JPMorgan Chase & Co. (JPM) Bernstein’s 40th Annual Strategic Decisions Conference (Transcript)

JPMorgan Chase & Co. (NYSE:JPM) Bernstein’s 40th Annual Strategic Decisions Conference May 29, 2024 9:00 AM ET

Company Participants

James Dimon – CEO

Conference Call Participants

Unidentified Analyst

Thanks, everyone. Very happy to have JPMorgan Chase CEO, Jamie Dimon joining us. Jamie, thanks so much for coming back. Great to have you here.

James Dimon

Thank you.

Question-and-Answer Session

Q – Unidentified Analyst

I was hoping to start off with a few follow-ups from Investor Day last week. Couple of things on folks’ mind after [Multiple Speakers]

James Dimon

[Multiple Speakers] year about stock buyback.

Unidentified Analyst

Yeah. So I mean I think for context, last week, share buybacks is something investors are clearly very focused on. You’re generating a lot of capital. If we fast forward a year or two, you’ll have quite a bit of excess capital, so, yeah, the comments about being valuation sensitive caused some stir, maybe you could give follow-up thoughts on how you think about that.

James Dimon

Let me just totally clarify, first of all, welcome, everybody. Totally clarify, we told the world we’re buying back approximately $2 billion a quarter, we continue to do that. Jeremy Barnum said, we might do more. There’s a logic to use the Visa after-tax money to buyback stock is market neutral. So Visa goes up and down in JPMorgan, we’re not going to tell you exactly the timetable of that, but thinking of that, that’s a very rational thing to do. We’ve been doing some of that. We’ll continue to do that. And from there, we could do more or less as we see fit. There are no promises on any — we’ve always been sensitive about the stock price. I do not believe that buying back the stock at any price is the same thing and that we should be thoughtful about that. So as the stock goes up, we buy less; as the stock goes down, we probably buy more. We are going to end up with a lot of extra capital and we’re not going to just spend it because it happens to be sitting there.

I personally think the valuations in the market are high. So it’s not that we’re saying JPMorgan isn’t properly valued relative to the market, I’m saying that the market is high. And I think it’s a mistake to be using all that capital at these market levels, and so we’re going to be very patient. It’s a good problem to have. I look at ownership of a company no different than if I own the company, I wouldn’t have any problem having excess capital sitting there for a while. Zero, none, not. You haven’t lost it, you haven’t wasted it, it’s earnings in-store, we will find ways to deploy it, and if we don’t, we can always make a big special dividend. We can do something like that, which is not my preference for a whole bunch of different reasons. But we’re going to do it, which in the interest of the long-term shareholder. And so, does that clarify it?

Unidentified Analyst

Yeah, absolutely.

James Dimon

Can I clarify one other thing because I look coming down to your analyst projections roughly, I’m not going to comment every line-item, we have told you that we’re going to be adding reserves mostly for credit card and you have not put it in your models. It’s about $2 billion this year. It’s about $500 million a quarter, okay, so change your models. And there are other ins and outs, but literally as the credit card balances go up, you have to add those things, and obviously, CECL, we can change CECL too. We assume we don’t change that, all things be equal, it’s a credit card add for a bunch of the growth of portfolio.

Unidentified Analyst

$2 billion is what you expect for the year-on reserve build per quarter.

James Dimon

For that, yes. There’ll be other ins and outs, yeah.

Unidentified Analyst

Okay. And another follow-up, the topic of CEO succession came up. You clarified that your time in COC is inside of the five years now. Probably.

James Dimon

Yeah, it’s totally up to the Board. So you can ask me all you want, but the timetable is less than five years. That could be four, could be three, it could be 3.5, it could be 4.5, it could be 2.5, it’s up to the Board. The Board will decide we’ve got some great succession. You all know them all, so you should evaluate that yourself, but — and then there may be a term as Chairman for a while after that. That’s again, totally up to the Board.

Unidentified Analyst

So two things. One, we’ve all seen cases where the retirement of iconic CEO leads to subpar performance afterward, besides the good bench, what else is ingrained in JPMorgan that gives you confidence that the company will continue to be successful when you’re not CEO?

James Dimon

I think we have extraordinary management again, but you know, I mean you guys should evaluate yourself one day, but you know a lot of these people how capable they are, and I think there’s an extraordinary discipline. When you’ve built the 82nd airborne, if you want to build an army or an 82nd airborne or 101st airborne, something like that, and you go to a foreign country and you try to build it takes you decades, okay? It’s the equipment and the training and the culture and the character, we’ve got an 82nd airborne. It’s not going to go away overnight because you have a new CEO or something like that. There are all these disciplines that take place.

Charlie is building those disciplines, some of you just heard it at Wells Fargo, reviews, detail, analytics, observation, looking at competition, risk controls, all those various things. So those things will be — some of the things are machined. And obviously, hopefully, the depth of management goes way beyond just the top people. It goes into every trading desk, into every branch, into every business, it goes into innovation. The things we’ve been doing for 10 or 15 years, we’ve been doing it for a long time. So hopefully, it’s ingrained in people and in the Board by the way.

Unidentified Analyst

And just on that other topic, what is your view of the pros and cons of remaining on as Chairman after you’re no longer CEO?

James Dimon

I read it — there was a newspaper article a day and I love it when these people make binary statements, it’s good. How the hell they know? So that’s why you have a Board. The Board should decide what’s in the best interest of the company. And the Chairman, the separation of the Chairman and CEO over the Chairman and CEO, there are tons of examples where Chairman and CEO were separate and it was really bad for the company, Global Crossing, Enron, WorldCom.

So when they write these articles, this obsession with that thing, does the company function, does it function properly, does it have good governance, I pointed out one of the most important governance things is that — and I’ve been doing this since bank one, every single meeting we have, they get to meet all the senior people, they know them all well, but also at every meeting they have, I leave the meeting at one point and they meet separately without me and it’s run by the Lead Director, which basically has the same authority as our Chairman, and at one point, I wanted to get rid of the Chairman, just have a Lead Director and a CEO. I mean, like who cares?

I mean, we’re overstaying the importance of this issue at one point, and then also afterwards, there are a lot of the things where people stayed for a year or two in a work. There are some examples where Chairman stayed, they were a great partnership and they went on for years. So there’s no magic to it, but the Board should do the right thing. If the Chairman is getting the way of the new CEO, they should go. If the Chairman is helping the new CEO in a million different ways, they should stay and so.

I applaud what James Gorman did. I think they did a great job. My Board — we gave the Board studies of multiple successful and failed successions. There is no magic formula, but the quality and character and content of the people is probably the one thing that matters the most. Will people do the right thing? I’ll do the right thing at the time comes. I don’t have to hang onto the CEO, the Chairman role forever. I got fired once, I was fine. And so we’ll do the right thing when the time comes. But I don’t like cookie-coated solutions. That’s always wrong.

Whenever I go to Europe, that’s the endless subject, particularly the FT Chairman, CEO complex, but they never actually analyzed it. There’s no evidence that that’s true. And of course, America does much better than European companies, so maybe they don’t have a right.

Unidentified Analyst

Maybe just one more on the Investor Day for those that weren’t there. You talked about areas where JPMorgan is doing great, where you’re big, great market shares, but you said you also wanted your leaders to highlight where there’s still opportunities where you’re undersized, and what are some of the key highlights there where you still see that [Multiple Speakers]

James Dimon

I love it when — as a part of the management team, if you were JPMorgan Chase, I don’t like — inside we celebrate lots of stuff, we do road trips, we congratulate people, but in a management meeting, my view is to emphasize the negatives. You’re not here to toot the horn, the CFO is not there to put the best foot forward, there’s none of that. It’s like what’s the truth, the real — how are you doing relative to other people? Where are you weak? Where are you strong? Where does someone kick your butt? So I love it when they showed the Detroy and Jen show, the CIB, where we’re number one, two, or three in 22 of the 23 products, stuff like that.

I love the second page more. When you break it apart by-product, by area, so think of FX, credit, macro, equities, cash, derivatives, prime, ECM, DCM, M&A, and you break it apart by region and stuff like that, now you have that set, but we’re not number one, two or three in half of it, and why not? Why shouldn’t we be number one or two or three in FX trading in Asia or in the country or something like that? And that highlights — that kind of heat map highlights where you can do things that you could do that by city, by state, by country, by business, by product, by service, and we do. And they show you charts in consumer where we’re number one, two, or three in market share in this place, those also show you that market share matters in terms of profitability, and we did it — we could do it in payments. We can do it — they show you charts and payments where we’re really good with — we were the banker’s bank, we’re really good with finance institutions, but we were short versus city in tons of corporate areas, and corporations, I mean, and stuff like that, and that’s how we do it.

We look at those things, look at opportunities, and then behind that, you have the investment in products, services, technology to help drive that. Huge — I think, you are right — we talked about Chase Offers and Chase Media, I just think that’s going to be a great thing over time as we get good at it and so — and of course, building infrastructure is going to be important, adding bankers and countries, they’re all important, and we kind of lay it out for you. That’s what we’re going to do. I think some of that stuff won’t change for a decade, by the way.

Unidentified Analyst

So it’s been a year since we had significant turmoil around the banking sector, how do you size up the health of the industry in general and in particular smaller regional banks?

James Dimon

Now you have to scenario plan, okay? If we have a soft landing and rates stay where they are, come down a little bit, which is what the world expects, everyone is fine. If you have a harder landing with stagflation, yeah, you’re going to see a lot of stress and strain in the system from banks to leverage companies to real estate to a whole bunch of stuff, that’s what it is. If things get worse, it’s going to filter right through all those things. And in my view, the world is just not ready for that. I mean, a lot of you in this audience have never seen rates at 6% in a 10-year bond. And I don’t know why you think it’s not possible. It is possible. I for one think the odds are much higher than the people think. So if you got to look at the scenarios for that and so — but I also think what I see a lot of banks doing, in particular, is thinking ahead in terms of capital, interest rate exposure, real estate exposure, reserves, they got to go bank by bank at that point. It doesn’t help to make a generic statement about banks, and so — but I think real estate too.

I remind people, in real estate — because I heard Charlie talking about it a little bit, rates went up 300 basis points. So that makes any cash flow worth 30% less. So it’s got nothing to do with real estate. If an asset was worth $100, it’s now worth $70. If people are lending $60 against $100, they’re now lending $50 against the $70, that’s all it is. That’s not even real estate, that could be almost any asset out there, so — and of course, people have personal guarantees, they put an equity, and a bank will rollover, not at 50%, but maybe 90% to keep the thing alive, but that is kind of math, that’s, I call it, that’s the gravity of interest rates. That’s the that’s the — that’s a cosmological constant, and so people need to be prepared for that. The surprise will be stagflation. I’m not saying it’s going to happen. I just give the odds much higher than other people. I look at the amount of fiscal and monetary stimulus that’s taken place over the last five years has been so extraordinary, how can you tell me it won’t need to stagflation? No, it might not, but I for one we’re quite prepared for it.

Unidentified Analyst

And you mentioned that from a regulatory angle, we still really haven’t addressed the things that caused problems last year on the funding liquidity side, what are the key [Multiple Speakers]

James Dimon

Yeah, well, they’re talking about it now because I saw some speeches that some of them gave. We should — I never liked HTM, and so the amazing thing this goes on to like regulations, I mean in capital and Basel incented you to put them in HTM. I don’t know why held-to-maturity, something you cannot sell, you’ve tied your own hands is better from a capital standpoint. When people walk-in your office and say, well, it’s a 25% return on HTM and it’s 12.5% return — it’s the same security. I just don’t get it sometimes when people actually believe some of these numbers. And so I think there should be restrictions in HTM and — but based on something — could be based on your long-term debt or something like that, but to me, there should have been more analysis and interest rate exposure.

It was well-known what these people are doing and stuff like that, and then liquidity, I think they should take a deep breath in liquidity because liquidity is a big mumbo jumbo of stuff at this point, and what you want to do and I agree with the term of the discount window, absolutely, that should be a real source of liquidity, but if you’re going to use a discount window, you should change LCR to mimic the discount window, that creates real flexible liquidity in the system where you can lend and you’re backed-up by the Fed. As opposed today, LCR is HQLA and treasuries and stuff like that, so it’s very rigid, it will cause a problem one day. So I think they should look at the whole liquidity regime and liquidity is the big point. It was never capital. So when we look at capital and CCAR, you better be a little careful to think that those things it does allow people with full sense of security.

I always looked at CCAR. We always do stress testing. Now it’s like 80,000 pages on one test and we do 100 a week. So the way you protect yourself is the 100 a week, but you can handle various types of stress tests, which are things you’ve seen, the 87 crash, the 94 bond ramp, the 97 market crash, the 2000 Internet, the ’04, I mean, we should handle all those things roughly. And we can, but barely — it will never dent capital but it can cause a crisis if people lose a lot of money or if they have a liquidity problem or something like that so, and I do believe in that. I just think my own view is it’s time to revamp the whole regulatory regime. It’s literally — it’s all barnacles and added on top of each other.

I mean, people should take a step back, and say, what is it we’re trying to accomplish and international standards, What is the international standards? What makes — I think you can make banks completely run proof if you want and just get rid of this idea that depositors will lose money if something goes wrong, just get rid of it. Because I’m tired — every time there is a kerfuffle in a bank, the whole system gets rattled or something like that and maybe we should end that. And there are ways to do that, which if people want to have a serious conversation about how to do it, and when you look at uninsured deposits, you should look at runnable deposits. They’re not one class of things, but you can make all runnable deposits fully backed and have a very healthy banking system with lower capital requirements, not higher capital requirements. And I — look, I think they should do that one point, really take a step back. I mean, I think if I were them, I take a deep breath and look at everything.

Unidentified Analyst

Using insured and uninsured is overly crude, right, because you’re missing some of the nuances.

James Dimon

It’s totally — overly accrued because if you were a big corporation, you’re going to have $1 billion in your checking account, you need it there. It’s not runnable the same way, but that might be backed up a different way than you back up uninsured where small businesses or middle marketer, and then — you could do an analysis, you just change the guaranteed of $1 million, what would that do, change it dramatically, I guess they all relate to each other, so — but if you want these medium-sized and regional banks to survive, you better be careful what you do at this point. You need them to allow to merge, They need the kinds of scale, too much capital to drive them out of certain products, loans and deposits.

With these capital numbers and liquidity numbers, loans and deposits become very hard for a bank to do. And so now you have this huge growth in private credit. If that’s what they intended, so be it, they should tell you that with the forethought, the mortgage business inside a bank, I mean, you could see them say, why would a bank have a mortgage business and if that’s what you want, then they’re talking about Jan and (inaudible) came out and said, well, all these mortgage brokers are now mortgage originators and brokers and servicers, they won’t be able to finance their business in the downturn, so we should have a backup facility from the government for them. Really? Is that what you really want to do? Just another one of these ridiculous backup facilities for an industry that doesn’t deserve it.

I mean, why should they put up liquidity for their servicing requirements? And then it gets embedded in the cost of the product, which the cost of mortgages will go up, but banks have flexible liquidity and capital, some of these other folks don’t, so all these things are going to have ramifications down the road. I also think they have — and it is important to me, I think they have ramifications to public markets that our public markets are getting smaller and smaller and smaller, is that what you want, and that’s a function of capital, regulations, requirements, litigation, SEC rules, frivolous shareholder meetings, I think our 10-K is now — even smart people tell me, you guys don’t disclose this, and I say, yeah, we do it in the 10-K, page 410, and even that just endless requirements and we just — we should — we have the best markets the world has ever seen, let’s not destroy them.

Unidentified Analyst

You mentioned it’s helpful to have a mix of small, medium, large banks, but with tech costs, regulatory costs, it’s hard [Multiple Speakers]

James Dimon

But it’s different for different banks, so if you look at small community banks, there are some very profitable. So I’m not saying here that are kind of skills important to everyone. You can run a single branch or four branches and run a very profitable business because you are very good and you’re relying on other people providing technology to you as FIS, Fiserve or something like that. Remember, they’re going to be providing over time AI and other products and services, but other banks are in a position where they need economies of scale.

So if you’re trying to compete with some of us in certain products, you need economies of scale, and so they should decide in their own circumstance, what their strategy is, what the service is? There are some banks who are very specialty banks, they’ve done great, and so you got to be careful to predetermine it, that’s what you have boards for and shareholders and so — but some need the economies of scale and they want it and they’re going to feel disadvantaged if they doing a deal, it takes them two years to close it.

So if you’re a Board and you’re sitting there facing a two-year time period that’s — the regulator should be predetermining that. That’s a political decision, let them decide. If you are owning these banks and putting them together, they think they can manage it and it’s hard to merge banks, I agree with that, and some don’t succeed, that’s called Capitalism, but some succeed. You should allow them to decide on their own about what the strategy is going to be.

Unidentified Analyst

So you’ve had massive growth in net interest income over the past few years, aided in large part by the ability to keep consumer deposit prices contained, what’s surprised you about Chase’s ability to stay disciplined on pricing and also grow core relationships?

James Dimon

They are two totally different things. First of all, remember, the first part of the growth had nothing to do with betas or stuff like that. Going from 0% to 2%, when we went from 2% to 0%, we didn’t — we brought the full cost of that. So the first piece, it was just taking back what hadn’t been there before, an average in — I mean, if you look to multiple betas, it’s not that different than the past, so the spread, when you get to 2.5%, some banks to 3%, that’s all you’re going to get. Once you get there, the beta becomes 80% or something like that. So the uncertainty here is the amount of fiscal stimulus and monetary stimulus is extraordinary.

The amount of QE was extraordinary. We don’t know the full effect of QT. Obviously, the markets are different, you got a lot of fintech companies out there and different people holding money and moving money, so you don’t really fully know the full effect on beta, but it hasn’t been that different. I’ve been on the more conservative side and I’ve been wrong. So Marion, Lake, and Jim would tell you, Jamie was wrong, yeah, I was. I’m still on the conservative side because I do think — and the competition is very local, by the way. It’s going to be very different in Nashville than it is in Austin, and so we’re conservative, but it’s playing out kind of what we thought.

And the question is when will it might get more competitive for us. I said some banks are competing more for dollars and others aren’t. So you have to think that through too, it isn’t just — it is not the system, but at one point that the spreads will stabilize and that will be fine. But when we look at the business, you got to manage the business through that. You can’t like build branches and run your business like thinking that your spreads 1% or 5% when it’s not going to be. So actually, when we think about the investment horizon, we actually look at more normalized spreads for a lot of different things, by the way, not just consumer NII.

Unidentified Analyst

Yeah, and on that question, a lot of banks have been shrinking their branch counts, but last week at Investor Day, Marion laid out the case for why you’ve gone the other way, you doubled down on branch banking, you’ve become the only bank with branches in 48 states, why — what still makes branches so important even in the face of all this digital?

James Dimon

So we didn’t double down, what we did is, if you look at it, we are also consolidating certain branches where there’s logic, we should consolidate. I’m a real skeptic about that, okay? When I got the bank when they were consolidating, clicks not bricks, they were closing branches to make $1 million year profit, they would have made $1 million profit for the last 20 years. I mean, what the hell would they think, and in fact, Chase was doing the same thing, so it might be very analytical about what you closed, why you closed it, where you can keep it. I give you some very specific examples, but I stop closing the branch and they act like I’m interfering, and I say, no, I’m not interfering, don’t close that branch. I’m not going to give you all examples. I don’t want to tell my competition why, and also I say, if you close that branch, who is going to open there, Wintrust, Capital One, take the lease, move in. Actually I was — I think it was at Bernstein conference once and I was in the back listening to, who is the guy who built Commerce Bank.

Unidentified Analyst

Vernon Hill.

James Dimon

Yeah, Vernon Hill. Vernon Hill was up here and he’s doing a flip chart — slide presentation for you all and he was making fun of Chase, and he said, they closed this branch, they closed that branch, I moved right in, and when he was walking down, I said, Vernon, that will never ever happen again, and I put in place a rule at the time that you couldn’t close a branch without my permission. Because they would say, well, where you can move to the second floor, he took a 100% of our consumer business, 100%. Even if there’s a Chase branch a block away, well, they’ll just go to the branch, no they didn’t — they wanted that branch, and of course, he did other things that got the good service, so — and then we opened branches too, because there’s always places you should be opening branches, always places you should want to gain some share, and the 48 states allows us to do other things in the states and it’s kind of a foothold and we have a strategy around that, which I think she alluded to a little bit of a covering more people within driving distances, a little bit more rural, and there are certain different types of branches.

So we like our brand strategy. I think she said that 900,000 people visit a day. So remember, you don’t have branches because you have a strategy department, where you have a CEO, where you have marketing people or salespeople making statements, you have branches, you have customers who like them. People like to visit their money. That’s what it is. And the branches, of course, have changed their nature over time, more advisory than operational, et cetera, and we can always adjust the fleet. So if you said to me, well, what if you’re wrong, we could adjust the fleet very quickly, okay? It’s not — it literally wouldn’t be that big a deal between leases and selling stuff and modernizing some of the branches.

Unidentified Analyst

Things work out well for you better than Vernon Hill. It seems like — because of the other side of the balance sheet really…

James Dimon

I used to look — again, I would look at people like, I know Vernon, I still see stuff, but you always look at every competitor and say, what do they do that’s better. And they remember they had those little machines that would put your coins together and gum for this and biscuits for the dogs and more hours and customer service works. So he did do a lot of things right and you should always learn from that. I got to bank one and they said, Jamie’s going to be cost-efficiency and stuff like that and that they would get rid of the coffee, the lollipops, and the dog biscuits, and the branches, well, if you go visit a branch, I mean, you could see dogs pulling their masters into the branch to get that biscuit.

I mean — and they even would come into the drive-through and their tails will be wagging and they send the biscuit through the pneumatic tubes there, and you don’t get rid of stuff like that. And some people like to visit the branch because they just are lonely, and just be really thought about how you run a business. Don’t think it’s all about mass sometimes, it’s not. And there’s a wonderful story. We had a kid killed in a branch yesterday with a gas explosion in Youngtown. So it was a terrible thing. But the branch is a human. They deal with customers. You go — I go to these community branches, if you haven’t been to one, there’s one in Harlem, there’s one in Fordham Road in Bronx, go to the community branch, sit there for an hour and a half, watch the people walk in and out and tell me if it doesn’t work. And some of you guys used to do those branch visits. So what analyst does them [Multiple Speakers]

Unidentified Analyst

[Multiple Speakers] have as much anymore [Multiple Speakers]

James Dimon

No, there is someone who writes every year about their branch visits, anyway, and I read that analyst report in detail because they’re learning about what the people do this well or not well. I read John too, but what do you doing [Multiple Speakers]

Unidentified Analyst

About that report. But you’ve got the goal to go from 11% consumer retail share to 15% and some of that seems baked in the cake from some of the investments you’ve made and all of that is a multi-year.

James Dimon

Yeah. They are — you should show the branch growth that we’ve been around for 15 years, the branch growth is only five years old, so you can built in what you think is going to happen down the road. But obviously, you want to cover more people, cover more accounts, more products, more deepening. We announced today — I think it’s been announced — though it’s being announced, I’m announcing it now that our self-directed investing, we’ve added fractional shares, we’ve added a better kind of research together, five or six different things. One day that self-directed investing will be really good, and then you’re going to see us really push it. And then you’re going to see — because we have competitive advantage on it, and so — I get very excited about that when you can do certain things at Chase that you can maybe JPMorgan Chase can do it. I also think our order match system will be better than payment quarter flow and I’m going to try to prove that. Mikael Grubb over here. I can probably prove it. But you’re going through our order match systems and we give our consumers the same order match effectiveness that we give our big wholesale clients, okay, so your payment quarter flow has a deceptive characteristic to it, and so I think there’s advantages that you’re going to see us try to take advantage of soon as self-directed.

The Chase offers, Chase Media, I think — if you have a Chase account — how many of you have Chase accounts? How many of you have Sapphire Card? Yeah, okay. But you’re going to get — you get offers at the bottom of your account, the bottom of your Sapphire Card to go online, you’re going to get more and more highly relevant stuff. It will take us a while, but we’re building the systems to give you some really neat stuff. And also Chase Media allows other people to come in and if you like golf or you — and we make it consumer-friendly, so we’re not just bombarding you with which we do a little bit today with stuff that is irrelevant. I tell the people and you give me offers to have my nails done Downtown, really, if you think I’m going to like drive Downtown, I don’t get my nails done, I won’t go Downtown for a meal anymore, it takes too long.

Unidentified Analyst

So on that topic, AI came up quite a bit at Investor Day, and you talked — you said it’s already interwoven into many of the businesses on having an impact at JPMorgan, so just again for kind of the broader audience, what are some of the examples of biggest opportunities banks have to leverage?

James Dimon

Yeah, I think people — I think the best thing is to stop talking about how it’s going to do, it’s already here. We’ve been using this since 2012. We started our own department in 2013, and to me, as a management thing, every time we have a management — I didn’t go yesterday, Daniel Pinto did it, but every time there’s any kind of review, it’s also what are you doing on analytics, think of AI. It was true by the way before AI. It was analytics. We always doing deep analytics and deep math and credit, marketing, and underwriting, and now it’s just a whole other level of that where you can find correlations and things you couldn’t — the human eye couldn’t do.

So I think we say there are 40 use cases, probably by the end of this year, maybe 800 as management teams are getting better, it’s not understanding AI, it’s understanding how it works. But you say, my God, you mean you can do this for me, and so we use it for prospect, marketing, offers, travel, note taking, idea generation, hedging, and the equity trading floors, anticipating when people call in what they’re calling for, answering customer — on the wholesale side, but answering customer requests, and then we have — and we’re going to be building agents who not just answers a question, it actually takes action sometimes and this is just kind of going to blow peoples’ mind.

It will affect every job, every application, every database and it will make people highly more efficient like a lot of you clicking away, taking notes, you won’t have to do that because it’ll — you can just summarize what Jamie said, you push a button and you don’t have to waste all that time, and it’s just powerful stuff. And we use it for risk and fraud, recognition and bad guys are going to use it, so we have to use it to counter the bad guys. We have to use it to get better and better in cyber, so it’s going to be everywhere. And I think for smaller banks too, it will be offered through AWS or through Fiserv, FIS. So it isn’t like they won’t have any access to that. And so I think we’re in good shape, but it also creates some disruption, maybe in payments, something where people use to build something better, faster that we just didn’t do or something.

So to me, it’s just part of the management team now. We have someone on the management team very experienced. Some of you may know, Teresa Heitsenrether, who is now responsible of data and analytics because they’re directly related, getting to the cloud. Private-public is directly related to access the compute power you need and then to go across all the database in the way you never used to do it before. And then there’s a mirror inside credit card, consumer, payments, trading, banking to do the same kind of work and we’re just getting smarter and better at it. But in the meantime, what I don’t know is the pace by which all these things will happen, because we’ll probably be adding headcount at AI for quite a while. So you’ll see our costs going up, not down. We think there are benefits. We do try to measure ROI and MPV and in some cases we do, and in some cases, we don’t, I think it’s like a waste of time, but it is super real. It’s a continuation that deep analytics we are doing years ago.

Unidentified Analyst

Maybe you can talk a little bit about the importance of some of the…

James Dimon

I think we gave — some of them gave some very specific examples at Investor Day, the KYC, cost down at 50%, 80% faster and that was like literally taking one person who is an AI expert, saying attack this problem, and they just attack it once, weren’t they attack it four times, and so think of whenever you do the banking, like why is this happening that way, we should get OSAT to be going way up to this.

Unidentified Analyst

So like you have been doing it [Multiple Speakers]

James Dimon

And it will eliminate jobs too by the way, so in my view, don’t be afraid of that, get ahead of that. I mean, management team should be putting their head in the sand, they should be observing and thinking about what I mean, because if you’re ahead of it you could save your people a lot of aggravation. You are going to wake up one and if you have to lay off 50,000 people, you can built-in into your plans, and that’s where I always say, attrition becomes your friend. You do have 20% attrition, a lot of jobs, and therefore that is 40% over two years. So you can plan, retrain, et cetera, if you think ahead of all of this.

Unidentified Analyst

So, can you talk a little bit more about these adjacent businesses and how important they could be to the future for you? You go to travel looking for, you mentioned, Chase Media solutions, what’s driving the opportunities there? Is it technology?

James Dimon

So in every business, and, I don’t know if adjacency is the right word, in every business, the goal is to do a better job to your customer, see it from the point of view of the customer. So in a lot of cases, just making it better, faster, quicker, cheaper. We add a lot of services for nothing. So think of today, when you go online, you’ve over the years, you have Zelle, you’ve got free trading, you’ve got more data, you got more analytics, you got free wealth planning, you got free — so some of it’s just doing a better job for the client. Some of it may create revenue opportunities. So Chase offers Chase travel, where if you book through us and we offer you better deals, we also can earn the travel commission effectively, so we’re both doing a better job for you, and we create another revenue stream, and that’s true in every business.

I always tell people in a lot of wholesale businesses, we actually price by the drink. You charge a little bit for everything. A lot of consumer businesses, they’re bundled. I just gave you an example about your account, but some aren’t, and so — but anywhere you have data that you can use to make a client happier or offer them something they want, you can maybe charge for or not charge for it, but think of even in — I don’t even want to tell you some of these things, in certain areas where we can anticipate something and offer the clients something better, quicker, cheaper, faster is better for us too. And so — we obviously, we have to do compliance and regulatory and stuff like that, but it’s endless.

And with our data, like I tell people, we know we might know where you eat at night, on a Friday night that you like Chinese food, so maybe the small new Chinese restaurant, one block from you eat every Friday night will offer you $30 off or even a free meal to get you to try it. That has to come through our data and small business will be very happy and the client may be very happy. Well, that’s kind of a win-win, right? And so that could be for big companies, could be for small companies. We have deals with some big companies already and we could partner with people, and so it’s anywhere. Small business, I think I’ve always looked at small business areas that we should be able to do more to make their lives easier, a lot more, and you see it with things like Toast, but the things that we can do to or working with the Toast, embedding payments or something like that. Medical, I’d say it’s going to be a huge area, medical payments are — each area we go through each one and we expect the teams to be thinking adjacencies, data, customer service, OSAT scores that are faster, quicker, cheaper.

Unidentified Analyst

So, in your Chairman’s letter, you talked about the role of private credit and maybe just give us a little bit of thought on how much of that is a threat to banks. Is there an opportunity for banks or a little bit of both?

James Dimon

It’s a little bit of both. So first of all, I’m trying to be neutral — not neutral, but like really assess it as opposed to just having a knee-jerk reaction to private credit. I already mentioned there is this issue about stuff going private. So it’s private companies, private equity, private credit, and that’s there’s a policy issue that’s good for the country in the long run. We’re the most transparent market the world has ever seen. That’s — by that transparency rule of law, research, disclosures, ratings, it’s not just one thing, it’s also access to investments, so as they go private, there’s less and less access, and then you have to ask the question about, do you want to give access to retail clients with some of these less liquid products? Well, the answer is, probably, but don’t act like there’s no risk with that.

So I will make a prediction in that one. So now private credit, yeah, it’s in some way there’s a lot of good stuff. These folks came forward direct lending, private credit like they’ll sign a unit tranche deal, they will do the covenants differently, they’ll moderate it — they’ll modify it for the owner, and stuff like that. They know the business. They might be a long-term investor. They’re not going to be asking the business to do stupid short-term of things to meet covenants, it could be good owners, it could be a good thing, and the fact that long probably a good thing, the fact you can raise private capital in your private company is probably a good thing. The fact that you could — so that’s all good. But not all the people doing it are good. And so I think some of these people are brilliant.

I mean, I know them all, we bank a lot of them, they’re clients of ours, but they’re not all good, and the problem in financial markets are often caused by the not good one, the people who make the mistakes and that you have a liquid product, maybe they’re not properly marked, they have not been stress tested. Do people really fully understand what I said about interest rates affecting what these things are worth, do they? And if a little old lady finds out that she can’t get her money back and there may have been disclosure there saying, this money is locked up for five years, but you know what, retail clients had to circle the block and call their centers and congressmen and there could be held to pay, and the transparency around the marks and the lack of research, the lack of rating sometimes.

Even — I’ve seen a couple of these deals that were rated by a rating agency, and I have to confess it shocked me with what they got rated. So it reminds me a little bit of mortgages, okay, and then they’re going to blame the banks and the mortgages, so the rating agencies were rating them, they said they’re AA or AAA, but they effectively weren’t because the analysis — the subprime component, so there may be problems here. I don’t think it’s systemic, but I do expect to be problems. I also expect there will be problems when you mark these things like they have not been really tested.

During COVID, during those really bad months, they wrote down if you remember correctly, some of these things written down 10%, I would tell you the number should have been 20%, okay? But that only lasted for a month. What if that lasted for a year? And what are the discrepancies? You have this with private-equity discrepancies. One person marks a loan and another — and the other thing, now they’re coming closer. We’ve seen a whole bunch of deals go from the private market to the syndicated market, your know why? It’s 200 basis points cheaper, and when rates went up, it matters. It may have mattered less at low rates.

So we’re going to compete. We can do direct lending off our balance sheet. We can do direct lending and syndicate it. So we — and we also want to be agnostic, which is, you’re the client. we will do A, we’ll do B, we’ll do C, we’ll tell you the pros and cons of each, so we’re in the mix and we haven’t yet — a lot of these people raise these big funds and stuff like that, we haven’t done that yet, and what asset management does is completely separate. This is all about what our investment bank is going to do in middle market to compete. So we’re comfortable we can compete.

Unidentified Analyst

So two updates on your business line.

James Dimon

By the way, with our balance sheet and capital, we can put $100 billion into it, $200 billion, so I’m not afraid about that if you think it’s good credit. The other thing that always surprises me is — I don’t know what the price is today because it literally changes every day, it’s 200 basis points more expensive. And for JPMorgan, I kind of like the 200 basis points and we get other revenues. And one last problem, when the shit hits the fan and it will one day, we don’t know when, there will be a lot of stranded borrowers because some of these people simply cannot roll over loans like we would because they have a fiduciary responsibility to book the new loan at par on the balance sheet. To do that when things are bad, they have to book — it’s got to be a 13% yield and the company won’t be able to afford it. So there’d be people saying, I can’t help you, and that may be a little bit of a problem to particularly if it starts to affect smaller businesses who call their congressmen also.

Unidentified Analyst

Could we get a quick update on the build-out of the consumer bank in the UK and Europe?

James Dimon

Yeah. Look, it’s generally going — I think we said we have $16 billion of deposits, it’s generally going to plan. It’s a good product, people like it. If you actually go there, they are good at, they do like it. It was always been a skunk works things for us that — because digital banking may make us able to do consumer in Europe and it was never just Chase UK that we want to get Chase UK right before we attack another country or something like that.

And there are other things that we have to deal with, ring-fencing, what products we add or don’t add, how we look at the profitability a little bit, but it’s generally going according to plan. I think company should always be — we have other skunk works that are there, which you don’t know about. I think we should always be doing stuff like that. So I’m optimistic about it. And at the point, it gets to breakeven, which I think we told you is going to be four years from now, three years from now. Once it gets effectively to break even, then we have something we can toy around with for a decade. And I don’t know why we couldn’t compete with any digital bank out there if they’re making money and some are — now we have a bunch of actually making money, some of it because they’re putting risky assets in the balance sheet, but we’re making money just not doing that.

Unidentified Analyst

And then can we get an update too in terms of the efforts to integrate a wealth offering into the consumer business at Chase? What you’re doing there and how you feel that’s going?

James Dimon

It’s going great. I mean, God, we started only a couple of years I forgot how many years ago, but it’s $20 billion, it’s almost I think it is probably close to $1 trillion with the First Republic deal. We were adding Chase Wealth managers into branches. We’re getting better at it. We’re enhancing the products, their services, our market share is small in that segment and we have very big aspirations. And like Charlie was talking about his different distribution, we have Chase wealth Management, self-direct investing, private banking, we do not do with third-party with independent stuff, and we have JPMorgan Advisors now, which is kind of the crumb of the crem of how we handle the top financial advisors there who are great and we’re getting better at doing that.

And I tell them that we want the best people, best products, best services, best comp, best research, access to JPMorgan for their clients who need certain private banking services or investment banking services and there’s overlap, and we’re trying the JPMorgan Private client branches, which will be 20%. And if something like that works, could be 100 or 200 down the road. I think they will work by the way, it’s just a different way of running the business. So we have to make sure it works for the customer not for us.

Unidentified Analyst

Okay. We’ve got a couple of more minutes. Maybe just the ROTCE target of 17%. You’ve been doing 20% ROTCE for a few years, talking about over-earning a bit on deposit margin, just how do you contextualize through the cycle 17 and where you might be over and under-earning today in different areas?

James Dimon

Well, I mean, I do think we’re over-earning. We want to be honest about that on NII a little bit and on credit a little bit. Credit, Charlie used the word benign, I’m going to use another word, it’s the best it’s ever been. Ever we are, anytime, ever. Middle market losses have been zero for years. Credit card, if we sat here with a credit card, which obviously is a big number, we would have told you, I think that through-the-cycle is 3.5% or 3.75%, and if you ask what’s the lowest it can get-in the best quarter ever, I would have said 2.5%, 2.25%. It hit 1.5% and because the government gave $6 billion to people. So large corporate has been very good. It’s in that you can see in credit spreads, but middle market has been very good. Mortgage has been zero. Auto normalized a little bit. So it has to normalize. And NII, we’re not quite sure stuff like that, and then there’s competition. JPMorgan did benefit a little bit from COVID and other things, but the competition is fully back.

I spoke about Wells Fargo has got good bones. They’re getting their act. They’re together. Goldman Sachs has been kicking our butt in certain areas. I mean, you can’t just act like the world is a static place and then Basel is going to add more capital. So roughly 17 still there. The best chart I liked is one that Jeremy Barnum showed you that shows potential outcomes under various adverse scenarios, which is what I always worry about. I want to earn good money. Our best year, our finest year ever, ’09, our ROTC was 6%. That was the best year we ever had. I mean, if we could earn 7%, 8% in really terrible times, God, I love, then the business has become a really good business. Remember, a lot of companies went bankrupt. So I did this. I made Mikael Grubb do this and we have our — look at — if you take out the 12 competitors in our proxy, how many earned more than 17% in a year in the last 10 years, so it’s 120 company years. How many earned 17% or more? I think it was seven times. JPMorgan was three of them. Goldman was one or two. Morgan Stanley is one or two and Cap One was one or two or something like that, seven times. How many earned less than 6% in a year? I think the number is 30 or 40, okay?

So let’s not act like we’re going to up that target, okay? We’re in a competitive environment, okay, and then I also went back to 10 years before that, how many earned over 17% of 10 years before that, it was like 30 or 40 out of 120 years. And how many earned under 6%, it was like 30 or 40. But of the 30 — of the people earned over 17%, most of them went bankrupt. So you got to be really careful when you analyze a business and you start changing forecasts, stuff like that. If we can earn 17% for the rest of my life, I push that button right now. I wouldn’t even think about it. I would have no debate. I mean, and if you can compound 17%, if you can reinvest half your money and compound 17%, you’ll own the world in about 50 years.

Unidentified Analyst

All right, Jamie, we’re out of time. We’re going to leave it there. Thanks so much.

James Dimon

Thank you. We’ll see you all soon.