At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon and Chief Financial Officer, Jennifer Pieczak. Ms. Pieczak, please go ahead.
Thank you, operator. Good morning, everyone. I'll take you through the presentation, which as always is available on our website and we ask that you please refer to the disclaimer at the back. Starting on Page 1, the firm reported net income of $14,300,000,000 EPS of $4.50 on revenue of $33,100,000,000 and delivered a return on tangible common equity of 29%. Included in these results are 2 significant items, $5,200,000,000 of net credit reserve releases, which I'll cover in more detail shortly and a $550,000,000 contribution to firm's foundation in the form of equity investments.
Touching on a few highlights, we saw another strong quarter in CIB. In fact, net income was an all time record with IB fees up 57% year on year, reflecting continued robust activity and markets up 25% year on year as the environment remained favorable in January February, although it did start to normalize in March. In AWM, we had record net long term inflows of $48,000,000,000 this quarter. And deposits of $2,200,000,000,000 were up 36% year on year and 5% sequentially as the Fed balance sheet continues to expand. But loan growth remains muted, up 1% year on year and 2% quarter on quarter with the bright spots being AWM and secured lending in CIB.
On to page 2 for more detail on our results. When looking at this quarter's performance, there's a lot of noise in the year on year comparisons, particularly given what happened in March of last year. And so it's important to remember a few key points here about March of 2020. Effectively, investment banking activity stopped or got delayed except for investment grade debt issuance. We recorded $1,000,000 of losses in credit adjustments and other and CIB as well as a $900,000,000 markdown on our bridge book.
And in credit, we built $6,800,000,000 of reserves relative to this quarter's release of $5,200,000,000 So with that in mind, revenue of $33,100,000,000 was up $4,100,000,000 or 14% year on year. Net interest income was down $1,600,000,000 or 11% primarily driven by lower rates. And non interest revenue was up $5,700,000,000 or 39%. While this comparison is in part impacted by several of the items I just mentioned, In absolute terms, we saw strong fee generation across the franchise, including in Investment Banking, AWM and home lending, as well as a strong performance in markets. Expenses of $18,700,000,000 were up 12% year on year on higher volume and revenue related The contribution to the foundation that I just mentioned as well as continued investments.
And credit costs were a net benefit
at $4,200,000,000 driven by reserve releases.
And here, it's worth noting that charge offs were down about $400,000,000 year on year or 28% and continue to trend near historical lows. Turning to Page 3 for more detail on our reserves. We released approximately $5,200,000,000 of reserves this quarter as recent economic data has been consistently positive, indicating that the recovery may be accelerating faster than we would have thought just a few months ago. Starting with Consumer, In card, we released $3,500,000,000 as the employment picture has continued to improve, the round 3 stimulus has provided another level of support and early stage delinquencies remain very low. And in Home Lending, we released $625,000,000 primarily driven by continued improvement in HPI expectations and to a lesser extent portfolio runoff.
And then in wholesale, we released approximately 700,000,000 While the strong recovery seems in motion, we're also prepared for more adverse outcomes given remaining uncertainties around the impact of new virus strains and the health of the underlying labor markets. So for now, we remain cautious and are still weighted to our downside scenarios. And at about $26,000,000,000 were reserved at approximately $7,000,000,000 above the current base case. However, it's worth noting that even in a more normalized We wouldn't expect to be 100% weighted to the base case as we'll always have some weighting on alternative scenarios. Now moving to balance sheet and capital on Page 4.
We ended Quarter with a CET1 ratio of 13.1 percent, flat versus the prior quarter, as net growth and retained earnings was offset by lower AOCI and higher RWA. Perhaps the more interesting ratio right now is SLR, which is at 5.5%, excluding the temporary relief that just expired. As we've said all along, we were never going to rely on short term temporary relief as a long term planning matter, and this is evidenced by actions we've taken. We've already engaged with our wholesale deposit clients to explore solutions and we issued $1,500,000,000 of preferred stock in the Q1. Having said that, it's worth reinforcing a few points here.
First, it's important to remember that the SLR is a leverage based requirement, not a risk based requirement. The growth in bank leverage has been driven by deposits and therefore cannot be cured by reducing lending. In fact, the opposite would be true. If we had more loan growth, it would help because it would absorb excess risk based capital. The issue is that we've had muted loan demand to date.
And even if it starts to pick up, it's hard to envision that organic loan growth could keep pace with further QE. And therefore, we expect this leverage issue to persist for some time. And finally, when a bank is leverage constrained, this lowers the marginal value of any deposit, regardless if it is wholesale or retail, operational or non operational. And regulators should consider whether requiring banks to hold additional capital for further deposit growth is the right outcome. As we told you last quarter, we have levers to manage SLR and we will.
However, raising capital against deposits and or turning away deposits are unnatural actions for banks and cannot be good for the system in the long run. And then just to wrap up on capital regarding distributions, The limitations were extended another quarter. So based on our income, that corresponds to buyback capacity of about dollars 7,400,000,000 in the 2nd quarter after paying our $0.90 dividend. Given the preferreds we plan to issue and the work underway around excess client deposits, While of course, this could become more challenging, we believe that we should be able to buy back most, if not all of that capacity. Now let's go to our businesses, starting with Consumer and Community Banking on Page 5.
CCB reported net income of $6,700,000,000 including reserve releases of $4,600,000,000 Starting with the key drivers of year on year financial performance, which I'll just note have generally been consistent over the last few quarters against the backdrop of strong consumer balance sheet with higher savings rates and investments as well as healthy deleveraging. Deposit growth was 32% or $240,000,000,000 as existing customers' balances remain elevated and we also continue to acquire new customers. Client investment assets were up 44%, driven by market appreciation and positive net flows across our advisor and digital channels. Home lending originations were $39,000,000,000 up 40% in an overall larger market. And auto loan and lease originations were $11,200,000,000 up 35% with March being the best month on record.
However, loans were down 7% as outstandings and card remain lower even as spend is recovering to pre COVID levels. This is in addition to the continued runoff of the mortgage portfolio and partially offset by PPP additions. Mobile users grew 9% to nearly 42,000,000 and the customer migration to digital continued with branch transactions still down double digits. In Consumer Banking, approximately 50% of new checking and savings accounts were opened digitally, and that's up more than 10 percentage points year on year. Notably, we're also seeing a few emerging trends worth covering.
Consumer sentiment has returned to more normalized levels, reflecting increased optimism. We've seen debit and credit card spend return to pre pandemic levels, up 9% year on year and 14% versus 1Q 2019 despite T and E remaining significantly lower. That said, we are seeing strong momentum in T and E with spend up more than 50% in March compared to February and similar growth across CX loyalty and ultimate reward travel bookings. With higher rates, mortgage lock margins have tightened and refi applications slowed, but the overall market is still robust. And on credit, government stimulus and industry forbearance programs have provided confidence that the bridge is likely going to be long enough and strong enough.
Taken together with the pace of the vaccine rollout, we believe there is some permanent The loss mitigation and while 1Q 2021 card losses are higher quarter on quarter, we do expect losses to decrease in the 2nd 3rd quarters. In summary, revenue of $12,500,000,000 was down 6% year on year driven by deposit margin compression and lower card NII on lower balances, largely offset by strong deposit growth and higher home lending production revenue. Expenses of $7,200,000,000 were down 1% as we self fund our investments. And credit costs were a net benefit of $3,600,000,000 driven by the $4,600,000,000 of reserve releases I previously mentioned, partially offset by net charge offs of 1,000,000,000 Now turning to the Corporate and Investment Bank on Page 6. CIB reported net income of $5,700,000,000 and an ROE of 27% on record first quarter revenue of 14,600,000,000 Investment Banking revenue of $2,900,000,000 was up 67% year on year, excluding the impact of the Bridge book markdown last year.
IB fees of $3,000,000,000 were up 57%. And while we now ranked number 2 largely due to SPAC IPOs, we maintained our global IB wallet share of 9%. The quarter's performance was an all time record driven by the continued momentum in the equity issuance markets as well as robust activity in M and A and DCM. In advisory, we were up 35%, benefiting from the surge in announcement activity in the second half 2020. Debt underwriting fees were up 17% driven by leveraged finance activity.
And here, we maintained our number one rank and lead left position. And in equity underwriting, fees were up more than 200%, primarily driven by IPOs as clients continue to take advantage of strong market conditions. Looking forward, the IPO calendar is expected to remain active with M and A momentum likely to continue. And while the pipeline is higher than it's ever been, the number of flow deals outside of the pipeline both this year and last year make it difficult to predict the Q2. So at this point, I'd say we expect IB fees to be about flat year on year.
Moving to markets. Total revenue was $9,100,000,000 up 25% against the strong prior year quarter. In January February, we saw a robust trading environment and client Activity remained elevated with the positive momentum from the end of 2020 carrying through to the start of the year. In March, our performance started to normalize, but remained above pre COVID levels. Fixed income was up 15% with outperformance in securitized products and credit supported by active primary and secondary markets, partially offset by lower revenues in Rates and Currency and Emerging Markets against a tough compare in March of last year.
Equity markets was up 47% and an all time record, driven by a favorable trading environment and equity derivatives as well as strong client activity across products. In terms of outlook, based on recent weeks, we would expect this quarter to be closer to the Q2 of 2019 as 2Q 2020 was the best quarter on record for our markets franchise, but obviously, it's still early. Wholesale Payments and Security Services revenues were $1,400,000,000 $1,100,000,000 respectively, both down 2% year on year with higher and Co. Deposit balances more than offset by deposit margin compression. Expenses of $7,100,000,000 were up 19% year on on higher revenue related compensation, partially offset by lower legal expense.
And credit costs were a net benefit of $331,000,000 driven by the reserve releases I discussed earlier. Now let's go to Commercial Banking on Page 7. Commercial Banking reported net income of $1,200,000,000 and an ROE of 19%. Revenue of $2,400,000,000 was up 11% year on year with higher lending and investment banking revenue and the absence of a prior year markdown in the bridge book, partially offset by lower deposit revenue. Record gross investment banking revenue of $1,100,000,000 was up 65% with broad based strength as market conditions remain favorable.
Expenses of $969,000,000 were down 2% driven by lower structural expenses. Deposits of $291,000,000,000 were up 54% year on year and 5% quarter on quarter as client balances remain elevated. And loans were down 2% year on year and 3% sequentially. D and I loans were down 4% from the prior quarter on lower revolver balances as clients continue to access capital markets for liquidity, partially offset by additional PPP funding. And CRE loans were down 1% with continued low origination volumes in commercial term lending, partially offset by increased affordable housing activity.
Finally, credit costs were a net benefit of $118,000,000 driven by reserve releases with net charge offs of $29,000,000 driven by oil and gas. Now on to Asset and Wealth Management on Page 8. Asset and Wealth Management generated record net income of $1,200,000,000 with pretax margin of 40% and ROE of 35%. For the quarter, revenue of $4,100,000,000 was up 20% year on year as higher management fees, growth in deposit and loan balances as well as investment valuation gains were partially offset by deposit margin compression. Expenses of $2,600,000,000 were up 6% with higher volume and revenue related expenses partially offset by lower structural expense.
And credit costs were a net benefit of $121,000,000 primarily due to reserve releases. For the quarter, record net long term inflows of $48,000,000,000 were again positive across all channels, asset classes and regions with particular strength in equities. And in liquidity, we saw net inflows of $44,000,000,000 as banks encourage clients to move excess deposits away from them. AUM of $2,800,000,000,000 and overall client assets of $3,800,000,000,000 up 28% and 32% year on year respectively were driven by higher market levels as well as strong net inflows. And finally, deposits were up 43% and loans were up 18% with strength in securities based lending, custom lending and mortgages.
Now on to corporate on Page 9. Corporate reported a net loss of $580,000,000 Revenue was a loss of $473,000,000 down dollars 639,000,000 year on year. Net interest income was down nearly $700,000,000 on lower rates as well as limited deployment opportunities on the back of continued deposit growth. And expenses of $876,000,000 were up $730,000,000 year on year, primarily driven by the contribution to the foundation I mentioned earlier. The results for the quarter also include a tax benefit related to the impact of the firm's Expected full year tax rate relative to the level of pretax income this quarter.
So with that, moving to the outlook on Page 10. You'll see here that our 2021 NII outlook of around $55,000,000,000 remains in line with our previous guidance as the benefits of the steepening yield curve are being offset by customer behavior in card. It's worth noting that forecasting NII is perhaps more challenging than it's been in a long time as many of the key inputs, market implied rates, deposit forecast, securities reinvestment and customer behavior in card are all quite fluid. And as a reminder, while customer deleveraging and higher payment rates in card is a headwind for NII, it's a tailwind for credit. And we now expect our card net charge off rate to be around 2 50 basis points for the year.
And then on expenses, We've increased our guidance to approximately $70,000,000,000 with the largest driver being higher volume and revenue related expenses, which importantly have offsets in revenue. So to wrap up, the year has gotten off to a strong start and a robust economic recovery seems underway. Of course, there are still risks and uncertainties ahead that we're preparing for as well as specific issues that we're facing, including the balance sheet dynamics I mentioned, the rate environment and tough year on year comparisons among other things. Having said that, the earnings power of the franchise remains evident and we'll continue to use our resources to serve our clients, customers and communities. And with that, operator, please open the line for Q and A.
One question and only one related follow-up. Your first question comes from the line of Erika Najarian with Bank of America Merrill Lynch.
Hi, Erica.
Hi, good morning. My first question is Or Jamie. Jamie, you noted during a December conference that you believe that normalized ROTCE for JPMorgan would be about 17%. And investors are wondering, as we think about JPMorgan perhaps cementing a higher GSIB SIB surcharge at 4% this year, is 17% still achievable under that context or constrained?
Yes. So Erica, I'll start. So just a couple of things to think about on capital. So while we're we ended the year in the 4% bucket for GSIB and it's probably worth mentioning given the continued Expansion of the system through the Fed balance sheet even staying in 4 could become challenging for us. But just a couple of things to keep in mind there is we believe that like we do have offsets in the stress capital buffer and we do believe that it's Very possible that we'll see those come through in this round.
Of course, it's dependent upon the Fed models, not our models. But we've talked about things that Actions that we've taken sort of mechanical in nature in addition to moving investment securities into held to maturity That should give us some benefit on the SCB. Of course, that's scenario dependent, but we do expect some benefit there that could offset. It's also important to remember that We still are waiting for the Basel III endgame and the indication from the Fed is that they will address G SIB recalibration as part of that. And so it's quite possible that we see G SIB recalibration, but perhaps another constraint that we'll be managing.
So there is a lot that we'll learn over probably the next year or 2. And of course, the higher GSIB doesn't come into effect until the Q1 of 2023. So we do think we have offsets. We're still thinking about 12% as being a target CET1 for us, of course, given what we know today, but we are still waiting for that Basel III endgame, to really understand what we're dealing with. And at that 12% In a more normalized environment, which wouldn't just be about rates, it would also be about loan demand, 17% still feels achievable for us.
Got it. And yes, thank you for going through some of the leverage constraint now that SLR has been Exemption has expired. The investors have also been wondering, as we think about your opportunity to continue to The constraint on SLR and the moving pieces on G SIB Change your priorities in terms of timing or sizing of the $30,000,000,000 buyback for inorganic growth opportunities that you've mentioned in the past?
I would say, broadly speaking, no. But an important point There on SLR, we obviously the levers we have are issuing preferreds. We can retain more common, but we're also working closely with wholesale clients in a very selective way, as I mentioned, to find alternatives for excess deposits. So, It is true that common is one of the levers, although I will say that while it might give us more flexibility, it comes at a much greater cost. So at this point, given what we know and what we expect, we don't expect that we would have to retain more common.
We think we can manage this through issuing more preferreds and working closely with our clients to find alternatives. So I would say broadly speaking, no, the GSIB constraints as we've Saying for years now, is one that will become increasingly challenging for us. And now, particularly with the expansion of the system, It's even more challenging than perhaps it was just a few years ago, but we're managing through that as well.
Your next question comes from the line of John McDonald with Autonomous Research. Hi, John.
Hey, good morning, Jen. I wanted to ask about expenses. Obviously, you've raised the outlook by $1,000,000,000 a few times the last couple of times I guess in terms of the increase that you announced today to the outlook, could you give a little more color on how much of that is volume And revenue related as opposed to the other buckets you talked about in January, which were investments and structural?
Sure. So The increase from the $69,000,000,000 which was the guidance we gave in the K is almost entirely volume and revenue related. And so there, I'll just make an important point that it's volume and revenue related. So, as an example, volumes in CCB, just given the environment, They are very valuable for long term franchise revenue growth, but we may not see that revenue growth in the near term. But as we always say, We don't manage this place for 1 quarter or even 1 year.
So there are expenses associated with volume growth that may not have The revenue growth you would anticipate over the long run, but it's almost entirely volume and revenue related. There are a few other Things like marketing expense that given the strength of the recovery that we expect, we now expect to lean more in on marketing In the second half of the year, so that's part of it as well.
Okay. And I guess the follow-up would be, is that necessarily mean that it's It's more concentrated the increase in the Q1 because you had such a big quarter. And are there COVID related costs that you have in your numbers this year that might come out over time?
Obviously, some of it is in the Q1, but things like further volume related expenses like I talked about or marketing, They're less so in the Q1. And then what was your other question? COVID. COVID. Those numbers Are lower than they were even last year and included in the outlook, but not material in the grand scheme of things.
Your next question comes from the line of Glenn Schorr with Evercore ISI.
Hi, Glenn.
Hello there. So
If you're right on the economy, which I think a lot of us think you are, we're starting to see The spend part of the pickup now, as you mentioned, across credit and debit and some of the P and A. So my question is, How do you think about the staging of the lend part? Both consumer and corporates are so flushed with all that liquidity. How do you think about the timing for loan growth? And if I could get a consumer versus wholesale comment, that would be great.
Sure. So you used the right word, which is demand, and it really is all about demand, which of course is Quite healthy, particularly as it relates to the consumer when you think about the amount of deleveraging that we've seen through this process. So There we do expect a second half pickup, because as you say, we first have to see spend recover before we see relevering on the consumer side. So, and then it is also true even for small business, which is obviously part of CCB, their demand has been Very low given the support that's available through PPP and so that will likely tick up in the second half as well. And then elsewhere AWM has been strong throughout and we see that continuing.
And then on the CIB side, I mean, that's always lumpy and deal dependent, but that's active as well. And we do see within secured lending opportunities there across asset classes. Again, that's a bit more opportunistic. And then in the Commercial Bank, Given the level of support, the amount of liquidity in the markets as well as the amount of cash on balance sheets, loan growth There has been muted and probably will be for some time. But again, that's incredibly healthy ultimately for the recovery.
And so whether we see that pickup later this year or next year remains to be seen, but it's all for good reasons.
I appreciate that. Maybe I'll just ask one follow-up on the deposit side. Obviously, deposit growth has been Incredibly strong. So the 2 parter is what do you think happens on the deposit side as the economy goes down the path that you've outlined? And what do you do with the deposit money in the meantime, because I saw loud and clear Jamie's comments on it's hard to justify the price of U.
S. Debt. So what are we doing with all that liquidity in the meantime?
So first of all, I would say that Deposits are going to be driven by the Fed balance sheets and to some extent obviously by bank lending, but given the demand picture So there you can think of it in the near term as all being driven by Fed balance sheet expansion. And so we obviously continue to expect Significant deposit growth, which is why we've been talking about this so much. And then just in terms of how we deploy it, you will have seen that our cash balances are up quarter over quarter. And there, it's just important to remember that for sure we are being patient in the investment Securities portfolio, that is true. I'll also mention that we are because of the steepening of the yield curve, we are less short.
Banks will drift long in a sell off and so that has been part of the dynamic as well. But there's short term cash deployment also. And so what we saw there was when repo markets fall below IOER, we're going to hold that short term cash deployment in IOER relative to the repo market. So you'll see that dynamic on our balance sheet as well.
Your next question comes from the line of Ken Usdin with Jefferies.
Hi, Ken.
Hey, Jen. Thanks. Good morning. Just wondering if you could elaborate on that. You mentioned the record investment banking pipeline and flattish year over year as a best guess.
I'm just wondering if you could talk about the mix dynamics there. Obviously, the Q1 was just ridiculously great in terms of the ECM markets. And can you just give us a flavor of just where you see activity and how much is that underwriting Potentially dampening, what might be happening on the commercial loan side?
Well, I'll start with the latter, which is It's absolutely been very, very supportive of corporates and therefore it has a lot to do with what we're seeing in terms of the muted loan demand from corporates. And then in terms of the mix, we expect ECM and M and A to continue. But on DCM, there's a lot of Slow activity that doesn't necessarily get represented in a pipeline because it's high velocity type activity. We saw that in the Q2 of last year. We continue to see that now, which is why I said it makes it a little bit difficult to predict the Q2.
So while the pipeline is higher than it's Ben, there is still a lot of high velocity activity. And so that's why, we think that the quarter will be flattish year over year despite the very high pipeline.
Can you guys hear me?
Yes.
Yes.
Because we can't hear you anymore.
I'm going
to put you on mute for a minute.
Okay. Jamie is traveling. So we have him on Zoom. I know everybody can appreciate Technology challenges because we've all had them over the last year.
Okay, great. And my follow-up
Jed, Just keep on going because I can't hear the questions. I can't hear you, but you're doing a great job and you don't really need me.
Well, thank you. I'm sure I'll need you at some point. So hope they're on that. Anyway, go ahead. I'm sorry.
Yes. No problem, Jen. The second one is just with regards to the comments that you guys have made for a while about Looking at acquisition opportunities, just wondering just how is the interplay between everything you've talked about already on balance sheet capacity And ongoing deposit growth and limitations on CET1 and SLR versus how you make potential decisions around Usage of capital in an acquisition capacity.
Yes, it's a great question. Interestingly, the issue is not that we don't have capital available to make those types of decisions. The issue is that we have the wrong binding constraints. So the binding constraint is leverage not risk based. And so it doesn't change the way we think about acquisitions at all.
In fact, acquisitions and or increased loan growth would help to kind of normalize the constraints between leverage and risk based. And so we would love to be able to absorb some of our CET1 through acquisitions because as I said, it sort of just brings the balance back into focus. The issue is that it's leverage based That is the constraint and we're in a low rate environment with low loan demand and very strong deposit growth. So it's the combination of all of those things That makes leverage the binding constraint. But it doesn't change the way we're thinking about acquisitions.
Our next question comes from the line of Betsy Graseck with Morgan Stanley.
Hi, Betsy.
Hey, Jen. Hey, thanks for the time. Jen, a question on card and looking at the net charge off, you gave us the full year of 2.5%. And I know you spent a lot of time in card earlier in your career. So maybe you could give us some sense on how you're thinking about the normalization of that loss content over time.
When I think back to the bankruptcy Changes in the OOs took many years for consumers to relever. And I'm wondering given your background there, could you give us a sense as to What is different this time and are there timeframes historically we should look at for what a normal course like releveraging back The normal of that card loss content should be. How do you think about that?
Sure. I would say, first of all, it's Difficult to find a historical comparison that's totally relevant here because I don't think we've ever seen this amount of support in the system, which came, of course, on top of an already reasonably healthy consumer. So it's difficult to find the historical perspective, but I will say the 2.5%, I mean, pre COVID, we would have thought that our loss rate in card this year would have been 3.3%, 3.5%. So it just gives you a sense there of That tailwind on credit is significant. And in terms of what it's going to take for consumers to relever, I mean, we do expect there to be significant economic activity in the second half.
And so that could come quite naturally, but it could come a little bit later given the amount of deleveraging we've seen. But the fact that we already see spend above pre COVID levels and obviously We still have restrictions in place, particularly around T and E on consumers' ability to spend. When that comes back, we do think that we'll see spend tick even higher and that will be a point where perhaps We'll start to see that relevering, but it is difficult to know. It's a great question.
Okay. And then the follow-up I have on your comments around the NII guide and The fact that it's hard to forecast. I got a couple of questions in this morning just on, Hey, why do you think it's flat versus prior guide given the curve has deepened and also deposit growth should continue to be Up significantly given QE is continuing this full year. So is there some spread angle that you're Kind of thinking about that keeps you a little bit more muted. Is it more the loan growth?
Maybe you could talk a little bit about You know those piece parts that you identified.
Sure. I think it's probably all of the above, Betsy, but starting with the steepening of the yield curve. So If you look at the earnings at risk disclosure, I mean, we did see the benefit roughly in line with what that disclosure shows, which is Since we last guided on NII, we steepened probably 25, 30 basis points. So that is incorporated in the outlook, but it is completely offset by the fact that, we continue to see consumer behavior in card in terms of higher payment rates And we haven't started to see relevering as we were just talking about even though spend has recovered. So card, the impacts of card completely offsets the steepening of the yield curve.
You also mentioned loan growth, which is critically important to realizing the benefits of the steepening yield curve. And then I would just mention we have reflected in our outlook the fact that we have been patient on deploying further deposit growth into the securities portfolio in terms of duration. And then also it's probably worth noting that The marginal benefit of further deposit growth is quite small given the fact that, that deployment opportunities are minimal. And so you can think about them as being something less than 10 basis points, because we do have Pay rate above 0, so it's something less than 10 basis points. So the marginal deposit growth from here doesn't add a whole lot In this environment anyway.
Your next question comes from the line of Mike Mayo with Wells Fargo Securities.
Hi. Hey, Jennifer. My question is for Jamie. And Jamie, your philosophy is to invest through a downturn And you're increasing your investments by 1 fourth year over year. You already said that.
But what's your philosophy about investing through a boom As you expect over the next 3 years, I mean, if the pie is growing, do your investments go higher? It looks like that's not the case with the guidance you guys gave.
Yes. So I think, Mike, the way to really look at it is it probably doesn't it isn't affected as much by boomer bust as you think. So we isolate opportunities like for We announced we're going to hire 300 black financial advisors. We're going to do that whether it's boom or bust. We're building new data centers, we're building new agile, we're going in Well, I think it doesn't really change that much over time.
I just think you'll probably see our investment go up over time, not go down. We can get plenty of organic Growth opportunities, which we want to invest in.
And then how much are you spending in Climate? Your 66 pages, CEO letter was I guess that's like could be a third of a book almost, but you really Pat at the table on climate risk and what you guys need to do. How much you're actually spending? And what's the payback on that spending for shareholders? Or is this really an ESG reputational benefit you're looking for?
So I'll start there, Mike, and then Jamie, you can chime in. But Climate is a long game, obviously, and we're investing a lot of effort in our ESG initiatives, not only because they have a positive impact on society and communities, but because they're also important to our clients, customers and our shareholders. So we don't exactly think about it that way, Mike. But we've also invested in multiple teams to help clients through the transition and we do recognize it's a transition and clients appreciate that. We've also made the Paris Alliance financing commitment last year, and we're going to release our annual ESG report next month, so you'll see more there.
And then we also committed to finance $200,000,000,000 towards climate action and sustainable development, and we're continuing to grow those efforts as well. And in fact, your question is quite timely because we're planning to make an ambitious announcement tomorrow about long term scaling of our financing efforts here. So much more detail to come shortly on that. But Jamie, I don't know if you want to add anything.
Your next question comes from the line of Jim Mitchell with Seaport Global.
Hey, good morning.
Good morning.
Maybe Just maybe a question on the bank SLR, which I think was a bit more of a constraint even than the firm wide SLR. Just I guess two questions related to that.
What kind
of flexibility do you have to kind of manage the difference between the 2 moving assets out of the bank perhaps? And then just if you have any updates or thoughts on potential changes that regulators are discussing to kind of give maybe Relief 2.0 in a more permanent sense on the SLR.
So the bank SLR, I mean, broadly speaking, it's It's going to be the same levers. We do have a little bit more flexibility, as you note, because we can move things. We can inject capital into the banks the holding company. So it's a little bit more flexible, but generally speaking, the constraints and the levers are the same. And then in terms of changes, We know what you know, and so we look forward to a proposal.
The only thing I can mention is, of course, the difference between The U. S. And Europe on Basel as it relates to SLR is there, it's 3% plus half year GSIB. And so we have a constant 2% And so and with that, you get the flexibility in a Basel compliant way to exclude deposits at Central Bank for a period of time. So it's possible that it could look something like that, but we don't know.
Okay, thanks.
Can I just pull up, so I think there's too much focus there? We run the business to do a great job servicing clients over time. We manage 20 years God knows how many different capital liquidity constraints. We have multiple levers to pull all the time to do that while serving our clients. If we've got to adjust our strategies going forward, so be it, we'll probably be fine.
I think the question you should be asking isn't what it means for us, What it means to the marketplace. I've already mentioned several times, we have $1,500,000,000,000 of cash and marketing and securities, which we cannot deploy In a whole bunch of different ways, intubating the marketplace with repo or just financing positions or helping people because of these constraints. So the constraints are more of a constraint on the economy than they are on JPMorgan Chase. We will find a way regardless of any constraints to do things. The other thing is, C SIFI, SLR, there are all these public things.
They need to be recalibrated. And I think people are asking why how would you recalibrate to do the best job for the United States and the people in the United States, not for JPMorgan. JPMorgan will be fine either way.
Great. Thanks.
Your next question comes from the line of Gerard Cassidy with RBC. Hi, Gerard.
Hi, Jen. How are you? Question, I apologize if you addressed this, I had to jump off for a minute here. But can you share with us on the mortgage Servicing business, it looked like you had a small loss this quarter similar to the Q4. Can you tell us some of the metrics that went into why The servicing business recorded a small loss.
Oh gosh, George. I'm not even sure. Reggie and the team can follow-up with you.
Okay, very good. And then the second question has to do with when we go back to the day 1, loan loss reserves Established in January 1, 2020, for you and your peers under CECL Accounting. If I recall, I think your loan loss reserves to total loans at the time We're approximately 1.87%. Today, they're approximately 2.42%. I know you guys gave some color on your outlook for what you think credit will look like, you being a little more conservative.
But can you share with us what would it take to bring the reserves Back down to the day one levels that we saw in January 1, 2020.
Well, it's very difficult to try to compare Today to just taking our balance sheet today, taking the profile of our portfolio today and compare it to CECL day 1 because we are a very far away from that, in fact, in a very healthy way. So that's very difficult to do. What I will say is that It is true that things have continued to improve even since we closed our process in the Q1. And we obviously expect things to be we expect the recovery to be robust in the second half of the year. And so If we continue to see that, if we continue to see labor markets recover, if we continue to see the vaccine rollout be successful, we would have Future releases from here.
And but I would note importantly that the $7,000,000,000 that is the distance between our reserve and the base case is just for We will always have weightings on alternative scenarios. And so all else equal, which is there's a lot in the all else equal bucket, but we would release something less than $7,000,000,000 So difficult to compare back to CECL day 1, but there could be further releases ahead.
Yes. One
of the negatives to CECL, which I pointed out right from the beginning, that we spent a lot of time on these calls describing something which is virtually irrelevant for the bank, which is these are multiple scenarios, hypothetical, probability based and obviously the more volatile environment, the more volatile these numbers. If a base case was $20,000,000,000 and we now have something like $30,000,000,000 we're not going to be taking down a lot of reserves now because you're always as Jen said, you're always going to have At extreme adverse case, I think it was like kind of a CCAR test and you always have a percentage of reserves up for that Permanently. And so, hopefully, I mean, my view is we should waste a lot less time in CECL that makes almost no difference to the company In general.
And then back on your servicing point, I got the answer. It's updates to the MSR model. So HPI updates, prepay updates. So it's less about the operation and more about the MSR model update.
Your next question comes from the line of Matt O'Connor with Deutsche Bank. Hi, Matt.
Good morning. I wanted to ask about the CEO letter where there was talk about being open to FinTech deals, which is something you've talked about in the past. What type of deals would you be interested in? And I guess could they be material to JPMorgan As we think about whether it's your strategy or financial impact.
Yes. So we'll look forward Remember, after paying a steady careful dividend and stuff like that, we must prefer to invest in our business organically, including the acquisitions and buy back stock. We're buying back stock because our cup run is over. We have 13.6% capital The risk weighted advanced risk weighted assets, we're earning a tremendous sum of money and we really have no option right now. But I think the door is open to anything that makes sense.
So we've already done InstaMed, which is a electronic digital payments platform in providers and Consumers and Healthcare, we did 55 IP, which is a tax efficient way of managing money. And we're looking at tons of things ourselves. Some are building ourselves like dynamo, some are going to partner with other people. We've got investments in probably 100 different companies at this point to be Either partner with or like, but we're completely open minded. It could be payments, it could be asset management, it could be adjacencies, it could be data, It could be anything like that.
It cannot be a U. S. Bank. So we're just reminding people if you got great ideas for us, let us know.
And as the mentality in FinTech specifically, is it to potentially accelerate from the investments that you would have done on your own or to add Capabilities or maybe protect what you already have?
Well, it's a little of everything because you see us adding Chase my plan and Chase my loan and obviously You see competing a little bit with buy now pay later. You see us doing Chase offers and competes with people. You see us doing Zelle Payments and we got tons of fabulous stuff coming. We did do invest a couple of years ago and had a very good quarter. We're adding Robo investing, which is just getting going.
So we're adding a broad set of capabilities across the full spectrum And you're going to see a lot more and you're going to see personalization of apps. And if you go into the payment system, you're going to see Global wallets, you're going to see tons of stuff is coming. And like I said, the FinTech has done a great job. I'd point out that they live under different constraints, But they've done a great job, getting rid of pain points, making automated, digitizing things using the cloud. It's incumbent upon us To go faster than cloud, we already have 150 major AI projects, but my guess is in 5 years it will be 1,000 AI projects.
So we're going as fast as we can to do a great job for customers. And obviously FinTech is it will be a challenge. There's a lot of money there. They're very smart people. I want to be clear, we're not wishing regulations on them like on us.
I think that would be bad for America. But we are wishing for a level playing field when it comes around certain products and certain services. I feel once again grossly unfair that a neobank can have a small checking account and earn $200
in the
Durbin fees and we are $100, but this is just isn't right. And I go on and on and on about some of the unfair things, but look, let the regulars do it. I'm not expecting any change. We will just adjust our strategies accordingly.
Your next question comes from the line of Brian Kleinhanzl with KBW.
Hi, Brian.
Hey, good morning. I have a quick question. I mean as we start to look out to forward rates and market kind of implying Fed moving somewhat in the near term or intermediate term. I mean, how are you guys thinking about deposit betas this cycle and kind of what's included in your NII sensitivity both on the consumer and commercial deposits? Thanks.
Sure.
So I think the way to answer is the betas have gamma, meaning they change over time. And we have our best guess the numbers that Ben gives you. So obviously the beta is going up all the time and then it levels off.
That's right. And so the betas have gamma, like I would say that if you can think of it as being non linear, meaning the beta for the first 100 basis points will be lower than the beta for the These points will be lower than the beta for the second and third, increments of 100 basis points. And so from here, on the retail side specifically, The first 100 basis points will be very valuable because there is a lower beta associated with it. So that's really where we see The benefit in NII with short rates in an environment with low loan growth.
Your next question comes from the line of Charles Peabody with Portales Partners. Hello. Mr. Peabody, your line is open. Please ensure that you do not have your line on mute.
Hello. Can
you hear me now?
Yes, we can hear you. Go ahead.
Sorry about that. I had a question about the impact that negative rates at the short end of the yield curve might have On New York entity. Specifically, if we you touched a little bit on the IOR rate and the overnight repo rate being raised. Would that have any impact on your market related NII if they had to raise by 5 basis points? Secondly, if we do get negative rates at the short end, Is that incorporated in your $55,000,000,000 NII guidance?
And then thirdly, If we do get negative rates at the short end, does that have any implications for what loan demand might look like? Thank you.
Sure. So I'll just start by saying while we have seen repo go negative at times, it's been quarterly. And so We don't expect short rates to be negative for any longer period of time or and we certainly haven't seen spikes, which is something you would worry about more. I think with the amount of capacity in the money market complex and the fact that the Fed increased their RRP facility, now that facility is at 0. So that certainly is supportive of ensuring short rates don't go negative for any meaningful period of time.
They also obviously could increase that. And then for us, I would say not a meaningful impact because obviously we have 10 basis points of IOER as an option for us, But we do trade around it.
I would just add, the why is far more important than the number. Like NII, obviously, Like in trading, it goes in and out. The whole thing is equal. No, it just shows up in a different place. But if you go negative NII because you're going back into recession because there's a negative variance, That's a whole different issue then, than if it's a temporary timing thing.
I would tell you, we would expect rates moving up over time. We expect a rather healthy, very strong economy.
Yes. Yes. And what we've seen so far on the short end is not unhealthy or something we're worried about. It's a dynamic of so much cash chasing the supply.
Thank you.
Your next question comes from the line of Andrew Lim with Societe Generale.
Hi, Andrew.
Hi, Jen, Jamie. Good morning. So just circling back to the SLR, despite issuing 1,500,000,000 You still lost about 30 basis points on your SLR. I'm just wondering how you think about the ratio 2, 3 quarters out from now, Whether issuing preferred and having the discussions with wholesale depositors is going to be enough to Put a floor on that SLR of 5.5% or whether you're going to have to pull harder on that on those levers or have to pull harder on other levers?
Yes. So the minimum is 5%. So we have some room. Naturally, we will have a buffer above The minimum as you always need to when you have binary consequences of going below. So you can think about some management above that, but we do still have room at 5.5%.
And we do think that we can manage this at this point through issuing, we'll be in the market again with preferreds as well as the conversations that we've had with clients. So far, they have not been disruptive. We're hopeful that, that remains the case and that we can manage this.
Okay. So what would be your level of comfort for the buffer above the 5%? That's my follow on. And then Just another question. You gave an update a couple of quarters ago saying that you had a buffer What was it?
Let's say excess provisions of about $10,000,000,000 versus your base case scenario economic outlook. Obviously, you've released quite a lot of provisions since then. Can you give an update on what that figure is now?
Sure. So you can think about a buffer on the SLR of call it 25 basis points. There it is important to note something like AOCI is something that we have to incorporate into our thinking and the impact of AOCI as that's part of Tier 1 capital. So we need to have a buffer to make sure that we can manage through any noise we might see there. So that's why we have a buffer and 25 basis points is probably a reasonable one to think about.
In terms of the on reserves, the distance between where we are in the base case, as I said in my prepared remarks, that's now 7,000,000,000 What's interesting to note is that, that was $10,000,000,000 It was then $9,000,000,000 And we've released $8,000,000,000 and it's still $7,000,000,000 So The all of the scenarios have been moving and there are lots there's a lot that goes into how we think about reserves. We've always just provided that as context For everyone, particularly last year as we were managing through so much uncertainty in terms of the inputs into our reserves. So I wouldn't put a lot of weight into that because what I also said on the $7,000,000,000 is that you shouldn't think about that as available for release because We will always have some waiting on alternative scenarios. And so even if everything plays out exactly as we expect based upon where we closed The books for the Q1, it would be something less than $7,000,000,000
Your next Question comes from the line of Mike Mayo with Wells Fargo Securities.
Hi, Mike.
Hi. I'm still wrestling with the deposit conundrum. So I guess your national deposit share is something like 12%. And Over the last year, I think your incremental deposit share gain is 20%. In other words, the industry deposits is up around $3,000,000,000,000 and your deposits are up $600,000,000,000 So I'm just wondering how much of that was due to QE and how much of that is Due to organic growth and maybe you can fill us in because you're building out the branches in the lower 48 states And you're expanding commercial bankers and trying to build up all this organic growth at a time when you can't really monetize those deposits.
Thanks.
Sure. So first of all, as we always say, we're running the place for the long term and we don't expect this Challenge to be a long term challenge, maybe a short to medium term, but not a long term. And then I'll just say that, yes, there was Certainly some organic growth, but it is Fed balance sheet and bank lending that create deposits. And so that's what we are focused on. And we do think given what we expect here that we can manage it.
So and it certainly isn't going to change the way we think about market expansion or otherwise as that is long term franchise value.
I think,
Jamie, another one.
Mike, it's a $600,000,000 and it's really hard to see that. We think Growing actual stare in almost every business deposits, but 500 to 600 was the Fed balance sheet. And we're a big wholesale bank and a big consumer bank, Obviously, a big portion of that shows up inside our company. And again, we try to the new branch is doing great, but they're not going to move the needle Like you said, adding $3,000,000,000 to deposits in the system.
That's right.
And just a quick update on the build out into the 48 Lower States branches, you said by the middle of this year?
Yes, yes. So we'll be in all Lower 48 by the end of July. Is that right? Yes, Reggie is confirming for me. We will be in all Lower 48 by the end of July.
We opened about 75 branches in market expansion last year. We got a little bit slowed down by COVID, but that's going to be about 150 this year. So remain super excited about that and all the opportunities that it brings across the company, not just in deposits, of course, because it brings incredible value to the commercial bank and to the private bank. And so, the business case there, if you will, is not just about deposits.
Your next question comes from the line of Erika Najarian with Bank of America Merrill Lynch.
Hi, Archie. Hi. Apologies for prolonging the call. I just got this question a lot on Bloomberg from investors. Just wanted to re ask the first question another way.
It seems like we have been waiting for recalibration on the GSIB for some time now. On the other hand, clearly, the expansion of your balance sheet comes with additional revenue generation and market share taking and some opportunities. And so investors are wondering if we don't get any sort of calibration that's meaningful And CET1 floor does have to move up from 12%. What is the sensitivity of the normalized ROTCE outlook, if any at all, if that 12% does have to move up in 50 basis points increments.
Okay. So if the 12% has to move up, Erica, that would obviously have an impact. But there is so much between here and there and that being a reality that We can't really comment on it because not only I know we've been waiting for G SIB recalibration for a long time, but it has been made very clear That G SIB recalibration will be part of the Basel III in game, which we have also been waiting for, for a very long time. And so there will be potential offsets that we yet are not we're unable to manage because we don't know what they are yet. So we continue to wait for Basel III and AIM.
And then as I said, We do believe we can manage the stress capital offer. Again, it's scenario dependent, but we do believe we can manage that, to be closer to 2.5%, which helps an awful lot in terms of an offset to GSIB constraints. So we're thinking about that 12% number until we know something different.
I was saying, we're going to file a keliquet to 12 and we're pretty sure we can do it. So I'm not that worried about it. But I don't know what the confusion is. If it did go up by if we're earning 20% of tangible equity and our capital goes up by 5% and we get no return to 5%, our ROE goes to 19%. So I don't understand the confusion.
The underlying results are still fabulous and great and you have slightly low returns, but I usually doubt it will be temporary. We will over time Find strategies and tactics to get returns to prepare to our shareholders. But the most important thing about those returns, we have great business, Great branches, great products, great services, good margins, good service, good ops, good controls, good and that's what we really build all the time. And there's other stuff that's just Managing around capital constraints that it's a shame that this is I mean, this is not the way to run a railroad anymore. We're spending time in this call on CECL and SLR and it's a shame.
And it does distract from growing the American economy. I've mentioned over and over, we have $2,200,000,000,000 deposits, dollars 1,000,000,000,000 of loans, $1,520,000 of cash and marketable securities, much of what cannot be deployed to intermediate or lend. No, I mean how conservative do you want to get?
No, I agree. I think
the market needed to hear that. Thank you.
Thank you. There are
no further questions at this time.
Thank you. Thanks everyone. Thanks operator.
Thank you.
Thank you for participating in today's call. You may now disconnect.