JPMorgan Chase & Co. (JPM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, welcome to JPMorgan Chase's Fourth Quarter 2020 Earnings Call. This call is being recorded. [Operator Instructions] We will now go live to the presentation. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Jennifer Piepszak. Ms. Piepszak, please go ahead.

Thank you, operator. Good morning, everyone. The presentation, as always, is available on our website, and we ask that you please refer to the disclaimer at the back. It's slightly longer this quarter given we're not having Investor Day. And so after I review our results, I'll spend some time on our outlook for 2021 as well as touch on a few important balance sheet topics that are top of mind for us. So starting on Page 1. For the fourth quarter, the firm reported net income of $12.1 billion, EPS of $3.79 on revenue of $30.2 billion, and delivered a return on tangible common equity of 24%. Included in these results are approximately $3 billion of credit reserve releases. Before we get into more detail on our performance, I'll just touch on a few highlights. First off, our customers and clients continue to demonstrate strong financial resilience in the face of an unprecedented pandemic as evidenced in our credit metrics thus far. We saw continued momentum in Investment Banking and grew our share to 9.2%. In CIB markets, revenue was up 20% year-on-year, driven by strong client activity and elevated volatility in the quarter. And in AWM, we had record revenue, up 10% year-on-year. On deposits, we saw another quarter of strong growth, up 35% year-on-year and 6% sequentially as Fed balance sheet expansion continues to increase the overall amount of cash in the system; while loan growth remained muted, up 1% both year-on-year and quarter-on-quarter. On to Page 2 for more on our fourth quarter results. Revenue of $30.2 billion was up $1 billion or 3% year-on-year. Net interest income was down approximately $900 million or 7%, primarily driven by lower rates and mix, partly offset by balance sheet growth and higher market NII. Noninterest revenue was up $1.9 billion or 13% on higher IB fees, legacy investment gains in Corporate, and higher production revenue in Home Lending. Expenses of $16 billion were down 2% year-on-year on lower volume and revenue-related expenses, partially offset by continued investments. Credit costs were a net benefit of $1.9 billion, down $3.3 billion year-on-year, primarily driven by reserve releases of $2.9 billion that I'll cover in more detail shortly. Turning to the full year results on Page 3. The firm reported net income of $29.1 billion, EPS of $8.88 on record revenue of nearly $123 billion, and delivered a return on tangible common equity of 14%. Revenue was up $4.5 billion or 4% year-on-year as net interest income was down $2.8 billion or 5% on lower rates, partly offset by higher Markets NII and balance sheet growth. And noninterest revenue was up $7.3 billion or 12% on higher Markets and IB fees as well as higher production revenue in Home Lending. Expenses of $66.7 billion were up 2% year-on-year driven by volume and revenue-related expenses, higher legal and continued investments, partially offset by lower structural expenses. And credit costs were $17.5 billion, reflecting a net reserve build of $12.2 billion due to the impacts of COVID-19 and net charge-offs that were down year-on-year. Now turning to reserves on Page 4. We released approximately $3 billion of reserves this quarter across Wholesale and Home Lending. Starting with Wholesale, we released $2 billion due to improving macroeconomic scenarios and the continued ability of our clients to access capital markets and liquidity. In Home Lending, we released $900 million, primarily on improvement in HPI expectations, and to a lesser extent, portfolio runoff. And in Card, we held reserves flat as we remain cautious about the near term, especially with the number of unemployed still nearly 2x pre-pandemic levels and potential payment shock coming to consumers from expiring benefits. And so with the near-term outlook still quite uncertain, we remain heavily weighted to our downside scenarios. And at nearly $31 billion, we are reserved at approximately $9 billion above the current base case. And to touch on net charge-offs for the quarter, they were down about $450 million year-on-year and remain relatively low across our portfolios. Looking forward, we still don't expect any meaningful increases in charge-offs until the second half of 2021. And with the recent stimulus, it could be even later. Turning to Page 5. We've been pleased to hear an update on our customer assistance programs, and you can see the trends are largely similar to last quarter and further evidence of the resilience of our customers. The vast majority of what's left in deferral is in mortgage with $10 billion of owned loans and $13 billion in our service portfolio. And in terms of what we're seeing from our customers that have exited relief, more than 90% of accounts remain current. Turning to balance sheet and capital on Page 6. We ended the quarter with a CET1 ratio of 13.1%, flat versus the prior quarter on strong earnings generation, largely offset by dividends of $2.8 billion and higher RWA. As we stated in our press release last month, the Board has authorized share repurchases, and we plan to resume buybacks in the first quarter up to our Fed-authorized capacity of $4.5 billion after paying our $0.90 dividend. You can see here on the page, we've included the liquidity coverage ratio for both the firm and the bank, which we believe is important to look at together in order to better understand the liquidity profile of our balance sheets. The firm is at a healthy LCR of 110%. However, the bank LCR is 160%, reflecting the extraordinary deposit growth that has meaningfully outpaced loan demand. Now let's go to our businesses, starting with Consumer and Community Banking on Page 7. In the fourth quarter, CCB reported net income of $4.3 billion and an ROE of 32%. Revenue of $12.7 billion was down 8% year-on-year, reflecting deposit margin compression and lower Card NII on lower balances, largely offset by strong deposit growth, and higher Home Lending production revenue. Deposit growth was 30% year-on-year, up over $200 billion as balances remain elevated and as we continue to acquire new customers and deepen primary relationships. Loans were down 6% year-on-year with Home Lending down due to portfolio runoff and Card down on lower spend, offset by Business Banking, which was up due to PPP loans. Client investment assets were up 17% year-on-year, driven by both net inflows and market performance. On spend, combined debit and credit card sales volume in the quarter was up 1% year-on-year, which reflected debit sales up 12%, largely driven by retail and everyday spend; and credit sales down 4%, largely driven by T&E. In Home Lending, overall production margins remained strong. Total originations were down 2% year-on-year, but were up 12% quarter-on-quarter, both driven by correspondent as we lean into the channel after pulling back earlier in the year. For the year, total originations were $114 billion, including nearly $73 billion of consumer originations, both the highest since 2013. In auto, loan and lease origination volume was $11 billion, up 29% year-on-year. And across the franchise, digital engagement continues to accelerate. Our customers use QuickDeposit for more than 40% of all check deposits, which is nearly 10 percentage points higher than a year ago. And in Home Lending, nearly 2/3 of our consumer applications were completed digitally using Chase MyHome, and that has tripled since the first quarter. Over 69% -- overall, 69% of our customers are digitally active, with Business Banking at 86%, both higher than a year ago. Expenses of $7 billion were down 1% year-on-year, and credit costs were a net benefit of $83 million, driven by $900 million of reserve releases in Home Lending, largely offset by net charge-offs in Card of $767 million. Now turning to the Corporate & Investment Bank on Page 8. CIB reported net income of $5.3 billion and an ROE of 26% on revenue of $11.4 billion for the fourth quarter and an ROE of 20% on revenue of $49 billion for the full year. The extraordinary nature this year has meant that we had records in almost every category for both the quarter and the full year. In Investment Banking, IB fees were up 25% for the year, and we grew share to its highest level in a decade. For the quarter, Investment Banking revenue with $2.5 billion was up 37% year-on-year and up 20% sequentially. The quarter's performance was driven by the continued momentum in the equity issuance market as well as strong performances in DCM and M&A. In advisory, we were up 19% year-on-year, driven by the closing of several large transactions. The M&A market continued to strengthen this quarter and, in fact, announced volumes exceeded pre-COVID levels. Debt underwriting fees were up 23% year-on-year, driven by leverage finance activity, and we maintained our #1 rank overall. In equity underwriting, fees were up 88% year-on-year, primarily driven by our strong performance in follow-ons and IPOs. Looking forward, we expect IB fees to be up modestly for the first quarter, and the overall pipeline remains robust. We expect M&A to remain active on improved overall CEO confidence, and the momentum in equity capital markets is expected to continue, of course, dependent on the successful containment of COVID. Moving to Markets. Total revenue was $5.9 billion, up 20% year-on-year against a record fourth quarter last year. Fixed income was up 15% year-on-year, driven by good client activity across businesses, particularly in spread products, as well as a favorable trading environment in currencies in emerging markets, credit and commodities. Equities was up 32% year-on-year, driven by strong client activity and equity derivatives and cash throughout the quarter across both flow trading and large, episodic transactions. Looking forward, we expect Markets to remain active in the first quarter, and we have seen strong performance since the start of January, but it's obviously too early to predict the full quarter. And for the remaining quarters of this year and the full year, the comparisons will be particularly challenging given the extraordinary performance of Markets in 2020. Wholesale payments revenue of $1.4 billion was down 4% year-on-year, primarily reflecting the reporting reclass in Merchant Services. And Securities Services revenue of $1.1 billion was down 1% year-on-year. On a full year basis, the headwinds from lower rates were almost entirely offset by robust deposit growth. Expenses of $4.9 billion were down 9% compared to the prior year, driven by lower compensation and legal expenses. Now let's go in Commercial Banking on Page 9. Commercial Banking reported net income of $2 billion and an ROE of 36%. Revenue of $2.5 billion was up 7% year-on-year with higher lending and Investment Banking revenue, partially offset by lower deposit revenue. Record gross Investment Banking revenue of $971 million was up 53% year-on-year. And the full year was also a record, finishing at $3.3 billion, surpassing our previously established $3 billion long-term target. And given our investments in banker coverage, we believe there's continued upside from here. Expenses of $950 million were flat year-on-year. Deposits of $277 billion were up 52% year-on-year and 11% quarter-on-quarter as client balances remain elevated. Average loans were up 1% year-on-year, but down 3% sequentially. C&I loans were down 4% on lower revolver balances, with utilization rates nearing record lows as clients continue to access capital markets for liquidity. And CRE loans were down 1% on higher prepayment activity in both CTL and real estate banking. Finally, credit costs were a net benefit of $1.2 billion, driven by reserve releases. Now on to Asset & Wealth Management on Page 10. Asset & Wealth Management reported net income of $786 million with pre-hedge margin and ROE of 29%. And for the year, AWM generated record net income of $3 billion with pretax margin and ROE of 28%. For the quarter, revenue of $3.9 billion was up 10% year-on-year as higher performance and management fees as well as growth in deposit and loan balances were partially offset by deposit margin compression. Expenses of $2.8 billion were up 13% year-on-year, primarily due to higher legal expenses related to the resolution of matters previously announced. But excluding this, expenses would have been up 4% year-on-year on volume and revenue-related expenses. For the quarter, net long-term inflows were $33 billion, positive across all channels, asset classes, and regions, and this was true of the $92 billion for the full year as well. In liquidity, we saw net outflows of $36 billion for the quarter and net inflows of $104 billion for the full year. AUM of $2.7 trillion and overall client assets of $3.7 trillion, up 17% and 18% year-on-year, respectively, was driven by net inflows into both liquidity and long-term products as well as higher market levels. And finally, deposits were up 31% year-on-year and loans were up 15% as clients continued to increase their liquidity and look for investment opportunities. Now on to Corporate on Page 11. Corporate reported net loss of $358 million. Revenue was a loss of approximately $250 million, relatively flat year-on-year. Net interest income was down $730 million on lower rates, including the impact of faster prepays on mortgage securities as well as limited deployment opportunities on the back of continued deposit growth. Declines in net interest income were largely offset by net gains this quarter of approximately $540 million on several legacy equity investments. And expenses of $361 million were roughly flat year-on-year as well. Now shifting gears. I'll turn to our outlook for 2021, which I'll cover over the next few pages, starting with NII on Page 12. As you can see on the page, we expect NII to be around $55.5 billion in 2021. And this is based on the latest implieds which reflects the steepening yield curve we've seen over the past few weeks. So you can see that we do expect to be able to more than offset the impact of low rates in 2021 from continued deposit growth and higher Markets NII. But it's important to note that it takes loan growth to truly realize the benefits of a steeper yield curve. I'll also just remind you that the increase in CIB Markets NII is largely offset in NIR, and this component is highly market-dependent. And so as it relates to loan growth. While there should be some opportunities in AWM and Wholesale, we expect headwinds, at least in the near term, as Corporate cash balances are at all-time highs, Card payment rates are elevated, and there continues to be significant prepayments in Home Lending. But we do expect these to normalize and see loan growth pick up in the second half of the year, particularly in Card. Therefore, our fourth quarter 2021 NII estimate of $14 billion or more is a reasonable exit rate. And notably, that's in the zip code of our 4Q '19 NII, when rates were significantly higher than they are today. We've also included on the right side of the page some risks and opportunities. And obviously, this isn't an exhaustive list, but are the drivers that could be most impactful to this year's NII outlook. Now turning to expenses on Page 13. As Jamie mentioned last month, we do expect our expenses to increase in 2021. And based on our latest work, we expect that number to be around $68 billion, up versus the prior guidance of $67 billion, largely due to higher volume and revenue-related expenses and the impact of FX, both of which have offsets in the revenue line, as well as the impact of expenses from our recent acquisition of cxLoyalty. Then taking a look at the year-over-year expense growth, you can see it's primarily due to investments, which I'll cover in more detail on the next page. Our volume and revenue-related expenses are up slightly with some puts and takes there. That's obviously market-dependent, but remember, any changes there do come with corresponding changes to our top line. And in structural, we expect a net reduction of approximately $200 million. Notably, this includes a decrease of $500 million, reflecting the realization of continued cost efficiencies in what is largely our fixed cost base. And you can see that it is partially offset by the impact of FX on our non-U.S. dollar expenses. It's important to note that while structural is coming down, this doesn't represent the full extent of our productivity. We're realizing efficiencies in each category here. For example, our software engineers are becoming more productive, and we are reducing our cost to serve as we see more customers use our digital tools to self-serve. Moving to Page 14 to take a closer look at our investment spend. Over the past 2 years, our investment spend has been around $10 billion, and we expect that to increase to nearly $12.5 billion in 2021. You can see that we've highlighted on the page the major areas of focus that we've been consistently investing in for years which is continuing to strengthen our franchise and drive revenue growth. Starting on the bottom with technology. This represents roughly half of the overall investment spend. And these tech investments are across the board as we look to better meet our customer and client needs, improve our customers' digital experience, strengthen our fraud detection capabilities as well as modernize and improve our technology infrastructure, cloud and data capabilities. Moving to non-tech investments. We expect marketing spend, largely in CCB, to return to pre-COVID levels this year after being down in 2020. We continue to invest in our distribution capabilities across all of our businesses. This includes hiring bankers and advisers, not only in the U.S. but also internationally, as well as expanding our physical footprint. We've been continuing to execute against our branch expansion plans in new markets, having opened 170 branches so far out of our planned 400, and expect to be in all contiguous 48 states by mid-2021. Jamie's clapping. And the other bucket on the page is a catch-all for everything else, including real estate and other various investments across our businesses. These expenses were fairly stable in the past 2 years, and the increase in 2021 is largely related to our $30 billion commitment to the path forward, which includes promoting affordable housing, expanding homeownership for underserved communities, and supporting minority-owned businesses, and then as well as expenses related to our acquisition of cxLoyalty. So in summary, you can see that we continue to invest through the cycle, and it's these investments that we believe position us well to outperform on a relative basis regardless of the environment. Now I'll turn to a few balance sheet and capital-related topics, starting on Page 15. Over the next few slides, I'd like to provide you some insight on how recent monetary expansion and corresponding growth in the financial system is creating new challenges for bank balance sheets. More specifically, this expansion is putting significant pressure on size-based capital requirements, which is likely to impact business decisions, including capital targets. We'll start with what has happened this year. In response to the COVID crisis, the Fed's balance sheet has significantly expanded, which has resulted in $3 trillion of domestic deposit growth across the U.S. commercial banks. What's important to note is that this QE is unlike anything we've seen before. In the current QE, we have experienced a much bigger and faster expansion. And that expansion has come without meaningful loan demand beyond PPP, as you can see in the loan-to-deposit ratio on the page. This has resulted in bank balance sheets which are larger but more liquid and less risky. From a bank capital perspective, the key question to ask is how long will this persist? On the chart, you can see that the QE3 unwind kept the Fed on pause for several years before a modest pace of reductions. So even if the Fed immediately signaled tapering, which of course is not the base case, and follows the pace of the last unwind, it will take many years to return to pre-COVID levels. Of course, the unwind speed is uncertain, but I think we can all agree that bank balance sheets will remain elevated for some time. Now let's go to Page 16 and see how this will impact capital going forward. Two factors that are top of mind for us are G-SIB, which we've been talking about for a long time; and also SLR, which is not something we typically talk about, but given the overall system expansion, is now in focus. On the graph, what you can see here are the historical trends of G-SIB- and SLR-based requirements overlaid with the path of the Fed Securities Holdings. You can see that during the original calibration of these rules, which included significant gold-plating, the Fed balance sheet was notably lower. With the recent growth in the Fed balance sheet, we are seeing upward pressure and increases to G-SIB requirements as well as the SLR shifting from a backstop to a binding measure, which would impact the pace of capital return. And these dynamics will likely persist for an extended period. The Fed temporary release of SLR expires after March 31. This adjustment for cash and treasury should either be made permanent or, at a minimum, be extended. With these exclusions, you can see how this remains a backstop measure, not a binding one. Then on G-SIB, there has been public dialogue about the need to index the score to GDP as a proxy to account for ordinary economic expansion over time. And this was also cited by the Fed as a possible shortcoming of their framework. For 2020, GDP was clearly not the best proxy for system expansion, but the principle still applies. G-SIB was designed as a relative measure between large- and medium-sized banks, and therefore, it should certainly reflect an overall system expansion which impacted small, medium and large banks alike. By future-proofing G-SIB at inception inflection with the adjustments outlined on the page, you can see the resulting G-SIB score profile, lower over time, but more importantly, flatter over the course of the most recent system expansion. While we recognize that prudent bank capital requirements do promote safety and soundness, satisfying these heightened requirements is certainly not [ costless ], which is why these 2 areas, G-SIB and leverage, are top of mind for us in 2021. Now let's look at the impact of this on marginal deposits on Page 17. In addition to what we've already discussed, there are 2 more building blocks required to see the full picture of marginal deposit economics, and they are interest rates and loan demand. We have experienced a combination of both lower interest rates and lower loan demand, which have reduced the NIM of marginal deposits to practically 0, which you can see here on the chart. And this is an issue for all banks, not just G-SIBs or JPMorgan. However, what is specific to the larger banks is that when the SLR becomes binding, we may be required to issue debt and retain higher equity which ultimately makes the marginal deposit a negative ROE proposition in today's ultra-low rate environment. The key question is, what could happen next? We could simply shy away from taking new becomes, redirecting them elsewhere in the system; or we can issue or retain additional capital and pass on some of that cost, which is certainly something we wouldn't want to do in this environment. And therefore, we strongly encourage a serious look at these size-based capital calibrations with an appropriate sense of urgency as we will soon be facing this critical business decision. All of this can be addressed through a few simple adjustments, namely an extension of the SLR exclusions and the G-SIB fixes we've spoken about, over time. But to be clear, we believe the framework as a whole has made the banking system safer, as we experienced in 2020. But we're also seeing evidence where the lack of coherence and recalibration is risking unintended consequences going forward. With all that said, before I close things out on capital, here's how we're thinking about target CET1 levels. While G-SIB pressure remains and the need for recalibration is high, our SCB optimization can provide some offset, allowing us to manage to a 12% CET1 target. The recent stress tests showed an implied 20 basis point reduction SCB, and we have continued our optimization efforts since the resubmission. So we're hopeful for a lower SCB later this year. Of course, that's scenario-dependent. At this point, it's too early to provide specific color on the impact of SLR, so it's just important to note that in the absence of any adjustments to the measure, we may have to issue preferreds or carry additional CET1 over the 12% target I just mentioned. We obviously can't emphasize these key messages enough, and these factors are clearly front and center as we think about managing our balance sheet and capital targets in the near and medium term. Now before we conclude, note that we've included a few additional slides on our businesses in the appendix to give you an update on their strategic highlights and performance as well as provide the latest financial outlook. The themes and issues we talked about at last year's Investor Day still remain our focus and we continue to execute and make progress against them. So to wrap up. 2020 was an incredibly challenging year, but it also showcased the benefits of our diversification and scale and the resulting earnings power of our company, while our employees relentlessly focused on supporting our customers, clients and communities. While downside risks do remain in the near term, and they could be significant, several recent factors help us feel more optimistic as we look ahead to the recovery in the medium and longer term. So with that, operator, please open the line for Q&A.

[Operator Instructions] Your first question comes from the line of Steven Chubak with Wolfe Research.

So I want to start off with a question on the NII outlook. The 2021 guide implies a rather healthy step up versus the $54 billion, Jamie, that you had reiterated just last month. In your updated NII guide for '21, what are you assuming regarding the deployment of excess liquidity, given some of the recent curve steepening? And separately, what are your assumptions around the trajectory for card balances and overall growth in '21, especially in light of the expectations for additional stimulus, which we saw, at least this past year, could drive further consumer deleveraging?

Sure. So I'll start with excess liquidity. So I think there, the theme is we're being opportunistic but patient. So as you think about the recent moves that we've seen in the yield curve, in the grand scheme of things, those could be small moves. And as we think about managing the balance sheet, it's not just about NII. Of course, it's about capital. And so there is risk in adding duration at these levels in a further sell-off. So we're being very patient. But we have been, and we'll continue to be optimistic. And you will have seen that we did add $60 billion to the portfolio in the fourth quarter. So that's what we're assuming in the outlook, is a very balanced view on deploying the excess liquidity. And then...

And the implied curve...

Yes, and the implied curves. Yes. And then on card balances, it is quite extraordinary what we're seeing in terms of payment rates in the Card portfolio, which of course is very healthy as consumers use this opportunity to deleverage. So there is an offset in the -- on the credit line. But we are expecting that to normalize in the back half of 2021 as spend recovers. But it is certainly a risk for us if they remain elevated. So that's why everything listed on that page is a plus/minus because everything could be an opportunity and a risk.

Fair enough. And just for my follow-up, I wanted to ask on capital. Thought the slides were really interesting, highlighting the impact of QE on the leverage ratio and G-SIB scores. You've been critical of G-SIB surcharges and the need to recalibrate these coefficients for some time. You haven't really seen much progress there. It kind of feels like Waiting for Godot. And I think the Fed is slow to recalibrate the minimum leverage ratios to account for this QE-driven deposit growth. What mitigating actions can you take to ensure you're not capital-constrained as balance sheet growth continues? And maybe any revenue attrition we need to contemplate as part of those mitigating actions.

Sure. So I'll start with G-SIB, if we take that in turn. So starting with G-SIB. As I said, we do think that we have opportunity in the SCB. Of course, that's scenario-dependent and based on the Fed model. But we do think we have opportunity there based on the work that we've been doing. It will be very difficult for us to get back to 3.5% with the current expansion, so we are expecting to remain in the 4% bucket. But as you know, that's not effective until early 2023. So that gives us time to manage SCB, as I mentioned, as an offset. On the leverage issues, we have -- we can cure this through issuing preferreds. But we haven't made that decision yet, as I said, because it is a critical decision for us to think about. And as you think about capital return, it will depend on where our stock price is as we think about the economic value of issuing preferreds to buy back stock. So there's a lot for us to think about over the next couple of months.

And could I just add, the G-SIB fee, because it's very important. If we were on the international standard, our G-SIB could be 2%, not 4%. And we've been talking about they were supposed to adjust G-SIB before the growth of the economy and effectively the shrinking side of the banking system. Because the banking system itself is getting smaller as mortgages go to the nonbanks and private credit goes elsewhere and the rest of international, Chinese banks are growing, et cetera. So these adjustments should be made. And we pointed out, there's $1.3 trillion of liquid assets and marketable securities in our balance sheet, which shockingly, [ applies ] G-SIFI, too. G-SIFI has no risk-weighted measurements to it, no diversification to it, no profitability to it. It just kind of these very gross measures. And it needs to be recalibrated, and the same SLR. I mean, so do we expect it to happen? Probably not in our lifetime because we've politicized bank -- detailed bank numbers. And so -- and we can live with it for now, but in the long run, it's not good for America to be at that much of a disadvantage to our competitors overseas.

Your next question comes from the line of Jim Mitchell with Seaport Global Securities.

Sorry. Sorry, I was on mute for a second there. Maybe just talking about loan growth. You saw a pretty nice improvement in the Wholesale side. You talked about some opportunities in '21. It seems to be mostly coming out of the CIB. Is that sort of acquisition finance? What's driving some of the improvement on the Wholesale side?

Yes. I would say acquisition financing is the opportunity on the Wholesale side. When we -- there may be some opportunity in the back half of 2021 in C&I, that feels like it's returning to BAU, but I think that's going to take some time. But as I said, we are at historic levels of cash on corporate balance sheets. And so outside of acquisition financing and C&I, it will be challenging, C&I in the back half of '21.

Okay. Fair enough. And then maybe on your expense assumptions for the $68 billion. You don't really mention at all any of the CIB. You would think that if we are, as everyone assumes, we had a record year in 2020. 2021, maybe markets and IB fees are lower. Is there any kind of -- are you building in some lower revenue-based compensation expense in that $68 billion? Or is that potential a positive?

So we capture that in the volume and revenue-related, Jim. It just happens to be more than offset by volume and revenue-related growth elsewhere...

Yes. And can I just point out, in the $68 billion, we don't make commitments or promises. So that $68 billion, I would love to find $2 billion more of investments, literally. I mean, we're seeking everywhere to find more to do to help clients around the world and stuff like that. So that's kind of our current forecasting. Fortunately, we found some more to do, including cxLoyalty and opening more branches and some of the technology we're building, et cetera. But I'd like to find more. It would be the best and possible highest use of our capital.

Your next question comes from the line of John McDonald with Autonomous Research.

Given the outlook for net interest income and expenses, it seems like the efficiency ratio is going to tick up a few hundred basis points this year in '21 versus '20. And I know you don't manage it necessarily year-to-year, but just kind of over time, you seem to have a mid-50s efficiency target. Just kind of wondering how you put guardrails up for yourselves in terms of expense discipline and managing over time to have positive operating leverage and an efficiency corridor.

Sure. So I'll start by saying you're absolutely right that we don't manage the efficiency ratio in any quarter or even any year. And -- but operating leverage is very important to us. And then we gave here at Investor Day of about a 55% efficiency ratio. I'll say in a normalized environment, we haven't had anything that structurally has changed. And so that should still be achievable for us in a normalized rate environment and otherwise normalized environment. And then as it relates to expense discipline, it is a bottoms-up process. And so everywhere around this company, we are looking to get more efficient and holding people accountable to do just that, which is why I call out on the slide that structural is basically everything that isn't investments or volume and revenue-related. It isn't necessarily a representation of all of our expense efficiencies. So the discipline is everywhere, and it's the way we run the company. And we do believe in the importance of operating leverage through time, no doubt.

Okay. And then as a follow-up. On the NII walk, you've got a $1 billion incremental NII expected in '21 versus '20 from Markets -- CIB Markets. Can that be true? If Markets revenues is down year-over-year, can they both be true? And just maybe explain that.

Yes, it can absolutely be true. So Markets is -- I mean, most of our businesses, we don't run them NII versus noninterest revenue, it is an accounting construct. But Markets, it's particularly true. So yes, that is possible. In NII, the Markets business, you can think about as liability-sensitive. So you're going to see the benefit of lower rates in NII. That doesn't necessarily imply anything about the overall performance.

We have positive carry. The trading profit goes down and the carry goes up. The absolute number is the same.

Your next question comes from Erika Najarian with Bank of America.

My first question is on the outlook for Card losses. The 2.17% net charge-off rate was certainly eye-opening relative to what happened in 2020. And the discussions actually that I've been having with investors on the trajectory of Card is, do you think that the bridge that the government built is strong enough that we may not see a spike in losses in Card like we're all expecting? And Jen, given your comment earlier, what would you need to see to feel more comfortable about releasing reserves from your Card portfolio?

Sure. So it's interesting that you brought up the bridge being strong enough. It does feel like, at this point in this crisis, the bridge has been strong enough. The question that still remains is, is the bridge long enough? And so while we just had recent stimulus past, that makes us feel better about the bridge being long enough, but we have to get through the next 3 to 6 months. So it feels like we've been saying that since this crisis started, but I think it is particularly true at this point, obviously, given the vaccine rollout. So consumer confidence is still relative to pre-COVID levels. You can convert that with -- compare that to the Wholesale side where CEO confidence is up. That's not true on the consumer side. And so the next 3 to 6 months is going to be critically important for us to assess whether or not only is it strong enough, but is it long enough, and do we see consumer sentiment tick up a bit? There's also possibility for payment shocks as some relief programs, whether it be student loan forbearance or tax load on benefits received. There are things that could hit the consumer in the next 3 to 6 months that we need to think about.

I would just add, very different for subprime and prime. And if you look at our portfolio, it's mostly prime. And the folks in the prime category have a lot more income, a lot more savings. Housing prices are up. They did not lose their jobs. So the news there is actually rather good. On the lower quartile, it's the opposite. Even now when you just did all those stimulus checks, and we did about 12 million of them, which have already been processed.

$12 billion.

12 million -- $12 billion -- 12 million for $12 billion, approximately. And at the bottom, the folks who had $1,000 in their accounts where the accounts were coming down, and they just got $1,000, they obviously need it. The folks in the higher end, they obviously don't need it quite as much. So it's -- we expect it to go up, but it's possible somehow it doesn't happen in some dramatic way.

Got it. And Jamie, my second question is...

[ Make another point ], very important. We do not consider taking down reserves, recurring or real income. We don't do it to show a profit, we don't consider it a profit. It's ink on paper. It's based on lots of different calculations. Obviously, we want real loss to be lower over time. But just -- our Card reserve is like $17 billion. We took it down next quarter because we have more optimistic outlooks. We're not going to be sitting here cheering about that, we're cheering that [ America ] is doing better. But we don't consider that earnings. And I think you all should look at it a little bit differently now, particularly with the change in accounting rules.

Yes. I think your investors appreciate that. And the second question I had for you, Jamie, is -- on last year's Investor Day, it was clear to your investor base that you were looking to inorganically enhance your scale in AWM. And what's interesting is that the discussion that I've been having with your investors more recently is them wondering whether or not you would consider a larger deal maybe in payments, given that a lot of investors and banks are thinking that, that's the part that seems to be potentially more vulnerable to technology competitors. What are your thoughts there? And I guess, my own thought process has been tempered by Jennifer's presentation on capital, but we wanted to get your thoughts there.

Okay. We have our capital cup runneth over, okay? We have so much capital, we cannot use it. If you look at what happened this year, our capital went like from 12.4% to 13.3%. And by -- I think [ advance ] is more representative of real risk, so it will be 13.8%. That's after doing $2 trillion of loans, $12 trillion of reserves, $12 trillion -- $12 billion of reserves, $12 billion of dividend. I mean, we're earning -- if you look at pretax, pre-provision, $45 billion or $50 billion a year. So we're in very good shape to invest. The most important thing we -- [ is that means ] is that we grow, that every business grows organically. Every single one. Opening branches, adding accounts, doing payments. And we'll put a lot of time and effort into payments. We're quite good at it between credit card, debit card, Chase Merchant Services. But I agree with you, and -- but we're open for inorganic, too. Inorganic shouldn't be an excuse not for growing organically. And it's not just Chase -- it's not just asset management, it will be any area where we could do that. I thought cxLoyalty was a neat thing, InstaMed was a neat thing. We bought 55ip, which is a special way to manage money tax-efficiently. And so we're going to build it ourselves or buy it. We're open-minded. Any one, you have good ideas for us, let us know. We have the wherewithal, but we can also -- we will also look at buying it. And like I said, we're always looking for a way to invest more of our money intelligently. We've got a tremendous set of assets. We also have a tremendous set of competitors, particularly in payments, consumer lend now and a bunch of other areas. So you saw Google Pay. You saw Walmart's going to try to expand. A bit of a long time, but they're expanding. And we like competition, we believe in it, but we have to be really prepared for that. And that is deeply on our mind and how we run our business.

Our next question is from Betsy Graseck with Morgan Stanley.

Jamie, a question on cxLoyalty. Because I thought UR loyalty program and capability set there, and your payment space and your consumer-facing space was quite good. So I'm just wondering what the rationale was. And is there an expectation that you're going to be leveraging that into noncard portions of your business? Was that part of the -- so what with this deal?

So Betsy, I'll take that one. So this -- we're really excited about this one. And really, with any tech platform, scale matters, so combining our scale with cxLoyalty's innovative technology will be a win, not only for our Chase customers, but for cxLoyalty's existing clients and suppliers. And then you're right to point out our existing UR platform. But that today is predominantly used as a points reduction portal. So there's a huge opportunity to capture a greater share of our customer spend on travel, which is $140 billion goes on and off us. So in addition to capturing the full economic value of the existing redemption on the platform, we also have an opportunity to really turn it into a great place for our customers to book travel.

Okay. But still focused on the card space as opposed to moving into other parts of your relationship with consumers.

It's consumer. Just thinking of it as consumer...

There's no reason it has to be card only...

Jen mentioned a number, like more than 30% of travel expense goes through our cards, something like that. And so we want to give a far better experience to our own customers when it comes to what we offer them to travel. And you're right, Ultimate Rewards always does a good job. But why wouldn't you try to double that over time? Or triple it?

And we think that we can do a better job for their existing clients and suppliers. So it won't just be about Chase customers.

Exactly.

Okay. And then the follow-up question just on the technology budget increasing. I mean, I know this comes after a year of being somewhat stable year-on-year. And just wanted to dig into the comment that you made on the page around data analytics, cybersecurity and artificial intelligence capabilities. Again, you've been a leader in this for a while. So the question is, where is the white space that you're moving into? And can you give us a sense as to how important this is for some of the expansion that you're doing geographically, in U.K. digital, and some of the European footprint that you're expanding into?

So digital cyber, we're going to do -- we have to do whatever it takes. And we are going to do that in everything we do. But you mentioned, we built brand-new data centers pretty much around the world, which are a lot more efficient. They're going to be effectively -- they're not cloud-based, but they have all the cloud technology, et cetera, for our own private cloud. We're moving other stuff to the public cloud. And we're refactoring applications to get there. We're redoing all the data. You all know the issue with data. And not that banks were bad, but data was held in all these different accounts. You try to build your data lakes, you can use AI and machine learning better. And in all due haste. The cloud is real, the cost is real, but speed is real, and security is real, the AI is real, the machine learning's real. So every single business, that was every single meeting we go through and talking about what are we moving to the cloud? Whether it's internal or external. What are we adding AI and machine learning on? Are we getting the data analytics right? And it is global. And we don't spend that much time on it, but every single business is doing it. You have a tremendous amount of AI being used in Asset & Wealth Management, CIB, in trading, in Commercial Banking, prospecting. And it's literally the tip of the iceberg. Whatever we say today, 10 years from now, it will be probably 50x more than we're doing today. And I would spend anything to get it done faster.

Your Next question comes from the line of Ken Usdin with Jefferies.

A question on capital return and capital usage. In the deck and in your press release, you mentioned that you're looking to get back into more return of capital. You mentioned $4.5 billion net. And there's still the net income test. And I just wanted to ask you to kind of walk us through how you think about, how do you think about full usage of that $4.5 billion? And then how do you think forward vis-à-vis the comments we just talked about with regards to potential external opportunities? And what's the best use of that incremental capital, given that you still have a healthy amount sitting there?

Sure. So we always start in the same place, which is we would much prefer to do the things that Jamie's been talking about than to buy back our stock. So we would much prefer to deploy it to organic growth or acquisitions. Having said that, we do, as you point out, have significant excess capital at this point. When we look at the first quarter, the Fed capacity was defined by the trailing 4 quarters of profits. And so when you back out our dividend, that's where you get to the $4.5 billion. So that is the capacity that we had for this quarter. And we'll do up to that amount, obviously. I don't know that we'll do the full amount, but we'll certainly do -- obviously, we can't do more than $4.5 billion. and then we're certainly hopeful that we can go back to BAU under the SCB framework beyond the first quarter as we think about buybacks. But we'll wait to see what the Fed says at the end of the first quarter.

It means you can manage your capital down to the 12% or whatever we set to that regard after getting permission from the Fed. They've already implied that's what we can do. That's the way it should be done, eventually, one day. And the only other thing I want to point out is that we've been consistent at 2x tangible book with our earnings power and dividend and all stuff like that, it still makes sense to buy back stock. But that diminishes every point, 2.1, 2.2 or 2.3. We would much rather use our capital to grow organically or inorganically.

Yes. I mean, we'll always look at the effective return of us buying back our stock for our remaining shareholders. And if we think it makes sense relative to the alternative, we're going to keep doing it.

Yes, consistent with what you've said in the past. And just a question on the Card business. You mentioned how much of that spend goes through Chase. And just -- given that we still have some uncertainties with regards to a true return to open -- your Card segment revenue yield actually did improve a little bit. Just wondering if you can kind of help us just think through, just the pushes and pulls you see on the Card business with regards to your expectations of spend improving, balances improving and competition underneath.

Yes. So competition remains very, very strong. As it relates to the revenue deal, that's a little bit of noise there because balances are down so much, and that's what that's derived from. So there's a little bit of noise there. Importantly, we do -- if GDP is back to 2019 levels by middle of the year, we expect spend to continue to recover and perhaps significantly so in the second half. As it relates to travel, whether it's the second half of '21 or '22, we are confident that our customers will continue to travel. And there's pent-up demand, I'm sure, for travel. And so we are excited about those opportunities, whether they come in '21 or '22 or beyond.

And we take very seriously the new entrants, like the Goldman Sachs card. And there are a bunch of other folks who are doing similar things, that we expect to see more of that.

Your next question comes from Glenn Schorr with Evercore ISI.

So I think it's a good time of the year to get your mark-to-market on -- your thoughts on the competitive landscape. And I know every business is competitive. But I'm more curious on the new side of competitive. And maybe I'm talking more about the Consumer and Commercial Banking right now. But between all the neo banks that either want to pay much more than you guys on deposits or charge no fees; or the buy now, pay later models; or things where you also even play in banking as a service in trying to provide banking products to big technology companies with big client footprints. I'm most curious to see, is this just normal evolution and not changing things? Or is there's something bigger going on here that you want to comment on?

So I'm -- in the Commercial Bank, there's probably less than you think. I do think they are alternative credit providers, but we also do a lot of things for our clients. They can include Investment Banking, FX, swaps, cash management, custody, asset management, et cetera. So it's slightly different. I think in the consumer side, I mean, we wrote in the Chairman's letter years ago that Silicon Valley is coming. And I think it's just more and faster and better and quicker. And we have to just be very conscious of that. It includes pay now, pay later. And we have some of the products ourselves. But our job is to make sure we use our unbelievable strength and client base and capability. And Gordon always points out, when you have that kind of product set, you got to also keep simple, clear, basic what the customer wants, just to deliver more and better. And so we're quite cautious. I would also add, by the way, it's not just that. We've the team looks at AMP Financial and Alipay and all these other competitors. I expect, one day, you're going to see other big foreign banks back here again, including the big Chinese banks, the biggest ones are bigger than us. And that may be 5 or 10 years out, but we've got to be thinking 5 or 10 years out. And so they're all coming. We're comfortable. But we're still exercising and taking on vitamins, okay?

And it's another reason our investments are going up as much as they are, because we're very well aware of it.

Fair enough. Keep taking those vitamins. Maybe along the same lines, I think you've spoken about the power that the data of your own client footprint and franchises have. And I'm just curious, we haven't heard that much lately about what you're collecting, how you can use it to enhance the customer experience, accelerate growth. You have all this at your fingertips. And people talk about data as being the new gold, I'm curious on how you're thinking about it right now.

Yes, yes, yes. That's all we're going to tell you. I mean, I talked about how I point AI is. Obviously, the data and the AI -- the AI and data are directly related. And some of it gets used very well, but if you sat down, some of it doesn't get used well. We have restrictions, far more restrictions than some of our Silicon Valley competitors, but still, there are ways to use our data to do a better job for our clients. And we do a tremendous amount already in marketing, risk, fraud, cyber, you name it. And we use a lot of that, and a lot of that stuff also protects our clients in cyber.

Your next question comes from Mike Mayo with Wells Fargo.

I'll ask my question and go back in the queue. Just -- I guess I missed your Investor Day. We have 4 slides to talk about that. I guess, if your capital cup has runneth over, maybe your expense budget could runneth over, too. I mean, spending is certain, returns are uncertain. So it seems like there's more questions this year than in the past. You did get positive operating leverage last year during the pandemic. So yes, you've earned the right to go ahead and spend more. I think most people would agree. But there's still just so many questions. So I'll just ask on CCB, it looks like Slide 16. You mentioned going to all 48 states by mid-2021. I didn't really get all of that. So how many states have you been in? And by the time you get to 48, how much spending is that? What's the game plan? What's your plan with branches? Others are shutting branches after the pandemic. You're expanding. If you could just give some color on that. Or if Gordon's on the call, we can hear from him, too.

Gordon's not, but -- so we started this a while back to expand the branches and stuff like that. We're still -- we're closing plenty of branches. So if you look at what we're doing, I forgot the number, we closed like 1,000 the last 4 or 5 years and we've opened like 1,000 or something like that. But -- and I think when we did the bank One-JPMorgan deal, we were in 21 states, 23 states. And when we started the expansion originally, we were very conscious that the world needs less branches and to shape the branch differently, and you made hub-and-spoke, and we're always testing new things and stuff like that. But we still have almost 1 million people a day who visit branches. And that's down, but it's a 1 million people a day. I've forgot the number, it's [ 60% or 30% ] of accounts are still opened in branches. Small businesses still need branches. And the new branches that we opened in Boston, Philadelphia, DC, they've been doing quite well. And the shocking thing is doing quite well in Card, consumer, investments, small business. So as we go to all the other states, we just want it to be -- and we know we have to have a certain size. We're not going into each state with one just to plant the flag, that will be kind of a waste of time. You look at the major markets, remember, people already know it through Chase and stuff like that. And so we're optimistic that this strategy will pay off, and it will enhance our business and our capabilities. And the other things I'm not going to tell you because it's very competitive. I think we've shared too much with our competitors in the past. So I'm going to kind of shut myself up a little bit.

But, Mike, I can just add a little bit of color on the numbers. So we had said that we were going to open up 400 new branches in market expansion. So we have done 170 so far. Importantly, in 2020, we did fewer than 90. And in 2021, we're going to do 150. And so of course, we -- by 2022 or 2023, that's going to start to sunset. So there are, in the numbers, multiyear investments that will -- they're ramping maybe in '21, but they will ramp down. Now that will obviously give us capacity to reinvest those dollars. But we have a lot of capacity within the numbers you see on the page to continue to increase investments without necessarily the absolute number going up. In tech, as an example, 10% or 20% of that number in any given year is completed. So that gives us more dollars to reinvest. And then the only other thing I'd add on the branches is there's like the franchise value that comes with opening up these branches in new states is extraordinary and, I think underestimated, because it gives us the ability to do state and municipal business that we wouldn't have otherwise been able to do. So it's not just about Consumer Banking.

And it gives me a chance to go to North Dakota, which is the only state I've never been in. But believe it or not, we really do a lot of middle market and credit card and mortgage in North Dakota. We just didn't do Consumer Banking. So I do -- the second when I'm allowed, I'm on my way to like Bismark or Fargo or someplace like that. The new Head of Investor Relations, who is sitting in this room right now, Reggie Chambers, who I'm sure you'll all get to know, this was part of what he did for the Sun Belt, which is all the branch expansion that we -- though I'm restricted on how much he can tell you, but -- and including looking at different formats. We're not blind to the nature that you have the world changing and digital and all that. So -- and we can very quickly, just so you know, I forgot the number, change the fleet. Like if you said, god, the world's changing more rapidly, we're completely comfortable that in a 5-year period, we can dramatically reduce the size of fleet or the cost of the fleet, et cetera, while serving clients.

So this is kind of like what you did with Commercial Banking a few years back, going to every state, I guess. But -- so 48 states. Where were you, say, a year ago or 3 years ago? Just to give final context to that.

28 states 3 years ago. And by the way, Commercial Bank, same thing. We talked about expansion. So when we bought WaMu, it took years. But we said we were going to do $1 billion in the WaMu states, which is mostly California, Florida, Atlanta and something like that. Well, we're very close to hitting that, I think that number is like $908 million this year or something like that. I told the teams when we reviewed it yesterday, that when we hit $1 billion, I want to send a case of really expensive wine to a guy called Steve Walker who we did it for us. And had a great -- and we told him, build right, like great bankers, great capability and stuff like that. We were doing $400 million of Investment Banking business when we did the Bank One deal, JPMorgan through the Commercial Bank. We set a target of $1 billion, and then $2 billion, and then $3 billion. We exceeded $3 billion. I think we did $3.5 billion. The new target is $4 billion. It's now 25% to 30% of domestic U.S. investment Banking, which include DCM, ECM, M&A through that network. And the Investment Bank -- the Commercial Bank expanded into health care, technology. And we have a couple of other areas we're going to be rolling out soon. So these expansions really make sense. They pay for themselves, they're relentless, they're hard to do. They were hard to do right. And remember, the Commercial Bank generally needs branches. It's very hard to -- and we've done it. But it's very hard to build the quality business without a retail branch system when you're a commercial bank. But you will see very few commercial banks that don't have retail branches.

Your next question comes from the line of Brian Kleinhanzl with KBW.

Just a quick question on the expense outlook. I noticed there was a small piece in there related to the workforce optimization. But I guess, thinking in the broader context, as we get through COVID-19 and moved to this post-COVID-19 world, the general thought process was that there would be big expense save opportunity coming from that, work-from-home environment. But it doesn't really show in your expense outlook. Is that something that you could expect to see beyond 2021? Is this a step down, expenses?

But in the big picture, there are people expenses of $33 billion. For real estate expenses, I'm going to say $3 billion.

Yes.

So yes. Even -- and I do think you can be much more efficient than that, but I don't think it's like a game-changer.

And we can't move our footprint that quickly anyway. So we do have time here to make sure that we do it really thoughtfully.

But Jen is thinking about moving the finance functions to Florida.

Hawaii, yes.

Hawaii.

Hawaii, that's right.

And then just as a follow-up, maybe on the international [ thoughts on ] the $1 billion hopes of additional revenue on the international. Could you just give an update on how that's tracking so far?

Sorry, I didn't catch that.

[ Billion ] what?

On the international revenue expansion that you were looking for.

Well, certainly, the Investment Bank is expanding broadly everywhere as best it can, and so is asset management. And we've always felt like China and stuff like that. The Commercial Bank started an international expansion effort to cover companies overseas that we do business with here that we're not covering. And it's doing fine. It's mostly expense right now. We added bankers and products and services and legal and compliance. And we did add -- we've been adding clients. So we're quite happy with it. I'd just point out that we just had the best year ever in Asia. I mean, I think it was up like 20% or something like that. So -- and Asia is still will be one of the fastest-growing markets in the world. So our -- and that's kind of country-by-country to make sure we get that right.

Your next question comes from Gerard Cassidy with RBC Capital Markets.

Can you guys share with us, obviously, there's been a change in the administration in the Senate, and a number of our regulatory body heads are going to be replaced this year, including the OCC and the Consumer Protection Bureau. Can you guys give us some color, what you're thinking about what may change from a regulatory standpoint with the different political party controlling Washington now?

Yes. Our focus is always the same. We've got 60 million U.S. clients, we've got 6,000 investment clients around the world, we've got -- we run this company in sort of clients, communities, hospitals. We financed $100 billion to states, cities, schools, hospitals this year. That's what we do. And obviously, we want to satisfy all of our regulators. So I do expect that there will be a new set of regulators, there will be a new set of demands. Some we agree with. We want to do a better job in climate for the world. We want to be more green. We want to help the disadvantaged more. We rolled out an enormous amount of programs for racial equality and things like that. So yes, but they will be tougher. That's life. It's life around the world. We're going to -- we have to do a whole bunch of new regulators which we're trying to satisfy in the ECB, et cetera. And so I do know if it means to change our life that much. And competitively, everyone's in the same kind of boat. And so it'll be fine. I mean, we want the new president to be successful.

And then following up. Jennifer, you talked about on Page 17 of your slide deck, the issue with deposits and the marginal benefit of these deposits, and you guys are wrestling with this issue. Can you share with us -- and you really have talked about the branch expansion in all 48 states, contiguous states. How is this going to be managed as best as you can over the next 12 to 24 months? Because obviously, long term, you want that branch expansion. But simultaneously, as you've pointed out, you may be getting a negative ROE if you don't get relief on the SLR. And is there a chance that you will get that extension on the SLR from the regulators?

So I'll start with -- we certainly remain hopeful that we'll get the extension. Importantly, as we think about branch expansion, near-term rate headwinds, we certainly consider that. But at the margin, they're not a factor given the long-term franchise value associated with the branch expansion and the fact that it's not just about deposits for any one consumer anyway because we have the opportunity to have a much broader relationship with them. And all of that is factored into the branch expansion. But we do consider, in the analytics there, the near-term headwinds from rates. But there is a steady state number which is more of a normalized level of rates. So it doesn't -- at the margin, it might change some decisions around marketing, but it doesn't have a big impact on us.

Yes, the bigger decisions on that between -- I have a lot of relay on is out of the Investment Bank. It's repo, deposits, corporate clients, trade finance, all those other things. So this is managed very, very closely. Remember, G-SIB is just one of, I'm going to say 20, constraints we manage by business, by product, by area, by region, by...

Yes. And we bring it up. Obviously, it is an issue for us in the near to medium term, should we not get the extension. And it's one that's important for people to understand. But we bring it up more so because it's just another example of where lack of coherence around these rules can have an impact, not just on JPMorgan. So we don't bring it up just because of the impacts on JPMorgan. We bring it out because it is perhaps one of the better examples of the need for recalibration. You have to have the right incentives in the system for it to work through time, and we're just seeing that, that's not the case.

Remember, we were able to reduce deposits $200 billion in like months last time. So we don't want to do it, it's just very customer-unfriendly to say, "Please take your deposits elsewhere." But they do have a lot of these larger corporate clients who have other options, in not just deposits but money market funds or something like that. So well -- none of this is going to be an issue for 2021, folks. I mean, fundamentally just how we run our company. And even if that temporary belief goes away, and I'm always against temporary relief because for this exact reason, it creates another cliff. Even if it goes away, we're fine. We just have to manage it much tighter.

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

Maybe a bit of a basic question, but why is Markets revenue or trading so good still? Not just for you, but the overall wallet. I get it that the Investment Banking business, the [ state of ] business still very good. There's lots of liquidity. Banks have lots of capital. But of course, rates are near 0, cost cuts are tight, volatility is low. So I'll take away some of the answers. But just conceptually, it's been very strong. It sounds like the hope is it will remain strong. What's really driving it?

There's $350 billion of global financial assets -- $50 trillion -- $350 trillion. And probably in 10 or 20 years, that number is going be $700 trillion. People have to buy and sell, to hedge, finance, move money around the world, FX, currencies, pension plans. Obviously, volumes go up and down. Spreads generally over time have been coming down, which you would expect in a competitive market. But with the expansion of the balance sheets of the central banks around the world that Jen showed you, of the $3 trillion or $4 trillion in the Fed, but globally, it's $12 trillion. And companies have a lot of financing to do. And of course, when you have higher DCM and higher ECM and higher M&A, that also drives a lot of trading. And so you got to kind of put it all in the mix.

And obviously, the question is how sustainable is this? And I guess one argument could be that technology has allowed banks to increase the velocity. You've been talking about this for some time. Do you think that is a structural change that will benefit the businesses and specifically for you guys for a long [ sort of ] period?

The way to look is we kept our share while thinking you were trying to find digitized. And the business has done it kind of the way we expected them to do it. So yes, we think scale matters, technology matters. And hopefully -- and we think we'd even grow our share. This is just trench warfare. So we expect to grow it, but I don't -- it's very hard to say what the base level is. And we thought that the base level kind of bottomed out some time last year, and -- but will it stay as high as it stayed in 2020? That, I doubt. It may not go back to what it was. It may be higher than that.

Your next question comes from the line of Charles Peabody with Portales.

I have a couple of questions related to fintech. And unfortunately, I was born in the wrong generation, so I need a lot of help. How dependent is the fintech world on the banking system? I mean, as I understand, they lay on top of the pipes and the plumbing of the banking system. Do you have any leverage in a competitive world against the fintech world? And then secondly, I noticed that the OCC gave banks the green light to use public blockchain networks and stablecoins. Can you explain how -- what importance that has to JPMorgan?

[ Talk about ] blockchain there.

Okay, sure. So that guidance enables an offering of stablecoins on a public blockchain. So that doesn't impact JPM Coin. JPM Coin, you should think about it, the tokenization of our customer deposits. So it's obviously very early. We'll assess use cases and customer demand. But it's still too early to see where this goes for us.

And remember, we're using blockchain for sharing data with banks already. And so we're at the forefront of that, which is good. The other question was about fintech. Look, first of all, they are very good competitors. And I pointed out to a lot of people, PayPal's worth $250 billion; Square is worth about $120 billion, Stripe is worth $80 billion. And financial's down quite a bit now, but it's -- they're there. They're strong. They're smart. Some effectively ride the rails. So some, we bank a lot of them. We help them accomplish what they want to accomplish. And you have -- so my view is we're going to compete where we need to. And we have to look at our -- look inside about what we could do better or could have done better and things like that. So I'm comfortable we're going to be able to compete. But I think we now are facing an whole generation of newer, tougher, faster competitors who -- and if they don't ride the rails of JPMorgan, they can ride the rail on someone else. So you see, I told you before, everyone's going want to evolve in payments. Some bank's going to white label, which makes a fintech competitor, you white label the bank and then build whatever service they want on top of it. And we have to be prepared for that. I expect it to be very, very tough, good competition in the next 10 years. I expect to win. So help me, God.

So do they need the banking system to complete their loop of service? Or can they work completely outside the bank?

Well, most of them do for now. But I think it's a mistake to say it can be forever. They're getting bank licenses. Utah is giving people industrial licenses. Like I said, banks are white labeling, so it's effectively the same thing. If a fintech company uses a white label banker to process their business, they're basically a bank. What the regulator will do with that, I don't know. But we have to assume that they're going to do it. And that some don't need -- will find ways not to use the banking system, which they've done. I mean, if you look at a whole bunch of other things, they do stuff around the banking system, which is fine. I'm not against that. The regulators may have a point to do with that one day, but I'll let them worry about that. I'm going to worry about us.

Your next question comes from the line of Andrew Lim with Societe Generale.

So just wanted to pick your brain...

There are examples of unfair competition, which we will do something about eventually. People who will make a lot more on debit because they [ high-grade ] under certain things. The only reason they compete is because of that. People basically don't do KYC at AML and create risk for the system. And I go on and on and on, but there are -- that part, we will be a little more aggressive on. People who improperly use data that's been given to them, like [ Planned ]. Okay? So you could expect that there will be other battles that take place here.

Sorry. It's Andrew Lim here. So I just wanted to pick your brains on inflation. Obviously, inflation metrics are picking up if we look at the rates, if we look at inflation indicators. And it looks like a lot of people are jumping on just the reflation bandwagon. But I just wanted to see what you are seeing on the ground in the real world as to how this might be manifesting itself, either in Commercial Banking or in Investment Banking, in terms of like demand for products or volatility. Is that something that you see as a theme developing?

I mean, look, we don't have that much more insight than you do. You do see signs of it in certain commodities and certain products, consumer goods and stuff like that. It's hard to tell if that supply lines that can't keep up with demand or -- you have long-term trends. China is no longer [ the engine ] of the world. That can change inflation. I think that -- and we look at -- when Jen can give you all the numbers. So we always use the implied curve. I think the best way to think about it is, I think this will be a much bigger conversation next year because we have good growth. I think that's good thing, have good growth, in part inflation, but that will become part of the conversation: How bad? What's everybody going to do? And things like that. Just as a risk management thing, you've got to build into your mindset that you've got to look at that as being a possibility. So I think maybe a year ago, people said it's not possible before COVID. And now because the world has done $12 trillion of QE and something like $10 trillion to $12 trillion of fiscal stimulus, you've got to put on that thing, a scenario where you have higher inflation and not 2%. That would be great. That's like our Goldilocks. But like 3% or 4%. And just so you understand what the risk of that and how you even manage through that. It's not the worst thing in the world, by the way. The worst thing in the world is no growth.

Great. Okay. And for my follow-up question, you talked about how you resolved the issue of excess deposits by pricing away about $200 billion of those. So I'm just wondering why you don't do that now. Or is the quantum of the problem that much bigger?

We don't have to yet. That's all I'd say.

Yes, we don't have to yet. It's also -- it is slightly different in the sense that there was capacity in the system then to absorb it. This is an issue for everyone. So that could be a challenge. You can't make them go away.

Your next question comes from Betsy Graseck with Morgan Stanley.

Just a couple of quick follow-ups. One, Jamie, on the topic of payments and competition. Libra's -- Facebook's Libra is back out there getting rebranded as Diem. And you know that their goal is basically to be a global payment network or at least create one. And I'm wondering, does the OCC stablecoin approval do anything for you? You already have JPM Coin. Obviously, that's internal to your own footprint. But I'm wondering, is there any benefit of the OCC stablecoin approval? Is there anything with regard to the Libra competition that's coming, that would drive changes that you're making in your own platforms?

I don't think so. But -- I don't think so. We expect stablecoin -- obviously, we talked about central banks having digital currencies and stuff like that. But your currency is digital, and we move it around the world. Some central banks, they're all ruled by electrons and stuff like that. But I do expect that stuff is coming and it may not change our world that much. But some of the competitors who want to do it, they want to be in payments. They want the payments data. They want to move the money. Again, it's going to be a regulatory issue about what that means. The world is not unfair. That's the only thing I'd put. That as long as -- as long as we can do the same thing the competition can do, then it's hard to argue that that's unfair.

And Betsy, I mentioned earlier, you might have missed it, that it does not impact JPM Coin. JPM Coin is different. You should think about that as us tokenizing deposits to make payments easier for client work.

Right. Yes. No, I totally get that. I was just thinking, hey, if the OCC is allowing stablecoin, maybe they're trying to help move the center of this back into the banking system. That was kind of the question. The follow-up was just on -- back to Slide 14 and the other purple area, or the nontechnology expenses are moving up year-on-year. And part of that is the $30 billion commitment to the path forward initiative. And Jamie, I wanted to understand like how you're thinking about that $30 billion. What kind of time frame is that over? And where that money is going? I mean, we put a note out, as you know, this past quarter on housing and on housing inequality and wondering how you're thinking about how you're going to be investing that $30 billion in the kind of output that you want from it?

Right. So we believe that inequality is a real problem. And people don't always know, but like 40% of Americans make $15 an hour or less, which is $32,000 a year, something like that. 50 million don't have unemployment. And people at the lower end are dying quicker than they died before. So the first time in our lifetimes, our grandparents' lifetimes, Americans' mortality is getting worse, not better. And society has to fix these problems. Now we need healthy growth, healthy growth [ is good ]. But you also need education, infrastructure, health care and affordability. The racial problem has been around for hundreds of years. And with all of the things that took place after even -- after the civil rights, we haven't made the progress that we should be making. So we, and fortunately, lots of other people and companies take this really seriously. How can we help all of the American citizens, but in particular, the black community who's been left behind for so long. So our effort is 5 years. The $30 billion includes -- the exact numbers we published. $8 billion of mortgages to -- in lower middle-income neighborhoods, black neighborhoods, primarily black neighborhoods. It includes affordable housing. Building affordable housing includes billions of dollars for entrepreneurs of color, includes financial education. We recently went over 1 million secure cards, which is what we expected to do, because these are cards that will have all the benefits of banking, ATMs and online bill pay, for $4.95 a month. For lower-pay individuals, we're doing more and more education. Of those 400 branches, we're opening 25% or more would be in LMI neighborhoods. We're financing MDIs and CDFIs. So it's a serious effort. It costs hundreds of millions of dollars a year. There are hundreds of people involved here. So we have it down to how many loan officers we're going to put in this neighborhood and now many loans we're putting in that neighborhood. And we're going to report it out to you. We're not going to -- we're going to tell you where it worked and where didn't work. We don't mind. If things are not working, we're going to change course and stuff like that. And so -- it obviously includes hiring more, open, black community training here and stuff like that so far. I think these efforts, my own view is that the corporate world has to do this if you want to fix it. It's not going to happen -- we need good government, but it's not going to happen just with good government. The jobs are at the local level. Unemployment in South Bronx is 20% or 20 -- it's still high. The kids didn't have computer to go home and do their Zooming, and the schools didn't have it. And then fortunately, a lot of philanthropies, including my wife, sent a lot of computers to people there. But we have to do something about this. We're all worse off for it. We -- and my view, you should do it for moral purposes alone, that would be sufficient; but for commercial purposes, do it. If all parts of America are doing better, you have better outcomes and more jobs and healthier people and less crime and less prisons and less drugs. And so it's time to get our act together. And again, I think business has to work in collaboration with governments to do it. I just don't think it can happen alone. And it's not going to happen just by yelling at people. The successful companies did not create the slums, but they can help fix them.

Your next question comes from the line of Mike Mayo with Wells Fargo Securities.

Just following up more on the market expansion. In Commercial Banking, could you just drill down deeper on the international part of that expansion, and what's left to be done in the U.S.?

Well, I think -- I'll answer the U.S. In the U.S., again, we're only going to share so much information from now on. But it's the same thing. We looked at all the major [ SMSEs ] or the middle-market companies. We're doing deep dives in how many there are. And I think we're now in 75 -- the top 75, roughly. So it's -- that expansion is now just going deeper, not maybe more at this point. They will be helped a little bit by the retail expansion. I think overseas, I just don't remember the number offhand.

I don't either.

Okay. But you're talking about that will eventually cover -- I mean, I could be dead wrong on this, 1,000 more clients overseas. These are headquarters or subsidiaries of foreign companies that we probably do business with headquarter, subsidiaries in the U.S. And we could share more of this view later down the road. And tell [ Shawn ] that you can't imitate me on this one.

Mike, I would just add, just from an expense perspective, it's important to remember on the international front that we're riding existing rails that are already there in the CIB. So we can -- this is an extraordinary opportunity to hire bankers, and we already have the infrastructure. So it's not...

We are -- we usually generally bank, the U.S. subsidiary or the U.S. headquarters.

That's right. So it's not the lift you might think from an expense perspective.

Okay. And then just a follow-up on the other questions that have been asked related to fintech. Jamie, you said you're going to win, right? But based on the valuations of the PayPals and Stripes and Visa and Mastercard, anything that's fintech-related, I mean, they trounce the valuation of your stock. So I think the market's saying that others are going to win. So how is JPMorgan going to -- I mean, you said Silicon Valley is coming, what? That was like 6 years ago or something? And then each year, we say, yes, we missed it. We missed it. We missed it. Well, it's still...

[ No. ] Mike, we never said we missed it. We've been doing fine in the last 5 years. But it isn't like -- but I do agree with you. And I gave that to the management team, my whole operating committee, a little deck that showed Visa at $500 billion; Mastercard, $350 billion; PayPal, $220 billion; AMP Financial, $600 billion; Tencent, $800 billion; Alibaba, $1 trillion; Facebook; Google; Apple; Amazon. You can go on and on. But absolutely, we should be scared s******* about that.

So how are you going to win? I mean, just what's -- like...

I'm not going to tell you. But we have -- but clearly, we have plenty of resources, a lot of very smart people. We just got to get quicker, better, faster, and that's -- which we do. We've got -- we've done an exceptional -- if you look at what we've done, we say, we've done a great job. But other people have done a good job, too. Some have monopolies, but it leads into a whole different issue, but...

Your next question comes from the line of Gerard Cassidy with RBC Capital Markets.

Just one follow-up. Obviously, Jennifer, you pointed out that your mortgage production revenue was quite healthy in the quarter, and you've penetrated the correspondent channel. Can you guys share with us, on the servicing side, with the new -- with the forbearance programs that the government's put into place, is that a positive or negative for servicing revenue as we go forward?

Oh, gosh.

Jen will answer that one.

Yes. Yes. I don't even know exactly how to answer it, Gerard. All I can say is that when you do -- when we give customers the help that they need, if that's what bridges them to the other side of this thing, for sure, it's good. So I don't know precisely what the math is. But there's no doubt it's good if it helps get our customers to the other side -- and service their mortgage.

In the past, when loans go into delinquency, obviously, in the mortgage-backed security, obviously, you guys have to advance the funds and stuff. But the deferral loans are not in that -- I'm assuming they're not in that category. Is that correct?

Not yet. And you're absolutely right. The cost of servicing a defaulted loan is like 10x the [ considering ] a non-defaulted loan. So Jen is right. As long as they don't permanently default, it's probably a small benefit.

I got you. You were talking about advancing the servicing cost. Got it.

[ And that's not an issue either... ]

Yes, no. [ They got settled. ]

So thank you very much for spending time with us. We'll talk to you all soon.

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