JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : Let's start off with the place we always start off with, which is your view on the state of the economy. Maybe you can talk a little bit about what you're expecting in terms of the macroeconomic backdrop heading into next year, talk a little bit about what you're seeing in terms of customer behavior, both from spending but also from a balance sheet perspective. And it would be helpful if you could delineate between what you're seeing both across consumers and corporates. Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Okay. Yeah, and thank you for having me again. It's annual tradition at this point, so it's great to be here. As we look, and clearly, my purview is informed by the lens of running the consumer businesses, where we see -- and small business, obviously, where we see a lot of what's happening day-to-day in our customers' sort of pocket books. But if we look at the economy overall, it continues to be pretty resilient. I'm not telling you anything you don't know when we talk about the fact that inflation continues to appear to move in the right direction towards policy target that, obviously, preceding the interest rate cuts. There was a little bit of softness, let's say, or a little bit of increase in unemployment that led to the beginning of the cutting cycle. That has firmed a little. I think the risks are a bit more in balance. That's not to say that I don't think that there's still further room to go. And our house view on interest rates is that there will be a cut at this meeting and three more by the end of the year, but the sort of resting place will be a little higher, and the trajectory will be a little slower than perhaps we would have thought even a few months ago. If you look at the consumer, and starting with balances, so cash balances or cash buffers, those have largely normalized now across income segments. And so, I think it's fair to say that the excess liquidity that people have been enjoying over the last several years is gone, but the cash buffers have stabilized. So they're not deteriorating. It doesn't feel like people are overborrowing or continuing to spend down. That said, spend trends are stable, too. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 5:20PM, JPM.N - JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference Before the holiday season, before the fourth quarter, there was some discussion in the late summer that maybe consumer spending was softening a little. And I would say that we really didn't see that, but we're watching for it and have seen since then in October. And now, through the holiday season, that spend has firmed up a little. So while there's always noise in holiday spend trends, when you pick a moment in the trajectory, I would say, year over year, it feels like the spend is solid to a little firmer than it was last year. So things still feel pretty good. And credit trends are in line with our expectations. I'm sure we'll talk about that later. So with the consumer, as long as there's not a shock to labor markets or an asset price correction that's material, it feels like the consumer is on reasonably solid footing for now. Small business is in a similar place. We're still seeing normalization of balances. So there's still a little bit of room to run there. Spend, similarly stable. Credit, similarly benign. And so I'd say that the story is not materially different for small businesses than for consumers. And then just stepping back, talking about maybe the most recent sort of sentiment from our corporate clients is perhaps, unsurprisingly, that confidence is moving higher and sort of somewhat notably over the last couple of months, recessionary fears fading -- are faded a lot. Inflationary concerns are present, but not really sort of dampening what I would characterize as a sort of broadly cautiously optimistic tone coming into 2025, notwithstanding that there's significant uncertainty about how things will play out. So I would touch wood, but I don't see any. So far, everything is still feeling pretty good.

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : Okay, great. So maybe we can talk about some of the trends that you're seeing in the business. Maybe we can start off with deposits. We've had a few rate cuts. So what are you seeing in terms of customer behavior around those rate cuts? How is pricing tracking relative to your expectations? And given the experience so far, how do you think we should think about deposit betas in this rate-cutting cycle relative to prior rate-cutting cycles? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 5:20PM, JPM.N - JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Okay. So there's a lot. So if I miss anything, let me know. I would say -- so if you look at where we are now, it differs from the last two cutting cycles, and the context matters a lot. Clearly, in the last two rate-cutting parts of the cycle, it was in response to some economic stress. It was immediately followed by QE, in which case the Fed was expanding its balance sheet. Reserves are growing in the system. This is different. It feels different. It is different. Obviously, we're seeing a response to, perhaps, a soft landing, a solid and growing economy. And so, we think that the path will be slower, that the resting point will be higher. It's happening contemporaneous with QT continuing, albeit at a slower pace, and likely to end at some point in the first half of next year. And because the economy is stronger, then loan demand is holding up better. And so, there are pluses and minuses. I think, net-net, if you put it all together, we would sort of see system-wide deposits neutral to trending higher in 2025. And so as we look at our consumer balance sheets or our retail deposits, we're similarly feeling like we saw deposit reductions start to plateau in October and stabilize through the fourth quarter. And that has played out as we thought, which means that we think we've kind of reached the trough. And we're going to see modest but modest deposit growth into 2025, in large part on the back of continued strong customer acquisitions, but also my earlier comments. And so that's how we think we're going to play out in terms of balances for what we've already seen on just the three cuts we've had so far, and the outlook is less yield-seeking behavior. So partly, that's a function of the fact that there had been a period of time when people -- and the cash sorting had largely happened, but it's also partly a response to lower rates and the expectation of lower rates. And where we had, I think, previously said that we were capturing the vast majority of those internally within both our banking and wealth management complex, now we're capturing all of them. And so lower yield-seeking behavior, less pressure on deposits, we're capturing all of that back in the ecosystem across banking and wealth management. And so as it relates to rates paid, it will look probably on the way down like it looked on the way up, which is it's going to be a function of product mix migration. And so in the same vein, as we think we've seen likely the trough on deposit balances, we think we've probably seen the peak in the mix of CDs in the deposit complex for us. And so over the course of the next 12 months, we're expecting that to come down slightly and rates paid to come down in line with that, but very much on the way down a little bit like it looked on the way up. We didn't see a whole product reprice, and so we're not going to see that on the way down either. And so I would say, we're going to see both of those play out in 2025.

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : Okay. And then on the credit quality side, you mentioned that it's in line with expectations. But is there anything that you're monitoring more closely in lending portfolio today or any segments that you're watching more closely? And are you tightening underwriting standards in any of the key areas in the consumer business? Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Yeah. So the sort of honest answer on tightening, as we always are, we're always adjusting everything at the margin in response to what we see in very specific pockets. And so we talked, I think, over the course of the last several years that there was some tightening. Across asset classes, there was a little bit of negative selection. Principally, you've seen it in auto, in subprime auto, most notably, a little bit also in credit card. I would say, we expected some or most of that. But the whole industry, and we were no exception, were tightening at the margin throughout 2022 and 2023 in response to where we saw pockets of underperformance or deterioration in both card and in auto. Still kind of marginal, obviously. So card is the elephant in the room as it relates to loss drivers, and it's coming in line exactly with our expectations in 2024. And to the degree that we would look forward and expect there to be any changes, it's going to be driven by macro factors. So unemployment or balances, more so than we're seeing any kind of performance issues in the portfolio. There was a lot of noise. Noise isn't really the right word. There was a lot of discussion around auto, I think, in the sort of September conference circuit. The reality in auto is that there were a couple of vintages that were -- that performed less well. Mostly, we expected that, and so it was priced in within our expectations. A little bit, it was worse than our expectations, but we saw it really fast and pulled back really hard. And it's a very small percentage of what we do, so it's made no substantial difference to our outlook. I think to the degree that others were more concentrated and/or adjusted less quickly, it had a bigger impact. We don't see that as being a read across to any kind of more broad deterioration. Home lending is clean. And so, I would say the only place where we're seeing pockets of underperformance right now that's a little newer is in the small business, card and small-dollar lending portfolio for us, but I would characterize it a little bit more of an expansion in our risk appetite than deterioration. So we're watching that closely, and we are tightening there. It's not something that I'm concerned about at this point. But if I were to say that there's anything that we've seen a little bit more recently, it would be there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 5:20PM, JPM.N - JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : Just to clarify. That's purely because of the rate outlook or is there other things that are driving that? Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Well, it's purely because of the rate outlook in so far as the rates being higher, all other things being equal, will improve margins, but then there's some balance and rates paid offsets. So the net of all of those things. And CCB is a big part of the driver of that. Clearly, there are other parts of the firm that will respond as well. But yes, it's that. I would say, in terms of expense, and this isn't necessarily like new news since -- but just to clarify. At the time, we talked about our expense outlook or the consensus for expenses was light, and it moved up just a touch to be, at the moment, a little above $94 billion. We're expecting 2025 expense to be $1 billion higher than that. That's not new news, but it's clarifying the commentary from that time. And we're not the only driver of that either, but CCB is a driver. And so just to give you a tiny bit of context, we are -- there are two pieces that play into our expense story, and we feel great about them. The first is that we are a growth franchise, and we are seeing customer growth continue to be strong. Account growth, transactions, engagement. So we're seeing, across the board, continued strength in growing the underlying franchise. And obviously, that has -- even with efficiency, that has impact on cost. And then secondly is in our investments, where we continue to see profitable opportunities to invest across the board. And so, it is not the same growth rate of investment spend that you've seen in the past, and we'll go through all of it in more detail later, but that's to clarify the expense outlook. Fourth quarter, NII and expenses will come in a little better than consensus. So NII, a little higher. Expenses, a little lower. And credit, in line. So no big changes to the quarter. Just in, like, wrapping up, I think, IB fees, they're not -- yeah, okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 5:20PM, JPM.N - JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : 15% year on year? Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Or a touch better.

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : Okay. And then so on First Republic, the integration is now complete. So maybe you can talk a little bit about some of the benefits you're seeing from that integration. And maybe you can talk specifically about the wealth business. I know you just talked about that. But maybe talk about how First Republic has augmented or accelerated the growth in the wealth business. And what's the progress you've made in terms of increasing your share of customer wallet in that business in particular? Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Okay. So a couple of things. First of all, First Republic is largely over. We're still completing the loan migration right now, but the big chunk of it was done in the middle of the year and the follow-through in the third quarter. The only reason I mentioned that is, it's a little early maybe in December to talk about the progress we're making beyond that in wallet share gains. Those things take a little bit of time, but we're pretty optimistic. We retained 90% of clients in the banking complex, 95% of deposits, more than 75% of advisers and clients in the wealth management space. And so we feel like we have a pretty stable and -- it's pretty stable base. Just we, of course, want to do an incredible job for the heritage First Republic customers. But when we've talked about our strategy and leveraging First Republic, both leveraging our learnings but also leveraging the opportunity to accelerate the affluent strategy, it was very much about deepening into existing Chase customers. And so just for context, we have over 6 million affluent customers that bank with us happily. And only 15% of them invest with us today, and those customers have $7 trillion of investments. And so we have happy Chase customers that are not yet enjoying the benefits of what we have to offer in wealth management. And this is a strategy using the concierge service, the coverage model, the First -- the JPMorgan financial centers as a strategy to deepen into wealth for those customers. And remember, if you went back five years ago, we maybe didn't have all of the right capabilities and all of the right assets to be able to feel like we could invite those customers to do that with us and feel confident that we would do an amazing job. We do now. Our self-directed capabilities just won a J.D. Power Award, so did our advised capabilities. We have built new channels. We've built new capabilities with Wealth Plan. Yes, First Republic helped us in terms of assets and accelerating getting to $1 trillion. But we're pretty excited about the opportunity going forward. It's just early, so we'll update you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 5:20PM, JPM.N - JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference We had a great year in wealth management. We had record first-time investors this year. And we've grown AUS, including First Republic, at a 16% CAGR in five years. So adding advisers and just grinding out.

Question: Richard Ramsden - Goldman Sachs & Company, Inc. - Analyst : Okay. So just more broadly on market share. The market share stats, I think, are really impressive. I think you've grown checking accounts by 20%, card by 30% over the last four years. How much of that growth stems from new markets and how should we think about the sustainability and the marginal returns of growth from here? Marianne Lake - JPMorgan Chase & Co - Co-Chief Executive Officer - Consumer and Community Banking Okay. So I'll update you. The 20% and 30% in consumer bank and card accounts over four years is now 30% and 40% or very close to that over five years. So that momentum continues, which was my point earlier about like we continue to lean into growing the franchise, which is the sort of catalyst for everything else that comes after that. If I start with the consumer bank, our share gains, sorry, as you say, we're pretty proud of it. 220 basis points over the last five years, and 80 basis points of that came from branches that we've opened since 2018. And remember, they're still pretty young. And so, those will continue to fuel growth in the future. But that First Republic was a piece, so that was close to 40 basis points, which means that more than half of it came from our legacy footprint as we continue to invest in bankers, in banker tools, in omnichannel capabilities, in branch tailoring and customer segmentation, making sure we have the customer and the right product for them. And so as we look forward, we're expecting the same, which is more than half of the growth is going to come from the legacy platform. And if you include the branches we've already built, 75% of our growth towards our 15% target and beyond will come from a combination of legacy, legacy and the branches we built through '24, but we're not stopping. And so, the remaining 25% will come from the branches we're about to open, and those will continue to grow for decades. So we're pretty excited about that. And as I said earlier, those branches that we're opening are performing really well. So if not -- each individual net -- next new branch we're opening isn't getting worse from a performance basis. In fact, they're in line to better than our model. And these things are not straight lines. So on average, we've gained 30 basis points share over the last 10 years. We think that's a reasonable trajectory going forward. But in any one year, it could be plus or minus of that. And so it's a flywheel we're just going to keep going. In card, it's a similar but different story. Obviously, it's not the same. We don't have new markets. It's a national business. But it does benefit when we enter new markets with branches. So we do see growth in accounts and share when we start really investing in new markets. So it is a beneficiary of that. In card, we start from a higher share place, but similarly have gained share over the last four or five years, 50 basis points of sales, 30 basis points in outstanding. And that momentum, which was at the end of last year, has continued into 2024. And we highlighted outstandings as being an area that we felt we could see some outside share gains because we felt like we were punching a little below our weight. And so, we saw that happen in '23, and we've seen that continue in '24. But it's not that we have to dial up premiums or like pay for the privilege. It's about making sure that we're investing in the segments where we are currently able to and see outsized growth starters, small business, affluent. And we have record new accounts in each of those last year. It's about making sure we're capitalizing on our owned channels, (inaudible) and branches, because they are the most efficient channels that we have, leveraging our data to make sure we're underwriting as deeply as we can, but profitably and with confidence. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 5:20PM, JPM.N - JPMorgan Chase & Co at Goldman Sachs U.S. Financial Services Conference And then also making sure that in addition to sort of core card, we're innovating on installment lending and other sort of lending options, like Pay Over Time, which is gaining traction. And so I would say, we're feeling pretty good about that, and we're at 17% share and growing towards our 20% target. So in both cases, we think that there's more share gains ahead of us. It's hard work. I mean, this is like a branch at a time, a vintage at a time, a tactic at a time. This is no -- there's no silver bullet. It's everywhere, but we know what to do.