Let me welcome you all here. I just want to start by saying that every time I see that video, I am so damn proud of this company. What we do around the world for clients, the capabilities, it's extraordinary. You're going to see some unbelievable stuff today. I'm just going to give you kind of a snapshot of some of the things on our mind.
First, I'm going to comment on the economy. I'm not going to forecast it. I can't. I don't believe we're able to do that. I just want to give you a view.
There's an awful lot of noise out there. And you have the exact same as China, maybe having a how fast they grow and having a hard time managing their yuan. Oil and gas, obviously, oil and gas industry has been hurt. So there are big winners and losers in that. Some of the big winners are Japan and India and Korea.
Some of the big losers are obviously oil companies in Brazil and oil exporters. The U. S. Consumer is a huge winner. And one of the things about oil, by the way, and gas, it does it has rolled the funds flow around the world a little bit.
The people used to be getting the money are no longer getting it. So we have sovereign wealth funds selling stocks. The consumers in the United States who are getting the windfall are buying stuff. And we actually see them buying stuff different than we've heard elsewhere. You have obviously QE and the issue about QE is not just negative rates, which has become the hoopla of the moment, but the unwinding and how is it going to happen, etcetera.
And obviously, some of the emerging markets and a lot of you have upped your odds of a recession from 10% to 30%. I personally don't know. I think you got to put in mind, those are the financial markets you see in a little bit of disarray. Sometimes they act rationally and sometimes they don't. I'm just going to give you the other side of this.
The U. S. Economy is 70% to consumer, the GDP. The consumer has balance sheet has almost never been in better shape. It has lower debt to service ratios than it had 35 years, and they started keeping the measure.
Housing is short supply, household formation is going up. We had to come with 3,000,000 jobs last year. The home prices are going up. We think their money and for the gas money we actually see it when we actually look at actual data about what they're doing with money that they've saved on gas. Corporate credit, I'm talking about middle market, small business, large core, the actual charge offs have never been better.
They have never been better. Balance is in very good shape. Corporate earnings are not. And that's mostly because Mike Semblis, one of our great economists came with this that when we talk about manufacturing being 12% of the economy, it's over 60% of the profits of the S and P 500. So they've been hurt a little bit more.
And so there are pretty good odds, in my opinion, that the noise will sort out and we'll be okay. We don't know. The important part and I think the most important part is we don't run the company guessing about the quarter. In fact, I'm not being facetious. I don't really care about trading results in the quarter.
It doesn't have anything to do with whether you have a better franchise or a worse franchise. What we want to do is build a company for the long run and focus on the long run. And what's important and these are numbers we look at, we do it country by country and area by area and McKinsey does it in Bain and JPMorgan Chase Institute. The amount of companies that do over $1,000,000,000 of revenues in the next 12 years will double. The amount of assets under management over the next 10, 12, 15 years will double.
The amount of infrastructure spending, the amount of needs of corporations or private banking clients will double. That is the game we're playing. And what we try to do is manage it in the meantime exposures in a way that makes sense. Some of you have heard me talk about this before. In China, for example, the likely outcome is in 20 years that China will be a developed nation that houses 35% of the Global Fortune 2000.
That is the game we're playing. In the meantime, we try to do is manage our exposure in China that even if the worst case happens, we can stand here and tell you we're fine. I would tell you we'd be fine. We don't have a great quarter, it won't be a great year, but we'd be fine. Another example is FICC Sales and Trading, we're investing in it.
Daniel Pindell is going to show you some great charts about it, but we're investing more in the technology side, things like that. But people need execution, they need services, they need pricing, they need ideas. And we're building all the systems to do that successfully over time. I didn't get the number, but our trading losses is
kind of an
amazing. I think our trading loss, if you take the last 3 years combined, like 10 days of trading losses in August, and then I think in the worst parts of this year, there was 0, okay, which means you have a real business of flow capabilities, serving clients, trying to make markets a lot when other people are not. They're obviously we're working away from legal, political, regulatory, geopoliticalist, geopolitical last 5 or 6 years. But keep in mind, 5 of the last 6 years, we had record profits, including last year. Okay?
And that's not so bad considering the environment we've been dealing with all that time. We have among the highest margins in every business we're in after investing. We've been opening branches, investing in technology. Marion is going to show you a chart about investing in marketing and stuff like that. So we have good margins in every single business after doing that.
We've never stopped investing for the future. Our tangible book value, which Warren Buffett uses as a measure of value, which I do too, if you believe your assets and prices and returns, okay, our tangible book value has gone from 18 to 48 in 10 years, and that's towards almost everybody. And I do look at that as a real measure and our returns in that have been 15%, 15%. They were dropped to 11%, because we gave the government an extra gift. And they're back to 13% and 13%.
So the returns have been coming down a little bit. But still in this environment with all the headwinds and stuff, we think that's probably okay. What we try to the key points and some of the themes you're going to see here throughout, protecting the company, okay, with cyber, controls. We put a tremendous amount of effort and time and controls, meeting every single regulatory request. We've got an enormous amount of people with technology and systems to meet all the requirements for the new rules and all the requirements that regulators want.
We got the G SIFI down. You can hear more of that from people. We've simplified things and we'll do anything to reduce legal, political regulatory risk. So you've seen us eliminate client sets, PEPs, foreign correspondent banking and anywhere we think that creates too much risk for us, we're going
to
continue to do that. We have unbelievable people and I just want to thank all the JPMorgan Chase people in this room. They are really good at what they do. Very unfortunately, one of our key partners died last year, Jimmy Lee. And we had some ceremonies for him here, but we sat around the table and all the people telling Jimmy Lee stories.
One of the amazing things is how many people have been here for 15 years, 20 years, 25 years and built their career here have been trained at Chase or Bank 1 or JPMorgan. Our people capabilities are extraordinary. And I think you've seen us consistently and fairly compensate and we don't change it, we don't jump in and out. We're very responsible and reasonable about that and we're going to continue that. So I just want to thank them all here, particularly operating committee, who I know you all get a chance to speak to over lunch later.
Technology, huge capabilities we have in technology and I'm not going to go through them. So FinTech, it's not new. I mean, this has gone my whole life. So when people act like it's new, it's just a little bit faster
and it's
a little bit different. And there are people coming in. We're willing to collaborate or compete. We're fine either which way. We're building some unbelievable stuff for ourselves.
We've never stopped doing it. Data centers, networks, programming, building this machine that fees prices, demonstrates swaps that all the time. These are great technologies that reduce the cost of the client and we've kept our share in doing things like that. And we've never I hate talking about expense targets. We don't actually have that.
We try to get where we waste all the time and invest all the time. Waste all the time and invest all the time. It doesn't stop. It's just the way the company is run. If we can get more efficient, if we can simplify, if we're going to streamline, we're going to do it.
If we have opportunities for marketing or branches or bankers, we're going to do it. So you're going to see a lot of examples here, both. People which is I think just the way businesses should be run over time. And the innovation part isn't going to stop. You're going to hear from Gordon about Chase Pay, Chase Net, Chase Paymentech.
And I think it's kind of an unbelievable story. Okay. We are going to do a much better job for our client with reward programs and apps and how to apps and make it easier to use their card online, in store, in mobile. Chase payment Tech, we've been just killing the competition. We're going to continue to do that because we're also making friends with merchants.
We're looking at some of their major complaints, what we can do to make it better for the merchant and quicker for the merchant. And I think it's like almost like a trifecta. Is it we guarantee it's going to work? No. Are we going to like kill ourselves?
Absolutely. And then you're also going to see a lot of things on, I'm going to call segmentation, endless segmentation with family investment, where it's investment banking, was how we covered investing clients, corporate clients, commercial banking clients, private banking clients, we're segmenting deep and rationalized group that adjust in those clients. So I'm going to stop there and open let Marion go through the major presentation and we will be around all day to take your questions. Thank you.
You hear that branch of today, not the branch of the future outside. Excuse the throat. So good morning, everybody. I'm delighted to go first today. And in keeping with tradition, I'm going to go through a year end review for the company.
I'm going to dive in some of the most notable topics that we have and then I'll give you some outlines of our expectations for performance of the company over the medium term. But before I actually turn into the presentation, I want to step back and remind you of the key messages from last year, all of which we believe are equally true this year, if not more so, and against which we more than delivered in 2015. So first, our strategy remains unchanged and that's because it's working. It's really very simple. We have 4 exceptional client franchises, each is well positioned to compete and to grow.
And we look the way we look and that's our scale, our global reach and our operating models because it's what our clients want and it's what they need. 2nd, we have successfully adapted and we will continue to do so always with fortress principles, demonstrating strong execution and strong discipline, and we've delivered on business simplification, balance sheet, costs and capital. And finally, we continue to maximize shareholder value with our financial performance up strong on both an absolute and a relative basis. And as Jamie said, we continue to invest a significant amount across our businesses for the long term. So at the bottom of the page what you see is our targets remain unchanged with one exception.
That is the exception of our CET1 ratio which we've had there at 11% plus. What that reflects is the progress that we did make on the GSIB surcharge in 2015, but the plus also recognizes the remaining uncertainty around what potential capital minimums will be under stress and we'll get into that later. So we're going to do a year in review 2015 on Page 2. Net net a record $24,400,000,000 of net income, dollars 6 a share, 13.5 percent return on tangible common equity, 2nd consecutive year of record net income and as Jamie said, we posted 5 records in the last 6 years. And it's a year obviously where rates were 0 bound, market dislocations and significant macro uncertainty, all of which tested the strength of our operating model and actually further validated it.
So against that backdrop, what you see is $97,000,000,000 of revenue with best in class revenue stability as a result of our client focus and our diversification of businesses a strong expense story at 50 $6,000,000,000 adjusted and a 2 percentage point decrease in adjusted overhead ratio as well as on the page there you can see we've circled that we actually decreased our legal reasonably possible losses by over $2,000,000,000 last year. We added $10,000,000,000 of common equity, dollars 6,000,000,000 of preferred and returned $11,000,000,000 to shareholders including a dividend that grew 9% last year. So if you take a look at our performance on a relative basis, which you can see on Page 3, in each of these charts, JPMorgan Chase is among the best in class on all of the measures which demonstrates broad strength in performance. Not only did we have the highest revenue and the highest net income of our peers in 2015, we saw double digit EPS growth last year and over 10 years. Our return on tangible common equity was 3.50 basis points or more above our cost of capital and we had leading 8% tangible book value per share growth last year and double digit growth over 10 years.
So while we're on tangible book value per share on Page 4, in this chart you can see the consistency of the growth in our tangible book value, strong growth consistently at 8% to 11% over 1, 3, 5 10 years, even as we've provided solid capital returns over the same time frame. And including our strong dividend yield, which is now above 3%, that gives the equivalent of an all in return of 11% before you take into consideration eliminating the discount or delivering multiple expansion over time. And revenue stability underpins the quality of that strong relative performance and you can see that on Page 5. So this page shows that JPMorgan Chase over the last 5 years has had the lowest total revenue volatility of our peers and is a close second for the lowest volatility in fee income. And this may be even more impressive when you consider the size of our markets business which is typically perceived as being more volatile.
And you can see in the chart on the bottom of this page that despite everything that went on in 2015 and there was a lot, we delivered stable results. It's another example of the benefit of diversification that you get when you have a platform that's as broad as ours. So over the last few pages, what I hope you've seen is that we've clearly demonstrated in our results broad leadership positions and consistent performance through time, which is all because of our operating model, which we have depicted on Page 6 on the left hand side. So our operating model, it's not circumstantial, it's very deliberate. We've spent decades building this great company, one that cannot be replicated.
We are complete, we're global, diversified and at scale. We've demonstrated our consistent ability to adapt and our clients benefit from this model and we see it in our share gains and in our leadership positions. For example, our scale with over 90,000,000 consumer accounts and the largest wholly owned merchant acquirer has been a critical part of the value proposition in bringing together Chase Pay. Our fixed income markets business is still standing and thriving where many others are retreating. The commercial bank is able to offer the whole company to its clients, which is a completely differentiated set of capabilities, and asset management is both a driver and a beneficiary of the iconic JPMorgan brand.
So Jamie mentioned this, if you look to the right hand side of the chart, we can talk about client segmentation. As I said, our model is centered around our clients. We serve nearly 50% of U. S. Households and 80% of Fortune 500 Companies.
Across our businesses, we segment our clients to align appropriate product and service capabilities to different stages in their lifecycles, be they a consumer, be they a corporate client, or in fact both. And as our clients succeed, we can bring to them a complete team with the appropriate experience and the appropriate expertise to meet their complex and evolving needs and leverage the whole firm. That's the power of the Complete platform. So I'm going to move past Page 7, go to Page 8 and we're going to dive a bit deeper into our exceptional franchises. This is a very powerful page.
It shows our critical business drivers and it clearly demonstrates how we've grown market share and maintained leadership positions across the board not just in 2015, but over a decade. A point of view out from the page in their circles, With a deposit growth rate in our consumer businesses of 9% year on year, we continued to gain share. And despite fierce competition, we maintained share of card sales at 21%. In the CIB, we also maintained number 1 rankings, number 1 global IBCs, number 1 North America, number 1 EMEA, number 1 total market, number 1 FIC, number 3 equities and we gained share across markets last year. In the commercial bank, we continue to deliver strong credit performance.
We are the number 1 multifamily lender, and we have record gross IB revenues of $2,200,000,000 up 10%. And in Asset Management, we've been strong gatherers of long term flows over an extended period with strong performance on a broad and diversified global platform with the best clients. So digging into some of those drivers versus our peers on the next page, Page 9, we delivered industry leading core loan growth with a 5 year CAGR of 10% or 16% last year and retail deposit growth on the top right of 9% fairly consistently over the last 5 years. CIB has earned a cumulative $130,000,000,000 in markets revenues and IBCs with 16% and 8% share respectively last year. And on the bottom right, we gathered nearly $450,000,000,000 of long term net client flows across Asset Management and Chase Wealth Management.
Looking at Consumer on the next page, Page 10, top left, this is really phenomenal. We have the highest customer satisfaction score for large banks by a fair margin according to J. D. Power. And that's a result of the investments that we've been consistently making, investments in customer experience, in digital, in branches.
We continue to also post strong growth in credit card sales. We have the biggest mobile customer base among large banks and growing the fastest. And finally, on the bottom right, our merchant processing volume is growing more than twice the industry. So before leaving this section, on Page 11, just a few comments on technology and innovation. As Jamie has said, technology is like the energy of dark matter, it's everywhere and it will drive productivity and growth for decades.
To enable businesses with our scale and with our transaction volume, we need a robust technology foundation. And to stay relevant for our customers, we need to continuously focus on innovation as a key differentiator to deliver better, faster, industry, the best talent in digital, in big data, in cyber. And this year, we'll spend $9,000,000,000 here, a third of that on investment. Security and controls have always been crucial, protecting the firm and protecting our customers' assets and information. This year, we'll spend nearly $2,000,000,000 on this, including more than $600,000,000 on cyber, an amount that most companies can't invest.
We're also driving innovation across all of our businesses, providing products, solutions and insights, as well as engaging with or partnering with leading tech start ups. So throughout the day, in each of the presentations, you're going to hear a lot about the technology investments we're making and I'm just going to mention a few. We have an award winning Chase mobile app and that has reduced check processing costs by 20 times. We are committed to owning the future of wholesale and retail payments. We have Chase Pay, we have QuickPay on the consumer front.
And in 2015 through our Access platform, we delivered our wholesale clients the ability to execute international payments 135 currencies at any time through any channel. We just announced a new small business lending product leveraging third party technology and we invested in Digital Asset Holdings, a start up looking at ways to leverage distributed ledger technology in banking. Danny will talk more about it later. So switching gears, moving on to our fortress principles on Page 13. So this is our balance sheet.
It's a slide that is very familiar to you, I hope, will be quite brief, but you can see that our spot balance sheet is down over $200,000,000,000 year over year, principally on the delivery or the over delivery on our non operating deposit commitments, which we achieved without damaging the client franchise. In addition, you can see the beginning of a mix shift from securities to loans. You can see our loans grew $80,000,000,000 across products last year, and you can see more modest reductions, but reductions nonetheless in secured financing and trading assets. If you look at the table at the bottom, the net result of all of this is that we improved our loan to deposit ratio by 9 percentage points in the year ending at 65%. On the right hand side, looking forward into 2016, we do expect to continue to grow retail deposits and core loans strongly, and that will drive our balance sheet from a little less than $2,400,000,000,000 to about $2,450,000,000,000 this year, but we will remain in the 3.5 percent GSIB bucket.
Moving on to credit on Page 14. I'm going to start on the top left just to give you some dimensions from our wholesale credit exposure. Total exposure, dollars783,000,000 we rate 75% of it is investment grade, nearly half is funded. Geographically, 75% of exposures in North America, less than 3% in total in China, Brazil and Russia. We only have $1,000,000,000 of non performing loans.
So turning to oil and gas, our total lending exposure is $44,000,000,000 against which we ended 2015 with reserves of $815,000,000 In the wheel on the top right, we show our exposure broken down by category with the higher risk exposures falling into E and P, including reserve based lending and oilfield services. Together, those are $23,000,000,000 of which $7,000,000,000 is RBL, much of which is in the Commercial Bank and Doug is going to dive deeper into it later. In the pie chart on the bottom left, we've broken our exposures down by line of business, showing you what we rate as investment grade versus high yield. So since year end, expectations for oil prices have worsened and stresses have continued to permeate the value chain. Based upon our current outlook, we do expect to build reserves this quarter of around $500,000,000 for oil and gas and about $100,000,000 in metals and mining.
The environment is very dynamic and in addition to lower outlook for oil prices, sentiment has generally gotten worse and other factors that are not directly linked to the price of oil are putting incremental pressure on liquidity and valuations in the sector. When we think about our internal analysis and our credit ratings that form the basis of our reserve actions, they do reflect the potential for some incremental stress. So our coverage ratio after building these reserves is strong at 7.5%. And you can see there's a callout beneath the reserves on the bottom right, and I would characterize this as a relatively severe stress, contemplating oil at $25 flat for 18 months, assuming that we see significant drawdowns against facilities, particularly in the E and P and Oilfield Services space and that we see multiple notch downgrades for the most impacted sectors. In that scenario, incremental reserves on top of what we're building in the Q1 could be around another $1,500,000,000 That's not our dollars That's not our expectation, but we wanted to dimension
a severe stress for you.
Finally, we do continue to monitor the whole landscape carefully. We're not yet seeing any contagion or significant contagion in the rest of the portfolio or deterioration in the performance of our exposures across wholesale and consumer in energy impacted geographies. And Mr. Gordon is going to do a page later that dives into the consumer credit details, so I'll leave that for him. But wrapping up on credit on Page 15, outside of energy, we do expect that charge offs will remain relatively
low,
but we are expecting to realize some losses this year in the energy sector. So at this time, we would estimate our full year charge offs will be at or below $4,750,000,000 with about half of the change year over year being driven by growth and the other half by write downs in oil and gas. Now as you can see on the right looking backwards we have had better credit performance than our peers on a mix adjusted basis. Now let's turn to Page 17. We made significant progress last year.
We added 140 basis points of common equity. We added 90 basis points to our leverage ratio. We successfully changed the mix and the size of our balance sheet and ended the year with a risk weighted asset at around $1,500,000,000,000 We moved down 2 GSIB surcharge buckets and we maintained an appropriately conservative liquidity position. So I think it's fair to say that we achieved a great deal in 2015, we exceeded targets, and it allows us to start 2016 from a position of strength across multiple fronts. Taking just a look at the progress we made on GSIB in 2015 on Page 18.
This was a highlight from last year, the improvement in our GSIB surcharge to 3.5%. We actually started the year, you may recall, this time last year, in danger of being in a 5% bucket. So how do we get here? Three pieces. The final U.
S. Rule in fixing coefficients as well as other clarifications actually removed that risk and improved our score by the first 50 points. The next 55 points we've talked about a lot was the reduction in non operating deposits. And the final 75 points was predominantly reductions across derivative notional and Level 3 assets of 25% 38% respectively. And with that, on the right, you can see that we estimate our score this year end was around 700 points, which is nicely inside 3.5% and we expect to stay there over the near term.
The lower hanging fruit has been harvested. It does become increasingly difficult from here. Think about it this way, to get to 3% safely in 3% would require a reduction of another 100 points, which is more than marginal and could have significant client and franchise impacts. We do remain committed to diligently managing our G SIB over time. Will be strategically patient.
We will be disciplined. We want to minimize the risk that will do structural damage by rushing to make irreversible decisions before we have complete information. The trade off between moving to a lower surcharge and profitability will always be an economic one. And today we recognize that to a degree time is on our side, particularly as our ability to return capital over the short term is in flux. So now looking forward and talking about our approach to capital management on the next page, Page 19.
On the top of the page, the first column represents Board and management's perspective of where we would run the company based upon our risk appetite and based upon practical assumptions around capital distributions under stress. At this time, the results of that view would be less than 11%. Moving to the right, we then also have to consider our 2 most notable regulatory constraints today, being the CCAR stress test in the middle column and regulatory minimums including a management buffer on the right hand side. Dealing with CC offers, using the Fed's 2015 results for us and using baseline distributions of 75% on analyst estimates, that would give a little less than 11% in order to pass. Moving on to our regulatory minimum, which had a 3.5 percent GSIB surcharge and with a 50 basis point management buffer is also 11 percent.
So overall, 11% would be the CET1 minimum for the company. Turning Page 20, a couple more components of capital including a glide path. On the top left with the denominator risk weighted assets, we ended 2015 with both standardized and advanced risk weighted assets, both at approximately $1,500,000,000,000 with a focus of discussion today on standardized as this will become our binding constraint this year. The pressure from here will be upwards given that the biggest component which is credit risk is not risk sensitive under this calculation. And as we are growing the very high credit quality commercial and consumer loans that are part of our core strategy, they will naturally exert an upward pressure.
To illustrate that, if we would take a prime mortgage loan, it requires 2.5x more capital under a standardized regime than advanced and a typical loan to one of our commercial bank clients nearly 2 times. So given our expectation for growth, we do expect standardized risk weighted assets to be at $1,550,000,000,000 over the medium term. On the top right hand side, you see a glide path, it's an illustrative glide path. We based it on analyst estimates for net income and we would continue to accrete capital. We would reach about 12% this year, 12.5% in 2018 if we maintained payouts at the high end of our target range at 75%.
If we were to rebase our capital closer to the 11% I talked about, it would imply payout at or above 100% for a period of time. Over the near term as we await clarification on CCAR minimums, it is likely that the industry will continue to accrete capital further. So we would expect for you to see our CET1 ratio in the range of between 11% 12.5% over the next several years. And just a comment on the bottom before I move on, we have estimated the impact of the fundamental review of the trading is modest and manageable, especially considering 3 years to mitigate. So talking about capital allocations and a little bit about broader incentive frameworks on Page 21.
First on the top left, the reported line of business equity we continue to allocate based upon advanced risk based capital for 3 primary reasons. The first is for broader comparability to our peer set. The second is for consistency over time, especially as standardized rules are still evolving. 3rd and path is important because we believe the advanced approach, while not perfect, is a good proxy for economic capital. What you see here is that we've increased the equity allocations for each of our businesses this year by 50 basis points.
And if indeed we are on that glide path up to a high level of capital, we will increase them by a further 50 basis points each next year. But when we think about a broader incentive framework to incentivize the right behaviors more holistically across the company is obviously not 1 dimensional. We consider some 20 potentially binding capital and liquidity constraints, as well as considering market capacity, operational capacity and where we are in the cycle. It's another significant benefit of diversification that our businesses and our company as a whole have more degrees of freedom to maneuver together than they would apart, allowing us not to bind each business by its own natural constraints, but rather consider the whole and maximize value across the company. So let's take that for example, the consumer businesses that are shown in blue on this chart on the right, on a standalone basis the consumer businesses would actually be bound by CCAR over time and would have excess capacity across a number of other fronts, a great example of which would be leverage.
The CIB gets great benefit from being able to utilize some of that leverage capacity in order to make our balance sheet available to our best clients where peers have been pulling back. So when we think about incentives more broadly, in addition to allocated equity, businesses have other constraints including limits on each of their balance sheet, their standardized risk weighted assets, DCSIB and leverage, as well as allocations of long term debt and preferred, all together which provides the holistic framework to maximize value across multiple fronts. Turning to TLAC on Page 22, Let's start with the U. S. Proposed external long term debt requirement at 9.5% of RWA.
And you can see at the top of the page a walk that's based on our current assumptions. We exclude ineligible debt and that leaves us with a modest $20,000,000,000 plus or minus of a shortfall to compliance, a portion of which would not require net new issuance, but rather refinancing. Moving down and looking at external TLAC, we are already compliant with requirements for 2019 and with the extra $20,000,000,000 would also be compliant with the or loss and liquidity stress today on Page 23. So we've worked very hard on our recovery and resolution plans, we think they're sound incredible and we will continue to involve them. But if you look at the inverted pyramid on the left and start at the bottom, we have some $25,000,000,000 of on balance sheet reserves and we earn generally about $10,000,000,000 of PPNR a quarter.
In a severe stress, the stress would have to be severe enough to generate pre tax losses of about $170,000,000,000 in order to deplete our capital to the current minimum of 4.5%. And remember, along the way, both the capital conservation buffer and our recovery plan would kick in and provide some circuit breakers. Finally, between our preferred and our $125,000,000,000 of TLAP debt, we could replenish capital quickly to be back at above 11%. And in terms of liquidity, we have almost $500,000,000,000 of HQLA. And as we are compliant with both LCR and NSFR, we have sufficient liquidity to cover short term peak cash outflows and stable sources of funding to support activities over a 1 year horizon.
Finally, CCAR, CLAR, recovery and resolution are powerful tools for us and our regulators to govern systemic risks, we are equally committed to their success. We have total loss absorbing resources of $350,000,000,000 and to put that into context, last year our 9 quarter CCAR losses were $55,000,000,000 pretax. So moving on to operating leverage and I'm going to start with net interest income on the next page, Page 24. On this graph, we have a range of scenarios for NII over the next few years. To orientate you, we'll start at the bottom with the lowest line on the chart, which represents the estimated incremental NII associated with rates flat from here.
So we do benefit from the December hike. We also benefit from improvements in our balance sheet mix. So with no further changes in rates, will see approximately $2,000,000,000 of incremental NII this year. And on the back of continued loan growth, we would expect that grow to close to $3,500,000,000 over 3 years. The next line up in blue represents a market implied curve of last week and obviously it's changing often, which is expecting very little in the way of moves this year or next, but it would still give nearly $6,000,000,000 of incremental NII by 2018.
And the top line is based upon a dovish Fed dot view from December. So the message is whatever the path of rates normalizing, it doesn't change the ultimate outcome, which is we still are expecting our NIM to improve and to see $10,000,000,000 plus of NII over time, but it just may take longer. Turning to Page 25, talking about non interest revenue. Starting on the left, the 2015 reported fee income of $52,000,000,000 or $51,400,000,000 adjusted and if you look towards 2016, there are 3 principal headwinds. 1st is a $900,000,000 impact of renegotiating card co brand partnerships, which are very strategic partners and the economics are still very sound, but despite giving up some revenue in order to retain and to extend these important relationships.
Gordon will talk more about it later. 2nd, a reduction of $700,000,000 in mortgage, which we guided to last quarter, primarily on declining servicing balances and finally, we're pleased to be getting to the end of the business simplification impacts with only a $200,000,000 impact this year. Based upon those adjustments, expect non interest revenues to be about $50,000,000,000 this year. So taking a moment just to tie revenues together for 2016, based upon current market expectations, we would expect the growth in NII to be substantially offset by declines in NIR for a roughly flat revenue story acknowledging however that the interest rate outlook can change dramatically and quickly. Looking forward from 2016, we would expect to grow our non interest revenues by 3% plus or minus a year as we lap these declines and we start to benefit from those drivers I showed you earlier.
And to decompose that 3%, we have a flat assumption for CIB and mortgages over the near term with possibly upside to that, but with our other businesses growing in the high single digits. So on expenses, Page 26, as I said, we were very happy with our expense story in 2015. We delivered $56,000,000,000 of adjusted expense. And underlying that result, both the consumer business and the CIB delivered on their expense commitments and also our cost of control stabilized as expected. So it's important obviously to separate efficiencies from investments.
This year, we do expect to deliver net efficiencies of $1,200,000,000 and that does include both the CCB and the CIB continuing to fully deliver on their expense commitment. But to reinvest those saves in $900,000,000 of incremental marketing and technology investments, as well as growth in auto leases and self funding incremental regulatory assessments. This leaves overall expenses flattish year over year around $56,000,000,000 plus or minus. And I just want to point out in green circled on the page on investments, you can see our ongoing commitment to invest. We've grown our technology and marketing investments from $5,000,000,000 to close to $6,000,000,000 over 2 years.
Now let's bring it all together, looking forward in the updated earnings simulation on Page 27.
So I'm going
to start with the conclusion and then I'll take you through the details. The conclusion is nothing has fundamentally changed in terms of the earnings capacity of the company. As a result, you will still see $30,000,000,000 at the end. And rather than stepping you through each of the individual columns, I'm going to focus on what is different from last year. And again, this is about a 3 year horizon.
Starting on the left, adjusted net income of $22,000,000,000 in 20.15 was actually up $1,400,000,000 from 20.14. That was on $1,600,000,000 in delivered expense efficiencies, dollars 600,000,000 of growth across businesses, offset by the expected revenue declines in business simplification. So looking forward from 2015, the first major difference year over year is that we have included our full upside on NII of $6,000,000,000 compared to $4,500,000,000 last year, that's $1,500,000,000 more. But you can see that based upon implied, about $3,500,000,000 of that looks like it would be realized over about this time frame. The incremental NII we've included is offset by the 2 red bars on the page.
The first being the impact of those incremental investments and growth and the card renegotiations, all of which will drive further growth over time, as well as a credit stress that we've introduced versus last year and versus last year's simulation, just given what's happening in the energy sector. Adding across based upon implied that would be at about $27,500,000,000 plus or minus in this timeframe, But with the incremental NII from a normalized curve, we reached $30,000,000,000 And given how dramatically and quickly the outlook for rates can change, I'll leave you to determine yourself when that will play out. So $30,000,000,000 is still firmly in our sights and the timing will be rate dependent. At 11% CET1 that will be above a 15% return on tangible common equity and based upon the glide path at 12.5 percent CET1 that would be consistent with returns of between 14% 15%. So in conclusion, we have 4 best in class client franchises, each of which has bright prospects for future growth and you'll hear about them today.
Together, they are formidable in terms of the earnings power of the company. Each one of them focuses on the customer first, We'll continue to be disciplined around the things they can control, including balance sheet, including costs and capital. Each of them is investing for long term growth and profitability and adapting and optimizing in an ever changing environment. The management team is focusing on delivering against commitments. We will continue to do so.
We are successfully adapting to the evolving regulatory landscape and putting more and more legal and control matters behind us. It's the company of which we are incredibly proud. So with that, I do have 5 to 10 minutes for questions and I do actually before I finish have a video which will roll later. Mike?
Looks like the losses could go non linear a little bit. You said that seems like a step down. So if you could comment on the sensitivity in the $25 barrel?
And so the first point, when we reported on earnings, obviously, that was based upon market implied curves and expectations for oil prices at the end of the year. They had already worsened when we got to earnings. And while they've been moving up and down some, they are worse. That's substantially driving the incremental reserve builds this quarter. And I will just point out that across both energy and well across both oil and gas and metals and mining actually about half of the reserve build is actually concentrated in a couple of names.
So it's there's going to be some lumpy episodic reserves that will go on. In terms of the sensitivity, I want to just first caveat that we're trying to be helpful by then mentioning it, but clearly it's not as simple as taking an outlook for oil prices and also F9 compute losses. It's very difficult particularly name specific considerations matter. So this is our best estimate. We've taken I think reasonably conservative estimates and yes it's non linear.
The lower down you get in prices the more stress that you see on people as they go below their cash operating costs. So it's $1,500,000,000 is our best estimate at 25 flat for 18 months. It does assume significant draws. It does assume that we have multiple notch downgrades. We did do it to the best of our ability top down, but there'll be some variability in that.
Larry Vida.
Hi, Mary Anne. Thanks.
Hi, Larry.
Hi. You've given us the earnings walk and the component that's going to change in interest rates from here. In your 10 Qs, you give us sensitivity to up rate scenarios. You don't quantify the sensitivity of net interest income to downside scenarios. I'm wondering if you can help us out with that.
Yes. Okay. So if you take our
It's hard for it's very hard for us to figure it out from the outside.
Okay. Well, let me give you some maybe guidance without being too specific. If you take our up 100 basis points earnings at risk sensitivity in our 10 Q, it's about $3,000,000,000 We're talking about negative rates in our areas. If you were to say down 100 basis points from here, that would be negative 50 ish. That would be more than $3,000,000,000 all other things being equal because you have at least a reasonable portion of your deposits fall at 0, but you'll see compression on the loan side before you mitigate.
But there's reserve tierings that we were expecting. We would be repricing some of our wholesale deposits, we would expect to mitigate those impacts. So it's not the same on the downside, it would be more unmitigated, but we have options to mitigate.
Brennan Hawken.
Thanks. Brennan Hawken, UBS. I know it's a hard question to answer, Mary Anne, but is there
anything you can tell us about
Brexit and what it might mean for JPMorgan?
So Jason, we are in most of Europe. We have healthy franchise across the European community and we'll be able to do business in whichever outcome and the fundamental underpinnings of the European Union are legislative and so they won't change entirely dynamically. But other than that, I don't really have any comments on Brexit. I don't know if you want to make any comments.
So is the outcome of the referendum is to access what you have for sure is going to be 2 or 3 years of intense negotiation and a massive uncertainty. And that will really affect the U. K. Economy substantially and the European economy. So in terms of our business model, so it could move it could be from almost no change at all and it may be like moving few 100 salespeople from the U.
K. To some base in Europe to have to or to add extreme or have to duplicate the whole infrastructure that we have in Europe in the U. K, in some countries in Europe that it will be extremely costly. And if it is very costly for us with the scale that we have, it will be real tough for everyone else. So it is so uncertain that it may be good or bad in the long term.
In the short term, it's the amount of uncertainty based on the negotiations will be really bad for everyone.
Betsy?
So, Mary Anne, this
is Good
morning, Sealy. A question on FRTB. You mentioned that you think that it's not it's manageable and that's including mitigation. Could you speak to some of the key areas that you would be working on to mitigate that and what kind of impact it would have on revenues?
So the impact is up to 20 basis points fully unmitigated. Some of the things that we saw in the final rule were more significant shocks in rates and currencies, obviously very severe securitizations, albeit it's relative to where you start from. So we would obviously be working through understanding how we would want to reshape any of those businesses to be able to mitigate that. JPMorgan would be fine. I think it may have some impacts in the liquidity of some of those products over time, but nothing that we don't
think is manageable. Matt O'Connor.
Matt O'Connor, Deutsche Bank. Thanks for the clarity on Energy, Slide 14. Just one follow-up clarification. The 7.5% reserve for loans, what is that what's that on? What's that versus that drawn amount of the non investment grade or
Sorry, so it's 7.5% on about $13,800,000,000 of drawn exposure.
Okay. And then how should we think about when a loan goes bad, do they draw right before so that we should be focused more on
the again?
I'm just trying to get you to frame how we should think about the undrawn exposure versus the drawn.
You alluded to it
in your comments that in a severe stress, obviously, some would be drawn and the losses would be magnified. But should we really be focusing on the undrawn amount in total or more on the drawn amounts as we think about exposures?
Well, both. I mean, we're focused very much obviously on the outstandings right now and what we're seeing going on among our client base. We do have reserves. So the 7.5% is reserves for the drawn amount against the drawn amount. We do also have reserves for the undrawn amount.
It's a different calculation because obviously it assumes some degree of draw. But we're focused on both. We haven't actually seen significant draws so far year to date. So our NGA outstandings have been reasonably flat since year end. Obviously, it's only the end of February.
So when we talk about sensitizing to a severe stress, we necessarily assume that there will be more significant draws. That's not necessarily what will happen, but that's what we've got in our $1,500,000,000 downside risk.
And then just lastly, the ability to tighten up the undrawn amounts or reduce the undrawn amounts?
Yes. So as we go through the and Doug will be able to go into this later, but as we go through the redeterminations of borrowing basis, which happens a couple of times a year, we get the chance to understand that, but we also want to be here for our clients and help them work through this in a sensible way. So I would characterize it as you might see some change in that, but fundamentally we're going to work client by client at what the right outcome would be.
Susan gets key in, and I don't I think we have room for one more Esther.
Okay. Thanks, Susan. I think Jessica. In the CET1 target, the new 11%, can you honestly ever conceive of a point in time where you can do 100% capital
return? So I just want to make sure we're clear. It's really not a target. It's 11% plus on the basis that we don't know where the rules will finalize themselves. As I said, I think it's our central expectation that over the foreseeable future there'll be more accretion and that's why we put the glide path in based upon all the assumptions that I mentioned to you.
It is also the case that at the point when we get to satisfy rules, rules are clear and they're satisfied, yes, I do think there would be the potential to pay out very strongly at or close to 100%. We would hope to be able to continue to grow and that we wouldn't need to pay out 100%. But yes, once the rules are final and once we meet them and we're committed to doing that, that is our expectation. And we've not heard anything to diffuse that.
Matt Bruno?
Matt Bruno from Wells Fargo. On slide 20 you mentioned in the scenario analysis in terms of capital returns that you were using 75% in terms of total capital return. I'm presuming that's just your estimate not necessarily a better guide to where you might be in terms of capital returns given that last year you were at about 60% and it looks in that just going up to the top end of your guidance. Just trying to get a little more color there in terms of
how you're
thinking about the glide path in terms of actual capital?
Sure. Well, the reality is we're in February. We're still working through this year's CCAR. So we don't have our CCAR capital plan finalized. We haven't reviewed it with the Board.
So we don't have guidance at the moment to give you. The only guidance I would say is that you're absolutely right. What we did for the purpose of that was to the higher end of our range. We set our range over time, notwithstanding that at some point there might be the opportunity to pay out more would be between 55% 75% and we would like the opportunity to be able to move up in the range. So that's why we chose that number and not any other number in between that would be also not clear.
Okay. So I think I'll be around all day, so I'm happy to take any more of your questions offline. This year we did something a little different. You're going to get to see most of the operating committee up here today telling you all about their businesses and the business strategic priorities. But what we wanted to do was to allow you the opportunity to also hear from a number, some 20 or so of our senior leaders across the firm and these are the people one level or two levels down below the operating committee who are actually leading our businesses, leading our material functions, It's an exceptionally talented team and they're the people who make all of the magic happen.
So we're going to roll a video. Most of these people are at lunch as well. So please feel free to introduce yourselves. Roll the video please.
Our clients are first and foremost.
Scale is critical to our success.
This scale and completeness allows us to deliver the solutions, the capital, the ideas and the information that our clients need.
Technology is changing our business model, but it's also the foundation of our business model.
Ultimately, it's a hybrid model that wins here. Great technology combined with great human advice. People are at
the heart of what we do.
Customer satisfaction is how we run this business. Without customers, we wouldn't have a consumer bank. We have branches for one reason. We have branches because customers want branches. Now they have changed dramatically over the years.
Used to have to come to the branch to do a transaction. Now they become advice centers. The relationship that
we have with them is not a
singular one day, one transaction type relationship. It's an ongoing developed relationship over time. We focus on client outcomes. That means most importantly investment performance, but it's not just investment performance, it's how you get treated as a client in terms of errors, in terms of the information that gets given to you and in terms of the tools that we provide you to help you make good decision.
We execute more equity capital raises than any firm in the world that makes it easy to offer best in class advice and execution to our clients.
We're able to meet your needs through providing full spectrum capability, investing in technology, while never losing sight of our strong credit discipline.
The value proposition of Chase Pay simply spoken is that a better way to pay in store, in app and online. The value proposition for merchants is clear cut. The value proposition for the consumer is a safe, simple, rewarding way to pay across multiple locations. What I
think our clients really appreciate in the platform that we deliver to them is the fact that we are not just fair weather friends. We are able to provide them liquidity in markets that can from time to time be quite illiquid all the way through market upsets and bull markets. Corporate finance transactions tend to be episodic and it's hard for us or anybody to really predict. So being there with
the clients, to be their trusted advisor, to be with them whenever their needs are and to be agnostic to the product needs is really what is important to deliver to them a long term value proposition.
We are a trusted advisor with leading capability to solve any client need.
The client never needs to leave. We have the full wholesale channel to deliver a client from their inception all
the way to their full lifecycle. Treasury Services is core to our clients' operations. And if we help make the complex simple for them and it makes it much easier for them to run their businesses, we do that, we're only going to strengthen the great relationships our firm already has
with those clients. One size doesn't need to fit all. One of the things that we're doing at the lower end of our business is to partner with Jim Piepzak in Business Banking to optimize the client experience to deliver something that is better, faster and cheaper for that client.
Our clients never have to outgrow us. And with our very close partnership with the middle market, we're able to make sure that we get clients into the right hands from the beginning regardless of their revenue size.
Our world class partnership that allows us to help the customer as they change in their life, we could change with them.
So if you think about the $1,000,000 to 10 $1,000,000 segment, which is a big opportunity for us and we're willing to work on our market share, we are focused on a single advisor model, whether it's through Chase Private Client and the branch with Barry or through the private bank or it's through JPMorgan Securities.
We're global, we're staying global and we're investing in this business so we can serve clients for generations to come. Scale is critical to our success. It allows us to leverage our investments, our people, our solutions on a global scale. It's what our clients expect out of us and it gives us a real competitive advantage.
Our clients have myriad needs around the world and around the clock And it is this scale and completeness that allows us to deliver the solutions, the capital, the ideas and the information that our clients need to operate in this volatile environment.
We have the ability with our technology and our scale to help clients cross border to make payments in 135 currencies and with a high level of accuracy.
When you think about what differentiates our credit card business, you start with scale, dollars 91,000,000 debit, credit and prepaid cards, a great distribution franchise where we're able to leverage our 5,400 branches, a great partner network, United, Southwest, British Airways and Amazon to name a few and great Chase branded cards and Sapphire, Freedom and Slate.
Our strategy is to create a compelling value
Being part of JPMorgan is a key part of the value proposition for our business. 95% of our customers are customers of our markets division. Our clients are looking for integrated solutions from their core service providers.
It's much easier to deepen relationships with existing customers than it is to have to go out and build brand new customer relationships. We benefit from the world class capital markets we have as part of the investment bank, which is critical to what we do in mortgage. Commercial banking has
a history of strategically locking arms with our investment banking partners to deliver against shared goals.
There are significant growth opportunities in the banking business as we partner with the commercial bank. We have opportunities where we can bring them ideas for investments or helping them divest some of their businesses. A great example would be our partnership we have with our partners in asset management who provide us with a world class product suite
to help our customers in their financial decisions. And not only products, access to intellectual capital.
We're a microcosm of the firm. We advise our clients across the balance sheet and we really tap into every other line of business to be able to do that. From deposits to credit to mortgages to advice from the investment bank on buying and selling companies and preparing for an IPO.
Our brand represents strength and stability. It gives our clients and our customers the confidence to know that we are there for them through both good and bad times.
Good morning, everyone. Gordon Smith, Head of Consumer and Community Banking. I'll move my stuff around here. So I'm going to start actually and just introduce the CCB management team or at least CEOs who are part of that team. Generally, they present also during this session.
We made a number of management changes this year and they all voted that I should do the presentation. So I'm very grateful to them for that opportunity. So let's start with Kevin Waters. Kevin, could you stand? Kevin, now CEO of the credit card company, moved across from being CEO of Mortgage.
It's a quick stand, Kevin. Thank you. To Sandra Duckett, CEO of the Auto Finance business. Mike Priscilla was hiding there behind Jamie, Chase Merchant Solutions, Chase Payment Tech. Jennifer Piebsack, Business Banking, you saw Jen in the video also Barry Summers, Head of Retail Banking and Mike Weinbach has been part of Kevin's team in mortgage, now the CEO of mortgage.
So all of the Jamie Dimon, CEO of JPMorgan Chase. Thank you, Jamie. He's gone to get a tie, if anyone was wondering. But just to give a couple of examples, I mean, all of these folks have got extensive experience the company. And just to pull a few examples, Kevin was in mortgage.
Obviously, we've moved into credit cards, continue to broaden his experience across the business. Tee, as we call her, Tee was in mortgage and moved to became CEO of the auto finance business. Jen was CFO of Mortgage and moved to Business Banking. Barry was working with Mary at the front here in Asset Management and moved to run retail banking. And Mike was actually in retail banking and then moved into Kevin's mortgage team a number of years ago.
So what we've really tried to do with this and the broader team is give folks the opportunity to experience leading different parts of the company so that we're building a broad based leadership team that get exposure to all of you and that really understand the range of businesses that we run-in CCB. So guys, thank you. Welcome and very nice job on the video. So I feel I see a little bit there this morning. I mean, the CFO got up with a video and the CEO got up with a video and the Head of Consumer doesn't have a video.
So we'll try and pick up the game a little bit next year. So I'm going to give you a little bit of an overview of CCV, got some guidance to cover. We'll dive into payments in a little bit of detail during this section and some highlights on credit card mortgage and consumer banking. Let's just start a little bit with a quick run through the consistent priorities that we've set for these businesses for the last number of years. Firstly, and you see this through every one of the 6 businesses, is to deepen the relationship with our customers and to continue to focus on the customer experience.
And I'm going to highlight that in some detail over the course of the next hour or so. To execute on the expense initiatives that we committed, that effort is going well, actually just as we planned that it would and I'll give you some details behind it. Really to focus on a strong control environment and now we are moving into a cycle, well actually over the last 18 months or so, where we've taken the manual controls that we put in place and starting to drive those to be automated controls. Working with Matt Zanes and his team, Matt's just at the table at the front row there to my right, on the highest standards of information security, data security across the entire firm. To continue to increase our digital engagement with our clients, and I think I'll demonstrate for you in the course of the presentation that digital is not just another channel that drives more expense across the company.
You'll see some very real impact of detail that digital is having on our financials. And also to lead in the payments innovation space, we feel we're well positioned to do that given our size and scale and position, the assets that we have positioned in the marketplace. So let me turn now those of you who are following on the Internet to Page 3, to the guidance section. I'll get more into some of these numbers a little bit later on. But as we start with credit card, we're bringing our guidance for card net charge off rates down over the medium to long term from 300 basis points that I described for you last year to 250 basis points plus or minus.
Obviously, that suggests that we have confidence in the portfolio that we have been building and with the outlook. We are deteriorating the revenue margin for card services 12 percentage points to 11.25%, almost entirely driven by the deals that we've renegotiated in the co brand marketplace. The auto finance net charge off rate at 45 basis points stays consistent with last year's guidance, but will be up a little bit from this year's or last year's, I should say, it's absolute performance of 38 basis points. Mortgage Banking net charge off rates, we're bringing down our guidance, improving the guidance from 0.2 from 20 basis points down to 15. We're giving guidance on business banking for 70 basis points.
And the CCV ROE, we're holding steady at 20 basis points. We achieved 18 basis points in 2015. Don't expect us over the next year or so to hit '20 if rates remain at this level. When we get to Q and A, I'm not going to begin to try to estimate where rates are going to be. I think there's one thing that I can be sure of and almost every one of you, perhaps not all of you or maybe all of you have got whatever our forecast is for rates wrong.
So rates will be whatever rates will be. So turning to Page 4, Mary Anne touched on a couple of these. I think you gave us 2 red circles, Mary Anne. I've extended out red circles here somewhat. But we feel very, very good about the momentum that we're gaining in the marketplace.
And actually, if I as I was preparing for today, I realized that this is my 9th Investor Day working with Jamie and the operating committee here at the company. And I can honestly say as I look back over those 9 years, I actually feel more optimistic looking forward than at any point in the past. And I think if you go where at least as I had a little journey down memory lane and think about all of the issues we're dealing with in 2,008, 2009 and 2010 with the financial crisis, and then we had a significant regulatory agenda to undertake. We still have a significant amount of work to do, but I think that the momentum that the businesses have is really positive. So, active mobile users, up 20% year over year.
Card sales volume, Mary Anne touched on that, up 7%. Merchant processing volume, Mike, I think mentioned this in the video, up 12 percentage points. Loan and lease originations in T's Auto Finance business up 18 percentage points. Total mortgage originations up 36%. Net charge offs and mortgage down 41%, continued improvements there.
Business banking deposits up 11% and consumer banking given the size and scale of this enterprise and the continued share gains with a 9 percentage point gain in deposits. Barry, thank you for you and your team. Turning to Page 5, continue to focus intensely across all of these businesses on customer satisfaction. On the left hand side of Page 5, you see retail banking satisfaction as it's measured by J. D.
Power. We actually use a number of different measures. So I don't view any single measure as a measure that would determine how we're doing with customer satisfaction. So yes, we use J. D.
Power. They do a good job on balance. We use net promoter scores. We use internal measures that look at transactions that have experienced with us. On the right hand side, you'll see net promoter score for the mortgage company, up 38 points from 2010 to 15 and credit card satisfaction up 81 points from 10 to 15 and a move up from rank number 5 back in 2010 to 3 last year.
So let me turn now to Page 6. On the left hand side of Page 6, you'll see deposits in the retail banking business up from $414,000,000,000 in 2012 to $530,000,000,000 last year. And I think, Barry, you'd agree as we look at the 1st 6 weeks or so of 2016, we continue to look very strong. Barry is nodding over there for those of you who can't see him on the Internet. On the right hand side of Page 6, you'll see that we're starting to see strong core loan growth, up 10 percentage points, largely driven by the mortgage company.
But in every asset class we are starting to see, we are seeing loan growth and would expect to see that continue in 2016. And then our non core loans, which we've highlighted for you for the last number of years, continuing to shrink at a a 15% shrink year over year. So strong growth on the loan side. So let's just take a little look on Page 7 at some of the metrics that will give you a sense of the kind of resilience that we think we're building into these businesses. If we go back to 2,008, look at the credit card portfolio, so about we've seen a 72% reduction in the number of balance transfer loans which are generated and we view those loans as being much less sticky and much more vulnerable to an economic downturn.
And then as we look at the average bank card debt to income for credit card 8% to 15%, down 12 percentage points. Turning to auto finance, we've tried to have a conservative view of our credit box in auto finance over the last number of years. So if we look at the percent of originations with a loan to value of greater than 120%, we are 13 percentage points relative to the industry at 18%. And then if we look at a percentage of originations with a FICO of less than 6 $60,000,000 Ours is about $680,000,000 I'm sorry, check that for the record $680,000,000 Ours is 20%, down from 30% for us in 2 1,008 and relative to the industry at 48%. So if we take those 2 together originations with an LTV of less than of greater than 120 and with a higher FIFO score.
We feel that as we look at layered risk across the portfolio, we feel very confident in the business that we've been building. Turning to mortgage banking on the right hand side of the page, the percent of originations retained with a loan to value of greater than 80%, down from 20% in 2,008 to 1% last year. Percent of originations retained with a FICO of less than 680, down from almost a quarter of our portfolio to basically inconsequential at less than 1% last year. Continuing on the theme of credit, looking at credit losses and by the way I would actually like at this point to underscore the point that Jamie made at the beginning, and I hope you'll see it as we go through these numbers is the consumer continues to be, I'll use the term robust, but I would say cautiously robust. So the wild fluctuations that we've seen in the equity markets have not caused wild fluctuations in the behavior that we've seen from consumers.
So I think we've seen good steady growth and there's nothing in the data that would suggest to us that that's about to change soon. Although obviously with a material downturn, it will. Net charge offs in credit cards, performing extremely well. Auto Finance, you'll see it looks a little bit of a stone skipping on the water there. It's very much the seasonal curves we see in Auto Finance.
Losses are rising slightly. They're well within our expectations as you saw from my guidance page. And then mortgage banking, non credit impaired charge offs continuing to show very strong performance. So now to expenses on Page 9. On the left hand side of Page 9, we've taken out since we put CCB together actually since Jamie asked us to pull all of the consumer businesses together in 2012, we've taken almost $4,000,000,000 in expenses out through 2015.
And we are down almost 43,000 people from just shy of 179,000 to 136,000. These things take enormous effort on the half on the part of the management team. So let's look at a little bit more detail on expenses, exit of 14 at 25,600,000,000 dollars I like to think about these expenses in a way that says how we're driving out structural expenses. Think about structural as much more fixed expenses in the company. I was going to talk more about a number of these initiatives, the mortgage banking transformation, what we're doing in the bank branch and just to restress, please take a moment or 2 and spend some time with our bankers during the break, at lunchtime and before you go to see them because I think you'll see some very neat work there.
And on the digital adoption side, so expecting to bring structural expenses down about $2,700,000,000 Our auto lease business under T has grown more quickly than we initially expected. That gives us about $1,000,000,000 of what is just a function of growth on the auto lease side. And then we're going to put some money back into kind of marketing and innovation. I want to break these into kind of 2 pieces, around $700,000,000 here. So firstly, the vast majority of the money that we're spending here and by the way across all of our investment portfolio is what I think of as entirely variable expense.
Let me describe that for a moment. So when we're doing major marketing campaigns, which is a significant piece of our investment dollars, I'm going to show you some sensitivities in a moment or 2, we have the ability to ratchet those numbers back rapidly. So if we were to see a change in the market, we see that the returns aren't what we were expecting the returns to be within kind of a 60 or 90 day window, we can pull back on those expenses. And within about 120 days, we can bring it down to not quite, but close to 0. That's different from where we're investing in programs like Chase Pay, where we're hiring programmers, we're hiring digital designers, those do tend to generate much more of a fixed cost structure.
But my point here for all of you is the vast majority of the investments that we make across CCB are variable in significant flexibility. Mortgage, under Kevin and Mike's leadership down almost 25,000 people, and I'll cover a slide or 2 in a moment or 2 that we continue to simplify that business and it has ample room for significant further simplification. It's a very complex processing business, but down almost 25,000 people. Turn a little bit to the retail bank, which is why I'd love you to spend a little bit of time at the pop up branch. We've launched a whole set of new mobile functionality online.
Now fully 90% of all tele transactions, if I think about tele transactions as functionality, 90% of everything that a teller can do for a customer can now be done on a mobile device. So whether that mobile is actually a mobile device or one of our automated devices that you'll see outside, the ATMs which would do all of the same little truck dolly and take one away. So they're not quite mobile. But fully 90% of all of those all that functionality is now mobile. How much customers can withdraw from the automated channels.
How much customers can withdraw from the automated channels, which again is driving more and more volume to those. We've made digital account opening an integral part of new customers joining and 65% of new consumer banking customers are mobile active within the 1st 6 months. That's up from 53 I want to I can think about 2014 as last year, but 15 over 14, up from 53 percent to 65%. I thought I'd talk a little bit about kind of what do we see on these customers. And I think it is a fair question that some of you have asked me when we have separate meetings is, is this just another channel that the bank has to spend money on?
And so what we try to do on Page 13, for those of you who are following online, is we try to pull a segment of of the digital channel as their way of interacting with Chase. That group were up from the end of 2012 to the end of 2015 by 11 percentage points. Attrition amongst that group is down by 8 percentage points. But here's I think the most important point on the far right hand slide is that the cost to serve those customers and that would include their occasional trips to the branch, that would include their occasional call into the call center drops by 50%. Drops by 50%.
Paperless adoption, we spend a substantial amount of money on sending out statements and letters. And if you think about the cost, typically, a typical cost of a statement being around $0.50 it drops to about a penny with a paperless statement. So enormous, enormous leverage we have there. What we've tried to do, again, same with the left hand side of the page, is to really simplify that enrollment for customers. And simplifying the enrollment means that we allow them to turn it on, turn it off from the mobile device and to print their statement from their mobile device, if they'd like to do that at home or in their office.
And fully 60% of checking accounts are paperless again within 30 days, up from 25% 2 years ago. And as I say, that's because we've really focused on it. We've had dedicated people just working on Paperless, just building out the functionality. And so as you look to the right hand side of the page, you'll see that we're delivering 136,000,000 fewer statements. And remember the earlier pages with the red circles, while the business has grown substantially over that period from 2012 to end of 'fifteen, so 136,000,000 fewer statements being mailed and our paperless in count enrollments are up 28,000,000.
So some other expense categories. I mentioned last year that we've extensively introduced video conferencing to across the company. Our travel and entertainment spends for CCV debt is down 33%. I'd also like to say, and I know this is not something that you particularly worry about for your models, but I worry about it, is that the quality of life for our people improves, because they're not shuttling from airport to airport and trying to get home from New York to Columbus, Ohio on a Friday night. So travel expense down a third.
The number of vendors, and again, James and his team have helped us with this work. Number of vendors that we use down 20%, part of our control agenda, yes. Also part of our expense initiative, yes. The more volume we can give to a few strategic vendors, we're able to generally get better economics for ourselves. And the number of and I stress this is non branch buildings down Mike Mayo, you're going to ask me how many square feet this is and I don't know before you ask.
Mike asked me last week, how many not last week, last year, how many square feet we had across the whole branch network. But 127 fewer buildings that we're operating from, also driving simplification, also reducing expenses. And then as we look at some of the unit costs, the cost in our call centers to support a checking account down 20%, operating cost per active credit card down 12%, collection costs in credit card down 18% on a unit basis and in Mike's business, merchant processing cost per transaction down 13%. So let me turn now a little bit. I talked about those marketing expenses and investment decisions we make.
So I thought it might be useful just to kind of peel back the covers a little bit and give you a sense of kind of how do we do that. And we just use 2 examples, credit card and consumer banking. These are just illustrative to kind of give you a magnitude of impact. The investments that we make will have a return on equity of greater than 20% in both cases. We can measure that with actually a very high degree of precision.
And we can start to read the outcome of those investments actually very, very rapidly. And our marketing and analytic team can follow those almost on a daily basis as we look at response curves. A sense of kind of what $100,000,000 will do for us. You'll see on the right hand side around 400,000 new credit card accounts in retail banking around 300,000 new checking account households. So the way we manage this process is that we will look at what we see as the opportunity set.
We'll look at what our core marketing investments are doing and we'll have a monthly business review with Jamie and we'll lay out for him and say what else do we think we could spend and still meet these types of return hurdles with these types of measurable outcomes. And we'll say this is what we think we should do. And I can tell you on every occasion, Jamie will say, do it and make sure that you invest fully in the business for long term growth. So my point is just to join a couple of slides together here is vast majority of these investments are variable expense. They are very measurable.
And then the third point is that we can move those leaders, we can adjust levers, we can adjust those spigots relatively rapidly to either increase or decrease the level of spending in any given kind of 90 to 120 day window. Turning to Page 18, we've made a number of improvements to chase.com. And those of you, I hope, will see that there is a real convergence between what you see on the desktop, what you see on your phone, what you see on your tablet, what you see on the ATM, they won't all be identical, but they will have the same touch and feel. And there's more complexity to this than you might realize. Actually, as I look around the room, those of you who are using your cell phones, cell phones are all different sized screens, Tablets are all different sized screens.
Obviously, the desktop is different sized screens. So we built the capability that whatever the screen size that it the technology automatically reformats and that may sound like an inconsequential effort, but it was a reasonable amount of work to deliver that. We continue to improve our mobile app, which has had industry leading performance and ratings on the App Store. Our mobile users have something like 80% more logins a week than an average online user. This is incredibly important.
So for a couple of reasons, one is remember I just told you that the cost for these interactions is almost once you've built the capability. This is coming back. Marianne mentioned scale a number of times. This is where scale really pays off for you. And I showed you that we get better retention rates from customers who do that.
We build a deeper relationship for them. And then just touch on 2 or 3 pieces of functionality. With the mobile app, you can access the mobile app to view your accounts just using your thumbprint on the iPhone. If you then want to move money, there's a second level of security, which is add your own password, your own credentials. We've also added the ability to see your checks, the actual image of the actual check that you wrote, both front and back.
My wife likes that one. She actually will call me and say, hey, could you take a photograph of those checks and send them to me? So I think it's a really neat facility. And then I mentioned paperless enrollments a little bit earlier. Okay.
So let's move on to the payments section. Going to start on Page 21. I spent a good amount of time in that last section talking about the tried and true investments, investments that we have a very good sense of what the outcome is going to be. There are obviously investments like Chase Pay, where it's less clear. And many of you in the room will have a different point of view of what things might look like and how it might play out over time.
But I hope that you'd expect somebody with our size and scale and reach to be trying to influence what the future will look like and actually be driving towards it with our own agenda. And if you just look at the chart on Page 21, I won't spend too long on this, but you can see looking at each of the boxes, we've made many of those calls, if you like. I don't like to think of them as best candidly, because we have the input from many really smart people in the company. We take a great deal of time to think about the strategy and do a great deal of analysis behind it. But whether it's from the dissolution since the separation of our joint venture with First Data in 2,008 with Chase Paymentech.
I'll show you some numbers as to how that's performed in a moment or 2. Whether it's the 10 year deal that we announced with Visa, who have been a terrific partner for us in 2013 or the launch of the various credit card products that you see on the bottom half of the page, which we brought to the market in 2,009, and I think and it's by the way, it's good to be skeptical. We like to be skeptical too. A number of people would say to us kind of in these forums and in other sessions, well, can you really compete against the best in the affluent space because Chase has never really done that? Marianne's slide shows from 2006, Marianne, if I'm remembering it correctly, this credit card had 16 percent market share in 2,006 up to 21%, 22% share today.
So we tried to lay out the strategy kind of around kind of 3 major components. One is, how are we going to really build functionality and capability for the merchant. The merchant is a critical customer in the payment ecosystem for us. And by the way, since the announcements that were briefly alluded to on the video that we did at Money 2020 on Chase Pay, the feedback that we've had from merchants has been terrific. And the number of requests that we've had for meetings with them has been terrific.
2nd piece of the strategy is digital payments, consumer to business. And then the 3rd piece of the strategy is people paying people, person to person payments. So let me turn now just to Page 23 and give you a sense of the type of scale that we have across this payment space. So debit and credit volume, dollars 754,000,000,000 the fact finders were keep me honest on this guys. When the fact finders are doing the work for today, the stacker gave me is that every second our customers are spending $25,000 Is that the right number?
Yes, they're all kind of yes. The fact finders are looking quietly. $754,000,000,000 in 2015, 90,000,000 accounts as you heard Kevin refer to on the video and almost $1,000,000,000,000 processed through Chase Paymentech. So really, really significant scale in this space. I promised I'd give a little bit of a sense of how Paymentech under Mike's leadership has done since the separation from First Data.
And actually, I joined in 2007. This was the first assignment that Jamie gave me was to say, let's figure out how to have our own capability with our own merchant process that separate and be able to go our own way. And if you remember Jamie, you gave me a sizable number that says you can lose this much money if you need to, try not to. I won't share the number, but it was sizable. There was a lot of people again at that time who said, don't know if that can be done.
It's very technically complex. And the rest is history. And so what the top left hand chart shows you is the total process volume for the joint venture, so 51% of which was Chase, 49% of which was First Data. So as we stand at 2015, we have replaced the entire volume of the entire joint venture and grown it by a further 32 percent. Seemed like it was worthy of a pause to me.
At the top, ChaseNet is brand new for us and we expect to exceed $50,000,000,000 processed on ChaseNet at the end of 2016. It's growing very, very quickly. And if you look the bottom left hand margin, it's a simplified value proposition for the merchants. It's simpler rules. It's pricing that says if you give Chase more volume, we'll make the economics better for you.
And of course, the economics then are also better for us because we're capturing more share. And we can put the data to work to help you grow your business and take your data and help us to grow ours. And you can see some sample merchants on the right hand side of the page. So in terms of Chase Pay on Page 25, the value proposition is actually relatively simple. Of course, delivering is an awful lot more complex.
But for merchants, a lower cost of payment enabled their loyalty program as well as ours. Remember, the merchants actually want both things, not just our loyalty program, they want theirs too. And improved fraud protection, we said when we approve a transaction, we'll stand behind it. And the data is a very big piece of that. For the consumer to simplify the checkout, to embed loyalty and rewards and everything that they do at the point of sale and to protect their information.
It will also just make it much easier for them when they're buying online or in an application. So today, when you buy make it an online transaction, at the vast majority of retailers, you're keying in your card number and whether you're a Mr. Or Ms. Or Mr. Whatever you are, you're putting in your address and your shipping address, all of that, we know where you live.
We send you a digital statement already. We'll load all those in. If your credit card number changes for whatever reason, we'll automatically update that so you won't ever have to worry about that again. I talked to Money 2020 that we were partnering with MCX and everywhere that the currency wallet was accepted, Chase Pay would be accepted. And this is just a subsection of those merchants where currency is piloting in Columbus, Ohio.
We and they will get some significant learnings on consumer behavior and adoption from that work. I think the other thing is worth just taking a moment to recognize is, I read one of your reports that you know it's just getting a little bit more complicated for consumers. You You suggest better swipe a card. True. Now you've got a swipe or a dip depending if we've got a chip acceptance terminal.
You've got a swipe, a dip, you've got Apple Pay, you've got Samsung Pay, you've got PayPal, you've got a bunch of things. And so I think we're at a point in the industry's evolution. It is going to get more complicated before it gets more simple, and it will get much more simple. And one of these technologies will win out and nobody knows exactly which one it is. But I would hope that you would expect as investors in this firm with $750 odd,000,000,000 worth of spending that we would be trying to lead that next phase of the industry.
And as part of that, we're excited today to be able to say that we've reached agreement, a payments agreement with Starbucks, which will drive Chase Pay adoption. So Chase Pay mobile app will be accepted at 7,500 Starbucks locations by the end of this year. And Chase Pay will also be able to use to be able to reload your Starbucks card and will be embedded in the Starbucks mobile app. So we're really excited to be able to with Starbucks. We've had a wonderful long relationship with them and they are a really, really terrific company.
Let's turn now to the kind of last stage of the to buy a new tie, whatever it is that you might want to do. I've got 9 years, probably won't be doing 10 at this rate, right? That's what you're thinking. That's what we're trying to achieve with this component. We're working with a consortium of 6 other very large banks and they will cover that consortium about 60% of all U.
S. Domestic payments, just over 60%. It includes ourselves, it includes Wells Fargo, it includes Bank of America, it includes Capital One and so on. And so we'll have 1 central data repository that will make it very simple for customers across financial institutions to be able to make person to person payment. So just by way of magnitude as well, and we hear a lot of discussions about FinTech and so on and so forth is that through Chase Pay in 2015, our customers moved $20,000,000,000 from person to person, dollars 20,000,000,000 So about twice, we believe, the largest player in the FinTech space.
And this gets very little play, which is understandable, but about $20,000,000,000 So I think that's an exciting place. Okay. So let me just turn to credit card now. I'm going to quickly go through the businesses before we open up for questions. 21% market share, as we talked about earlier, the retail branch network is a critical partner for credit card.
I think we have the right array of products to compete in each segment of the market, both co brand and proprietary products, investing heavily in the customer experience and in digital. Credit card company has a very competitive overhead ratio at 39% and based in Delaware. And we've actually moved some pretty substantial numbers of people down into Delaware. It has a terrific cost structure. We're able to recruit outstanding people.
And they Jamie just said they like us there. So and they do. So turning to Page 31, it really is a kind of industry leading business. And if you look at the chart on the left hand side, we've actually used industry assessments or estimates and a number of your estimates as to the impact of the Costco move from American Express and Citi at about $80,000,000,000 So that will give you kind of a little bit of a sense of what the hierarchy might look like in a kind of post Costco move world. And our sales growth has been at a 9% compound annual growth rate from 12% to 15%.
The co brands definitely require some discussion. As we laid out our targets for last year, we're very, very pleased where we've ended up with in the co brand space. Yes, we would much rather that economics had not been hit as hard as they have been, but we are much happier to have these deals. They still meet all of our return hurdles and we're much, much better having them than not. So if we think about kind of where we are, this will give you a sense of deals which are already renewed and deals which are kind of in the contract cycle.
So close to 75%, 80% closer to 80% are all completed and expect the incremental impact on the revenue to be about 9 $100,000,000 a year. That includes all of the renewed and some assumptions about those which are in mid contract. And I'll save you a question. I'm not going to answer any questions on those which are in mid contract for very obvious reasons. But that's our best estimate of kind of where we stand today.
So actually I couldn't be more pleased with having got all of these done in a really, really tough environment. And you see the deals at the bottom, United, Amazon, Southwest, British Airways all just recently renewed. And if we look at our on the right hand side from 12% to 13%, almost a 40% increase in the number of new accounts acquired through the co brand relationship. So we have also a vibrant and aggressively growing proprietary business, Chase Branded Business. Sales, if we take the vintage that was 2012 and compare it to the vintage that was 2015 and look at how much consumer spending was generated on one vintage over the other, up 45% over those 2 vintage periods.
And you can see on the right hand side of the page, and Kevin mentioned these in his video, we have a card focused on each of the key market segments in the industry and those have been that has been our lineup since about 2,009, I'm going to say. It may have been early 2010, but I think it was late 2009. Page 34, a material switch to digital. As you look at the pie chart on the left hand side, 72% it's actually almost close to 75% now of our acquisitions are coming through digital channels again at a much lower cost. If you look across to the right, actually what you'll see in the top right chart is just how quickly those mobile and phone acquisitions are growing for us.
And that takes a whole set of different design requirements to make sure that we're asking for less data, simplifying the experience and being able to fit it on the form factor that is the phone. And then in the bottom, when we first designed Ultimate Rewards, we designed in such a way that the majority of transactions would be the majority of redemptions would be done online. And you can see since that since 2012, we've almost cut in half the number of redemptions that are coming in through a call center. So think about the call center transaction for an ultimate rewards redemption as about $5 or $6 And so the number, the absolute number of those transactions almost cut in half and largely kind of cost us pennies. End of period outstandings, core loan growth up from $113,000,000 to $125,000,000 and the runoff business largely finished, largely finished.
So to give you a little bit of a sense what was in there a few years ago, we had $28,000,000,000 worth of Wamu alone. If my memory serves me correctly, we had about $6,000,000,000 worth of Circuit City. Anyone remember Circuit City? They weren't looking out into the future. Let me now turn to mortgage banking.
I'm going to highlight a couple of areas here. Kevin talked last year that we've cut the number of products from 37 to 15. That's important. So I wanted to highlight that again. We've increased our share of jumbo originations from actually almost doubled from late 2013 to late 2015, the last industry data that we have there.
Delinquency rates, I covered, continue to improve. And I also covered the progress that's been made on the head count side. Going now to Page 38 for those of you who are following us, top left hand corner. Jamie talked a little bit about the improving U. S.
Economy as viewed through the eyes of the consumer. The number of homes which are underwater for customers, industry wide down 66%, down almost 90% in our Chase portfolio. Bottom, again, industry data, months of inventory of home sales cut in half since the end of 2010. Top right, there are obviously cities like New York and San Francisco, which are well above the trough. But as you look at the data you see, and I know you guys research this all the time, but the housing market is really recovering.
And 90 day delinquencies from our peak in late 2009 down 2010 down 65%. We've also positioned the mortgage business and these are loan to values to be a high quality book of business. So if we look in 2013, about 60% just over 60 percent with an LTV less than 80%. We're now 84% LTV less than 80%. If we look at, importantly, the 90% plus from 30% down to 11%.
So we have significantly derisked the book of business there. We talked earlier about core loan growth, up 17% in mortgage, non core down 14%. And the market as we look at this year, we've seen relatively consistent as we go through the Q1 in purchase and refi is well ahead of our early expectations, which feels an awful lot like it did any near this time last year. As we turn to Page 41, and we look at how we're starting to reposition the service book overall, on the left hand side chart, you'll see just kind of what's kind of coming into the service business, whether it's new originations that we're making. We made an acquisition of Servicing from Ocwen of really high performing business.
And you can see, we take that business, what the 30 plus delinquency rates look like at 11 bps relative to what's kind of flowing out of the business, whether it's runoff, whether it's sold portfolios, obviously, that's relatively modest in terms of volume, but you can see our intention is to build a much more robust, less volatile mortgage servicing business. Mortgage servicing costs down from about $8.70 in the Q4 of 'twelve, down we exited last year at 5.40 2017, but some really substantial progress made by Kevin, Mike and the team. All right, so the last section, I realize that it's been 2.5 hours since you were able to leave the room or something close to that. The consumer banking business, we talked a little bit earlier that about the growth in deposits. We also acquired 3,700,000 new checking account customers and are the primary bank.
And that's something we really try to focus intently on being the primary bank for our customers. So I know the industry tends to look at deposits. Deposits are actually relatively easy to attract. You can just price for them. What we're trying to do is attract a relationship that is a customer that stays with the bank and the deposit is an outcome of We've continued to roll out the new ATMs, the physical devices and new releases of software, nearly doubled mobile users since 2012.
And I talked a little bit earlier about the number of tele transactions that we have now kind of fully automated and that's resulted in 12,000 fewer people across the branch network. So if you look a little bit on Page 45, from 2010 to 2015, deposits up 8% and customer investments up 10%. Checking balances for customers, remember earlier I gave you the view in credit card of kind of what happens one vintage to the other. And so in this vintage, we looked at 2012 new checking accounts acquired and compared them to new checking accounts acquired in 20 15, those customers had 42% more funding in their checking accounts. Why is that important?
Again, it's very easy to acquire customers who actually don't put any money in their account. It may have been whatever marketing incentive was given. It may have been a relationship that was a superficial one because the customer's primary bank was somewhere else. So our targeting and marketing efforts are focused on how do we drive customers who's going to be a primary, who's going to view JPMorgan Chase as their primary bank and we've made enormous progress on that. Look to the right hand side of the page and this is a story that Jamie will often tell.
We've moved from basically nothing in 2011 to over $60,000,000,000 in client new money through the Chase Wealth Management, Chase Private Client effort over this number of years. And this is another good example actually of an initiative which was tested and didn't really work and was tested and didn't really work. And there's a close, close partnership with Mary Erdost and her team in asset management. Barry was in asset management at that time. And progressively, we've taken the learnings from the things which didn't work and evolved them and evolved them and evolved them.
We now have 2,800 branches where our customers come for advice on their investment. And this is the beginning of this growth story, not the end. I'm not good at those innings and things, the 9th innings or whatever it is. But it's whatever is the beginning, it's the beginning. Turning to Page 46, I think it might be interesting to see that on the left hand side of the chart here, the focus here is on us millennials.
That's a little unkind. So millennials, kind of in that kind of 18 to 35 year category, almost 60% of all of our checking account acquisitions are millennials. If we look at kind of deposits and investments from millennial households and we look at kind of where they were in 2012, where they are in 2015, also a real function of the economy improving, up almost a third. The right hand side of the page gives you a sense of how millennials use the channels. So the top of the chart, you're not surprised about at all.
But the bottom of the chart, you may well be. And so we looked at this data very, very closely because of course everyone knows, everyone, that millennials don't use branches. These do. And what so what are they using for? They use them for the same things that the rest of the customers use them for.
They use them for cash and checks. They use them for getting advice. And so even the millennial population, which I think where we have to be a little bit careful about anecdotes, Even the millennials use the branches. Let's turn to the branches. Page 47, as we look at the ending branch count, we ended 13 with 5,600.
We ended last year with about 5,400. You can see the kind of various ins and outs. And the emphasis I would make on this page is these are never static. And I have some kind of interesting data on the next page, but don't jump to it, which is it's a moment in time. If you look at particularly states, Arizona would be a great example, Florida would be a great example, where construction is growing quickly across all income sectors.
Those communities need us to go and build branches in them and we will. So we will look at each community, each area, we'll decide if there's an opportunity to build a branch. Barry and his team sit down, we go through them all. Then again, we sit down in our monthly business reviews with Jamie and we go through and we say, kind of, here's the opportunities we think we ought to build branches in. And that has to start at the local level.
It has to be the local branch managers, the regional branch managers who are looking at developments and saying, you know,
500 homes just got built in
this certain area. We don't have a branch within in this certain area. We don't have a branch within 25 miles of it. So if we don't do something, we're going to lose customers. So this page I think is relatively interesting.
So these three segments, again, states, MSAs will move in and out of these three segments. So this is just a moment in time. And at this moment in time, we broke these into increasing areas where we were increasing the number of branches, we're maintaining the number of branches we had or we felt that there was a need to reduce them. So if we take somewhere like Phoenix, where we have a great density of branches, Barry went through last year that we put in a number of processes that help us to say, if we've got n number of branches and can we if there's 3 branches over an n mile period on a freeway, can we take out one of them? Can we move the staff to the other 2?
Can we do training, training for the customer and minimize any impact to the customer and any loss of business? And that process see actually, let's go to the bottom line. Industry change in deposits, you'll see 14, 18, 18, 6, 20. And then if you look at Chase change in deposits, you'd expect where increasing branch counts in places like Miami that you'd expect us to be substantially ahead. But if you look across that penultimate line, 48, 35, 31, 27, 24, you see in each state whether we're reducing the branches, maintaining the branches or increasing the count.
Because of the way we're doing that, we're actually outgrowing the industry in each of those segments. And so in preparation today, I thought it would be useful to say, well, if we look at the branches and we say there's a kind of maturation period of 3 to 5 years, you build a new branch, you've got the expense of building it, you got to build the customers, the bankers have got to build the relationships and the community, etcetera, etcetera, etcetera. That's a 3 to 5 year window. If we looked at the branches and said, how many of those branches were not profitable on a variable basis, were not delivering positive contributions on a variable basis. So ask Barry and the team, 33 was a number, I think, Barry, at the end of the third quarter, 33 of 5,406.
And so we actually just updated that for I think I got the data Friday night and Barry seemed already closed 25 of them in the Q4. So it's down to 13. So
I think the
point here is that and that often I'll be asked, why don't we just accelerate closings? Why don't we close 400 or 500 branches? The answer to that is the customers want to go there. And when they don't, we'll change the strategy or we'll evolve the strategy. But customers are using the branches, and we have a comprehensive set of activities to monitor their usage and profitability.
Page 49 just runs through kind of where we are in our top 10 markets, where we rank in terms of deposits and the number of branches that we have with kind of the number 1, 2 or 3, and based in a really terrific footprint of high growth markets. My last slide, you'd be glad to hear I'm sure, Just I think takes a moment to reflect on the power of this consumer franchise that we're all fortunate enough to lead here. I said at the beginning that I felt after 9 years of these meetings that I felt more optimistic now than I have. That doesn't mean that there isn't a bunch of work to do on the regulatory side. It doesn't mean that there's lots of volatility in the market and equities leaping and falling and FinTech and yes, there's a lot going on.
But I hope I've given you some sense of how we're positioned and you can see as you run your eye down these pages that or down this final page that we just have a terrifically strong position across the entire consumer franchise, some really good momentum. And I think a mixture of investments that fall into that tried and true build the business the way that we have always done and investments that look out a little bit into the future that are certainly more speculative in nature, but are harder for you to model and harder for us to model candidly. But if you go back to that slide that I used earlier of a continuum since 2,008, there have been a number of those investments which have been difficult to calibrate. And I think our job is to try and balance those tried and true for you. And so that we can make sure that we're continuing to maintain our position and that we are building for the long term.
So I think I actually finished 14 seconds early according to the clock, which is entirely luck. Sorry.
Siguasek.
Thanks, Gordon. That was very comprehensive.
I see quite tired.
I just wanted to kind of go up a little bit, high level on the 20% ROE that you talked about towards the beginning of the presentation. And you did highlight that you have some challenge on the feline and you highlighted that NCOs are expected to be flat, pretty much with what you've had in the past presentations. So just trying to understand in this more difficult rate environment that I think is set here today, how you can still get that 20%. You didn't talk about additional expense management tools, which I know you're still working through prior years' expectations, but just how do you get that 20% to stay?
I wondered who'd ask if I was going to set a new expense target, and it was the first question. I want to finish. The first thing about expenses, I would say, is we don't really need an expense target. Forget we don't really need it. We don't need an expense target for us to be intended to be focused on expenses.
A couple of years or so ago, I thought it would be helpful to show our intention to all of you. And I want to get the job finished and we still got a little ways to go. We're about, by the way, if I look at that kind of $2,700,000,000 and the way I would think about calculating kind of where we are, we're just over the halfway mark and how do I calculate that. Rather than take kind of what the expense, the absolute expense was for 2015. I take the 4th quarter expenses and I annualize that with some seasonality because as we implement these initiatives and obviously the whole bunch that get done in the back half of the year give us very, very little and some have actually cost us money because we haven't had the full benefit of a 12 month run.
So we're about kind of halfway through it. So before we give another target, we'll think about that for next year. We'll get this one delivered and you can be assured that we will be continuing to drive expenses that are structural in nature and then aren't driving revenue out of the business. That is for sure. In terms of the ROE target, we need some help on rates.
So we're going to have to see some improvement in rates
to get to the 20% return on Ecstasy.
I'm not even going to hear it. Every time we try to predict it, if you'd asked me that question in November, I probably felt quite good about where rates were going to be in 2016. Right now, who knows? But given I can do nothing about it, what I can do is stay very focused on the expense side of the business, which we will. We'll deliver those numbers and we'll drive on past them.
We will drive on past them and we'll continue to invest in the franchise. So I think that in order to get straight to the 20%, I'm going to need some help from
Eric Wasserstrom from Guggenheim. Gordon, a couple of questions on Hondo and a couple of questions on card. I think in the initially there was a slide which showed the percent of originations with an LTV greater than 120% and you were well below the average. But 13% still seems like a terrifyingly high figure. So could you maybe just address the prudence of that?
And on in auto, also one of the topics that frequently comes up is the residual risk from used car pricing and where that's going as you grow out your lease portfolio. Could you kind of address how that's being contemplated in your loss expectations? And on the card side, just two questions. Co brand is obviously big topic and you've addressed that well. But
could you just maybe
address what your bidding approach is when approaching a when there's an RFP, does like merchant volume matter and how you approach it in terms of like generating network relevance and that kind of thing? And then lastly on acquisitions
You're hoping I'm going to remember all of it. That's like 6 questions.
Go on. Keep going. And just lastly on acquisition costs. The competitive environment versus digital acquisition, what's the net net on that in terms of acquisition costs?
So starting with the auto finance piece, remember, we're focused on that kind of prime, super prime space. You're absolutely right to concentrate on that LTV. But if you think about prime and super prime, if all of you who I'm going to have in that segment are thinking, do I want to upgrade the stereo to the $1,000 version? Do I want the sunroof? Do I want the you're going to do it.
And you're going to think about it as a consumable. It's a luxury. And as we look back over time, in those two segments, particularly prime and super prime, it's we see very good credit performance. Those customers are typically turning their car in every kind of 2 to 3 years. So when you get down into the subprime space and you're seeing those LTVs rising and effectively what the customer way well be doing is they may not have actually finished paying for the last car and they're rolling some of that loan onto the new car and LTVs arise and then the risk is significantly higher.
On the residual risk, it's I think my friend to the right here may well have planted that question. He asks, C and I go through that literally every month in our business reviews. And it's a risk that we try to calibrate very, very carefully because we're not in control of the product cycles, we're not in control of what's going to happen to those used cars when they kind of go back onto the market. So we try to monitor those things all the time and just kind of calibrate how much risk we're taking. Tia, anything else you'd like to add on that?
I would just say we have
a very robust structure with our manufacturer partners and we work closely with them to understand their growth, what they're doing in terms of their cycle, in terms of new product. And so with the tight close relationship combined with a really robust credit risk structure, we feel that we are adequately reserved for the risk that we take with respect to off lease vehicles.
Thank you, T. And in terms of the car deals, we kind of structured in such a way that have a general manager of each partnership. Then we have a deal team and actually tried to separate the 2, because it's just that kind of separate that relationship, have one deal team that really understands the deal structures and the industry. We obviously look at what the impact is on merchant sales and how important that is. We look at the importance of its contribution towards our overhead structure.
Remember you lose these deals, it's easy to say, but then now I've got to go take a whole bunch more operating expense out. And some of that takes longer. I always think about that kind of fixed variable as a function of time. But if all of a sudden I've got a building I need to get rid of, that time can be quite elongated. So we take in a whole bunch of factors.
What do we think what's with losses? What's going to happen with rates? What do the economics look like for us? I remember the deals that you've seen us renew, we know very, very well. Some of them, we've had partnerships for 2 decades.
So we aren't in the dark as we're bidding on them. If we reach the point and the way the kind of process works through with this is, it will be Kevin and I and the deal team will go through iteration after iteration. We'll get to the point that we'll decide where it is we want to be. We sit down, send the data first to Jamie, we sit down and go through it and we say to him, this is kind of our best and final. And if our best and final isn't good enough, then we've prepared ourselves to be able to walk away and we know what actions we'll take in order to reposition the business with or without the partner.
The ones we've renewed are really great partners with tremendous growth, great growth potential and I feel really, really good about it. So that's on the defensive side. On the business development side, obviously, we're looking at every deal in the marketplace and deciding and we have a list of those when they come up that we'd like to bid for. We've worked through all the economics and what they think what we think they'll do for our scale. We look at the partner and to the best we can judge, how we think they're performing, how we might help them improve their performance.
And we'll start that process of building a relationship with someone who's not a customer, but as a prospect, but it may well be Daniel's customer. And that can be very helpful to us as well. So that's kind of typically. Kevin, would you want to add anything to? No, Kevin said no.
Matt O'Connor on the left.
Can you talk about your strategy of partnering with other online lenders?
And I guess specifically just some
of the unknown risks when you deal with third parties. And I appreciate they're very small in nature. Yes. As we think about regulatory environment, the reputational risk, what is there the risk that you're taking there? And then just lastly, why not just do it all organically?
Is that interesting?
Yes, it's a really good question and think about these partnerships, the technology partners. We aren't going out and saying let's take on someone else's risk appetite or someone else's risk criteria. We will look and see is there a best practice that we've missed that we can learn from. And I'll have Jen say a couple of things about her OnDeck partnership in a moment or 2 here, but it's about technology partnership and yes, we could build it. And we do go through an assessment of all of these things and how are we going to separate our resource and say kind of what will we build, what could we buy so we can actually go out and we have a set of options that we might look at and say, hey, that might be a great company to buy in order to get a whole set of capabilities rather than assets or capabilities that we don't have.
So it can just be a faster way to learn for us than saying we want to kind of go and build absolutely everything. But Liz, Jen, there you are.
Yes, sure. I'll just add that in this case, we certainly looked at in the OnDeck case, we looked at a buy versus build versus partnership. And just given our need for speed to market in this particular case where we're looking to remove pain points from the customer experience for small business owners, partnering is what made sense for us. But important to know that we went through our rigorous TPO processes and our reputation risk committees as we thought about the best partner in this space and know that it's a fully white label product that's completely integrated. And as Wharton said, Chase pricing, Chase balance sheet.
So in this case, it just made sense for us to go that route.
Gerard Cassidy.
Thank you. Gerard Cassidy, RBC Capital Markets. Gordon, you talked about the increase in the primary customers that are now digitally centric. It was up 11%. Can you share with us what percentage of the total customer base is digitally centric in the consumer bank?
And second, when do you think the outflows in the mortgage servicing, when will that be below the inflows in terms of the number of units?
Yes. On the mortgage servicing front, it will be a really long time before the outflows are greater than the inflows. And so you should the way you should think about mortgage servicing is just to think we're going to evolve that book over time. And it will take a long time. There's no quick answers to the servicing component of the business.
I don't have the number to hand on the number of customers that are Digisty Accenture, other than it's just growing very rapidly. And I think particularly our focus has been, yes, to take our existing customers and move them and I say move them and to share with them what it is we're doing from a digital perspective and we terrific take up through all of our marketing efforts to do that. But the real focus that Barry and his team have had is from all of those new customers we're acquiring from day 1 to get them to be digitally centric. Mike, do you want to say anything else about the servicing book? And then Barry, if you have a perspective on?
The only thing I'll add
on the servicing book is a lot of it is rate dependent as so much of our businesses are. With rates as low as they are, loans are refinancing quicker and that leads to part of the runoff. But strategically, we've been working to just
have a higher quality book. So, we had an opportunity to acquire some servicing last year, which we felt great about. We had an opportunity to sell some servicing that we felt great about selling. So some of it will depend on what's happening in the marketplace.
Let me just make one question.
I was just going to reiterate it. On the mobile side, Gordon showed the slide that naturally it does create some efficiencies as far as the cost deserve. But the real driver of mobile technology for us has been, it also significantly increases the opportunities we have with these customers. About 40% more likely to choose us as the primary bank when they leave with a mobile log on. So that's a big focus on.
The 2 last question, Brennan and Mike.
Yes. Thanks.
Hey, Gordon. Brennan, Halk and UBS. First, a follow-up to one of Eric's question, because he didn't have enough parts.
He missed a footnote. For this table, yes, collectively.
Is the pressure from partner renegotiations, do you think, partially cyclical and partially secular? And is it possible to unscramble that a little bit so we can think about that business on an ongoing basis? And then another one, I know that Mary Anne mentioned there's been no material regional points of pain from the energy stress. But early on last cycle, we saw some of the leading indicators like timing of credit card payment, folks who used to be transactors starting to rotate a bit. Has there been any regional leading indicators for potential stress in your portfolio from that?
Yes. So just starting with the co brand space, I think one of the things we were able to do at this company is to invest very strongly through the worst of our competitors, the vast majority of them did not do that, were not able to do that, and so lost a number of years. We're at a point where interest rates are astoundingly low and that's the and credit losses are at the lowest certainly I've ever seen. It makes the space particularly attractive and it's just made it acutely competitive. Typically these cycles come and go and this one is without question a pretty competitive cycle.
But as I say, very pleased with the deals they've done. We've done that cost us some money, but we'll better continue to grow from them. What's the second part of your in Houston, but nothing significant. In Houston, but nothing significant at this point. And as I say, as we look the country, the consumer looks very strong.
And I think generally, and Jamie said it when he started his comments, the thing with the guy, I was traveling at the weekend, I saw 169 gas. I don't remember when gas was 160 €9, and Daniel from what are you paying Daniel? £0.20 a liter, so you can do your math on that. But that helps the consumer in
pretty significant ways.
Mike, you are next. And last, Mike,
but not least. Well, Chase, Pay, is this going to work? I mean, what I'm hearing is that, I mean, to the merchants, free network merchants, so I get it. Consumer, they get all sorts of rewards, that's free. They're free for the merchants, free for the consumer.
Can you help me with the math, Like who's going to pay? Is it the shareholders in this room? And one other thing, which I really want to know, why are
You didn't want to know the answers
about that. I would You didn't want to know the answers about that. I wouldn't know that. But why are consumers going to use Chase Pay? I mean, you have Facebook and Apple and Samsung and all these others out there.
What are you going to give us? Are you going to give us free tickets to the U. S. Open or Rolling Stones tickets? Or what are you going to give us to actually use it because it's a competitive world out there for the digital wallet?
You're dating yourself slightly with the Rolling Stones, but I'm right there with you. So listen, I mean obviously we think Chase Pay is a great opportunity It's going to be successful. Obviously, we do or we wouldn't be investing money and some really, really talented people in it. But as I try to reflect in my comments is it's a space that isn't defined yet. And so we could make some bets, we are, It's called Chase Pay or we could just sit back and watch everyone else and hope we can catch up.
We feel really good about it. I mean, I certainly don't think the merchants might would view it as free because it isn't free. We certainly have reduced merchant processing costs for them. Yes, we're certainly going to help them and merchants operate this way. If you're a major electronic supplier and you buy 100 microwave ovens from a supplier, whomever that might be, you pay a certain amount for them.
If you buy 100,000, you're going to pay a very different amount from that supplier. And so what we've tried to do is to lay out a set of economics that we think would be really good for us and be really good for the merchant if we can continue to gain share. And I entirely accept your premise, Mike, that it's got more complex. And if look a little bit at the strategy, what we've tried to do is say we're making our own bets, Chase Pay, but we're also partnering with other people. So we're in Apple Pay and they've been a great partner for us and I hope it's really successful.
We're in Samsung Pay. I hope it's going to be really successful. So the reality is at this moment in time, I don't think anyone can put that. I actually have with me, I forgot I left it upstairs. Given your Rolling Stones fan, you must have had one of these.
But you remember the old cell phones with the antenna that used to come up and the big thing that used to come down there, you were like 15 minutes of battery usage on it. It wasn't that long ago. That was kind of 1992 or something. And how many people back then would have said, hey, listen, it's going to be a flat piece of aluminum with a glass screen that you can touch and that you'll better run it as if it was a desktop. So we don't know.
But I think we do know enough and we have got some great people working on it. And the Chase pay strategy is entirely focused around customer and the customer being the merchant or the card member. And we're excited about what might be possible. And we'll just keep working on it, evaluating it and seeing how the industry changes. Thank you all very much for the time.
So we have if you can just look at your own watches, we have a 15 minute break and then please come back and join Mary and her section on asset management. Thank you all very much.
All right everybody. Welcome back. Between now and lunch, we are going to cover 2 of the growth businesses of our firm, Asset Management and Commercial Bank. And for those of you that I haven't met, I'm Mary Erdos. I'm responsible for the Asset Management business of JPMorgan.
And as a business, it should be near and dear to everyone in this room's heart since it is the business you are either in or covered. So with that, we're going to go through some deep dives on pieces of the business. The A. M. Franchise is one of the longest standing parts of the bank.
It dates back 180 years. And over that time, we have had a very, very special focus on a client driven fiduciary business, where well trained professionals learn their craft and pass it on year after year of that expertise to the next generation. And at the top of that pyramid, we hold very, very precious the analysts and the portfolio managers as they are the most important driver of what's key to this business, which is investment performance. And because we've done that religiously with the best talent, we're able to deliver superior investment returns, strong investment flows and through time very impressive financial performance. And you can only do that consistently year in and year out if you want to have a business that lasts through decades.
And in fact, this year, we are going to have 260 families celebrate their 75th or greater anniversary with us at the firm at this firm. That is why this is not a business That is why this
is not a business that
you can just start and pop up because it has a high ROE. This is a business where you have to earn the trust of your clients each and every day and you can't just create a new product within a very short period of time. And so that is why the strategic priorities of this business are very consistent. 1st and foremost, and you hear me each year talk about investment performance. It is the number one driver every single day.
A consistent and continuous drive for efficiencies while maintaining a highly controlled environment and never stopping to hire the future talent of this firm, investing in new products and delivering great services to our clients. So let's look back at 2015. Just like Mary Anne had a year end review slide, this is ours. 2015 was not our best, but we still managed to set many records. Most importantly, the first one on investment performance, we now have 231 4 and 5 star rated funds by Morningstar.
We were able to generate record revenues and that has grown consistently every single year since the crisis. We also have a record credit book that has also grown not only consistently through the crisis, but actually as far back as our records go. And at the bottom of the page, if you look at each and every one of the channels that we deliver our products through, whether it's the Global Wealth Management business, whether it's the institutional business to our sovereign wealth funds and central banks or whether it's to what we call retail, which is our mutual funds business, we have added talent year in and year out and at the same time impressively increased productivity. And that's why we think we have the most powerful front office sales force in the industry. And so let's take a look at how that stacked up in the years Over the past 5 years, we have had a very steady growth business and that revenue that I talked about over the past 3 to 5 years has grown at a 6% to 7% CAGR.
Pretax has also grown consistently, but the last year was slower than we had hoped. And I want to drill down on that for you. I want to show you where we're investing. I want to show you where we're squeezing out our efficiencies and why we're very deliberate on the balance of all of that. But before we go into the expenses, I want to focus on the very bottom row, which is client assets.
Up until September 30 last year, we were very, very proud to be the only firm that had post crisis 25 consecutive quarters of long term flows. And we broke that in the 3rd Q4 of last year. And so we want to take a look at what happened. If you look at the upper right hand of the chart, you will see that the first half of the year we were actually on target. We had about $30,000,000,000 in net new flows.
That was on track for our average $60,000,000,000 to $80,000,000,000 a year in net new flows, which is about 44% to 6% long term AUM growth. And then in the last two quarters, we were hit by some big redemptions from some institutional clients who needed liquidity and we ended the year at plus $16,000,000,000 If you look at the blue bar, which is the mutual fund data and that's where we can readily measure it versus competitors, we still in the year of 2015 were the number 2 in flows in active mutual funds and number 5 in all funds including passive and ETFs. And very importantly, if you look over a cumulative basis, we still end up number 1 in active managed mutual fund flows and number 3 in all flows, which is about 5% to 9% of industry flows, which is a multiple of our market share, which is why we continue to grow so nicely. And it's very important to note this little box on the right hand side, especially important for this room. While the media constantly focuses on passive being the conversation of the day, 75% of this industry is actively managed and 90% of the revenues come from really smart people like you picking stock.
And so where did all those outflows come from? Were they across the board? Did it have to do with investment performance? Were people leaving our firm? What was it?
Let's take a look. This is a chart I've shown you in years past and it's very important to notice the breadth and the depth of this asset management business. And in fact, it wasn't widespread at all. It was very concentrated. If you look at the bottom of the page, 2015, it was in fixed income mostly.
It was in Global Investment Management mostly and it is where our clients needed their liquidity. Unfortunately, we didn't capture them taking money out of what were our very strong extended markets performance funds and didn't capture it back in the core products. The good news is equities were still positive, alternatives were still positive, multi asset solutions were still positive. And the better news is as we head into 2016, those outflows have subsided. Our clients are relooking at those core products and as a matter of fact, our core fixed income products are top decile year to date across the board.
So when we take that first section of long term AUM flows and we add to that that second section of long term client asset flows, which are the flows we get from the private banking clients who also ask us to help us with their assets. That's where we're more readily able to look at overall client assets versus our publicly traded peers. Let's take a look at that ranking in this periodic table you have seen in past years. Last year was the first time we weren't in the top 3. In fact, we were number 8.
But still, even with that not so strong showing in 2015, we are number 2 overall and we average $80,000,000,000 a year still. We expect that to continue in 2016 because of our strong investment performance and most importantly because of our equally matched talented front office sales force. We're poised for another solid year of growth. So let's look at the details now of the margin that I talked about. Irrespective of what happens in flows and in revenues, much like Gordon and Mary Anne talked about, We spent an enormous amount of time analyzing where we're spending your shareholder money on expenses.
And so Brian Carlin, who's here in the front and runs the finance team for asset management as well as all of the people across the control side, tech and ops, etcetera, We spent a lot of time figuring out where is it that we can automate manual processes like Gordon was talking about, where we can recycle savings into future growth and how we can make that spending on a more leveraged sense in our business. And in 2010, we had a 31% margin. You have seen that spending on controls ramping up quite nicely, tech automation at the same time and client documentation uplift. All of those together have left us with a not too shabby 27% margin in this business, but we think that will be the cycle low and we expect to end 2016 at an exit run rate of 30%. And through that, we never stopped investing in the 2 areas that are super important for us, technology and people.
Technology, because we need to constantly automate, because we need to have a digital platform to touch those millions of clients we serve around the world and because when we use big data, it's not just to give us insights that you think of traditionally with big data, it's to help our analysts and our portfolio managers to actually see the things that they're buying and selling and the unnatural biases that they're finding themselves in. It's helping them to be smarter and better portfolio managers. And we think those are really, really powerful tools that we have. And then of course, top talent. We have to continue to invest in future talent so that we have great products and services for our clients.
And we don't just get this within asset management on this page, but really across the firm. Now last year, I had a page like this that talked about cross sell synergies in the firm from a revenue standpoint. This year, I thought it was important to show you where we get the synergies from an expense standpoint. Just look at the first line. Kristin Lemekow, who is here somewhere, spends a small $3,000,000,000 a year on marketing so that we don't have to.
John Donnelly and his team go to 400 colleges and universities around the world so that Daniel and I from a wholesale side of the business can his team have developed a J. D. Power ranking of number 1 in the branches and thank God they have, because 40% of our very, very demanding private banking clients go into those branches every month. Matt Zanes manages 75,000,000 square feet worth of real estate and we benefit from that. I can't imagine having to replicate the office that we have in Place Vendome that was given to us 100 years ago by the government of France because of our health in the Prussian War.
It's one of
the most beautiful places in
the world and we get to benefit from it and our French clients really love it. Matt also oversees $9,000,000,000 worth of technology spend. There was a great article in the Wall Street Journal last night. Just imagine if the four lines of business had to figure out their own way in protecting the perimeter of this firm. We don't have to and our clients take great comfort in what they are doing to protect their assets around the world.
And then Peter Scheer on the bottom oversees the foundation of this business that gives away over $200,000,000 a year to the communities that we operate in. And that's really important, especially when we go to advise those communities on how to give away their own money. Makes us better, smarter and more in tune with the challenges that they face. So now let's dive into the business that actually creates the Alpha, the business that is most near and dear to your heart. This is a business where we are active managers.
We believe in the value of active management and we hope you do too, so you don't have to find another career. At the heart of how we develop this strong investment performance is hiring and retaining great talent as we talked about. We cannot afford turnover when we have 3 year lead times for our product track record. We just can't. So for me, the measure that I think about as to whether the inputs are right for the outputs you're going to get in the future is the retention of top talent.
We have a measure that I focus on weekly and it takes all of the talent that we think is top, we rank it and we expect that and hope for that to be 95% or greater every year. It has been. And as a matter of fact, in 2015, it was 98%. It's telling you that these people want to be here, that there are we are rewarding them fairly and that it is a place where they can invest their career. It's also a place that has lots of new product innovation.
As a matter of fact, last year we launched 40 new products. But what's not on here is the 37 that we closed down or merged. It's really important that we rigorously optimize the portfolio that we have out there for our clients that we're giving them the best and taking away the ones that aren't working as well. It's also really important that we focus on the ETF and the passive space. Our focus to date has been on smart beta, but we're active users of passive, particularly in our solution suites.
We continue to evaluate those products that need to be launched or developed within asset management. And then we try to find a way to take all of that intellectual capital, all of those research insights from the analysts. Our analysts, by the way, see 20 CEOs, CFOs or C Suite Executives every day around the world. They bring that together and we put it out to clients and things like Guide to the Market that every quarter we give 180,000 financial advisors at your firms and at others and then that gets leveraged on an exponential basis out to their clients. We think it's a really, really important way to get the message out of what JPMorgan delivers and that's because we want them to invest in our great strong performance.
So let's take a look at that. To start at the bottom of the page, I had earlier in the deck that 84% of our investment performance over a 10 year basis is beating peers. That's good, but it's better when it doesn't come from just one asset class and it's even better if it doesn't come for 1 or 2 star products. And in fact, you can see it's coming strongly from equities, fixed income, multi asset solutions. And when you look at some of the products that I've highlighted, these are not mega products that are tapped out in their growth.
Global Bond Opportunities just hit its 3 year track record. It got a 5 star rating for Morningstar and it's only $1,000,000,000 in assets. Now it can begin to have great growth. And this is why we have the confidence that our sales force can take each and every one of these pieces and find the right solution for whatever their client is looking for from different corners of around the world. Now let's take a look at something like equities.
We've gone from number 7 in mutual funds ranking to number 5 over the past few years, number 2 in flows last year globally in the active space. How have we done that? This is one of the core parts of our portfolio, U. S. Core equities.
So let's just take a dive into this. U. S. Core equities, the process we manage is driven by a dividend discount model, quite familiar to all of you. But what might be unique to how we do it versus other firms is this model is driven by the analysts.
The analysts do not write reports hand them into the portfolio managers. The analysts are the ones that are deciding which stocks they buy and sell. They rank them. They put them in there and then they partner with the portfolio managers to construct the right portfolios given the risk return profile of a particular client. And that one engine kicks out all sorts of different products from the left side of your page, which is an enhanced index product to our core active product, all the way to the right side, which is our onethirty-thirty where we go both long and short.
And you can see when you look at the percentage of time that those products outperform the benchmark net of fees, that is why we believe in active management. 97% of the time in disciplined equity, 93% of the time in active and 72% of the time in long short. And of course, as you move to the right hand side of the page, you would expect cumulative greater alpha, which you can see we have delivered. It's really quite powerful and it's an enormous leverage to how we think about these portfolios. A similar story in alternative, also 3 decades worth of managing alternatives where we have bought different products, we have sold various ones, we have built them from scratch, we've joint ventured altogether resulting in $220,000,000,000 in alternatives that we oversee or manage for clients.
Everything from the bottom left, which is our global real assets business, we are the number one core U. S. Real estate manager in the United States, all the way to Liquid Vault. That's where we have things like Systematic Alpha. It just hit its 5 year track record.
You can see the numbers there. It is very difficult to be in the liquid alt space if you don't have 2 major strengths. 1, you need to be a good alt manager and 2, you need to know how to manage mutual funds. Not every great alt manager knows how to manage a mutual funds business and not every great mutual funds business knows how to be in the alts space. This is where JPMorgan has a tremendous added value and advantage as we think about what's going to be one of the fastest growing parts of the alternative space.
And then solutions, which actually is the fastest growing part of our business. This is where we take the building blocks of everything we do in those asset classes equities, alternatives, fixed income and we pull them together in what Chris Wilcox asking us
to
piece together different things based on their future needs, asking us to piece together different things based on their future needs to glide path products that we create for the retirement markets. And that's why this part of the market is growing at 2x for us in terms of growth versus the industry. If you just look at the bottom right hand side, target date funds, we are number 3 in flows and we are number 3 in AUM behind what I would consider 2 of the most formidable competitors in this space, Vanguard and T Rowe. They are very strong incumbents, but we have a very, very strong suite of products. 90% of what we have in this space is 4 and 5 star rated and we have never had had a quarter of negative outflows.
So when you take all that we do in the mutual fund space, whether it's fixed income, whether it's equities, whether it's liquidals, we want to look at the entire mutual funds complex so that we can look at what we have going forward and so that you can take confidence in those flows numbers that I showed you. So I want to look I want you to look at this on a new page that I've created, which is versus our largest competitors. We worked with Morningstar Data and what we did was we took the 3 largest asset classes, equities, fixed income and solutions and the 5 largest categories in each of those subsets, both in the U. S. Part of the market on the top and the international part of the market on the bottom.
And I'm proud to say that JPMorgan has more 4 and 5 star rated funds today than any of our competitors in the large asset class categories. We only have 2 that are punching below their weight, those are the red ones, and we have 2 where it's too soon to be ranked. And that product suite, plus the investment performance that's in them, are what gives us the confidence to have our sales force continue to grow. And George Gatch and his teams around the world have grown and created 1 of the strongest mutual funds asset gathering groups that I've ever seen. So before I leave Investment Management, I need to touch on one last page because none of you let me out of the room without asking the following question.
What about the money market funds business? And you ask it to me because we're 2 in the business. We've been 2 for the past decade and we expect to continue that leadership position. Why? John Donahue is the same person who's been managing that business for the past 20 years.
He's led it through multiple Lehman crises. He's led it through lots of regulatory change and people turn to him to help think about how we should structure what's happening in the market. And there are 2 major changes. 1 is regulatory and the second is rates. From a regulatory perspective, we're going to have massive change at the end of this year in the United States.
We're going to go from fixed NAV to having both floating and fixed and it's going to be different for institutional clients versus retail. As you can imagine, we are very well set up to be able to capture those changes. In the international markets, it's a little different. There are places like Japan that just went negative and they don't have the ability to float money market funds yet. So they're going to have to figure that out.
There are places like Europe that went negative earlier and they have figured it out and we run those money market funds quite smoothly and successfully for our clients. And from a rates perspective, when you think about what's happened in the U. S, as LIBOR started to come down and then the Fed finally moved in December, you actually saw that first 25 basis points of a move take out the bulk of our fee waivers. Why? This is really important, because we're not mostly a retail mutual funds money market business.
We are mostly an institutional money markets fund business. So we didn't have very high fees that we took all the way down. We started with very low fees, so the getting out of the waiver takes you a much shorter time period. If and when we get a second Fed rate move, we will have about 90% of those fee waivers gone. So that is important to know as part of the portfolio in Investment Management.
But now I want to turn to what I think is a special gem with inside of all of JPMorgan Chase and that's our Global Wealth Management business. This is a business that was founded 150 years ago and it has always been advice driven money management business. Now why do I say that? Because sometimes when you think about Global Wealth Management Businesses, you think first about brokerage and then going into the money management side, this is just the opposite. It has always been a fiduciary business that manages money and also helps clients with their brokerage needs.
And because of that, we have found ourselves in a very unique spot in the ultra high net worth space. We are the largest globally with the large clients. And that expertise over the past 10 years as Gordon talked about, especially with movement of talent of people like Barry and others, we've been able to take that into the high net worth space. And we've been able to do that in what I think is a much easier move in going from the ultra high net worth down into the high net worth versus what lots of other people try, which is to go from the high net worth and find yourself being able to deal with the most difficult and sophisticated clients. And that's why I think this is one of the largest growth opportunities across this whole firm.
So let's take a look at it. It's really hard to open the newspapers these days and not see somebody who wants to sell the U. S. Broker dealer part of their private bank, who wants to shut down their Swiss private bank for various reasons. And this is a business that you heard Phil Diorio, who's Head of our Global Wealth Management Business on the video say, we are global.
We have always been global. We will continue to be global. And not only that, we will continue to grow. And we are growing at, you can see the numbers on the left hand side of the page, about twice the rate of the industry. Why are we doing that so well?
Because we have that focus as I said on the ultra net worth and we've been able to take that into other clients. And the demographics of this business, Jamie mentioned them briefly in his opening comments, are there for continuous growth even if you don't gain market share. The number of millionaires in the U. K. Alone is going to double in the next 5 years.
The number of millionaires in China is going to double in the next 5 years. The number of millionaires just in the United States of America is going to grow by 50% in the next 5 years. And we are poised to be able to capture that. And when you start to take big data and you take what Dana Deasy and his team do for us across what Gordon's business and my business And you take Kevin Waters' new credit card business and you see all of the clients that spend 500 dollars 1 or more on their little Chase credit card, you know that that's probably a client that we could help serve broader across the firm. And that's what we're here to do is try and find ways to help our clients even more.
And so let's look at what we've done in this private banking business and the stats. The ultra high net worth private bank is on the upper left hand side of those bars. It is the $20,000,000 plus business. Three stats that I think are really important to know in the private bank. 90% of the assets come from clients who have $10,000,000 or more with us.
50% of the assets come from clients who have $100,000,000 or more for us. And we serve around the world 50% of the world's deca billionaires, which may be a new term for some of you. Why? Because as Kelly Coffey said on the video, we are a microcosm of this whole firm. This business is a microcosm of this whole firm.
This business takes someone who has individual needs and says how else can we help you in your company? Let me introduce you to Doug Pettenau his team who can help you on the commercial bank side in lending and servicing your corporate needs. Let me introduce you to everyone on the video who works for Daniel Pinto and help you with your financing, helping you take the company public, helping about thinking about M and A opportunities. And let me of course help you if you happen to live in the United States of America with all of your local banking branch needs. And that is what we do best here at this firm.
We do that seamlessly and we do it because of something that's really hard to communicate to you guys in Investor Day, but it's just part of the culture. So think about the also are in need of great and high demanding products and services. And I just want to touch on one last page here on the private banking side, which is a team led by Dave Frame and Seth Bernstein. They have hundreds of people who sit all around the world constantly looking for ways to supplement the core portfolios that the clients give to us. So how do I think about thematic investing?
I talked to you last year about Ben Hess coming and helping them think about global banking opportunities. We also launched something just last year, Global Healthcare, another 1,000,000,000 and a half dollar product. Some of our European clients came to us and said, we would really like help in you getting us access to European recovery. And we partnered with some of the very specialty managers over in Europe to be able to help us to do that. And that's another $1,200,000,000 And then something like dividend yield, which our clients asked for us as rates started to fall, dollars 9,000,000,000 in that product alone.
Each of these complement the core and that business, just that tactical part of the business has grown from $0,000,000,000 to $40,000,000,000 in the past few years. But finally, I just want to end on the Global Private Banking business with the fact that it is a bank. So it's not just investments, but in fact, we deal with the entire balance sheet, $150,000,000,000 in deposits, dollars 110,000,000,000 in loans. If it was a standalone entity, it would be the 11th largest bank in the United States. On the right hand side, Mary Anne already talked about the tailwinds that we will get as interest rates hopefully continue to rise.
On the left hand side, we see the lending business. It has continued to grow not because we're just in the lending business, but because we're the investing and lending business. We see both sides of that balance sheet. Therefore, we can deal with complicated and customized solutions for these clients. And very importantly, we Why?
Because we don't want to be the ones forcing them to sell their publicly traded stock out in the marketplace and displaying to everyone their stressed out situation. So we spend a lot of time thinking about that. And these clients more than any client in the world Credit in a bear market is a necessity and clients who need to weather through the storm know that JPMorgan will be here and in good times and in bad. And that's what makes this such an incredibly special business. So for decades, my closing comment on Global Wealth Management, every single year for the past decade and even before that, but we don't have the numbers on record, it has grown revenues every single year and it has net new positive client asset flow.
So the bottom line when you pull that all together and compare us to the publicly traded peers, you bring together the private bank, the Chase Wealth Management piece of the business, the mutual funds business and the institutional business. And we are number 3 in client assets, we are number 5 in revenues and we are number 2 in what wasn't our best year on a pre tax income basis. That 27% margin has room to grow. We have industry leading performance. We have one of the widest ranges of products and solutions and I think we have the best sales force in the world.
And that gives us the opportunity to continue to gather market share, which leaves me with the final page that I just want to reiterate our growth targets that I've shown you before. Revenues, I expect to continue to grow in the 5% to 10% range, not the 7% to 12% range given the new market realities that we're all familiar with. But the rest of the targets will not change. We have lots of operating leverage in this business. We should have pretax margin growing pretax income growing at 10% to 15 percent, margin at 30 plus, ROE at 25% and long term AUM flows at 4% to 6% as I mentioned.
You might remember 7% to 12% of assets, that's got both markets and flows. So I want you to focus on the flows component, which hasn't changed. All of that being said, however, if the current market conditions that we see in 2016 persist and we don't shake these off pretty quickly, 2016 is looking a lot like 2015. But I don't think that that's our central case. And with all that said, we still expect to achieve the numbers on the bottom of the page for our shareholders, which is in the medium term, we should get to $15,000,000,000 in revenue, dollars 5,000,000,000 in pre tax income
and $3,000,000,000,000 in client assets.
And that's because I think we have one of the best investment and wealth management businesses on the planet. I'm really proud to be part of it. And I've gone over time, but I can take a few questions.
Steve Chubak. Steve
Chubak,
Enomura.
Mary, looking at Slide 22 for a moment, just parsing the individual components. So you have $3,000,000,000 of incremental revenue as part of your medium term target, dollars 2,000,000,000 of incremental pretax income, which implies a marginal efficiency ratio somewhere in the neighborhood of 33%. And it just seems a bit ambitious or maybe even a little bit aggressive just given really some of the challenges that we've seen on pre tax margin at some of your competitors. And it's also just a bit above sorry, the marginal efficiency is a bit below your comp. So it might be helpful if you could just parse on the individual components as to how we should think about that margin build from 27% somewhere closer to 30%.
Sure. So there's 2 things that I would like you to think about when you think about this business. It's really hard to say how does it look versus a comparable, because it's really a few businesses inside of there. So think about it as an investment management business and you have your peers for that. It's a global wealth management business and you have lower peers for that.
And it's also importantly and sometimes gets lost in the sauce, an alternatives business and there are lower peers for that, okay? So when you put all of that together, we come up with a margin target of 30 plus and we're very comfortable getting there. That's the first thing. The second thing is that the reason that I spent time on that margin page is, there's a lot of stuff that we've done over the past 3 years that is what I would consider doubled up. There's a lot of manual work we've done, while we've invested in pay for both in the future and that's really at the heart of where these expenses have come from.
Glenn Schorr?
2 parter please, kind of related, but curious on how the seeding and the proprietary distribution has evolved post settlements and maybe you want to throw any numbers at it in terms of percentage of your own product that distributed internally? And then curious on what investments and changes you're making now to prepare for, the OL world? I know we don't know all the rules, but
No, great question. The first question he's talking to talking about is the, SEC settlement, which is behind us. We settled it in the Q4 of 2015 and those charges are gone. And all of the changes that had to be made in the business were made prior to the settlement. Changing from the way that we run the business, which is really important to your second question because this business is a fiduciary business.
Of course, we have conflicts of interest. Of course, we have our own products in Investment Management. We have our own products and services in the Investment Bank. And we deal with those with full disclosure to our clients in a very upfront and transparent way. And so when you think about that and you think about the fact that I pointed out very importantly in the Global Wealth Management business, we have been a fiduciary and a money manager mostly brokerage sort of secondary.
And a lot of that trickles into the Global Wealth Management business. When we think about the DOL changes, there's going to be lots of them for the industry. But I would tell you it's much less change for JPMorgan than it is for some of the other firms. And the final rules are not out, but my guess is they're going to be pretty close to how they're written. And that's what we're prepared for.
We spend a lot of time on it.
Next question, Brennan.
Slide 11, the 5 year rolling alpha. Yes. It looks like the recent periods have deteriorated, but I don't know whether I'm reading that slide right. So curious if that's correct and what you would say you guys are doing to address that if that's the case? And then maybe could you speak at a bit greater length on your experience in Europe?
You touched on it briefly about the money market fund business and how you manage through that. I think it would be really helpful to hear a bit more color on that if you could.
Sure. So, the performance, yes, is underperforming recently, and, those are rolling 5 year periods, as you can see. And every once in a while, we get into pockets of those. What's really important and we spend an inordinate amount of time on, as you should hope and our clients really hope, is through our investment committee work. We take each and every strategy and send it to investment committee when it is overperforming and underperforming.
And we ask 2 fundamental questions, but they take hours to answer. Are you over performing your target alpha or underperforming your target alpha because of you're doing something different or the markets are doing something different? And then within those something different, are those permanent or temporary? And then within the permanent and temporary, does the investment committee believe that that's the right thing or the wrong thing? And you can imagine with core U.
S. Equities being at the heart of what we do, this spends a lot of time going through Investment Committee. We feel incredibly comfortable with the work that they're doing. We think that the dividend discount model is actually showing you, I could spend a lot of time on this, but you see that little chart in the middle, that the distance between the 1st and the 5th quintile are showing some of the most stressed out levels. We actually have a great chart and I saw Steve Wharton over there who's our analyst from Investment Management who covers the banking sector who does this on the Monday morning call.
We are not yet at 2,008 stressed out levels, but we're getting pretty close to it and those tend to be incredible buying opportunities. So maybe we should spend time on that at the break. But in any case, from a European perspective, we spent time early on. We actually closed a few funds so that we could protect the clients that were in them until we could figure out the floating NAV perspective. We have done that.
Clients are quite happy and the investment guidelines have changed. We've also spent a lot of time, just so you know, in that business, customizing specialty products for clients that are big enough that need to do it. Remember, the Money Markets Fund business was invented basically because people just wanted to outsource doing it themselves inside. And when they did it themselves inside, they did not have a stable NAV. They just had it and can watch their bonds mature.
So you can create that same product by having a buy and hold strategy for them if in fact that's what they want and they still want an outsourced and that's another incredibly strong part of our business. I think I've gone well over my time. I know Doug is anxious to get up here and I really thank you all for listening to this business.
Thanks, Mary. So good morning, everyone. Welcome. So let me add my thanks to all of you for joining us here today. We really appreciate having you.
And so let me start for Commercial Banking by making a few very important comments about The first on our strategy, just like all the other businesses you're going to hear from today, our strategy is built around our make is that we are operating our business with fortress principles. We believe that our underwriting discipline and our client selection are going to differentiate us, especially when markets get rough, and I'll speak much more on that in a moment. 3rd, we have real competitive advantages being a part of JPMorgan Chase. So we have unmatched capabilities to serve our clients and we have real economies of scale. And then lastly, while our strategy is completely proven, we are in no way standing still.
We are investing significantly in technology and innovation to better drive the customer experience and improve our operating efficiency, and we are executing a long term disciplined growth strategy. So we're expanding into new high potential markets. We're focusing on bringing even deeper industry expertise to our clients. We're selectively growing our commercial real estate portfolios and we're investing across all of our products and services. So it's an exciting time to be in the commercial bank.
It's great to have all of you here this morning to talk about it. If we look at our C and I franchise, it's completely as I said, completely built around our clients, focused and segmented based on their specific needs. As such, we're very tightly connected with the business banking team in Gordon's business, all the way to the investment bank and global corporate banking, so we're best set up to grow with our clients as they grow with us over time. We're local. We're in over usually with revenues between $20,000,000 $500,000,000 We usually with revenues between $20,000,000 $500,000,000 We see tremendous opportunity to grow our middle market franchise, and we're actively great bankers around this business around the markets nationally.
Corporate client banking. Here we serve corporate clients with revenues typically in excess of $500,000,000 They're usually public. They usually have more sophisticated capital structures, more complex financing needs. As such, we're very well connected with the investment bank. And as we've become the lead bank to more and more great clients, we've grown that business dramatically over the last several years.
So to bring more industry expertise to our clients and to help us better manage our risks, we have specialized coverage for 15 key industries. We're covering over 9,000 clients and about 12,000 prospective clients with specialized bankers and specialized underwriters in our markets. And our focus is really paying off. So just a few examples. Our food and ag team, we started de novo in 2014.
We now have 10 bankers. Last year, they grew loans over 13%. Our apparel business, we have a long legacy banking the apparel industry. We've been adding bankers in LA and New York. Last year, they grew loans over 26%.
And then lastly, technology, where we're heavily aligned with the investment bank, we now have over 30 bankers in 11 markets and that team has grown deposits close to 20% year over year. So our clients clearly value our sector expertise and we're going to continue to invest to build our presence across these key industries. So let's look at commercial real estate, where we're set up as 3 distinct but very well coordinated businesses. Commercial term lending, we continue to be the number 1 multifamily lender in the United States with about $63,000,000,000 in outstanding loans. We have 170 bankers serving over 35,000 long term real estate investor clients.
So my partner who runs commercial real estate for us and is very familiar with the multifamily sector is Al Brooks. He's here today. If you have a chance to meet Al, I know he'd be delighted to tell you about his business. Our Real Estate Banking team, they bank institutional clients in primary markets, think gateway cities with strong fundamentals and diversified economies, places like New York, Los Angeles, San Francisco. That team had a record year in originations last year, and we've seen 12 consecutive quarters of loan growth in our Real Estate Banking business.
And then lastly and importantly, our Community Development Banking business, they helped transform projects in distressed neighborhoods into economically sustainable developments. Last year, they financed over 100 projects, creating over 12,000 units of affordable housing. So across all three of these businesses, we continue to see opportunities we like in the market, and we believe we're building a business that will be differentiated from our competitors. For the commercial bank overall, being a part of JPMorgan Chase, and we talk about this every year, being a part of JPMorgan Chase provides real competitive advantages. So none of our competitors can bring the number one investment bank, a leading asset management business, comprehensive payment capabilities and an extensive branch Over half of my clients use Gordon's branches.
That's about 4,000,000 branch transactions a quarter. Our clients read our research. We take them to the capital markets. So last year alone, Daniel's teams took over 800 of our commercial banking clients to the capital markets. We process their payments, we grow with them internationally, we hedge their foreign exchange, commodity and interest rate risks, and we bank them personally.
And moreover, because we're part of JPMorgan Chase, we have other real advantages. So on talent, we share talent. I'm just one example of that, but over half of my leadership team has spent time in another line of business. We are absolutely one voice to the market, and we're constantly sharing clients and prospects across the company so that we're best suited to serve their needs. And then lastly, we have real scale advantages that have allowed us to consistently maintain among the industry's best cost structure.
And it's that efficiency that allows us to continue to make investments in our growth and in our future while maintaining strong returns in the business overall. One area where we're making significant investments is in the category of technology and innovation. The commercial bank is investing in technology, innovation and big data to drive a better customer experience and improve our overall operating efficiency. So we're very focused on improving the customer interface, increasing the speed and security of our clients' transactions and building the leading digital and mobile capabilities in the industry. And a fantastic example of real material synergy between the wholesale part of the business and the consumer part of the business is that we are working directly with the consumer business to leverage the tremendous investments they've made in their consumer payment spectrum as we customize and modify our wholesale payments capabilities.
And one great example of that is we've recently launched our corporate quick pay capability that lets our clients migrate their B2C payments from sending an expensive paper check to sending simply an email. In the category of process efficiency, we are right now implementing a new proprietary loan origination system in our commercial term lending business. This technology will let us shorten the time to originating close financings by over 50%. It's already a significant competitive advantage for us that will extend that and it will dramatically improve our customer experience. So in addition, overall, to the firm's broader commitments and spending on technology, the commercial bank has dedicated digital, mobile, big data and technology resources focused on commercial banking solutions and commercial banking clients, and it's making a very big difference.
If you take a step back and look at 2015, we feel very good about the progress we're making in the business and the investments we're making in our future. So without changing our risk discipline whatsoever last year, we added $19,000,000,000 in new loans, a new record. We grew investment banking fees for the 11th consecutive year, 10% up, dollars 2,200,000,000 a new record. We continue to set new records in our expansion markets, and we generated strong earnings and a strong return on equity of 15%. And we delivered these results importantly while we continue to invest.
We've added bankers. We expanded our geographies. We've invested across our products And I want to leave I don't want anyone to leave this room with any doubt we are absolutely on offense. So last year alone, we made over 17,000 more client and prospect calls than we've made in the prior year, and that's going to bear meaningful fruit for us in the coming quarters. If you look at our deposit base, we have an enormously valuable high quality deposit franchise in the commercial bank and it all starts with the long term deep client relationships that we have and being at the center of what they need to do to run their businesses every day.
So we have a large team of dedicated cash management specialists that work with our clients every day to help them optimize how they pay suppliers, make payroll and receive operating deposits. In fact, over 75% of our deposits have been with us have been with are from clients that have been with us for over 10 years. So we're watching the market quite carefully, and we're going to continue to price our deposits with discipline, but our deposit franchise is fantastic and will continue to generate incremental earnings and cash flow for us as rates ultimately rise. So let's look a little deeper into the loan growth in the business. For C and I, last year overall C and I loans were up $7,000,000,000 or about 9% year over year.
Although competition for great clients remains intense, we continue to see opportunities attractive opportunities to lend. Last year was the 6th consecutive year of loan growth in the middle market. Our expansion markets grew loans over 22% year over year. Our asset based lending team had record originations. Originations were up 32% last year.
Loan demand amongst our larger corporate clients remained strong as we continue to see significant cash M and A, particularly amongst the Technology and Healthcare segments. I will say that traditional middle market lending remains muted. Loan demand remains muted. Our revolvers have sort of bounced since the financial crisis about the low 32% range. I guess another illustrator of sanguine loan demand in the middle market is we saw a significant drop off in syndicated lending activity for middle market clients last year.
It hit a level last year that we had not seen since 2,009. And so we've also seen some competition from banks and our non bank competitors, BDCs and such. It hasn't been dramatic. It typically is at the riskier part of the market and they tend to typically compete on price. But I will say on spreads, despite the intense competition, we have stabilization in spreads sort of started in the 3rd Q4 of last year and it has persisted so far this year.
If you look at our real estate businesses, it's a similar story. Our commercial term lending business last year had a record year with originations of $19,000,000,000 outstandings were up last year 16%. And while competition remains very strong for bank and non bank participants, we are selectively growing our portfolio and gaining share across our target markets. It's our dedication to speed and simplicity at every client touch point that is the primary reason for our customer acquisition. In fact, about 2 thirds of our originations last year were for first time clients or for new money borrowers.
Likewise, our real estate banking team had a record year originations exceeded $11,000,000,000 Outstanding last year were up 22%. So despite intense competition here, we see structures that we feel really good about. There's still a substantial amount of cash equity in the capital stack of the financings we're seeing in real estate, and spreads here likewise have begun to stabilize. So we're remaining highly selective, and we continue to see significant runway and opportunities to grow our commercial real estate businesses, while we maintain our credit discipline. So with all this talk of loan growth, I want to underscore the point that credit is absolutely core to the culture of the business.
Our through the cycle credit performance has consistently been among the best in the industry, and it all starts with picking great clients, clients in industries we know and understand. We have a seasoned team of credit professionals with local knowledge and perspective, and this has led to 12 consecutive quarters of net charge offs of less than 10 basis points. And net charge offs for the business in total last year were just 1 basis point $1,000,000 So we are growing, but we're growing with discipline. And we're intentionally avoiding the financings that prove most volatile, especially in a market downturn, and especially those that proved most volatile in the last downturn. So think homebuilding, land loans, specific geographies in real estate as well as small buyouts.
And last year, I spoke to our shameless top lack of presence in the top 20 of rankings
buyouts.
So overall, despite the pressures we're ahead of any potential downturn that might occur in the economy. So let's talk about oil and gas. So earlier, Mary Anne mentioned our intention to increase our reserves for 2016 to reflect current market fundamentals. So at the end of 2015 for the Commercial Bank, we held a 6% allowance. As part of that effort, we expect to about 10% in the Q1.
Since the end of the year, we've seen a drop in prices, a decrease a significant decrease in upstream spending and a meaningful downshift in sentiment, and this is going to have a dramatic impact across the energy value chain. But based upon what we see today and based upon our expectations that prices could stay low for long, we believe that the higher reserves appropriately position our portfolio. Any future increases to reserves will obviously depend on further movements in commodity prices, how long they stay there and the actions of our individual clients in response to that. But we are staying close to every single client right now. We're working with them very carefully to help them manage through these market conditions.
And we believe our deep history of lending to this sector and our strong client selection will differentiate us. So as an example, since 2014, when all this started, we've tracked 48 bankruptcies in upstream E and P companies in North America. We've been a lender in just 3. And you're going to hear a lot about banks with significant second lien exposures. We have one second lien financing for 38,000,000 dollars So overall, the direct oil and gas exposure in the commercial bank breaks down as follows.
We have $15,800,000,000 of commitments. It's 5% of the commercial bank's total loan exposure. 48% of our exposure is to the E and P sector. These are well structured granular transactions predominantly in reserve based lending structures. So when I say that, think senior secured borrowing based structures where we reset availability twice a year based on a technical analysis of the proven reserves of the company at that time with a particular emphasis on the proven producing reserves based on our view of base case prices and sensitivity case assumptions as well at that point in time.
16% of our exposure is to the oilfield service sector. So when I mentioned that there's been a dramatic reduction in upstream spending, that is coming at the expense of the oilfield service sector. So every time you read about a large energy company cutting spending, that is directly impacting the revenue of our oilfield service clients. So if prices continue to stay low, we expect to see significant stress across this part of our portfolio. I will say that we remain confident in our underwriting.
We believe we have well structured transactions, and about 39% of our Oilfield Services financings we would grade to commodity prices, they are somewhat removed directly from oil prices, but we're nevertheless watching them carefully. Mary Anne also mentioned that we're looking for related stress across our businesses. So in the commercial bank, we're looking at energy impacted economies, and we're looking at energy impacted real estate markets like Houston, Dallas, Denver, Bakersfield. And so right now, we are watching these portfolios quite carefully, and we see no issues so far. Remember, we have a very senior season team of bankers, credit executives and petroleum engineers.
I actually grew up in banking, my career in banking. In energy, I ran our Global Natural Resources Investment Bank for many years before I joined the commercial bank, and I've been directly involved with our team's efforts in helping our clients through this situation. So if we switch to commercial real estate. For commercial real estate, given our exposures, we're obviously watching the multifamily segment quite carefully. We actually see fundamentals as remaining quite healthy as we continue to see strong rents and very low vacancies across our portfolio.
We actually see the biggest risk in commercial real estate in multifamily, but specifically for construction financings for luxury units and especially in secondary and tertiary markets where there's no barriers to entry. And I want to make a point that is absolutely not our market. We target geographies with natural supply constraints and strong diversified economies. We focus only on top tier long term investors with strong track records. Our portfolio is highly granular.
Our average loan size in commercial term lending is about $2,000,000 And our loans I want to underscore this point, our loans are against stabilized properties with low leverage. So as an indicator for that, last year, our originations in commercial term lending averaged about 57% loan to value. So we are maintaining our underwriting discipline in commercial real estate as we build our business. So as we think about building our business and we think growth in the commercial bank, our strategy here is to remain consistent. We want to add great clients and we want to deepen those relationships over time.
So we have a very rich history in our legacy markets. We'll celebrate 100 years in Dallas this month, 150 years this year, and we've been here in New York for over 200 years. In the middle market now, we ranked number 1 and 4 of the top 5 MSAs nationally. But just since 2009, as a part of our expansion effort, we've added over 30 new high potential markets. And so now we have coverage in each of the top 25 MSAs nationally.
These are places like Charlotte, Boston, Miami, San Francisco, San Diego, LA. And this past year, we opened offices in 4 new locations and expect to open offices in 8 more in 2016. So the good news here, we've made huge amount of progress in a very short amount of time in these new markets. Building organically, banker by banker, client by client, loan by loan, we've essentially created a nice sized bank from scratch, over $10,000,000,000 in loans, over $8,000,000,000 of deposits, 2,000 new clients, and the even better news is we're only just beginning. So following the Washington Mutual acquisition in 2,008, we set a $1,000,000,000 revenue target from our expansion markets, and we remain incredibly confident in our ability to reach that target over time.
So the great thing about our client franchise is as we add new clients, those relationships tend to deepen over time. And as our relationships deepen, our business grows. So to bring more value to clients, we have dedicated coverage for Investment Banking, International, Treasury Services, Merchant Services and Commercial Card, all focused specifically on commercial banking clients. So not surprisingly, only about 6% of our clients just borrow from us. Most use us for a combination of needs.
In fact, the average client uses us for about 9 products and services, and it's not uncommon to see clients use 15 to 20 products and services of the bank. At the bottom of the slide, you can see our client penetration across a range of our capabilities. So we believe we have substantial room to do more with our clients, bring more value to our clients, especially as it relates to our payments products and capabilities, and we have the dedicated teams in place to do just that. Perhaps the best example of where our unique capabilities differentiate us with our clients and help supplement the returns of the commercial bank is our partnership with the investment bank. So remember in 2014, when we hit our $2,000,000,000 target, we increased it by another $1,000,000,000 to $3,000,000,000 Well, so far so good.
During 2015, we grew investment banking fees 10%,
we reached
$2,200,000,000 even while the overall industry wallet is contracted. And last year, the commercial bank represented about 38% 36% rather of the CIB's North American fees. So it's a fantastic partnership, and it makes both businesses that much better. So if you look at our commercial real estate businesses, it's clear that the commercial real estate segment is attracting tremendous amount of capital, and it's also clear that we're moving around the real estate cycle. But we continue to see and continue to believe that we can safely grow our portfolio, And we're committed to growing our portfolio without changing our risk appetite or without moving into less attractive geographies.
So looking forward, we see about $1,000,000,000,000 of commercial real estate maturities over the next 3 years. So there's going to be a significant amount of refinancing activity for us to get a look at. And we see real opportunities to grow our market share in very attractive geographies nationally. So right here in New York is a great example where we think we can easily double or triple our market share in a very safe way. So right now, across all of our commercial real estate businesses, our pipelines are robust, perhaps even more robust than they were this time last year.
And we think if market conditions continue, we'll be able to safely grow our real estate portfolios pretty much like we have in the past 12 months. So let's talk about capital and returns for a moment. Mary Anne showed in her presentation the higher capital rates getting allocated to our business. So however, with higher capital, we continue to believe in our ability to compete as well as our ability to earn industry leading returns, and here's why. If you just look at our client base, only about half of our clients borrow.
And as I mentioned earlier, about 6% of our clients are only loan only relationships. And as I said in a previous slide, those relationships that are full service relationships tend to generate about 8x the revenue as a loan only relationship. These are the clients we target. And our bankers don't simply price a loan just in a vacuum, but they look at the overall relationship returns when they price their loans to compete. The second big driver of our confidence is that our client deposits are incredibly stable and will increase in value materially as rates eventually rise.
And then we continue to expect and strive for the best expense discipline in the industry. It's a huge contributor to our returns, if you look at our overhead ratio relative to our peer group. And then finally, we pride ourselves on consistently leading the industry in our credit performance, again, a key driver of our strong historical returns in the business. So if you take all of these factors into consideration, we remain very confident that our capital discipline in the commercial bank, the strength of our platform, the breadth of our capabilities will help drive our competitiveness and drive our industry leading returns over time. So to wrap up, we're making steady progress against our growth initiatives and remain very encouraged as we begin 2016.
Near term results are going to feel pressure from the oil and gas and commodity segments, but we feel very bullish about the long term fundamentals in the commercial bank. Just to look at our targets for our middle market expansion effort, we're standing by our long term $1,000,000,000 target. I want to remind you, we're going to be patient and disciplined and build that over time and build it for Endurance. For Investment Banking, we expect to continue to grow our market share. We have the resources in place to do that, and we're tracking on our way towards our long term $3,000,000,000 target.
International banking for us continues to be a key differentiating capability for the commercial bank, especially as more and more of our clients are moving into international geographies. So we continue to work towards our $500,000,000 target. And we're standing by our overhead ratio target of 35%. We believe it's the right long term cost structure for the business. We are relentless with what Jamie calls the bad expenses, but we're also very focused on large more transformative initiatives as we look to save money and create efficiency in key business processes like loan servicing and our credit delivery model.
On credit, we continue to remain comfortable and confident in our credit delivery model and expect that our net charge offs through the cycle should be less than 50 basis points. And then one area where we're making a revision to our targets is our return on equity target. So reflecting the higher capital allocation to the commercial bank and also reflecting the shift in our loan mix as we had more and more commercial term lending assets. We were revising our ROE target from 18% to 16%. With the investments we're making to drive the business with sustained credit performance, sustained expense discipline, we believe we have the earnings power to continue to achieve a 16% return on equity on this higher capital base.
So to conclude, hopefully, it's clear to you that we are taking a long term very disciplined view as we grow this business. We're going to continue to invest so that we can better serve our clients, and we remain super confident in the potential of our franchise. With that, I'd be delighted to take any questions.
Yes?
Paul Miller?
Thank you very much. Paul Miller, FBR. On the CRE stuff that you see a lot of opportunities on the refis. Is there any geographic areas you will shy away from or you really want to penetrate? Is there any asset classes that you really want to go after?
As I said, we're very focused on the primary markets. This is not a real estate franchise that's widespread across the United States in the secondary and tertiary markets. So think New York, Los Angeles, the coasts, Washington, Boston. It's a case by case basis. I mean, I think for the right sponsor, for the right project, for the right capital structure, we would do multifamily right now.
We typically haven't been a big lender in the hospitality sector. That's not a part of our portfolio that's been attractive for us over time. I think we watch as an example of how we sort of calibrate our behavior. We sort of tapped the brake on financings in Houston about 3 years ago, not because we were clairvoyant on energy prices, because market terms got beyond our reach. So more and more construction financings were being done on levels that we just couldn't support.
So it turned out that we were to advantage. I'd say we're starting to see that in geographies like Washington, D. C. And San Francisco where there's a whole lot of supply coming on. But I want to make the point that not in and out of the business.
We're really trying to we landed on our underwriting strategy that lets us thrive through this cycle and be able to lend and stand by our clients in all types of markets. But we are aware of particular geographic variations as things it's the real estate cycle, things get overheated as we all know.
Larry Vitale.
Thanks. Larry Vitale from Moore Capital. On your oil and gas portfolio, thank you for the disclosure. That's very helpful. I have two questions.
The first is, how do you guys strike the balance between managing down as might be the case uncommitted lines versus being careful not to tip customers over unnecessarily because after all the idea you hammer this home to us, the idea is to work with them. And then my second question is, if oil prices are right here for the spring redeterminations, by how much should we expect borrowing basis to decline?
Sure. So we act as agent on behalf of these of lots of bank as we're one of the leading banks in the energy sector. It is formulaic. We would redetermine in the spring, we would expect an average revolver would contract sort of 15% to 20%. It's dangerous to discuss this in averages.
I think some borrowing bases might go up, some may go down by 50%. I will also say that the average borrowing base credit is only about 49% funded. Some are 100% funded, some are 0% funded. So we're not waiting to the spring redetermination to discuss this with our clients. The beauty of reserve based lending is you know exactly, mathematically, what their borrowing base is.
The clients typically can calculate it. You know whether you've replaced production, you know what your production profiles look like, you know what the forward curves look like, it's just discounting those cash flows back. Most of these clients are working with their banks way in advance of these remunerations. So it's compelling M and A, it's compelling asset sales, it's compelling discussions with private equity, but there's a lot of leverage. So we the answer to your first question is we get way out in front of it with our clients.
The most distressed clients know and have the ability to understand sort of where the when they're going to be pinched in liquidity and are taking the steps to deal with it. There will be a meaningful number of these players that have no options. And I think we've only just begun to see the range of bankruptcies in oil and gas. Just like around here. And
Doug, 2 quick things. First of all, you had mentioned earlier about the middle market still being a little tenuous. I was just wondering if you could just expand upon that given that we have seen good growth in the industry and for the company. So what's still the reluctance on behalf of the middle market customer? Do you see that changing?
And the second piece is just given that we've seen a lot of regulatory guidance in a bunch of the assets that your part of the business lends against, whether it's leverage lending, syndicated, oil and gas, multifamily, how is that changing the landscape underneath the Is it a net benefit at the traction? What's changed?
So I'll answer the first question. A lot of the regulatory guidance didn't impact us. So leverage lending, obviously, we spent a lot of it's multi agency guidance. We've spent a lot of time with the regulators. But for the commercial bank, it meant that we couldn't originate a non pass credit.
We weren't typically in the business of originating non pass credits in the commercial bank. So whereas we're mindful of the boundaries and there are situationally some things that where it might hold us back a little bit, it's very rare for us in the commercial bank. Likewise, on real estate, and we've spent the regulators spend a lot of time with us in our real estate portfolios, as you would expect. All multifamily is not the same. Hopefully, I made that point this morning.
So really, given our underwriting discipline and the standards we're imposing on that business, the new guidance is not something that we think it's going to impact our business. And the first question was I will say, we've talked a lot about as a company that the U. S. Consumer has responded very positively coming out of the financial crisis. We never really saw middle market kind of bounce back to the equivalent level.
And I referenced that we've not seen revolver utilization sort of ever really bounce off the pre Lehman levels. It's most of those companies are thinly capitalized. They had a near death experience during the financial crisis. They're staying very cautious, very liquid. They're very correlated to U.
S. GDP. So if you've seen low single digit GDP growth in the U. S, they're going to be sort of tied to that, while their expenses are going up high single digits. So that's the typical middle market client.
There are variations at the extremes. So I think you're going to need greater fiscal certainty federally and locally, and you're going to need more broad based confidence across small business before you're going to see these guys draw down on the revolvers and really expand their factory by a competitor. A lot of the Fed loan data that you look at in middle market, much of that's private equity or it's people trading share or special circumstances type of financings. The true organic borrowing where the middle market manufacturing companies buying a new stamping press is a pretty uncommon thing. It's been uncommon for a while now.
So we're ready for lunch. You have your table assignments and that's in your emails and we'll be back here at 1:30. Lunch is right away in the flow on the floor.
Thanks.
Please standby. The latter portion of JPMorgan Chase's 2016 Investor Day presentation will begin momentarily. Please standby. The latter portion of JPMorgan Chase's 16 Investor Day presentation will begin momentarily. Please stand Please standby.
The latter portion of JP Morgan Chase's 2016 Investor Day presentation will begin momentarily. Please standby. The latter portion of JPMorgan Chase's 2016 Investor Day Presentation will begin momentarily. Please standby.
Welcome back, everybody. We are going to roll the second part of the How We Do Business video, and this is going to be about technology and the next chapter people. Roll the video please.
Technology is changing our business model, but it's also the foundation of our business model.
The Global Technology Organization at JPMorgan Chase consists of over 40,000 employees, 20,000 of them are developers. It's about a $9,000,000,000 budget annually and we primarily have our employees in 13 locations around the world. The technology gives us a way to get into the everyday life of our customers.
Technology is changing our business model, but it's also the foundation of our business model.
Technology will be the fuel that drives our simple and differentiated customer experience.
Technology is at the heart of everything we do. If you think the history of our company, I mean, we were the 1st bank to use electricity. We were the 1st bank to use ATMs and we were the 1st bank to process check imaging online. Incredible technology coupled with this world class footprint that we have with advice centers in some
of the most important markets creates this omnichannel for our customers to bank where they want, when they want, how they want.
Ultimately, I believe it's a hybrid model that wins here. Great technology combined with great human advice. A robo advisor can't hold your hand through market volatility like we're seeing right now.
We have tremendous scale across this company. We process over 1,000,000,000,000 security transactions a day. We process 1,000,000,000,000 merchant transactions a year and we're in roughly 1 out of every 2 households in America. So we use technology in big and small ways to serve nearly half of the U. S.
American households. We have 23,000,000 customers on our mobile app.
If we're going to make 26,000,000 payments a day, we need extremely efficient technology.
The last 5 years for JPMorgan Equities has been an extraordinary journey, fully rebuilding our technology stack, particularly within our cash business and delivering a near tenfold increase in our volumes with many of our most important clients.
There are 6 key priorities focused on. 1st of all, cyber, keeping the company safe digital, being a digital bank third, data analytics 4th, improving our development environment 5th, truly leveraging the cloud and finally, better end user technology tools. Our technology assets and our incredible technology talent and team provide us a reliable, scalable, secure and differentiated technology platform. It's key to us producing a controlled and efficient environment.
If you think about Chase Pay, what really makes it special? One, it's simple. It enables loyalty rewards from both the merchant and the customer and it's safe and secure. We want
to make it easy for our customers to get access to their
Technology expands the way clients interact with us. Clients want to do business with us when they want and how they want using digital capabilities.
Clients love
And what we're really trying to make sure we do in our credit card business is that wherever consumers want to use their card that we're enabling them to do that. Chase Pay is a big part
of that. We've really seen incredible amounts of progress on customer satisfaction when our customers use this digital technology and increases our ability to become their primary bank. We're mapping every one of our 102 markets to really identify all of the best in class prospects that are there. And we think the net result of that will be 10,000 plus new prospects for our business.
We've also begun to combine data with
for treasuries to manage liquidity on a
global basis. So clients can see real time excess liquidity and they can deploy it. Technology runs all the way through what we do from our CRM systems for helping us track and understand client needs to our business intelligence applications that help us predict what products are going to be useful to clients in the near future, through to the portfolio management tools that help us produce better returns for clients. And finally, into our insights application, which is how we deliver our research in 25 different countries and 12 different languages.
Typically, most people in this business take 90 to 120 days to get a deal done and we do it in 30 to 35. Think we got clear line of sight to cut that in half again with the new system we're currently working on and we'll be beta testing that at the end of the year.
In the next 18 months, we're going to be completing the rollout of our new origination system, which we call Mortgage Express, and going to be converting our 2 servicing
Silicon Valley. Of those 300 partnerships, 100 of those will pilot and about 50 to 60 of those will actually put into production inside the firm. It's all about how do we get to market quickly. Our customers don't really want to know whether we built it or we partnered. What they want to know is that Chase offers the service and offers the service that they need at that moment in time.
Our focus is to be faster, simpler and smarter for our clients. What our customers ask of us is that we're easy to do business with, that we're consistent and that we're fast. And at the heart of all of that is technology.
To lead innovation, we have to have great people. People are at the heart of what we do. We have 250,000 employees in over 100 countries. We attract great people because we have an inclusive culture. We're committed to training and development and to be a place where people can grow their careers.
We have a great franchise at JPMorgan Chase. In fact, we had 30,000 examples of internal mobility just last year.
Our employees are the living embodiment of our culture. To be the employer of choice, we have to have great people and a winning culture.
Our culture is both inclusive and meritocratic. What's also important is the global platform gives us optionality to grow our careers over time.
Culture, development and training are each key to how we do business at JPMorgan Chase. And last year, every employee went through
a program on how we do business. The heart of all technologists is they love to work on big challenging problems with a lot of scale and we can offer a lot of that
to people that come here
and work for us. We're here to change an industry and the scale at which we offer gives these developers just phenomenal canvas on which to display their work.
The main differentiator for our business is people. It's our job to hire the best portfolio managers, the best research analysts, the best control people and the best client service people to give our clients the best client experience that they can have.
We only accepted 2% of our applicants to fill the 31,000 jobs that we filled last year with 9 out of 10 offers being accepted.
The best players want to play for the top teams because the top team have the best training facilities, the best stadium, the best crowds and they win more often.
Okay. So we're getting into the last stretch of our Investor Day. So I'm sure you have a great time connecting with our senior leaders across the different lines of business over lunch. We're going to spend the next hour talking about the Corporate and Investment Bank. And essentially, I will focus in 3 areas.
1st, we will go over the performance of 2015 and in the context of the industry. We are going to talk about some of the most important lines of business with a lot of focus in transaction services and custody and fund services and with technology being at the core of it and then we'll talk about financial targets going forward. So let me get the glasses. So now go to Page 2 to start. So we were we've been operating in a very challenging and changing environment in the industry and with very dynamic capital environment too.
And the most important and we feel very good about it is the fact that we managed to maintain our strategy to leverage our scale, completeness and global network and really deliver all that through a very integrated client coverage model to produce probably best in class returns in the industry. We continue to optimize across all the lines of business, while we keep investing for the future. And this industry as I said is evolving and changing not just in markets where there's a lot of changes taking place, but all across with the rates of fintech and other forms of competition. So adapting and embracing the change and technology and innovation play a big role on that. And as we discussed last year and it was a lot of the effort for several years to give being very disciplined about the expenses and delivering efficiencies across the corporate and investment bank is very important.
And we have done we have made a lot of progress on that. Let's go now to page 3. So last year was, as I said, a challenging year in some internal and external factors, headwinds and tailwinds. We have the global economy is growing a bit slower than we would have hoped for. There are geopolitical issues that have volatility to the markets all over the place.
Emerging markets have been suffering for a while with slow growth and all kind of political issues. And when you go to China, really China is going through a period of transition and that transition is sort of being noticed as a slower growth. We have a collapse in commodity prices. The market liquidity is continue in a continued path of deterioration and we have a lot of uncertainty about monetary policy all over the world included in this country. On the more internal front, business simplification, regulatory and the control environment is very good long term.
In the short term, it's been painful for the top line and for the expense line. And we are incorporating multiple constraints for capital and liquidity to the way we do business. In terms of tailwinds, we have quite a few last year or 2. So the increase in volatility is good for our market business, assuming that there is some liquidity around that. We have a very strong M and A year, helped by the availability of debt and equity capital.
So And I think that the first point that I made to be able to maintain our strategy and really serve this robust group of clients is really a big tailwind for us. I have around me an amazing strong management team, very stable group of people that have been with us for years years and they are really cohesive and embracing the strategy and they really help all the company to really embed the strategy all across the corporate and investment bank at every level. We've been very disciplined in the way we compensate people, but we continue to pay in a very competitive way and that help us to attract top talent and retain our top talent too.
So a
tough year, but really the performance is being good. Going to spend only a couple of seconds in this page. On the left of the page, page 5 page 4, sorry, you have what we said we will do last year in Investor Day, the areas of focus. And on the right is what we have achieved. So few things.
So we did manage to help the company to reduce the GSIF back GSIF score and get into a 3.5% bucket. We maintained our number one position in banking and in fixed income. We have made progress in the cash equity business. And overall, we reduced our expenses by $1,600,000,000 and produced 14% return on equity on $62,000,000,000 of capital excluding legal. So we have delivered on what we said we will.
So going to Page 5, so $9,200,000,000 of net income, 7% better than the year before against the market of 5.9% worse than the year before 14% return on equity, a 100 basis points better than the year before. And our costincome ratio has gone from 61% to 59%. So progress and good performance. Page 6 now. So these numbers are the performance of the different lines of business and they are coalition numbers.
So and when it says market, it refers to the top 10 players in each of the lines. So let's start with banking. 16.5 percent market share, 120 basis points better than the year before. Revenues up 3.1%, while the market was down 5.7% and a good performance over the year. So we always talk about the logic.
I will give you the logic numbers of positions too. We've been number 1 overall. We've been number 1 in debt, number 1 in equities, number 2 in M and A, number 1 in the U. S, number 1 in Europe, number 1 in Latin America and we have made quite a lot of progress in Asia, still not where we wanted to be, but revenues for banking in Asia year on year has gone up by 35%. So to the right, fixed income 17.8%, 170 basis points better than the year before.
We were flat revenues year on year and the industry went down around 11%. Equities, we are in a solid number 3 position making some progress there, 12.9 percent market share 50 basis points better than the year before, revenues went up 13.5% and the industry or the market 8.9%. When you look at in the whole market, fixed income and equities over 5 years, we really outperformed the overall industry. In treasury services and in security services, we more or less performed in line with industry despite series of headwinds that we have. We will talk more.
We spend quite a lot of time. This is I'm really focusing this business. It's a great business going forward and for the future. We're in a great place and we spend quite a lot of time on that later in the presentation. Page 7.
So this is a page that you are quite familiar with and it shows a number of top three positions that we have across the 17 lines of business of the Corporate Investment Bank. In 2010, we have 11 positions. Now we have 16 last year and this year. And the comment that I always make is not about the number 1, 2 or 3 position, it's a lot of more about digging into each of these lines of business and looking and investing in areas where there are weakness to overall continue improving. On the right hand side of the page, it shows the trend over a number of years that we've been improving and maintaining that position.
And on the bottom of the graph, you have each of these lines. It's either a group of American bank competitors or European bank competitors. The point here is that some of these banks are banks that they are abandoning some line of business or shrinking some line of business. And those banks, at least for now, they are really becoming very, very tough competitors in the portion that they decide to give, they are really very tough. So, left or right of the page, the key thing here is not to be complacent and keep really thriving the business towards the future.
So let's see what happened on page 8 on returns. So once we exclude legal that it was quite elevated in 2014, the return was 13%. So the most important piece of this page is 1.2% of net growth. That is a combination of 3 factors. So there are 10 basis points of ROE headwinds because of our runoff portfolio is becoming smaller.
Therefore, the revenues coming from that, they are a bit smaller. But there are 90 basis points of growth in the top line and there are 40 basis points improvement in expenses. So overall, the organic piece that the business had generated is 130 basis points. Business simplification, it was kind of a washout between expense and top line is 20 basis points of headwind. We have a one off tax credit situation and we have built, as Marianne mentioned this morning, built further our energy reserves and credit reserves.
So 20 basis points of headwind net. And clearly, we've moved capital from $61,000,000,000 to $62,000,000,000 that takes 20 basis points. Overall, we have also this last year relatively elevated, not as much as the year before, but we have quite elevated legal expense. When we take that out, we get to the 14%. So we are in quite a good place and the performance allow us to keep investing in the future.
Now going into the second part of the presentation, Page 9. So this is a nice diagram that really is there to make one point. That is how technology you saw the video a couple of minutes ago, how technology is deeply embedded in each of the lines of business and how core it is to it. And we are going in this section to talk about treasury services, custody and fund services. We'll give you a brief update on global investment banking, progress in the market division.
But I'm going to start talking a bit about our technology strategy and organization. So what we are trying what we've been trying to do over a number of years and we're really escalating that now. We want to simplify our architecture to make it more effective. We want to have platforms and we do that they are more scalable. We want to create a very flexible environment incorporating new technologies, prototyping it very fast and if it is safe and secure moving into production.
And really we are doing all that to improve our employees and client experience. We have better risk management, system and overall has a better operational efficiency. So there are key principles that we are following. We are investing very heavily. Marianne mentioned $9,000,000,000 of investment in technology.
As you could imagine, big portion of that number is a core bank. Some of that goes towards maintaining our platforms and a lot of that goes towards creating and improving those. And we are really doing all that with the objective to really finance some of that or a lot of that with productivity that we find as we are making these investments. And we build most of what the technology that we consume, but we are not afraid even of using vendors when they have great products or partnering with some of them to co develop certain applications. And as I mentioned before, the business of technology is not what it used to be.
In the past, it was a back office function. It's not that anymore. It's totally integrated in the businesses. So new technologies, fintechs and new capabilities, they are crucial of everything that we do. We are working in high performing computing, big data, cloud infrastructure, all that is just is also new, is more developed, is being deployed across the company.
We are really improving our mobile solutions and we are experimenting and deploying some new stuff like machine learning, predictive analytics, distributed ledgers. So we are really working with all that. And we could do nothing of it unless we had best in class talent. And Sanuk and the rest of and Dein Adisi and the rest of the technology organization has done a really good job in attracting more and more top talent into this space. And the reason why we are doing on Page 11, why we are doing all this is really to improve the client experience.
As I mentioned, Clients over these days, they want to consume in a very flexible way all the stuff that we produce. So we have great research, great analytics, great trading tools, great payment systems. They want to really use it and use it in a very flexible way. We are working very hard in improving the way that the clients communicate with us. And APIs, APIs will really play a big role on that.
Also clients want to have an easy experience in the on boarding process and the maintenance process of their file. We have reduced in the last 18 months and went on boarding time by 75%. And more and more, as I mentioned, the inefficient ways to do business, a lot of the paper stuff is gradually going away. Risk management really very crucial in this environment. We have made a ton of progress in everything that relates to risk management, in particular, everything that is related to market risk management, credit risk management is very mature, but we keep investing to really be at the top of the best in class on that.
And one of the new areas of focus over the last couple of years is being operational risk management. And we really have done a lot of that, a lot of we make a lot of progress. You saw $600,000,000 investment in helping our perimeter and securing our perimeter for cyber potential attacks. So our cybersecurity environment is probably over the same best in class. We are working with clients to help them to prevent fraud.
We are working with our employees in creating giving them tools to really to provisioning tools that allow them to check and see if there are some misconduct issues. Obviously, we don't want to repeat the mistakes of the past going forward. We have probably a best in class intraday liquidity platform. I can sit in my desk, look at my desktop and see how the liquidity flows around the company at real time and see how much we have or we don't have. This is really an amazing platform over there.
Operating efficiencies, as I mentioned, you remember the SRP program that we talked about in the past a couple of years ago. This was just one program that really decommissioned around 60 major applications and reduced our running costs by $250,000,000 We continue to do that all across the corporate and investment bank looking for efficiencies. And at the end of the road, what we want is to have platforms and we do, peak of volume in the market can process a lot of volume without crushing and we do have that and we want lower and lower cost per ticket. We have reduced in the last 5 years our cost per ticket and depending on the asset class from 30% to 50%. So overall, really technology have done a great job.
Let's go now to page 12. And this is an interesting page that shows how do we incorporate new technology into our into the bank. Clearly, when as I said, most of the technology we consume is technology that we build and we use we're very aggressive in using new technologies when they are secure, when they are scalable. And then you have cases like high performing computing, big data, cloud infrastructure, where really they are quite developed. We've been working in virtual service for virtual servers for a number of years.
We are looking at very secure and effective ways to process between our own processing capacity and 3rd party vendor to cope with peak of processing demand in our technology organization. So that is that. We've been incorporating, as I said, more mobile solutions for our clients. And then when you go to newer technologies that in some cases we are deploying like machine learning, we are either partnering with some people who are developing something with them or we are really prototyping that technology internally. And I'll give you example for machine learning.
So there are plenty of repetitive process in an operation area that are being done by people. So that can be replaced by some algorithms in our machines and they already flow those people into more value added efforts. The same for distributor ledger. We are looking internally the availability the possibility of improving our internal payment system by using distributor ledger. And we're also partnering with some other companies.
It was an article not very long ago that it says it showed our investment in digital assets and we are working with them in solving the issue almost almost very, very quickly. We are working with DTCC and other banks in improving the settlements of CDS, both settlements and payments of CDS. And the last the green piece on the left. So no matter how hard we try, there are certain people that have great technologies that don't want to work in a bank. So and the way that we are and if you want to succeed, you have to really be able to have access to all type of talent.
So what we are doing is creating this program that is called a startup residency program that we will launch in a month or 2 with the idea of exposing to these startup companies, some of the challenges that we have across the corporate and investment bank at a quite granular level, create environment, a safe environment where they can work with us and try if they can provide a solution. In some cases, we'll ended up if they manage to find a solution, in some cases, we will ended up buying their services. In some cases, we may ended up investing or partnering with them. So if we want to win in this environment, in this process of change that we are going through in the industry, there shouldn't be any piece of talent that is not focused. We need to really cover all the bases in order to really be successful going forward.
So now Page 13, let's go into transaction services sorry, treasury services. So the one thing that is interesting about this industry that is very fragmented. The top 9 banks only have 20% of the wallet. The rest is distributed about local banks, pan regional banks and all over the place. In that 78%, I do believe that this industry is going to consolidate and we'll talk a bit more about it.
We have a very good starting point. We made around $6,300,000,000 of top line between the Corporate Investment Bank and DOGS. PENOVIS is the commercial bank, who are number 2 player in the world. And this industry is going to grow farther and it's going to grow are some studies that show that in the next 10 years, 10 years may double. And as the economies continue growing, so more and more an intraregional trade and cross regional trade will take place, multinationals will grow.
You heard Jamie this morning, both from the developed well going into emerging markets and emerging markets companies going into the developed well. Hopefully, at some point, interest rate will go higher and normalize. This business is very sensitive to that. And overall, if we want to capture all that, the key of this thing is to make the business from something that is quite scalable today to even more scalable, more efficiency more efficient using technology and really being very innovative. So where are we today?
Page 14. So we have really a very good franchise. We cover 80% of the Global 500 of Global 800 Companies. We are servicing 14,000 clients across the Corporate and Investment Bank and the Commercial Bank. We process $5,000,000,000,000 of payments a day.
We operate in 120 countries with 135 clients currencies. And we have really best in class products across liquidities and payments and all that. So one of the areas of growth, it was corporate outside the U. S. We are really very focused on that.
It was the main reason why the corporate bank was created. And this cross border business is growing substantially and we continue to grow as this business reduce the non operational deposits by 75%. That is 75 $1,000,000,000 of reduction non operating deposits without losing a penny of operating deposits. In some cases, really clients even more operating business in order to concentrate the wallet for us. And now the operating deposits are growing back again.
So the business, Jeff Bostlin and Carlos Hernandez, who run this business, they have done a great job over the years with expenses. And we have reduced expenses by 10% over the last 4 years and reinvest 80% of that in the control environment. That is fraud prevention, is cyber, is AML, is sanctions, is KYC. And in this control environment, remember when the first graph that I talked about, the 22 versus 78. When the more and more we talk to clients about that, they start feeling that the strength of your control environment will be a massive competitive advantage.
And they may and probably they will consolidate their wallet a lot of think So where are we going from here? So we want to continue growing our international business. It was the main reason why the corporate the global corporate bank was created. It was the main reason why we put together the investment bank and the transaction services bank and it's the main reason why we decided to consolidate the treasury services sell force with a global corporate bank. There is a lot of growth that should come from companies, corporate outside the U.
S. And clearly continue focus on that. The other piece, remember that we talk about multinationals growing and operating in more countries. So these companies as they expand their client base, as they expand their supplier base in many countries, their balance sheet becomes more and more complicated. So and they require better service.
They need to manage that balance challenge become even more important. They need more effects, better effects products, they need more hedging products. So they want they need us to expand into more markets. So all that space is really going to grow car lot. How we tackle that?
How we continue to do that? How we do that in a more effective way and how we improve our own efficiencies is key. And the key of that is our technology strategy going into page 16. The first thing that in this business is important, if you forget for a second about the future is that every day we process all these $5,000,000,000 or $6,000,000,000,000 of payments and we process in a way that without issues. 99.99 percent of our payments, they are processed in a straight through processing.
There is no manual intervention at all. The second thing is they want to go to a good control environment. I already talked about it is a big competitive advantage. The third thing is that they want to have a better experience. And that's really I tell you what we have today.
We have several instances of payment platforms around the world. We have our 8 to be precise. We have 150 applications around those platforms. So what we are doing is simplifying all that, improving the client experience. The first thing is to create a translation layer that and the clients sort of before I forget, they communicate with us, they send us a payment either through access, which is a great new platform that we build over years, either host to host, they are the same files or swift or other methods.
So all that flow have to come to a place that we're building so that then direct the traffic into all our payment platforms. The second thing that is important is that the analytics you produce, how easy to access information, how flexible is that information and how they can deal with that without being a situation where we produce this report and that's what the consumer, if you don't like it, you cannot do anything else. So flexibility there is important. So we are building as a part of our strategic solution a big global warehouse of payments. We already have it for high value payments and we will have it in the next few months for low value payments.
So you will have full access there. So then between the translation layer and base, the client experience of the flexibility will improve a lot. The last thing, but very important is that we need to become more and more effective. And the strategy there is bit by bit to really replace all these payment systems by the strategic solution that it will be 1. And instead of having repetitive applications around, we'll have better or modern and new applications.
So it will take a few years. And then but this path towards that point is very important because everything new that we are building, we are building a strategic platform. And gradually, we are decommissioning without the client feeling any pain at all all the old stuff that we have. So it's great. And once you have all that, your cost will go down, your client experience will go up, the leverage in possibilities of this platform will go up too.
So we are in a great place. The clients are very happy with us. And in the next few years, we will deliver on this. Clearly, I think that it will be really good. So now going into another area that personally I'm spending a lot of time is custody and fund services, page 17.
The situation here is a bit different. The industry is quite concentrated. The top 10 banks have 70% of the wallet. The rest is dispersed around. We are the number 3 player with almost $20,000,000,000,000 in investor services, dollars 20,000,000,000,000 assets under custody.
And it's also an industry that is going to continue growing because assets the institutional asset under management will continue growing. As emerging markets don't feel very good over these days, they will go back to a path of growth. They have to develop their capital markets further. So the mix between emerging markets and developed markets may change going forward for all your business even though it doesn't look so much, but it will happen. And as the industry, as a management industry and Mehdi talked a bit about, has some margin issues, margin compression issues, but also they are trying to dedicate their effort in what you guys do very well, which is to manage money, probably more and more outsourcing of services will go to a provider that will be able to do it in a scalable way.
As it is in the case of treasury services, the new technologies and the way we incorporate all that, it will be crucial. So we have, as I said, a very good business, dollars 3,500,000,000 of top line. There is a lot of overlap. 95% in the video, James Kenny mentioned this, 95% of the clients of the custody and fund services business. They are also clients either of the investment banking business or the market business.
We covered 100 markets around the world, 75 of those emerging markets, some of those frontier markets. This is a very as you know, it's a very good, very stable earning business. And in the last few years, we managed to improve our operating margin substantially and we are around the level of best in class at more than 25%, 26%. And it's a big source of non operational deposits. This group also has done a great job reducing non operating deposits.
And in this particular case, operating deposits through that process had gone up rather than going down. And their custody has gone up by 18% in the last 5 years and they have done a very good job in reducing expenses by 70% clearly that contributed to improve of net operating margin. From here, so what do we have? We have a business that is covering all investor client segments and we have attached a great investment banking business and a very good market business. So we safety is very important for all of you, all our clients.
2 thirds of our assets are being called in our direct custody around the world. 1 third is done with partners that with a very, very solid and prudent diligent process behind. And clearly, those assets are all assets are segregated. But the fact that the situation the company has a strong balance sheet also give another layer of confidence looking at what is going on to the clients looking at what is going on around the world. But there is plenty of places where we can expand this business.
ETFs and old and alternatives. ETFs in the next few years will probably grow around 18%, alternatives around 9%. So it's fast growing asset classes and we are investing heavily to improve our offering on that. Deliveries coverage, so we have a great investment bank. We are probably the biggest in delivery house in the world.
And we have great technology that we can deploy into this space to improve the client experience on that. Middle office outsourcing is going to be very important in the following way. So at the moment, when I look at middle office outsourcing, it's being done in a way that it couldn't be any more inefficient. You lift the inefficiencies from the asset management company and you drop the same inefficiencies in a bank and you keep repeating and doing and doing that, you'll never be able to scale that up. So it's not a good model.
So I think that whoever and we are very focused on that, managed to simplify those processes in to a series of modules that they are the same for every asset management, asset managers and then you customize around, it will be the win and we'll be able to really provide that service in a very effective way and cheap way for the client in a profitable way for the bank. I talk about emerging markets. So this is a very profitable part of the business and we want to continue to grow as it is more important as these countries grows and currencies more important to have effects and hedging products there. When we look at efficiencies and client experience, the strategy the technology strategy, I don't have a page here, but it will be exactly the same page that I used for TS. It will be exactly the same thing.
It's creating a layer that helps the clients to interact effectively with all our infrastructure, create a database that allows the flexibility with all the securities record, allow you to interact and get as much information as you want. And with time to really replace the 2 custody systems that we have, the 8 versions of the systems that we have, to have a best in class asset security servicing platform, to have best in class derivatives servicing platform using some of the technology that already been developed by the investment bank overall to really reduce the and reduce the complexity of the current infrastructure, while the clients are being getting an amazing services. We are working as a part of that, we are working with one of our biggest clients and great partners BlackRock and we are integrating ourselves to their platform by connecting with Aladdin. And that will be very interesting. We are doing all through very modern APIs so that it will reduce their operational costs because we will be able to get information we need when something is needed and it will reduce also our operational costs.
So it's a great idea. We are working together and hopefully we will do that with more and more asset management in this process of modernizing our infrastructure and really be able to grow further this business. Now quickly into Investment Banking. Talent was one of the areas that we discussed last year. We have hired a lot of bankers, very senior bankers to really address some of the weakness in some sectors like for example, TNT, energy, healthcare, adding resources there, China, France, Germany, Australia.
So we keep working on this, really trying to more and more have bankers that have great access and great connections with boards and great connections with CEOs and really continue to deliver the whole platform to them. Delivering the firm, this is really very, very important. We are better than ever connecting the markets organization with the banking organization to deliver complete solution to clients. He's in a better position than it has ever been before. Carlos Hernandez has done a great job in really helping this.
We are growing very fast our penetration in corporate derivatives and all that. The partnership with the commercial bank crucial. Doctor. Pendo mentioned he's adding resources into the middle market. There are thousands of clients that we are not really yet covering for investment banking products.
We have grown from 2,008 to 2014 our investment banking revenues with his clients from $1,000,000,000 to $2,000,000,000 another 10% last year to $2,200,000,000 And with all these, we will get to the $3,000,000,000 target. The partnership with Merit in covering family office, there is so much the family investment offices, there is so much knowledge, brainpower and transactions that these family, these offices, these investors can have access to, to make sure that there is a channel to conduct all that to them is crucial. We have it very well developed in the U. S. And we are deploying it all over the world.
Resource optimization, there's only one comment on this. So we have really done quite a good job in giving tools to the bankers to be able to measure what resources are we deploying to a particular client, capital liquidity, how much they are giving to us in the case of liquidity, having understanding exactly well in what areas we have a great relationship with that client in what areas there is areas of there is a space for improvement, having an overall return on equity, there are particular clients in the base space of multiple constraints and having marginal returns too. So we are giving them and we looked at that cycle over the long term. It's not that we are looking within a year. So but it gives the tool and the discipline to the banker that if we are deploying the sources, the overall relationship with that client have to grow and we are doing exactly the same in the sales and marketing organization within markets.
So 4 markets, start with fixed income. So clearly, one of the objectives was to stay as number 1 player. We are in page 21 and we continue to do that. If anything, we have increased our market share. And what I said is the same for market.
We are looking at the top 1,000 clients and looking how we can grow our business with them. So looking very granular to each of the components of the business these clients do with us, helping them to understand in what cases we can help them more, in what cases clearly it may be some other provider that can provide that service and overall improving revenues and improving real this holistic relationship with the clients. I'm going to talk about in the next page about the change in the market structure and the strategy there. And as we do in every business, we've been very disciplined about managing costs and optimizing to different binding constraints. Just a number, when I look at the comp line of fixed income, not necessarily we are paying less per head, but the comp line in the last 5 years has gone down by 25% to really respond to the fact that the amount of capital has gone up.
So now going into Page 22, I get and my management team is saying a lot of questions of why we are holding on to the strategy of maintaining our business in fixed income in quite a complete way, once some of the competitors are either exiting or reducing parts of it. And this page is it gives you a bit of an answer to that. On the left hand side of the page, this is 2015, the return on equity of each of the lines of the fixed income business and overall on a fully loaded basis. So the full allocation of capital preps long term debt, the full allocation of operational risk capital is fully loaded. And 15% excludes the run of portfolio.
The run of portfolio is a headwind of around 100 basis points give it or take it. So all the lines of business in 2015 with exception of 1, they were profitable on an absolute basis on their own. Commodities wasn't. We're still working in the transition from moving to a by far broader business. After selling the physical side of it, we keep making some adjustments there.
But that gives you a very good segue into the right hand side of the page that it shows what will happen if we were to exit the commodity business. Obviously, we are going to free up some capital, but we are going to lose net income and the loss of net income and that amount of capital will be really the marginal return on that capital that you are releasing is extremely high. And it's exactly the same in each of the lines of business. On an absolute basis or on a marginal basis, this business is being very profitable. So clearly, to have good return for the shareholders is one of the reason why we are staying.
Second one is because it's becoming more and more strategic for our relationship with our main clients, the fact that we maintain our complete offering here. And overall, when we have the returns that we have, the wallet in this business in the last 5 years has gone down by 36%. Our revenues have gone down by 18%. So scale being a leader in each of the lines and the importance to the clients and the return of the business is really the main reason why we're staying. And at some point, this business will go back to growth.
It's not going to be contracting forever. Europe may grow at some point, capital markets will develop, emerging markets, all that will help. But we are really by being disciplined in a very good place where we can wait for that growth without burning without being in an uncomfortable situation. So Page 23, you may remember this page and this is very simple. For me, the key success in the market business and in particular in fixed income is to hold on to our market share to have the scale and to have leading position in everything you do.
You cannot dictate how the clients, all of you will decide to execute your transactions. What we can do is create all the avenues for you not to have a reason not to execute with us and going somewhere else. And this is what it's about. That's why I created execution services business a while ago. That's why it's so deeply embedded now in all the lines of business and we'll continue to do that.
Going to page 24. So blue and green is mainly blocks and single digit platform trading as on the left hand side of the page more or less the average of what we see today. And then if we go towards the future, probably the all to all environment or the multi platform will grow and the mix will be a bit different than what it is today. But overall, the principal business will remain in place. It will require it is necessary to facilitate the termination process in certain asset classes to commit capital.
And at the end of the road, if you manage to maintain your scale, you can really make it in any kind of market environment. And we are investing on that and we are really there are plenty of success around. Our average daily volume in foreign exchange last year in electronic basis that is the bulk of what we do has gone up by 40%. Even in our single deal platform has gone up by 86%. We are creating products in case part of you wants it and we have created a safe aggregator which allow you to go to the pison to find the best price.
The best price out of all the safe that exists in all of the classes, we haven't done a single trade. It is what it is. In case I am obsessed about not to be able to provide something that you may need is, yes, this one is there. If you want to use it, you can use it. If you don't want, it's fine.
But I don't want to take the risk. Commodities are getting more electronic as time goes by. And even in a spread, that is the less electronic side business of them all in the more liquid part of it in indexes, they're already we already created and using algorithms to provide electronic execution there too. So for me here, as I mentioned, scale and being best in class in all the lines is what give us our staying power and our returns. Equities, tough market, good returns.
We our market share versus the average of the 4th and the 5th player, it has gone from 2 30 basis points to 90 basis points in the last couple of years. So we are making progress. We are making a lot of progress in the prime brokerage. I mentioned last year that one of the areas of challenge is to increase our synthetic balances. We have increased our synthetic balances last year by 46%.
And clients really there are plenty of service around. They really like our offering. And I think that Teresa has done a great job building this business. And now Jason is taking over and getting closer to the equity business, so a lot of progress there. This one, the same thing in fixed income, expense discipline and optimization of resources is very crucial.
So now we finish the second session, which was a longer one, and we'll head towards the end on financial targets. 1st, on Page 26, we have the GSEF actions that Marianne mentioned about it. The contribution of the Corporate Investment Bank was roughly 80% of the reduction and we have done many things, but the main three of those is we reduced non operating deposits by $130,000,000,000 we reduced notional derivatives by $16,000,000,000,000 We went if you remember a couple of years, we're almost at 70 $1,000,000,000,000 now we are very close to $50,000,000,000 And we reduced our Level 3 assets by $14,000,000,000 In addition to that, because GSEF until now, it was such a binding constraint for the Corporate Investment Bank, we went very deeply into each of the lines of business and look at how that scarce resource was deployed and create a bunch of actions without really hurting the strategy or hurting the client franchise to really redeploy those resources effective. These hand reactions, some of them they already implemented, it happened, some of them are in a process to happen, but we managed to increase our top line, get a better return without really redeploying resources, without really changing any strategy or clients.
So where do we go from here, Page 27? So we are solidly at 3.5%. If we were to go, as Marian mentioned this morning, 2%, 3% and we do it in a very fast way, we will the amount of capital that we will release, assuming that we can return it, it will be extremely costly. And it will really require it will damage our client franchise and it will be it will require more than a tweak to our strategy overall. We've been we said last year, we are going to be no higher than 4.5 and even if you make commercial sense, we'll go lower and we say exactly the same now.
We are at 3.5. We're planning to be there. If you make commercial sense, we will go lower. We delivered last year. Over a long period of time, we may be able to clearly, we are not going to put the client franchise at risk by accelerating this too much.
And one of the things that we are doing is adjusting and embedding all these sort of now that it's at 3.5 percent all the other constraints become a lot of more binding than we were at 4.5 percent or almost 5%. So we are working in the way we allocate capital embed this sort of multiple constrained environment to create the right incentive into the business, in some cases working with limits. So to make sure that the business is conscious about the multiple constrained environment that we are. Expenses, dollars 2,800,000,000 we discussed last year from $23,300,000,000 and $1,500,000,000 elevated legal expenses in 'fourteen. We delivered $1,600,000 $1,300,000,000 related to simplification and another $300,000,000 in the rest of the CIB.
And that is to comment on the $300,000,000 We have our revenues have grown by $500,000,000 number 1, while we delivered $300,000,000 And second one, in order to get efficiencies in the next couple of years 2016 2017, we have to invest quite a substantial amount of money to really deliver that operational efficiencies going forward. Overall, 1.6% is more or less what we planned and I feel quite good about that. So now that we are where we are at 20.2% excluding the elevated legal costs, We have $1,200,000,000 to go in the next couple of years and that is $300,000,000 will be simplification related And the rest is the bulk of it is technology and operations. It may be depending. We're going to continue to pay competitively, but obviously we'll continue tweaking our front office comp line in line with the market and we'll continue by paying competitively.
But as I it's not just in fixed income overall, if you look at in the last 5 or 6 years, the elevated cost of risk and control has been 100 percent offsetted by the reduction in the comp line. So that discipline will continue going forward. So now when we go to returns, this year 14% once you exclude legal expense. So going forward, we think that we can get another 70 basis points of core revenue growth. And but the run of portfolio will continue to shrink and there will be a bit of a headwind there.
Rates, this is not rate normalization. This is what it is for the next couple of years If rate goes at the forward curve around now, it will going to give us an uplift of 50 basis points. Business simplification is a washout between top line and expenses in the next couple of years. The expense initiatives that we just discussed, the $900,000,000 is 90 basis points of capital of ROE. So we have 60 basis points of headwind.
If you remember, we have 1 off tax win in 2015. Obviously, this is the lack of it. And then capital will as Marian mentioned, is going to go towards 12.5%. So that is 170 basis points of headwind. Clearly, I am not factoring into this any growth in the market overall.
I assume that the growth is purely related to areas of weakness and not an overall growth of the wallet. And obviously, if the capitalization of the company goes down and if we make him and we are able to distribute more capital, we may be able to capitalize the CIB a bit lower and therefore produce a higher ROE. So now that we are coming to an end, Jamie mentioned this morning that he doesn't care about quarterly earnings. Probably I do care a bit more than him and I'm sure you care a lot. So I'll give you a bit of color on the Q1.
And there is no doubt that it so far has been a very tough quarter. So revenues in investment banking fees are down 25% year on year, mainly driven by DCM, the Capital Markets and Equity Capital Markets activity, while at the moment M and A is holding well. And markets is down 20%. You have to keep in mind as you compare with the Q1 of 2015, you have to keep in mind that in that number, we have really a very good performance and an increase of client flows around the time of the Swiss franc revaluation. So there is sign of that into this.
So just to be clear, in the case of banking, it's a forecast for the quarter. In the case of in market, it's as of now. So clearly, a tough quarter. But honestly, when I look at after going through all these pages, the platform that is being built over the years, the quality of the management team, the quality of the franchise, the returns that we are producing, the ability to continue investing and the hope that at some point the market will grow really put in a great position to really capitalize on that potential growth. In the meantime, I think that we have within the constraints that we have a best in class business that we are very proud of.
So I will stop here and probably we have very least probably 5 minutes for Q and A. Yes.
Chris?
Hi, Chris Kotowski from Oppenheimer. I wonder if you could elaborate on your Page 22, which I found really interesting about the fully loaded and the marginal ROE. And obviously, the marginal ROE is much higher. First question is, is that why so many players have been staying in this business despite the dreadful revenue declines for all these years? And now that you've gotten a whole bunch of people, primarily the Europeans, but not only, announcing another full set of scaling back.
How do they avoid this trap? And then finally, how does it change the whole marketplace?
So overall, as I mentioned, the returns on the left, they are fully loaded. I'll give you the it has everything that is there to have, including operational risk capital, the full stack of capital include operational risk capital, equity, preps, long term debt, everything is there, all indirect costs and direct costs allocated. So this is a real ROE. Unfortunately, if you are exiting any of this business, so first, the transactions don't disappear. So therefore, there is only one thing.
They are going to be sure that you lost the top line. So the rest, it will take time. I would say that the numbers on the right, they are not if you were to measure the marginal return on a shorter time as soon as you exit, it's going to be I couldn't put the green lines in the page because it will go way, way, way to the right. This is like after a while you reduce market risk capital, you some of the credit capital, reduce your variable costs and all that. So unfortunately, you cannot avoid that.
The way that it's being done is you move this into a runoff book or a runoff bank or a bad bank and over time you derisk it and go back into whatever business you're going to do going forward. But it is what it is. The costs don't disappear. The capital doesn't disappear. The top line will.
Guy Moskovskiy.
Thanks. Guy Moskovskiy with Autonomous Research. I thought Page 24 was really to to be traded through from 2018. A large number of them see a very significant increase in either multi dealer venues or all to all. And I guess the question is, operationally, how do you get there?
What kind of investment dollars are you looking at? Does it improve for you the core economics of the businesses? And does it really build moats or does it destroy moats in terms of So
probably So probably as you move towards the right, to the yellow and orange, assuming that the market doesn't grow at all, some of the top line may be eroded. Even though the products that today require capital in facilitating the termination process will continue to be there. And overall margins of the spreads are really, really tight. So it may be some erosion of the top line, but not a massive because already the spreads are so tight. And when we see over these days that volatility comes into the market, in the more liquid products, you don't see spreads widening.
You see the size of the bid and the offer getting smaller. And for more illiquid asset classes, you see a spread widening, but the lack of liquidity, that doesn't help you too much because you're going to use that money to re raise the position. In terms of investments, it's all embedded in our expenses and we keep continue investing on that. Are there other non bank players getting into this place into this space? Yes, there are some.
Overall, when I look at our market share year on year, it's continued growing. So we are not doing badly. So overall for me that's why I'm so obsessed about the scale, maintaining our market share and really being a leader in each of the lines of business, because it's the only one that you can succeed. As you are there, you can always correct the cost structure of the business in case the profitability of the new type of business is not in line with what you have. But if you lose your market share, the only thing that you're going to do, cut expenses, then you've done that, you feel good for a month and then you realize that you're still not profitable and then you continue cutting.
When you start going that way, you know where to start, you don't know where you're going to finish. Jim?
Hi. Jim Mitchell from Buckingham. Maybe just to follow-up on the ROE question or description of the FICC business being 15%, I guess 14% ex runoff. It's the same as the investment bank as a whole. That seems a little bit counterintuitive that your fixed business given the capital intensity of that.
Can you kind
of help
us think through why or what's driving not a higher ROE in the total business if fixed is perceived to be the lowest? Maybe that's the wrong
Well, first, when you look at the walk through to our 13%, you have more capital coming. That's number 1. Number 2, we keep delivering our expenses that is going to help that. But most important, the overall level of interest rates being so low is really putting the transaction bank at relatively low returns. More challenge in the TS space than it is in the CFS space by both of them.
So the equity business is profitable and it's all fine, but it's around the level of these 2. So we are in a situation because the structure of the capital and the level of interest rate that more or less all the lines of business return relatively similar than the fixed income business.
Okay, great. And maybe a follow-up on Guy's question with Page 24. As you make that transition away from OTC into more electronic venues, I'm not sure I heard you correctly. Are you see are you going to do you expect to see a significant decline in capital related to that transition by 2018 to 2020? And would that be a material help to us?
No, we are it may be some. So far, the all to all venues, they are really except for Super Liquids that asset classes that they've always been in all to all venues and for equities. For the rest of the asset classes, the all to all venues really are not growing so much. So I don't see a substantial reduction of capital. It may be one of the positives, but I also see some if that were to be the case, sort of sun erosion of the top line too.
Last question, Betsy Graseck.
Betsy Graseck, Morgan Stanley. So Daniel, when you were on Page 7, you were talking about how there's been competitor exits, but the ones that are sticking around are being very competitive with price. And I just wanted to get a sense from you as to where you're seeing that most significantly, because we also hear about how the market is actually up pricing with some of the capital requirements. So if you could square those two statements that'd be helpful.
I think that where you see the most of it is in equity. Equity cash, clearly, I think trust me, Francis is and myself, we're really focused on that. We were number 6. We made some progress to reduce the gap, but it's still number 6. So really these people are really in less capital intensive things that decide to stay.
They are really going to they are going really, really tough. Equity is an example of that. Lending is an example of that too. When I look at trade finance or traditional lending, the returns are very, very low. And that connects to the fact that when you are leaving, we are reducing your client base and a lot of that happens in Europe.
You're going to try to protect your core. If you're a French bank, you try to protect the core French franchise, things like that, they're willing to really put a lot of capital into that. How permanent this is over a period of time, we don't know, because we may have a downturn cycle in equities and then the only thing that you do is that and that becomes less profitable, you may have an issue. I don't know. But at the moment in certain spaces effects equities, lending and banking in general is really, really tough.
In terms of repricing, the only real repricing that I have seen is in the financing positions, repos and prime brokerage financing. If I look at for the last couple of years, give it or take it, the ROA of that business has gone up by more or less 25%. Other than that, clearly spread now, some of the clearing business like if you look at F and O, futures and options, the clearing part of it, that is quite capital intensive. We've been re pricing slightly in some of the smaller clients and we are working in balancing our execution versus clearing. That is a bit unbalanced at the moment, but we haven't have at all the possibility of re pricing the bigger clients.
In the reverse clearing that we talked about last year. That is the GCV issue was corrected by regulation. It's less of an issue than it used to be. But overall, that I have seen there is some terms that have been offered in the past, they are not around anymore. And the good thing about that business is not re pricing to at least to cover the cost of capital is because it's out of scale, because Europe is not clearing yet and things like that.
So hopefully, it will happen that way. But I hopefully, it happens, but I'm not really planning for it. And really, I want to maintain our capital discipline, our expense discipline and not hope that repricing is getting is going to be our way to profitability because it may not happen. Okay. We'll stop here.
And thank you very much. And now you have Jamie.
Well, I have nothing else to say. So I'm just going to open the floor to any questions or comments you have.
Mike?
To some degree, you're saying look at your past record and trust us, but you're also increasing your looking at We know that you're running the firm for the long term, but what are some milestones we should be looking at? That's a lot of investment dollars being put to work. And as Gordon Smith said, there's some speculative investments that you might not have had in the past. The payback might not be as concrete as when you bought Bayer or WAMU. So what should we be looking for to see evidence that that $6,000,000,000 of investment spend is bearing fruit?
I'd say it's been rather consistent over the years, more branches, more bankers. And what you should look for is share growth, more clients, more that we're actually connected to more venues that we're gaining the accomplishment we say we're going to accomplish. And for the most part, you can look at that quarter by quarter. It's not always going to go up in every area. And I wouldn't I know Gordon where's Gordon?
He used the word speculative. I wouldn't use the word speculative because it's not like we're making a big bet that if it goes wrong, we're in deep trouble. We actually have real reason to think we can win those businesses. We are going to do it. I'm convinced we're going to earn back when we spend on it.
Whether we win at a home run or not, that's what I think you might have meant.
And then Daniel just said he's obsessed with market share. How much are you willing to use pricing to gain additional share? Doug? Where? In across the board, in any business, how much you're willing to use pricing to gain additional share.
Doug at the Boston Bank said, you're willing to accept a mid single digit ROE on commercial loans because you sell so much in fee products and make it back on the overall relationship. How would that apply say to the custody business or any other business that JPMorgan operates in?
It's always a little different because in some of the businesses you don't have to do that. It's not an issue. We don't worry about it. In other businesses, I would cut price to get share. I mean, if we thought that was the better thing to do for the shareholder long run, we probably want to do that.
You've seen us do a little bit of that in merchant acquiring. We're willing to give a better deal to clients to get their business to flow because at the margin it's all profitable for us and that's called capitalism. That is what companies do. And try to give the client more better, faster, quicker, cheaper so that you gain share and their client is happy and you're happy.
What other areas, merchant acquiring? How about the custody business, other areas?
Well, I think the custody business is competitive and has been for years. So those prices, if you go back to over 20 years, they've been coming down a little bit every year generally.
Glenn Schorr. Thanks.
So we touched briefly earlier on what's going on in Europe and there the banking environment is a little more stressed spreads have widened out. They have bigger financing needs going forward. So curious on how you're thinking about your counterparty exposures to them? What level of concern is there? I know the markets had level of concern, but curious.
I'm not going to talk about any particular counterparty, but it always came on the major global market counterparties. So think of all the major banks, for the most part 100% cloud each other every night for the most part. You have GAAP risk if something moves and derivative books something like that. For the most part they do that. And for the most part you can kind of manage that day to day for your risk.
Any counterparty, you can price any counterparty any way they want. So you may just price yourself out of doing more business with them. And you may not want to do certain types of business with them, you might end up in what we call a wrong way position. There's something actually goes wrong there in that country, something like that, it puts you in double jeopardy and so you don't want to do it. So we're comfortable is what I'd say.
Brennan
Hawken.
Brennan Hawken, UBS. I understand that you guys are not concerned about significant deterioration in C and I beyond energy. This is kind of a big topic that investors are pretty focused on. So could you maybe help us prime, we're
super
it's super prime, we're super prime, it's never been better. We try to look at everything through the cycle. So Gordon didn't say, when we price business, we price it kind of trying to price it through the cycle. And so mortgage has been very good. I mean, as I get credit cards as I get.
Doug said the middle market numbers, they've lost it virtually 0 for a couple of years now. Large corporate credit has been virtually 0. So we maintain the same credit standards and when you lose the business is because it goes beyond your credit standard. You have to be willing to walk away. And that is the one time you have to have the guts and the thing to walk away.
We are willing to live with a normal cycle. We are not going to sit here and guess, oh, the cycle is terrible, it's cut way back on credit card marketing. In fact, we did the opposite in 'nine. 2009 was the year we did more credit card marketing and we came out with Sapphire Inc. And Slate that year and that's what's helping us now.
So we're not we're very consistent with the credit and we try to be very careful about it. We do expect there'll be a cycle and there's a cycle and our losses will go up.
Matt O'Connor?
Yes.
You talked about adding or Mary Anne talked about adding a total of $600,000,000 reserves for the Q1. Is there still reserve release in the consumer book, whether it's the Q1 as you think about the entire year?
Not really. They're very small. Okay. We're almost done with reserve release. And I see So there might be some in a piece every now and then, but we're virtually done with it.
And I assume the base case would be no additional reserve build if everything stays where it is right now?
Yes. So as Mary Anne said, that's not first of all, the $600,000,000 is she's telling you today, but we're going to decide at the end of March and go through the fine tools that we really think at that point in time. And she said it was 600,000,000 give or take. So don't sit here and say, well, you told us 600,000,000 and you're wrong because it's 700,000,000. I wouldn't consider it materially a different number.
And yes, if the curve stay kind of where they are today, it shouldn't we may have to do something in the Q2, but it shouldn't be much. Okay.
And then bigger picture question, obviously, the dry up in liquidity is impacting debt capital markets activity, ECM activity. There any early conversations with clients that are looking for Plan B? So I'm thinking instead of issuing bonds, coming back to the bank loan market, instead of IPO ing, think about private funding, are those conversations starting or is it
just too early to go? I think we know of a couple where where Daniel go? There are a couple where the clients are starting to talk about alternatives. There's a big backlog of IPOs, there's a big backlog of leveraged finances and people waiting. But you've seen a couple of deals start to take place all of a sudden.
So it's very possible in March that will open up and be better. But I think if it goes much longer than that, yes, I think we will come back with an alternative. Well, when you say the weakness in the U. S. Big banks, I would beg to differ because I don't think we were ever weak.
Look, we are doing quite well in Europe. We've gained share in capital markets. We've gained share in investment banking. I think we're a great partner whether it's a counterparty or whether it's a cash management or custody. Obviously, we are a great party for folks.
And we I believe we've gained share in some of those trading areas. It's just really hard to tell what the share difference is we don't get complete breakouts for everybody else, but we think we've gained, I'm going to say 5% share in rates from it, probably from other people getting out or maybe even 10% if you look at it over a 1 or 2 year period.
Then just another opportunity. As we've come into after the Fed hike, the environment has changed in a way pooling, they're actually in pooling. If you look at deposit pricing, if anything, we're expecting less hike. So is the first 25 and any other next 1 or 2 maybe more profitable than what you would have thought initially?
No, the first 25 is the most profitable, the second 25 is a little bit less, the third 25 is a little bit less. And we've disclosed in the 10 ks how much of that comes from the short end. The 100 basis points is like 2,600,000,000
I'm not going to
help. Hi, Jamie. I feel like there might be an obvious element to this question, but it was reported that you bought a lot of stock personally, I think $25,000,000 So just what was kind of going through your mind? Is there a disconnect that you see in terms of where bank stocks are priced and what the market is worrying about or just a short term versus long term?
Yes. I'm not and I don't buy as a trade because I can't trade. So isn't like I'm going to sell it tomorrow and then take my chips over the table. Look, this company, if you look at the results and you look at it year after year, you look at the tangible book values, you look at the growth, you look at the earnings, you look at the earnings power, you look at the record results, it's pretty good. So when I bought it, the tangible book value is now 48.
I would buy it personally all day long at 48, all day long. If you can compound your money at even 13% a year and I think that's a great investment. Warren Buffett looks at that ratio. I told you the number and our performance in terms of compound is great. A lot of our Marion showed you a number and we talked about a million different ways the revenue volatility.
The consistency that we've had through the toughest times is probably a good sign, not a bad sign. I look at it as a good sign, not a bad sign that the Q1, so you're if you would say, oh, the Q1 JPMorgan will be down more than people expect to earn that kind of money to have one trading day of loss, to have that consistency of revenue is fabulous. To have the margins we have that allow us to earn that kind of money. So I look at it as just a very good
long term buy. Betsy Graseck.
Hey, Jamie. So, a couple of questions just on the capital requirements. I mean, we still have a couple of
I also had a morning, I wasn't doing anything, so I'm trying to get a little excitement for myself.
Appreciate that, that you were bored. So the question is on capital requirements and we obviously have this G SIB buffer top up to CCAR that we have to get through as well as the countercyclical buffers that were put out there in December. And just want to understand how you're thinking about that as you go not only through the CCAR process, but also how you think about clients and the degree to which you can pass some of those costs on to clients from here? Right.
So we do not like Daniel said, we don't assume we can pass any costs on at all. We have to become more efficient ourselves to make sure we earn an adequate return. The G SIP through CCAR is probably one of the last major things we have to do because we're waiting for the fundamental review of the trading book, we're waiting for TLAC, we've gotten those. That's probably one of the last ones. We're going to get living resolution and find out what the rules are there.
We know that we're inevitably going to go up to 12% CET1. We know that right now, we don't believe we need more than 11%, but that this one thing may change that. So we'll deal with that when we get there. And the only other thing I'd say about because Daniel said it, most people said it, we're doing fine right now. If you had said we had pretty much double our capital over a 6 year to 7 year period and we'd still be earning a 13% return, you would say, how did you do that?
And part of that's efficiencies, part of that was the comp line, part of that was straight through processing. So we're pretty comfortable to be able to tweak the dials and earn a fair return for our shareholder. Repricing,
you have
to remember, repricing is one thing, but also strategic changes. So we benefit from a share change even if there's no repricing. We've also had on occasion people come saying, I want to make sure you're one of my banks. What can I do to make this relation make sense for you? Nothing repriced.
You just in effect are a non GSIFI business, right? There's a lot of so you could pay me a lot of ways that don't create GSIP charge, any RWA that we'd be very happy with and make the relationship make sense. So we have a broad set of options look at it by desk, by client, by region, by country to make sure we're getting a fair return.
Then the CCAR this year is coming obviously, supposedly before the GCAR buffer increase on the CCAR next year. So can you think about that when you're going through this year's CCAR process or
Well, I think after we go through the CCAR process, we will probably go through the hypothetical if this if you put in one point, 2 points or 3 points of G SIFI, what would it do to it? How much buffer do we still have over that? But we're not going to it's not going to affect CCAR this year. It's going to affect how we think about the future. You Remember the Fed, they made it clear they want to see capital go up kind of and it will go up anyway is the way we look at it.
I guess you've presented a reasonably constructive view of the United States economy and the operating environment side. Obviously, the markets have taken a different view of this in the last 6 weeks, high yield spreads up to 800 basis points, European banks trading at 40% of tangible book and every American bank down 20% in the 1st month. So, do you have a theory on that? What I mean, it seems to be discounting way more than pockets of weakness. It seems to be discounting another round of systemic stress of some kind.
And what is your area? Right.
The great quote of all time was the stock market predicted 9 of the last 5 recessions. It may be right, it may be wrong. You can ask the question who's been right credit spreads or stock markets and they've both been right and they've both been wrong. It doesn't really change our strategy. So in terms of JPMorgan Chase, it isn't going to change what we do.
It will change our results. I can argue the worse things get the better will be for us, okay? So I don't look as a business matter. I'm not going to guess the future. I mean, you all can guess the future and you have to make that decision, you buy stocks.
I don't. I have to do a lot of other things. I don't really have to worry about that. We're going to do almost exactly the same stuff anyway.
Ken Usdin?
But again, I'll be clear. My own personal belief is that this will settle out and the U. S. Economy just keep on chugging along. That's my own personal belief because the actual facts on the ground home prices, wages, jobs, car sales, the balance sheet of the consumer, the balance sheet of corporations, the setting is not bad.
I listen to all the bad things by the way, but the United States
is not bad. Hey, Jamie. On the one further follow-up on the investment side. You mentioned that it's been consistent over time. And I'm just wondering, does investment spend scale over time?
Meaning, does the incremental investment dollar become net more marginally profitable? And within that, does regulatory and compliance spend get to a point where it just becomes, even if not run rated, less bad? And is there a way
to scale regulatory and compliance? I think regulatory and compliance is we've added a tremendous amount. So think of leveling off and maybe we're going to streamline it and make it better. So a bunch of the folks mentioned here, so take KYC AML. There are parts of that we effectively did by hand that we're going to be able to do by machine and
it will be even better than
we were doing before. So we are going to get efficiencies out of it. And we just had we had time tailed it, we had to meet it. There's no other way to meet it. So in terms of regulatory compliance, think of it as topping out eventually probably this year and then hopefully become more efficient.
A lot of what these folks put in their numbers already include that. So I don't want to double count what they said when you get $1,200,000,000 out or $1,300,000,000 out something like that. And the spend, we always look at it when we sit in these meetings and we talk about can we open, Gordon Smith came in tomorrow and said, I can open we have found 20 new sites, we can open branches, we're going to have a 30% IRR, MPV, whatever you like looking at that thing. My reaction would be to go for it, okay, because it's all at the margin and we'll be sitting here in 2 years saying why we're earning more money. The average retail branch makes almost $1,000,000 a year profit.
The actual capital we put in the branch is $2,000,000 okay? And so you would do the marketing spend that we do would be exactly the same thing. So in fact, when we told you it was $57,000,000 $56,000,000,000 of expenses and someone asked me is that a commitment. It's not a commitment like we feel like we have to meet it because at the end of this year, we spent another $300,000,000 marketing too. You want us to spend that marketing.
And just having met the commitment anyway, we have some other watch sets and stuff like that, but we would spend it. And some it does have a very high marginal return if we get it exactly right, like merchant acquiring I put in that category.
Eric Wasserstrom?
If we look at the competitive environment, it seems that there's a number of competitors in different products who are acting in a way that maybe reflects their own situation, right? A card company that lost a co brand announced to go out and market aggressively to make up those revenues when maybe the market wouldn't argue for that approach. And there are certain things that are occurring across the competitive spectrum that sort of reflect similar kind of dynamics. Is the competitive environment is that dynamic different than it's been historically? Or is it the same?
It's just the competitors who are competing differently? It's mostly the
same. I mean, my whole life has been competitors. I assume when you talk about the European banks, I assume some will be back as competitors. They still are deep competitors in some of those countries they're in. In credit card, we've always had people doing smart stuff and people doing stupid stuff.
That's been going on my whole life. And the people doing stupid stuff before was First USA at Bank 1, which is why I'm here, okay? If they hadn't been doing stupid stuff, I wouldn't have this job. And so I always thank Richard Fairbanks because he's the one who came along and killed First USA. But Richard said no, we have a new card coming out that's going to compete better with his cash back product too by the way.
And I think it's always been true. So our operating assumption is there will always be tough competition. And if you don't feel it today right there, it will be back there today right there. So the best thing to do is do a great job for your clients, stay through processing, make the right investments, don't assume, make a lot of assumptions, heroic assumptions are going to save you because it's unlikely to be true. But when we on the credit card, these big portfolios, we made a decision to lock them up 5 or 7 years.
We didn't if you would ask us a year earlier, would it cost us that much to do it? The answer would have been no. Could we have tried to not bid so well on that? Yes. But we prefer winning than losing because it goes back to this marginal profitability thing that people walked out.
Yes, the fully loaded is one thing, but the marginal loss is another.
Jeff Harte.
Thanks. Thinking about revenue growth, it's something I get a lot of questions on and kind of think about. And I look at the what 3% NIR growth. I guess what I'm struggling a bit with is that's not a lot of non interest growth. Rates may be a tailwind or they may not be.
And in the CIB, there are more slides dedicated to Treasury Services and Custody and Fund Service thing than to the other segments. And if you look at the trust banks, they've been having a heck of a time growing revenue for years now. It just kind of puts me thinking back, is that really kind of the CIB's best growth opportunity? And what do you do for that? No.
I think, Daniel, just wanted to give you more detail about what you're doing with Treasury Services and the custody fund services. It's more important than anything else you're doing in CIB. And look, there has been very little growth. And we did say the NII will take care of itself. But I just want to point out one thing NII.
If you said to me right today, open up you can open 5,000,000 retail accounts with average balances and stuff like that. The margins of those accounts would be not quite half, but a little bit better than half of what the average is. Therefore, our average margin would drop, our efficiency ratio would drop, our profits would go up, our ROE would drop a little bit. Should I open the accounts or not? I think it'd be crazy not to do it because those the profit per account will eventually doubled and you'll be very happy to open them.
In the meantime, you're actually earning okay money on them. You're not earning a 30% ROE, you're earning a 15%. And so my answer is something like that is keep your eye on the ball, open the accounts, if they're good accounts. And everyone here spoke about good business, not bad. We call we do time deposits all day long.
We can do a lot of stupid things that bring in a lot that look like growth that are not growth. And like we talk about bad expenses and good expenses, I would say the same thing about revenues. In fact, in financial services, it's even more important. Anyone can create bad revenues and then you pay later and down the road. So the NIR, I think we pointed out, there's no assumption there about any growth in effectively all CIB, right?
And any assumption about price or anything like that? If I had a guess, it would be better than that over an extended period of time because we're in a good position to grow our business. And I've always seen in life when the cost of mozzarella goes up you're going to pay more for your pizza one way or another. It isn't possible you have all these people earning suboptimal returns and everything stay exactly the same. It just is not possible.
So we'll wait and see.
It was touched on earlier, but I kind of keep looking back to you, okay, dollars 15,000,000,000 funded energy disclosure, dollars 44,000,000,000 of unfunded. If oil prices stay here, go lower, why would it become another $4,000,000,000 to $5,000,000,000 a month? Why wouldn't we see a company pull those down and see that funded amount by $2,000,000
Yes. So remember some of that the largest part of that unfunded is investment grade companies and a
lot of names you know
they're not going to pull it down. They don't need it. We would have to we put up reserves based on funded, unfunded but they're not going to pull it down. We do make some assumptions about some of the other stuff pulling down. And Marian mentioned that's the most unpredictable part of our assumptions.
We don't exactly know.
And so would Jenny, can I just jump in? Yes. So when Jeff, in the $1,500,000,000 which with all the necessary caveats about the estimations that went into it, for E and P and Oilfield Services in particular, there were quite dramatic drawdown assumptions in there. Obviously, less so for the integrated companies and refineries and downstream. But when we try and think about it, we try and have that in our minds.
We'll be wrong one way or another, but that was at least contemplated to be reasonably significant in that downside scenario with all the other caveats.
And for us, again, I don't mean this in a bad way. I put it in the drop in the bucket category. That is proper risk management that when things happen that dramatic and it only affects you so much, that's a good thing, not a bad thing. I do think it'll have real adverse consequences in other parts, possibly some small banks and regional areas and stuff like that.
Mike Mayo?
Big banks have been in the news with the presidential election, the head of the Minneapolis Fed. I don't want to go into should you break up or should you not break up. But if I want to explain to my mother-in-law why being a big bank is good, in simple terms, your best argument, what would be your answer?
A 787 is a good airplane and is very safe. If you want to try to explain to your mother how the lithium battery or the turbine engine, that's really hard to do. And that's we have a hard time explaining those things to the public. We make loans. We help companies.
We help communities. We were rocket your balls in the tough time. We bought Bear Gryns and WAMU for the government, we did not need TARP funding, we are very diversified, we are very strong, we help American companies around the world, we help city, schools, states, hospitals and we do a lot of things other banks can't do. So that's why you need I think you need a big strong American banks. We are also the largest banks to some of the smaller banks.
1 of these smaller banks wrote a regional bank wrote a letter kind of bank on bank violence for larger banks. And I called up the CEO I know and respect and said to him, I just made a list of what we do for you, just you, one regional bank, mortgage warehousing, we buy and sell mortgages, we settle dollars for them overseas, FX trading, we do Ginnie Mae trading with them here, we provide finance to them, we do derivatives of them, We've done M and A for them and we've done bonds for them. I said, I assume you do those things because you like them and you need them. It's just hard to explain to your mother-in-law exactly what we do and why. So One of the things I do want Derek, this question was up.
So I just before you tell, I'd point out, I hope you we put these tapes up here in these videos and obviously, you'll rate them tell us whether they're worthwhile doing. But one of the things we do would like and we think you need to do it. Some of the investors and buy side and sell side analysts is the quality of the management team. As opposed to me telling you, you should you see them yourself. You have to ask questions, you sit in meetings, you know what they do, how they can answer questions, the depth of their knowledge and they're pretty exceptional.
And not just the members who presented up here today, but a lot of people on the tape. I know a lot of you meet on the videos, a lot of you meet those folks. And the other thing, which is I think fabulous for this company is we do move people around quite a bit. So a lot of the people running treasury services, custody, Maryann out of the investment bank, Doug Patnaud came out of the investment bank. We moved people around and we and which is fabulous.
So we could take unbelievable talents and move them to a part of the company hasn't had that kind of talent or attention paid to it. And it's a great thing for us and it's actually an exciting thing for them. They think they'd be treated fairly. So I hope you see that yourself.
What's your list of worries both domestically and internationally?
Say it again? List of worries. You said you
gave us a list of goods. Was it a list of worries?
I gave
you a list of worries. I always talk about I went to Davos, okay? And if you went to Davos, some people have asked me to come up from Davos, what's the sentiment? What are people thinking? What are they worried about?
And I'll tell you what they're worried about. But I tell you what they're worried about before I tell you, I want to tell you, they've always been wrong, okay? So I went there in 'seven and 'eight and they were wrong about then. And then in 'nine, they were completely panicked about the whole world and those going into depression and everyone has become a risk expert fear, fear, fear, fear, fear, fear, fear, fear, fear, fear, fear, fear. And every report that comes out from official institutions is they're worried about, they're afraid of, they're going to be fire sales of this.
It's getting overdone in my opinion. And but the list is the same when you know China, how bad is it going to be? Are they going to grow 5%, is it real 5%, maybe it's 4%, maybe 3%, maybe it'll be terrible. And I still think in 30 years, it could be one of the largest developed nations in the planet. You would be having the exact same conversation with the United States in 18/63.
If you were having a risk committee about the United States right after the Civil War and you were in Continental Europe where all the money is coming from to industrialize the United States, you would have said the place is corrupt, it's got racial problems, it will never survive, democracies don't work. We're not investing there. Okay? And that's the argument I get around India and China. And what we do is look at how you invest intelligently.
And even if we're wrong, we're okay. Keep an eye on the long ball. And so QE, yes, I think it's very peculiar QE. The world hasn't been through this before. It's one of the great experiments of all time.
Negative interest rates have to make you cautious and uncomfortable. Market liquidity, I guess for three reasons. I don't know how to weigh and measure the 3. 1 is regulatory, which has been extensive rules and regulatory changes and capital and cash and all these things like that. The second is market structure.
And the third, I think, is market participant behavior. I think everyone was burnt not so far long ago. They remember it. So they're very quick to jump. And so we see a little bit of that.
There's obviously Brexit, Russia, Middle East. What else is there? Japan, the 3rd arrow. Warren Buffett reminds people that he bought his first stock in 1942. There was one nation that was fighting the evil nations in Europe and in Europe, only once.
If you're Brit, my hats off to you. Man, you did it for the whole world. You did it by yourself for a year. America was surrounded. America had been in a depression for 12 years at 25 percent unemployment.
That's when he bought his first stock. So the resiliency of this country is astounding and I personally wouldn't bet against it. I think you manage the risk by making sure that no matter what happens you're okay. And so far we've been doing that since I got to 1 and JPMorgan. And I'm not saying discount the risk, okay?
I do I would say discount the market a little bit. The market has always been wrong. I mean, and I remind myself all the time, when I first came to JPMorgan, I said we're going to stress test the equity markets as if they're going up 50%. I thought I was crazy, because the market did drop 40%, 50% and it has done it many times before. And commodity prices have moved like this and oil they moved not this is maybe among the worst, but they moved like this 5 times in my lifetime, 5 times.
And by the way, so is cotton, corn, sugar, chickens, oil, iron, interest rates, credit spreads, prices move and they move violently and they always move for something you probably didn't know about. And so we'd like to be prepared for that kind of stuff and we always stress test.
So Winston Churchill is a great example of strong differentiated leadership makes a big difference. And we've seen that through the great financial crisis, the institutions, JPMorgan among them with strong differentiated leadership prevailed. And yet you still do have, whether it's at Davos or its mother in laws and politicians or proxy advisory firms, every year you get this static about a combined CEO Chairman role. As a shareholder, I like to see a strong leadership, but the static comes up every year. You've been in the press recently.
Curious your thoughts.
Yes. Look, my thought has always been is that you have a Board of Directors to make decisions about how the company should structure itself. And even the same business, not everyone should structure themselves the same way. And even the same company always shouldn't be the same. I would not have gone to Bank 1 if I had a Chairman there.
I would just wouldn't have done it. So there's a reason to have unified command. There's a reason to have a Chairman sometimes. Why would you have an intelligent Board of Directors and then a priori tell them what to do? I understand if you don't trust the Board of Directors, you should want to replace them.
So I do understand we have activists and all the stuff like that. And but the question is, does it work or not work for the company at that time? That's the question that people should ask, not just the one thing. I forgot to mention in Davos, by the way, the best quote I heard didn't come from me, I heard from somebody else. He said, Davos is where billionaires tell millionaires what the middle class feels.
Folks, thank you. That was a long day. We appreciate all the time and the occasional support we get from you. So thank you all very
much. Have drinks on the outside.
Ladies and gentlemen, this does conclude today's JPMorgan Chase's 2016 Investor Day Conference Call. You may now disconnect.