this year, and below the green bar, you can see those investments broken down by type. The biggest portion, unsurprisingly, is about $1.4 billion of incremental technology investments across our businesses. The majority of it in our core platforms and digital, but with the remainder in cyber and controls.
Second, you see about $400 million of real estate-related investments, which for now we hold in corporate, the largest portion of which is the estimated cost this year of our new headquarters, but the remainder being investments across a number of other global facilities. Third, about $400 million as we add new revenue producers. Fourth, $300 million of incremental marketing expense in CCB. The balance, which is small, includes a number of other smaller investments, but also includes the impact of our recently announced $20 billion investment plan in our customers, communities, and employees. Above that green bar, you can see that investment number broken out by line of business, but by line of business, the themes are consistent. Last but not least, $700 million of incremental auto lease depreciation as we continue to grow.
Adding across, you get total expense for 2018 of less than $62 billion. Shifting to credit on the next page. We expect 2018 and medium-term net charge-off rates to remain relatively flat across businesses, with the exception of card, which we spent time talking about. In card, the seasoning of newer origination vintages will drive loss rates modestly higher, but at higher risk-adjusted margins. You can see circled for 2018, we expect to be at the low end of that range. Accordingly for the firm, you should expect net charge-offs and reserves to be modestly higher in 2018, driven by card, but emphasizing that this is seasoning, not normalization or deterioration. To bring this all together, starting with return targets on page 64.
On the top left, you can see that each of our businesses has revised their medium-term return targets upwards, reflecting the benefit of tax reform, but also reflecting growth. Moving to the firm-wide ROTCE walk at the bottom, and starting with our 15% return target from last year's Investor Day. We add higher revenue reflecting a normalized rate environment. Add to expenses, still in line with the 55% overhead ratio, but acknowledging our investment agenda. Credit and capital are about to wash year-on-year, and you get back where you started to a 15% return target for tax reform. Moving to the top right and also in the walk, you can see for the company that tax reform would, all other things being equal, be a nearly 300 basis point benefit to ROCE.
We don't know at this point how and when competitive dynamics will come into play, and to what degree they will impact the continuum of businesses and products that we're in. It's still early, and to date, we have not seen any notable or measurable impact to our businesses. We do believe that a portion of these benefits should and will be passed on to our customers over time, but time is an important dimension. However, a reasonable portion should be retained as we have absorbed significantly higher costs in the form of capital, liquidity, and controls over the last five years. Remember, you didn't see those increased costs being passed through to our customers. Closing then on the earnings simulation on the next page.
We're going to look at the range of outcomes first on a pre-tax basis this year, starting with 2017 at $39 billion-$40 billion. From the top, a number of factors can and will drive the quantum of NII in any one year. While acknowledging a degree of uncertainty, we think a range of $6 billion-$8 billion of incremental NII over three years is a reasonable expectation. Expecting our non-interest revenue to step up in 2018 and afterwards grow at about 3% a year, obviously market dependent, could be about another $6 billion-$8 billion of revenue growth. Assuming that we continue to invest in our businesses, but also achieve a 55% overhead ratio, also assuming that credit remains relatively benign through this horizon, we're just adding a possibility of some incremental stress.
If you do that math, you get to a range of $44 billion-$47 billion pre-tax. I want to remind you, though, it's a simulation, not a budget, and obviously based on a number of assumptions that could prove to be wrong. We think it's a reasonable central case at this point. I showed you on the previous page that if you used the old tax rate, unsurprisingly, you would get close to that $30 billion of net income and a 15% return. If you incorporate the lower tax rate and couple that with the consideration of competitive forces, we believe a 17% return on tangible common equity is achievable and is a good base case in two to three years. In conclusion, we do feel really great about how the company is positioned and how we are performing.
While the current environment remains constructive, we are confident in our model through the cycle. We are complete, global, diversified, and at scale with a long-term strategic focus. We will continue to invest to accelerate our capabilities and to innovate and grow, with our customers and our clients at the center of everything that we do. I think you've had enough from me. We'll take another 15-minute break, then we're going to start the Q&A with myself and the four CEOs on stage, over to you.
We will now take a 15-minute break.
Welcome back, everybody. We just threw quite a bit at you and gave you a lot to chew on. That was really awesome. That was really good. How good was it? Seriously. It was good, right? Actually, if you can put that on the surveys, like strong clapping, that's great. There are surveys in front of you, and we do want you to fill them out, honestly. If you don't have a chance to do it today, or if you're listening online on the webcast, then we've got an online version that'll be available tomorrow. Marianne noted it. We listen to your feedback. We take it to heart. We want to make this as good as we can and make it better every single year. Before we get to Q&A here, just a couple of logistical items.
One, you will be receiving an email before the end of this session with your lunch table seating. Please be checking. Those will come through. If there's an issue, come find one of us, IR team. Event staff will be able to help you out with that. Lunch will take place on the 49th floor, so one floor down from where we are right now. See the stairway right out there. The coat check, you guys checked in up here, it will go down to 49. When you leave here, don't leave your stuff in the room. We're not coming back to 50 in this room. Please take everything with you.
Lastly, just before we get going, when you ask a question, remember, we do have a bunch of people listening online on the webcast, please wait for a microphone, state your name, introduce yourself and your company. Good. Now moving on to the Q&A. We've got about two hours to do this. Jamie will close it out. First, on stage, we have a number of very familiar faces. Obviously, Marianne Lake, our CFO, who has just given you guys a ton of good information. On either side of her, you have our Co-Presidents and Co-Chief Operating Officers, Daniel Pinto and Gordon Smith. On the other side, Mary Callahan Erdoes, CEO of Asset and Wealth Management, and down at the end, Doug Petno, CEO of Commercial Banking.
Remember, as Marianne noted, we also have a number of other senior leaders in the room who may chime in, seated over here and on the other side of the stage. We'll have these folks up here for about an hour, the CEOs and Marianne, to answer all your questions, whether it's on the firm, any and all of our businesses. I know you're not going to be shy. You're never shy with me and my team, I know you guys have tons of questions for them. Just to give you a couple of minutes to gather your thoughts, think about what you really want to ask. I want to start with Daniel and a couple of topics that I just know are on everybody's mind. Markets, investment banking.
Daniel, how's the first quarter shaping up in markets, how's the environment looking for the rest of the year? How's the IB pipeline?
Good. First, thank you, Marianne, for doing the heavy lifting.
Yeah.
We have a lot of more time this year to continue manage our businesses. Now we are moving from English accents to Argentine accents. Let's start with markets. Clearly, the year has started well. Flows at the beginning of the years were strong. Client activity was strong. Then that accelerated into the volatile time in the equity market by increasing even further the client activity. Clearly, spread is always a function of volatility. Therefore, that helped too. Clearly, if you walk into that relatively prepared for what the market was going to bring, that was fine. We have seen is the market is correcting quite fast after the sell-off. We are now 2%-3% from the top back again, which is not so surprising. Volatility is coming down back again.
The VIX is around 15%-16% from reaching a peak of 33%. Essentially, the activity in the last few days is slowing down a bit. You have to keep in mind that March last year was very strong. Overall, we think that our performance in markets for this quarter across the business, it will be between mid to high single digits up on a strong quarter of last year. Particularly with strong performance in FX, emerging markets, and equities. That's markets. In banking, the backdrop, the overall environment is extremely positive. When you see global synchronized growth, you see CEO confidence and business confidence. It's all very positive. When you look at M&A announced, it's up substantially year-to-date, year-on-year.
When you look at it's substantial in the U.S., it's substantial in Asia, cross-border flows, they are low. They are low, like 26% lower year-on-year. When you look at wallet, as you are the ones that follow the logic, the wallet year-on-year, year to date, is down around 18%-20%. That is a reflection of some slowdown in activity towards the announcement around mid last year. When you look at what had happened in the first announcement, as I said, early this quarter, and the strong announcement in the last quarter of 2017, we think that this sort of slowdown in the wallet will catch up. Our view is that overall, across M&A, equity, and debt, the wallet for the year will be from flat to slightly up.
That is also in line with, I saw the Coalition numbers the other day, they are thinking about around 4%. Year-on-year, they're more or less flat to up a few single digits is probably what is going to happen. It feels good. The pipeline is very strong across. When you go to the different asset classes, debt is the one that has a bit more of a challenge because you have some positive factors and some negative factors. Overall, we think that the wallet in debt will be flat, slightly down, but not much. Up in equities, flat to up in M&A overall for what I have said. I don't know if Doug wants to-
Yeah. The investment banking story for Commercial Banking is I think perhaps one of the best examples of how we're delivering world-class broad-based capabilities to CB clients. If you'll recall, we've been on this steady march to $3 billion. First of all, our target was $1 billion. We hit it. We raised the target to $2 billion. We're marching to $3 billion. Last year, fees were up, and it was a unique year in that there were very few large transactions for us. As we head into 2018, we see a pretty robust pipeline. We think 2018 will look more like other years where we had large M&A activity, large capital markets activity. The big story for us last year was we had over 50% growth in our middle market investment banking.
That's the result of hard work, bottoms-up account planning, longevity, quality coverage over time, and there's tremendous potential there. I think the animal spirits that sort of are embodied in this economy and what we see out there hopefully translates into small businesses selling their companies, going public, accessing the capital markets, and we feel like we're pretty well-placed. As we enter 2018, I think we're in a better place than we were last year in terms of the IB pipeline.
Okay, Betsy.
Hello, Tim. Great presentation. Just wanted to follow up on a couple of comments that were made around the digital and technology investment spend, and hear a little bit across each of the business units with regard to the key priorities that you have and how we should think about where those investment dollars are going in terms of driving pre-tax margin. Is pre-tax margin going to be initially hit maybe in the near term with an improvement as either revenues lift or the expenses come down? It's probably different in each of the businesses, and I think you highlighted, Marianne, a $1.4 billion increase in tech, which is around a 12% or 13% increase in the tech budget. Pretty material and just wanted to understand line by line, if you don't mind.
You want to start?
You want me to start?
Yeah, sure. Absolutely.
In the consumer space, you have Bill Wallace, who's head of our mobile and digital efforts just behind you there, Betsy. Tremendous momentum as you started to see in the numbers. I'm sure it wasn't lost on all of you when Marianne made the point that the kind of marginal cost of a digital transaction can be as low as close to zero. We are seeing some really significant efficiencies. Much of it we're putting obviously back into investing and growing the business. We look at every aspect of the customer experience. We look at where we think there's opportunities to drive more digital engagement, but without overcomplicating the apps. If you go back to the early days of the dot-com era, you look at what became people's homepages, you ended up with just a plethora of activity.
We try to design everything around the kind of core activities that we think the customer wants to complete. We look at exactly what's happening in the marketplace. You've heard stories, Mike Weinbach's over there, about how we've digitized in the front end of the mortgage business. You saw some of the numbers in terms of person-to-person payments, which 10 years ago was effectively zero. We have a very robust investment process that we go through. We look at those opportunities, they are largely driving down our costs in the kind of core structural side of the business. To give you a simple example, you saw the slide, I think it was around as you're looking at your decks around pages 33, 34, 35, something like that. You saw the magnitude of growth that the consumer businesses have had since 2012.
We've since that time, in terms of core people working on the business, dropped from about 180,000 to about 135,000. A significant piece of that, meaningful piece, was the improvements that were made in the whole mortgage industry and in our business specifically. Across every business line within CCB, we drove efficiencies significantly as a result of the digital and mobile activities that we see. The other thing I would say, just from a marketing perspective, is if we go back a number of years, we'd work pretty hard, most companies, to say, "How do you drive down the number of contacts that a customer's having with you?" Why? Because it costs you roughly $4 to process each and every transaction. A customer calls into the call center, depending on the duration of the call.
Now we see customers interacting with us daily and multiple times a day, it's where Zelle is very powerful for us. What does that do? It lets us expose to customers more opportunities for products that they might be eligible for and helps us to be in that first two pages on your phone's home screen. I have not, in all my years in these businesses, seen the rate of change as great as it is now, and the impact of the mobile and digital transformation is really meaningful.
I would just chime in here because you asked a very specific question about how does it affect each of the lines of business, and is it sort of an ROI that you might have to wait for a year or two to see the results of. I don't think any of us think about it in that way. We think about this as table stakes for what we need to do for our client base. They expect to be able to interact with us 24/7. You've basically taken the time that you used to interact with a client, call it an eight-hour workday, and if you expand that to seven days a week, 24/7, you've just increased fourfold your interactions with clients. Now you need to be able to work with them whenever, however, and in multiple forms.
Everything we do has to bring what we've normally done in-house to them so that they can figure out how they want to interact with us. We do that, we make those investments, and we don't do it just for a product or a service, but really for the complete nature. Some of the things that were on some of those pages 34, 35, 36-ish area, talked about how you integrate the investments with the savings, with the borrowing, and how do I not do an application for a borrowing in one area and then have to do it in another area. How can we get smarter about helping a client to understand when they do a little of this, they can also do a little of that.
Giving them back that data so that they can make smarter and better financial decisions for themselves will hopefully enable them to want to be clients for life. We're working on establishing a framework so that they can be clients for life. We know more about them sometimes than they know about themselves. When they go to fill out a form and say, "How much do you make? How much do you spend?" They normally put in the salary they make. They don't put in the after-tax number that they make. Of course, all of you, if you're asked how much do you spend, you are woefully underestimating what you actually spend on a daily basis. We happen to know that. All of Gordon's data knows that.
When you can combine that and just feed it back to that client, they can make better, faster, wiser decisions and hopefully have a healthier financial life over time. When we think about things that we do in asset management, we think about taking all of the J.P. Morgan century worth of knowledge in investing and be able to package it for the client that walks in with their first job and their first paycheck and say, "Is it too early to invest just $10?" No. If you start at age 22, 23, 24, we can get you to be a financially savvy investor and have a much better chance of a high probability successful outcome by the time you get to retirement, if we can get you to start early and have those successes.
Being able to take all of that and put it in there is not something we're going to measure an ROI on any particular day. It's what we have to do, then it makes an exponential impact on the effect of the brand and pulling the whole firm together.
Okay. Saul?
Hi, Saul Martinez, UBS. Can I just ask the question a slightly different way? Is of the $10.8 billion of tech spend, is there a way to put parameters around how much of that is to basically keep the lights on, to maintain existing systems and platforms? How much of that is for new initiatives to either get better at something you already do or to grow new products and capabilities? I guess as an adjunct to that, can you make the argument that technology should drive down your structural efficiency ratio over time to something below the 55%? Obviously, if I look at the trajectory of your medium-term efficiency ratio is very different, applies a very different cost curve than what some of your peers are saying.
Is there an argument to be made that the efficiencies that you get from that can at least help self-fund some of the new initiatives?
Yes. Maybe I'll start with just the sort of big picture, and then anybody can jump in. I'm sure that you will recall that previously we talked about our sort of $9.5-ish billion of technology spend, over $3 billion of which was on investments. It doesn't take much to add the $1.4 billion and get close to $5 billion. About $5-ish billion of our technology spend is in, we would call to be incremental investments that are really transforming the environment, but they run the gamut. Obviously digital is a piece. You've got the core platforms we talked about, payments platforms, Asset & Wealth Management platforms, the mortgage platform, investing in WePay, all of those things. You've also got data analytics. You've got cloud enablement. You've got automation and efficiency of our existing processes, on and on.
While we don't necessarily always do everything to have an incremental specific ROI, the portfolio of those things will transform the way that we serve our clients and the way we operate. Will make the unit cost of everything we do ultimately more efficient, for sure. We've already seen that, as Gordon said, and it's one of the reasons why we are able to self-fund the growth, the underlying growth. You see all our drivers growing 5%, 6%, 7% a year every year, 10 years. While our cost base hasn't been static, it's not been growing at that rate in totality outside of incremental investments. No doubt. I would also say it also depends on your strategy for investing. We said it, this is a moment in time where we really think that these investments will differentiate the long-term performance of this company.
I can't speak for everybody else. I'm sure they're doing much the same. We'll do every dollar we think we can spend well to sort of protect the competitive advantages we have at this moment because they will differentiate us. Having said that 55% overhead ratio isn't a target that we're a slave to, either to the upside or the downside. As we reduce those unit costs and start taking out some of the legacy infrastructure, because we are a bank that's been in place for hundreds of years, then we'll continue to update you. Meanwhile, we're at 57% now, let's get to 55%.
Just to take your point about the keep the lights on, we work with Lori Beer, who's just on the table next to you there. There's no such thing as just kind of keep the lights on and put that to one side. Lori and her team and the other technologists, we're relentlessly driving efficiency in that group. We'll either drop that money to the bottom line or we'll invest it. On the investments, we have a very rigorous process that we go through. Every single investment has a payback laid out. What's the NPV going to be? What do the returns look for the program?
We take a very small amount on things that might be quite new, call them R&D if you like, where we'll be unsure about what the return will be, but we'll be very prescribed about how much money we want to spend on those things. We're looking at both those categories in a great deal of detail, and certainly every dollar that goes into the investment pool, we have a very good sense of what the return is going to be.
Okay, Mike.
Marianne, you had one comment. You said scale matters, because marginal profitability is high.
If you can describe the firm's marginal profitability, and if each business line head can describe your marginal profitability. What's new about the scale that you have, and for each of you, a risk related to that. Gordon, smaller banks say they can be close followers, they can be free riders in all your tech spending, if you could respond to that. Dan, I think the counterargument for you is loyalty is a basis point, it's great that you have that, people can still cut prices. Doug, for you, in terms of the terms of lending. Lastly, Mary, do you give it all back in lower pricing in your segment in terms of the benefits of scale?
The marginal profitability question in totality is complicated because it differs across all of the different things that we do, depending on where we are in the investment cycle around the digital continuum. You saw that the marginal profitability, we've shown you this, I think, for each of the last three years or two years, I can't remember. The marginal profitability in markets is really quite high, one of the reasons why share and scale in markets is a key differentiator why we will remain committed to being complete and to the long-term viability of that franchise. Equally in everything that we are investing in, we are improving the unit cost the margin of profitability therefore goes up. We still have a lot of things that we do manually, we're working on that too. It's a complicated question.
We don't have a single marginal profitability stat that we're willing to share.
In terms of maintaining or not the market share, there are things that we can control and things that we cannot, there is one that we can. We, in markets, for example, we do have, according to Coalition, 11% market share. We are 250 basis points ahead of the closest competitor. Clearly the competition is super hard, we are more profitable than anyone else. We have the more complete platform than anyone else. We have the money to invest heavily in preparing and producing products and services that it will be best in class. After all that, someone decides to trade with someone else, that we cannot control. The only thing that we can control is to create a client experience and a product quality that is best in class, people will trade with us.
Even in a year like last year, where volatility dropped, and we have an exceptional performance in 2016. We didn't lose a lot of market share. We lost like 20 basis points. It's very marginal. We lost a bit in fixed income, and we got some more in equity. Our trading platform is right. When you look at transaction services, we are transforming the whole business, and we are getting more market share there for sure. What Teresa is doing in custody is impressive. Last year, the team has moved from a few years ago, hoping that we were not going to lose, to feeling that we're going to win every single deal that we compete and we want to compete, and we won the bulk of it last year. We feel very good. You heard about payments, you heard our investment bank platform.
We have a platform that is at scale and is global and is complete that obviously everyone else have their strengths too, but I feel quite good. We have a hard hand, can always be complacent. Clearly we have to be careful here, but we are in a good position in any kind of market environment to win, and we have so far.
Let's take your marginal profitability point from an expense perspective. If I take out cost of funds and credit costs, the marginal cost of the next customer is getting close to zero. It's astounding efficiency that we're beginning to drive through the consumer businesses. To the second part of your question to me, and the seventh part of your overall question is if I think about people can replicate what we do, yes, they can. I think the thing that, and I hope all of you will take away from this, hubris kills companies. I think Andy Grove was quoted as saying, "Only the paranoid survive." We focus relentlessly on driving the company forward. We cannot for one second sit back and feel like we've got an advantage, we can ease back, we can have a nice couple of years.
I think you'll find across the entire company, there's a relentless focus, almost kind of competing as if we're an underdog, to try and keep the momentum going that we have. Yes, people can catch up, although I think it's exceptionally difficult then to capture the customer. 61 million households all using our products, all using our services. They're becoming easier to use, more integrated. You saw the slide where it kind of makes me, at least, maybe no one else I can think of at least one other person that probably winces at this, that we only have 5 million of the mortgages of our Chase households.
We ought to do much better than that, and we will. I look at the opportunities that are ahead are still very significant, but we have to keep our foot to the floor.
For commercial bank, I'd say two things. On C&I, our scale and our broad-based capabilities are our competitive advantage. Marianne alluded to acquiring over 1,000 clients every year. Often it's the case, it's an all or nothing proposition. They're moving all their banking business to us. It's not just the lowest price or the loosest structure that wins. They like our people better. They like the industry expertise. They like to be able to use us to go public. They want to bank personally with Mary. It's the composite of all those capabilities that allows us to win and de-commoditize our practice. If you think about sort of the marginal cost of incremental business, almost half of our domestic equity capital markets and half of our domestic M&A revenue are CB clients for Daniel. If he's built the factory, it's incremental volume.
CIB has no capital allocated to any of those clients. It's tremendous scale advantage. The other side of the commercial banking business in real estate, we've talked a lot about commercial term lending. We're the number one multifamily lender. That scale has given us the ability to invest in our lending platform. We spoke last year about this CREOS, this digital loan delivery system. It was originally intended all around the client, help deliver the credit decision in half the time, in probably a third the time of our nearest competitor. It's brought our unit cost to deliver credit down materially. It delights the clients, that was a meaningful CB-led technology investment that took real capital and some technology risk to execute and implement.
It's a great example where being number one gave us the size and scale to be able to digest that and dig and even build a bigger moat around the CTL business.
Yeah. When you get to the asset and wealth management business, it's really a tale of two cities. We always talk about fees. Fees have been coming down since I started in this business. They will continue to come down. It's what value add you give to be able to have people want to pay for those products and services. Divide the business in two. The business that Brian and Barry run on the wealth management side is a business that has a very low next marginal client cost. We are highly disciplined about the type of client and how they get served. When you're a billionaire client, you have an entire team of JPMorgan around you, someone who's helping you to figure out all of your lending requirements so that we can make multi-billion-dollar loans to a single individual.
They have their own investor, and they have their own wealth advisor. That's because that client warrants it. You can't take that same model and apply it to the first client that walks through the branch or even when they first make their first million. We're very disciplined about how that works and the model around it, the continuum of it benefits greatly from scale. When you take the other side of the business that Chris Willcox runs, J.P. Morgan Asset Management, that's very different. Your marginal dollar in any one strategy is de minimis, but you have capacity-constrained strategies. You have new strategies that have at least a three-year time horizon in which you're going to create your track record, et cetera.
It's a much more complicated area, and that's where we continue, and you saw the slide up there when Marianne talks about the fact that is not the business that we seek to be the biggest. In many ways, scale works against you on the asset management side. We seek to be the best. If when you seek to be the best, the byproduct is you become very big in certain areas that you can handle that capacity and scale, that works. That's what's happening. We are benefiting from the fact that we have all of the asset classes necessary to weather today's storm, so that you have to be in cash, in flexible fixed income, all the way through your equity strategies globally into your alternative space, credit, infrastructure, et cetera.
A client no longer comes to you and says, "I want that check-the-box one little strategy." They want the solution to their dividend income problem or their growth problem or their liabilities that they have out in 20 years from now, and we're able to deal with that, and they will pay for that. They will pay for the value that you add. If you just look at this year, for all of you in the strategies that you've seen alpha finally come back, you're talking not just about that little 25, 30 basis points of alpha.
You're talking 300, 400, 500, 600 basis points of alpha in certain strategies where now people are saying, "Whoa, I have a very serious fiduciary responsibility to not just have farmed it out to something that I wasn't thinking of." There's a very complex answer on the two sides of the business where scale benefits you, but you have to be very careful in each product, each service, and each segment that you navigate through.
Thank you. Okay. I've got Marty down here at my end.
Marianne.
Hi.
Marty here. Two questions. One, with the benefit you're getting with tax reform, will you look at the composition of your payout between dividends and share repurchase differently just because the tax reform may or may not be permanent? Would you think of the dividend maybe a little bit differently than share repurchase to be 100%?
That was one or two?
That's one.
Look, obviously, as we look at the landscape going into CCAR 2018, we're still sort of operating under the same set of guidelines and rules that we have been before. We've also not changed our sort of point of view that we would like to continue to board, obviously, decision, but continue to grow our dividend quite strongly. We're not sort of spending a lot of time thinking about whether the tax reform impacts are permanent because the company's profitability and earning potential is great. We would like to continue to have the opportunity to increase our dividend. Obviously, we like our stock at these prices, but we would also like to be able to grow into a stronger dividend. All of that will play into the equation.
Notwithstanding that there's still a 30% theoretical soft cap that we will just at least keep a mind on.
Second question is, you talked about the mix of deposits and deposit betas.
Deposit betas will definitely be picking up, and that's what we talked about, the two of us, about gamma and how gamma plays out.
Yep.
We're in the second half of this rate hike.
Yep
where deposit betas are supposed to be almost 100%, but the benefit comes from the rates just being higher, and you get the free funding impact. You're repricing your portfolios to higher rates. Will you be aggressive and take advantage of that, restructuring your portfolio when you have the opportunity? Don't you think there's more liquidity, so those net free funds will be a little bit stickier than what we've seen in the past?
Yeah. If I don't answer your question, let me know. Listen, as you know, we have a disciplined strategy to how we think about our investment portfolio. While it is the case that we've seen rates rise, we still think term premium is still low. It's not negative. We're still being quite disciplined about how we think about moving and adding duration to portfolio. We will continue to do that as the cycle normalizes, and we take the whole sort of balance sheet into consideration. I don't know if John Horner is sitting here. He's our head of CIO and Treasury. John, do you want to add anything?
Sure. Again, I'm not sure if I'm answering the end of the question. We still have a decent amount of dry powder left for higher rates, and we have been set for that. The one thing I would mention from an interest rate risk perspective, though, is the number one characteristic of a bank balance sheet would be negative convexity of that. That's always an important part of how we manage it and how we've been prepared going forward. As Marianne did mention, though, that with term premium still negative and we have fairly strong views on the future of the economy and what we have in 2018 and 2019, and do expect the Fed to continue on the road.
We will be very cautious as we wait and watch, particularly around the term premium and how we feel about going out from a duration perspective.
Not just in duration, but the ability, because you have excess capital to take the losses and instantly be able to create higher yields. It's a way to deploy some of your excess capital, and you can get paid back pretty quickly, as the market rates now are higher than where your portfolio rates are.
Well, I think, again, you can also just take capital and use it.
All of which we take into consideration when managing the balance sheet.
Oh, sure.
Yeah.
We got Matt O'Connor back in the far corner.
Yep, Matt O'Connor, Deutsche Bank. Thank you. Can you talk a bit more about what you're seeing real time within commercial loan demand? I guess I'm thinking specifically going across small business, Gordon, middle market, Doug. Obviously, large corporate, DCM, we talked, Daniel, a little bit about. Is there signs of a pickup? Maybe it's not translating into volumes right now, but there are more conversations as customers are trying to work through Tax Reform, and they're trying to plan for more growth, or is it still too early to tell?
You've seen all the Fed data. It's pretty sanguine. Flat or low single-digit % growth, it sort of feels that way coming into this year. It's too soon to say whether we're seeing green shoots from the tax legislation. The one thing I would remark on is board confidence, management sentiment is as high as we've seen in a long time. We actually do a client survey. It's called the Business Leaders Outlook. We just got the results, there was a dramatic step change in optimism about the global economy, the local economy, the prospects for their own business. Those animal spirits haven't yet translated into loan demand. There's several theories. You haven't seen as much cash M&A. I mentioned earlier you haven't seen any large transactions. Those usually brought large funded C&I loans into the system.
Most of our smart clients, we've been telling clients to term out debt for 10 years. Those that didn't proved us wrong. I think most have tried to get in front of a pro-cyclical, pro-growth agenda in Washington, try to term out any permanent parts of their capital structure. All of those things have sort of weighed on C&I loan growth. The sentiment, I think at some point will break through, and hopefully we see clients start to spend money. Right now, it's not evident in the numbers, and we watch that stuff by industry type. We look at revolver utilization across our businesses and still haven't seen anything notable.
Yeah.
I mentioned at the beginning, when you look at M&A, it's very strong announcements. The number of big deals over $10 billion is 60% bigger than what it was at this time last year. It's all across. Europe is lagging a bit, but the environment there is very good too. We are quite positive on the business going forward on the pipeline, the pipeline of IPOs and all that. It's a very good high growth, high confidence environment.
Where we've seen loan growth is where we've We see some in our core footprint, but our above-trend loan growth has come from our expansion investments and our investments in our industry coverage. Definitionally, we're new in San Francisco. Those are market share gains. As we move up the food chain in all of our new geographies, and remember we added 52 locations since 2010. That's a big greenfield growth opportunity for us, and that's allowed us to outperform the C&I numbers, the Fed numbers just in terms of loan growth. It's just new customer acquisition and new markets as we take share. I'd say the same thing about some of the industries where we've added new bankers to concentrate on technology, life sciences, agriscience, et cetera.
Just to follow up on pricing, if I can. Are you seeing any signs of increased competition within the commercial? Maybe some of your peers that don't have the same capital market capabilities that you have and to be more competitive to the debt markets, they might hike pricing on some of the commercial loans.
For C&I, spreads have stabilized in the last several quarters. There was this sort of steady race to zero, but in the last few quarters, it's stabilized at a pretty healthy level. We'll see whether, in the wake of Tax Reform and the change in product economics, whether that gets competed away again. Right now, there's fair amount of rational thinking. There are exceptions on deal by deal basis. In commercial real estate, it's hyper-competitive, and there's still a tremendous amount of pressure on spread. Much of it's driven by the agencies, and you have a lot of non-bank lenders, LifeCos, and others that are really competing aggressively on price. We haven't sort of found that bottom yet on loan spreads in the real estate space.
Okay. We got Glenn over here.
Hi. Thanks. Glenn Schorr, Evercore ISI. Marianne, maybe a follow-up to the net interest income conversation. I heard you on the incremental NII. I heard you on the deposit beta conversation. The question I have is there any level of rates where it starts flipping from being a positive factor to a negative factor? Specifically, I think it's on page 55 of the outlook, you talked about low consumer and corporate debt service burdens brought on by low rates. Does that mean there's a certain level of rates where that starts to be worrisome? Have you seen signs of inflation anywhere being a problem?
Sorry.
Have you seen any signs of inflation being a problem anywhere?
No. Look, it is obviously the case of we've been in this rate environment for such a long time that to the degree that people have had the opportunity to repair their balance sheets and term out debt and get prepared, and I think that while, of course, it goes without saying that when rates are higher, there will be parts of our customer base that will have increasing burdens, they've had a lot of time to get themselves prepared for it. It's not to say that there will be no impact, we're not seeing anything right now that would lead us to believe that as we go through this normalization cycle, we'll see meaningfully different trends in our sort of credit portfolios.
At this point, obviously we don't know exactly how things will play out, gradual increases, inflation under control, everything should be in good shape. I wouldn't say there's any level of rates at which we're right now expecting any sort of negative implications.
Okay.
At the margin, there will always be people who will have more price sensitivity, I'm not to say that that's not going to have any impact.
Thanks. Chris Kotowski from Oppenheimer. A question mainly, I guess, for Daniel and Doug, and that's that one of the phenomena we see in the economy is just companies staying private longer. The number of public companies is way down from where it was 10 years ago. Secondly, you've had so much growth in the tech sector of the economy that isn't debt intensive. Is that constraining the wallet in terms of lending, trading, and issuing debt and equity for companies, or is it not really an issue?
Clearly, we have, at the moment, probably half of the public companies that we used to have 10 years ago or 15 years ago. That clearly is probably more of a consequence of regulation or over-regulation rather than an economic reason to go one way or the other. Is that constraining the wallet? Probably to an extent, and at some point, if regulation change and the environment is already right, a lot of more companies of those will have to use public markets and take advantage of it. You can see it as probably a headwind in the past and a possibility or a tailwind in the future.
You see it more as an opportunity.
More as an opportunity.
I actually think it's been a good thing for us. The emergence of the knowledge economy, they are less lending intense, but there's deposit rich, payments rich, and ultimately investment banking rich type clients, healthcare, life sciences, technology. When you think about liquidity for private companies, I think we're one of the few banks that actually can advise somebody dispassionately about liquidity options. If you don't want to go public, we can do an ESOP, which is a common form of liquidity. We have an ESOP advisory team. You could do a leverage dividend. We feel like we're best placed to sort of guide family-owned businesses, private companies on the right capital structure, how much leverage they could put on, or they could sell the company. Daniel's got a dedicated investment banking team that's covering smaller businesses.
All of that's wrapped with Mary's team around estate and tax and private banking, so that we can really give all these private companies a pretty dispassionate view on the best way to seek liquidity. It's not the wallet because they're not going public. It's really not part of the calculus for us. It's really giving the best advice and how we think about if someone wants liquidity, which way they should go, and we've got best-in-class capabilities on every branch of the decision tree.
Ken?
Thanks. Ken Usdin from Jefferies. First, just Marianne, quick clarification. Your charge-off comments, is the right base to use the ex-student lending number, the $4.9 billion?
Yes.
The same thing on the rate. When you talked about stable rate, the starting point would be ex the $500?
Yes.
Okay. The bigger question, Gordon, I wanted to ask you if you could talk about the card business a little bit more and auto as well. Given that it is the majority of credit in the credit losses especially, can you just talk about how the environment is playing out, both for growth and for credit quality inside card, and any changing dynamics you're seeing with just in the business, given a lot of the competition and changes over the last few years.
Yep.
Thanks.
Let's talk about the two separately, because they are quite different. I think at this stage in the economic recovery, the absolute level of losses on any basis still look exceptionally strong. Very encouraged about the health of the consumer, how the loss rates are trending. Amongst the lowest loss rates we've ever seen, other than just over the course of this last few years. Nothing that would suggest there's a rapid run-up in losses to come. They will migrate slowly, and we've given that advice and direction. In terms of it, as you look at the overall quality of our base, very strong. You go back to the period from 2008 to 2012. Some of you around long enough to remember WaMu.
Both with and without WaMu, we saw a substantial reduction in the subprime component of our portfolio during that period, kind of 2008 to 2012. Since 2012 to current, subprime, very consistent over that whole window. It's not a space that we target. Obviously, that you end up with some near-prime and prime customers who gravitate down over time, but very consistent. Very happy with the stability of the overall card business and the performance. Jennifer Piepszak, who's doing a terrific job as the CEO of the card business, is just over here on the left-hand side of the room. Your right. The business has great momentum. Auto finance, you saw we dropped about 40 basis points of market share. That we just watch very carefully. Very pleased with the momentum that we have overall in the auto business.
Some exciting new opportunities for us to be able to take that 61 million households, use the power of data, help our manufacturers to better target the right car to the right customer at the right price. Just at the beginning, really, of that journey there. We've also kind of pulled away a little. In these meetings in the past, I told you that we've moved away from subprime, and we moved away a number of years ago and really cut our exposure there. We also moved away from the really long duration, think 84 months. If you think about the roughly 40 basis points of share loss, about 30 of it comes from that. We hold these business reviews with every business every month. Mark O'Donnell, who's sitting over there, gentleman with the red tie, will look at those situations.
We saw nothing in the credit data that suggested we should exit the long duration. Generally, we just did not feel comfortable with it at this point in the credit cycle, and we pulled back. We are constantly looking at those things, on a daily, weekly, monthly basis. Again, it looks very stable, very solid. It's encouraging to see that there's kind of a stability in terms of the number of new cars sold. It really has kind of stabilized to come a little bit off its peak. At this point in the cycle, looks good. Mark, would you add anything there? I see you.
No.
No.
Nothing to add. Perfect.
Gerard?
Thank you, Jason. Gerard Cassidy, RBC Capital Markets. Marianne, coming back to the net interest income comments that you made. Last year's Investor Day, I think the number you gave out was $11 billion incremental NII due to rising rates and growth. This year, the number is now $7 billion. Is it safe to assume that the drop is primarily due to the rate environment as we go forward?
If I take you all the way back for a second. First of all, when we gave the longer-term view of NII, it was at that point, obviously, we were starting at zero, and rate was going to be a very significant part of the driver, if not the majority of the driver. While the when was an uncertain, the amount was more certain. If it was $11 billion back in, I think February of 2016, $11 billion in 2017, and we've seen $7 billion so far to date, with another $6 billion-$8 billion to go. It's broadly consistent. From my vantage point, the comment we made about after 2018, rate is less of a driver and it's more about mix, is more to say that if you go from here to neutral rates, you have about $2.5 billion more of rate left to go.
Obviously, it's going to take time for that to play out, there'll be different dynamics. In 2018, of our incremental NII, we're seeing about that order of magnitude driven by rates in total, so long, short, and reprice. I would say they're all pretty much consistent. We've used different implied curves at different points in time, in the law of big numbers, seven plus six to eight is approximately equal to 13.
Great. Gordon has a follow-up.
Plus a year.
You talked about the-
We'll go this way
back and forth here. The 61 million households, you have five million that have mortgages. You do jumbo mortgages.
Well, actually, sadly, we have 30 million that have mortgages, they're just not with us.
Okay, yeah. How do you increase your penetration? Because you do jumbo very well. I assume all 61 million are not jumbo mortgage customers.
Yeah.
They're going to be lower FICO score kind of customers. Can you share with us some of the plans that you have to increase that penetration?
Yeah. We haven't had any questions this year on bank branches, I'm surprised. We will be much more integrating the Thank you. Much more integrating the mortgage experience into the bank branch. We're making good progress on that. As you know, the realtor is an exceptionally local business, as is branch banking, hence the community piece of consumer and community banking. Much more integrated there. We'll be using big data to help us identify customers who are ready for a mortgage, who are looking for a mortgage. Then, I used the example earlier, and I can't, I think when Betsy asked her question, under-emphasize the importance of customers constantly coming to your app, so that they are constantly connected to the company.
We'll have the ability to be able to say to any given customer during the course of 2018, when you're coming in to look at your regular banking product, that you're already eligible for a mortgage, you're already eligible for X amount at Y cost. Doesn't have to be a sale. You're just letting the customer know that that's available. Depending on how Bill Wallace, who I introduced earlier, and his team, engineer that interface with the user, but you might just think about it as something you could tap on the home screen of the banking app. It would take you straight into a greatly simplified, we have teams working on this now, greatly simplified mortgage application process. Then I've taken a retail banking customer, and I have go back to the multi-channel that Marianne talked about.
I've integrated more fully the home lending capability into the branch, and I've integrated it much more fully into the mobile device. A customer will build in their own mind, when I'm ready for a home, I'll go check with Chase. I'm already a customer. Those are some of the things that we're working on right now. Lots of opportunity there.
Brian?
I can see you very clearly, Brian. Yeah.
I'm actually going to ask a question to Mary.
It doesn't really matter that I can see you.
Brian Foran from Autonomous. I get asked a lot about the ultimate ambitions for digital wealth and whether it's another example of offering great products, great advice to clients or whether it's early innings of kind of a business into and of itself competing head-to-head with Schwab and E*TRADE, et cetera. I realize there's a spectrum of answers there, but maybe from your perspective, what is the long-term ambition of the digital wealth products you're starting to roll out?
I don't think any product or service that we deliver here is a standalone answer to a client throughout their life cycle. I think that digital is, again, just to repeat all of the things that we're saying up here, digital is a way for you, the client, to interact with us when you want, where you want, middle of the night, all alone, whatever, get your advice or just explore on your own. Your journey can be that, stay there for a while, or it gets more complicated, and you need to factor other things in your life, and you may want advice, and you may not want advice. You have to have that in today's world to be able to deal with clients and interface with them. You can't not have it.
Having digital advice shouldn't be thought of as a separate standalone thing. One of the things that you see in some companies is there's this intrinsic fight of, is it going to be the advisor's client, or is it going to be the robotic? It should never be that. It should be that every client could have some of everything because the more they have that they can do themselves or that can be done on a sort of generic, regular way basis, because that's a part that's sort of a set it and forget it, and the rest is wrapped in more complication. I need that money for liquidity. I am thinking about buying a home, but not yet, so I need to put that in a different bucket. Help me to put this. How do I structure it? What kind of accounts do I set it in?
In a trust? How do I prevent against protection against creditors? Et cetera. All of that is why the branch becomes the place where you think about everything from your first investment to your first loan, all the way through to your retirement. I just don't see a world where any of it is a separate line and/or a separate line of business that sort of competes against another line of business. This whole table of people over here in the digital space, that's what they're thinking of, which is how do you take all of the different products and services that we have and put them, as Gordon says, into apps that become very user-friendly, that you give the information once to us, and we know so much about you.
We know so much about if you have your paychecks coming into us, if you pay your payments out, we can see where your payments go. We can see how frequently they go. We can see where you get other sources of income from. That's a very hard thing for any one individual entity who doesn't have all that JPMorgan Chase has to offer to be able to pull together. You take that, and then you start to say, clients like you at age 25 are generally doing this. Clients like you at age 45 are generally doing this. Clients in this stratosphere don't do this. You should just know you're an outlier. It's fine. You can do it. All of that makes you a smarter consumer. That's all we want. We want smarter consumers who can make better decisions.
if we can get that information, package it, feed it back to them, and allow them to do that, they will by definition have a higher chance for a better outcome.
Thank you. Gordon, maybe one for you on the auto and the more detail you gave around the manufacturing partnerships.
Can you just give the next level of how this works? Is this like co-branding cards or are these JVs? How does the structure actually work? Who actually owns the business long term?
Yeah. Well, it's not like the co-branded card scenario, it is a very close partnership. Mark's just gone through the process here of renewing a number of our largest relationships. It lets us have a strategic long-term relationship with a given manufacturer that we get to understand much more clearly what it is they're trying to achieve, what their model lineup is, how we integrate our infrastructure more closely to them, and understand what the need is that they're trying to deliver for their customer. We actually capture a significant amount more of their share than we would do otherwise. Where's Mark?
I'm right here. I would just add, it's a more strategic, aligned interest rather than kind of what I call hand-to-hand combat when you're competing against a lot of other lenders day-to-day at the dealership. Think of it as just like Mercedes-Benz Financial or BMW Financial. We're the equivalent, the captive, if you like, for those brands that Marianne called out earlier. In many cases, manufacturers go through an analysis around, do those companies or holding companies want to have their own lending arm, or do they want to think about an alternative structure like going to a bank like us? We've managed to build five or six of these partnerships, which actually gives us quite a bit of scale and quite a bit of advantage to do that. We're the only bank that has that kind of scale in the industry.
I'd go back and say, remember that 61 million households, our ability then to be able to make very unique offers to those households, in advance of them actually wanting to buy a car, doing that in partnership with our strategic partners in the space. It's a really neat opportunity that we've got lots more room to grow here. Very modest market share. What are you at, four and a half or?
Four and a half %. Similar to home lending, we only have 3.8 million customers that are of our Chase customers, it's a massive opportunity of growth if we just look in our own backyard. To Gordon's point, I think marrying the marketing arm of what we have here to our customer base with what those manufacturing partners can bring from a product offering perspective is one of the biggest areas that we see ahead of us in terms of growth opportunity and an ability to grow share.
Thank you.
Okay. We got Keith over here on the far left, then we'll do Andrew.
Hi, Keith Horowitz from Citi. Marianne, you did a good job of kind of talking about how digital really kind of helps some of these businesses be differentiated. It seems to me that one area that's not that differentiated in the market is pricing of credit risk. It seems like it's pretty much being done the same way across by all competitors, the differentiation's more about risk appetite. Mary said that you know more about your customers than they do. It seems to me, maybe Gordon and Doug, is this a good opportunity for you to somehow kind of capitalize in terms of pricing of credit risk versus your competitors where you have more information, you have the digital capabilities to better assess credit risk than your peers?
Do you want me to?
It's very hard except when you get into a downturn to see who's actually good at pricing credit and who's not. I think over the course of the last number of years, almost everyone thinks they're really, really good at it. I think we will see. What is it Warren Buffett says when the tide goes out? We'll see how all of that works. I think our capabilities are quite differentiated. I think we have really unique data elements on our customers because we see so much of their business. Again, I come back to the, we're not just a monoline in any one of the six businesses that make up the consumer. We see a great deal more of the customer, their financial strength, how they're living their lives. I think that's actually pretty powerful when it comes to helping us manage credit.
As I said, credit is about constantly managing the details. It isn't about, or it should not be about a seismic shift in strategy. That generally means something went wrong. I think I can't sit down and say I can genuinely take these five players and compare them directly. But we have a terrific risk team under Ashley Bacon, who's over here by the pillar, with very sophisticated tools and really astounding amounts of data. I think we have a pretty meaningful advantage as we think about credit management.
The only thing I'd add to that is we obviously have specialized models to price individual loans, but what we're really pricing is the allocation of capital against a relationship where we have multiple revenue streams. We look at relationship return relative to the credit that we are providing to the client and the risk that comes with that. In terms of just using the data lake that we have as a company, it's massive. I think it's unmatched. I think we have in our lab, so to speak, many data use cases which tie back to how did we sharpen our risk decision process in using the composite of information we have as a company to monitor credit as well as decision credit.
I wouldn't tell you that it's all in practice yet, but certainly it's the case in consumer, but in the wholesale, it's stuff we're working on in wholesale and hope to sort of bring it to life soon in the business.
Okay. Andrew. Right up here in the front.
Hi, it's Andrew from SocGen. Just thinking about net interest margins, and your guidance there. You're saying that's going to be less of a driver of NII growth going forward. You've also said that deposit growth should be slowing down, maybe even negative, due to quantitative tightening. Just wondering on your liability spread there, are you signaling-
One more time.
Liability spread. Are you signaling compression there because of greater reliance on wholesale funding, which would be more expensive? Are you saying that your net interest margin, the lower expansion there is just due to a higher deposit beta?
Yeah. I would say, first of all, just so we avoid any doubt, I didn't say that we're expecting deposit growth to be negative, just to be slower going forward, those are two different sort of impacts that will come into play. The first is largely we think going to be sort of Fed balance sheet piece of it. While we won't be exactly right about this, largely we think that's going to be a wholesale non-operating phenomenon. You should know that when we think about our wholesale non-operating deposits, we treat them very differently with very high betas, low liquidity, benefit, and all of the rest. On the retail side-
If you look at the empirical evidence, it would slow deposit growth rates for the industry, not necessarily take them to zero or negative. We think we would do better than that because we have been doing better than that very consistently over years. That's the deposit growth rate piece. As I think about the net interest margin, the guidance I gave you is for neutral rates. Obviously, for a period of time, we may go beyond neutral rates. As we look at the balance sheet with a 65% loan-to-deposit ratio, that would be consistent overall with getting to a NIM in the mid-250s at some point in the near future. We'll see from there.
Okay. The main driver of NIM expansion being a bit slower, what would that be exactly then?
The main-
Yeah. When you say market neutral interest rates, what exactly do you mean by that?
That was using a 3% short end, 3.25% long end rate.
Okay.
We would expect at some point to go above that for a period of time.
All right. Thanks.
Okay. Last question right here from Guy, then we will move on.
Thanks. This is Guy Moszkowski with Autonomous Research. It's a sales and trading question. Marianne talked about how as the rate and volatility cycle normalizes, we should see some improvement in that monetization margin, was kind of the concept that you used, across sales and trading. Daniel talked a little bit about just how it's been the first couple of months of the quarter. More broadly, where are we in that cycle or normalization process? Should JPMorgan as an institution actually expect to lose some market share as that cycles up, just because you have such a big share of the core underlying flows?
I think that margins are more a function, in my view, of volatility than the absolute level of interest rates, though the absolute level of interest rates is good for trading because it puts into play not just the back end of the curve, also trading around the front end of the curve because of the volatility that happens in that portion. I think that the market share winning or losing is unrelated to the time in the cycle. It's more about the products and services that you provide to your clients and the quality of the liquidity that you provide. I mentioned last year that it was a very benign environment of low volatility. We hardly lost any market share.
I think that the key for us is continue investing in our trading platforms, using better technology to make our salespeople smarter in front of the clients, improving algorithms of execution, becoming better and better by using new technology like artificial intelligence, and then having the best possible, continue being as disciplined the risk management as we have in order always to be prepared when these times of volatility happen. If we do all that, I don't see any reason why we should lose any market share. Time will tell. So far, so good.
Thank you.
Okay. Thank you all very much for doing that. Hopefully that was good. Got Jamie now.
I'm going to literally talk for 10 minutes, and cover a couple of quick things, and then open to questions or any comments you have. I'm going to try to cover the things some that haven't been covered yet. First of all, leadership of the company. I think one of the most important things at this company is the ongoing leadership. I hope you've got a good view today that we have really great ongoing leadership. You all have gotten to know some of the folks who are up on stage today, but obviously there are a lot of people sitting at these tables who are also exceptional. I think the most important thing, way beyond anything, is that the company has built-in succession. You know it yourself because you've seen these people in action. It could be just about anyone on the stage.
There'll be others down the road. It's got built-in succession, whether it happens tomorrow or happens in five years. Maybe the people will be different, but they're here. I think it's really important for the sake and the future of a company, if you're an investor, if you're a regulator, that you feel pretty comfortable that the team is great that's going to be running the company going forward. I feel blessed to have them. I think the operating committee, I think the folks at these tables are just all exceptional in every way, shape, and form, character, culture, capabilities, honesty, openness, et cetera. I feel really good about it. I hope you also do, too. They also have very long tenure here. Someone gave me a number that I think the 50 people in the room who are from the company, average tenure is 17 years.
I think that's important. Obviously we have some fresh blood, which I think is important, too. 17 years of people who've been here, they know the company, know the clients. You all know as a client, sometimes you change client coverage, and the people at the core is different. It's devastating to clients in almost any business you're in. We feel good about that. Corporate governance. Obviously, everything I just said also goes through the board. These are board-level decisions, so nothing I said isn't completely supported by our board of directors unanimously. You should know the board meets every time without me. The board goes through all these issues. The board goes through major risk categories, tries to make sure we're thinking properly about the company going forward. I agree with the comment here about public companies. I think this is a serious issue.
I know some investors who don't. We've gone from 8,000 public companies to 4,000 public companies. There's some good reasons. You can get private capital longer, et cetera, but there are a whole list of bad reasons. Litigation, regulation, cost of doing certain things, the shareholder meetings, which have become a complete waste of time. We should call it what it is. It's a waste of time. It's become a joke and they're being hijacked by people who have only political interests and don't have any interest actually in the future health of the company. I also don't feel ever conflicted, nor is the board, about corporate social responsibility. Peter Scher is here too. We have to take care of our customers to win in the marketplace. We have to take care of the employees to win, because they're the ones who take care of their customers.
We have to do well for shareholders. If you show me a company that's not financially successful, I'll show you a failing company. It's a sine qua non of health that you have some kind of financial success. We also don't think that taking care of your community is a bad thing. Companies like ours have been doing that for 30 or 40 or 50 years. I don't know what's new about it. I would actually say JPMorgan Chase and going back to Bank One for Chicago, probably early on in being philanthropic, whether it was about art or education, et cetera. I think we're taking it to a new level. You've seen multiple announcements, not just Detroit, but more skills initiatives, getting minority kids in inner-city schools through into college, infrastructure building, affordable housing, you name it, in ways that we can uniquely provide capabilities.
I think that's a really important thing we're going to continue doing. Healthcare, I just want to mention, I think it's true for a lot of you companies, we are already in the healthcare business. When I read a lot of these things about this new venture we're doing with Berkshire Hathaway and Amazon, the fact is, and it's true for your company, we already buy healthcare for and on behalf of our employees, about a billion and a half dollars a year, of which we spend probably the 80% of that number. Every year we go through it, and we go through some kind of discipline. How does this cost? What are the wellness programs? Should we have nursing stations? Do we get flu shots? Do we make sure you're getting your physicals? How can we get you to live longer?
The healthcare system in America is the best and the worst. Okay? It's the best in the world because you know we have some of the best R&D, innovation, medical services, technology, pharmaceuticals, et cetera. It's the worst. Our society is obese. 25% of medical costs relate to lifestyle choices, smoking, and obesity. Okay? Which drives cancer, high blood pressure, heart disease, depression, et cetera. 20% is end of life, most of which is unnecessary if people don't really want it, having just been through it with my parents. People think that fraud could be 10% or 15%, that administrative costs, you hear outrageous numbers like 25%. You look at it and there's something wrong. We need to fix it. We'll fix it with anyone who can help. It's not for us against anybody. We already do it as a not-for-profit.
We just want to take it to a higher level. It started with Todd Combs, who's on my board, who works for Warren himself, Jeff Bezos, who's obviously a friend of the family. We just thought pooling our resources, our talent, our brains. For example, most of us went to high deductibles. Remember, we all went to high deductibles. We said that was going to help you shop. Well, I hate to tell you, none of you changed anything you do. It didn't work. Part of it didn't work because we didn't give you the data. Like if you need to get a rotator cuff surgery, here's the five local hospitals, here's their costs, and here's the outcomes. We didn't give you the data about how you could reduce your drug costs. We didn't give you the data about a whole bunch of different things.
At a minimum, now this is early on. This will be years before we see an effect, but at minimum, I think we'll have a much better outcome for our people. We actually think the wellness programs now are saving 50-75 lives a year, 50 or 75 lives a year at this one company alone. That's just screenings and physicals and stuff like that. At a minimum, we think there'll be better outcomes for employees, probably at a lower cost. At a maximum, maybe we can help figure out how to do something better for the country overall. I just wanted a couple of points. I'm going to open it up.
We obviously make a lot of decisions, you also know that one of the things we do is that, and everyone in this room goes through it, we go through business reviews. Those business reviews are never narrow. They're never about one thing. As a matter of fact, there's a little piece of paper that gets sent out that says, "It's got to be everything important." It's got to be anything important. Everything important. Compliance, controls, risk, regulatory issues, technology systems, competitors, the technology side and growing sales forces and what are the details? What works? How does it doesn't work? What are the most efficient way to do it the way the competitors do? Some things are table stakes. Some things we're building, we're going to do it, like investor stuff. It's self-directed and advisory. We haven't decided exactly how to price it yet.
We're going to test that. We're going to figure out how we're going to do it. Some have real detailed NPVs. Some you have to simply do to do a better job. As a bunch of people have said up here, it's $10.5 billion, you also know we're going to do whatever we have to do to win in the marketplace. We don't care about 12 months. We don't care about budgets. We don't care about whether you look as an investment. We are fanatics about numbers and analysis, we're not fanatics about accounting. Kathryn Kaminsky's here from our accounting firm, PwC. We love accounting. We like to be as conservative as possible, part of it will drive you to do the wrong thing.
For example, we don't tell Mark O'Donnell, "Grow your book." If you're not going to be paid properly for credit risk or lease risk, shrink your book. We don't care. We're not going to be stupid. Particularly when you have a choice where you can add the risk or not add the risk. In other areas, I'm going to say like Doug Petno area, he's got clients that he's got to manage through a recession. We know the losses are going to go up. We're not going to panic in the recession. We just hope and we think our credit will be quite good and stuff like that, but it's the whole relationship. Any one of you can go buy credit in the marketplace at market. Any one of you. Honestly, a lot of people say, "Well, why is a bank there at all?
If you're buying credit risk, why do you have a bank? You don't need to have a bank." Because it's not you're buying credit risk. You're developing a business over time, serving clients with service and products. If I remember correctly, middle market, our revenue streams from NII are like 40% of the average revenue stream. It's 60% other stuff, okay? When you take that other stuff and take sum of all of our businesses, that other stuff is going to kick out 70% or 80% of our earnings next year, regardless of the environment. It doesn't matter. We know we have a credit cycle, but some of these businesses will have huge flows of money, and obviously, they can go up or down based upon a whole bunch of different things. When the people in this room invest, they invest relentlessly.
Technology does not have a 12-month cycle. You have to just always do the right thing. Then you modify your course. We built Sapphire. Why in the credit card business, do marketing expenses have to be expensed in 12 months, but the benefits come over seven years? When in other businesses, marketing expenses are expensed acquisition costs over the life of the product. That beats me. I don't know, but we're going to make an NPV decision. Even Mark mentioned about taking loss in your bond portfolio. Obviously, if you could do it tax efficiently, you could take losses and have higher yield going forward. If it's a tax efficient smart core, we do stuff like that all the time. We will be driven by the economics in trades like that. It's kind of just relentless looking at these things, managing the credit.
Trading, Daniel didn't mention. I don't think he mentioned, you saw the flows of business here. We've had trading losses on average in the last three or four years, what, two or three days of 225 trading days, something like that? That's astronomical. When I first got to this company, it was probably 100 out of the 225 days. You can't do that unless you have the flows and the volume and the risk management and doing a good job with the client. Those clients, they do move for basis points. You better make them the best bidder ask or they're gone. On the other hand, you have scale and execution, size, and quality. You can do those kind of things. Every person here, every single person up here is building big data. We've been doing big data for years.
In risk, marketing, underwriting, now on idea generation. We've got thousands of robots reducing error rates and stuff like that. These things are real. When we do risk management for payments, whether it's consumer credit card, which you're used to, when you do that swipe, it goes through 50 to 500 algorithms. That's true for wholesale payments. Tripwires and kill switches. When you all send money somewhere, while it's kind of your responsibility to make sure it's accurate, we do everything we can to make sure it isn't being sent to a place where it's never been sent, in an amount it's never been sent with other weird things that make us stop payments so we can help protect the financial system.
We make those relentless investments, and obviously, we come up here and tell you our best thoughts about stuff, but we'll modify that over time. The company's in a really great position. The last thing I'll just mention is, Daniel mentioned, everyone in the operating committee, the things that kill companies at the end of the day, complacency, arrogance, hubris, lack of attention to detail, lack of investing in the future because you're trying to get margins up a little bit absurdly sometimes. Bureaucracy, which I think is a deadly disease at a company. Those are the things you've always got to watch out for in any company that if it's doing well, that somehow it starts to lose the plot a little bit.
I'm going to stop there and open the floor to any questions you all may have. Yeah, that's it.
Betsy over here front.
Jamie, hi. Question, since we met last in November, obviously taxes have changed. Wanted to get a little bit of a sense from you personally on how you think that's going to help your customers? Does it enable you to take more risk because their credit's better? Speak a little bit about from a capital return perspective, why stick with the 30% divvy cap? Is that relevant in this higher ROE business model that you've got now?
The first one, these folks do extensive work on clientele who would benefit or get hurt. There will be some double B credits that get better because they don't want to hit those EBITDA credits. There'd be some who are going to get worse, like certain municipalities and not-for-profits and stuff like that. We do that extensively. We do think, does it change fundamentally anything up here? No, not at all. You could do that client by client or stuff like that. It may change a little bit investment grade issuance this year, or high yield issuance or something. We do worry about it, we don't see. Of all the work that's done, there's nothing I'd put in the dramatic category. Competitive taxes, just think of corporate and individual, okay?
The corporate side, I'm just going to give my own statement on this one. I don't understand the concept that the United States would have been better off with an uncompetitive tax system. It absolutely blows my mind. That would be like saying that Gordon Smith would be better off with an uncompetitive digital system. The U.S. tax system 20 years ago, the rest of the world was at 40% federal and state, and we were 40%. The world's been coming down to something like 22%, and the United States stayed at 40%. The net effect of that is trillions of dollars was left overseas. 5,000 net companies were acquired net, that were headquartered here, now owned by foreign companies. The federal government's paying attention to inversions.
Everyone else was escaping out the back door because it was more advantageous for a foreign company to buy a U.S. company. The 20% tax rate will help in the trade deficit. What you see a lot of companies do is say, "What can we do?" We came out with a broad range of things from LMI lending to opening branches, et cetera, both because of regulatory and taxation. I think it's a great thing for America. The benefit will be cumulative over time. That's what it'll be. I think on the individual side, you and I could have done things differently. We could argue a whole bunch of how that should have been done and not been done. I think that they did the right thing to do it.
They also stopped a lot of companies from what I'm going to say is bad tax avoidance, which is unfair to the U.S. Much lower tax rates, competitive. Most of these companies were doing other stuff, were fine because they liked the lower rate. I think in terms of dividends, look, we still have CCAR and rules and regulatory requirements that said that may be relaxed, but until they relax it, I'm not going to see companies change their 30%, 35% or something like that. I personally believe it will be relaxed. The banks will go to a higher number. Okay? That's my own personal belief. We don't have to answer that today. It'll make absolutely no difference if we answer that question today. Obviously, earnings will be going up.
One of the bad things about the retention bonus earnings is I would've bought back a lot more stock when it was at tangible book value. I knew we were retaining too much money, but that's what was happening. As Marian says, "It is what it is, just deal with it." I do think you'll see people do that. Raise dividends more than grow into the dividend increase or something. Doesn't fundamentally change value to the shareholder. It's just what pocket it sits in for a while. Ideally, Marian mentioned it, we prefer to spend our money to grow. That's what we prefer to do. I wouldn't do any stock buyback if I could avoid it. I'd only do it if I thought the stock was really cheap.
The fact is, right now you can't do all that, and therefore, that's why you can have this return of capital through stock buyback. It's still an efficient way to do it, but it's not the most efficient thing. Eventually, if a bank is earning 15% in tangible capital and its dividend is 5%, may buy back stock of 5%, it'll grow at 5%. If you can grow at 7% or grow at 10%, I'd rather do that. Mike?
Your stock's at an all-time high, you look happy, the sun's shining, and you're building a 70-story new building.
That worries me too, actually. Your new headquarters building. Usually, you should short the stock at that point.
Let's go along those lines. The Skyscraper Index, I think it's called. How do you prevent from becoming too complacent? Things are going right at the moment, as you saw in Bear Stearns, there'll be a decade anniversary coming up here, March 16th, of that purchase. They got their new headquarters building, 383 Madison, you acquired them for what? About $1 billion when they were worth $20 billion just the year before. You've seen this play out.
Yeah
The peak with the headquarters building. How do you prevent your management team from becoming complacent? You're also spending $1.4 billion of additional technology. How do you know if that's actually paying off? We, on the outside, have to rely on your processes. What are your other thoughts about what could go wrong here?
Yeah. The headquarters, this building, I think it was built in 1950. The fact is it's hugely inefficient. It's got 6,000 people. It was built for 3,500. The new tower will be bigger, but it'll fit 15,000. Big brand-new trading floors, new technologies. It'll be much more efficient. We're going to make it beautiful. It'll take five or six years. I told the operating committee who went through this building, you all, I made them all individually vote, because I don't want to hear any shit about it. If it were up to me personally, I didn't want to move my office. I'd be very happy staying exactly where I am.
We're going to make a very nice headquarters over there for the people, so that we have a real functioning headquarters in the short, but it was the right thing to do for the company in the long run. That is how we make all decisions, period. What's the right thing to do, and then we do it. We look at all the options, we go to the upside. About complacency, look, it's a mindset. This is not a complacent group. We're very honest with each other. We go through the good, the bad, the ugly. In fact, if you went through our management budgets and business views, it's far more the ugly than the good. We know it's good. We want to celebrate. We have a lot of cocktail parties in this room to thank people, stuff like that.
It's, "What is this one doing better? What's that doing better? Why did we lose share there? How come Thailand's share went down? How come their FX share is higher in this city? How come Finn is doing X? How come digital is doing Y?" You could see the stuff we're building. You can't look at the $10.8 billion technology budget and say, "Well, are you getting every bang for the buck?" I have never, ever seen people behind this, and of course, Daniel and Gordon are now directly responsible for it, Lori, what's the effectiveness of programs? What's the effectiveness of this? It's hard to do. The really important thing to me isn't that. It's not just their job. Bill Wallace is all those business meetings. Okay? David Hudson has to do his. Brian Carlin has to do his.
They have to know their tech. The business people, with the tech people, go through what they're building, why they're building it, how much it costs, and what's it going to take, what we think the benefits are. Is it integrated? Is it right? Are there cheaper ways to do it? Are there faster ways to do it? You have to do it. It's not pushed under the rug, it's not hidden. It's done at every single business view. Then it's also done across the company. Some of the big stuff, like the data centers, certain utilities are done across the company to be efficient. We're always testing, we're always learning, we're always modifying, willing to change course anytime.
Well, a follow-up then. Slide two lists the Fortune's Most Admired Companies, and you're up there. What are the companies-
It's amazing for a bank.
Well, what are the companies that are ahead of you doing that you aren't doing right now?
Look, I think if you spoke to most of those CEOs, because Berkshire's in there and Amazon's in there, they would say the same thing I'm saying. Invest for the future. Don't worry about just the accounting effect. These are long-term decisions. Warren Buffett would say, sometimes, like in the insurance business, take your salespeople and don't have them write insurance, have them go play golf. You don't want them to write insurance. It's just that discipline that gets built into people and I think you'd be really shocked if you went through some of these business reviews that we do in every business. Really shocked. I doubt a lot of companies do it. A lot of people from other companies say, "Holy shit, you do this all the time?" Yeah, all the time.
Again, the other thing, which you're the analyst, you can also evaluate the quality of the people. You can ask me, but you can also make your own evaluation. I happen to know you think they're pretty damn good. No, he told me that. I got Matt O'Connor way over in the back left.
Thank you. After years of ever-increasing regulation, there's clearly an effort out there to review the regulation that's out there, whether it's simplify, clarify, reduce. Can you talk about the areas that you think would be most impactful to the broader economy and most beneficial to JPMorgan? What do you want to see?
Yeah. We've been fairly consistent because you read sometimes in the press, the banks want to throw out Dodd-Frank, and it's just not true. Okay? We had a crisis. There were problems to be looked at. I think you should look across the whole tabletop. There's actually a discussion, I think it was in the paper today, about the failure to look at the whole setting, all the non-banks, shadow banks, money funds. Like what's going to happen in the next crisis, not just at the banking system, which is quite healthy. We've always supported higher capital, higher liquidity, higher transparency, proper regulation, et cetera. I think the roadmap you should look at is the thing that Treasury put out. They actually put out three or four outlines of how they look at regulations, and I'm going to use the word calibration and coordination.
For the most part, what they've laid out is, was SLR properly calibrated? Should it include deposits, and that causes distortion, but it's actually increased risk. You could say the same things for Volcker, G-SIFI. Of course, I think G-SIFI is one of the stupidest things I've ever seen in my whole life, and I'm not going to back off that one. I'm sorry. Because it has nothing to do with reality. The fact is, American gold plating, if you look at the Basel, I'm sympathetic to the European banks too, but we took Basel and added everything, TLAC, SLR, this thing, G-SIFI, you name it, and they took Basel and took 72% of it. They're also more aggressive in how they do RWA and how they do operational risk. One day they need to come a little bit closer. Take mortgages, okay?
Seven people are engaged in mortgages, so that we don't have final mortgage securitization rules. The servicing and origination rules are so difficult that it increases the cost of mortgages by 20 to 30 basis points. The litigation on FHA was so bad that the affordability, the availability of mortgages to young people, self-employed, prior default, is very low, which is why you have household formation much lower than prior recoveries. When the regulators say that they didn't hurt credit, yeah, they did, in mortgages, in small business, small business mortgages, CCAR. Those things, if you relax them a little bit, you'd actually have a healthier system without taking any additional risk. This is not going back to subprime. This is just fixing some of the things that were done, which by the regulators all know this should be fixed and coordinated.
A lot of these things were done around the world, without a lot of forethought about coordination and the duplicate effect of these things. You all have asked the question, people have asked the question, why is swap spread, they're not negative anymore, but they once traded at 20 to 30 basis points below Treasuries at one point. That is abnormal and has adverse effects on the economy. LCR may have adverse effects when the crisis gets going next time, because banks won't be able to intermediate the way they did. It's in all of our interest that we just look at this like adults, have conversation, figure it out, and if things need to be modified, modify them. That may, in my view, over time, that will lead to freeing up capital liquidity in the system.
I also think they should pass rules that make it easier for smaller banks. I'm quite sympathetic to that.
Okay, Andrew.
Hi. You made some colorful comments about Bitcoin a little while back. I think you retracted them.
I did not retract them.
Okay.
I said I regret having said it.
Okay.
Not the same thing. That's all I'm going to say about Bitcoin, because somehow it's all people talk about if you talk about it, and it's basically irrelevant to JPMorgan Chase.
Okay. Perhaps we could talk about a related topic of blockchain then.
Yeah.
It seems like we've been talking for quite a while about how it could be utilized in a beneficial way for banking. When are we going to see some tangible benefits coming through?
The way I would look at that, first I would look at both digital, blockchain. This has been going on forever, where you're using technology to do a better job for clients. If you go back years ago, my dad became a broker. He used to call in the order to the post at the New York Stock Exchange. They'd write it down, they'd go do an order, they'd call you back and say, "We bought your shares." Then all these tickets had to go to the paying agents, the transfer agents, the counterparts, and stuff like that. Of course, it's all digitized now. The cost of that is pennies as opposed to $0.35 a share. Straight through processing, lower error rates. That's true for all of our businesses. It's from big computers, it's been for data, it's been for fraud.
Digital is just the next wave of technology transforming businesses and making it cheaper. Blockchain is a technology, and we already use it in several areas. The thing about blockchain, because remember, I think you put up there as permission, you got to give approved Bill. Let's make believe our firms wanted to use blockchain to make it cheaper to do loan trading, which we think will happen. To just document it and who gets the custodies and what the covenants are, and corporate actions all in one place and reduce rates. You still have to get willing to sit together and actually decide what the protocols are going to be. We have to write the code, then we have to test it.
Think of blockchain will be rolled out as people can do those things and groups come together, set up the protocols, and find a way to do it. It will continue to do what's been happening anyway the last 50 years. That technology is going to drive down the cost of doing business. Maybe it'll ramp it up a little bit. I don't know. We'll see. It's not usable in all cases. So far, you guys have told me it takes 10 minutes to finish a blockchain, which makes it impossible to use for equity trading, where you're doing 1,000 trades, FX trade in a second. You got to look at where it's going to be used and not used. We're very optimistic it'll be one way we can drive down costs. So will faster computers, so will the cloud.
GPUs from NVIDIA, Big Data, bots, ML. All that's going to help drive down costs.
We got Marty over here down in the right corner, we'll come back to the middle.
Marty Mosby of Vining Sparks. Jamie, when we looked at the digitization, you talked about it just then, it's been decades in the happening. When I was at a regional bank, we loved to compete against the bigger banks because of the personalization that we could bring to the table. Digitization has now brought that to the bigger banks. The vision that y'all started decades ago with technology today, do you see that competitively with personalization and digitization, have you reached that goal to be able to be kind of all things to all these customers? It seems like an accomplishment of something that did start decades ago that now the competitive forces are changing.
First of all, we try to run our company like we're a local branch in a local region. We have market leadership presidents in every major town we're in. They run a group. If you go to a regional bank, when you walk in that branch, they do your private banking, your commercial banking, your personal banking. That's true here, too. Obviously using technology to do a better job is really important to do that. That's like a sine qua non. Other competitors, they can go to Fiserv, they go to other people who offer similar things, but not as customized, not as fast, not as rich. Yeah, we look at it as a competitive advantage if we don't get arrogant about it. Remember, we can't be what we want to be to the customer.
We have to be to the customer what they want us to be. I'm always very cautious when you see people put signs up that say, "We're going to drive" like at the Bank One, they were talking about channel choice. What channel choice was, and Mike may remember this, is what channel choice was is that it's cheaper for us if the client does X, and therefore we're going to make Y harder to do, like going to the branch, and they go here. We want to offer a customer choice. We want to educate them these things. We want to make it easier for them to use our services and understand it and obviously offer advice. It won't be long before you'll be able to talk to your banker on here.
Say, "Hey, you know that thing you told me about?" Or get a mortgage advice. You don't have to have a mortgage loan office in every branch. You can call up and see it here, and you can actually look at the same documentation, et cetera. Yeah, I do think it's a competitive advantage, but I think it's wrong to assume that regional banks won't have it too because they get offered it in a different package.
Do you think that what you've built here is exportable internationally? Are we building a competitive advantage also against the banks internationally that eventually you could export it that way?
In retail, the answer is no. If you look at-- I wouldn't say never, but if you look at most banks, if you take Chase Bank to India or somewhere, we'll be losing money for 40 years. There's no reason to do a bank with us. I think you got to be very careful. If we bought something, maybe. If somehow some of the digital stuff you can use around the world without. Remember, if you go around the world, you still need regulations, legal compliance, audit, risk, underwriting, credit, data, credit bureaus. It's just not the same. You have to build all that. I don't think it's going to be a competitive advantage in retail. I think absolutely in Asset & Wealth Management, investment banking, and parts of Commercial Banking, absolutely it's a competitive advantage.
Having that network effect, being able to do for a Grand Rapids manufacturer who has sales offices or purchasing offices in Singapore or Vietnam that we can bank them on both sides and do FX on both sides and pay employees on both sides. Absolutely it's a competitive advantage. You're going to see it in TS. You're going to see it in custody. You're going to see it in prime broker. You're going to see it in all the investment banking businesses. Some of that technology, the way it's being built, is usable everywhere because it's kind of modularized. You can go get it off the shelf and use it anywhere you want.
Yep. Got Gerard right up here, and then Jim.
Thank you.
What's the biggest FX trade, Daniel, done in here? Is it still $400 million? If someone did a $400 million FX trade.
It's going up all the time.
What?
It's going up all the time.
It's going up all the time.
Thank you. Gerard Cassidy, RBC Capital Markets. Circling back, Jamie, to tax reform. We all know that the migration patterns in this country are to the warmer climates. Now with tax reform, we have high SALT states that may support more people leaving. I know it's early, but over the next five or 10 years, how are you guys looking at in places that you're located where the SALT taxes are very high and how that might impact your business?
In the great scheme of things, it'll never impact our business. I don't sit there and worry about it at all. I think they did the right thing. They preserved the state, and I know a lot of you from New York don't like this, but the fact is there's no reason for the federal government to be subsidizing you. 80% of the benefits of SALT went to people making over $500,000 a year. The way they set it up, they pretty much preserved it for people making under $200,000 or $300,000 a year. I think that was a fair kind of trade-off and probably a thoughtful way to do it.
I do think you'll see the states do other things to help make up for it, ease the burden, either reduce their own fiscal costs, reduce taxes on higher paid people, because there will be some migration out of those states. That's been going on forever, by the way. There's a report that came out recently showing Illinois, Connecticut, New York. There's going to be migration. Part is people retiring, part is people just get frustrated at the high rates. This will accelerate that a little bit, but it's not a major material thing to us. We're always looking for places to do business. We brought up the subject many times about wherever Bezos, when he finds that second headquarters, I may go to his second place and tell him we'll move 50,000 people there too, if we get the same deal.
I also have to confess that on the list for Amazon was Columbus, I think Phoenix, Dallas, Chicago. These are places that will have 20,000 people. The second they give benefits to those people, you can damn well be sure I'm going to be calling the governor up. I mean it, by the way, I'm not kidding. You got to fight for your company, folks. Just keep that in mind. If you don't, no one else does.
Jamie, looking back five years, which of your businesses do you think you made the biggest impact on in terms of widening the moat? Looking forward five years, which business do you have that opportunity with out of all the businesses that you run?
We do look back every now and then and say something we totally missed. I'm going to give you one. There are probably 10 that we talk about sometimes. We had Chase Merchant Services. We took it over, our half from First Data. We did great. The thing is doing great, but we never thought about the business. It was just getting the machine, getting the credit card swiped, doing the deal. We were more e-commerce than physical, stuff like that. We started to expand, but we never said, "What does that person in the store really want?" What they want is to use their data to make it simpler, to process cash in the same stuff, Square. We missed it, the whole thing. Lock, stock, and barrel. I say it to myself.
I always tell, by the way, any one of us could have picked up that thing. That type of thing happens all the time, by the way, where we're trying to be really honest about what we miss and stuff like that. Going the other side, in general, I think all of the businesses up here probably have a better moat today, in general, across the board. The company capital, liquidity, brand capability, the resources we bring to bear, whether it's on Detroit or it's on systems or it's on a problem. If you sat through our risk committee meetings, we do 100 stress tests a week. We have a lot of really smart, diligent people thinking of everything that can go wrong.
I won't even take you through what some of those are because they're really nasty type of situations, but none of them will damage JPMorgan. I mean, we'll be able to survive just about anything. When we get into the detail, we do find areas that we just missed, and we want to focus on those. I think it's important for all the management people in this room to focus on that. Don't focus on everything we did well. Focus on what we didn't do particularly well.
How about going forward? Where do you have the most opportunity to widen the moat?
I was watching this presentation, I had read it before, obviously, that Marianne gave and the folks up here. Every single one of them. Some will be faster than others. They have different dynamics and different characteristics. I will assure you one thing, we are not going to go back and forth and up and down because we may or may not have a recession, because interest rates go up 100 or 200 basis points at all. That will not change anything with our plans. And we will just grow right through that and continue to serve clients and build and do those wonderful things. Bill?
Bill Rubin with Calamos Investments. A lot of discussion, a lot of focus on digital technology. Obviously, it is critically important. But I cannot help but think about the Silicon Valley and similar type of high-tech software and digital consumer products companies. Every year, they seem to make a little more inroads into financial services. I imagine they probably do not want to get into credit risk as you and other banks do. But so far it has been an opportunity for the banking system to work with them, but going forward, could it become a risk?
Yeah, some are going to credit risk, directly and in a scary way, because they got clobbered last February and it will happen again. If you are a regulator, and first of all, we want a level playing field, and I am a little concerned about that. I am also concerned a little bit, it is not a big deal, it is systemic now, but some of these P2P lenders, whether you have a hedge fund or Calamos or anyone, and you are making credit risk decisions, when the shit hits the fan in the marketplace, you are not going to be there. That middle-market client that you took away from Doug, he is going to be begging Doug to take him back because we were there in good times and bad for these folks. Very different being a bank.
We have a moral obligation that a hedge fund or P2P does not have, to stay with those clients in tough times. Which we were there for oil, we were there in 2008 and 2009, and stuff like that. But the whole team here, we will collaborate, we will compete, we will buy. If we have to spend $1 billion to win, we will spend $1 billion. And I am really not kidding you. Do not underestimate what I just said. We will do whatever it takes. We have a lot of money and a lot of capability, and I am not sitting here afraid of it, but I do think we talk a lot about all these people coming this way. You have Betterment and Wealthfront, and you have student lending, you have all these various things, and we will be there too.
Some are going to stay away from, we're not sure they're a good business. We have constant reviews, not by company, but think of it by payments or something like that. We think there's a chance that this is intermediation. Which is why Gordon's team, Bill Wallace, EWS, created the opportunity for Zelle. When we realized we had the capability to do P2P real-time. Okay? It was JPMorgan with the TCH, other big banks, created real-time payments institutional, with messaging systems attached to it. Whatever it takes, we're going to do. I think some of them are going to make inroads somewhere, and that's life. I'm in favor of that, by the way. I think it's called capitalism. It's a good thing, and we run scared of it.
Separately.
We partner with, I'm going to say 100 different companies now that we own a piece, that we do stuff with, we're testing, we're working on. They mentioned a few up here, there would have been another 50 or 60 that we're working with or testing.
On the productivity and efficiency side, on page three of the slide deck, you talk about non-North American companies or business representing about 23% of revenues, over 30% of employees. Is that an area where you could perhaps get some more productivity efficiency?
That's because we have 30,000 employees in India that do work for the whole company. Across the whole spectrum, they do programming and cyber and payments and a whole bunch of different stuff, not really. We're pretty fanatical at trying to be efficient. I don't push people on this 55%. It's not rational to say that in a competitive business, we're earning a 17% return, a 15% return, that you're going to save all this money on something and keep it all yourself. Jeff Bezos says, "Your margin is my opportunity." That's called competition. Some of it gets passed on to the customers in terms of lower prices, lower spreads, and it's true in every single one of these businesses. If you look at them, they do more, and we do a lot of things for free. It is a gross exaggeration.
In the wholesale business, you pretty much pay by product for what you do. In the consumer business, a lot of the products and services you get are free. Online bill pay, advice, debit cards, credit cards, checkbooks, alerts, you pay for the account. That's why when we do online investing, we're going to be thinking about how we're going to add that to this product set in a simple way. I tend to overcomplicate these things, but in a simple way that the customer wants, that they'll say, "I love this." Remember, if you're a great client, we can do it for free. Right. It isn't like we say compete with Silicon Valley, just like who thought Jeff Bezos would go into movies? He just gives it away for free to Prime because Prime pays for itself.
He's just trying to make you a happy Prime customer. We do a little bit of the same by giving a lot of things away for free as part of a package. We look at the price of the whole package, not necessarily the product. But we're getting much better, by the way, at having what we call product managers everywhere, there's someone saying, "Hey, to compete with Zelle, to compete with Venmo, it's not just real-time and safer," and they don't necessarily have real-time on most of their payments, we need to do split the bill. We need to do something social. We need to do things that those folks want to do to switch them over to Zelle or QuickPay. We've been testing free coupons, $5 coupons and $10 coupons and free trips to Hawaii or whatever, to see what works. Yeah.
The guy over here.
Yeah. Hi, Jamie. The 17% ROTCE that you lay out medium term, for you, as you think about achieving that level of profitability, what's the biggest single risk factor that you worry about to a meaningful degradation of that?
Yeah. Well, first of all, Marianne mentioned this. In the new competitive environment, there are certain things which we think may reprice right away. Don't think about banks. Think about things that are done on an after-tax return in the marketplace. That may reprice right away. You do this, you don't do that, you look at this after-tax return, and that's what it is. We have a little bit of that in part of our products and services. There are things which I can argue won't reprice at all. Think of chocolate. Why is it going to reprice just because tax rates went down? It's a global business. We run the whole gamut, as do other businesses, about things that may reprice. Of course, we do clients, and you look at the whole client thing. That may not reprice.
It also may not reprice because of what the rest of the competition is doing. If some banks are under-earning, they may just want to use that to earn. Therefore, there'll be less price competition than there might be in another industry. My view is we're going to have some of that, not all of it. It's going to take place over time. We'll tell you what it is. I think the 17% is probably right in the short run and stuff like that. I think the biggest risk. J.P. Morgan, again, we have to run the company not for the 17% or for next year, stuff like that, but for. I ask you guys a question, too. There's going to be a cycle. There's going to be a recession. I don't know when it is. I'm not worried about rates going to 3.25% or 4%.
If I were you, I'd worry about 5%, 6%, 7%, 8%. Who said it doesn't happen? We want to stress test all that stuff. I'm not going to talk about geopolitics, but bad policy, things like Brexit, which will have an effect. There are bad policies that take place that could be damaging to countries, and you've seen it over and over. I think competitive tax reform is one of the ones that damaged the United States of America. I always look at bad public policy as being the thing that will catch us the most off guard and the effects it has.
Just as a follow-up, one of the things that you threw out there, which in the long run you don't worry about, is recession. Sure, they happen. For years and years, you would always reel off a list of expected credit loss rates kind of by loan class.
By cycle, yeah.
Do you still feel that those are fundamentally the same as they always were?
Yeah, we still do. We didn't put it up there. We run the credit book through the cycle, which means we expect to over-earn at certain times and under-earn others, and we're not like a bunch of babies when it happens. That is our business. It's no different than the cost of gas for certain businesses, the cost of cheese for pizza businesses. It doesn't do any good to sit there and bitch and moan about it. It is what it is, as long as through the cycle, doing a great job for clients, earning their respect, getting performance up, giving products and service while making proper investments. The credit cycle's there, and we always talk about the best case, the worst case, the high and the low because the worst thing that any management teams could do is deceive themselves.
Yeah, we're earning 15%, but that's when you're over-earning. We want to earn 15% on average. Okay? That we haven't quite done for a while. The reasons with NII and the yield curve and all that. Yeah, we still look at the risk, and we change that number. The credit card number is 3.25 for next year because our credit portfolio is pristine. I think these numbers are accurate. Gordon and I, before the credit crisis, thought the worst it can be, think of an 82, 74 number, would be 8%, like would peak out in a quarter at 8%. I think it peaked out at 10. We were wrong. Okay? Mortgages, we were dead wrong on. We don't think credit card will peak out at 10 this time. We think it'll peak out at more like eight because the portfolio's pristine.
We think that mortgage will act the way we expect it to. It'll peak out, but it won't be at 2% or 3%, it'll be at 30 basis points. Because you can actually back test some of that stuff over time. The credit cycle is still one of the biggest cycles we have to deal with. The worst thing is obviously is stagflation, inflation with a recession and things like that, are the worst case for a bank.
Yeah. Over here, behind Gordon.
Can you talk a little bit about the international strategy? You mentioned retail banking doesn't make sense, but where do you see the biggest opportunities either from a product or a geographic standpoint, and any update on how you're positioning for Brexit?
One of the things I like, you see our management meetings, and Daniel showed a chart years ago that we were number one, two, or three in 2016 and 2017. We've been to 31, we're number one, two, or three in 80% of them. That's where the opportunity is. In some cases, we can't honestly say to ourselves, we're going to gain share in that. It's going to be tough. Competitors are tough. They're all back in a major way, so it isn't like we think it's slim pickings. We always said to ourselves, by the way, it doesn't matter whether they're back or not, they are going to be back. You will have competition. Don't rejoice too much that some disappeared for a while. In some of Daniel's businesses, it is country by country.
In Asia, we could do better in equity. In Thailand, we could do better in FX share. In Vietnam, we can do better in X. In China, we can do better in Y. It is at that level. We can add a bunch of countries and add a bunch of share. We have a huge network effect. Part of that is building platforms that serve their clients better, et cetera. It's now three yards and a cloud of dust, country by country, industry group by industry group, salesforce by salesforce, every place. That's what it is. In TS custody, if you said to me, can we gain a lot of share over the next 10 or 15 years? Absolutely.
Steady, grind it out, and a lot of it's technology and systems and services and stuff like that, because there are only so many banks who can do it. We'll spend whatever it takes to build the technology. Prime broker, our U.S. share is what? 17% now, like number two in the U.S. We were nowhere in Europe and Asia, and we're still really low in Asia. That's how we look.
We're number two globally.
Number 2 globally now. High in the U.S. and very low in Asia. My point is, we were looking at the business years ago, even the business that [inaudible] had built, which is one of the best things we got out of it. Teresa, who runs custody now, did a great job running that business for a while. We did a great job in building the platforms. We forgot to ask for the cash commissions, which helps pays for it. There's a lot we can do in that. The other thing, emerging markets are going to grow twice as fast as developing markets, are going to grow twice as fast as developed markets. We know that. They'll be competitive, when Daniel builds, that's what he's building to.
It's okay to go into certain countries, it'll be years before we make a profit, we're going to do it. It helps with the network effect. In Mary's business, I think it's pretty unlimited. Same thing. The number of billionaires in the emerging markets can grow three times as fast, the developing markets, twice as fast in the U.S. The amount of assets under management in the world are going to double or triple in the next 20-30 years. The amount of assets need to be managed is a good thing for you, are going to double or triple. The emerging markets will be huge opportunities. We already have plans, which I don't know, some are up there in adding bankers in wealth management around the world aggressively.
There, again, the management trick here is not to say, "Go just hire bankers," because we don't want the folks to just go hire a bunch of deadhead bankers who are terrible. We want to hire really quality people, onboard them, think it through. We want to have the culture and character. We want them trained in our stuff, we want to get more efficient at it over time so the turnover's not too high, the clients are happy. If you do that right, could Mary double that in the next seven years? Yeah. Triple it in the next 14? Yeah. Quadruple the next 21? Absolutely. Because we're small. I can go on and on and on, that's what you should be thinking about if you have those opportunities. It's hard work. It's hard work.
I always tell people, most sales forces, it's easier not to grow. Hiring people's hard, onboarding people's hard, the existing sales forces hate to add to a sales force because they think it's possibly going to take away from their bonus pool or take away from that client that maybe they get to call on. It's hard for management to force that's what management has to do, is force growing the sales force without damaging the existing people there. By this is true in every sales force I've ever seen.
Bob, you have something?
Can I ask you all a question, just real quick, show of hands. How many of you are in favor of companies forecasting quarterly and annual earnings? Not showing the transparency idea, earnings. Any company. How many of you think it would be a good thing if we got all companies to drop it? Raise your hands high. How many of you think it would be a bad thing? Okay. The ayes have it. I'm going to try to get people to drop it. I think it's one of the problems for Can I tell you why it's stupid? Would you like to know?
Sure.
Earnings are a factor of all your input and output prices, volumes, and even the weather. When it snows in New York, equity trading volume is down, okay? Marianne can get up here and talk very openly about the sales force, the size, the spending we're going to try to do, what we're trying to accomplish, what we think it all adds up, NII, we can't forecast accuracy earnings. Earnings, you got the cost of cheese, you got the cost of interest rates, you got the episodic businesses, you got the margins. What it does inside a company, okay, it doesn't enforce transparency, it forces people inside the company to bullshit up the chain. The damage is done over an extended period of time because we just put in this ROTCE measure for our performance stock stuff, which we put in place.
Almost every investor was in favor of it because when we surveyed, every investor thought it was a good thing to do. Performance-based restricted stock. Now, of course, I've been getting restricted stock my whole life. I'm going to do exactly the same thing with performance-based or not. It's effectively performance-based. It goes up or down based upon performance over time. I've never sold a share. I told some of the major investors, I said, "Here's why it's stupid." At 14%, forget JPMorgan, you have a management team that says, "Oh, if we just get it from 13.9 to 14, the payout goes up 5% or 10%." If I can change the earnings of the company by $1 billion or $2 billion next year with a couple phone calls to John Horner over here. No, literally.
Just extend your duration, change this, and over the credit exposure. That's what they start to do, and it distorts. It doesn't add to transparency because earnings themselves are not relevant. Earnings are based on what you've done over the last seven years. They have not a damn thing to do with what you did the last quarter. I think it does damage. I hear a lot of people, CEOs, complain about the quarterly earnings pressure and I think they should be transparent. I think some of them are not honest either. I think they are terrible at running their companies, and that's not why they feel pressure. They feel pressure because maybe their companies aren't doing so well. Anyway, I think it's a good idea to dump it. I'm going to try to get people to dump it. Hmm, what?
Are you going to report earnings quarterly?
No, I would definitely report earnings quarterly. I also think CNBC and all these people should report actual numbers versus last year's actual, and stop reporting actual versus estimates, like a fake number. Some of you update, some of you don't. Some of you have no idea what you're talking about, some of you do. I just think the whole thing is ridiculous.
I would think investors would like it, right?
What?
Investors would like it if you got rid of earnings forecasts.
It's a more-
More opportunity set on the investor side.
Yeah. I think it might be. I think that companies would like it, and I think a lot of the long-term investors would prefer you describe yourself. You're very transparent about what you're trying to do, but you're not beholden to that number.
You widen your estimates itself, probably your multiple would be a little more volatile, but
It would change the cost of capital. I don't think it would change anything. I think the cost of capital itself is a fictitious number, just so you know. All right, Bob, on the heels of that. What do you got?
I forgot my question. Bob Dostic, Trilogy. When you look at Alipay or WeChat, they have 1.2 billion users, and they've kind of leaped over credit cards, is there anything you take away from that?
Yeah. A bunch of these people at that table over there, I don't know, they've all analyzed WeChat and Paytm and Alipay, some of them, I don't know if that group, some of them took a tour around the world to go check out what I'll say around the world, because I'm in favor of them doing, because it's an eye-opener. Remember, those countries can bypass tons of other stuff that's been set up in place. It's not exactly the same, those services are great. WeChat started as a chat, they added shopping and payments and all this stuff, now it's one of the biggest payment mechanisms. Paytm was the same thing. There's no reason when you go on this phone, this is going to be the battle of all time, who dominates all those services.
It's still not known. Everyone wants to be the one place you go to to do that. Whether there's going to be one place or not, I don't know, but we analyze all of them. To the extent we can add services that make sense, that would make clients happier, we're going to do them. We can build our own chat. We could build our own Facebook. I tell people, I'm really not kidding. Now, we don't want to, but we could build whatever we have to build to compete. If I had to come stand in front of you and say, "We're going to spend $5 billion through A, B, C, and D, because that's what we got to do to compete," that's what we're going to do. I hope the management team in the room hears me loud and clear, too.
We will do whatever it takes. What we want to do is make sure we're thinking clearly about these really complex issues.
All right, Chris.
Well, you mentioned Amazon before, a company that's gone 20 years without really making any money. Would you go that far? Is there ultimately a profit discipline that has to
We are very disciplined. I don't know if you're right about Amazon, okay? I haven't studied them in detail, maybe people here have. My guess is they make a lot of money doing things, they make investments that cost money. To just lump it together and say they're losing money isn't exactly fair. I just don't know. If I were them, I'm sure they. Obviously, we all know about AWS. No, we have to be profit disciplined. I think a finance company's in a different position. I think a finance company losing money will go bankrupt. There's a confidence game, you got regulators, you got earnings. I think you have to be financially successful. What I'm talking about is making the investments for the future that you have to do. I can go back to Bank One or J.P. Morgan.
It's always the same thing. What are you going to do next month and next quarter? Hell, neither of those companies opened a retail branch in 10 years. How can you run a great company if you don't know how to open a retail branch? We talked about 400 branch sites. There are probably 5,000 that should have a JPMorgan Chase branch one day. You can't just go do that overnight. To me, we should be rational and very thoughtful. Some of these things, they have long lead times. I tell people, when it comes to training people, opening branches, building technology, you can't just jump in and do it. You better have the team that can do that and execute. Which is also the reason, by the way, you can't get rid of the team when times are tough.
You've seen people over and over in every business, "We're not going to grow anymore. Get rid of the people who hire, train, recruit salespeople." Then four years later, you want to restart it's almost impossible. Same with opening branches. You don't even have the people who know how to do it. I'm a little worried about software as a service in the same way, too. Okay? What's going to happen 10 years from now when you've done all these things and no one here actually knows what's happening over there? To me, we have to be conscious about the whole ecosystem we're going to do. No, we're not going to lose our financial discipline because we need to make an investment that we think we have to do or want to do.
Okay. Good.
Yeah.
We got time for maybe one, maybe two more. Anybody? Okay. It's a wrap, folks. Thank you very much. Thank you for doing the presentation. We'll see you at lunch downstairs.