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

All right. Good morning, everybody. So we are shifting from one powerhouse institution to another. Of course, the next company that we have up on stage needs no introduction. We have the CFO, Jeremy Barnum, of JPMorgan Chase. Jeremy, welcome.

Thank you. Happy to be here.

So before I go into my questions, just as a reminder that we do have a QRQ system where you could ask a question on your app. [Operator Instructions] So let's get started.

I may or may not answer the question.

And he -- we'll get to NII in a second.

So this is the first JPMorgan investor-related public appearance since the January 25 announcement regarding expanded management roles. And so the first question I want to ask about this is, what do you think is the key takeaway for investors in terms of how JP is thinking about succession? And ultimately, honestly, it is really the biggest risk that's cited by investors when they think about the stock.

Yes. Yes, yes, yes. So I think there are a couple of things to say about that. I think one is, in terms of takeaways, that like, yes, we agree that succession is very important. It's important for every company. It's important for every Board, I think. But for fairly obvious reasons, it's particularly important for us. And so in that context, takeaway number one is that the Board is taking succession very seriously, and so is the management. And these actions, to a large degree, reflect that focus. I think the second takeaway is that we have a very impressive, broad and deep bench of very talented people. And those people are getting moved around in various ways and given new opportunities to develop new skills to make them better prepared and more credible as successors. So across those 2 dimensions, I think those are the takeaways.

And just one more question here. Given the combination of the Corporate & Investment Bank, or CIB, and the Commercial Bank, how does that speak to accelerating opportunities with what had been the typical CB client?

Yes. It's an interesting question, so maybe I'll take a step back for a second. When you look at what this combination does, right, at one level, we're really just creating kind of a unified wholesale juggernaut. Now within that, if you look at the way each division has kind of run its affairs historically, you've got the Commercial Bank with a slightly more client-centric view of the world. Even the way they disclose their results at earnings is kind of client segment focused, whereas the CIB has a little bit of a more product-centric view of the world at the margin, at least through the lens of the external disclosure. But what's true underneath that is that both divisions focus very strongly and very intensely on the other side of the equation. So meaning in the Commercial Bank, there's a lot of focus on ensuring that the products are fit for purpose and developed properly and delivered properly to all the different client types in the Commercial Bank. And in the CIB, there's a lot of infrastructure surrounding -- ensuring that we cover clients holistically, both across sectors and across regions with the global clients, et cetera, et cetera. And so in reality, despite kind of the superficial differences in approach, underneath, there's a lot of commonality and recognize the importance of both having a holistic client approach and a deep product focus. And so as we combine the 2 things together, yes, maybe at the margin, we kind of take what are really already 2 excellent franchises and bring it to the next level in terms of the quality of the service and the types of opportunities that we create. But to be honest, I actually think that for most clients, at the margin, they probably won't see that much difference. And part of the reason for that is that things are already quite well optimized, and the partnerships are very, very strong. So we have 1 set of products getting distributed across both franchises. We've got a lot of talent that moves back and forth across the 2 divisions. We've got partnership on the technology and operations side. And so it's already a pretty optimized ecosystem, actually. And in that context, I think one thing that's worth saying is that this is really not about expenses at the margin. So maybe there are some efficiencies to extract here and there, but that's really not what's driving this. And so that's an important thing to say as well.

So one more housekeeping question before we get into how the lines of businesses are doing. The New York Community News had reignited the conversation about multifamily. And maybe a little bit of a history lesson would be useful here in terms of how JPMorgan came to be in New York City multifamily. But perhaps an update on how your multifamily portfolio is positioned.

Yes, sure. So let me sort of follow your lead and take a little bit of a step back here. So just reviewing our overall exposures in the commercial real estate space generally because it can get a little confusing sometimes. So per our recent 10-K, we've got about $200 billion of commercial real estate broadly. Inside that, we have about $16 billion of office. So it's worth saying that, because obviously office has had a lot of focus recently. And in the context of $200 billion of commercial real estate, obviously, $16 billion of office is quite small in the scheme of things and particularly small for us as a company. Now we happen to think that our office portfolio is quite high quality. But at the same time, I personally have not seen or heard anything to suggest that the office space is going to get better any time soon. And so in the end, on the narrow question of office, all we really have to say about that for ourselves is that we think we're appropriately reserved, and we'll see what happens. Now going to multifamily at the heart of your question. Of the $200 billion, about $120 billion is multifamily. That number grew as a result of the First Republic acquisition, so -- but we added about $20 billion there. So it's about $120 billion now in total. New York is a little less than 20% of the total. So -- but that's not to suggest that -- I'm not saying that to say that like, "New York is bad, but don't worry because it's only 20% of the total." Because the reality is that our New York like doesn't look particularly bad to us, actually. And so obviously, in light of the news, we've -- you won't be surprised to hear that we've done a little bit of a deep dive in that space to try to understand what's really going on there. And the conclusion that we have come to is that the things that have always been behind our celebration of the extremely good credit performance and the strength and performance of this asset class for us over a long time period in terms of underwriting approach and risk appetite and business model are helping us in this situation as well. So specifically, what do I mean? So one, we underwrite to current rents, not future rents. And so among other things, that means that we don't underwrite based on the hope or the expectation of market rate conversions in the rent-controlled space. We underwrite to through-the-cycle rates, not current rates. So that gives you a little bit of buffer against payment shock. And we've also done some additional work recently to stress various properties for payment shock. And generally, they hold up quite well, which is in part because the other critical piece of the business model here is that it's a very investor client-centric model. We work with investors over long periods of time. And in many cases, the investors actually own fully depreciated properties. So that creates some pretty strong incentives to inject equity when that's needed. So broadly, I think that goes a long way to explaining why the performance in the space for us continues to be quite good. Just one indicator of that is the nonaccrual rate for the multifamily book as a whole is 8 basis points. I mean, 0.08%, right? So essentially 0. And the rate for the New York portfolio, while higher, is only a little higher than that, actually. So of course, never say never. And of course, we're going to be watching it closely, and we worry about everything. But right now, we actually don't have any particularly large concerns about the multifamily portfolio.

Great. So I wanted to move on to the Consumer & Community Bank, or CCB. I really wanted to ask you how each line of business is doing so far in the year. So last year, card outstandings were up 17%. So as we think about your expectations for spend, account acquisition and normalization have evolved, how long can growth stay above normal? And how does JPMorgan, given all the investments you put in card anyway, define normal?

Yes. So it's a good question. I think we would define normal card loan growth as mid- to high single digits, say. And clearly, it was quite a bit higher, as you say, last year. This year, we expect card loan growth to be about 12%. So definitely still above normal, although a little bit less robust than last year. And the drivers of that are a few. One is just straight up annualization of sort of last year's growth. There is still some remaining normalization that needs to happen and revolve per account. So that's a little bit of a tailwind as well at the margin. And then the other thing is really just kind of the proof point of the marketing investment, where it's driving really robust new account acquisition as well as very good retention performance. So when you put all those things together, that's why we do still see in the near term some elevated growth rates there.

You talked during the call about CCB being the biggest dollar driver of the year-over-year increase in expenses. Your brand strategy was in The Journal recently. And so I wanted you to touch or give us a little bit more detail on your branch strategy. And also card's a hot topic for many reasons, how you're approaching your card opportunities this year.

Sure. So let's do the branches first. So yes, a lot of coverage on that recently. And we love our branches. There's -- it's a very emotional thing for us, especially in the consumer. It's a big part of the identity of the company. And so yes, we did announce recently the plan to open another 500 branches. It's worth saying that the branch strategy is both an expansion and an optimization strategy. So despite our love for the branches, we do optimize the portfolio, and we do close branches in areas where we're denser than we need to be. But yes, broadly, we are leaning in. So as you know, we went into a number of new markets over the last few years and were filling out those footprints, especially in the suburban areas of those markets. And this year, we're going into 8 new markets. So just really continuing the strategy there. I haven't gotten this pushback too much recently. But historically, we would periodically get questions sort of along the lines of kind of what are you guys doing here? Like why more branches in a world that's going super-digital? This can't possibly be the strategy of the future. And I think -- we obviously disagree with that, but it is important to recognize that what goes on in the branches has changed. It's much less transactional and it's much more advice-driven. And I think the operation of the branches, the physical footprint, the way people are trained, is evolving in line with that evolution in the way people use the branches. But what has been true kind of throughout is that just it's very clear to us from our data that the branch footprint is an absolutely critical driver of new account acquisition and of retention and of the overall value proposition of what we do. So that's a big piece of that. And then more specifically in terms of the revenue drivers, we have observed over a long period of time that branch share and deposit share are quite strongly correlated. And so there are -- in all of these expansion markets, in the places where we have branch share let's say below 5%, as we grow that branch share, we expect to see the concomitant growth in deposit share. It does take time, though. So we've characterized these investments as high-confidence investments in the sense that it's more or less you execute it, and you see the results, but it does take time to season. And so part of what that means is that there's a little bit of a -- shall we say, a coiled spring of operating leverage as a result of the multiple years of branch investment and that sort of seasoning over time in the form of hoped-for and expected share gains in consumer deposits. So then I think you asked also about card. So on the card side, the priorities for this year, to be honest, are more or less BAU-ish in the sense that, number one, in any given year, we think very carefully about deploying our marketing dollars for the biggest impact in terms of maximizing NPV and opportunity given the current environment. Maybe a little bit more strategically, the continued execution of our connected commerce strategy in terms of giving our card customers the experiences that they really want across travel, dining and shopping, and having that drive more engagement and more stickiness with our card customers is a key priority. And then clearly, I think this is true for pretty much every business in the company, data is critical and technology and the whole integration of that. So there's some inward investment happening there on that front as well.

So before we move away from the CCB, I have to ask you about how the deposits are behaving. Clearly, CCB is -- or consumer deposits in general are where there's been a lag in terms of repricing. Perhaps talk a little bit about how the mix shift trends are shaping up so far this year and how pricing strategies and pricing demand is also shaping up. I mean, we're so focused on movements in the curve, but I'm sure my mom is not, right? So [indiscernible]...

Is your mom a long-standing loyal customer of JPMorgan Chase?

She...

That's okay. You don't have to answer that.

I actually don't know. I think she's a [ Truist... ]

You don't know who your mother banks with? That's horrible. Okay. Sorry. Yes. But no, you make a good point, actually, which is that obviously, the typical consumer is not sort of hyper-focused on like incremental movements in the yield curve. So let's just take a step back here for a second because there are some things worth saying here about the overall dynamics of the consumer deposit franchise. So clearly, what do we have in the big picture? So in the big picture, we do have QT. So I think QT is a system-wide effect, and one of the challenges can be trying to allocate the effects of QT across consumer and wholesale. But one way or another, we know that there's still some modest headwinds to the overall level of system-wide deposits from QT. So that's one factor. Then when you go narrowly inside of consumer, clearly, the rate environment is actually a big driver in the sense that there's a really big gap right now between the policy rates and the weighted average rate paid. And yes, while it's true that the typical consumer isn't watching like whether the Fed dot plot and exactly what's going to happen at the next meeting, big picture, a world with 5% or 5.5% policy rates and really quite low rates paid on deposit accounts is a world that creates and drives a lot of migration out of that. And we've been seeing that. So we see migration out of checking and savings into CDs, and we see migration out of the consumer deposit ecosystem into money market funds. So -- and of course, those do eventually come back into the wholesale. So that's contrary to the way some people sometimes talk about it. That's not actually deposits leaving the banking system, but it is deposits leaving the consumer banking system at the margin that is margin-compressing, of course. So the truth is that, even in a world with -- let's assume for the sake of argument that all the cuts that are currently in the curve come through, we expect those dynamics to continue. So we will continue to see internal migration out of checking and savings into CDs, and we will continue to see migration out of consumer deposits as a whole into the money market complex. But critically, this is already in our outlook. So it is in large part because of these dynamics that we have been so clear and forceful about guiding to expected sequential declines in quarterly NII because of the whole sort of over-earning narrative. So broadly, we don't really expect a reversal in these trends. Maybe at the margin, a more dovish Fed takes a little bit of that migration pressure off. But the overall dynamics are going to remain in place, but they are very much in the outlook, so there's really no new news there.

So moving on to the CIB. We just heard from David Solomon at Goldman right before you. There's obviously this great hope of a big rebound in investment banking activity in '24. How are the pipeline shaping up so far? And how is the -- does the Fed delay in cuts impact when those pipelines free up?

Yes. So let me actually get some guidance out of the way first so that I don't get distracted and give you the wrong number. So for the first quarter for Investment Banking fees, we expect them to be up both sequentially and year-on-year in the low to mid-teens. So that's solid, I would say. But if you go into sort of the bigger picture of what the dynamics are and what do we expect from potential changes in Fed policy, I would say it's a little bit mixed. In the sense that, narrowly speaking, a world where Fed cuts are delayed a little bit, I don't fundamentally think changes the picture for the banking wallet. So there's some clear like recovery in the background that we're seeing that should continue as long as things progress more or less within the bound -- the corridor that people more or less expect. Obviously, if you get a kind of resurgence of inflation and a total reversal of the environment and the Fed needs to get much more aggressive, then all bets are off, but that's not what really anyone's expecting right now. Inside that, if we do a little bit of the dynamics product by product. M&A, we've seen some encouraging signs recently, but in the big picture, there's still some challenges there. It remains a challenging regulatory environment. There's obviously still quite a bit of political and geopolitical uncertainty out there. And so those are not the most conducive things for M&A in the C suites. But at the margin, some momentum there. And then in terms of ECM, I mean, we've seen quite a big rally in equity markets recently. And that, in the normal course, should be supportive of that business. And I do think we see healthy block activity, and maybe we'll see some more secondaries. But the IPO environment is a little bit weaker than you might have otherwise expected just because the performance in IPOs has been a little bit more mixed, I think a little bit disappointing to some people. And so it's a little bit nuanced there, but I personally am a bit more optimistic about that space than some people are. And then on the DCM side, there's just a lot of refinancing that needs to get done. And so for us, we see that kind of as a tailwind. And as long as rates sort of evolve more or less within the expected kind of uncertainty, we think there should be solid, solid activity there.

And we're now 2 months into the quarter. Could you give us perhaps an update on how the Markets business is doing?

Sure, yes. So for the first quarter, we would expect the Markets revenue to be up sequentially relative to the fourth quarter of last year, just in line with normal seasonal patterns, but down about 5% to 10% relative to a very strong prior year. But as you say, obviously, there's still a few weeks left in the quarter, so you never know.

Could I ask a little bit about the mix behind that down 5%, 10%, or too early?

I mean, I have mix numbers, so too early is less of the issue, it's more that it could change. But I would say that both equities and macro were relatively strong last year in different kind of pockets. And so the slightly worse performance relative to the prior year is not particularly differentiated across asset classes.

Is there anything that you're doing in the business now in terms of optimization in anticipation of Basel III endgame? And I have a whole slew of questions for you there that I'll address later. But is there anything proactive that you could do now?

Yes, it's a good question. And in the past, in advance of sort of regulatory capital rules, it has often been wise to kind of get ahead of things, especially if everyone was going to be kind of rushing through the door at the same time type of thing. However, and right now, we actually don't think that's a good idea because if you make -- if you do sort of a radical surgery on your franchise in ways that are potentially irreversible and do long-term damage on the basis of a proposed rule that is obviously receiving like a ton of comment and where there's a lot of speculation about potential changes, you risk kind of doing serious damage to the franchise unnecessarily, potentially, depending on how things play out in the end. So as a result of that, our focus right now is just a lot of analysis and a lot of preparation and a lot of contingency planning. We have a long track record of being pretty deep and pretty analytical and pretty precise as well as pretty strategic about our capital optimization. So the muscle exists and we're exercising it, and we will continue to exercise it. But we want to be a little bit careful about not jumping the gun on major changes, given how much uncertainty there is about the actual shape of the final rule.

So we'll put a pin on that because I like where you're heading with that. But let's zoom out, Jeremy, and go back to the top of the house. So your latest disclosures noted that in the up 100 basis point scenario, your NII at risk is $2.4 billion. As we think about your guide for $88 billion in net interest income ex Markets and think about one less cut or whatever the forward curve tells us, should we think about the impact of each 25 bps as having a linear relationship with NII at risk? And how much should we think about the deposit dynamics here as a wildcard versus what's modeled?

Yes. Sure. So fun topic. In the public service announcement, it's NII and certain other rate-sensitive fees, I would point out, if you read very carefully in the disclosure. Sorry, we spend a lot of time on this issue inside the firm, so sometimes we can go down some rabbit holes. So -- but let's start on this with just a reminder about what's in the current outlook. So that $88 billion of NII ex Markets, as we talked about at earnings, is based on the forward curve of the time, which as you know, it had 6 cuts...

6 cuts.

At the time exactly. Then per your prior question, the ongoing expectation of significant amounts of internal migration and therefore, ongoing increases in weighted average rate paid despite the cuts, so the expectation of significant deposit margin compression, and hence the sequential declines in NII that we've talked about a lot. And then obviously, also in keeping with your prior question about card loan growth, a little bit of an offset from increases in card revolve in particular in terms of NII. So that's kind of the starting picture of what's inside the $88 billion. Okay. So now let me address your point about 25 versus 100. So on the narrow question of is the 25 basis points linear relative to the 100 basis points? Sure. At the level of precision that we're talking about here, you can just divide the number by 4 and use it for each 25 basis point move. You do need to be careful, though, when using the EAR for these purposes in a bunch of ways. There's obvious ways, like it's a 1-year impact of an instantaneous shock in the yield curve. So when you're overlaying it for partial year changes in cuts or not that may happen at different points in the year to an outlook, which is now only 10 months of the year, like there's just obvious day count stuff, so you want to be careful about that. But then also, a little bit to your point, as much as we have -- we try quite hard to model this as well and as precisely as we can, and we actually made some changes in the last 18 months or so to add deposit lags into the modeling to make the number sort of a little bit more accurate in the current environment, there are definitely known unknowns there and some meaningful amount of modeling uncertainty in the number. A little -- so I wouldn't necessarily say wildcard in terms of deposit dynamics, but there's certainly a healthy cone of uncertainty around how all that plays out. However having said all that, clearly, in the end, we are asset sensitive right now. And so at the margin, to the extent that you have some cuts coming out of the curve, that should be a modest tailwind in terms of this year's revenue.

Got it. Great. I'm glad you put it all together.

We like to make it complicated and then simplify it.

Yes. Yes. You come out of the rabbit hole. I liked it. It seemed like a lot of your peers and yourselves are preparing for a much tougher economic scenario through your reserve building, expressed through your reserve building last year. And outside of loan growth, in card, of course, some actual losses and normalization, how should we think about your reserve-building dynamics given the macro outlook that we know today? It just feels like soft landing is the narrative, but it feels very booming and a little -- maybe where we're sitting in Miami, it's a little bit different. It's not America. But if we avoid a recession and card losses stabilize after normalization, how do you think about a reserve that still has a pretty high unemployment rate embedded in it?

Yes. So let me just unpack the ingredients of your question sort of quite explicitly and pedantically just to make sure that we don't lose track of the pieces, right? So as I think everyone knows, we don't reserve for loan growth. We don't reserve for the future. We reserve based on the current portfolio. And so the current allowance is the current portfolio, the current economic outlook, a couple of upside scenarios, a couple of downside scenarios and some probabilities associated with each of those scenarios. And that combination of scenarios and probabilities is what produces the 5.5% weighted average unemployment rate which is in the current allowance, which, as you alluded to, is clearly arguably conservative, but certainly higher than the central case outlook for unemployment. So park that for a second. At the same time, again, as we discussed earlier, we do expect robust card loan growth this year. And so all else equal, if you simply apply the normal coverage ratio to that card loan growth, the amount of reserve-building that would be associated with that is more than what's in the market consensus for the allowance in 2024. So if you just set aside the question of the skew and the unemployment rate and the scenarios and just look simply at loan growth and our expectations of loan growth and how much allowance should be associated with that relative to what the market has, the market to us looks a little low. Now going back to your question. You might reasonably say, "Okay, yes. But if you have this like no landing, soft landing, all the tails come out of the forecast, wouldn't you guys be changing your probability weights in a way that would create some releases?" And my answer to that question is, "Yes, maybe. But I wouldn't count on it because there are some nontrivial ongoing sources of uncertainty and tails in the probability distribution." In the end, we've got a very rigorous process for this. And so in any given quarter, we'll assess what that looks like, and we'll adjust the probability weightings. But I just -- as they say, it's not in the bag. Far from it.

Got it. So I wanted to revert back to one of your favorite topics, Basel III endgame. Can't wait for the slides at Investor Day on this. I thought the response to my question was very interesting because JPMorgan is always far ahead in terms of optimization and planning for the future. And does your wait-and-see approach, is that indicative of the conversations that are being had in Washington in terms of the receptiveness that there potentially is to adjust Basel III endgame finalization from what was proposed?

Yes. So as fun as it is to like imagine that we have like secret insight into all this stuff, the reality is that we don't, actually. And so if you sort of take a purely outside-in perspective here and say, what is the right attitude to the amount of like pre-optimization that we should be doing just based on what's in the public domain, right? There's a memo circulating out there. One of the law firms took all of the comment letters -- I see some nodding in the audience, some people have read it. Like took all of the comment letters and synthesized them thematically. The emphasis is like there's a lot of comment letters, and they're running like 97:3 in terms of being like critical of the proposal across a very broad range of dimensions. And so the point is, whether you look at that stuff; whether you look at sort of the political distribution of that, it's not a totally partisan thing, you've got a lot of Democrats being quite critical of the proposal as well; whether you look at some of the public comments of prior influential regulators, it just seems like there's quite a lot of criticism coming. And therefore, just probabilistically, a priori, you would have to assume there should be some changes, okay? Now having said that, and without any particular insight, but just based on my own theories about how the world works, I personally am a little bit less optimistic about giant changes than some other people are, both inside the firm but also you guys broadly. Like the analyst community is speculating about different types of outcomes. And I think at this point, there seems to be like a little bit of a consensus for really meaningful change and like very significant improvements. And again, don't put too much weight on this comment. It's just a personal opinion. I have no particular information. But I'm just a little bit skeptical of that. I think there's lots of process elements that would lead you to want to be cautious there. So beyond that, like it's probably not super productive for me to speculate about the exact timing or like what things might change. Like there's a lot of that stuff out there. So for us right now, what we're really focused on is advocacy and controlling the things that we can control and communicating clearly. I would encourage you guys to read our comment letter. We made it intentionally quite a bit shorter than it might have otherwise been and a little bit less technical than it might have otherwise been given the amount of very deep technical stuff that everyone else was doing. So it's quite readable. Team did a nice job. I signed it, but I'm not taking credit for writing it. But yes, anyway, it's worth a read.

Plain reading will replace my Netflix movie that I have on queue.

Especially if you need to sleep.

So as of the third quarter, these statistics are always delayed. Your G-SIB score was 943, which would suggest a 5% surcharge or 50 basis points more than where you are today. Are you actively working on getting it back to a score that implies a 4.5% surcharge? Or will you just let it stay there now, given potential B-III endgame implications, and it might be pushed there anyway?

Yes, exactly. So just starting with some facts. So as of the end of the year, just on the basis of the normal seasonal patterns, we did actually come down. So we landed at the end of the year at the upper end of a 4.5% bucket where we've been before. So that's just one thing to anchor the conversation. But having said that, your question is a good one, especially in a world where not only do you have the Basel III endgame proposal pending, you also have the G-SIB proposal pending. We're obviously carrying a bunch of extra capital right now. And so for a whole bunch of reasons that we've talked about in terms of the interaction between the 2 proposals, our current management of G-SIB is like a little bit different from what it was before all of these proposals were out there. But having said that -- and also, as you note, there are some -- the thing that we've talked about very consistently for several years now in terms of the failure to recalibrate the coefficients, unless that changes, remains a factor and a secular problem fundamentally. So we'll just have to see how it plays out. But the way we're managing now is arguably at the margin a little different from what it was maybe 2 years ago. But that doesn't change the fact that we do recognize fundamentally that the regulators are always going to, in one way or another, create a tax for size, that there's a desire for firms like ours to not sort of grow without bounds. And so our choices about the size of our footprint have to be quite intentional and strategic and well thought out from a number of different dimensions. And so that will -- is the case now and will continue to be the case going forward. But we do have to navigate through this period of overlapping and evolving rules.

So to DFAST. What's your read on the 2024 parameters? And would you revisit the $2 billion per quarter buyback sort of loose guide, so to speak, after DFAST? And you generate so much capital.

Yes. We do generate a lot of capital, I can't argue with that. But let me just deal with DFAST quickly. So on the surface, if you look at the scenario, it actually looks quite similar to last year's scenario. So if you didn't know any better, you might kind of go down the path of concluding that you would expect the SCB to be broadly unchanged. But just a reminder that the SCB is scenario, plus balance sheet, plus Fed models. So the Fed models in particular are totally untransparent to us. And therefore contrary to what gets argued sometimes, our ability to forecast the SCB, even with all of the internal knowledge that we have, is actually quite a bit less than you might expect, actually. And we do -- we've been sort of on the record that we think the current SCB is cyclically low. So I think the safer assumption is that there continues to be some upward pressure on the SCB, but we'll see. Obviously, we've been surprised before. We might be surprised again. In terms of buybacks, as you know, yes, we do generate a lot of capital. So fundamentally, the question of buybacks is a matter of when, not if. At some point, obviously, unless we have something better to do with the capital, we need to return it. We can't keep building that CET1 ratio forever. But given the current uncertainties in the environment, we're kind of sticking with that soft guide of modest buyback pace for now.

So maybe my final question, and we also have an analog way for you guys to ask questions of Jeremy, the traditional mic. You always say you're overearning, okay? You've grown your balance sheet by 40% since 2019. I get that the pandemic dynamics were unique. I fully get the 20% return on tangible common equity is not considered sustainable in banking, but you also did that with a 15% CET1. So since you're overearning, how do you plan to address the 17% ROTCE target at Investor Day? So we're factoring in a much larger balance sheet than when you first set that goal. Rates are likely not going back to 0, right? Arguably, we don't know what the neutral rate is. And the potential for higher capital minimums and RWA inflation.

Yes. So let me say a couple of things. This is quite important, and I always appreciate when you ask this question because we care about it a lot, too. So first of all, overearning. For the avoidance of doubt, when we talk about overearning, we are talking about overearning in deposit margin terms and overearning in charge-off rate terms and credit. So it is a balance sheet-independent statement. We're not talking about overearning in dollar terms. And so even normalizing for the size of the balance sheet, in margin terms, we still believe we're overearning. And so fair point on the balance sheet. But I think we're overearning in margin terms, and therefore, that's point one. Point two, recall that we sort of reasserted our 17% guide post the beginning of the normalization of the rate environment but pre the Basel III endgame. So at some level, when we did that, we were kind of reaffirming the numerator. And since then, what's happened is a proposal which dramatically expands the denominator. So there's just no way of escaping the fact that, all else equal, that actually puts some pressure on the 17%. Now how much? When? Investor Day will force us to sort of say something about this one way or the other. And obviously, the evolution of the Basel III endgame is going to be a critical data point, and it's not clear to me how much we will or we won't know by then. But in the end, our goal is to maximize value for shareholders, and we can do that at higher returns or at lower returns, both in absolute terms and in relative terms compared to our peers. But the one thing that we've consistently said is that we feel very confident that we're going to continue to deliver exceptional returns. And beyond that, we'll see how the environment plays out.

Great. Any questions in the audience before I let Jeremy go? All right. Great. Thanks so much.

Thanks, Erika.