Please stand by. We are about to begin. Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's 2015 Investor Day. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand by. At this time
Good morning. I'm Sarah Youngwood, Head of Investor Relations. Welcome to Investor Day. We have a full program today, full of content, as usual. We also have, as last year, a brunch pop-up in the lobby, which is going to display our latest innovations for the branches. Please stop by when you can. Before we start, a few items. First of all, turn off your cell phones, please. Second, the forward-looking statements are in the back of your materials. Front, actually. Take a look. Last, when we do Q&A, please ask for a mic and say your name. With that, have a great day.
Welcome everybody to our Investor Day. We do a lot of work to get this done. It actually helps us. It's very instructive to us about what we want to describe and explain. We actually look at every question you all ask, and we try to answer them in these presentations. You're going to get five really detailed presentations. After each one, a little bit of Q&A, so you can follow that. I'll get up at the end and do some, I think the presentations are really complete. As usual, we present the good and the bad, the opportunities, the risks. We talk about a little bit of everything. I hope that you will see, as these presentations unfold, the strength of the management team.
These people are really good, I think you've heard me talk before about their character, their culture, and their capabilities, which are exceptional. All of these businesses we have, the four businesses are top franchises in their business, among the best in the world. That hasn't always been true for JPMorgan Chase or for any other company out there. I just want to separate, when you go through this presentation, separate two things in your mind a little bit. Financial. The financial numbers are actually pretty good. Margins, returns, et cetera. Low revenue growth. There are a bunch of issues about the price-earnings ratio, which Marianne and I will talk about a little bit. The financials are pretty good. In fact, you would almost not know that we've had four out of the last five years of record earnings.
That's hard to do for any company, much less a company in the business we're in and the environment we've been in over time. Also look beyond just the earnings and the financials. Just look at the market shares. Doubling in businesses, growing faster in credit card, merchant processing, and investment banking. We've doubled our share in fixed income the last five or six years. We've doubled our share in equities. We've doubled our share in commercial banking, deposits. You name it. It's pretty exceptional. Things like customer sat levels, which aren't financial, but they're really important. You're going to see those have been getting better across most of our businesses, too. Hopefully, all your questions will be answered.
I hope you feel like I do about the management team and the businesses when it's over, and I will hand it over to Marianne, who will start the detail stuff.
Good morning, everybody. It's my pleasure to kick off today with a firm overview, and I'm going to dive straight in on page one. This is a company that has, as Jamie said, very strong fundamentals. That's been consistently delivering strength and stability in our financial performance and has successfully adapted to changes in the regulatory environment over the last several years. When we think about the strategy for the company, we think, first of all, about building those exceptional businesses, thinking about serving our clients and our customers the way they want and need to be served over the long term, which involves consistently being willing to invest and innovate. We've always run the company under fortress principles, including strong capital, liquidity, risk discipline through the cycle, and also more recently, focusing on delivering a robust control infrastructure.
In addition, we've made significant progress in simplifying the company very broadly, and we're committed to ensuring that every one of our employees, every day, operates with our core values in everything they do, reinforcing our culture. Our objective is to serve our clients while maximizing long-term shareholder value, through significant focus on operational efficiency, you'll see in the presentations that we will deliver the benefits of our scale and operating model. We also intend to continue to balance the pace of capital accretion against the objective of increasing dividends and returning significant capital to shareholders. Through this presentation and in the conclusion, I'll show you that we'll be able to compete effectively. That over the next three years, we believe we will deliver a 15% return on tangible common equity, on 12% CET1, and an overhead ratio of around 55%.
Turning to page two and our performance. I talked about the success that we've had in adapting and the consistency and the strength in our financial performance, nothing says that more than returns of 15% from 2010 through 2012 and 15% again in 2013, if you allow us to adjust for the very significant legal expense, and on significantly higher capital, as you know. If you look at 2014 on the page here, record net income $22 billion, record EPS $5.29. That's obviously despite the cyclical lows in interest rates, in mortgage, in markets, and still elevated legal expense. You can see on the next page that that performance is among the best in the industry. This page shows J.P. Morgan's performance relative to our primary peers across a number of dimensions.
As I said in 2014, our record $22 billion of earnings was on a little less than $100 billion of revenue and for a return of 13%. We returned $10 billion of net capital to shareholders, and we grew tangible book value per share by 10%. While this graph here is on 2014, the longer-term story is the same, one of industry-leading financial performance, and we expect that that will continue. On page four, you can see that performance is what's been generating those double-digit growth in tangible book value per share. One year, three years, five years, 10 years. This consistent growth is after absorbing $35 billion after tax in legal, control, and regulatory costs, adding $59 billion to our capital base, and distributing $35 billion of capital to shareholders, all since 2010.
Continuing on the topic of stability, you can see on page five on the next slide. More than half of our revenue today is non-interest revenue, with underlying drivers growing strongly. The chart on the left, you can see in blue that two-thirds of that non-interest revenue is driven by businesses that are stable through time. What may be surprising is that the diversification benefits the company enjoys means the overall volatility of the firm's NIR is the lowest among peers on the page, and if you look at the volatility of total revenue, it's also incredibly low at 3%. We are underinvested from a duration standpoint. We're positioned anticipating rising rates, and we have significant NII upside, which is on the next page, on page six. This page should be familiar. It demonstrates the power of our balance sheet if you assume normalized rates.
It's a static analysis. We haven't assumed growth in interest earning assets here. The upshot is that we would expect as rates normalize, that our NIM would revert to a new normal level of somewhere in the 265-270 basis point range. That's about 30 basis points lower than NIM that we enjoyed back in 2005 through 2010. The principal reasons for that are loan runoff, the impact of liquidity compliance, faster deposit repricing, and as well, an assumed cost of compliance with TLAC. This also reflects normalization assumptions around the balance sheet mix, so loans to deposits as well as the mix of interest-bearing deposits, including time deposits. That's 50 basis points of an increase in NIM, and on over $2 trillion of interest earning assets, that's $10-plus billion of incremental NII.
In the bullet, consistent with our earnings at risk disclosures, you obviously see the most significant driver of that NII upside is rising front-end rates. Finally, we added at the bottom of the page an update on our AOCI sensitivity under a severe rate shock. You can see that that would drive approximately 50 basis points of rapid capital depletion. Before diving deeper into our leadership positions by business, I want to wrap up this section just with a few comments on valuation and a few comments on the operating model on page seven. We've demonstrated, as I showed you, that we are delivering among best-in-class returns and have been doing so consistently, and I will show you later we will continue to do that.
Yet we're significantly undervalued relative to our peers, and on the page, as you know, on the top left, among the lowest P/E multiple on 2016 EPS, and top right with the highest current dividend yield. On the bottom, what you have is the regression of price to tangible book value per share against return on tangible common equity 2017. Showing that today, we're valued at an 18% discount relative to the returns that analysts expect. That wasn't the case prior to or during the crisis when we traded at a premium to most peers. In 2017, analysts have us at a little over 13%, whereas our price suggests less than 12% return. Let me talk about the operating model on page eight. There's been a lot of focus, understandably, on our synergies. We've updated the numbers here for 2014. They fundamentally haven't changed.
You see there that $18 billion growth or $6 billion to $7 billion of net income. There is a page in the appendix that has some more detail. These are just the direct and first-order synergies that we measure, and they don't include all of the other important benefits that the operating model affords us. We have a unique asset, an irreplicable asset in the shape of our company and the mix of our businesses. As Jamie said, we spent the last decade building this company into the leader it is today. We do get a benefit from diversification. We do get a benefit from scale, and that's allowed us to make significant investments consistently through time. Scale has always defined the winner in banking, and we have been able to consistently demonstrate our ability to leverage that scale and successfully adapt.
I said it before, we delivered a 15% return on 7% capital. We did 15% ex legal on 9.5%, and we will do 15% on 12%. We do have the fortitude to operate under fortress principles, not only in good times, but also in bad through the cycle. We were caught in the last storm. There will definitely be another storm. We didn't make a loss in any quarter during that crisis. The most important thing is that the shape of our company is driven by our clients. Our customers and our employees choose JPMorgan Chase because of the breadth and quality of the whole franchise and because of our two iconic brands. We look the way we look, we are the size we are, we are as global as we are, because it's what our clients want.
We run the company to maximize value as if we own 100% of it. We're going to talk in a minute on the next page about how we have thought about the question of a separation. We've also done the work, as you would expect, and we've drawn our conclusions. Page nine. Our synergies are real, and they are what drives our superior returns versus our peers. It is true that many of our peers do enjoy portions of those synergistic benefits, but in no case do we believe there is a peer that enjoys them all to the same extent that we do. Starting at the top on revenues and expenses. On revenues, that's the $15 billion growth. We do agree that much of that reported revenue synergy should be preserved in a separation. We also estimate that the revenue lost would be relatively modest.
Remember, those are just the ones we measure. There are many of the benefits that I just talked about, the benefits of the company as a whole, which we don't measure, would likely be lost or erode over time. On expenses, we believe there are meaningful expense dis-synergies resulting from the need to duplicate corporate functions, the need to replicate critical infrastructure, and the likelihood that each separated entity would look to make significant investments to build themselves out over time. Not to go through a laundry list, but you would need two finance functions, two audit functions, two risk functions, two boards, two operating committees, two investor days, two general ledgers, two mortgage platforms, two global FX operations, global loan operations, global cash management. You'd need data centers. You'd need two cyber defense programs, and you know we're spending a lot on that.
These are not trivial things, the expense synergies are real and they're significant, and the list goes on. Moving on to capital. We also agree with you that regulation does require us to hold some excess capital, it's smaller than you may think, given that separated entities would be bound by different constraints. The total capital release, if we were allowed to do it, would be about $15 billion, it's real. The question is, if the net income loss is more than 10% on that $15 billion, it destroys shareholder value. If it's more than 15% on that $15 billion, it would dilute our returns. We believe the net income loss in a separation through a combination of those measured revenue synergies, the intangible things we don't measure, as well as expense dis-synergies, would be significantly more than that.
We think it would drive our return on tangible common equity down by up to 100 basis points, possibly more. In the end, any potential short-term PE expansion you get, if you were to get it, you have to ask yourself why the PE is so low for us right now, would be materially offset by value destroyed by reduced net income and by lower returns, over time, would cap the upside. We firmly believe that delivering on our commitments, including the industry-leading financial performance that we've had and that we will continue to have, flawless execution against the strategy that you're going to hear laid out for you today, is the highest certainty path for multiple expansion for the company, and we're confident that in the future, we'll trade in line with peers or at a premium like we have in the past.
We are facing the future with the strongest hand, preserving optionality. I'm going to shift gears and talk about the first pillar of our strategy, which was building those exceptional client franchises, skipping over page 10 and starting on page 11. We don't measure the strength of our performance based on any quarter. We don't measure it based on any one year. We're running our businesses for the long term to deliver maximum value. The strength of our future financial performance is secured on the consistency and growth in underlying drivers and in our leadership positions. On this page, you can see four-year CAGRs for what we think are key performance drivers. Wrong page. Yeah, there we go. We have the strongest core loan growth and growth in deposit of our peers, importantly, including retail deposits.
Cumulatively, the most IB markets revenues, as well as cumulatively, the most client asset flows by a very large margin. Diving further into consumer on page 13. I mentioned before our number 1 ranking among large banks in customer satisfaction, and in the chart on the top left, we are the best among large banks, but we are also giving mid-size banks a real run for their money today, which we couldn't have said back in 2010. This is a journey we've been on for the last several years, and you can see in the chart that it's working.
You saw that in our industry-leading retail deposit growth on the prior page, here you see we're also leading the industry in credit card sales, digital adoption, and growth in payment processing volume, which has been three times the industry, solidifying our position as number 1 wholly owned merchant acquirer. We continuously focus on the future and innovating, we put some examples of those innovations for you on page 14. I'm not going to run through these. Each of my partners is going to spend time during the rest of the day talking about their innovations. You can see here that across the board, we are focused on building out products, building out technology, and operating capabilities that will serve our clients the way they want to engage with us in the future and to lead the industry.
If you indulge me, I am actually going to go back to the page that I didn't mean to skip. Sorry for this, if you could go back to page 11. I want to go back to this page because this is what Jamie was talking about. What's impressive about the page is that each of our businesses is truly top tier today, and you can see that in the significant leadership positions, number 1s across the board. What's particularly impressive is it wasn't the case 10 years ago. We did spend the last decade building these businesses into the leaders they are. We've built it with consistent focus, gaining market share. To mention some of the stats, in Consumer & Community Banking, since [2010], we've added over 300 basis points of market share and deposits, 500 basis points in card sales.
In the Corporate & Investment Bank, number 1 global IB fees, number 1 U.S., number 1 EMEA 2014, number 1 markets revenue, 16% share of the top 10, number 1 debt and equity-related long-term debt loan syndications, I could go on. In the Commercial Bank, we're very proud in 2014 that we reached our target of generating $2 billion of gross investment banking revenues and demonstrated exceptional credit performance throughout the crisis. Asset Management continued to deliver very strong investment performance, 23 consecutive quarters of long-term net inflows, and was recently ranked number 1 overall global private bank. I'm going to move on to the second pillar now, and I apologize for that. Moving on to page 16. Operating with fortress principles. We've consistently met our capital and liquidity targets.
We reached more than 10% common equity tier 1 last year-end, and a firm supplementary leverage, 5.5%. Effective year-end 2014, we were also compliant with U.S. final LCR rules, with our own internal liquidity stress framework, as well as with Basel NSFR. We hold an appropriately conservative amount of liquidity given our duration of equity objectives and our expectations of the impact of rising rates. We added at the bottom here, our total loss absorbing capacity estimated to be 15% against the calibration range of 16%-20% under the FSB proposal. On the next page, on page 17, you can see our fortress balance sheet, and you can see how it's evolved over the course of the last several years. Overall, our balance sheet has grown by a little over $450 billion in the last four years.
However, being bigger is not the same thing as being more complex, nor more difficult to manage. It's important that you get very granular when you analyze the relative composition of the balance sheet over time. First of all, in yellow, you can see our cash balances have grown by $440 billion, which accounts for the vast majority of the overall growth in our assets. There are two primary drivers for that. First of all, new liquidity requirements, secondly, a significant increase in wholesale non-operating deposits, which you will hear more about in a second. In total, at the end of 2014, we had high-quality liquid assets circled here of $600 billion. Moving down, next we had a little over $350 billion of secured financing. Half of which are open and overnight trades.
The majority of the term book is subject to daily margining, and about 70% is secured by HQLA. Trading assets. We've seen a sizable reduction in trading assets over the last four years, $90 billion. You can see firmwide VaR and level 3 assets have gone down each by over 50% in the same period. Size is not a proxy for risk, our trading businesses have evolved in part due to regulation. Our business is less complicated, it's less directional, and it's more client-driven today than it was four years ago. We've grown our total loans. We've grown them by $80 billion net, with significantly improved underlying credit metrics. We have always had a fortress balance sheet. It's true it's grown, it's of a higher quality now than it was four years ago.
Diving in the next page 18, into loans and those credit metrics. On the left, you can see our core loan growth in 2014 was 8%, and an 8% CAGR over the last four years while maintaining risk discipline across the board. In the charts at the bottom, you can see that risk discipline evidenced. Those are our credit metrics. In consumer, you see an improving average FICO score and significantly lower average loan to value. In wholesale, an improving percentage of investment-grade loans and a dramatic reduction in criticized and classified loans. You also see on the right-hand side of the page, our credit losses, if you mix adjust them versus peers, are also best in class. Looking forward, we are expecting core loan growth to be strong in 2015, reaching double digits.
We're expecting our net charge-offs to continue to be very low, a little over $4 billion for the year. We continue to expect to see consumer reserve releases over the next two years, partially offset by builds in wholesale on loan growth. Next, business simplification on page 19. We delivered against an extensive business simplification agenda last year. You can see there's lots of tick marks here on the page. That speaks to the significant amount of work it was to execute against this agenda. All of the actions on this page are largely complete. To remind you, we exited businesses, we exited products or clients that were either not at scale, not returning hurdle, or had outsized operational risks. While these actions will have a significant impact year-over-year on our revenues, they will also drive down a significant reduction in expenses.
Overall, no meaningful impact on returns. Although everything on this page is largely complete, we do continue to focus broadly on simplification to make us a better company. We're focusing on making it easier for clients to do business with us. We're focusing on legal entity simplification, not just the number of entities, but more importantly, the complexity of their operation. We're driving in our global technology organization for increased efficiency and increased consistency. We're executing on a vendor rationalization program. We're executing on location strategy programs. We continue to focus on simplification very broadly. We also recognize that fortress principles are underpinned by our culture. On page 20. JPMorgan Chase's culture has been an historical strength and continues to be a hallmark of the company, but it's one that does require constant vigilance.
This is an industry, as you know, that has had significant issues, and we've made mistakes. We need to do everything we can to ensure that every one of our employees, everywhere, upholds our core business principles in everything they do. Our core business principles include delivering exceptional client service, delivering operational excellence, acting with integrity, and having the best team. To that end, last year, we re-articulated our business principles, and we published a report on how we do business. Now each of our businesses and each of our functions globally are rolling out culture and conduct programs, sponsored by the board and the operating committee. We expect these programs to be action-oriented. We expect to be able to identify gaps and tangible improvements against our expectations, reinforcing our culture through constant training and through constant communication.
We've already implemented a number of key HR governance processes across the firm, which have further strengthened the connection between risks, controls, compensation, and our performance management process. Moving on now to the third pillar, moving on to maximizing long-term shareholder value, starting on page 22 with our ability to improve operating leverage. JPMorgan Chase, we've constructed an illustrative company here that has our business mix, but we're using peers with the best-in-class efficiency ratios. If you look at the bottom circles, you can see the firm's overhead ratio, excluding legal, at 60%, is on the face of it, best in class. It's not where we expect to run the company, and it's a top priority for every member of the operating committee to drive for increased efficiency and expense reduction.
There are certain of our businesses, notably Card, CIB, Commercial Bank, and Asset Management, that show very competitive efficiency ratios, especially in light of the fact that we know we are consistently making significant investments. However, the Consumer Bank and the Mortgage Company have meaningful room for improvement, and those incremental efficiencies are reflected in the commitments that Gordon has already made. To deliver $2 billion of expense saves in 2017 versus 2014, with an efficiency ratio of around 50%. Even in those businesses that look strong, we will do better. We will deliver the benefits of scale from our operating model. To that end, Daniel is committing to a total expense reduction for the CIB, excluding legal, of $2.8 billion by 2017, or an overhead ratio of between 55%-60%.
In addition, we will drive for incremental efficiency across all businesses and expect that the overall overhead ratio for the company will decline to 55% ±, on continued expense efficiency as well as some revenue growth. Moving on to our adjusted expense trend on page 23. The overall level of adjusted expenses has been reducing, $60 billion at its peak in 2012, down to $58.4 billion in 2014. Underlying that, our core expense discipline has been strong. It's what's allowed us to self-fund both growth as well as the cost of controls, and we've maintained significant and consistent investments. In terms of our investments, we continue to spend about $2.5 billion a year in marketing, substantially in Card, and we're fully funding all customer acquisitions that meet our hurdle returns. As well as nearly $3 billion a year in technology investments across businesses across the firm.
In 2014, our run rate included an incremental $3 billion in the cost of controls relative to 2011. The amount of money we spend on investments every year is staggering. It's a commitment that most companies could not make. Which is why we won't only keep pace with the changing market, but we intend to lead it and intend to separate ourselves further from others. Our adjusted expenses, as I said, in 2014, was $58.4 billion, and we expect that to decline in 2015 to around $57 billion, and with an exit rate below that. Before I move on, I'm just going to make one comment on legal, related to legal expense. By their very nature, legal costs are unpredictable in total and by quarter. They've also been substantial for us. We recognize that.
While a couple of notable challenges remain, we have gotten a lot of them behind us, but they will continue to remain unpredictable by quarter going forward. We do, however, expect the cost will abate, will return to a more normal level, albeit slightly higher than before the crisis. When we get to the simulation at the end of the presentation, we've used $2 billion annual pre-tax. That's just consistent with the last year. Moving on to page 25 and capital. In this section, I'm going to deal with our allocations, our targets, our glide path, and our competitive positioning, and then I'm going to end with a discussion on how we're adapting to U.S. G-SIB.
Starting on this page with the capital incentives framework, which now more than ever needs to take into account multiple dimensions and needs to evolve as our business mix and our constraints change. Firstly, consistent with prior years, our primary basis of allocating equity to our businesses remains advanced, fully phased in RWA, which best reflects risk. At the same time, we expect standardized will become our binding constraints, possibly by year-end or slightly after. We have imposed standardized RWA limits on our businesses to ensure that we manage the difference between the two regimes tightly. Secondly, we've introduced a G-SIB assessment framework that measures the return of activities on their marginal G-SIB contribution. We're using this framework to identify actions to reduce the score.
It's been a benefit of our diverse franchises that allow us to meet the firm's constraints without necessarily binding each business by its own unique constraints. That has allowed and will continue to allow us to have strategic growth in areas that we like, those high relationship consumer and commercial loans, and providing that capacity by tightly managing or shrinking other activities, predominantly in the CIB. We do have time, but we are taking immediate actions. On page 26, capital allocations. On this page, you can see that the allocations for each of our businesses have gone up. In each case, they've gone up by 50 basis points year-over-year. It's based upon the firm's expectation that we will reach 11% ± CET1 by year-end, and we're targeting 12% CET1 by January 2019 or sooner.
12% would reflect the company managing within the 4.5% G-SIB bucket, plus an additional 50 basis points of a capital buffer, largely to protect from that AOCI shock I showed you earlier. You should expect incremental allocations to the businesses in 2016 as the firm moves up its glide path. The CIB's long-term target is 12.5%. We have our pricing and our FVA models today reflecting those future levels of capital. On page 27, we have an illustrative glide path for capital for the firm. You can see in the bar chart on the left that at our 10.2%, we're well above the phase-in minimum throughout the transition period. Importantly, we have time to ensure an appropriate glide path, one that reflects a measured pace of capital accretion, balancing that with the desire to progressively increase dividends and maintain strong overall net payouts.
Over the last two years, we delivered a total net payout to shareholders of around 50%, with record dividends in 2014. With the right approvals, we would look to increase dividend payouts as a percentage of core sustainable earnings over time. The chart on the right-hand side uses our own internal RWA projections. It uses analyst estimates for earnings and payouts over the next three years. It simply illustrates that we can easily achieve that compliance of 12% well before the required date, also allowing us to continue with strong net payouts. On the next page, moving on to page 28, we have our risk-weighted asset projections over the next several years under both the standardized and the advanced approach.
We will continue to optimize to advance RWA. We still expect to reduce it to a little over $1.5 trillion by the end of 2015. We will always continue to look for opportunities to become more efficient. However, the lower hanging fruit in terms of models will be largely behind us by the end of this year. Portfolio runoff will be less of a tailwind. Beyond 2015, we expect advanced RWA to level off some around that $1.5 trillion. Given we are expecting standardized to become our binding constraint by a small margin over the next couple of years, a combination of model benefits for market risk, SA-CCR benefits, and additional actions that we will take, will drive down that risk-weighted asset to $1.5 trillion plus or minus. Moving on to page 29 and the competitive dynamic from a capital perspective.
While we are in the highest G-SIB surcharge bucket, we expect CCAR will level the playing field for the majority of U.S. peers. This chart just illustrates that point. What we used here was stress sensitivities for each peer from the last disclosed DFAST results, so based upon the Fed's numbers. We used analyst estimates for the next nine quarters of net income. You can see that with JPMorgan, on the left-hand side, if CCAR stress was our binding constraint, we would have sufficient capital to withstand our stress losses and return 100% of net income at a launch point capital level of 10.7%. You can see in the relative size of the green bars, that most of our peers, they face significantly higher losses than us under stress. Our lower CCAR stress is another example of the benefit of diversification in our model.
Therefore, regardless of what the G-SIB bucket is, our peers, we think, will likely congregate around our forward target of 12% over the next couple of years. As such, the capital corridor in which we will operate will likely be narrower than that implied by G-SIB. The competitive disadvantage, if any, lower. We think the same position will apply globally, as despite differences in rules, we're already seeing convergence in absolute levels of capital. The last thing before I move off this page, the final question is, what would happen if the G-SIB surcharge were partially or completely included in the CCAR minimum? You can see that for us, we have 130 basis points up to our target of 12%. Our peers would feel the first basis point of increase in the minimum, and we would have 130 basis points before we would.
None of this, however, diminishes the critical importance of relentlessly managing G-SIB. Moving on to page 30 and turning your attention to G-SIB. There are three dimensions to how we think about the score. First, our actual exposures, many of which can be managed over time, and we will aggressively manage them. Second is market dynamics, which includes the change in overall market size, but also includes the impact of currency movements. Third, time. Time is an important dimension when thinking about optimizing. We have three years before we'll be bound by G-SIB.
Obviously, when we talk about the implications of G-SIB, they're most pronounced in the CIB, and that's where most of the strategic. We will show you that while we will do whatever is necessary, the actions we take will not fundamentally change what the CIB is, a profitable, complete global business at scale. Let me tell you what we're doing. I talked before, we've introduced an FCA framework. We're allocating capital charges to activities based upon their marginal G-SIB contribution. Then we're looking at those. We're looking at them transaction by transaction. We're looking at the product level. We're looking at the sub-line of business, and then with a client lens. We'll reshape our business over time by shrinking certain exposures, as well as leveraging the framework to limit or require repricing for others.
We're committed to ensuring that we safely remain in the 4.5% bucket, and we are looking at additional actions to potentially reduce our surcharge by an incremental 50 basis points. With respect to market dynamics, we will aggressively manage our exposures, but we fully expect others will do the same thing. That will be a headwind to progress. We will not overreact to the impact currency movements have had on our relative market share, which may not be permanent and feels like an unintended outcome. We would like to see how that aspect is addressed in the final rule. Moving on to page 31, and looking at our current G-SIB score. If you exclude the impact of FX for a moment and changes in market size, which we don't know, pro forma, we reduced our absolute exposure at the end of 2014 versus 2013.
However, more than offsetting that, the estimated impact of U.S. dollar strengthening in 2014 would leave our surcharge on the cusp of 5%. We know exactly what we need to do to solidify our position in the 4.5% bucket, and we are doing that right now. We also know how we would reduce it to 4%, and we are also willing to take those actions if they are accretive. It is an economic decision. There's a trade-off between those actions and returns. In total, you can see on the page, both through the non-operating deposits I'm going to talk about in a minute, and also the list on the bottom, we've identified up to 140 basis points of opportunity to date. I'm going to walk you through the most obvious example, non-operating deposits on page 32.
As you know, it's commonplace for activities to impact our score in multiple buckets. This makes some immediate actions very clear from an economic perspective, this is the most obvious example, especially non-operating deposits from international financial institutions. In total cross-businesses, you see on the page we have $390 billion of deposits from financial institutions, $200 billion of those are non-operating. Historically, providing our balance sheet to our clients was in part an accommodation, we had the capacity to do it as we weren't G-SIB or leverage constrained. These deposits impact our score and size, cross-jurisdictional interconnectedness, and short-term wholesale funding. We earn minimal net income on them. We earn about 10 to 15 basis points net, and they provide no liquidity value under U.S. LCR, they're significantly negative FCA under the U.S. proposal.
It's also an example of a product where the client lens is critically important. We've tiered our clients, and we are working with them to find potential alternatives, including sweeps to money funds. In the short term, there may be finite capacity there. It's going to likely be the case that for some under the new capital rules, the relationship can no longer work for both parties, given that the rates sufficient to provide an adequate return under G-SIB would be very significant, potentially as high as 100 basis points from zero today. We're in the process of executing this strategy right now. We will try to ensure a smooth transition for our clients, but we will require these deposits to shrink significantly in the near term and by up to $100 billion by year-end.
That would deliver the 44 basis points or up to 44 basis points reduction in our score that you saw on the prior page. As I said before, Daniel's going to spend some more time talking about the implications of G-SIB on the CIB, but I want to leave you with the confidence that we will do whatever it takes to ensure we stay in the 4.5% bucket and are considering actions to take us 50 basis points below that. The penultimate page of the presentation on page 34 is the simulation. At the top of the page, we've put some of the things you need to believe to support the simulation over the next three years. I think that you'll agree none of them are overly aggressive, and most of them I've been through in the presentation.
If you take reported net income to start on the left, if you adjust it for three primary things, adjust it for elevated legal expense, adjust it for significant net tax benefits that we had and consumer reserve releases. That leaves you with an adjusted performance for 2014 of about $21 billion. Remember that the cost of liquidity compliance and the cost of control are in that run rate. Adding $3 billion for the benefit of incremental earnings from a combination of our investments as well as organic growth, and the growth in underlying drivers that support that number are consistent with the growth we've seen over the last several years, and I showed you earlier.
Further add $2 billion for the CCB and CIB expense commitments, and deduct about a half a billion for forward-looking regulatory costs, being TLAC compliant and any remaining impacts of market reform. Finally, you include the impact of rising rates, and this is on a three-year horizon versus the NII simulation earlier, which was a longer period, which is why we have here $7.5 billion pre-tax or $4.5 after tax included. All of that adds to approximately $30 billion of net income market dependent and is consistent with that 15% return on tangible common equity on 12% capital and an overhead ratio of 55%. It is also consistent with the target ROEs, which you see for each of the businesses here on the top right of the page and which each of the CEOs will go through later.
You see that the simulation assumes that we are operating in that 4.5% bucket, so it assumes we are operating at 12% capital. If over time we are able to operate lower, it would be because it is accretive to those returns. Finally, on the wrap-up page, on page 35. It is our earnings power, our scale, and our diversity, our leadership positions in everything we do, and our unique iconic brands that give us the most durable banking franchise in the world. One that has the greatest ability to realize on the opportunities that are only afforded to the leaders. We will accomplish it by being there for our clients and earning their trust day in and day out. And we have the right business model to do that. Clients are voting with their feet.
The management team are the stewards of your investment, and we are building the company for the long run and not a moment in time. We always adhered to fortress principles. We have successfully adapted. We delivered on our strategies and on the commitments we have made. But we are taking appropriate action right now, both on capital and expenses, to solidify and deliver strong and stable financial performance, and we are confident we can get to a 15% return on tangible common equity. All of which will ultimately translate into higher valuation for shareholders. That is the presentation. I have a few minutes for Q&A. Mike? Sorry, Sarah.
Go ahead, Mike.
You need a mic for Mike. Mic.
It's Mike Mayo with CLSA. Just taking some of your opening data. If you take out the revenue synergies of $15 billion, and you take out the expense synergies of $3 billion, then your core efficiency ratio, instead of being 60%, is closer to 70%. That implies you aren't as efficient as you need to be in the underlying businesses. Is that one key reason you now expect $4.8 billion of expense savings ahead, or can you reconcile my logic there?
We would agree that we can do more, which is one of the reasons why we have the targets. Gordon's target's been out there now for a couple of years, Daniel has been working with his business to look at what the forward-looking cost structure for the CIB should be. If you look back at the page with the core expense trends. We've had $3 billion of reduction in our expenses over the course of the last several years, and you could articulate that as being largely driven by business simplification. We've also grown our cost of controls by $3 billion, which means our core expenses have reduced by $3 billion. Those core expenses reducing by $3 billion have funded more than $2 billion of growth in asset management in CB, growth in all the underlying drivers, none of which is free.
Our efficiency ratio now at 60% ex legal, we're expecting to drive it down to 55%. We're expecting to do that both by continuing with the core expense efficiency that's been delivering and then more in CIB. Betsy.
Betsy.
Hi. Thanks, Marianne. Betsy Graseck, Morgan Stanley. The question is on something that you spent a little bit of time on, which is the G-SIB buffer, and does that potentially become part of the minimum? You articulated why you're in a better spot than peers, maybe you could give us a sense as to how you're thinking through those probabilities, is there any other low-hanging fruit on the table that you're not talking about today that's in your back pocket in the event that that comes through?
It's very difficult to handicap what's going to happen, I think we're all going to know more when the rules come out at the end of the year or when the guidance comes out at the end of the year. Personally, it doesn't make a huge amount of sense to include the G-SIB buffer completely in the minimum. The point on that page, honestly, was intended to say it won't be a competitive disadvantage. Not to say that it would be a good thing for anyone. We have 130 basis points before we would start to feel that increase in the minimum, where others would already be bound by CCAR. I don't know whether it will happen.
We don't have low-hanging fruit that we're not talking about, we will obviously adapt, we will obviously be determined to continue to be competitive and to continue to deliver strong returns. The point of the slide is it won't be a relative competitive disadvantage, it will be difficult. Doesn't make sense to me, not in control.
Glenn?
Hi.
Hi.
Glenn Schorr, Evercore ISI. I think we all appreciate the optimization that you're going through, the numbers are actually pretty good. The question I have, are we missing the forest through the trees a little bit in terms of, with no material RWA reduction over the next couple of years and hanging out in the same-ish 450 basis point buffer, you're optimizing, is the Fed going to look at that and say, "I don't get how many ways do we need to tell you need to shrink, both in size and complexity?" I appreciate the optimization that maybe if you explain the cost of 50 basis point reduction, we'd understand the trade-off you're looking at, earnings versus buffer.
50 basis points of capital, about $8 billion. 10% return on $8 billion, $800 million to break even. 15% return on $8 billion would be $1.2 billion to not be dilutive, assuming that we get to our 15% return. That's big math, obviously. When you think about moving down the G-SIB buffer, so you need to look then at the actions you're taking, and these are very nuanced decisions. This isn't typically looking at exiting one product necessarily. You have to look at it through multiple lenses, and importantly, at the clients. For some clients, we would want to be doing a full breadth of things for them. For others, we may not be able to continue to do that. When you think about moving down the G-SIB buffer, you need to think about it in the context of returns.
You also need to think about, it's sort of binary. You either get below 4.5 and you're in 4, or you don't. It's a very easy decision when you're one basis point above it. It's a much harder decision when you're 75 basis points above.
John?
Hi, Marianne. Couple of questions on the simulations. On the NII simulation.
Yes.
Is there any way to give an attribution of how much of that 50 basis point margin is due to the rate impact versus the mix changes you're assuming?
Yeah. Of the $10 billion, of the longer-term improvement, there are a lot of things going on net, some of them are big, we talked before, Mike Mayo, about time deposits and the significant costs associated with that. Net, the most significant impact is rate, and drives of that 10+, probably $9 billion of it. There are big puts and takes going on in loans to deposits growing, in non-interest bearing to interest bearing deposits and time deposits going the other way.
Okay. On the net income simulation, the $30 billion, is that assuming the same charge-offs that you had in 2014, is the first question. The second, does that assume any preferred dividends come out, or is that just net income, the $30 billion?
$30 billion is net income. Obviously, when we do our calculation on the return, it's on [NIACC]. In terms of credit, one of the assumptions that is on the top of the page is that credit remains low for long. The charge-offs are very low. Which is one of the reasons, for those of you who are looking to compare year-over-year our simulation, we had feedback from you about a few things. One of them was that we had a semi-dynamic, but not entirely dynamic, point of view in that simulation, we included fully all of the organic growth in it this year. The other was that we had assumed full reversion through the cycle to certain things, including credit, where actually we're expecting it to be low for long.
Brennan?
Hi, Marianne. Brennan Hawken, UBS. Thinking about the non-core loan runoff, what kind of decline should we look out? I know that most of it's in mortgage still, I don't want to steal Gordon Smith's thunder or anything, it didn't look like we had a projection in his deck. How should we think about that?
Non-core loans are running off, I think, around 15% a year. I don't have the balances for you, but they continue to run off about 15% a year. Obviously, as they decline, the dollar value impact of that is less. I think our 10% plus or minus core loan growth would be reported I don't know. We'll have to get back to you.
Low single digits.
Okay. Has there been any regulatory feedback on the currency impact from the G-SIB buffer and what the rising dollar could mean? Has there been any preliminary indications there?
No preliminary indications, but it is a key part of the dialogue, and you should expect it would be a key feature in the comment letters. Again, we can't begin to imagine necessarily what exactly was or wasn't intended, but it doesn't feel like this is something that may have been fully expected or fully intended to be the outcome, and so we'll see how that evolves. When we have time, it may not be permanent. As I said, we're not naive to the fact that things will probably remain similar to the way they are right now, and so we're managing it with that in mind, and we're managing it to get back to a 4.5% bucket regardless of currency. Hopefully, we'll see some positive news.
Guy?
Thank you. You pointed out that you're at 15% for TLAC, that the range is 16-20. I was wondering within your 15% ROTCE expectation, what were you using, 16 or 20? The other question is on the net interest margin range that you gave, which was very similar to last year's. You've made a change in terms of how you allocate preferred. The way you used to do it would actually impact net interest margin, and I'm just wondering whether there's any change there or whether it's the same basis versus what we were looking at last year.
Just on the first question on TLAC, we have no special insights, so please don't read anything into anything. We split the baby and went in the middle. Arguably, we could have done differently, but that's what we did. With respect to the NIM, we did it on a consistent basis.
Thank you.
Remember that when we actually do all of the work on our NII and our forward-looking projections and on our interest rate risk management, we do it very granular, multiple rate paths all through our models. This is a sort of very crude but directional way of articulating that using the 2005-2010 cycle as a starting point, articulating the things that we think will adjust on NIM down sort of permanently going forward, estimating that and showing you the number, and we get to the same place both ways.
Ken.
Thanks, Marianne. I was just wondering if you can walk us through a little bit more on the good loan, core loan growth expectation, 10%. Also you have the 17% of the book that's still in runoff mode. You can just compare and contrast where you're seeing that improvement in the core, and then is the pace of runoff changing as you think through total loan growth?
The pace of runoff is broadly consistent, around 15% or 16% estimated. In terms of core loan growth, we continue to see the things that were growing strongly in the second half of 2014 continuing to grow strongly. We've got sort of high expectations about portfolio and mortgage loans this year. We did a fair amount of that, particularly in the second half of last year, so we expect that to continue. Remember, those are the jumbo and conventional conforming loans that we like. Strong growth in Asset Management, strong growth in commercial term lending. Solid, continuous growth in auto, a little bit of growth in card. Some growth in C&I, but not stellar.
Just a quick follow-up. From an overall balance sheet, when you talk about the long-term remixing and there's still building towards LCR, NSFR, et cetera. Just philosophically, in terms of the mix of assets, loans versus securities, dealing with the current rate environment as opposed to the expected, has the philosophy changed at all in terms of what you're reinvesting in as far as the other buckets outside of loans?
First of all, just in case I misunderstood. We're compliant right now with LCR, NSFR, our own internal stress. We are where we need to be. The costs of all of that are in our run rate. Obviously our balance sheet will continue to be dynamic and dynamic as we move up the rate cycle. We're reinvesting with our positions for rising rates now and where we want duration to be at the end of the cycle. No philosophical change.
One more question. Yes, Chris.
Page 28. Within the $1.5 trillion 2017 RWA target, there's some mix shift away from CIB to other lines of businesses, I was wondering if maybe you could give us something on the potential magnitude of that mix shift that you envision.
Right. That's one of the things, just to illustrate the point. That's one of the things that we talked about when we said we're not looking at each business and having to bind them by their most binding constraint. If you were, you wouldn't necessarily have the same point of view about growing these very pristine loans we're growing right now that take a new mortgage origination, a new 770 FICO, 65 LTV, I'm going to get this almost right but not quite right, would attract 50% RWA and size and 20± advance. We like that business, we like that return, we like that risk profile, we want to keep growing that. In order to do it, we're looking to shrink in other areas and manage the place predominantly with an advanced lens.
I'm not going to talk about the order of magnitude, we expect to continue the growth that I just talked about, the growth in the Commercial Bank, the growth in the Consumer Bank, the growth that we've been seeing. We want to continue to provide the capacity to do that through time. Okay. Thank you very much. Daniel.
Good morning, everyone. We are going to spend the next hour talking about the Corporate & Investment Bank. I am going to cover four topics. Financial performance, strategy, and the areas of focus of the different lines of businesses, the expenses, and our return on equity target. Before we go to the presentation, I want to make a few comments. This is a fantastic franchise. It has produced best-in-class return over a number of years, including in 2014 in a challenged market environment. A unique scale, a complete range of products, and an unparalleled global client franchise. Fundamentally, our strategy is not going to change. We have a very good track record to adjusting to multiple constraints. Now we have one more, which is a G-SIB buffer.
We will do whatever it takes in order to achieve the target of the company in the bucket that we decided to operate. We have a proven track record of managing our expenses, but there is more than we can do. We are committed to move our expense base to $19 billion by 2017, $2.8 billion lower than in 2014. Finally, we are targeting 13% return on equity on a common equity CET1 ratio of 12.5%. Now going into performance. The CIB is 51,000 people operating in 60 countries around the world, covering thousands of clients, the most important companies, financial institutions, governments, and nonprofits. Top left of the page, revenues. Last year, $34.6 billion, an average for the last five years of $34.7 billion, really very low volatility in our top line. Net income, $8.7 billion, an average of $8.9 billion.
This is excluding the elevated cost of legal expenses for last year. Return on equity, 13% last year, an average of 17% over the last five years, with capital moving from $46.5 billion to $61 billion. We have the number one global investment banking franchise, the number one global market franchise, and best-in-class research platform. We have delivered very well, and we are in a good place to deliver for the future. Now going more into the lines of business. I mentioned that the top line, mainly driven by scale and diversification, has a very low volatility over the last five years at overall 4%. Most important, when you look at inside of each of the lines of business, you will see that the same phenomenon happen. The scale and completeness of products and diversity creates very little volatility, even for the lines of business.
It's even more noticeable in our markets revenues. Average of $19.8 billion over the last five years with a volatility of 4%, which is equal to the volatility of the whole Corporate & Investment Bank. Why is that? It's relatively simple. We have such a big and deep client franchise that we need to take the risk that is necessary to provide liquidity to those clients. We don't need to take risks in order to find our path to profitability. In fact, all the opposite. If we were to take excessive risks and we get it wrong and we lose money, not only you're fighting with the position from the clients and try to provide liquidity, you're also going to fight with your own position. Essentially, our ability in that environment to monetize the client franchise, it will be by far tougher.
Clearly a good performance, low volatility when you compare with the rest of the peers, we are in a good place from there. Now when we go into comparing our business with the rest of the competitors. Investment banking, these are the Dealogic numbers. Our growth, 25% over the last five years, the rest of the industry, 17%. We've been consistently number one for the last five years. Fixed income, the business that has been challenging on the last few years. The wallet of the top 10 players have gone from $110 billion to $74 over a period of five years. Our reduction was 9%, and it was all in 2014 because I think then we were growing while the rest of the industry was going down by 36%. Number one 10 years ago is still number one now.
Equity markets, an area of focus for us. I talk about that in the past. We grew 70%. The rest of the top 10 went down by 2%. Overall, no matter how you look at it, the performance in comparison with the competitors has been very good. Moving into the next page, that is a page that you are familiar with. The only thing that we have done here, we add 2014 to do a mark to market of what we did or didn't do, and the reason of this page is not what is here, that all this green, is in each box behind it, there is some yellow and some red. When you look at all these lines of products, we are very focused. That's the way that we run our business.
We are very focused in really looking at areas of weakness, investing to improve going forward. Page seven. International. Key part of our strategy in the past, and it will be a key part of our strategy going forward. We have, as you remember, we invested in developing the global corporate bank a few years ago, and all that is growing. It's doing very well. Revenues from 2012, 2010, sorry, grew up by 12%. Let's see this. If I would ask you to vote four or five years ago, where the growth was going to come from, probably everyone in this room would have said emerging markets. It's exactly what didn't happen. Emerging markets are relatively flat, and all the growth is coming from Europe, and mainly continental Europe and the U.K. Why is that?
Jamie mentioned many times that we are not fair weather friends. That when we are in a place, we are committed to that place, and we are there to stay. We are very disciplined in the way that we manage our exposures and our risk. We're always prepared in a good position when the hard times come to support our clients. If you are there at that time, your clients will reward you with a bigger wallet share. That's exactly what has happened. We really did very well throughout the whole European crisis. That is reflected in our CIB line for Europe. We grew our wallet share from 6.2% in 2012 to 7.5% in 2014, moving from number two to number one. This is just one example, almost across our lines of business, we saw growth and increase of market share. Emerging markets.
If you look at the BRICS, and how we felt about them four or five years ago, and how people feel now about it. Probably four or five years ago, it wasn't as good as we thought, neither now is as bad as we think. I think that the growth in emerging markets will come at some point. It just didn't happen in these few years. Obviously knowing where it come from, we are still committed to those markets. We think that they are going to be important for our strategy going forward, it's just going through a rough patch. Now changing into what happened with our return on equity from 2013 to 2014. This is where it is. In 2013, 17.2% return once you exclude the effect of the adjustment for FVA and DVA. How do we explain that?
160 basis points is lower revenues, mainly in the fixed income line. That is partially offset by a decrease in comp of 40 basis points. Control and regulatory fees, took 70 basis points, and the increase in capital from $56.5 billion-$61 billion took 180 basis points. We have a few other components there that are mainly related to the write-off related to the sale of the commodity business that took about 50 basis points. All together, we came out of 13%. Legal expenses took 300 basis points. We got to the reported number of 10.1%. Let's now move to market, which is the driver of the revenue underperformance. Top left. That is an internal representation of the client activity.
It was a bit weaker in the first half of the year and sort of picked up in the second half, all together, up 1%. 10% up on equities and marginally down in fixed income. That's the good news. The client fund shares didn't suffer. Second, let's go and try to explain the couple of billion-dollar lower revenues, and I think that is mainly explained by two things. First, lower revenues in our legacy assets because the positions are lower and the revaluation of these assets is coming to an end. Most important is what we call the market-making inventories, that in an environment of very low volatility, it was a bit difficult to monetize. If you look at the graphs on the bottom of the page, and you were familiar because we showed it last year, on the left is 2013, on the right is 2014.
The difference between the two explains over a billion dollars. It was just a bit different. Still, all these numbers in all these graphs or the representation of that graph in a well-run market making operations, portfolio business as ours, over a long period of time, it will be either close to zero or marginally positive, and that is roughly what we're experiencing here. We said that there was a lot of debate in the past. This is the fixed income issue is a secular or a cyclical issue. I think that I still believe that it's mainly, to a large extent, it's a cyclical issue. You see on the right of the page at the top, volatility really coming down. The story of volumes for last year-over-year, is kind of mixed.
Some of the classes have higher volumes, some of the classes have lower volumes. All together, no matter what volumes are, if there is no volatility, it's very difficult to monetize. It really doesn't matter the volumes. Now we go to October 2014 and what has happened there because I think that it will be relevant for the future. There is today a bit less liquidity in the market. There is less capital to facilitate intermediation process, and overall, there is less risk appetite. Every time that there is an event in the market, it's likely that the market move will be a lot more abrupt than it would have been in the past.
For sure, really, it will hurt because these sort of big moves without transactions, it hurt the clients, it hurt us, and for sure, in the long run, it will hurt the economy as companies will have to pay more and more in spread terms in order to finance their portfolio. This is something that, to an extent, probably you could argue that would have happened with the massive reaction in the movement of the Swiss franc revaluation when they removed the cap. A 40% drop in few minutes. I don't know if that explains it or not. It is probably a portion of the same story, in my view. When you walk towards the rest of the quarter, the volumes stay high. The volatility is kind of normalized.
The market still was a bit choppy, that takes us into the first quarter of 2015, where that higher volumes that are still remaining there, and the client activity is there, and level of volatilities are a bit higher. The quarter has started very strong, particular January. As a result, we expect that the full quarter to be up year-over-year, even including the headwind of simplification, business that we have last year and revenues that we have last year that we don't have anymore. Obviously, there is still five weeks to go. Things may change, but for now, it's looking good. To finalize this first segment, I want to talk about business simplification, a key priority for 2014.
Over these days, really, you want to focus your energy what is core to the franchise, you don't want to be distracted at all in things that they are in the periphery of that, no matter what the returns are. There are a bunch of business that we exit. The Global Special Opportunities, good business. It's a principal investment business. Good business, good returns, good track record. Really not core to the franchise. If we do it or we don't, the clients don't care. Physical commodities, we build a good franchise over a number of years. Very balanced between the two. The physical side, a bank is a wrong house, at least our bank. We decided to exit it. We sold it.
If anything, the client activity on the rest of the business that we are keeping, which is financial commodities, is precious metals and vaulting, and the financing part of the business, is increasing because some of those clients don't feel that we are a competitor anymore, they are feeling more comfortable in doing more business with us. I'm very happy how the commodity, what is left of the commodity business, is performing. We also exit some few small business because they are not core or the risk attached to them, it was a bit too high. Also, we were very focused in rationalizing some of the business, like correspondent banking. We need to operate today to a different standard as we were in the past. We went into that business, look at around 500 relationships.
It doesn't mean that we reduced 500 clients, but we exit 500 relationships in that business to simplify the business and make it more manageable. We are very focused in cutting accounts that they've been inactive for a number of years because of the burden that caused to the KYC process. We are transferring the bulk of the client base of our broker-dealer services to Fidelity. Overall, this is what we have done, and we will continue doing it if we feel that any of the business that we have, they are not core to the franchise or the risk that they bring along is outside of our risk boundaries. That finalizes the first part of the presentation. Let's go to strategy. The strategy, I said the strategy fundamentally hasn't changed, and that's how we think.
We believe that to have the business that operates at scale, that it have a complete set of products and operates globally, is the key to achieve the returns that we've achieved. We still believe that. We are going to do whatever it takes in order to maintain that strategy within the constraints. We're very good at optimizing businesses and looking at areas of weaknesses and optimizing investments, and we continue to do that. It is very important that we keep adjusting our market business to the new market reality. The structure of the market is changing. We have a. We'll talk a lot about expenses in the next few pages, but we have a good track record on expenses, and we will keep working on that.
In terms of optimizing what we have done so far, that's what we do in the investment bank. We look at all the constraints that we have and look at adjusting our business model to maximize the return based on the constraints. We have done it because of the profitability of some of the business, some regulatory issues, capital rules, liquidity rules, et cetera. GC is the next one, we are going to do it too. We will do, we will be 100% focused in deliver what every single action to guarantee that the company operates at the 4.5% target level or lower if it makes commercial sense and is agreed to our shareholders. All this, it will be done keeping the interest of the client at the forefront. What does it mean for growth?
Clearly, in the activities, and we will see in a couple of pages, the activities relate that they have a very [G-SIB footprint] attachment. We may have to constrain growth, and we may have to grow in line with the industry. There are plenty of areas that they are not related to GC, where we are weak and we can do better. Altogether, there is a path to grow. It may be a bit different than what it was, but there is a path to grow. Let's go now and dig down a bit more into the GC challenge. Here from left to right. First pie chart. This is the contribution on each of the factors to the score of the CIB. A bit more of one-third is complexity.
Just to remind, the complexity is the OTC notionals, Level 3 assets, trading assets, and other held-for-sale assets. The rest is more or less evenly distributed. If you look at the contribution on each of the lines of business to the CIB score, 62% is coming from markets, 13% from banking, and 24% from investor services. Let's go and see which are the activities that contribute the most. In investor services, we have OTC clearing, and I have a page on that, hold for a second. Intermediation. Intermediation is the following product. For OTC derivatives that they are not clear, we play the role for some of the clients that the clearing houses play for OTC clear derivatives. Which is essentially we help the clients to face us, and we face all their counterparties, and we help them to optimize their credit and collateral.
This business, as priced, is profitable and is fine. When you look it through the lens of the GC impact, it will require high single-digit multiple of capital from where it is today. Unless the structure of the business changes or there is working with clients, we find a way to massively compress the notional exposure coming from that business, there's very little risk. It's pure notional. We may not be able to stay in that business. Non-operating deposits for both affecting in the investor services business and the banking business. Marianne set a target of $100 billion. Our contribution is quite big. This is a big percentage of that. We already have a very clear plan, client by client, how we are going to manage the relation. It's a product that is important to the clients. It's not money just lie there.
Prime brokerage, let me mix that with the bottom of the markets bit, which is securities financing, a very important product for the clients. Clients do care about the liquidity of their position, and they do care about how to finance their position. Clearly, obviously, we're not going to exit that business. What we are going to do is optimize it to the bucket that we're going to operate. Into banking, we already talked about non-operating deposits, lending, and unfunded commitments. We have a very good process. The lending activity is a low return on equity activity.
We have a very good process to decide how much resources to apply, financial resources and balancing we give to a client and what do we need to do in order to optimize that and have good return with that client. We will put the G-SIB impact into that calculation, too. In the case of markets, OTC derivative is notional, it is a big component. We have a very detailed plan of how to deal with this. We are going to compress roughly, if you look at our portfolio of notionals, $60 trillion, $65 trillion, whatever it is. Roughly half is facing clearing houses. The other half is bilateral. We have a very clear plan on what we need to do in order to really compress our portfolio to reduce the amount of notionals.
More important is how we are going to make sure that without disturbing the franchise, we are efficient and we minimize the accumulation of notional going forward. Level 3 assets, I already asked one of the members of my management team, look at the whole portfolio, look at the returns in the eyes of the GC impact and what we are going to do. Some we will exit, some we will keep. Also most important, we are going to have very clear rules for the business that accumulate Level 3 assets like the portions of the equity business or the securitized product business that will allow us to optimize and live within the constraints. Those are the areas of focus and roughly what we are going to do about. Now I want to spend in the next page 14, a couple of minutes on OTC clearing.
As you remember, the OTC, the clearing derivatives, it was a priority, or is a priority for the G20. We have invested, and we think that altogether it is a very good thing for the market. It is still probably a bit of way to go to make sure that the clearing houses are exactly in the right place in terms of risk management, capitalization, and liquidity. Overall, I think that reduces systemic risk to the market. Based on that, we invest quite a lot of money in building that business, and we have a very good market share. As you remember, when I mentioned in the past areas where we thought it could be growth going forward, this one was one of those. We build the business to stand on itself, excluding the halo effect of anything else. That is what we did.
The business at the moment is operating below the scale level, therefore, the returns are low. They are not really at scale, but we think that if, when it gets rolled around the world, it will be profitable. It would have been profitable. If you look at on the bottom left of the page, we build an example just to illustrate, and we took, there are roughly six big clearers around the world. We assume that this theoretical clearer has a 10% market share. If you are constrained by G-SIB, you will have to, depending the size of the RWA of that business, between three to six times. Remember, keep in mind that the business with the capital that it has today is not profitable at this scale. Pretty much for anyone, I think.
If you were constrained by SLR, the increase of capital will be between five to six times. At the moment, there is a decoupling between the economics of the business and the capital rules. What could happen? It's very simple what it could happen. It could happen that some non-bank entity managed to get into that space. That is expensive infrastructure to build. It requires capital. It requires a lot of overnight liquidity and a lot of intraday liquidity. It may be, we don't know. It may be that smaller banks get into that space. It may be that market reprices. That is a bit of a stretch of imagination because today, as it stands, is really when you look at the relation between bid-offer spread and the cost of clearing, it's not an irrelevant number.
It's hard to see that someone could be able to pay at this level of volatility at the prices they are and pay like five or six times for that and it still be in the business. The other possibility is that the capital rules align. There is an economic reality and a profitability business that overall allow us to stay in the business. The next is that probably banks that they are constrained by SLR or for GCF. We are not in that business anymore, and we move on, and if we have to do that, we will do it if we have to, but at the end of the road, we will do it in a way that affects our clients the least, but it is a possibility overall.
Now moving into page 15, and this has spent like two seconds on this one. These are all the constraints on the left, all the activities on the left. You can see, affects pretty much to an extent every type of clients that we have, some more than others, but it does. We will work with our clients to do what is right. We have to do what we have to do in order to get to the target that Marianne has described, and we will. Now going into the lines of business, and we start with investment banking. On the top right, we have 2014. $80 billion overall, we are number one overall, number one in Europe and in EMEA. EMEA and the U.S. count for 80% of the total revenues.
We are not where we want to be in Asia or in Latin America, but we are working on it. What independently what this graph describes, what we are doing here is very simple. We are going sector by sector, product by product, and region by region and looking at why we have areas of weakness. If it is a matter of talent, if it is a matter of resources, financial resources, what is it? Overall, the conclusion is that there is a better way. We don't need to put more balance sheet in order to grow here. It's more about relocating the balance sheet in a more effective way, because we may be over-supporting one sector to the detriment of others.
Linking this to GCF, there is a lot of more than we can do with the balance sheet that we have and really address the areas of weakness that we have. For sure, when you look at the right of the graph, in Asia and Latin America, probably if you want to look at it in a positive way. We have two good things there. First, even if the market doesn't grow at all, we have some potential as we move to a better place, and the market may grow at some point. We like it. We'll see what we do there. The second point, looking at the bottom graph. Lending to the segment of clients that we lend is in a very low return ROE business for a number of years, and it's still kind of moving in the same way.
The important message here is that by being complete and operating at scale allow us to have a broad relationship with those clients that allow us to, the overall relationship with that client, including the low return of the loans, becomes profitable. We are focusing in doing that. That's even the way that we're organizing ourselves, our banking organization. Third point and last point on this page is the partnership with Doug and the Commercial Bank. One-third of the IB fees in North America are coming from clients of the Commercial Bank. Gradually, more and more of our market revenues are driven by clients of the Commercial Bank. Also, in the grace of Treasury Services that I will talk about in the next page, the Commercial Bank help us to get scale to make the business more efficient.
It's a great partnership, and you will see when Doug makes his presentation, there is a lot of upside from there, too. Now, Treasury Services. Page 17. We have been historically a bank of banks. We invested in the corporate banks to balance our financial institution business with our corporate multinationals. If you look at in the top right graph, it's been successful. From 2012, revenue with corporate has grown by 9%, financial institution revenue by 4%, and the overall cost of the business has gone down by 4%. Also, when you look at the following graph below that, we are selling more and more products to those corporates. The number of international corporates that they're using out of the Corporate Bank. Deposits. Deposits have been growing. From 2012, they grew 17%. Most importantly, operating deposits have grown by 28%.
If you have that in mind with interest rates, hopefully at some point will start going up, it will be a big lift on profitability of this business. We feel very good about this business. There is growth in the top line, but it's also more than we can do in the bottom line. By doing several things, bringing clients to our enhanced electronic platforms, really look at efficiencies in the way that we manage the business simplification. This business, as I see it, there is upside in the top line, but more important or more of that, there is more upside in the bottom line. Markets. We are the number one fixed income house, and we've been, as I mentioned, for the last five years. We are going through a period of change.
We want to embrace that change and come out on the other side as strong as we are now. We are doing that. There is no doubt that we are doing that. There is very little weakness in our business. When you look around the world, there is not an obvious area where we are not where we should be. There are a few things, mainly in Asia, that we're addressing, but overall, we have a very good platform. In equities, we have done quite well. It's an area of focus, and it's a very competitive place. Gradually, we are growing. Our low-touch business is growing. Last year, just an example, in North America and in EMEA, our low-touch volumes have grown three times the volume of the market. We are getting market share there. We lost some ground in Asia, and we are focusing in correcting that.
The other area where there is potential and it is not related at all, in fact, the opposite to the G-SIB , is the ratio between revenues that we get in the prime brokerage business and revenues that we get for the same client in the equity business. Let's call that the multiplier. That multiplier is not at the level of best in class. As we are enhancing and improving our equity offering and enhancing and improving our prime brokerage business, that multiplier will grow without increasing exposures. One comment here on higher rates. Higher rates is good news for us. It's good not just for the rates business, but it's good for the overall markets business. We welcome higher rates, and it will be accretive to our returns.
This page, I'm not going to go through the details, but in the way I think about it is the following. The fixed income business, all these market business, fixed income in particular, they are not cheap business to run. The cost base is high, and you need a scale and a relatively high market share in order to make them profitable. As we are going through this process of change, we don't know how the clients will decide to operate. What I do know is that we need to hold on to our market share or grow it in order to be able to be profitable going forward. The only way that you're going to hold on to that market share is by embracing change.
In whatever way the clients choose to operate to us, voice, electronic, on a principal basis, on an agency basis, if they need direct market access, if they want self-direct their orders, or they want us to direct our orders without, whatever it is, that product needs to be there. Then the other thing that we need to do in order to maintain our leadership position is to keep adjusting our talent pool and our cost as we see more and more how the wallet will be available to the business. If you don't embrace change and you lose your market share, you are dead on arrival. It doesn't matter what you do with your cost, it will not work. We are very committed to that, myself, the management team. We know that feeling good about where we are is not going to take us anywhere.
This is a point where you really need to embrace change, disrupt your model, and do what it takes in order to maintain the leadership position that we have going forward. One of the businesses that everyone talks about a lot because it's been underperforming for a number of years is the rates business. $51.5 billion in 2012, $32 billion wallet in 2014. Why is that? It's very simple. Low volumes driven by low volatility and low overall level of rates. Also, the change in capital rules that really affect heavily the capital allocated to legacy positions, mainly uncollateralized derivatives. If you look at the bottom graph, on the left-hand side of it is 2014. The core business, excluding legacy positions, it was very close, even in a weak environment, to get close to our target returns.
Clearly, the legacy positions bring them down and really was a very low ROE business in 2014. Let's see what I think is going to happen to that business. Once interest rate normalizes, volatility at a higher level of rates goes more towards normal. The regulation gets more or less harmonized around the world, including the impact of G-SIB fund compressions that we need to do. The burden of legacy positions, RWA related to legacy position, goes down, as you look in the middle of the page, is going down by 24% in the next two years. I think that that business, the core business, will clearly produce a higher return than our target, and even with the effect of legacy position, will have a better return than our target.
The other piece that is very important is the rates business is a very core and important piece to the clients and very related to our concept of being complete as a way to stay profitable as we did in the past. It looks good. It's just the low end of the cycle. I don't think that we should be too concerned about it. Custody and fund services, very quickly. Asset under custody is growing very well. Revenues up 10% from 2012, cost down 2% from 2012. This is a business where the main focus will be to keep growing, but also to find scalable solutions for clients that make the overall efficiency ratio of the business better than it is today, is a good business, is profitable, but as we see what we can do here, I think that we can move more towards profitability.
Another comment on this, the way that we're organizing our sales teams in markets is now markets and investor services. I think that what it does allow us, as in banking, to have very holistic and broad dialogue with our clients and move this product at a higher level of importance in the dialogue with the clients. Because this product is very profitable. But in the past, we have two groups hitting the clients, knowing what one was doing versus the other. Now it's a totally complete thing, and really, the clients are rewarding us with higher business by having a more cohesive approach to them. Prime brokerage and financing. Prime brokerage, we've been working on this for a number of years. We were number nine in 2006. We are now number two. Our balances have grown from $70 billion to $170.
As I mentioned before, this is a key product for our clients. Every client, when you go and have a meeting with a client, everyone is concerned about their ability to finance their positions, either equities or fixed income. When you look at the bottom graph, which is fixed income in the U.S., it tells you a good picture, a good story of why the clients are very concerned because the amount of balances available for their activities has been coming down a lot. Clearly, I strongly believe by being aggressive in that product, it creates a great halo effect in the rest. This is a product that does hit our G-SIB buffer. Obviously, we need to optimize it to the 4.5% or whatever we decide to operate.
I think that is still at the levels that we have, and we are one of the biggest in the world on this. There is plenty that we can do, including the multiplier that I mentioned before, in order to really optimize this resource, that it will become more and more scarce as time goes by. This ends the second session. Now we'll start going into the expenses. I will do three things here. First, talk about what we have done. What are the actions that we're going to take in technology and operations? Then explain how we're going to get to the $18 billion that I mentioned before. 2010, we have $22.9 billion of expenses. The front-office reduction is in $2.4 billion.
This is a combination of fewer people, changing the talent mix as business gets more simpler and more flow-driven, and compensation decline as we are absorbing more and more costs and capital and liquidity. The second element, the second green bar, is technology and operations. You remember that we talked in the past about SRP, the strategic reengineering program. That has reduced to our running rate in technology operation, around $300 million. Some of that is being reinvested in few other things, but overall, technology and operations in the last five years has gone down marginally. Let's go now to the Red part of the page. First, controls. This is finance, compliance, the operations related to that, legal, all this sort of stuff. It has gone up $1 billion or 54%. Second, regulatory fees.
They went up by a multiple of six or $800 million in the last five years. Legal, you may be a bit surprised that it looks like $500 million. That is because, obviously, as we have a very elevated legal cost in legal expense in 2014, but in 2010 was also relatively elevated, that the difference is $500 million. Then is a one-time item of simplification that I mentioned before. We have really worked hard all across, unfortunately, to get where we were five years ago. Obviously, it could have been worse. It would have not have the green part of the page, but we are where we are. Now looking at technology and operations, what are we doing? Business unit specific actions. What we are doing is going line by line of business and looking specifically at how the clients interact with us.
When you start looking into this, you will see how inefficiently some of the clients are in the way they interact with us. We are going to go back to them and help them to become more efficient. This is not just the amount of operational burden they create, also in the way that we cover them. It makes no difference for them, but it require a higher cost coverage. We are looking line by line of business. We have done a lot of work, but are still working on that, and we feel that some of the efficiencies will come from that. We go to the operating model. If I look at our cost per ticket, it's more or less in line with the industry. Considering our scale, it should be a lot better than it is.
When I started looking into the components on that, why is that? There are a bunch of things. One is, for example, the number of middle office that we have, that as we kept restructuring the front office, the middle office really didn't sort of exactly match that, and there are efficiencies by combining the multiple middle office into smaller and finding efficiencies there. The second thing is about internal utilities. There are plenty of activities that we could do that it could be more efficient. Like for example, tax processing, client onboarding, regulatory reporting, and having utilities across the whole business rather than having components pretty much all over the place. The third item is we are very supportive in some industry utilities to really cost of processes that are totally add no value in doing it ourselves, as, for example, components of the KYC process.
We will have to do portion by ourselves, but there is certain things that every bank doing it by themself and calling every client to add the same information times and times over, it really bothers the clients, and doesn't add any value to any of us. We are very supportive of bunch of industry initiatives to get there. Also we have done, in my view, a very good job in picking our location strategy. There is more than we can do there. That's that. Then technology infrastructure is the third area, and some is being already done through SRP. We are doing a lot more. Most important, a lot of the investment that we were making in the last few years, they're now coming to an end.
Our Athena platform, ACCESS Next Generation, deliveries processing platform, front office, futures and options, re-engineering process, FX front to back, all those things that were costs of the past, they are now coming relatively to an end, that obviously will reduce our investment in those issues and in those processes, in those systems, but also will find efficiencies going forward. This is, just to be clear, this is not myself and Sanoke, who is the head of technology and operations, looking into this. It's a commitment of the whole management team across every line of business to be 100% committed to these spend targets that we have. Look at now how we are going to get. We go, remember from the previous page, $23.3 billion. Let's assume that the first legal expenses go down to historical normalized levels. Business simplification, $1.5 billion.
We lost the top line. Obviously, we're going to lose a substantial portion of the bottom line. We go to front office. We are planning an extra $300 million after the $2.4 billion. I'll give you a couple of numbers that are interesting. If you remember for the previous page, we saw that [control revenue] in 2010 was 37%. Of that 37%, 26 was front office. 25 was front office, and 12 was the rest of the operations. In 2014, we went to 30%, now front office is 18%, and the rest is being relatively flat. We have done really very good job with the front office adjusting, as you can see in the 2.4. When we go through this process of really finding efficiencies, the [control revenue] basis of the non-front office part will have to come down.
This is not a plan that's aspirational or anything like that. We have very specific actions, one by one, which are the actions that we're going to take in order to achieve each of these numbers on this page and to get to the $19 billion. 2 additional comments on that. First, if we find that in the future, it makes sense to invest beyond our expense target in businesses that will be accretive, we will do it, and we'll come to you and tell you that we have done it because it's accretive to our shareholders, and it makes sense. The second issue, we have a culture, even though we've been very disciplined in how we manage our front office expense, we want to pay for performance. We have been paying for performance, and we are committed to stay that way.
Obviously, as the top line improves, we will have to pay more. The $19 billion may be a bigger number, the overall cost-income ratio will go down, and the returns will go higher. This is a good way to meet the expense target. Now as we are wrapping up, we go to page 28. This represents how we get to our target 13%. We start with 10.1%. Legal expense is normalizing. You saw the number in the previous page, it's 250 basis points. Net growth. This is a serious, what I was talking about, finding areas of weakness and really correcting that, and those are in banking. At FX with corporate, it's further growth in equities, it's Asia. There are a few things.
Net of the impact of GC, that 4.5% is very marginal, it will give us an uplift of 90 basis points. The expense initiative that I just described is 130 basis points, rate normalization is 70 basis points. Credit cost normalization is 20 basis points, the increase in capital from the current capitalization of 11% to 12.5% takes away 200 basis points to take us to the 13%. Clearly, this is us considering the world as we see it today. The wallet may grow. Emerging markets will go back into growth at some point. There is no doubt in my mind that European capital markets have to grow because it's absolutely necessary to finance economy as banks are de-leveraging. We may see some repricing in some areas. We may see that growth goes faster, therefore interest rates go higher than what the futures are showing.
There is upside to this number, but this is what we think in the next two or three years, we see how we see it today. Before I wrap up, I want to address a point that I consider extremely important. We made mistakes, and Marianne mentioned it too. We made mistakes in the past related to the conduct with some of our employees that have cost us millions of dollars, and most importantly, damaged the reputation of the company and the confidence of the public in the integrity of the global markets. Everyone at JPMorgan is focused on doing the right thing for our clients, for the markets, for our stakeholders.
We are rolling out the best-in-class culture and conduct program across the entire CIB to make sure that every employee at all levels, everywhere in the world, operates our highest standards in line with the values of the company. It is a top priority, and it will continue to be a top priority in the years to come. Let me wrap up with a few thoughts. The main one will be the first thing that I said today. This is a fantastic franchise. It has produced best-in-class returns for a number of years, and is based on the scale that is unique in our product, the completeness of our product range, and our global and deep client base. I feel that I have a great management team. They've been in the company for a long period of time.
Working for us, we have an amazing pool of talent across every rank in the Corporate and Investment Bank. We are market leaders in all the products that are relevant to our clients. The markets business is going through a massive, profound process of transformation, we are 100% committed to embrace change to be as successful or more in the future as we are now. We are very focused on addressing areas of weakness, as we discussed. Our returns allow us to make the necessary investments to close those gaps. G-SIB buffers. The company will operate at 4.5% or lower if it makes commercial sense and is accretive. We will make 100% sure that every action that we need to take in order to achieve that goal and that objective will be done. Our expense program, we are fully committed in delivering.
We know that unless you are in the environment that we are, of course, capital and liquidity, unless you are very close to perfection in your efficiency, it's really very difficult to be profitable in this business. Before I go to Q&A, I just want to reiterate that the management team and I will continue to work hard to deliver best-in-class returns, and serve our clients. Then I stop here and we go to Q&A. We have Q&A.
Yeah.
Hi, Jim Mitchell from Buckingham Research. Maybe a big picture on FIC. You're implying 13% returns targets, I would assume, FIC, if you exclude higher return areas like security servicing, banking, that the implied target return for FIC is lower, at least in the next couple of years. What's the big picture long-term end game here? If you think about FIC, it raises your firm-wide cost of capital, it raises your G-SIB charge pretty significantly, yet it's one of your lowest return businesses, yet as you point out, you're a top-tier player. Is the end game here that there's a much higher ROE in the long term, and that you're willing to stick with it in the short term? Is it just the cost of doing business because there's a lot of synergies with the rest of your business?
How do we think about the ROEs long term?
It is a combination of all the above. If I look at in the long term, you, as I mentioned, you will have growth in Europe, in the capital market. The emerging market, if they want to have a path to growth, they may have to develop their markets in general, and the fixed income business in particular. The business at the moment is marginally or in our target, marginally below the target, but is not miles away. Altogether, yeah, it's a challenge business, but if we work on the cost, we maintain our scale and our market share, and the market grows at some point, clearly the return will be better than what we are including in our 13% target. At the moment, that's why this 13% target, it has upside.
Some of the upside maybe it is from a potential better fixed income business. It definitively is important to the rest of the franchise. I really don't believe in the model where you start cutting products. I think that very quickly you go to the point where clients feel that you are irrelevant. One more point on that. In your relationship with a client, you say today, "I'm going to cut every single product that is unprofitable." You're saying that, "Well, I will retain our market share or grow the market share in the ones that they are profitable, I will be better off." I really don't believe on that.
I think that if you start cutting that, because unless you find the group of banks that they're willing to do what is only unprofitable, the clients will have to be extremely careful because, well, they need those products. That's why completeness is important, because the relationship that you have with the clients is a bunch of products, some profitable, some non-profitable, the overall relationship profitable, and we serve the clients well. I think that that model is a sustainable model in the future. When you start chopping, I think that you will continue that way until you're irrelevant.
Matt?
Matt O'Connor, Deutsche Bank. If I could follow up on the $2.8 billion of cost savings you outlined. I guess the first question is, how far into the process are you in terms of identifying those costs? I know it's something that you've just announced today, but you've been working on and think about for some time.
It's totally identified. Action by action over the next three years, action by action are identified. I still believe that it may be more. This is as we see it today. The cost management and becoming more efficiency is a constant process. As we dig more and more into the businesses and the circumstances change, you keep optimizing all the time. Every single number that is here is attached to a name and to a particular action. This is not aspirational at all. Just to be clear.
I guess a follow-up in terms of the timing. You've given us by 2017. Should we think of it as straight lined or more front-ended this year?
I think that in order to achieve these efficiencies, you need some investment. I think that you will have probably the bigger part in 2016.
Chris?
Chris Kotowski from Oppenheimer. You talked before about not cutting products that are unprofitable, that dramatic, but you also talked about cutting non-operational deposits by 50%, and that's the most dramatic thing we've ever, I think, heard you do in a short or in an announcement. Presumably every other big bank is doing the same math. It seems like it has the potential for some dramatic consequences. Can you help us think through the next couple of steps in the chess game? What are the natural places for that money to flow? Is everybody else going to do the same thing? Is there a way for JPMorgan to capture some of that, and what are the potential for disruption from that?
There are a series of actions on how we're going to do. I will tell you right now. First, we've been working with the clients to transform non-operational deposits in operational deposits by changing the mix. As you saw in the graph, we've been quite successful at that. That's number one. Number two. We will work with the clients and say, well, if someone has, let's say, $5 billion of non-operating deposits, it's not that we're going to go straight to zero. We will give them a limit, and the rest we will help enough to find ways to move the money. For example, sweeping into money market funds for central banks, going direct into the Fed. We are not going to damage the client relationship. We will work with the client to find the best way with less disruption to solve these problems.
We have to do it. There is no doubt we are committed, and we will do it. We will find the best way to do it. There is hazard. There may be some of the deposit goes to banks that they are not constrained by any of these things. Smaller banks. We are not the only bank in the world. I'm sure we will find, by working with clients, the right outcome. At the moment, I'm not expecting a significant impact into the rest of the franchise, but we will see along how it plays out. I think that this one, the clients do want to do business with us and will understand that it makes all the sense of the world to do what we are doing if we do it carefully and thoughtfully.
Paul? We need the mic.
Thank you. Paul Miller, FBR. You talk about, on the fixed income side, that you are positioned for when rates go back to normal and when volatility goes back to normal. We haven't really seen normal on any of these things since 2008, 2009, during the crisis, right? It's been almost five years. Why do you think we're going to see increased volatility, given where the Fed has been really keeping rates probably lower than anybody thought they were going to do? There's also a lot of talk that they're not going to raise rates this year. If we continue to stay at this level, when would you start adjusting those fixed income desks or other parts of the business?
At the moment, we think that interest rates will go up in the U.S. around mid-year or third quarter. Probably the last few numbers that we've seen, it made me think that it may not be the case, and it may be delayed. The U.S. economy is doing very well. You look at the wages pressure start right building up. At some point, there is no doubt at all that the Fed will start moving rates. Obviously, the normal will be the new normal. It will not be what it was. It will be at a lower level. What is more challenging, in my view, is in Europe. I think that interest rate will stay low for a sustainable period of time. Overall, the main business that gets affected by the rate, the absolute level of interest rates, is the rates business.
What happens is you have two components of that business. You have the trading on the back end of the curve and the trading the front end of the curve. When the interest rates are about zero, no matter how volatile they are, it's still kind of zero. Even when interest rate normalizes, even if it is a bit, the front end start becoming relevant again. I have no doubt that assume that interest rate start moving, so the rates business will go back to profitability.
Mike?
Can you comment on pricing in the custody business? I'm still not recovered from you eliminating this as a business line and some of the information. Your competitor, State Street, tomorrow will have 2 hours on their business, and today you have 2 slides. If you could give us some insight into your margin in that business and the way pricing is going, because this could be considered the world's worst oligopoly, the way the largest players beat up each other when it comes to pricing.
To an extent, pricing is getting tighter and tighter. Revenues coming from the assets under custody are growing in line with the size of assets, and the business that is being underperforming is securities lending. Margins in securities lending are tighter than they were. Overall, it's a very profitable business, and we're absolutely fine. Every time, at least for now, every time that we go to a new RFP, it's tougher, and the margins are going down, and may continue to go down. That's why in that business, I'm quite optimistic about that business. John Horner, who runs it here, is not so much about hoping that in order to maintain profitability, margins need to go up or not going down. My main focus in that business is looking at the bottom line and find operational efficiencies.
How much benefit is there from that being part of a large bank?
Clearly, it's not related to the retail business, some of the custody business is coming from some of the commercial banks. Obviously, we compete for many business, arms' length with anyone else, they are a big client of us. Overall, it's sort of part of the fabric, and overall also help us. The overall synergies across the company help us also with the cost base. As I mentioned, it is a good business. I think that there is plenty of upside in the bottom line. John is very focused in getting it. Probably in the past, we were a bit too much top-line driven in the way that we grow with business, and now we are sort of more balanced and looking at efficiencies and solving them.
Brennan?
Brennan Hawken in UBS. Daniel, just wanted to touch on the revenue. You guys were at $34.6. We've got a billion and a half in simplification coming out this year, that takes us $33. Your target for 2013 has $34, but there's another $1.3 expense cuts that you're doing, which is probably going to have some impact. There was a lot of talk of cutting the non-operating deposits, which I get you're going to manage, but it's not going to be zero. Can you give us a sense of how you're expecting revenue growth given those headwinds?
As we mentioned, I think that Marianne Lake mentioned this several times, the overall impact of simplification into return into ROE was totally marginal or very close to zero. What are we doing? By looking at areas of weakness, we are replacing that revenue for revenue that will produce a good return on equity. That's why it's banking, it's equities, it's all this kind of stuff. We are sort of going to where we were, but at a lower cost. The simplification cost, as you can see, is now coming back up. We are cutting expenses further, and by looking efficiently in investing, we are trying to really get areas of weakness into strength.
Overall, from banking, from equities, something from the investor services business, all these things are going to contribute to get back to $34 and really improve the return, even though the top line is very similar.
Last one, Betsy Graseck.
Hi, thanks. A couple of quick questions. One on deposits. You're looking to shrink those, obviously, right? You mentioned deposit shrinkage, the non-operational account deposits that you're shrinking. I just wanted to get a sense of how much you've done in work with customers to assess whether or not they're going to walk down the path with you, because we've had some peers look to shrink deposits through charging, obviously in the EU, and you haven't seen the outcome that was desired. You haven't seen the deposit shrinkage at peers. I just have a follow-up.
Yeah. For the type of clients that we cover in the Corporate & Investment Bank, we are not going to have that one-size-fits-all. Repricing may be a solution for some of the clients, but we need to get notionally to the number that we need to get. In some cases, it will be repricing, and that will drive balances down. In some cases, it will be no repricing at all and put a limit. As I mentioned, you have $5 billion, now you can have one, and we will work with you to help you with the four that you have to put somewhere else. We have had some communication with clients, but not a lot yet. We will see in the next few months, in the next few quarters, how do we progress.
There is no doubt that we will do what we have to do. I think that in my experience from past things that we did with clients in the past, because of the type of relationship we have with the clients, they know that we are doing this is because we have no choice. In my view, they will sort of help us out.
You're outlining RWAs coming down overall in the organization, revenues going up. It sounds like there's an uplift in pricing that you're expecting you're going to be able to achieve. Is that a fair conclusion?
RWA is, remember our glide path of last year. We are pretty much working towards that in all the actions that they are related to us. We have model approvals. There is a substantial drop in RWA once we get there. In our projections, repricing, is that what you're talking about? We are not really considering a lot too much of that because we have seen some margin increase in some place. Look at lending. Lending has been coming down and down. Even the whole world is kind of leveraged. Some way or the other, the money, some way or the other, gets to the company. I wouldn't really base my expectation of getting to 13% on hoping that some flow will reprice or not. It's not in my assumptions.
Just lastly on market share, because the regulators look at G-SIB, obviously, as you all know, in part as a function of market share of total global wallet of the G-SIBs. How do you think about managing your business when getting too much market share could potentially be a bad thing as it could trip you into the next cycle?
Yeah. Let's be careful here. In the areas where the regulators have concern because of our complexity or size or whatever it is, as you know, we are very focused on correcting it. I don't know. I'll just pick a random. If we are a bit bigger or a bit smaller in the pharma business, or we are a bit bigger or a bit smaller in the technology sector or whatever it is, I don't think that that is related to regulatory concern. We will see. At the moment, our target is to be at 4.5%. We are at 4.5%. If it makes sense to go to 4 because commercial sense, we'll go to commercial sense. To go to 4. Keep something in mind, that you start rolling back and drifting into lower targets.
That model, we have seen it all around, we know that that model is kind of not profitable. We want to, as much as we can, to defend our business models.
Thank you. We have 20 minutes break. I will see you here at 11.
Hold on, Daniel. Bye.
Excuse me, ladies and gentlemen. Today, J.P. Morgan Investor Day 2015 will resume after the break. Until that time, your lines will again be placed on music hold. Thank you for your patience.
All right, everybody. Welcome back. I'm Mary Erdoes, CEO of J.P. Morgan Asset Management. We went through a lot this morning. Now we're going to turn to a little shorter time on two of the relatively smaller businesses within the firm, mine being Asset Management, which is a combination of a world-class private bank, as well as a very strong leading investment manager, and a very important growth story within the JPMorgan Chase franchise. I'm going to take you through the next several pages just to re-remind you of what this business is and how we've been doing. Asset Management is based first and foremost on a strong investment culture, and this relentless focus on client-centric, fiduciary-natured business is the foundation that allows us to deliver such strong investment returns.
These investment returns are, as you know, past performance is no indication of future returns, not the only reason why clients trust you with your assets. They trust you with your assets because of both past performance as well as what they expect in the future, that is what we've done. Over the past 200 years, we have engendered the trust of many clients to the point where we are now at another record year of assets. This sustainable competitive advantage that we have is something that struck me when I was going through the Alibaba IPO process. Jimmy Lee, who's Vice Chairman of JPMorgan Chase, who led the IPO for the firm, introduced me to Jack Ma, he said something that struck me as very interesting.
He said that his definition of success of a sustainable competitive advantage for his company to survive would be that if he lasted for at least three centuries, since he started the company in 1999, it would need to last for at least 102 years in order to do that. When he said that, I said, "Well, that's great because our company has been spanning four centuries." We were started in 1799 by The Manhattan Bank. I think what's even more interesting is when I look at this business in Asset Management. We have had families that have spanned three centuries of being clients of our bank, that is the sustainable competitive advantage of this firm and this part of the firm, which is very difficult to replicate.
The job of leading this investment franchise is to continue this relentless focus on the investment performance, continue to invest in the best people, the market leading products, create continued efficiencies in each of our processes. To make sure that we have the world-class infrastructure that we need to be the gold standard in this business so that clients will continue to entrust their assets with us. How have we been doing for shareholders on this front? We lay out a number of different guidelines that we intend to hit year in and year out over business cycles. The four main ones here are on the page for us. The first and foremost is client assets, which is clients voting with their feet.
Our target is 7%-10% of our asset base, we have been continuing to grow at that pace over the last three years with an 8% compounded annual growth rate record number of long-term Asset Management inflows per quarter. We think it's the longest standing track record of anybody in our space. Revenues and pre-tax income this year were balanced with a heavy focus on the controls agenda. A little bit slower pace than what we have laid out to be over a business cycle, but still within target on the three-year average basis. During the year, an incredibly strong partnership with each of our regulators around the world to make sure that we are setting the gold standard, we're happy to sacrifice some pre-tax income along the way to make sure that that is there for the many years ahead.
That is still, with all of that, delivering an ROE of 23% this past year with a target of 25% plus. I want to just take a few more statistics and go through 2014, which was, in a nutshell, another record year. All the green circles are records. I would just draw your attention to three numbers. Number one, client assets now up to $2.4 trillion, 7% CAGR over the past five years. Number two, revenues of $12 billion, 8% CAGR, and net income of $2.2 billion. I will also just draw your eye to the middle of that page where it talks about the banking that we do in global wealth management, that being deposits, loans, and mortgages, each of them making us a sizable bank on our own in the private banking space, and all of them having double-digit compound annual growth rates.
I think the best story and the story of leverage and where we're headed for the future is really the bottom. If you look at the bottom, this is where we invest in what we believe is the best talent. The talent we hire, we train, we cultivate, and we bring them on the J.P. Morgan platform to do business in the J.P. Morgan way. Not only are each of those growth rates, private banking client advisors, institutional salespeople, as well as our fund wholesalers, you can look at all those compound annual growth rates and say, "Well, that's great," but you can't tell if they are great. Each one of those numbers right under it is associated with an increased productivity over that same time period.
I think that those are the numbers that are worth pointing out and thinking about as you think about the leverage for the future. None of this, however, happens unless you have that strong investment performance that I talked about. Our franchise is built off of that. If you just look at things like equities, over the past five years, 87% of our mutual fund assets have outperformed the average peers. I think it's notable that the U.S. equity platform, 98% of what we've done has outperformed the peer average. Things like multi-asset solutions, that is the place where you need all the building blocks to be working in order to then piece it together from an asset allocation standpoint for clients, continues to have tremendous performance. Our target date 5-star funds have 100% of beating peer averages.
Of course, our alternative and absolute return platform being one of the largest in the industry, having a very broad set of returns, especially in the hedge fund space. Those products in and of themselves give you a very wide range of things that you can go out to clients with. That will afford you the ability to have a very sizable sales force. I've shown you this chart in the past. I've done it a little more granularly this year. Not only have I shown you each of the different product lines, fixed income, equities, alternatives, et cetera, but I've also shown you each of the years and each of the sub-segments within global wealth management and global investment management. What this page tells you, forget about all of the individual boxes.
What it tells you is you don't need to be firing on all cylinders at all times for this business to continue to be a high-growth business. Just look at the middle of the page, 2013. Everybody knows that the fixed income industry had a tough go. Lots of outflows in the industry, and we had a bit of it ourselves. Our equity platform ended up being the number one active equity inflows for the year globally. The same is true in 2014. Latin America and even a little bit of Asia, after having some strong inflows over the past years prior to that, had some net outflows. EMEA, we had the number one record in active inflows in EMEA, that also caused us to be number one globally in active flows.
This is the page that shows you how you can get to $100 billion inflows per year and not be reliant on any one product area or any one region. Let's see how that stacks up against the competition. We look at this versus our peers. We don't need to focus on who is who here. You will see this is just like those periodic tables you look at as investors to see which segment of the markets is doing well in any one year. We are not number one in any of those years. We are the top five in all of those years. We are in the top five in all of those years.
Cumulatively, just like a properly diversified portfolio, we are number one on a percentage of asset growth across these different competitors who are the publicly traded reported managers out there. The same is true if you look at that on a dollar basis. Same chart, just different statistics on an absolute dollar basis. Here we are in the top three over each of those five years. Again, you do not need to be number one in all of those years to be number one cumulatively. Cumulatively, this is the stat that Marianne had on one of her first pages. That is from leading investment performance leads to leading investment flows, and those leading investment flows should hopefully give you very strong financial performance. Let's just take a look at that.
If we go to the combined Asset Management and Chase Wealth Management page, we have, in order to have like-to-like comparisons with our competitors who include their retail wealth management, we have included Chase Wealth Management here, where the private bank provides the intel inside for the investments platform of what Chase Wealth Management does. In a publicly reported space, this makes us number three in assets, number four in revenues, but very importantly, and the line that's most important for shareholders, number two in pre-tax income. With a 29% margin, which is healthy, but there's certainly room to grow. I think that that's a very important thing to know, that as I go through the next couple of pages and take a deep dive, you will see that there is plenty of room to grow across lots of what we do.
That's because of us being part of this great firm. I just want to take one second on this next page here for a moment. Marianne's gone through the synergies of the firm. We talk about the number of referrals from here to there, and I'm not sure that it ever resonates with any of you. I'm going to try a different tact here this year. I'm going to give you a real-life example of something that just happened in December. Okay? We have a commercial bank client. It's been a client of Doug Petno's for a very long period of time. It's had basic lending, some small business lending, and basic lending to the company, and basic banking for the company. It's had wild success recently.
The founder continues to talk to the commercial banker and says, "I don't know whether I should be going public, whether I should stay private longer. I'm not sure exactly what to do." That commercial banker immediately brings in Jeremy and Noah. Everybody goes by their first name out on the West Coast because everybody knows them like stars. Jeremy and Noah join the commercial banking coverage person, and they all go visit the client to talk about what? They don't know what. They don't know if they're going to talk about the personal balance sheet of the client or the company balance sheet of the client. Together, they come and explore what are the opportunities to help this client. They discuss whether if they kept the company private for a little bit longer, he needs liquidity. How do you get liquidity?
You do a second round of finance. We'll help you. We'll bring the debt capital markets people in. Noah calls them from New York. They fly out. Then they try to figure out how much should I sell of my shares in that second round. There are small business initiatives that if you are a private banker, you know this quite well, that if you only sell a certain amount of shares, you can have a different capital gains rate tax, and you can maintain much more of the company that way. We go and we work on structuring a lot of that from the private banking side in order for them to continue to keep that company going and staying public longer. The founder and a couple of the senior executives are getting liquidity.
They get a lot of liquidity, and it's the first time they've gotten liquidity. Now they want to buy a house. Guess what? Mortgages require you to have cash flow. You go to JPMorgan, and they help you with very sophisticated jumbo mortgage structuring, where you are able to figure out your entire balance sheet. Plus, you want to keep it very confidential as to who you are. We structure it in a way that's not transparent to the marketplace. We are ensuring that we're also helping you think about when you might go public. We set up a Delaware trust structure for you. We think about grants for your kids. We think about all of those very important pre-IPO planning structures so that you become a client of the bank for life. That is just what happens day in and day out.
Let me just tell you. It doesn't happen because we pay Noah to go pitch with Jeremy, or we give Jeremy credit to go bring Noah to the meeting. It's just the fabric of this firm. We don't pay people commission to do those things. We pay them to do the right thing for the client and the right thing for the shareholder. I just can't express to you that whether you walked into our Paris office, and it's happening with Carol and his team, or whether you walked in to São Paulo or whether you walked into Austin, Texas, you would see that happen day in and day out. By the way, I would mention that those clients who are in the very highly sophisticated tech part of Silicon Valley think that Gordon's apps are the best in the banking world.
We use them as tests. Let's just take a little bit of a deeper dive into investment management, the two sides of the business. Global investment management for a moment. Global investment management, the title says it all. This is where you have to have the foundation of investment capabilities. Not only is this the place where we serve some of the largest pension fund, sovereign wealth funds, and central banks of the world, but it is also where we are the largest, fastest-growing mutual funds manager now today. You can't do that without having great investment talent. The two numbers that are most important on this page is a network of 600 portfolio managers, but they need to stay to deliver you long-term track records. You can't have them come and go.
The retention rate of 96%, 95 is our target, and has been 95 since I have been measuring this number, is the most important thing that Daniel touched on paying our people for top performance. It's never more true than in this area, where you need to pay people to make sure that they stay and continue to want to deliver you, which they have. If you do that well, you can double your assets over the course of the past several years and continue to reinvest across the space, not only in places like technology, but also in the last section, which is really the research component. We spend a quarter of a billion dollars a year just on research in investment management. That helps us to give clients more than just their investment returns, but things that help them with their overall asset allocation thinking.
There was a mention on one of Marianne's slides, we didn't get into it in much detail, about the market insights app. This is an app that we provide to each of the financial advisors, thousands of them around the world, where they can use our insights and expertise out, and those pages they use with millions of their clients, end clients around the world. It's a very powerful multiplier of getting our research and help to those FAs to be able to help their clients with overall asset allocation. You can't do that without strong investment performance. I'll just take equities as an example because this is near and dear to everyone's heart. Active management. Does it work? This room better hope. It has been a troubled space in the U.S. market.
In fact, only 23% of active managers in the U.S. over the past one year, or 28% over the past three years, have outperformed the benchmark. There's just a lot of people that have either older models or things that don't work. The story is very much the opposite of JPMorgan. 70% over the past one year, 81% over the past three years. That is why we have been number 1, 2, or 3 in active management flows over the past three years, and why we've gone from number 8 to number 6, with still a great deal of room to grow. The same story is true on the fixed income side. If you've heard me for the past several years that I've been up here, I've talked about the fixed income turnaround. That has continued to work.
Our market share has gone from 7 to 5, and our flows continue to be in the top 4 for the past several years. These are very important building blocks and where I think the industry is going, which is much more in the solution space. Yes, some clients still come to us for things that need to beat a particular benchmark. More and more clients come to us for goals-based investing. Help me with income, help me with retirement, help me with my college savings, all of those sorts of things. Very few firms have the demonstrated expertise in each of those building block components to be able to say that I'm the right one to then help you put it all together, asset allocation over many years. That's embodied in something like what's on the middle of the page there, Smart Retirement.
Smart Retirement pulls all of those things together. This is our suite of five-star funds, where we generate anywhere from 100 to 200 basis points of excess performance. Just a week and a half ago, we won Morningstar's Allocation Fund Manager of the Year in the U.S., which we are all incredibly proud of Anne Lester and her team for doing. I just want to point one little thing out on this page, just keep it in the back of your mind. You see those little circles up there? These are great funds. We're very proud of them. They're all quite sizable. They're nowhere near the largest competitor in their space. There's tremendous room for growth if we continue to deliver on our investment performance numbers. The institutional market is no different.
The institutional market, when people think about this, you think about the second to last set of bars there, the defined benefit segment. You say, well, it hasn't been growing that much because this includes market growth. If you can deliver each of those building blocks and be able to put them together from a solutions-based standpoint, you will be able to gain market share in each and every one of those segments. Not only have we gained market share within the defined benefit segment, but we have also done it in what we think are the more exciting, higher growth areas, like the energy and effort we've been putting with Matt Molloy and his team on the insurance side, or with the endowments and foundations group, where they continue to have really outstanding growth.
We still have only a 2% market share out of this $28 trillion market. Each 10 basis points worth of additional market share is the potential for an extra $100 million in revenues, and we are doing a great job of trying to go after that. The funds business is a very similar story. Five years ago, I asked George Gatch to take what were a bunch of disparate funds businesses regionally around the world and create, for the first time at J.P. Morgan, a global funds business. Since he has done that, he's taken our senior sales force from 188 to 284 and increased productivity. We have become number 1 in flows over the past two years. You can see that under the orange bars. Growing assets 120% over those five years. Our market share has gone globally from 1.7% to 2.5%.
Still a relatively low number that has a lot of room for growth. Every 10 basis points here also equals $100 million in potential revenue. A very impressive story, and the teams that we have on the ground do just a fabulous job everywhere around the world with the investment performance that they have to deliver. They also both benefit from our leading alternatives platform. Just to take a minute on this. We are one of the largest and, very importantly, one of the most diverse alternative managers around. Just last year, we had 35 different launches across global wealth management and global investment management in this space. Everything from pre-IPO tech funds run by Larry Unrein and team, all the way through to what lots of people are talking about, which is the liquid alts market.
I would just make three points on the liquid alts market. Liquid alts, in and of itself, is challenging to put those two words together. You need to do it very carefully and very cautiously. I would suggest you have three necessary requirements to do this well. 1, you need to have been able to pick good hedge fund managers over the years, of which we have been doing for two decades in our hedge fund of funds space. Number 2, you need to be a mutual funds manager to know how to provide liquid things into the marketplace, which we have been doing for many decades. Number 3, it would also be really helpful if you've ever run a hedge fund, of which we do.
All three of those things combine to set us up to be one of the leading growers of the liquid alt space, and we're very excited about the future there. That takes me to the second area that I just want to spend some moments on, which is global wealth management. Just pause for one second on the numbers on the top of this page. For the past five years, client assets have grown 60%, revenues have grown 50%, and pre-tax income has grown 40%. That is while growing our front office headcount by 25%, and very importantly, 75% internationally. I want to drop you down to the third section. The revenue per senior banker is 50% higher than the average of our peers. We have also increased productivity quite significantly over that time.
We do that because we do it for some of the largest clients in the world who make us highly efficient, who make us at the top of our game every day. We, two weeks ago, just won Best Global Private Bank from Euromoney. That may or may not sound impressive to you except for that it is the leading judge of private banks in the world, and it is a first time a U.S.-domiciled bank has won that award. I would also point out that our CEO, Phil Di Iorio, won CEO of the Year, which just shows you the depth of talent in this place of people that you probably don't even get to spend a lot of time on. How do we do that?
The private banking model is worth just spending a moment on because it is very different than what you might have come to know and think about in the wealth management space. We run the gamut of covering clients here, everything from the mass affluent through the Chase branches. You've seen them out there in the pop-up branch out there. If you haven't, take a moment at lunch, all the way through to the billionaires in the global private banking space. It's team-based. What we do in the private bank is team-based. The team goes out to talk to a client, just like I told you the story of Jeremy and Noah and everybody who go out. The team brings the client to the firm, not to the person going to pitch them.
The client becomes a client of the firm, the client needs the firm because generally, they don't just need one thing. They're complicated. They have a lot of stuff in their life. They need a capital advisor to help them with lending. They need a wealth advisor to help them with structuring. They need an investor to help them with investing, and they need a banker to be the quarterback overall. What that does is when you look at the bottom left and you look at the revenues by product, we do a lot with these clients, and each and every one of them have a high growth component to them. Altogether, 90% of what it is relatively annuity-based.
Very little of it is the traditional brokerage basis that you would think about, which does a very important thing on the bottom right, which is when we have lost a person on a team somewhere along the way, which happens from time to time, we don't have the clients leaving with the person the same way it would in a model where the client has come for the person. They come for the firm, that's also very important to the client. The client needs to know that a team will be there, not just for them, but for their several generations to come. That's a very important reason why they continue to give us so many assets. I just want to point out this chart on the upper left-hand side of this next page.
The private banking space likes to look at the percentage of clients' assets who are coming from bigger clients. $10 million is big for the industry. We have 86% of our clients coming from clients who have $10 million with us or more, where the industry has anywhere in the 20s, 30s, and 40s, who are very strong competitors. Within that number, 50% of the client assets come from clients who have $100 million or more with us. We are the absolute undisputed leader in the ultra-high net worth space, which takes you over to the right-hand side. The right-hand side is the market share for the entire private banking space, where we're only 4% in the U.S., we're only 1% in Latin America, and less than 1% in Asia and in EMEA. That is where the growth potential is.
The growth potential for every 10 basis points just in the international markets is $150 million. Imagine if you just grew it a half a percent, you would have an extra $750 million of revenue potential just in global wealth management, just in international private banking. How does this happen? Let me just give you one little more feel of a microcosm of what it feels like to be a client of the private bank. This is just an example of our alternatives platform, where we think about doing exclusive, customized things for our clients, depending on what's happening in the market cycle. I just want you to focus on a couple of things here.
Number one, we've been in this space for many years with Doug Wurth and Dave Frame running a great franchise that Jimmy Lee has helped us with over the decades, introducing us to a lot of these outside managers who have helped our clients to manage money. With those relationships, when you come out of the crisis of 2008 and you say, "Gee, the mortgage market looks really depressed, and I really want to get back into it. How do I think about it?" You don't know whether you might just be ending up owning those buildings and managing those buildings yourself. You don't know how it's going to end up. You can't necessarily go to a traditional asset manager.
We went to Jonathan Gray with our relationship with Blackstone, asked him to build something very customized for our clients, short tenured, high credit quality, and was a great CMBS recovery story for us and the client. When the markets got a little better, we thought that the China story was recovering. How do you do that? The China consumer is a very easy story for people to understand and something that we think is very exciting. We went to LVMH, we asked to partner with the L Capital private partnership group within LVMH, we created a customized fund to be able to have our clients invest in the consumer in China. You just look at all those examples, those are 28 examples since the crisis. Half of them were customized for our clients.
Two-thirds of them, our clients put over $500 million in each of them, and 80% of them were for J.P. Morgan Private Bank clients only. This is just a smattering of what it feels like to be a private client and be able to experience the kind of things that we think. It doesn't even include things like Ben Hess, who, after the last Investor Day, said maybe he would like to go onto the buy side, and since July, we have raised him a $1.37 billion fund, which he is managing quite successfully for our clients. Bravo. Lots of different and interesting things that we offer to our clients, and I just thought that that was an important part of bringing that to life.
Also, equally important is that in the private client space, we manage both sides of the balance sheet, and the lending side is a very important component of that. We are not constrained by a loan-to-deposit ratio within the private bank. We are part of this great global bank, which allows us to be a leader in the lending space and to do it with very strong credit focus. Fortress balance sheet is on the mind of every capital advisor and credit officer within the private bank, which is why even with 25% CAGR in the mortgage book and 17% CAGR in the loan book, you see the net charge-off rates at such a low level with 95% of what we do secured by collateral. Every 10% that we grow that loan book is an extra $70 million worth of revenue potential.
I don't want to end without spending a moment on expenses at the asset management level. I bucket them into three different sections, and they are very different for us, and just want to make note of each of the three. Number one, technology. Technology continues to grow. It stays as a relative steady percentage of revenues but grows as a CAGR. Within there are $hundreds of millions of BAU efficiencies we take out every year in order to then reinvest in things like cyber, automation, digital, et cetera. Under the covers, it's hard to see all of that, but it's a very important part of our growth trajectory, which will not change. We will continue to invest as much as we can digest in the technology space. The second is people.
Where and when we can find great talent, we will invest in them. We are not constrained to not invest in them, but we won't also just hire for hiring sake. We need to hire the right people who will do J.P. Morgan business, first-class business in a first-class way. That takes a long time to find those people, train them, cultivate them, and make sure that they are fit for purpose in front of our clients. The last one is the control agenda. We have been spending a great deal of time, energy, and effort on making sure that we have the world's leading controls platform.
Because clients continue to give us money as stewards of their wealth, they expect us to have the highest gold standard of a controls agenda, whether that's within the AML KYC space or whether that's everything that we do to protect their assets. I believe that that is a moat for us, for other competitors to be able to compete when you look at this amount of time, energy, and effort that we continue to put within this space, and I think it gives us a great competitive advantage. That number will probably peak as we get to the end of 2015. It will not shrink. It will continue to be a very important investment capability that we are incredibly proud of and our clients require.
If I bring that all together, and I want to just sum this up within how we reiterate what we do in this business. Again, it starts and stops every morning and every evening with investment performance. That's on the forefront of everything that we do. Because of that, our clients continue to vote with their feet and give us a record amount of assets. They do that, and we have to continue to invest in this business. When we do all of those things together, this becomes a highly predictable business and a very nice part of the growth story of the broader JPMorgan Chase. Last year, I stood up here, and I said, in three years from now, I will deliver you $15 billion in revenues, $5 billion in pre-tax, and $3 trillion in client assets.
I am reaffirming that in two years plus from now, I will deliver those numbers to you. This is a great business with great people. It is an invaluable franchise to the firm, and I think has a very great chance of capitalizing on a lot of the growth opportunities that I talked about. With that, I will take some questions.
Go ahead.
margins in the business are at 29%. They're below your long-term target, we've seen a lot of the asset management peers, the pure plays, report margins that have grown really substantially, especially over the last couple of years, viewed as almost peak. Obviously, control expenses are a part of that. Is there anything else going on, how can you bridge that gap? If it's control expenses, and that's just because you're in a SIFI, doesn't that put you at a competitive disadvantage?
No. It has nothing to do with the last part of your question. The 29% margin is not where we want to be. It's not where we think we can be, we don't manage the business to a margin. That's a byproduct of all the things that we think are important to do for the long-term investing. Don't forget, it's both a pure play investment manager and a private bank. That was embedded in Marianne's numbers where she talked about best-in-class margin. She had, I think, BlackRock and UBS Wealth Management up there as two comparable. The margin itself should naturally fall into the 30%-35% range. We're very comfortable about getting there relatively soon. All of the investments that we're making, we believe are the right ones to set us up for growth. The control agenda is for us.
It's for our clients to feel very comfortable that they entrust us with their assets. We are stewards of their wealth, everything that we do to protect those assets, to make sure that we're doing the right thing, that we think about suitability for the newer clients that come on in the different jurisdictions that we are around the world, to set us up for proper growth, not growth at any cost, is really part of the focus. We're very comfortable with where the margin is falling out, I reaffirm those margin targets for you.
Okay. One other one. The fiduciary standards for brokers, it's gotten a lot of attention recently. Is this a particular risk for salesforce, where the focus is on a proprietary product offering?
There's new rules that have just been announced yesterday by Washington that talked about whether there would be a fiduciary standard, and right now it's focused just to ERISA, like IRA accounts and the like. We don't know what the rules will be. We'll see how it falls out. I think if anyone is set up to deal with the fiduciary standards, it would be JPMorgan Chase, who's been in the business for several centuries. We're in good shape.
Gerard?
Hi. Thank you. Gerard Cassidy, RBC Capital Markets. Mary, can you share with us, when you look at the global wealth management business, what % of the earnings and revenues come from the high net worth side versus the mass affluent? Second, what % of your mass affluent customers eventually migrate into the high net worth area?
Depends on how they do in life. I think well, it depends on which range you take, but it's probably 30%-40% high net worth, and the rest ultra-high net worth. We count a client with the assets that they have with us. Okay? There's two different cutoffs. One is, how do you think about where a client goes? That's based on their overall balance sheet, whether they have it with you or not. We don't count a client until the amount of assets are with us. We segment them in different buckets depending on how much they give us, and quite a sizable amount of them give us quite a sizable amount of their wealth, that's why we happen to be the leader in the ultra-high net worth space. The movement is just a movement of the model.
First, there's within private bank, it just depends on how many people you need, how complex your life is, whether you have lending needs, credit needs. It doesn't really matter for your wealth. It matters about the complexity of yourself, but also the partnership between Barry and Phil within the Chase Wealth Management platform within Barry's world, and how clients move back and forth. First, there are clients that moved from just being a branch into the Chase Wealth Management space within a branch, within there, if they become more complicated, they can move into the private bank or back and forth. It's a very important part of the partnership across the firm, and something that we spend a lot of time making sure is as seamless as it can be.
Rich? No, nothing more. Larry?
Hi. Thanks. Larry Vitale, Moore Capital. I'm looking at the momentum numbers in 2014, and then also on a five-year basis, and specifically revenues relative to both overall client asset flows and long-term asset flows. The five-year numbers look a little bit better than 2014. It appears that revenues lag long-term flows, and 2014 appears to have been particularly challenging in that regard. What's going on with the revenues? Is it a price issue? Because it's just revenue, it doesn't look at the investment in technology and things like that that might affect the operating margin. Can you talk about this, Mary?
Sure.
Thanks.
Flows are a leading indicator of what you should have in the future, so those are very important for us to watch. When flows come in, they don't necessarily monetize themselves in the first year, so that's very important to note. The second thing is that revenues and pre-tax income, they were just a little bit lighter than what they would have been. People spent a lot of time focusing on existing clients and helping to remediate anything that would happen to need extra help as we went through the controls environment this year. Thinking about taking everything that's in your brain in terms of a client history and no longer leaving it there, trying to get it automated in a system so that should anything happen to you, the person, we have that history for as long as possible.
It's something that's very important in the private banking space, very important for the sustainability of a business, and something that we have happened to manage because we have a team-based approach, but it'll be even better when it's all in automated form. That's very much what we focused on a lot of last year. Again, we're happy to do all of those things because this isn't about a quarter or a year, it's about many, many decades of managing these clients' money. I think that's it. Okay. With that, I am going to turn it over to my partner, Doug Petno.
It's a tough act to follow. I will tell you the client example that Mary gave is happening literally across this franchise all the time. It's a great part of our overall story. Welcome, everybody. Let me add my thanks to all of you for being here today to hear our story. Really appreciate you being here, so thank you very much. I know most of you are very familiar with the commercial banking story. If you are, you know it's absolutely terrific franchise. You'll also know that the drivers of our success have remained exactly the same over time. For us, it really just starts with a complete focus on our clients. The business is aligned and segmented to best serve our customers. We have absolutely terrific bankers and underwriters in our markets. Those bankers are very seasoned. They have over 20 years of experience.
We have real competitive advantages, and I'm going to spend some time on that this morning. Our clients rely on our industry-leading, broad-based capabilities that other commercial banks just don't have. We can have deeper relationships with our customers in the commercial bank. We also take a patient long-term through-the-cycle view, and for us, it starts with picking only the best clients. We have a strong credit and control culture in the business. It's very much a common language across the franchise. Lastly, we have a clear, sustainable, disciplined, organic growth strategy in the commercial bank. In fact, since the time of the Bank One merger, we have tripled our loan portfolio over the last 10 years and maintained excellent and industry-leading credit performance over that same period of time.
Through all market environments, we've continued to invest, we've added bankers, we've added clients, and we've delivered strong earnings and strong returns. Hopefully you can tell we're incredibly excited, we're incredibly confident about the business prospects. It's great to be here today to talk about it. If we look at the business, if we first look at C&I, our C&I business is neatly tucked in between business banking and Gordon's CCB and the global corporate bank in Daniel's CIB. Middle Market Banking is run by John Simmons. John is here today, so if you have a chance to meet John over lunch, please do. It's great stuff happening in our middle market business. Middle market targets small, midsize companies, typically revenues between $20 million and $500 million.
We are active in 59 of the top 100 MSAs, a tremendous client franchise, over 17,000 customers nationally, and it's growing. We added close to 600 new clients last year. Our corporate client banking business, tremendous franchise. Our typical client uses over 12 products and services with us, typically more complicated capital structures, more sophisticated corporate finance requirements, revenues in excess of $500 million. As such, this business is very well connected with our investment bank. Both the middle market and corporate client banking teams are set up to deliver specialized industry-focused content and product capabilities. Both businesses are very well connected with each other. They're very well connected with our partners in the CCB and the CIB. Both businesses have outstanding client relationships and both businesses have tremendous room and runway to grow.
If you look at our commercial real estate businesses, we serve our clients through three distinct but closely coordinated segments. Commercial term lending, remember, we're the number 1 multifamily lender with $54 billion in outstandings. We have over 35,000 long-term real estate investor clients. This business focuses on stabilized properties and markets where we really like the underlying fundamentals. Since acquiring the business from Washington Mutual, we've continued to invest in our credit delivery, our customer experience, and the results have been fantastic for us. Our real estate banking team, to remind everybody, focuses on top-tier proven developers and sponsors, $23 billion in credit commitments. We significantly increased our efforts and focus in building and ramping up our exposure coming through and out of the financial crisis. The portfolio has grown 34% since 2008. Lastly, and importantly, community development banking. This business focuses on specialized lending for affordable housing.
Last year alone in 2014, we originated $1 billion in construction loans to build over 9,000 units of affordable housing across 90 communities in our markets. Together, our real estate businesses are unique, they're focused, and we believe they're designed to help us manage the cyclical risks in the market. We have a very seasoned team, and we're only targeting markets and underlying assets where we like the fundamentals. Hopefully it's clear to you that we have a tremendous client franchise. Over 21,000 C&I customers, over 36,000 CRE clients. Perhaps more important than the overall scale and scope of our customer franchise is the quality of our clients. Client selection for us is so important.
We actually train our bankers to pick the best clients, look for the best management teams, look for individuals that are reputable in their local markets, look for teams that share the same risk philosophy with us. They're in targeted or preferred industries with transparent operations. We believe this will lead to not just lower credit risk, but lower reputational and operational risk, and as such, a defined lower cost to serve, less onboarding, less compliance, less complexity, less monitoring expense. In some cases, we've made the hard decision to step away from certain clients, certain industries that did not meet our standards or where we really couldn't understand their overall operations. It's an absolutely no regrets move for us. We think it'll make the franchise much simpler and much more valuable over time.
I ask all of you, as you think about our client base, our customer franchise, and our performance relative to our peers, please know that we're not trying to be all things to all people. We're taking a very narrow focus of the overall addressable market opportunity. As part of JPMorgan Chase, we believe that there's no other commercial bank that has such a tremendous client franchise and the ability to deliver the number 1 investment bank, leading asset management business, comprehensive proprietary payments capabilities, and an extensive national branch footprint. Over half of our clients use our branches, 18 million transactions last year. They read our research. We hedge their rate risk, their commodity risk, their foreign exchange risk. We take them public, we follow them into international markets, and we bank them personally.
For the commercial bank as part of JPMorgan Chase, we gain significant operating efficiency due to the overall scale of the entire company. In fact, in 2014, our overhead ratio was 39%. Marianne alluded to that being among the industry's lowest. It is absolutely the case that our broad base of product capabilities and our substantial expense benefits by virtue of being a part of JPMorgan Chase drove this efficiency. If you put all that aside, the real reason and the real way I see absolute value in our operating model and our overall franchise model is that our clients and our customers tell me that they see it. Literally every day, clients are picking us because of our overall value proposition and because of the quality of the people.
The other reason clients are choosing us is that with a presence in 118 U.S. cities, we bring a local level of autonomy and decision-making in a very decentralized way. We have over 1,400 bankers across our markets, and they are deeply rooted in their communities. A great example of this is in the city of Detroit. For us, with the commercial bank, we have 60 commercial bankers there. Our presence goes back before the National Bank of Detroit in 1933. We've been doing a lot in the community there. As you know, our market manager is one of our best. He's been with the company for 35 years. Detroit is emblematic of our community focus. Great clients, great community, and real opportunities in Michigan and Detroit, in general, are one of our best markets. Let's take a step back and look at how the overall business has performed.
Picking up where we left off in 2013, 2014, we continue to see strong underlying business drivers. We added clients, we grew loans, we grew deposits, we grew revenues, and we grew our product revenues, all to record highs. All the while, our credit performance continued to remain very, very strong. Last year, we had zero net charge-offs. The combination of all of these things led us to earn about $2.6 billion and achieve our 18% through the cycle ROE target. This is a fact that we're very, very proud of in the commercial bank. We were able to achieve these results despite some very material headwinds, both market and regulatory.
The reality of those included not just higher capital, higher control expenses, higher liquidity costs, changing deposit economics, and investments we've made in infrastructure, but we've also continued to invest in the growth and the future of the franchise. While we still believe we have much work to do there, I'm completely confident we've adjusted the business to the new financial architecture, and we're actually even stronger for it. Much more discipline on pricing and margins, even more focus on expenses and operating efficiencies, and we very much value every single dollar of capital that we're deploying in the business. As Marianne pointed out in her presentation on deposits, we have tremendous earnings power embedded in our deposit franchise. This is enabled by the long-term, sticky, resilient relationships we have with our clients. The typical commercial banking client uses nine products and services with us.
They trust us to collect their receivables, pay their vendors, make their payroll. We have over 1,200 treasury services sales and support professionals around the country. Marianne did point out our focus on reducing non-operated FI deposits. We have our share of those, but we have our plan. As Daniel described, we have our version of that plan in place to manage around those and optimize around those. When all is said and done, we'll have a tremendous deposit gathering business, a tremendous deposit franchise with enormous potential to rising rates. Let's take a deeper look into the loan portfolios, starting with C&I. Last year, we grew our C&I loan portfolio $4 billion or about 5%. It's the fifth consecutive year of loan growth in middle market. Corporate client banking loans were up 8%. Our asset-based lending team had a record year.
Originations were up 28% or $4 billion. For us, much like in the prior year, very broad-based demand for loans. We did see some market share capture in our expansion markets. Overall, we're still not seeing sustained revolver utilization. Our average revolver is still about 32% funded. We really don't see that changing in the near term as our clients remain very liquid, and they're actually still very dependent on the long-term debt markets terming out some of their revolver fundings. There is definitely a lot of pressure on covenants and structure, but we're actively monitoring our new originations and actively avoiding some of the riskier financings that we're seeing in the market. Think small LBOs, which is a significant part of the market activity in C&I right now.
There's obviously a lot of pressure on price. I'll tell you, I don't think it's a total race to the bottom. We've seen spreads compress. That has stabilized, certainly in recent quarters. And we believe that our people, our brand, our overall value proposition de-commoditize our loan business for us, which is exactly what we're seeing. We've sustained very low client turnover in spite of our competitors' best efforts to compete with us just on price. If you look at our CRE businesses, they continue to be a growth engine for us. Very strong performance across all segments. CTL originations last year, so commercial term lending, originated $13 billion for the year, had a record fourth quarter, and outstandings increased $5 billion. Our real estate banking team, eighth consecutive quarter of loan growth, record $10 billion of originations. Much of this growth is coming from taking shares.
In fact, in CTL, 60% of the financings were new financings for the business. As we start 2015, activity levels remain robust. Our pipelines are full. In fact, commercial term lending had a record January. February feels equally strong. I will say importantly, across all of these businesses, we're monitoring originations very carefully, and credit terms continue to be very constructive, very strong, in line and better with our overall portfolio. We are watching the market carefully. Real estate's always going to be a cyclical industry, but we believe we have a model and a strategy that'll prove to be less so for us over time. As we think about our overall credit performance, we're very proud to show this slide. We're going to show this slide forever, and we've showed it in the past for several years. It's core to the culture of the business.
It speaks to the long-term discipline in the business, and it's a significant driver for our returns and the earnings in the business. What you will see is the substantial outperformance of our credit portfolio relative to our peer average through the crisis. Over this period of time, our net charge-offs were 62 basis points better than our peer average. In its darkest days, during the financial crisis in 2009, at our lowest point, our net charge-offs were a little more than 100 basis points and less than half of our peer average. Right now, net charge-offs in the business have stabilized in the low single digits. As I said, last year, they were zero, and our overall portfolio remains in terrific shape. We ended the year with very little stress in our book.
Even with the credit environment as benign as it is, we continue to monitor the market closely. We look at our portfolio from all different vantage points, test for accelerating interest rates, Eurozone exposure, government sequestration, among other things. As we are a leading bank to the energy sector, I did feel like we should speak to that this morning. First of all, the firm has a long history of lending to the energy sector. I personally ran our energy investment banking business for many years. We've been through a number of cycles. Remember, oil hit low teens in 1998. In 2008, oil fell hard from about 140 a barrel to the low 30s, and through all that time, we've stood by our clients, and our portfolio has performed very well. We have a very seasoned team.
We have a full team of petroleum engineers that are very much involved in all of our underwriting. We have about $6 billion in outstandings, 70% of which is to upstream E&P. That is almost all secure borrowing-based financing, and those loans are very well-structured, and the performance history there has been excellent through all market environments. We're going to continue to monitor the portfolio on an ongoing basis, on a name-by-name basis as well. We've also looked at our related real estate exposures and our exposures to markets that are affected to oil price and feel very confident in our underwriting and the credit outlook across the board. Another part of the market that we're watching very carefully is leveraged lending. We're obviously paying close attention to the multi-agency guidance on leveraged lending.
I will say we don't believe that guidance will alter our operating model in any material way. We're not actively or intentionally trying to originate any non-pass credits. I will say some of the riskiest activity that we are seeing are in small LBOs and private equity-driven recaps, and specifically the smaller end of the market. Think middle market. The best way we felt we could exhibit to you our relative level of activity in that sector was just to simply show you the Thomson Reuters lead tables for middle market syndications. If you look at the lead table on the bottom right, what you'll see is that Chase was number 1 arranger of credit for non-sponsor-owned companies, and we were the number 21 arranger for sponsor-owned companies. It's not often you'll come to one of these events and see somebody celebrating being number 21.
I can't even tell you if I can name 21 banks that are ahead of us there, but it's a directional indicator for you of who's in the market participating in these types of financings. It should be clear that we're actively avoiding some of the riskier financings in the market. We turn the page, talk about growth. For us, the strategy of growing the business is really simple. We want to add great clients, and we want to deepen those relationships over time. Since beginning our expansion effort in 2009, we've grown into 20 new high-impact markets around the country. We've added a presence in seven of the top 15 MSAs, 20 of the top 50 MSAs, places like San Francisco, Miami, L.A., Nashville, Washington, Boston.
Following the Washington Mutual acquisition, we set a $1 billion revenue target across these markets, and we feel like we're well on our way to achieving that. All in all, we're targeting 16,000 prospective clients. We continue to add bankers, clients, grow loans, grow deposits. In fact, 45% of our loan growth in the middle market last year came from our expansion markets. We're continuing to deepen these relationships over time. As an indicator, if you looked at our vintage 2010 client base, in 2010, those customers were earning about $140,000 per year per client. That same set of clients is earning three times that. We're winning the business from the best clients. We're hiring the best bankers. We're building brick by brick, market by market. We're going to take our time and be patient.
We think over time, this will continue to be a significant revenue driver for the company and for the commercial bank. Beyond expanding into these new geographies, these new markets, we are adding great clients through developing targeted and specialized coverage across several key industry segments. JPMorgan Chase has been a leader, sometimes for centuries, of covering certain industries in the economy. The commercial bank is actively investing to build out our specialized coverage models for technology, healthcare, food, and agriculture, among many others. Over the last two years, we've made significant investments and hired a significant number of new bankers and product specialists across these industry segments. The fundamentals in these industry segments are powerful and dynamic, and they're going to drive incredible value for these clients and for us alongside them.
For instance, in technology and life sciences, there was more venture capital raised last year than since 2007. In healthcare so far this year, half of the companies taken public have been healthcare companies. Our clients are going to need advice, they're going to need capital, they're going to need specialized industry expertise. We believe as a part of JPMorgan Chase overall. We're best placed and have the broad-based capabilities to best serve our clients. What's great about the relationships that we're adding in the business is that they're deepening over time. What you can see on slide 18 is that we're doing this in two ways. It starts by having the best bankers in our markets, and it starts by having the most robust product capabilities. Our results have been impressive.
Investment banking, card services, and international, we've seen strong revenue growth, all three products hit records last year. If you look at the bottom half of the slide, the big graph there, what's notable is there's substantial room to deepen these relationships. The graph at the bottom shows our market penetration across a select set of product groups. Remember, many of our clients use 15 and over 20 of our products and services. It's interesting to point out a lot of these products are long-term, sticky, resilient revenues that'll augment the returns on capital deployed in our lending business. If you look specifically at commercial card and merchant services where our market penetration, our client penetration's in the 20s, we absolutely believe we can double that, for example.
We think we can add over 500 clients in each of those products every year, we have lots of initiatives underway to do that. What really excites me on this page is if you look at the bottom part of the graph on the far right, corporate finance, our client penetration is 7%. For investment banking, even at that client penetration rate, it's one of our big success stories and one of our biggest opportunities. By increasing investment banking coverage, Daniel spoke to this earlier, we've been increasing IB coverage, we've delivered CB-only focus resources. We have elevated the standard of dialogue. We've elevated the quality of our coverage across our client franchise, this has driven top-line IB fee revenue growth of 13% per year since 2008. Just last year alone, we grew IB fees 18%.
This was amongst a shrinking industry wallet, the commercial bank now provides over 35% of the North American IB fees for CIB. We have a rapidly growing advisory practice, advised on 75 strategic transactions last year, we led over 800 syndicated loans in capital markets financings last year. As was mentioned, we hit our $2 billion target that we set in 2010, which means we've tripled our investment banking revenues since the time of the Bank One merger 10 years ago. Let that wash over everybody. It's a hyper-competitive industry. These fees are heavily competed for. Please don't expect us to always work in increments of $1 billion, but we've decided to increase our target yet again to $3 billion. Even with all the progress we've made, we think there's much more work we can do. We have lots of initiatives to get there.
It's all about expanded coverage, focused coverage. Another significant opportunity for us is in commercial real estate, just to continue to pick great assets and finance great quality properties. We expect the underlying fundamentals to remain strong. As you see, continued recovery in the labor markets, continued strengthening in the U.S. economy. We also think the overall market's going to present us with tremendous opportunity. $1 trillion of real estate maturities over the next three years. Our clients value our speed to respond. They value the fact that we're going to portfolio their loan, we're going to hold their loan through the life of their loan, they appreciate our full set of capabilities, that's why we've been winning business. Right now in real estate, we like where the transaction terms are in the market.
We love the overall market fundamentals, we have room to add to our portfolio. As we think about our business model overall and our ability to continue to generate strong returns, our ability to continue to compete even with higher capital, I will tell you that I very much love the hand we've been dealt. If you ask why, it all comes down to our platform and our model. Starting with our revenue prospects, we have deeper relationships. Hopefully, that's clear. We have more products, more services. We simply have more ways to do things for our clients. We also have a tremendous deposit-gathering franchise that drives real value and real earnings, and it will so even more when rates correct and normalize over time. In terms of our expense base, we've always had tremendous expense discipline. It's part of our DNA.
I've said before on this stage that it's like sit-ups. We don't wake up one day and do 10,000 and think we're good for the next two years. We do them every single day. It's part of our franchise discipline. At our current overhead ratio, we're 600 basis points better than our peer average. In terms of credit discipline, I've spoken to that as well, significantly lower credit costs relative to our peers. If you just simply run down that P&L, it should be clear how we have the capacity to absorb incremental capital, continue to invest, and to continue to deliver strong earnings and strong returns in the business. What does this mean then overall for our financial targets going forward? We've continued to make great progress, as I mentioned, on our growth initiatives, and that momentum is carrying into 2015.
Our market expansion, we're standing by our $1 billion revenue target. We've grown our expansion market revenues 57% on a compounded basis since 2010. I want to underscore that we're going to be very patient. We're going to be disciplined. There's no time limit set on this. We're not going to be dictated by the market. We're going to do things on our terms, but over time, we believe that's a very significant revenue driver for us. Investment banking, as I discussed, we're putting out a new $1 billion target. It's big but doable. Just continuing the hard work and good coverage. International. We have much work to do to get to our $500 million target. Year-over-year growth for us last year was 15%. The macro drivers behind this remain very, very powerful. Our clients are telling us that they're moving overseas in search of revenue opportunities.
They're moving overseas following their customers. Half of our middle-market clients think there'll be at least a 20% of their revenues will be international over the next five years. We believe we're the best placed commercial bank to serve those clients. In terms of expenses, we're standing by our overhead ratio target of 35%. It's going to be challenged near term as the revenue environment is challenging, as the interest rate environment is where it is. We have increased regulatory and control expenses, but it's the right long-term cost structure for the business, and we're confident we can be there through the cycle. In terms of credit fundamentals are as benign as we've all seen in some time.
You can't expect them to stay this way forever. We remain incredibly confident in our credit model, and you should expect us to have net charge-offs of less than 50 basis points through the cycle. They were significantly below that through the last cycle. Hopefully, we don't ever see a cycle that looks like that again. Finally, we're standing by our ROE target of 18% for the business. I'll leave you to go to the last page before I take Q&A. Just to wrap up, I'll leave you why we all come to work every day. Our goal is to build the best commercial bank by helping our customers succeed, making a positive difference in our communities. It starts with having a fortress control and compliance framework. You've heard that a lot this morning.
We're obviously going to be relentless around optimizing returns, expense discipline, operating efficiency, margin discipline, pricing discipline. We want to be the easiest bank to do business with. In terms of our people, 100% of our success depends on our people. We want the best. That's going to continue for us. We are always here to help our clients succeed. Be there with ideas, with capital, advice, stand by them through tough times. We believe if we do all of these things well, we'll deliver the same strong performance we have for all of you over the last several years. That's the commercial banking story. I'd be delighted to take any questions if you have them.
Mike?
The CEO of U.S. Bancorp, Richard Davis, says that he can price loans 30 to 35 basis points cheaper than the largest banks due to the capital difference. I heard what you said, that JPMorgan has good relationships. You sell a lot of product. You have a de-commoditized offering. I think using U.S. Bancorp as one of maybe several examples, I think other banks might be able to say that, too. How do you compete when others say they have a pricing advantage?
Just had a full page on that. That's the simple math. You have to look at loan returns versus line of business returns. He's right relative to the capital that they have compared to us. It all comes down to our expense base, our credit costs, and the broad range of products and capabilities that we have. We have very clear loan pricing tools for our clients. Or for our bankers. When one of our bankers prices a loan, it's fully capitalized at 10.5% capital. He knows exactly what the return is. He knows exactly what the incremental revenue and earnings he needs to achieve our return targets, our SVA targets. He also knows what the value of those deposits in that relationship are worth on a long term through the cycle way. We've operationalized that. You can see that in our returns.
Those returns have been sustained over time. We're putting our marker down as reinforcing that target going forward. He is right explicitly at the loan level. I would argue the difference emerges as you look at the overall franchise value and the ways we can help our clients and augment our returns.
Guy?
Thanks. Guy Moszkowski, Autonomous Research. The way you describe the CBCIB partnership, it sounds like there's actually a very significant organizational infrastructure in terms of dedicated personnel with capital markets and advisory expertise. Is that right? Could you help us understand how you differentiate yourself from Wells, B of A, and some of the larger regionals?
Really expected I'd answer that. It really comes down to client coverage. If you look at the graph I showed, we've increased client coverage. We added coverage on 1,000 clients over that period of time. We leveraged Daniel's infrastructure completely. We do have a dedicated advisory team for the Commercial Bank. We do have some mid-cap bankers scattered across the country. Day in and day out, a lot of that core activity is happening amongst his industry bankers. We're running all of that through his capital markets teams, his Debt Capital Markets teams, the loan syndication teams. It's pure operating leverage for both of us, really. Daniel has no loans and no capital against those clients, and I don't really have the full infrastructure that Daniel brings to bear globally in Investment Banking.
It's so great to have the J.P. Morgan business card and the market presence and the market dominance we have across a lot of these key products, a lot of these key industries. This is all about just getting that business card in front of more and more of our clients. The best thing it does, put aside all the fees, the best thing it does for me is a differentiated coverage. There's no other regional or community or even national bank that can have that kind of trusted advisor industry content, full capital structure discussion with a Commercial Banking client, and we're doing that day in and day out. You can sort of see it in the revenue opportunity that's presented itself.
Last question, Gerard.
Thank you. Could you share with us your outlook for you weren't too concerned about the energy portfolio, which is great. What kind of energy outlook would really give you some concern, aside from oil going to $20 a barrel or something like that, what would make you get a little more nervous about that portfolio?
We've stress-tested the portfolio. We look at sustained low oil and gas prices. Remember, gas has been at a low level for some time. There's a lot of offsetting mitigants. There are very few pure oil producers. A lot of these companies have diversified in natural gas and oil. Many of the companies are hedged. As I mentioned, a large part of our exposure is to the upstream segment. These are very well-secured borrowing base financings. The borrowing bases are reset every six months based off a forward price deck that reflects the current reality in prices. You're sort of ratcheting your exposure down over time as commodity prices are changing in the market. Those loans have performed exceptionally well over the last several decades. I think, as I said, in 1998, oil was at $10, in 2008, oil was in the mid-30s.
If oil stayed low for a long time, I think the service industry would have to contract dramatically. What this industry has proven is it's highly fragmented. There's always multiple ways out. I think it would promote a tremendous amount of consolidation. The other factor in support of the banks in the energy sector, you've all read about the enormous amount of high-yield credit that's been issued in energy. There's a lot of junior capital sitting underneath the banks right now. Billions and billions of dollars of junior capital. We're well-secured, well-structured loans, lots of junior capital, and a formula around a lot of our lending really lets us reset our exposure over time as commodity prices adjust. Guys, thank you very much. Enjoy lunch.
We're going to ask, actually go directly to lunch at 12:15. You have an email that has two parts. The first one is which room and which table number you're at. The second part is what we call a Chase Digital Experience. You will have the ability to experience our Ultimate Rewards platform and the specialized offers that we can do that are relevant to you and to where you are. In this case, it's going to be 5,000 points that you can actually convert to a cup of coffee, in case you are not caffeinated enough here. You can use that at Starbucks. It will work on the first floor in this building later today. 12:15 until 1:15 lunch and then back here. Thanks.
Excuse me, ladies and gentlemen. Today's JPMorgan Investor Day 2015 will resume at 1:15. Until that time, your lines will again be placed on music hold. Thank you for your patience.
Okay. We're getting started, people. Everybody, we're getting started, please. We're getting started, please.
All right, everyone. Welcome back. Good afternoon. If I could just ask us to close the doors at the back there. Thank you so much. Could we close the door up at the top there, too? John, come on in. Grab a seat. I get to ask you a question, John. Well, welcome everyone. Gordon Smith, CEO of Consumer and Community Banking. We were fortunate enough this year to secure the penultimate slot of the day, the after-lunch slot. I had to battle with all of my teammates to make sure that we were able to secure this prime speaking location. Those of you who stayed, I think it looks like most of you, thank you very much, and we'll go through the consumer businesses. We're going to do them in the same way that we did them actually over the last number of years.
Kevin Watters will join me, talk about the mortgage company, Barry Sommers, retail banking, and Eileen Serra, the credit card company. What we'll do is we'll just rotate up here at the podium, then we'll all come up and do questions. We're going to go on for about the next hour and 20 minutes roughly, then we'll hand over to Jamie for his closing. All right. First of all, let's start with the strategy. We've tried to lay out the strategy for the businesses within CCB under kind of six key areas. One, of course, is to continue to really focus intently on the customer experience. Our customers have choices. We want that choice to be with Chase. Reduce expenses.
I laid out some expense targets for you when Jamie asked us to put together the group of businesses under CCB in January of 2013. We'll update on where we are with those expense initiatives. To continue to simplify the business, and I reiterate at this point that our simplification efforts as they relate to revenue are largely complete. This will stay as a key point of our strategy for the next number of years as we continue to simplify processes, drive down our costs, and improve quality. Largely, anything that affects revenue is, as I say, largely complete. To maintain a strong control environment, which we've been doing over the last number of years, making, I think, some significant progress. A lot more work to do. Now we're moving into a cycle of investment in automation for all of those controls.
You'll see what we're doing with the digital strategy, and I'll give you some examples of that, but I think a significant opportunity for all of our businesses to improve customer engagement, improve the customer experience, and drive down costs through the plans that we have in place for digital. Eileen will talk a little bit about payments innovation. I think it's, and I won't go through the entire list, but if you just look through this list, I think it's an incredibly powerful franchise that we've been able to amass under the Chase brand within Consumer and Community Banking. If you just run your eye through them, we have a relationship with almost half of all U.S. households. We're an incredibly strong player in the payments industry, number one credit, number one debit card issuer. A strong player in the national lending space.
If we look at the retail bank, our retail branches are in the highest growth, most affluent segments of the U.S. An incredibly strong franchise that would just be almost impossible to replicate, I think, in today's world. Let's take a moment or two and talk a little bit about the performance targets and how we've done since this time last year. For consumer and business banking, we're going to raise the return on equity targets to 35%. We gave guidance last year to 30%. We came in at 31% in 2014. We're raising that basically driven on two factors. One is continuing to drive cost out of the business, and the second is we would expect to see some rates over time. Just to remind you for this page, when Marianne Lake talked about actually medium-term guidance, that's kind of 2015 through 2017.
The target on the far right is our longer-term targets for the business. In terms of mortgage banking, Kevin will talk in much more detail about mortgage in a moment or two. Charge-offs at 41 basis points, not yet at our target of 0.15. That was 0.25, if you look at the small call-out box on the far right-hand side. We just see absolutely terrific quality in terms of the book of business that Kevin and his team are building. We think over the longer term, we'll see a really strong performance from a loss perspective on the mortgage company. Return on equity is at 9%, clearly not where we want to be. We think we can get over time, with a great deal more work to be done, we can get to 15%.
I would just say that if you look at the mortgage business, these businesses take time when they have issues. It's a tough industry, and we have a great deal of work to do. We'll get it done, and we'll build a really strong mortgage business. If we go back to 2008 and 2009, we had really difficult challenges in the mortgage business. Jamie will remind me on occasion that that business lost about $2.5 billion as it went through the cycle. We repositioned it, took it up market, launched new products, and got it positioned for a successful long-term future. We're doing exactly the same thing with the mortgage company today. Card services revenue margin was at 12%, the low end of our range. Net charge-offs this year at 275.
Through the medium-term guidance at 3, expect 2015 to be a little less than 250 basis points of losses. Continuing to see very, very strong performance there. The auto finance business continues to perform well. A tough environment there in terms of pricing. We've remained disciplined, and I think continue to build a good book there. I'll talk a little bit more about auto in a moment or two. Marianne also mentioned the overhead ratio, we're at 58% for 2014. We're setting ourselves a new target, again, based on the cost of the expense initiatives that we put in place and expectations of rates moving upwards. We set the target of 50%.
To reiterate the guidance that I gave you actually in February of 2013, that we'll reduce expenses by $2 billion from the close from the full year 2014 through the exit of 2016, the entry into 2017, which is consistent again, with the numbers that Marianne had for you. As we've been doing these things, we've been, I think, aggressively growing the businesses. On the left-hand side of the chart, for those of you who are following on the internet, I'm on page five. Consumer and Community Banking average deposits up 8% compound annual growth rate 2010 through 2014. On the right-hand side of the page, a little bit of an inflection year for us last year as we began to see some slight growth in the overall lending portfolio.
Core lending, as you see in the call-out box, up 11, the total up one, as we began to see the impact of the run-off book of business having less of an effect on the overall portfolio. I think an important inflection point there. In terms of turning to page six, where we were on expenses. Starting at the top left-hand quadrant, we said expense reductions of $1.8 billion in 2014. We actually achieved $2.2 billion. We said we would reduce headcount by around 8,000. We were just over 11,500 on the full year. You can see how that breaks out across the businesses, and we split out mortgage specifically because of the challenges that we saw on the revenue side of that business. The most important thing is the overall guidance that we gave at the top of the page.
Since 2012, we've reduced expenses by about $3.2 billion. If you look at the headcount since we formulated CCB in the first quarter in January of 2013, we are down almost 30,000 people. Pretty substantial change. As we look at how are we going after the expense savings, Daniel made the point earlier today that each of these initiatives have people assigned to them, projects, follow-up, and discipline. We've arrayed our efforts around six major areas. The first thing, if you think about branch banking, roughly 70% of the expense of the branch is in the people. We have looked at how we're going to deal with the staffing model, what's the most efficient and effective way to staff a branch and of course, deliver the service that customers need. Secondly, how do we drive automation?
If you didn't have a chance to stop in at the, we call it the pop-up branch because it's not there all the time. Pretty ingenious, I think you'd agree. The pop-up branch, you'll see some of the automation, some of the use of cash recyclers, and so on and so forth. Digital servicing really is accelerating quickly. I'm going to show you some numbers on that in a moment or two. Control and process automation. How do we just kind of relentlessly look at every process that we have across the business? How do we figure out how to take the handoffs out and so on and so forth? I'll show you in a moment or two the real estate strategy that we have ex branch. Barry will give some guidance on branch size in his section.
Across all of the vendors that serve us, we are consolidating those vendor relationships that we have fewer, much more strategic, larger relationships. Those I would think of as kind of like six, if you like, major strategic themes that we have had in place now for the last roughly 18 months. They're building momentum. We're self-funding all of the investments that are required to make these things happen. We're also just focusing very much on the day-to-day, the discipline I think of as running the company. Over the course of the last two years, travel and entertainment expense is down about 30%. We even go through and we look at every single phone line, and we look at who's actually using the phone, what type of volume is there.
We've taken out about 20,000 phone lines that were being billed for that weren't being fully used. As part of the T&E, for people who travel frequently, we put telepresence screens, video conferencing screens on their desktop. We measure as to whether they're being used or not. If they don't get used, we take them out. We use that to drive down. By the way, hotel nights are down. I'll get to you in a minute. We've taken about 25% fewer hotel nights for CCB employees. We do have actually one employee who does travel frequently, does stay lots of hotel nights, and doesn't use his telepresence system very much. Let's just, in the interest of confidentiality, call him employee number 1. We're watching him.
While we're talking about him actually, black car usage since January of 2013 is down 40%. I think you could argue that I am now become the black car patrol. Although I am somewhat skeptical that perhaps Jamie's just given me that task on Park Avenue during the winter months, and I think we'll expect to see him back in the spring. Anyway, all humor aside, I think the key behind all of the expense targets is just meticulously going through any waste, driving it out of a company of this size, and then having the major strategic themes of focus, the way I would think about it, on structural expenses. Actually, there could be somebody upstairs right now, Jamie, removing your screen as we speak. We turn now to kind of non-branch-based real estate.
As we entered 2013, we were in about 325 facilities. We'll drop that down to about 200 facilities, plus or minus, by the end of 2016. That's roughly about 6 million square feet that Matt Zames and his team are helping us to drive that cost out. It'll also just help us to have better efficiency with fewer buildings to manage. I think it'll improve communication and effectiveness more broadly. I'm turning to page nine and looking at some of the key unit costs. What we've also done as part of the expense initiative is to take kind of key unit cost data and then drive targets down for people, whether they're running call centers or whether they're running components of the branch infrastructure. You'll see, you can read them, but the kind of key unit costs, each have targets.
As we exit 2016, these are the savings that we'd expect to see in terms of percentage reductions in kind of absolute cost in terms of those key unit costs. Turning to page 10 on the simplification. We've substantially reduced the number of partners that we had in the credit card company so that we could focus on the large, strategically important and areas that we can invest and partnerships that we can invest heavily in. We've cut the number of mortgage products that we have almost in half. Almost in half, almost cut in half. Those products that we still have will represent about 98% of customer demand. Think about that. 50% of the products that we had historically meet in about 2%-3% of customer demand. When it gets to, Zames runs technology for the company, it gets to the technology folks.
They have to build the infrastructure, write the code, test the code, document the code on a whole bunch of products that are used very narrowly. All these just very specific examples of how you drive cost, and you see an example from business banking on deposit products on the far right-hand side of the page. Turning to page 11, obviously every year over the last number of years, we've talked extensively about the control agenda. We obviously have more work to do in that regard, but I think we have some really significant momentum. We have dedicated resources, organization structures in place to drive all the work that needed to get done, whether it was on consent orders or on business-as-usual activities. We've taken a whole set of steps, and you can see some of them there.
These are just by way of example to kind of de-risk the business. There's nothing wrong with these business segments. Other people may choose to be in them. As we looked at them, we thought that they were very expensive for us to be able to manage them. They were going to be large drains on our infrastructure. These are the segments that we decided to exit. Very small in terms of the overall magnitude of our customer base, but took a significant amount of work, particularly for Barry Sommers and his team to manage. I talked a little about automating and simplification. It should all lead to the right-hand side of the page with a simpler product set, with lower operating costs that we can see today, and constantly to reinforce a superior customer experience.
Leading to that on page 12, we've tried to stay intently focused despite all of the other change going through the business on the customer. You can see that we've been making steady progress across every business. It isn't just on net promoter score. Net promoter score is for those of you who aren't familiar with it, is would you recommend to a friend? But also in areas like J.D. Power, and you'll see some of that in the CEO presentations as they come up. As I move to the right of the page, if you look at the key businesses all showing between 10 and 14 substantial improvements in attrition. I know from your models, that's a hard thing to put in.
To give you a sense of it, if we had had to acquire the additional customers that we saved from these improved attrition rates, it's about $250 million. $250 million we're able to put to work on other things or deliver as expense savings. As we look at the quality of the relationships that we're building on page 13, if we took the check, start on the left-hand side. New checking accounts in 2010 compared to the 2014 vintage of checking accounts, almost twice the dollars in those checking accounts. A much higher overall quality of new customer acquisition. On the credit card company, we use a proprietary scoring model to size wallet, about a six percentage point improvement in wallet size.
We also continue on, as I say, on page 14, to drive more products and services into each household, up from 7.2 in 2010 to 7.8 in 2014. If you look at the right-hand side of the page and you look at the Chase-branded credit cards, Eileen gets fully a third of those cards from the retail branch network. If you look at Chase Paymentech, I'll come back to this business kind of in a moment or two, 70% of our new customer acquisitions come either from the branch or from Doug Petno's sales force in the Commercial Bank or from Daniel's team in treasury services. Very powerful franchise there. If we turn to page 15, we're going to look at digital logins on the left-hand side of the page. This really is a major change that's permeating all of the businesses.
Number of logins up 26%. This is at the household level. Okay? This is at the household level. If we look at the number of calls we have coming into our call centers at the household level from 2010 to 2014, calls are down 3%, teller transactions are down 3%, to the left-hand side bar chart, customers are self-serving. If you look at the middle chart, when we first launched Ultimate Rewards, actually we had a pretty good split between kind of online and phone redemptions for that business at roughly 70/30. You can see what's happened from 2010 is that the 30% of customers who called us to redeem has now actually roughly been cut in half. Looking to the right-hand side of the page, just to give you a little bit of a sense of kind of magnitude on unit cost.
It's about $0.65 for a teller to handle a deposit, about $0.08 for us to do it through an ATM, and it's actually a little less than $0.03 for us to do it via quick deposit. These trends are giving us, I think, enormous leverage as we focus on both the expense and on the customer experience side. If I think about kind of bringing the digital strategy together, there's really kind of four pillars, if you like. Improve the customer experience. That's going to be a foundation stone of everything that we do. Simplify originations of new customers. As we bring new customers in to the franchise, can we do that onboarding in an online and digital way? A great deal of work underway in that. As we speak, develop simple, safe, and secure payment alternatives.
Eileen will talk a little bit more about that in a second. Of course, help drive down the cost structure. I'm turned to page 17 for those of you following online. Merchant processing volumes, Chase Paymentech, we go back to 2010, at just shy of $470 billion worth of merchant processing volume. That's up 80% as we exit 2014. Up 80%. If you think a little bit about, we had a joint venture with First Data Corp in 2007, we had the opportunity to separate. We owned 51% of that enterprise, they owned 49%. We took the opportunity to split that business apart, leave First Data with their component, to effectively go our own way. We're now, as you see in the call-out box, actually 18% larger than the combined business was back in 2007.
Through that period, we've invested heavily to get down to one platform. Marianne had these statistics, in terms of our growth relative to the industry, that you see on the right-hand side of the page. I said I would touch on auto finance a little bit on page 18. End-of-period loans up about 13%. Loan-to-values. Our loan-to-values are a little bit better, a little stronger than the industry. We're trying to stay very disciplined there. Bottom left-hand side of the chart, you'll see we are significantly stronger in terms of higher FICO than the industry. You will have read a lot, the regulators have focused on, are focusing quite heavily on subprime auto lending. As we go through our business reviews that we perform every month, we've seen in late fourth quarter of 2012, some deterioration in the roll rates of our subprime auto business.
We started to pull back on lending to that segment, started to do that in the first quarter of 2013. Since the first quarter of 2013, we've lost about 100 basis points of share in the subprime segment. That's been picked up by competitors, one, a large European bank, and they have suffered some consequences as a result of growing so rapidly in subprime. I use this as an example of which we'll look constantly at where we see the returns, what trends we're seeing, and if we think it's appropriate, we're just going to dial back in certain segments for certain periods of time. It doesn't mean that at some point in the future, we may not go back into this with a little bit more energy, but we'll pull back where we see risk.
On my last slide, before I hand over to Barry, I think that as we look at the metrics for the business, and you can run down the right-hand margin, just very strong growth. We've been repositioning the business for the future. We've been driving out expenses. We've been focusing on the regulatory environment and still growing some very strong metrics. Deposits up 8%, client investments up 13%. Deposits in business banking up 12%. Just to point out in mortgage, 57% improvement in net charge-offs. Again, you'll hear more on that from Kevin. Just a very tough environment in terms of originations, kind of almost cut in half. Card service volumes growth still growing at 11%. Terrific credit quality. The merchant processing business growing at 13%. I think it's a page that just shows really strong momentum across the key business drivers.
With that, I'm going to hand over to Barry, and then I'll come back at the end, and we'll do Q&A. Barry?
Sure.
Thank you very much. I won't go off with the clicker.
Good afternoon, everybody. Thank you, Gordon. My name is Barry Sommers. I'm the CEO of Consumer Banking. Last year, we talked to you about a balanced approach. We were going to continue to invest in the business, acquire relationships and deepen relationships with our customers. At the same time, we see our customers changing, right? A rapid adoption of both mobile and digital capabilities, were going to give us the opportunity to run a more efficient business and drive down expenses. Very pleased with the results of both of those last year. Here are some of the numbers. Continue to grow households, 3% growth last year. Those households are giving us more of their money, both deposits and investments, and we've been able to achieve those results by being more efficient, less headcount in the branches.
Due to this, in a very challenging rate environment, we saw revenue in the consumer bank increase by 5% and net income increase by 17%. Solid results. It all starts here, with the customer. Without the customers, we don't have a business. We're reminded of that every single day. The chart on the left, Marianne showed it, but we like it so much, I wanted to show it twice. It just shows that we've had a transformational change in how we run our business. And you can see that big thick blue line is Chase, and that's exactly what you want to see with this line, just continual momentum over the last four years.
We're being recognized by third parties of being the best in class as far as large banks, but we're actually being recognized by being just one of the best in the industry, regardless of size. We're incredibly proud of the results around the customer experience. I think more importantly is not the results, but how we actually did this. Listening Post, 750,000 surveys, focus groups, listening to customers, listening to employees. The result of all that effort was 1,800 changes to our systems. 1,800 changes across the board. The process is, I think someone said, I think Doug said it, this was not a project. It's now in the fabric, it's in the DNA of this culture. Really pleased with the results. The chart on the right actually highlights what happens when you deliver a great experience. Gordon showed this.
Attrition in the consumer bank at all-time lows, down four points. While that number four may seem small, it has a massive impact. Four points in the consumer bank is equivalent to 1 million customers and a little over $15 billion in deposits. The customers are sticking around longer. As you can see, we've done an exceptional job of growing balances. On the deposit side, over the last four years on the DNI side, we raised almost $200 billion, two and a half times the industry rate. For the last three years, no other large bank has grown deposits faster than Chase. The way you're able to deliver those results, you got to do it two ways. One, you have to be really good at acquisition. Added over 2 million households in the last four years.
The households that are coming in actually look a little different than they have in the past. Balances are about two times larger. I also remind you that a significant part of the deposits that we're bringing in over the last couple of years have come from the branches that we've built over the last five or six years. This is important because about 30% of our branches are still in their high growth phase, we expect these balances to continue. I think equally important is how we did not bring in these deposits, just very good price discipline. As you can see, our core deposit rate is 8 basis points, and that's down from 15 basis points last year.
The other way you're able to get this kind of growth is you have to be really good at deepening relationships with your customers, that's exactly what's happened. Most of the money that we have brought in to Chase has come from our existing customers. On this journey to become their primary bank, we're turning accounts into relationships. Core relationships mean stable balances. I want to talk about the core relationships for a second, because from my perspective, it starts here, is the investment side. Last year, we talked to you about taking the Chase Wealth Management business, putting it inside the consumer bank because our customers didn't look at deposits and investments differently, we shouldn't. That's really created really interesting results. We've built a world-class investment platform. Similar to the deposit growth, the way you get this kind of growth is acquisition.
60% of the money that we're seeing come in, net new money in investments, are coming from people who had never invested with us before. That's a really good sign. When they do invest with us for the first time, a couple of things happen. One, they give us more money, not just investments, but they decide to consolidate their balance, make us their primary bank. We see a lift in the total of balances per customer. Not surprisingly, stick around longer. More important, though, is how we're doing this. Mary talked about advisors sitting down with customers, talking about a plan, retirement, college planning. That's exactly the process inside Chase Wealth Management. 3,000 advisors working with our customers for financial complex needs, putting plans together. What you see is about 70% of all investment flows are not going into transaction-based accounts.
They're actually going to advisory accounts. The chart on the right actually shows this journey that we've been on. 30-point increase as far as managed fee revenue inside the consumer bank. Stable balances. A huge driver of this growth, huge, is Chase Private Client. We've talked to you about this for years. About three and a half years ago, it was actually a pilot in 16 branches. We see here today, it's actually the core driver of the revenue growth inside the consumer bank. From my perspective, no better example of the power of JPMorgan Chase and Chase Private Client. I mean, just incredible partnership with Mary and her team on really us developing an incredible platform for our customers. Look what's happening. We have it in over 2,500 of our branches, which covers about 80% of the opportunity with affluent customers.
The real number that you should focus on is not the number of branches we're in, but the chart on the right. What happens to customers when they become part of Chase Private Client? Look at that growth. Over $43 billion of incremental assets from existing customers. That's what happens when you listen to customers and put them in the right type of product. It's not just investments. Chase Private Client is the full value proposition. We manage both sides of the balance sheet. Eileen and her team have done an incredible job at making sure we get the right cards into our customers' hands. Kevin's going to come up here and share just incredible success stories of when you step back and we developed a different mortgage proposition for affluent customers, different underwriting, different experience, and it's achieving great results.
As far as the opportunity, there's a huge opportunity that remains here. For the customers that are in Chase Private Client, we have about 35% of their assets. For the ones that aren't, we have less than 5%, a massive opportunity ahead of us with Chase Private Client. The results have been strong. I want to shift gears a little bit and just talk to you about our customers. They're changing. They are taking routine transactions that they used to do in branches. They're moving that towards digital and mobile. That's a good thing. They're also using our branches, and they're using our branches for advice. Take a look at some of these numbers. Gordon had some of these up there. It's just amazing what we're seeing. Mobile is becoming a very important channel. We're seeing app users up.
What's really important to focus on mobile is we've seen this over the last couple of years, that they were using their mobile phone really to check balances. What you should really focus on is what people are doing with their mobile device. We've developed a world-class app. Deposits up 25%, 45 million transaction. That's over 10% of our total deposits at Chase now happen on a mobile phone. It's not just deposits, it's payments through QuickPay and pay person-to-person, as well as paying your bills. Just dramatic numbers on mobile. When customers use digital technology, it's a good thing for two reasons. One, it helps you with their relationship. The chart on the left is really important. When customers engage digitally, they're much more likely for you to become their primary bank. It's really important. We looked at a control group from branch only, digital only.
The key is to actually engaging customers in both channels. That's exactly what we're doing. When you do that, they give you more balances and attrition rates go down materially. The chart on the right is an interesting chart. It's so powerful what we've seen. This migration from people who used to come into branches and do transactions with tellers in 2007, the shift that we've seen through last year. As you can see, ATM deposits way up and mobile deposits becoming a significant part, and this is real cost. We were able to lower our total cost by about 50% since 2007 on deposits alone. It's really good for our customers, and it's driving efficiencies. We're going to do a lot more. We're going to continue to innovate. Gordon pointed out our pop-up branch outside. I appreciate it if you go by there.
It's just a perfect example of some of the stuff we're working on. ATMs used to be literally cash dispensers. Now they're actually fully functional banking machines. We'll put more of these machines in our branches. The most important thing is these machines will be able to do a lot more. Today, they do about 50% of what a teller can do. We're on our way to making that number 90%, full functionality on our ATM machines, which is really important. Not just ATM. Obviously, I talked to you about our customers using our mobile functionality, continued investment in this area. We just raised the quick deposit limits in Chase Private Client, saw an increase of 100%. We're diligently focused on making changes around mobile.
One of the most exciting things in the pop-up branch is you could use your mobile phone now as a way to authenticate yourself at an ATM. Make sure you try that on your way out. We just think there's endless opportunities with the mobile phone. Our goal is come into the branch, get that mobile app, be fully digital when you leave there, view your statements, print your statements, do transactions on a mobile phone, not just limited to deposits. QuickPay is a really important part. On the payment side, the peer-to-peer payments are a very important part of the banking platform. We're really excited about some of the changes we're making in our QuickPay product that our customers are looking for. As customers change their behavior, it's natural that our branch operating model is going to change. That's exactly what's happened. Branches will look different.
They'll operate different. In certain areas, you'll see less people. In certain areas, you'll see less branches. I want to talk about all three. First, the lovely picture of the branch on the right. I remind people, the branch is the epicenter of the relationship. It's an incredibly important part of the value proposition for our customers. 90% of our customers visit branches, 70% of those customers actually come four times a quarter. What's really more important is what happens in there. You're right, transactions are migrating from the branches to the machines, but advice is not.
What you're seeing is you'll walk into a branch, there'll be less tellers, and there'll be multifunctional machines that can help you with your routine transaction and private offices where you can get the advice of a financial advisor, a business banker, a mortgage specialist, credit specialist across the board. They're looking different. They're changing different. Branches are incredibly important, not only for the consumer bank. I thought Doug talked a little bit about the visits that his customers make. I think more important than the visits, Doug will tell you, is we're in the communities. It's incredibly important not just to have a branch there, but just to be there. We're in almost all the communities Doug's in, and we're part of those communities. I think Mary would also tell you that the branches are an incredibly important part for her customers in the private bank.
This chart is very important. Gordon talked about, on the expense side, two-thirds of the expense in the consumer bank in the branches are actually the people. You really have to do this right. As a management team, we've shown you we know how to do this. We've taken staff down from 60,000 to 46,000. You could expect to see more of this. As the customer behaviors change and they move towards digital technologies, we're going to be able to do more of this, and that's a very big part of the $2 billion that Gordon talks about. You'll see less transaction volume, so you'll see less tellers, less assistant branch managers. What you won't see is less private client bankers, less relationship bankers. There'll be bankers in there to work with our customers to help them with their complex needs. The branch count.
Here's a picture of our branch count. We told you it would be stable, relatively flat this year, and that's exactly what it was. On the chart on the left, look at the new builds. Over the last three years, we've built 350 branches. Those are really important branches. They actually were really designed, most of them were in California and Florida to fill in after the WaMu acquisition, and they're doing incredibly well. We're watching these closely. The break-even is better than before, and it's just an incredibly important part of our franchise. What's also increased is our rate of consolidations. As customers' behaviors change in certain markets, we're going to be closing more branches. The chart on the right gives you a little guidance. Over the next two years, you should expect us, plus or minus, to close 150 branches per year.
I want to talk to you about how we think about this. The easy part is actually picking a branch to consolidate. I want to talk to you about our process here because it's really important. If you take a look on the left side of what's happened in certain markets where we have significant market share. In New York, Chicago, and Phoenix, we were able to close almost 80 branches and gain market share in these important areas. Able to close certain branches that were transaction-based and migrate them. Much more importantly is how we execute this playbook. We spend a lot of time on this, region by region, market by market, district by district, branch by branch, thinking about the customer. Thinking about the people. We spend a lot of time on thinking about what's the customer experience when you close a branch on the corner.
Because we're so diligent around this, our results when we close branches is outstanding, and we feel comfortable with this process. This is also very important. You never could lose that muscle on the ground to constantly open new branches, constantly refresh branches. New markets are constantly opening. Markets are changing. We have a full group of people who do this all the time. I don't think there's a better example, if you take a look at San Jose, it's a market that's changed a lot over the last couple of years because we have people who do this for a living and in the market and talking to bankers every day. This is an area where we increased our branches by 20 branches over the last couple of years and growing faster than anywhere in the country and doing better than anybody else.
Really important that we'll constantly think about, from an opportunistic perspective, opening up branches as markets change. Where does it leave us? It leaves us with a world-class multi-channel platform. Incredibly well-positioned footprint. We're in areas that are growing faster than national average and that are more affluent in the perfect areas. Couple that with this world-class innovation and technology. World-class footprint with world-class technology gives you this omni-channel that's delivering exactly what customers want, branches for advice, and the ability to bank where, when, how they want. In summary, we've delivered great results inside the consumer bank, and we'll continue to focus on what we did last year, invest in this business, acquire customers, and deepen relationships with them.
As this behavior changes, as customers' behaviors change, we believe that we'll continue to be able to take advantage of that and become a more efficient bank. Thank you for your time. With that, I'm going to hand it to my partner, my friend, Mr. Kevin Watters.
Thanks, Barry.
You got it.
All right. Kevin Watters. For the people on the phone, I'm on page 40. We're going to go through mortgage banking now before I turn it over to Eileen Serra to talk about credit cards. If you look at page 40, we laid out the strategic objectives for mortgage on the left-hand side, deliver a great customer experience, maximize our share of high-quality originations, improve the quality of our servicing book, and drive efficiencies. You can see we laid out the column for 2014. This is basically what we showed you in Investor Day last year when we told you this is how we're going to do this. Simplify our product set. I think Gordon highlighted this. We cut the number of mortgage products from 37 to 18.
Maximize our share of high-quality originations, I'll give you a little bit more detail on this in a few slides. You can see we increased the use of our balance sheet. In 2013, we put about 10% of our originations in our balance sheet. 2014, it was over 30%. We did, I'm going to focus a little bit in a few slides also, I mentioned we were going to make sure that we are risk-based pricing appropriately. You'll see the impact that had in some of our share across different product sets. Improve the quality of our servicing portfolio. Our foreclosure inventory is down significantly. You can see that went from about 170,000 down to about 93,000. Delinquency is down 130 basis points, which is good news, and drive efficiencies. In the mortgage business last year, we took out $2.3 billion of expenses.
I think we'd given you guidance last year of $2 billion, we over-delivered by about $300 million. About $700 million of that came through our servicing business. We continue to invest in technology to improve controls and operations there. If you look at 2014 results, you can see that revenue was down significantly. Remember, 2013, the size of the origination market was about $1.9 trillion. That dropped to about $1.2 trillion last year, had a significant impact on revenue. I also just want to highlight something for you. We had about $1 billion in things in 2014 that ran through the revenue line that we don't think will occur in 2015. As you're updating your different models, make sure you account for that. You see expenses I touched on already.
You go down the page, some of the key drivers, let me just highlight a couple of them. Originations volume down significantly, obviously, as the market was cut from $1.9 trillion to $1.2 trillion. From a credit perspective, this is good news, as credit losses went from about $1.1 billion to under $500 million. When you get this kind of dramatic change in the business where the origination market drops so dramatically, where we've got good news in the servicing side that the service portfolio is getting healthier, we want to make sure we're right-sizing our business. You can see in the last two years, we've taken about $3.8 billion of expenses out of the mortgage business. Headcount down during that same time, around 19,000. We didn't lose sight of the customer.
If you go back to some of those key strategies for the mortgage business, the first one is to make sure we deliver a great customer experience. You can see this is J.D. Power originations is on one side of the page, servicing is on the other. In the originations, we were up to number three in J.D. Power. You can see we've got a 2010, just as a benchmark, we were back at number 12. On the servicing side, we made a bigger jump than anyone else out there, all the way up to number two from the servicing side, from 13th to four. Even though we made all these reductions in expenses, we've improved our customer service in the mortgage business, especially when looking at our affluent clients.
You saw from the slides that Barry came up here and showed in the Consumer Banking. We've had tremendous growth around Chase Private Client. Okay? You can see this from a mortgage standpoint. The slide on the left shows our penetration of the people who got a mortgage. This is consumer bank customers who got a mortgage versus Chase Private Client customers who got a mortgage. Our penetration into Chase Private Client customers is four X. On the right, just to talk to you a little bit about how we've been able to build our brand. We went out and asked affluent customers, think people who make about $150,000 a year of assets of $500,000. We laid out these different brands and said, "Who would you consider for a mortgage?" Chase was the top choice.
We've got a strong brand that we're continuing to build, especially amongst the affluent clients. Now as we transition from 2014 to 2015, this is similar to a slide I showed last year. There's still a lot of regulatory change going on in the mortgage business. We started 2014 by introducing the new CFPB, the Consumer Financial Protection Bureau rules into the business. This year we've got new CFPB rules on RESPA and TILA. That's the Truth in Lending Act. They're going in August. CFPB has also just put out some thoughts and some new rules that are still in the comment period. You can read through here, Treasury's still making HAMP changes. The question around the future of the GSEs is still unknown.
Only point here is there's still a lot of change ongoing in the mortgage business. We talk about things getting through the cycle for the mortgage business. We're going to have to make sure we answer some of these questions. There are some additional headwinds in the origination space. We're just going to highlight a few of them for you here. Student loan, I think that one's been pretty well chronicled. You've got student loan debt over $1.2 trillion. The average student coming out now has about $27,000 of student loan debt that he or she is trying to tackle. You can see first-time home buyers is at its lowest rate in 27 years, and the percentage of cash buyers is still high. We've got some headwinds in the origination market.
When you look at what does that mean for the market going forward, we just took the average of the Fannie, Freddie, and the MBA's prediction in the mortgage market. You can see it looks like it's about $1.2 trillion in 2015 and staying around that size. You can see on the bottom, clearly the refinance business will shrink, and the purchase market really needs to come back strong in order for us to reach the $1.2 trillion level and stay there. Our focus, if I just go back to kind of the key tenets of the mortgage business around maximizing our share of high-quality originations. This chart shows you our share change. This is not an absolute level share, it's our share change. Clearly we've been growing the jumbo business. Okay?
Tied in as part is our relationship with the consumer bank and getting those synergies to grow that Chase Private Client and affluent business. You can see our share of the government business is way down. I mentioned risk-based pricing. Clearly we've priced this business, think of this as primarily the FHA business, based on the risk that we perceive from both originations and servicing. Because remember, when you price a mortgage, inherent in your originations price is the value that you place in that servicing. Default servicing continues to be very expensive. Okay? You can see our share has dropped significantly in the government business. As part of the jumbo growth, we're leveraging our balance sheet more. Okay? I think Marianne talked this morning about where is the growth in loans coming from, and this is one of the areas.
We put over 33% of our originations in 2014 on the balance sheet. What's maybe even more important than that is look at the quality of what we're putting on our balance sheet. The upper right chart talks about FICO. 2005 to 2008, the FICO scores were around 739. Look at 2014, that's around 771. Maybe more importantly, because it's the tails that get you in trouble in lending businesses, 17% of the FICOs were less than 700 in 2005 through 2008, and that's less than 1% in 2014. CLTV, that's combined LTV, so think mortgage and home equity. Okay? 36% of the stuff that we originated and went on the balance sheet from 2005 to 2008 had a CLTV greater than 80. Here again, it's the de minimis as we look into 2013 and 2014.
As a result, the real estate portfolio has hit the inflection point. You can see the non-core, and I think this was a question somebody asked earlier this morning, has come down. Notice this is, we gave you an average growth rate 2010 through 2014, for non-core and core. Obviously, if you look at the core business between 2013 and 2014, that's growing closer to 27%-28%. You've got the core business growing nicely while the non-core continues to run off. There are some origination headwinds. The good news is we've got some tailwinds on the servicing side. The number of underwater homes in the U.S. continues to decline. If we just go 2010 to 2014, that's down about 58%. Trough to current HPI, so home price increase is up 29%.
I think the Moody's forecast for 2015 is that'll increase another 4%-6% this year. Month of inventory, and I know National Association of Realtors, I think just updated their numbers this morning, it's at about 4.8 months. The good news is that continues to be low. If you were to go back and look over history, that's probably closer to nine months. Clearly, this is a watch item for us to make sure all of a sudden we don't see a surge of inventory, but we have not seen that. 30-day delinquencies across the industry continue to come down. When you look at our books specifically, you can see non-credit impaired first quarter of 2013, this was about 460 basis points, down to 2.7%.
On the right, charge-offs here again, 160 basis points in the first quarter of 2013, down about 41 basis points in the fourth quarter of 2014. Our PCI book, remember, this is primarily the Washington Mutual loans that we acquired. That continues to improve also. I think we've given some guidance. You would expect reserve releases over time through the NCI book. We think we're adequately reserved in the PCI book. A little bit of the quality of our servicing book. Foreclosure inventory then has come down significantly. You can see 167,000, then 93,000. 30-day delinquency rate, we're below the industry from that standpoint. Not surprisingly then, you can see our servicing expenses starting to come down. In the fourth quarter of 2012, it was about $873,000. This was 4Q of 2012.
If you look at that 4Q of 2014, excuse me, $560 million, $873 million down to $560 million. Now we had given guidance, we thought that'd be closer to $500 million. We did some additional servicing enhancements in our control and operational environments. We'll be at the $500 million range by Q2 of this year. How does this all come together? Production's feeding our servicing business. We're improving the quality of our servicing book. We think we've got a great brand, great distribution, a cost of fund advantage, especially in the servicing side versus the non-bank servicers. We can leverage our balance sheet to help grow our portfolio business. I'm just going to remind everybody, we've got some work to do, as Gordon said, to improve the ROE of the mortgage business. Expenses will continue to come down.
We'll continue to stay focused on the customer and deliver a great customer experience and continue to drive efficiencies. With that, let me introduce Eileen Serra, CEO of the credit card business.
Good afternoon, everyone. It's great to be here today and talk to you about Card Services. We have a great franchise, and I'd like to share with you the progress we've made over the last year. We've had a very consistent strategy since we repositioned the business many years ago, and the strategy continues to be quite effective. This page highlights some of the commitments we made last year on Investor Day, just to give you a snapshot of the progress we've made in 2014. We talked about business execution. Obviously, in our business, that's so critical. In 2014, we did grow our loan balances 3%. We maintained a very strong efficiency ratio and excellent credit.
In terms of delivering rewards, that is an important part of the proposition that drives growth overall for us, and we've made very good progress in the revamp of the reimagined rewards experience through Ultimate Rewards, as well as strong continued growth in our co-brand partners. Digital engagement, as Gordon mentioned, super important, higher customer satisfaction, better engagement, and lower cost. We continue to drive digital engagement in acquisitions and rewards redemption, and we really plow those savings back into our business so we can self-fund our investments. Lastly, on payments innovation, we did launch ChaseNet. I'll give you an update on that today. It's exceeding our initial expectations, and we did pilot a Chase proprietary wallet in the fourth quarter. Really good progress against our commitments last year. First, turning to the numbers. We see continued strong engagement for our customers.
End of period loans, as I mentioned, up 3%. Our sales growth up 11%, and merchant processing volume up 13%. We had a strong ROE, 23 above our target range. The decline from 2013 was driven by the difference in our loan loss reserve releases in 2014. We had fewer releases, as well as higher equity allocations that Marianne talked about earlier today. Charge-offs, very strong, down 12%, and we delivered $5.5 billion of operating profits. The one number that you see there that's down is revenue. I thought I would give you a bit more detail on what's causing that on the next page. If you look at our revenue, we have had some revenue drags that at this point are largely out of our business. I wanted to give you a sense of what those components are.
If you look at, and I'm on page 60 for those on the phone, in terms of the headwinds, we have been on a very explicit business simplification effort. We've exited some non-core products, and we also took a write-down on some non-strategic portfolios that we expect to exit in 2015. Those have been a drag on our revenue. They're in our run rates at this point. In addition to that, we've seen very meaningful opportunities to increase our acquisition in new customers. The premiums that we pay to customers as an offer get amortized through our revenue line. That is another component that you see in that A bucket there. I do expect stabilization now in the level of ongoing customer acquisition, so we're happy with the levels we're at today.
We do see also some yield compression. That's a function of the runoff of some of our higher rate balances as well as some compression from our change in mix. When I take a step back and what you can see in the revenue growth bar, the green bar, we are seeing revenue growth from increasing sales, increasing balances from the new accounts that we've acquired, as well as increasing share of wallet of our existing book. We're at a place now where I think the forward-looking value that we'll get from that multiyear investment strategy will really help us create sustainable growth. The other piece I would add to it is it's not just the revenue growth, but the quality of the revenue that we've brought onto our books through the last several years will make it much more resilient through the cycle.
Turning to our spend numbers. We have very strong performance consistently on spend. Our sales were up 11% in 2014 to $466 billion. It's been 28 consecutive quarters where we've outpaced the industry overall in sales growth. If you look back during that time, we've gained 500 basis points of market share in a $2.2 trillion market. For us, each basis point of market share is very, very meaningful. If you add debit, our sales over in 2014 would've been over $700 billion, making us the number 1 issuer for credit and debit share. 2014 was also a real turning point in terms of our portfolio growth. Despite meaningful growth in our core balances that you can see here in that blue bar, we have had a fairly large runoff of legacy balances, non-core, that had been a real drag on our growth.
We're at a place in 2014 where the growth in the core now has outpaced the legacy, generating about $3 billion of additional loan growth in 2014. This growth comes from the strong value propositions we have in our branded and partner products, as well as the consistent investment that we've made in acquisition and rewards. At this point, I think as you can see, the drag that we've had in that non-core portfolio is largely behind us. We have a tight focus on expenses in card. We maintain a very competitive efficiency ratio. Our total expense declined by 1% in 2014, even with significant investment in marketing, in digital, and controls. Our operating expenses were flat despite significant growth in sales, 11% growth in sales, 3% growth in loan balances, and 20% growth in new accounts.
The way we do that is by maniacally focusing on reducing our per unit costs. As you can see, our efficiency ratio remains low and our scale is a competitive advantage. As we look ahead, we're very focused on creating positive operating leverage while maintaining the investments that we need to make to grow the business. On page 64, a little bit more detail on our marketing dollars. We do continue to invest heavily in marketing. It's an important part of the card business overall. If you look just in the year that we acquired a new account, the accounts that we acquired in 2014 generated 41% more sales and 51% more balances than the accounts that we acquired in 2012. This did not happen just because we spent more money.
We did spend a little bit more money, we also are seeing much more efficiency from every dollar of our marketing investment. We feel really good about the quality that we're bringing on and the efficiency that we get from that spending. Our credit remains excellent. Our losses remain at very low levels and the rate of improvement, while slowing, we still see improvement year-over-year. Our full year net charge-off rate was 275, and our 4Q exit rate, the adjusted rate was 248, down 37 basis points from 2013. As Gordon mentioned, we expect the net charge-off rate in 2015 to be less than 250, and we expect the medium-term net charge-off rate to be less than 3%. We are also really focused on security.
One of the issues, I think, for consumers and merchants and issuers is security and fraud in the card industry overall. This is to give you a sense of both what we see from a gross fraud and a net fraud perspective. The net fraud is what actually hits our P&L. We have a very holistic approach to tackling this. In card-present fraud, which is the vast majority of our expense, we have embraced EMV. We have more than 15 million cards today that are enabled with chip. By the October 15 liability shift, over 90% of spending for Chase will be on cards enabled with EMV. We're well-positioned, well prepared for that change. In terms of card-not-present, the merchants incur more of that expense.
That said, that doesn't change our desire and interest to work with merchants to secure those transactions and to remove that fraud from our ecosystem. We believe tokenization is the right approach here, we've been working both, for example, with Apple Pay, which are tokenized, secure transactions, as well as Chase Pay, which I'll get into a minute, are also tokenized transactions. We're very focused on ensuring that we're prepared there to really mitigate card-not-present fraud. Then lastly, identity fraud, which is a small part of our expense, but an enormous concern for consumers. We're doing a lot of work here on multi-channel authentication. How do we use smartphones? How do we use information about what device you're logging in from? How do we look at biometrics?
What are all the things that we have, the new tools and new technologies today that will help us eliminate and mitigate identity fraud? Turning to rewards. Rewards are critical to driving customer engagement. We see that both in terms of new accounts, but as well as encouraging customers with existing cards to use them more often. We have 20 million cards today that are on the Ultimate Rewards platform, and that's the platform that supports our proprietary Chase-branded products. We relaunched Ultimate Rewards in November. It's a much more intuitive experience. We're using data from the customer's transactions to provide more relevant, more personalized content. It's using responsive design ensures that no matter what device the consumer wants to access, the site will render and they can do what they want to do in a great experience.
We do continue to see wallet share increases for those customers that redeem versus those that don't. We do continually look for ways to make redemption easy and simple for consumers. The benefit also that we're seeing is the increase in digital redemptions because again, it drives higher customer satisfaction, but it also drives lower costs. It's really a win-win. Digital acquisition still is our biggest channel and is growing year-over-year. If you look at the chart on the left, just to give you a sense of how fast mobile channels are growing. We're seeing both mobile, meaning tablet and phone, are becoming very significant in terms of how customers are acquiring new cards. It's the reason why we're investing so much to build out best-in-class mobile capabilities.
Our leadership position in our branded and partner products, as well as our strong presence in digital channels, has enabled us to capture over 40% share of all prime online applications last year. That's a very meaningful number for us, and it just continues to reinforce the importance of having great products and having great presence in these digital channels. The bottom part there in eStatements, it's not just about customer engagement. We are also looking at ways to drive more efficiencies. Obviously if you can do things to drive paper out of the system like eStatements, that helps us drive better cost efficiencies. Turning to our payment strategy. As the industry evolves, we're uniquely positioned to deliver these innovative payment solutions to consumers and merchants. ChaseNet is the underpinning of this strategy for us.
It's our own network powered by Visa that processes Chase Visa transactions. What's so important about it is it enables us to have a direct relationship with the merchant. The aspects of the value proposition around streamlined rules, around simplified pricing, and an ability to look at the end-to-end experience between the consumer and the merchant and create value add for the merchant has really resonated. The second part of our strategy is around wallets. While this is very important, it's still very emerging. Why it's important is now the use of mobile wallet provides an opportunity to create new and differentiated consumer experiences. While the wallet market is very fragmented today, we believe we need to be in everywhere. We don't want a Chase customer not to be able to use their card in any wallet.
We're supporting the different wallets that are out there. We're also building out our own capabilities as well. Again, what's most important to us is that consumers have choice, and they're the ones that make the decision on where they want to use their card. Barry talked a bit about what we're doing on the P2P space, so I won't get into that anymore here. In terms of ChaseNet, last year we were in the pilot mode at Investor Day. Since then, we are rolling out. We have over 60,000 merchants on the platform doing over $16 billion in sales on a run rate basis.
As you can see from this page, we have some great merchants that are engaged with us on ChaseNet, and the teams are continuing to get great traction as they talk about this proposition out in the marketplace. The other piece that we talked about last year was really our own proprietary platform. How do we think about a wallet and make it easy for a Chase consumer, because we have 50 million of them, to shop online, to use a mobile device with all they need to have is their Chase login credentials. We did a pilot in the fourth quarter with one merchant, and we got really great results in terms of learning.
What we found was the ability to use your login credentials, not to have to go through a whole separate step to get this put onto your phone, really made a big difference. People liked the seamless way to purchase, merchants also liked the fact that the consumer never left the merchant site. Unlike other wallets, where when you click on the wallet, you move away from the merchant, you come back, this all happens within the merchant site. Easy checkout, streamlined purchasing, secure transactions through tokenization, good merchant appeal. We're excited about the pilot. We had a lot of learning, we'll be talking a little bit more about that later in the year as we think through how do we roll it out. As I mentioned, we do want our consumers to use our products in any wallet they want.
We were an early participant in Apple Pay. It's early days. It's only been a few months since Apple Pay was launched in the market. We do continue to see good growth in the number of consumers that are provisioning Chase cards in their Apple Pay wallet. As you might expect, consumers that are using Apple Pay are younger, have higher income, the transactions tend to be more credit oriented, we see really good share of wallet there. Early days, still very much in the learning mode, we've been excited about the feedback we've gotten in terms of the great customer experience, we'll look to see as more merchants adopt. I would expect to see more traction here as well.
When I put the pieces together, we're looking at creating a very robust digital platform, leveraging the scale of our acquiring business as well as the scale of our issuing business, linked together with ChaseNet to think differently about how to integrate payments and loyalty in payments overall. When we look at the elements, we see four key pieces. One is the ability to pay anyone anywhere, make it really easy and streamlined, eliminate the friction. Provide better rewards integration. How do we make payments and loyalty much more integrated in terms of the purchase experience? Very simple redemption because we know redemption drives share of wallet, we know it drives high levels of satisfaction and more tailored offers. As we build out this digital platform, the key backbone for it is ChaseNet.
Without the ability of having this direct connection and this integrated platform, it would be very challenging for us to do this. I think we're really uniquely positioned to deliver this type of benefit to merchants and consumers. In summary, we have a high-quality franchise. We continue to deliver very strong results and have great momentum as we go into 2015. The strategy that we've laid out continues to work, but we're very focused on the execution piece and ensure that we're well positioned as consumer preferences change to innovate in spaces, particularly around digital.
As I step back and look at what we've accomplished, I feel really good about the size and scale of our franchise, the ability to look at the 50 million+ consumers that we have in our programs, the great scale we've got with ChaseNet, and I believe we're distinctly positioned to innovate in this space. Very proud about what we've accomplished in 2014 and very excited about the opportunities we have looking ahead. All right, thank you. I'd like to open it up for Q&A.
There we go. Excellent. Are you going to do the Q's then, Eileen?
I can do that.
Thank you, guys. All right, well, actually, we are out of time, but we're going to use some time for questions anyway.
Steven Chubak, yeah.
Hi, Kevin. This might be a question for you. One slide which I saw was noticeably absent was the breakdown of pre-tax income targets through the cycle across mortgage banking production and real estate portfolios. Just wanted to get a sense as to whether you're still committed to delivering on those targets or whether you're managing now to an ROE target exclusively.
Yeah, I think we're going to focus going forward on managing through an ROE target. The only thing I'd say, and Gordon had this, so we've given you near-term guidance at the 9%. We've given you expense guidance on servicing that'll be down to $500 million in the second quarter. I think pretty clear revenue guidance as we walk back the one-time items for the $1 billion. We're going to really focus on overall ROE, especially given the interaction between production, servicing in the portfolio as you just work through those different businesses.
Yeah, just to add to that, I think we gave pre-tax income guidance as a one-time event. We don't do that for the other businesses, and so we'll try and have mortgage be much more consistent with how we disclose each of the other businesses. Give you the pieces.
John?
What's happening with the ATM network? I saw the number of ATMs down 11%.
Yeah. You saw that come down a little bit. On premise, the number you'll see go up. It'll be around 13,000. We did exit a relationship with a third-party provider called Cardtronics. We had ATMs in certain areas as we filled in our branch network that we needed that we've exited this year. Those are third-party networks that you saw the reduction in.
Thanks.
Yeah. Just one thing to add to Barry's point there is those devices tend to be very basic cash dispensers type of thing you might see on the exit from a pharmacy. The devices which Barry's deploying across the country are the much more sophisticated ones you're seeing outside, can recycle cash, can take in checks and be kind of much more of a banking kiosk than an ATM. Mike. Oh, sorry, Sarah. Sorry.
No, Mike is good.
Should be keeping my eye on you.
You're reducing branches by about 3% per year, but then you also have these pop-up branches, and you're downsizing with the usage of digital. Do you have one all-encompassing figure that says you're reducing square footage in branches by X?
Yeah.
What is X?
Right. Look, we only have one pop-up branch. Mary said to me, I don't know where I mentioned, she said there was a Brinks truck outside 270 at the weekend. Why was that? We were delivering cash to the pop-up. That's just for you, Mike. That's your branch. If you look at the footprint's been relatively static over the last number of years, having grown quickly. If you look at the savings, the reductions that Barry described, that 150 reduction, that'll be about 1.7 million sq ft over the course of the next couple of years. In terms of a little bit more detail in terms of branches, if you think about kind of our larger branches in the more affluent footprints where we do much more of the wealth management work, those have been about 5,500 sq ft.
They're down to probably 4,500 with the new ones that we're building. In the geographies where we are doing just kind of much more kind of transaction-oriented activity, we've been piloting branches closer to 1,200 sq ft, and that's worked well for us.
When you add it all together, do you come up with one % reduction?
No, I would use the number of 1.7 million square feet over the course of the next couple of years will give you roughly the number. Think about overall as having 27, 28 million square feet right now. You'd add to that, and Matt had to leave. If you add to that, like the 6 million square feet that we'll take out of the non-branch infrastructure of the company.
Nancy
just shy of eight.
Hey, Gordon. Two questions. One, you're running ahead on your expense saves. Just wondering, is that a pull forward from 2015 into 2014, or is that an add-on?
I knew I'd get that question. We exceeded our target by about $400 million. We could have said today we've got $1.6 left to do of the two. Sure, I thought about that momentarily before I walked up the hallway to employee number one. We said, "No, we'll keep it at $2 billion." Effectively we'll overshoot the guidance, we'll exceed the guidance that we gave you last year.
Right.
Will we do more, is your follow-up question?
Yeah. You did 400 last year, so why not this year too?
What have you done for me lately, Betsy? Listen. The way I like to think about those things is go back to the strategy. It's rooted around doing the right thing for our customers. We'll do that. We'll continue to drive out waste. We'll drive the more strategic areas. If we see an opportunity this time next year, we'll tell you, and we'll adjust the guidance. Right? I would much rather be in a position where we give you numbers. You saw the, Marianne called them tick marks. You saw the check marks that we had on the slide. I think we've consistently delivered to you what we said we'd do. I'd much rather do that than give you another number before we deliver the one that we just described. More to come.
Paul?
Yeah. It's a question for Kevin, I guess. On the servicing book, I think you guys talked about last year shrinking your servicing book by $200 billion, mostly in the high touch default stuff. It hasn't gone down by that much. Is that still discussions to shrink that portfolio?
Yeah, servicing book was down for third-party servicing, down about 8%. You can see that on the slide. You'd expect the servicing book to continue to come down as that non-core portfolio continues to shrink. The performing part will grow as originations grow, and some of that will be dependent on the size of the market. We always are discussing ways if there's opportunities to also sell default servicing. We have sold some default servicing. We'll continue to look to do that in the marketplace.
Erika? Paul.
Some of the new regulations on liquidity and funding have clearly placed a lot more value on retail deposits. When rates normalize, do you expect that to accelerate pricing competition for retail deposits, or do you think that getting as many clients as possible in the retail consumer is going to be enough and more meaningful than actual pricing?
I'll make a couple of comments, then I'll hand over to Barry. Our primary mission is to be the customer's primary bank, and the deposits end up being an outcome of that. We haven't chased deposits with price. We've tried to chase deposits by delivering a really great customer experience and becoming the customer's primary bank. I would expect to see as rates rise, that the growth in deposits will slow, but really none of us know. Honestly, if you'd asked me four years ago, if equity markets were roughly going to double, would we have expected to see the type of momentum that we've continued to see in gathering branch deposits in Barry's business? I'm surprised honestly, that we haven't seen money diverted.
I don't really know the answer to it, but we're going to continue to really kind of focus on the core of banking. As I say, I expect growth would slow, but I wouldn't expect it to go negative. Barry?
The only thing I'd add is to your point about deepening relationships. About 45% of the deposits, these are core checking account customers. If you take a look at the savings part, these are customers that have been here for many years. If you've seen from some of the charts that we've talked about, and to Gordon's point, as far as becoming their primary bank, it's not just an account anymore. It really is a full relationship on the lending and investment side.
Kit, do you have?
Hey, Gordon. It's very impressive on the Consumer Bank, on the Mortgage Bank, and on the Card. Do you ever envision a point where you start to look at the consumer holistically like Doug does in his business in terms of rewarding the customer across all different products?
Yeah. We actually went back many years now, Eileen and I were together in the Card Company, and we built Ultimate Rewards. We initially designed it with a view that we might well start to offer Ultimate Rewards points more broadly. It's certainly an alternative. We've got a good platform there. It's something we're thinking about, but I've got no immediate plans to announce. It's an interesting thought.
A restriction from the systems perspective if you do it today, or you still have to make a lot of investments in the system to be able to see the whole customer relationship?
Yeah. We would have to make some investments. Not a huge investment, but we would have to make some investments in the systems to do that. Yeah. I do think you're raising a broader question, which is given the size of the businesses, there is a big opportunity for us to continue to drive cross-sell at an accelerated pace across all of these businesses. I think that's something for the future.
Guy?
Thank you. I just have a question about the new mortgage origination platform. First of all, just what's driving it? Is it cost-driven? Is it compliance-driven, or is it something else? Is it something that you're developing internally or using an outside vendor?
Yeah. The question for those who couldn't hear it, a little bit about the new mortgage origination system. Actually we turned it on to internal friends and family yesterday. A couple of people going through it. It'll be launched the second quarter in our consumer direct business. We'll continue to roll it out across consumer direct and retail through the balance of the year. Retire our legacy platform in 2016. I think we had mentioned it last year, it was actually part of the system that we bought, it was part of Quicken system. We customize it to JPMorgan Chase. It should drive both efficiency and customer experience are the two big drivers. We will get, as a result of this, being very automated, a better control and compliance is the output we'll also achieve.
It's really focused on being more efficient and delivering a better customer experience.
Great, thank you.
Jim.
Just the one last point that I would add to what Kevin said. One of the real challenges in the mortgage business is these surges in refinance volume that we see, which makes it really difficult for Kevin and his team to ratchet up people quickly. This will give a whole new set of workflows that will give him the capability to bring in many more people much more quickly on a temporary basis as we deal with refinance booms and then let those bleed back out the system in a much more efficient way.
Yeah, hi. Jim Mitchell from Buckingham. Just on the Chase.
Hello?
Excuse me. Sorry.
Sorry.
You've had some success on the ChaseNet already. It seems like there's real tangible benefits for the merchant in lower costs and other ways to drive consumer activity. It seems like to me that would be a natural extension to, if the merchants enjoy it, to get into the partner card business in a bigger way, yet you've shrunk that business over time. Does this change the way you think about it or am I not thinking about that the right way?
In terms of the private label business?
Natural extension.
Yeah
to go into private label with your ChaseNet business.
It's definitely possible. Typically, and Eileen, please augment here, but typically as we've looked at that business, it's been very transactional in nature, so kind of almost a one and done from the customer's point of view. It typically carries very high-interest rates in order to be economic for the card issuer. And so we just really didn't feel like it fit well with our relationship strategy. But with the right merchant and the right product, absolutely, we could think about that. But Eileen, do you
The only thing I would add is I think the value of ChaseNet, it would enable us to do something different. Just the straight-up type of private label product, as Gordon mentioned, is just not a great product given the customer dynamics. But if you could imagine that as just creating something very differentiated and just different, that would be something that we would definitely be interested in doing. Right now, that's not on our immediate radar screen because we've just been very focused on executing and ramping up ChaseNet and also looking at Chase Pay as a way to create more value. But that would be something we would put on our radar screen. Gerard.
Thank you. Gordon, you indicated that the average customer comes to the branch four times a month. It's about 17% of your customers. What is the typical reason that they come to the branch? Second, have you guys tried to optimize profitability? Have you tried to calibrate what is the right amount of times they should be coming into the branch?
Well, Barry had his mic quickly. Honestly, the way I think about that, I'll hand it across to Barry, is yes, we'll try and offer great products and service and guide customers to the way we'd like to serve them. The most important thing is that we serve them the way they want to be served. If they want to come into the branch, we want to be there. We want to have a branch, the right people, the right training, so we can do a great job for them, or they'll just go somewhere else. I think about it's a very delicate balance, and I'm actually incredibly pleased that the uptake that we've taken, that we've seen that customers take on our kind of mobile and digital capabilities.
It's really been astounding and someone, Betsy, it may have been you, had in one of the questions before, could you go in and kind of bank with no branches? Well, other than onboarding brand new customers where we've got more work to do, we largely have the infrastructure to do that. People still open accounts in branches, we're not there yet, but we are building the capabilities to make all these things possible.
The only thing I'd add is, just to Gerard, is about four times a month, it's four times a quarter. To add to Gordon's point, we've been incredibly pleasantly surprised. We don't force this on any customer. We've actually are trying a bunch of different stuff, including having our tellers, who are just incredibly valuable employees, help us think about this, right? Because they have a comfort level with the customers and helping customers understand these machines. We've made a bunch of different changes to the machines based on their experience. Again, to Gordon's point, it's just like we actually find that customers find that these mobile technology and digital technologies making their lives easier. From us, our perspective, it's customers like it's given us a chance to drive down the cost of transactions.
The other thing I would focus on is to answer your question of what's happening there. The investment revenue inside the consumer bank is now more than the debit revenue. I mean, that's a complete change over the last couple of years. I think this concept of when you walk into one of our branches and to sit down and be able to speak to someone about your complex need or financial advice or a loan officer is an incredibly important value proposition for our customers.
Just one, I guess, kind of almost surprise in the data, if you like. Certainly, the data versus the anecdotes. When you talk to people, I mean, I'm sure many people in this room, they'll say, "Oh, I never go to a branch. I don't know anyone who's ever been to a branch. My kids don't go to a branch. My dog doesn't go to a branch. Nobody goes to a branch.
You look at it and you say, well, Barry and I look at this pretty closely, say, "Well, it must be just like a tiny number of people who are camped outside the branches permanently, and they're just going in and out." It's actually just not true. It's actually just not true. When you look across the population and you look at kind of who's actually going, it is definitely true, and my own children are 26 and 22, is they don't go to the branch, but they don't have any money. My guess is as they have a little money themselves, they might go as well. It's just interesting to see what the data shows you in terms of branch usage.
You kicking us off, Mr. Dimon?
Okay. All right. Thanks very much indeed. Thank you for the team.
I hope we gave you guys a good sense of the momentum we've got in the consumer businesses, and I can see it's like the Oscars, he's going to push me off. Just one last thing is that, I think of all the things that we laid out, we have momentum on all of those activities. There's a great deal more work to do, but there's nothing that's entirely new that we have to get started. Over to you. Gordon, thank you. Thank you to my wife. That was great. Thanks. We always make jokes because everyone says the millennials don't use branches. The millennials don't use branches. The millennials don't have money. When they get a job, what's one of the first things they do? What do they love about Chase when they open that account? Digital. Talk about these branches.
Go sit at a branch one day. Okay? People literally, around the country, bring in their dogs. We give little doggy bones to people. They sit around almost sometimes for social reasons, and so the branches are still a great thing. They're getting smaller. They're getting more efficient. They're giving more advice and all that. I hope that you all felt what I feel when I see these five magnificent presentations or eight, in this case. Just the talent of the people and the discipline, the focus on the customer and satisfaction, and it's just pretty exceptional. I just want to make some very basic points. I'll open the floor to any additional questions you have. We are here consistently to build a great company, for the benefit of shareholders, clients, employees, and communities around the world, and we're going to do it without fail.
We're not financial engineering every day. We're not thinking about, "My God, can we pull out or make a little bit more money?" We can't be rapacious. A bank has to be there consistent. I do remind people that this bank, in the worst times, in 2009 and stuff like that, was rolling over middle-market loans and revolvers for large corporations, including for a lot of you in this room, and we didn't double or triple the price. You could say, oh, the mark to market. It's very important to us, and you heard it from every single person up here, we're here. We have to build that trust and earn that trust in every community where we operate, and being steadfast is one of those things, and it's the history of JPMorgan Chase. We've had good financial results through very tough times. We've been through a crisis.
We've had a lot of regulations. We're going back to CARD Act. Marianne did some of those numbers, litigation, about half of which those numbers came out of Bear Stearns and WaMu. We've done okay. Four out of five-year record results, financial returns have been good. We handed the mortgage folks at the worst possible time. You didn't say it, but this Mortgage Express product. Remember, we put Bear Stearns, WaMu, and Chase Mortgage all together in 2009 or something like that. All three were terrible, all three had terrible production platforms and terrible servicing platforms. We handed them legal problems and a whole bunch of other things, we're still doing a great job at cleaning up. We never all this time stopped doing other stuff, which is investing.
You saw that little chart about the marketing money in 2010 in CARD. We lost, if I remember correctly, $2 billion in CARD in 2009. That marketing money and that innovation, which Irene and Gordon did, was Chase Freedom. It was Ultimate Rewards. It was Sapphire. That's what it was. In the worst time, losing money, we didn't sit and say, "What are the margins going to be in the business this year?" We said, "How are you going to build the best possible business going forward?" It works over time, sometimes you're right and sometimes you're wrong. Each of these businesses is great. You've already heard it. I don't want to repeat each one. I think it's very important to focus on the underlying stuff, not just the financial results sometimes.
We're also building, this whole time period, the critical, we call it fortress controls now. We extended that fortress concept to controls and regulatory things. We want to be the best possible out there under the highest standards, which we want the rest to look at JPMorgan and say, "They are the standard out there," whatever it is we do. It could be cyber, it could be controls, it could be how we treat clients. All these businesses pretty much have gained share. The business mix, they're very important to me. Again, the way you should look at a business, the way you should always look at a business is not from the standpoint of the company but from the standpoint of the client. Clients vote with their feet. You gain share, you get business satisfaction because you're good. That's true for every restaurant.
It's true for every branch. It's true of everything. We always try to say, "Where's the client?" Our mix obviously works for the client. We're gaining share in almost everything up there. That is the best judge about whether you're running a good company or not, obviously, you want to earn a fair profit all the time. We always ask the questions, are you in the right businesses, is the mix right, do you bring value? Can you be special in that? Does it have a moat? A lot of these businesses have very strong moats around them. Some don't. I don't need to go through those. You heard some of those folks talking about it today. I also want to point out the average regional bank does everything we do except global investment banking.
When that client walks in the door, and Mary Erdoes had a great chart, when that client walks in the door, they say, "I need financial products. I need services." It could be investments. It could be deposits. It could be my company. Small businesses have to visit branches. They got to drop off currency and coin and pick up official documents, et cetera. The average regional bank does most of those things. They don't do global investment banking. We also bring global investment banking. How many middle-market companies do global bank overseas now? 2,500. Very few people can do that. These are companies. If you go to Grand Rapids today and sit down with 100 middle-market clients, a large percentage, and this wasn't true 10 years ago, do business overseas. China, India, Brazil, it's either they manufacture, buy, or sell.
They need checking accounts and foreign exchange and surprisingly, FX derivatives sometimes and things like that. The size and scope of our global business is fabulous. Asset management and CIB is exceptional. That business, I give it a chance, and it's going through the biggest change, particularly CIB, but someone's going to look back in five or seven years and say, "That business, there are very few, very strong players in it." It will be valuable because the underlying business, and McKinsey & Company does this great report, should never forget, the underlying fuel of the business, assets under management, are going to double. Thank God for you all, too. The equity, debt, trade, finance, multinational companies. McKinsey & Company estimates the number of companies doing over $1 billion worth of business is going to double in the next 12 years. Okay? That's our client set.
This is not going to go away unless you speculate somehow that there's going to be a reversal in global trade. Importantly, our large corporate and government clients need a large bank. It is not possible to do what they need and be a small regional bank. We have a very complex ecosystem out there, economic ecosystem out there, and we play multiple roles in it. These mix of businesses do lead to efficiencies. Again, think of the efficiencies not for us, but for the client. In a capitalist world, okay, you better be giving the client more, better, faster, quicker, or you lose. To me, we bring these efficiencies to bear for the client you see in market share gains. ChaseNet maybe will provide something cheaper, but we also provide something better, like data, which Irene mentioned.
We can go and have a simpler relationship and give them a lot of data to help them deal with their client better over time. A lot of the competitive advantages we have are unique. You can't find them elsewhere. I'm not going to go through them all because I think they were up there. Our balance sheet is extraordinary. Of $2.5 trillion, $800 billion is cash or marketable securities. The cash is stuffed out at the Fed or the ECB or something like that. Marketable securities, double A plus on average, a couple of year average duration. There's the $300 billion. We've got a new repo book. Remember the repo book, both sides can wind down if you had to. It's very liquid, very secure, stuff like that. That's $1.1 trillion. Most of the trading book is pretty liquid.
I look at this balance sheet. If you had a regional bank, that obviously would be hundreds of millions as opposed to trillions, but you'd say, "My God, that balance sheet is as good as they come." We built for the long run. I mentioned the McKinsey stuff, but we are always going to be looking at not just next year, but 3 years, 5 years, 10 years, country by country, who are the clients, and we're going to be prepared for tough times. There will be tough times again. I don't want them. Okay? I used to say every 5 or 7 years, but it doesn't have to. The past is not necessarily always prologue. There will be tough times again, and this company will be prepared again.
That is important to us that we actually, through the cycle, thinking you hear it over and over, that is very important to us because we know there are cycles, and the best of times, we're not geniuses, and the worst of times, we're not necessarily terrible. We want to be that port of safety in the storm because that makes all the difference in the world, obviously, for survival. My predecessors, if they were standing here, and we had actually had a conference once, and you had Sandy Warner and Bill Harrison and John B. McCoy and Walter Shipley and all that. They fought for 30 years to try to be a winner in these businesses. They saw most of the other companies fail, okay, or be bought out or merged out because they couldn't survive, both in investment banking and commercial banking.
They would say, "My God, look at this company," which they helped build. Look at this company and be very thoughtful about making sure you're going to be here another 100 years and another 200 years. I do want to comment on P/E ratios because it's obviously clear to me and other people that our P/E ratio is low. Why is that? It's a legitimate question to ask. It's lower than some other people. This is my personal opinion, okay? I don't know this. I also think it's temporary, so I'm not going to overreact to a P/E ratio. P/E ratios have always been wrong, just like cost of equity is always wrong, just like the market's always been wrong. When people tell me the market says X, that means almost nothing to me. Almost zero. Okay?
The market was wrong last time, and it's wrong right now. The question you got to ask is why and what are you going to do about it and how are you going to improve it and stuff like that. I think, and again, I heard a lot of this at the table I had at lunch, huge legal and regulatory costs, those are costs. Those are in the numbers. They've been fairly large, and it's our job to get them down and make regulators happier and all that. Also just what I call huge legal and regulatory uncertainty, which is more on us than other people because of our size and our scope and things like that. It's a hell of a thing when you sit around and you're trying to figure out what is your ability to return capital?
What is your ability to grow? What is your ability to do these things? How much is it going to cost you before it's over? That doesn't stop us from building the customer franchise. I do believe one day those things will lift. It may take another two years or so. I do believe that some days that uncertainty will subside over time. I know we very well may have a premium P/E. I may be standing here in four years explaining why we have a premium P/E because there's unbelievable franchises. They're better than most people know it. Capital is down. Risk is down. There will still be a banking system. The banking system will be stronger, not weaker. I always want to make sure we do the right things for the right reasons and not the wrong things for short-term reasons.
I think you heard a lot here, discipline management has always been more important than financial engineering. We always had more capital than our competitors and always had more liquidity than our competitors. Yes, it was always a disadvantage in terms of ROE. I remember also being questioned, why weren't we doing more in CDOs, and why weren't we doing more in subprime? Why weren't we doing more when all the people were making money? Oliver Wyman had done a report for JPMorgan right before, or sometime when I got here, saying the reason we are so short in fixed income is because we haven't done some of those things, including SIVs, which we just didn't do. Again, to me, we're not going to follow. I mean, the lemon's off the table all the time. We are navigating a new global financial architecture.
We're delivering to our regulators left and right. Obviously, we have consent orders, we have issues like this that is critical to us. I think the beautiful thing to me is the management team is able to do that, redirect huge resources. Not just that $3 billion we talked about. It's huge resources in risk, technology, comp, cyber to get that stuff done and do it in a way, kind of the no whining, just let's get it done, let's deliver, let's set the highest standards, let's meet our regulatory commitments, and let's not make excuses about why we're filling in the business. I've seen a lot of companies when they get distracted, they forget some of their businesses there. G-SIB is the new one. We will adjust to it over time.
I want to point out, one of the big questions I got at lunch too was, is it enough? You guys, you might be at five. You could go back to four, five, maybe four. Is that enough? The regulators want more. Here's what I say is we can navigate G-SIB, and they were talking pretty much a year or two, and we will do it with the client in mind. Okay? We cannot not treat clients respectfully and politely and explain it and give them a little bit of time and stuff like that. If the regulators want more, if there's a secret hidden message that it's got to be more than four, we could do that too.
We have the capability, and it may change our strategy a little bit, but it isn't going to change the fundamental building a great company over a long period of time. I also think they would probably want to make sure we did it carefully so that it wouldn't be like a rush. Because if we start pushing that down too much, we have to stop doing a lot of things. We would want to make sure we do it carefully in the right way. I'm convinced we can do more if we had to, have very good returns and grow a very good company. Think of it very simply, okay? G-SIB, unlike RWA, is a multivariate type of thing. It cuts across products and clients, and we're going to push it down to products and clients and stuff like that.
Be very thoughtful, try to get a return on that capital too. We have the ability to do more. If we had to do more, my view is our ROEs would stay high. Maybe growth would slow down a little bit. You might change some of the strategies, but that we would probably do fine. There are a lot of non-G-SIB things you just saw. Merchant services, credit card, certain products, ECM, DCM. A lot of usage is build non-G-SIB businesses. I'll give you one example. We inherited a banker's bank. JPMorgan have been banking banks around the world for 100 years. If you look at a lot of our overseas business, corporate banking businesses, they are, I think the numbers are right, 70% financial institutions, 30% corporate, even though we're growing corporate much faster now. Okay?
Well, in seven years, we could probably make that 70% corporate and 30% financial. I wouldn't want to try to do that in six months. Over a long period of time, you obviously can redirect and change how you run the business. I also want to point out G-SIB is not a risk measure. Take that deposit issue. A lot of it comes from you all. Your funds and stuff like that, and companies will give us on usually quarter ends. Our deposit according to about $50 billion, but dump it with us because you're changing securities, buying repo, or doing stuff. You might put a billion of deposits or five then. That money immediately goes into the Fed. We know it's short-term and temporary. We don't invest it long. We don't take any risk with it. There's no risk to us.
It used to count for SLR, but now it counts in multiple carries for G-SIB. We obviously have to modify how we're going to do that. G-SIB is credit insensitive. It's risk insensitive. It really goes against the cross-border financial institutions. I don't even think the complexity category, that's not risky. They are slightly more complex assets. You have to separate risk and complexity. We are, I would say, low risk. Look at our earnings volatility, our profit margins, our growth, our ability to sustain things over a long period of time. I do think ultimately these rules and regulations will make it for a better industry. I am looking forward to some of these things eventually being finalized, and that the banking industry be very strong.
A lot of the problems are behind it, we'll be back into a normal course of serving clients, growing businesses, and people no longer questioning the safety of the industry. Capital management strategies will change. I think it's possible, I don't know this, it's not a commitment, it's a board-level decision, that you will see dividend payouts go up. So instead of people doing 30%, maybe targeting 50%, 50% of normalized, not 50% of peak earnings. I think it might be a better way to manage capital. I think people should not be caught where they have to buy back stock. I'm going to use the word indiscriminate, regardless of price. I think that's a bad way to manage your balance sheet. Paying out regular dividends kind of reduces that burden a little bit. I like our stock at this price personally.
Also in the last two weeks, that P/E turn has changed by one turn already. Just like overnight pretty much or something like that. I'd like to mention a few other things that hopefully would be important to you. We have a fully engaged board. The board is 11 people. They are engaged in the agenda setting for the whole company. They generally see this kind of presentation of bulks of it. They know all the senior people here. They know them well, including not just the people who report to me, but I'd say a layer down. They're deeply engaged in strategy, CEO succession, CEO comp, and risk, major risk items. They've picked up the baton to say they want us to be the best in the world in the heightened standards that the regulators are setting.
We're going to do that, they're doing their part. They spend a tremendous amount of time with regulators and shareholders, dwarfs they ever used to do before, and I think it actually has been a plus. We have a very strong corporate culture, we also are going to improve it. You've heard a lot of people talk about today about new leadership training, conduct and culture, stricter regulation, tougher surveillance of certain trading areas. We've taken action, okay. We have asked a lot of people to leave when we think they're bad performers or bad behavior. This is not a company that kind of turns the other eyes, and I think we have to just do more of this and get it right.
We'll never be perfect, but I do think there's a lot of benefit just to that everyone knows that you're trying to do everything right, and no one's ever turning away from something bad taking place out there. We always believe in learning from our mistakes over time. Admitting your mistakes and fixing them is the best way to be a very strong company. I think you heard that among the people here. Let me just end by saying that you saw several people present here today. There are a lot of other people from JPMorgan here today who are exceptional. I just don't want to introduce everyone because I can't. I just want to introduce real quickly a bunch of people from the operating committee who did not present today but are equally important to the company.
Ashley Bacon, another Brit who runs risk diligently, really diligently for the company. Steve Cutler, who's our superb general counsel. Matt Zames, who we're lucky to have in the corporate, who implies intelligence across cyber and technology and ops and balance sheet, and obviously runs CIO and has done an exceptional job. He had to go to, I think, a regulatory thing. John Donnelly, who's our deeply trusted and trusted by all the management team of HR to help us do the right things there. Then I'm going to just mention one other person because they kind of exemplify a little bit of JPMorgan and what people at JPMorgan do, which is Jimmy Lee over there, who, when Mary put up her chart, I just point out Jimmy Lee, he still opens checking accounts.
In addition to dealing with obviously some of the bank's largest clients, the private bank, the commercial bank, helping Gordon whenever he needs help. I think it exemplifies what the company does. When someone walks in, you obviously help them whoever they are. Personal relationships, corporate relationships, et cetera. I feel lucky to have that team. That team, by the way, while I was a little occupied this summer, I did go to work every day, just so you all know. Marianne was quoted somewhere saying, "Jamie's been working more than us because you guys all went on vacation in August," I couldn't go on vacation. I didn't work particularly hard, but I did show up when I could. The management team had a strategic offsite without me. They got a lot of stuff done. They performed.
If you saw the partying that takes place here, a lot of you work in corporations that are full of disastrous politics and people you wouldn't want to work for and all this different. This management team is really exceptional, I hope you saw that today. My thanks to not just the Operating Committee, but all the management team. The other thing about the Operating Committee, we meet every week and go through stuff every week for an hour or two. Every month with an agenda that's set by everybody, so it's not my agenda. What do we need to talk about? It could be risk controls, credit systems, tech, ops, cross-selling, marketing. It could be anything, the real agenda, always trying to figure out what we could do better as a company.
Pressuring ourselves to do better and think things through, and very often at a very detailed level, which would probably surprise you. Let me stop there and open the floor to any questions you might have.
Mike.
I had two small capital questions and one big one. First, the dividend payout ratio going from 30% to 50%. Is that wishful thinking? Is that something you think is possible in the next two or three years? What?
I don't know because it's up to the regulators. I think that they've maintained this 30% kind of guideline for people. It's not hard and fast. You saw a couple of people last week go over it. I believe that over time, when people get to where they need to be, when the rules get finalized and all of that, when the conservation buffer is the thing you're going to-- Once you pass CCAR, you have that conservation buffer that they will allow people to pay higher dividends. That would be a more rational thing. The system will be stabler, revenues will be a little bit more stable, cost of equity will probably be down a little bit, that it will be a rational way to deal with shareholders. I do believe they're going to allow that over time, and hopefully, that'll be true.
I'm not guessing what's going to be for JPMorgan. I'm simply saying I believe it's the right way to do it, that'll probably happen over time. We'll figure it out as we see the final rules.
The second question. You like the stock at this price. Does that mean a bias toward buybacks? Is there a way to sell off an appreciated asset and use the proceeds to buy back stock?
The way CCAR runs and stuff like that is that all gets baked. Even if we sold something, a gain or something like that, it would not change the permission we get on the CCAR. Maybe down the road, that'll change, but no. CCAR comes out in March.
Then.
Effectively. Yeah.
Lastly, the main question is just, you mentioned the inexpensive stock price, the low PE. It seems to be due to two factors. One is this financial conglomerate discount that some corporations have. How do you eliminate that financial conglomerate discount? It's like a lot of people say, once you go through the next recession, you'll get rewarded, and you went through the last recession and did fine, and you're not being rewarded now. The second reason might be for the regulatory discount. I think Glenn asked the question earlier to Marianne saying, if you can get a 15% ROE on 12% capital, fantastic, but are you getting the message from the regulators which want the largest banks to downsize more than you've already done?
I said at the beginning of the lunch that their G-SIB is quite clear what they want to accomplish, and we're going to accomplish that for them. If it's more than we said, we'll do more than we said. I know if ever called up and said, "You got to do more than that. We want to see no one over this bucket," or something like that. They've got increasingly higher buckets. Clearly, they're trying to put a cap on or something like that. We're not a conglomerate. When you say conglomerate, it generally means a bunch of unrelated businesses under the same roof. Nothing wrong with that, by the way. Some people run quite good, healthy conglomerates. These are not unrelated businesses. Most of what we do, the average regional bank does compete.
You set up your organization. We could set up differently. We could have set it up a whole different organizational structures. I don't think what you're seeing is a financial conglomerate discount. I think you're seeing is that JPMorgan has been under stress and strain, a lot of legal regulatory issues, more than most, and that's kind of a burden we're bearing. We've got to get out of that by performing, by fixing the regulatory stuff. In two years, I do think most of the regulatory rules will be final. They'll always going to be tougher. They'll always be changing them. The ones that we all worry about and a lot of the legal stuff will be over. We're trying to be vigilant to make sure we don't create any additional new ones.
Brendan?
When we look at CIB, the returns sort of dilutive to the firm returns overall, it's been a big focus for investors. There's really been a frustration about the industry overall and the changes in the investment banking business, especially in FIC. You guys are huge in FIC. We've heard over and over about pricing. We heard several years ago that pricing has already been adjusted. Now we're starting to actually see it in the market. How sure are you that the changes that have been made within FIC are sufficient, and how confident can we be that we're moving towards a place where returns can actually stop being dilutive to the firm overall?
Finally, if you get a lot of side benefit to other businesses from your FIC presence, can it be reflected in transfer pricing or some more sophisticated way to have that come through that we can see?
Let me answer the first one first. We do a lot of transfer pricing and pricing, what we don't want to do is start a war zone between people saying, "Okay, you're going to get 20%, you're going to get 70%." A lot of these businesses help each other, and they don't get compensated for it. We deliberately, in some places, we're simply not going to. The Private Bank works in every single market. They sit down with the Commercial Bank and make sure that client is being served by both. If one side starts saying, "I gave you a client, you owe me a client, give me $1,000," it would be a disaster. We're very careful. We don't mind having transfer pricing when it drives economic decisions, but we're not going to have it when you can create a problem like that.
CIB, first of all, I would mention the 13% because I think it was an honest assessment. If you listen to Daniel, he said it's where we are based upon today's pricing. We're not assuming repricing, and based upon we don't know what's going to happen necessarily to our market shares. We don't know all these different things. That's basically where we are today. We have a preeminent business. Again, I'm looking at three, five, 10 years out. If we keep it preeminent, it would be a very valuable business. I don't look at the 13% and say, "Oh, woe is me. It's dragging down the rest of the company." If the value of this is X and the value of this is Y, it doesn't take away from this one. It just doesn't. Okay? It's an artificial concept.
It reduces the average, but it doesn't change the value of Y at all. My attitude is I think things will reprice. I think market shares will change. We've seen a little bit. We see it in exotic derivatives. We see it in trade finance. We see it in a little bit in deposit price. We're starting to see little pieces, but I think you will see repricing. I think when we're sitting here in a year or two, we'll be explaining to you a bunch of changes that we went through, but I still want that preeminent position. We're not going to give that up for anyone, including Richard Ramsden. Okay? We work long and hard for that. Again, look at FIC earns a return on capital. We had the most volatile, lowest share.
It goes up and down all the time, now it's the most consistent. I mean, shocking numbers. The volatility is like 4% or whatever it is for markets, very broad-based across the products and geographies. It's a critical service for clients. We're building the electronic side, reducing the cost. I'm comfortable it's going to be a good business. We showed you the one that gets criticized the most is rates. He showed you a chart that rates X legacy, mostly uncollateralized receivables, derivatives. Which by isn't bad, just is what it is, but it's huge charges against it. Other than that, and that's going to run off, we earn an adequate return because our share has gone way up, and you kind of have a lot of that, the cost of running the business is fixed.
I forgot the number for rates, but FX is like 95% of the transaction is electronic. For rates, the number's going way up because our QMM or whatever the numbers are electronic. We're driving the cost down, and there will be a business there. You don't have to change the spread a lot on some products to make them more profitable.
Malte?
Jamie, I want to take the angle here a little different. You said that 7% capital, you're going to earn 15%.
Yep.
10% capital, you're going to earn 15%.
Yep.
12% capital, you'll earn 15%. This has all kind of happened since the financial crisis. We get distracted a lot by all the headwinds, all the changes in regulatory pressure. There has to be something behind the scenes that's working very positively that's helping you overcome all those regulatory expenses, increased capital. What in the industry is working right now, and what has changed since we went through the financial crisis for the better?
I think when we were at 7% capital, 7% Tier 1 common, we were talking about more like 20%, but I forgot the exact number now. The banking system in the U.S. is completely recovered, much stronger around the rest of the world, which is why Europe is still going through de-leveraging and things like that. Everything's conservative here. RWA, operational capital, liquidity. I think those are good things. The stability of the system is good. America is strong, which I think is benefiting our U.S. businesses. Take CIB in Europe. It's doing quite well. Actually Jimmy sent me a note and said, "Just remind the folks that there were certain years that CIB was carrying the load while we were sucking wind and card and mortgage." It's hard to remember today.
I tell Daniel and all the guys, all the folks in the investment bank, it's really weird to feel sorry for the investment bank, isn't it? You have to confess. I think market shares have changed a little bit. Again, we haven't seen a lot in pricing. There has been some consolidation. It's hard to answer that question over the long period of time. I know what we've done. I know what we've built. The Chase card business has been exceptional. Private Bank has added some people. I know that remember, everything we do at the margin, you get into marginal profitability, there's a lot more of the average profitability. There's a lot of that taking place across our whole company.
Just one follow-up to that. If you look at the market share gains we saw today, a lot of that's looking past over the last three or four years since the financial crisis and all the disruption. Is it going to be harder to continue those market share gains now that we're getting to a more stable financial system and players in competition?
Here's one thing I like, kind of, that may be peculiar for me to say since I was involved in so many mergers and acquisitions in my career. Most of what we're doing now is organic. Organic growth is harder, but it's better. Okay? Because it's deepening relationships, it's deepening communities. It's cross-selling in a way that works for clients. We don't like the word cross-selling because it sounds like we're doing it for us. We're doing it because they get something better, faster, or quicker or something like that. We have to do organic growth. We can't do a FDIC-insured institution in the U.S. We could maybe do some overseas, but it's quite obvious that regulators don't want us to be bigger. Organic growth is great.
If we do it well, think of the best companies out there that have done organic growth consistently for a decade. We're doing it really well in a lot of places. Organic growth is marketing, sales, segmentation, deepening. M&A is what? A lot of you have been through M&A. Consolidating, cutting, cost cutting. That's hard. It's hard. It also stops organic growth. It hurts customer service. It does all those things that you don't want. To me, we're in good shape. Just keep on doing organic growth. It costs money sometimes, to pay for the marketing and the new banking kiosks and to redo branches, but it is far more valuable long period of time.
Kit. Hello?
Jamie, I think you guys gave a convincing argument why you're a low-risk company, how you've done great through the cycle. Is there any way, I don't know how you can answer this, but in terms of the bid ask between how you view the company as low risk versus your regulators, can you kind of give some clarity in terms of where there might be some differences of opinion? Is it just simply size? Just something else in terms that it can help people understand in terms of how you can kind of narrow the bid ask in terms of what regulators feel is high risk versus.
I don't know that they have said we're high risk, okay. G-SIB, they don't say that G-SIB is a risk measure. They say a G-SIB is something they want to change. Interconnectedness between financial companies, certain cross-border transactions, notional amount of derivatives. Some of those may be related to risk, and some are not directly related to risk. People say, "Oh, if you're the largest systemic bank, it's because you're the riskiest." Those are not necessarily the same thing. We're the largest systemic bank under one thing. Under CCAR, which Marianne showed you, and take that chart out, our capital loss under CCAR is 2.8% of our capital, okay. The other institutions, and you can name them all up there, it was more like 4%.
By that measure of risk, which is a very tough measure of risk by the way, we have less risk than the other people as a percent of capital. Like I mentioned, we showed you the balance sheet. Okay? $800 billion of cash and cash, basically marketable securities. That's an unbelievable number. I remember in the old days when a bank was considered conservative when it lent out 90% of its deposits and put the other 10% in marketable securities. We're lending out, what is it, 65% of our deposits and huge amounts of marketable securities and cash under LCR. I also think that they've set very tough standards for liquidity and capital and stuff like that would make all banks safer. I think they would say that too.
Matt?
This might be a bit of an obvious question, clearly there's an increased focus on expenses that I think came through today as well as last year. In terms of maybe what the driver was, again, here's maybe it's an obvious question, but is it kind of acknowledging that rates are going to stay low? Is it that you've had more regulatory hits than maybe you thought? Is it that now's the right time because more of the regulation is known? Or is it where JPMorgan's at that it's the right time to get more cost conscious?
I don't think it's got any of stuff to do with that stuff. We do this every year. Every year we go line by line, budget by budget, LOB by LOB. What's the right thing to do? Where should we invest? Are we wasting money? Where should we consolidate? Every year. It wasn't to make up for anything. We want to be efficient. We don't need to be told by other people to be efficient. We know that being efficient is like a critical part of running a successful company over a long period of time.
The one exception I'd say, is that when it came to the regulatory things, the $3 billion that we put up there, we said, we said it to you, we said it to the board, we said it to the regulators, that we are going to do whatever we need to do to get this done as fast as we can do it. That's what we said. For one of the rare times in my life, expenses be damned. We owed it to them. We want to get it done. We wanted the resources. We wanted to be clear. We didn't want to have six months of budget debates about it. We made a commitment to the regulators, we're going to meet that commitment. That was the one exception, it didn't stop us from trying to be very efficient elsewhere.
We try to do that all the time. The management team wants to be very efficient, we always come up with ways to think about how can we test ourselves. Gordon gave you the black cars and the T&E, we circulate to everybody. Everybody kind of looks at that, why are we doing these things that we're doing, why don't we consolidate this? I think we've been fairly prudent around expenses. I don't think we've changed other than that one thing.
Just separately, a clarification question. The $30 billion of net income that Marianne showed, I think that compares to $27 billion last year, although I think this might be a target now as a simulation. Is this really just rolling out one year, or is it from the cost savings? What drove the increase, or are they not exactly comparable?
Yeah.
A few things drove it. Primarily, last year, we got some feedback that we'd been quite limited in the things that we included in terms of growth, we included only those that were delivered by the investments that we had put in the presentation. About a billion and a half dollars of it is to do with looking across all of our businesses, looking at just the BAU underlying growth and drivers. Looking at that in a way that is somewhat modest in comparison to what we've been experiencing and building that into the equation. Some of it is the incremental expense efficiencies that Daniel's committed to this year, which is part of the regular way that we manage the company. Nevertheless, that wasn't a target out there last year, that wasn't fully embedded.
Credit's a little better because we had assumed we would have fully through the cycle normalized credit over that three to five years last year. This year it's three years.
How much was that one difference?
Like $700 net income. Rates is a little less. Three good things. More expense efficiency in CIB, more BAU growth, very hinged on the existing underlying driver growth, a little bit discounted. A little bit less credit cost because we're looking at 2017, we expect that to be low. A few more reserve releases, stuff like that. Fundamentally against that, we took rate down because in three years it's going to be what it's going to be in three years. We think it's going to start to rise, if not in June, with the risk of September. Nevertheless, we'll have what we have in 2017, and from there you'll continue to accrete the incremental NII that I showed, and then you'll start to see normalization of credit. Those are the differences.
I would say also because this question around deposits, I think we've been fairly conservative on how we look at deposit beta, the change in the mix, competitive pricing, money market funds in a rising rate environment. We've kind of tried to scrub that and be probably on the slightly more conservative side than not.
Gerard?
Thank you. Jamie, you mentioned that a bunch of your businesses are regional bank-like businesses. In those business lines, when you compete against a U.S. Bancorp or a PNC, where the products are apples to apples, you don't have a global advantage because those customers may not want that advantage. How do you compete when your capital levels are upwards to 300 basis points more than theirs in the terms of a return on equity on that type of product?
First I'd remind you historically, we've always had more capital, we never had a problem competing. I think if it's too much, that maybe changed it. If you're going to compete in the marketplace, the price the marketplace sets. That's what you're going to do. Okay. JPMorgan can't set the price for credit when the credit's going to be set in certain markets at a certain price. Our mix of business is up to us, and whether we do business with that client is up to us. Doug was quite clear that some people do credit only. He showed you a thing where we do a lot more cash management than credit. Like 47% of the accounts had credit and 80% had cash management. Cash management is not credit sensitive.
A philosophical question, I guess. You've made the case many times and very eloquently that very large multinational companies, American and not, need very large sophisticated banks that can bank them globally. As I said, you make that case to us very eloquently. I assume that you have made that case to the regulators that place a lot of obstacles in front of that type of business model. Do you sense that it resonates with them? And if so, how can you tell?
Guy?
If you have a cash management account, custody account, and a credit account, the relation makes sense. We just have to find clients that make sense for us. It doesn't matter whether they make sense for somebody else. 25% do get things that we have merchant processing, international, some investment banking that other people can't do. We do have a unique competitive advantage that some of the other banks simply don't have. We do bring something different when we go to those towns. Again, I consider that normal capitalism, by the way. I don't think that's special for us. I think that other companies, others here have exactly the same thing.
Look, you can't lump them all together. Again, it works because the clients are doing it, like ECM and DCM and Bridge Finance. They're large clients. They want to do cash management for certain clients in 10, 20, 30 different countries and sweep all their currencies into one overnight. People do need and require those services. Some will move. The regulators have been clear. They don't want banks to be too risky. They don't want banks to create a systemic risk. They want banks to be resolvable. They want more capital. They want more liquidity. They're doing all that. That's what they're pushing. I don't disagree with them. They should be doing all those different things. That's not going to stop us from serving our clients. They're not saying that some of our clients don't need services in 20 countries.
They're simply saying, if you're going to do it, you're not going to do it in a risky way. We're going to make you and other banks a lot less risky than you were in the past. I think they're accomplishing that. They should take credit for that at one point.
Mike?
Are capital markets off to the races? Are we in the process of normalizing now? Your guidance from Daniel was that you're up year-over-year, that's a big delta from the fourth quarter to the first quarter just based on the data.
I was listening carefully to his words too, though I get the daily trading reports. I'm sure he spent a lot of time thinking about it. You said it was a strong start to the quarter. That means it'll be up year-over-year, there are five weeks left.
Are there more?
Just remember, there's five weeks up year-over-year, or whatever, seven weeks, whatever, and there are five weeks to go, which we don't know what that's going to be.
Is it simply a function of more volatility, or are there more participants moving into the market, more people doing trading?
I think both.
Especially-
Do you think?
More volatility. There is a substantial increase in client activity, mainly in January, and also in a more volatile environment with continuous market, really we're monetizing it better than we did last year.
Do you think that's sustainable, or are we at an inflection point where you say we're going to move?
Clearly, when you look at January was a strong month that sort of tailed down a bit, but it's still coming quite strong.
All right. Thanks.
We've exhausted all of your questions. Listen, let me just end by thanking you all for coming and spending so much time with us. For those who stay, I think there are cocktails. Are there cocktails out here?
Yes.
I know it's only 3:30 or something like that, but you're welcome to start drinking. Thank you. See you all soon.
Ladies and gentlemen, thank you for joining the JPMorgan Investor Day 2015 conference call. You may now disconnect.