JPMorgan Chase & Co. (JPM) Earnings Call Transcript

Again, you're talking about banks, the first payment comes out of a bank. That's part of the underlying process for the pay now, buy later -- pay later -- buy now pay later. So we -- the banks have to learn to be very nimble and use our assets to move very quickly, too. And some have done -- actually, some banks do some of these things quicker than us, and so hats off to them.

What about the big tech or the big companies like the Walmart, big tech, Apple, Amazon, et cetera? What are you doing there to try to launch the product?

First of all, some are going to have their own issues. They've got a lot of regulatory stuff, but just put that aside. And whether they want to become banks or not, put that aside, all of them, in my view, are going to embed payments in what they have. And they all compete with each other. They all do a little bit of social, a bit of ads, a little bit of commerce, a little bit of -- but they're all kind of want payments embedded. So when you go to YouTube or Facebook or Apple, you can buy something, click apply and it gets delivered and paid. And so you have to have wallets and things like that. And a lot of them, they have marketplaces in financial services. So think of Google Plex, it's a marketplace for financial services. They're also going to offer some what I call [ financiers ] directly like financial planning. They don't need a bank to do that, but they can -- with open banking and all the stuff like that and partnering with whoever they partner with, they could say to the client, "We could do these things for you," and then you hook in your bank. And of course, you don't want your bank to become just a utility in the back end that no one knows about. And it's possible some of the new banks that they're actually going to open a bank on different things. They have -- some of them have huge advantages. And I pointed to that. I'm not saying it by way of complaining, no capital requirements, no liquidity requirements, no social requirements, no insurance requirements, no CCAR requirements, no resolution requirements. They don't have their litigation kind of obligation we have, and those are important. When we navigate this world, we've got to figure out how are you going to compete and deal with -- and like I said, those are some of the things that we deal with. We have strengths, size, scale, scope, brand. We bank 60 million, we've input it -- we have some business with 60 million, half the households in America. And so we -- let's use our strengths to build these things. And so -- but they're all coming in one fashion or another, and some will probably succeed. And by -- if you don't believe me, you look at Ant Financial, even though I know they're going through some changes now, and some of these other companies around the world have done quite a good job disrupting major banks by using -- they have huge platforms and huge data. And that's a huge advantage. And so we have this huge data and not quite the platform, the 60 million, but they might have 200 million Americans booked in there. And they have other types of data. It's not clear to me our data is not more important than some of theirs. On the other hand, we have more restrictions on what we can do with it.

Right. What about DFI? Some people look at DFI and say, this is the next thing in finance generally. I mean it feels like it's a little bit of a small capital base right now, but given this unregulated credit model union, do you think that could be a competitive threat to you?

Yes, a little bit. No, not -- I mean, remember, you got to do a lot of things to serve a client. So some of these will just cherry-pick something. And I remember years ago when that peer-to-peer lending came out, I told people, [indiscernible] work for all bunch of different reasons. Some of these things will work somewhat. And remember, they're also going to change when interest rates go up. And customers like services like ATMs and branches and advice, somewhere to call and call centers and so. But I do think you should never look at something deep. I'm not talking about cryptocurrency. Now I'm talking about DFI [ writ ] large. Yes, they're trying to find ways to provide financial services purely digital, whether it's lending or deposits or loans or this in a way that makes sense for those customer base. And so we should never act like I don't think they're going to win, but I don't like saying that with my management team. I don't want to forecast that because I've already pointed out some of these people are really smart. And they may not look that way today, but they're looking later. The world is not static. We have to remember, they're not just sitting there waiting for JPMorgan. They're looking for all the ways they can do these things for clients.

So let's talk a little bit about what you are doing on payments. You have this global effort, I think it's called Liink, L-I-I-N-K. Could you give us a sense as to where -- what your vision is for that?

Yes, that's public. I mean I've told that people here, we're going to be disclosing less to all of you going forward because I think we disclosed too much. But Liink is just a ledger. I think there's 450 banks hooked up into it, where we share data with banks in a real-time basis. So think of -- is the account real, did the money move? And then solve some of the problems that people have generally pointed out about, particularly in international transfers and international money. So just think 1 day, Liink should be able to do trade finance much more seamlessly, very few hours, you know where exactly the money is, everyone in the chain knows. And you can do -- you could do inversely in real time. And eventually, by the way, there's no reason you can't move money through it, too. So it will become a real link. And this is not just JP, this's getting all the banking systems lined up for. So I can point out on payments that we moved $8 trillion a day, quite effortlessly, quite cheaply, quite -- with huge risk and fraud stuff like that and 78% real-time, 95% same day. So what problem you're trying to solve? So there are problems if you're trying to move money to your sister in London, well, it's a pain. I understand that, you have TransferWise. They've done a great job. Again, it wasn't the technology, it was the imagination. And then there's, if you said moving money to Philippines, the same thing. If you said trade finance, absolutely, when you move things to multiple countries, you're paying for multiple invoice, if you missed the dot, one thing, that payment gets delayed, it takes a week to do the research on it. And so yes, there are clogs and restricts in the payment systems that we should do ourselves. And if we don't do it ourselves, someone else will do it.

Yes. Having lived in Japan for 8 years. I'm very familiar with that, but hopefully, you'll be able to solve those issues soon.

And there's another one. I was sitting in my own management table and Takis, I think would say that how hard was we came here to open a bank account because you have no credit history here. Well, okay, that's kind of a no-brainer to go fix because he had a credit history in where he was, and so there are a lot of things we could do better in America. And there is a tech company that does just that thing that came to see me years ago called [ Neo ] or something like that. Yes.

So we have some questions from the audience I want to dig into. One is on digital currencies. And the question here is you've got central bank digital currencies that are getting talked about. How can you leverage this? And are there any threats to what you're seeing in the ECB from this?

Look, it's a legitimate -- I mean, if I was a central bank, I'd be looking at this, but there's a lot of work that's going to take place. So if you have a digital wallet and you use -- I mean I think what like India doing is great for its own people, give people bank accounts they can make transfer payments without fraud and corruption, stuff like that, that makes sense. Can you do it wisely and cheaply, and stuff like that. If you give people a digital wallet and you [indiscernible] money at JPMorgan or any bank or the Fed, the second there's a crisis, it's all going to go to the Fed. Well, then you're going to bankrupt the banking system and that should be making loans. If a government starts making loans, it's almost every case it's been -- it leads to various forms of corruption and stuff like that and the lack of discipline in the capital market. So -- and then there are other things member banking isn't just a wallet. It's also ATMs. It's financial planning. So when you call for advice, gain a small business advice, it's investments, it's -- so they can do pieces of it. They should look at it. But I think the right way is to really do a deep dive and study it. And then there are going to be legislation issues like do you want the federal government to know everything you do. So China, they're going to do that. Would the American publicly put up with that? I doubt it.

There was a question that came in. I'm going to read it, okay? Is there any level of deposit inflow or lower credit card balances that would encourage you to take more duration risk if the credit risk is not available? Or is it really more a function of absolute yields? I know we discussed this at the beginning of the session, but I had a question come in.

That decision you make every day, right? And you always -- if you could always take -- you could always buy treasury. So I could buy 10-year treasury right now at 1.5% instead of making 20 basis points whenever we make an IOER, move it out there, extend duration. We can do it with 1 phone call. My CFO is sitting over here, he can do it. He can do the same thing and buy mortgages considerably over that, which doesn't have much credit risk. I mean we'd rather make loans. We rather serve our clients than make huge investment portfolios. But we have a lot of cash and capability, and we're going to be very patient. And we're being patient because I think you have a very good chance of inflation will be more than transitory.

Got it. Okay. Just keying in on the loan piece of what you were saying, the loan-to-deposit ratios, you're sitting at 50-year lows, obviously, because of QE and the demand for lending hasn't started to pick up that much yet, at least from what I see. But what do you see? Are you seeing any signs of life in the loan book?

Just not, but just a teeny weeny little bit in CRE, commercial multifamily, maybe C&I. Middle market utilization is lower than we've ever seen it ever, ever. But that will change the second they start investing inventory receivables and slightly more [ pleasant ]. Maybe a little bit. Not on the mortgage side, not on the credit card side, though. I think you're going to see it eventually. And I don't know exactly the time it is, but I think you have a booming economy. And I think the table has been set for that booming economy. I think some of the fiscal pause is on autopilot. So as I think of [indiscernible] not only do we pull out of fuel on the fire, but we're guaranteed to put more fuel to fire in the first quarter next year, the second quarter next year, the third quarter next year. And then QEs partially on autopilot, through the Fed may very well change that at their meetings this week and stuff like that, so we'll see.

What's your outlook for QE?

But the other thing is about loans, I've always pointed out, the loan banks generally that I'm going to simplify, used to have deposits and lend down 100% and hold cash liquidity above that in securities roughly. Today, they -- but because of LCR, and SLR and stuff like that, the banks will never again be able to lend out 100% of deposits. It will always be, I don't know, 75% of deposits. Right now, for JP, it's more like 44% or something like that, which is unbelievably low. And that's because the rules change. So the transmission monitoring policy is different. It's not just QE. So the way you should look at our -- we have -- I forgot the exact number, but 4 5 [indiscernible] more cash than we need for LCR. That wasn't true a year -- I don't think they were to a year ago. And that's right, we don't -- I mean if we could, I turn away a lot of these deposits, we don't really want them. But we want to be customer-friendly.

Yes. So shareholders here are sitting looking at that, saying, okay, the optionality is to reinvest in securities while you wait for loan growth to come back. And your point is I need to have a better rate structure that reflects the inflation that I think is going to be coming.

Yes. We always -- we run the business to serve the clients and a lot of these other things, outcomes. But the interest rate exposure to the firm, we also always look at to protect the fat tails. And that's a very different view, and we're going to protect the fat tail that JPMorgan will be a port of safety in the storm, period. Whatever storm that is, and we could predict some. We do tons of stress tests and all that, far beyond just a CCAR test. And so -- but 1 of the potential ones now is [indiscernible] rising rates, inflation is kind of raising more than the Fed is comfortable with.

And you're really looking at the economic profile of JPM when you say that because I would expect you have room in your held-to-maturity balances that you could ask or you [indiscernible]

We've moved more stuff into held to maturity, too, to reduce the volatility of SCB and all that. Again, which I hate because we will always look at that as -- it doesn't mean that. It's like accounting. It doesn't really mean anything and it actually takes away some of your flexibility. How could that be good for a company? But it makes SCB less and why would you all permanent capital for swings in AOCI that mean absolutely nothing. So we're doing more. I probably should have done it earlier.

Okay. A couple of other questions. Just one on credit card. You mentioned it's still -- it doesn't look like there's a lot of demand yet. But one of the things, I think, that you are looking at is providing credit cards to people who maybe or don't have as much on credit scores, right? There's some new kind of underwriting that you can do using nontraditional data to underwrite card. Could you give us a sense of what's going on there?

Yes. So well, first of all, card spend is [indiscernible] terms like 20% over 2019, and we see it everywhere. And spend ultimately to drive the thing, but the outstandings. But the outstanding is the consumer today has $2 trillion more in their checking accounts than they had in February of 2019. That's a huge number. That's why I'm saying the table is set for a really strong economy. And that spend number will eventually drive the outstanding. That's why I think there's a pretty good chance to go up soon as people start to spend and do other things and stuff like that. So -- but I think all I'm going to tell you about credit is we always look for additional data, and we don't use just credit scores to do credit. And that could be true for bank accounts for that reach product and or Bank One or [ Bank On ], whatever they call it. And so -- yes, and then -- so for credit card, too, we're going to do that.

Okay. Turning to capital and capital optimization, what's better for JPM, continuing to grow share and end up with a higher capital requirement or maxing out the buybacks? And people know that you've gone up basically 2 buckets in SIFI. And the question here is really, are you going to try to get back down to that just 1 bucket higher? Or do you care? You're like, hey, if I'm 2 buckets up, I'm 2 buckets up, let's just get the revenue.

I've always thought that G-SIFI is the stupidest, most irresponsible calculation I've ever seen in my whole life. It is not risk-based. It doesn't have anything to do with anything. I think it was designed for -- I don't even know what it was designed for. And we have so much capital that you can't possibly say that we need more capital to handle risk or something like that. And G-SIFI was supposed to be adjusted for the size of the banking system, the size of the global economy and none that ever took place, and we're still finishing Basel III from 10 years ago. So my view is I'm not going to -- I want to get back to the fore. We have time to do it. We can find a lot of ways which are stupid ways to get some part of our balance sheet or do a bunch of stuff. And -- but I'd like to see them, what are they going to do with SLR, G-SIFI, Basel III, kind of finish the package, SCB? When we see all of that, we'll be a little more direct than how we want to handle this. But right now, I always -- the first prism we always look at the business through is do the right thing for the client. I'd rather -- so if someone says, what would it do if you have to go with 1 bucket? Well, if I have to add 5% to capital, it's to reduce my ROE by 5%. What's the mystery of that? Why -- to me, okay, well, I don't want to go from 17% to 16%, but I'd rather go from 17% to 16%, then lose my share market or lose the client. So yes, it's a terrible place to be in. That's what it is. We'll deal with it, and we're going to seek out a million ways to reduce it. A guy could seek out ways to get paid more on debit cards by outsourcing my debit card. I'm thinking about that. Of course, I don't think that would ever work in our position. But I just think those things are just unfair, and I want to find ways around them.

Do you think they're going to do any changes, make any changes to those capital ratios? I mean, [indiscernible], is that [indiscernible]?

That's the one thing we should do is crowdsource, people helping reduce our G-SIFI. So anyone out there from fintech or the other world of shadow banks, look at us and anything you can do help me reduce the G-SIFI. Remember, we will pay to reduce it because it's very expensive capital. So we'll share that with you. And what was your last question?

Okay. We have 2 last questions. One is on climate. There's a question from the audience here, just asking, can you discuss your opportunities to impact climate given your position in the industry?

Yes. I think we've been trying to be really diligent and mature and thoughtful about reducing carbon intensity. We've spoken with auto companies, utilities. We're not doing this on our own. The car companies, how they plan to help, we want to help their transition. It's got to be done that way. My view is we do it right as a country, very thoughtful by industry. We can actually get CO2 way down at very little cost to the economy. If we do it badly, and I'm thinking that just banks from a policy, we won't get it down, and it will really hurt the economy. And I remind people, it's not a banking issue. You've already seen a lot of companies sell their dirty oil and gas assets or coal assets to nonpublic companies, now there's no transparency on anything about it, so they're going to make a lot of money in those investments. It's not about what banks do. It's about what the economy does public policy and one day, if the American public doesn't have the courage to talk about a carbon tax, we're never going to really do a great job fixing this problem.

So last question here is that you have created a formidable powerhouse in JPMorgan Chase since you took over 15 years ago. Wanted to just understand how you're thinking about the transitioning to the next generation. You did recently announce the reshuffle of your senior ranks and wanted to get how you're thinking about succession here.

Yes. I think we're very -- first of all, very -- I mean, you know Jen Piepszak, Marianne Lake, 2 just exceptional executives -- happen to be women. And -- but I think we have a great bench. I have Daniel Pinto is exceptional. Gordon has been one of the best partners you could ever imagine. So I'm going to miss Gordon, but sincerely wishing him the best. He's going to stay associated with us. But there are a lot of very good people here. And I intend to stay, which is sanctioned by the Board for a significant amount of time. I think you put in your report several years, significant means more than that. And one of the director specifically made that point. And then we have a lot of people to choose from. Remember, they have a hit by the bus plan. And then obviously, and we meet -- every time we talk about all these folks, and it may very well be a woman. But I just want to tell people, it will not be a woman because it's a woman. It will be the person who's the best suited for the job regardless of race, sex, degree or sexual orientation.

And significant means 5 years?

The Board said significant. You got to ask them what they meant by it, but they didn't want to seem like it's imminent, like 2 or 3 years. So -- and I love what I do, and I'm perfectly going to stay here for 5 years. And I'll also go when the time comes. And this is the -- obviously, Daniel can run the company. He's fairly close in age to me. But after that, when that time comes for the right person, I should leave and let them do the job. Or if I can't -- energy for it anymore, I'm going to leave, so.

Well, you seem to have enough energy right now.

Still piss and vinegar, yes.

All right. Well, Jamie, thank you so much for joining us this morning. Really a great pleasure to have you here at our Morgan Stanley conference. So thanks very much.

Betsy, thank you.

All right. Take care. Well, now, we'll move on to the next session.