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

Great. 10:30. If we could just put up the first ARS question that we've been asking in all the rooms. Next up, very pleased to have JPMorgan Chase with us. From the company, Doug Petno, who's Co-CEO of the Commercial and Investment Bank. Just to put it in perspective, the CIB was 43% of JPMorgan's revenues and 46% of net income in the first half of the year. And it's interesting, if you look, they generated $19.5 billion in revenues in the second quarter. That would be the fifth largest bank in the United States if that was a stand-alone company, and it would be bigger than both Goldman Sachs and Morgan Stanley's entire operation. So clearly, it's a big company within a big company.

Maybe the best place to start, Doug, is just given CIB encompasses global banking, markets, payment, security services, does business with, I think, 90% plus of the Fortune 500, over 60 countries. Just kind of -- just give us an overview of kind of what you're hearing, seeing from your customer base. I don't know how you want to segment that, but just kind of curious, you're clearly in the know.

Sure, Jason. So first, thank you. Great to see you. Great to see everybody. It's nice to be here. As you say, we have an amazing wholesale client franchise. We're banking 50,000 middle market companies. We're calling on 70,000 middle market prospects. We cover companies from startups all the way to the largest multinationals in the world, governments around the world. We're counterparty to 90% of the institutional investors in the market. And we have a significant commercial real estate practice with 50,000 multifamily lending clients. So it's a tremendous lens on the wholesale market, the wholesale economy. There is no typical client, just given everything I just said. I would say just the overall tone, sort of the general tone is, clients like all of us are trying to see through the fog of market uncertainty. There's been a lot to have to navigate this year. I don't need to tell all of you, trade uncertainty, legislative uncertainty, regulatory uncertainty, what's going to happen in the economy. It felt like the economy is decelerating, geopolitics, all of it has created a true fog of uncertainty. But I think the real positive thing is that most of our clients are kind of seeing through that. And either innovating, navigating, evolving, adapting, especially to volatility created by uncertainty around global trade. Most were sort of getting their arms around that going back to President Trump's first term. So it hasn't been as disruptive as you might have expected. And I think if you sort of break it into its pieces, some of the fog is actually lifting. We do now have some tax certainty. So not only do we have a tax bill, there's some actually interesting things that our clients are very focused on some favorable depreciation features there that are causing clients to really think about accelerating capital investment. You don't have complete certainty on trade, but you kind of have a band of outcomes. It's not going to look like Liberation Day. And it does certainly feel like rates are more likely to come down than do anything else at the moment. So as the fog sort of lifts, I think you're seeing client sentiment is pretty strong, Board and management confidence is good. All of that, I think, is manifesting itself and you can sort of see it in our credit performance and credit costs, and you can see it in the market activities across capital markets and M&A. You would not have robust markets that we're having if people were sort of running for cover. And so far, so good. And it just, I think, points to how resilient our client franchise, the market is. And this has been -- even though it's been an uncertain environment, our clients are kind of seeing through it all.

Got it. And maybe we could kind of just next up with me just run through the businesses individually. I have to start with markets. I fully appreciate we take a longer-term view here. But just any kind of thoughts on the quarter-to-date trends in trading, both FICC equities and kind of what you're hearing and seeing?

Yes. Our market team is doing extremely well. We're very proud of the performance. They're on track to have a terrific year. The momentum from the first half of the year has extended into the third quarter. We're seeing broad-based strength across FICC and equities and FICC in particular, strength in securitized product rates and credit, and equities really the strength across the entire client franchise. We're seeing elevated client activity and then there's just the trading performance in those teams has been quite good. And we have a few weeks left in the quarter. But we would sort of estimate that markets revenue for the quarter would be up sort of in the high teens percentage rate. Obviously, a few weeks to go, there's anything could happen to be a showstopper if we don't expect that. But as we sit here today, we're expecting a strong quarter end markets.

I guess based on that, that would put 2025 at a record level for markets revenues. And it's a really hard question, but I have to do it. We have to kind of model what 2026 trading revenues will look like. Just how do you think about the sustainability of that trading revenue pool? It's obviously a big number for JPMorgan. You're kind of a leader in a lot of these segments.

Yes. It's an interesting question. My partner, Troy, did a great job at our Investor Day, I think, addressing the same issue. And I think what you're referring to has been a big step change in the fee pools, revenue pools in markets kind of coming out of the pandemic. We always sort of thought that there would be a reversion back to kind of pre-pandemic levels and have -- we really haven't seen it happen yet. There's a combination of forces at work I think that could sustain these higher revenue pools. Just overall higher global volatility has created a tailwind for our Global Markets business and just created elevated client activity. You're seeing just overall global higher interest rates and credit spreads, create higher financing revenues. And I think another notable item is just the wallet around corporate activity. So think interest rate hedging, commodity hedging, currency hedging, that's in financing, our markets products, financing products for our corporate clients that wallet is sustained and been quite strong. And I think notably the last factor that we hope continues is that primary issuance activity is really strong. So I think IPO market fell out of that. It was completely on its back in 2022, and it's kind of steadily come back year after year. And this year, we've got a lot of primary issuance that's really playing and creating strength in our markets franchise. So a lot of contributing factors. Hopefully, they sustain a more robust wallet opportunity, but there are a range of things that could change that, obviously. I always like to caveat where the future may go, but these are powerful secular forces that we think could be around for a while.

Got it. And I guess before we kind of move off of trading, the markets balance sheet has increased quite significantly over the past year. Maybe just talk to the thought process behind the growth and the appetite to continue growing the balance sheet from here?

Yes. Financing our markets clients is something we've done for a long time. And I think it gets back to the root of our strategy is to build every one of our businesses in CIB around our clients, have a deep understanding of what their needs may be, and the capital intensity of our markets clients is increasing. We're trying to provide credit solutions in an agnostic way and bring value to our clients. In many cases, providing loans to the clients preserves your existing markets revenue pool. In some cases, it opens up and expands your wallet opportunity with our clients. And it's very often the case that these financing products on their own are stand-alone profitable and interesting for us. But I think that you should expect financing revenues as a part of our markets business overall to continue to start, climb this step up over time. I think a positive of that is it brings much more stability to markets revenue. Those revenue pools are much less volatile than pure markets-driven, flow-driven kind of activity.

Makes sense. We'll put up the next ARS question as we kind of shift maybe to kind of Global Banking loan growth. Loans in, I guess, CIB were up like 6% sequentially in the second quarter. It was up from 1% in the prior 3 quarters. Banking payments loans are up 4% in the second quarter. And you mentioned on the call, it was mentioned a lot of activity coming late in the quarter. Just maybe talk to how you see the back half of the year playing out and is the growth last quarter a sign that demand is picking up?

I mean, I just to set the stage, remind everybody, for us, growing loans is an outcome of the strategy. It's not the strategy. I think indicative of that, over half of our middle market clients don't borrow from us. We do have a full suite of credit and lending products, asset-based securities, securitization, whole business securitization, revolvers, trade, direct lending. We have a full suite that we provide to clients, but growing loans is really not the core strategy. So we deploy capital to support our clients. Where we've seen growth is a combination of factors. We're adding new customers. We're adding over 3,000 middle market clients a year. With that comes some loan growth. So it's the organic expansion of our business, brings full relationship. We're going to grow loans. We're seeing some sort of situation-specific loan growth as clients pull down on the revolvers to do two things. I think there's more capital spending coming out of sort of the fog lifting that I described at the beginning. And you're starting -- you were seeing earlier in the year some inventory financing brought forward just given the trade uncertainty. And maybe one of the biggest contributing factors to loan growth that comes in a more lumpy format is just cash M&A. If you look at the growth that you saw in our second quarter loan portfolio, a lot of that was driven by a handful of small -- or a handful of large rather cash M&A transactions in our bridge book. So I think going forward, there will be a number of forces that sort of affect our loan growth. Will there be sustained cash M&A. If rates come down, we might see new originations in commercial term lending and our commercial real estate businesses. And then depending on the strength of the economy, if the economy sort of stays on the rails, we expect clients have a lot of pent-up demand, capital spending and growth, and we hope to finance a lot of that. So I don't think there's anything unusual going on. It's a combination of contributing factors. But I wouldn't look at the second quarter as being sort of an indicator of what to expect going forward.

Makes sense. And then just on credit quality. I mean, wholesale charge-offs have been sub-20 basis points for a bit now. On the second quarter earnings call, Jeremy mentioned reserve builds came from downgrades to a handful of names. Maybe just talk to your outlook for credit quality across the main portfolios? Any particular areas of concern?

Yes, there's no real concentrated area that we're worried about. We feel great about our underwriting. We feel good about the quality of our portfolio overall. We definitely feel like we're adequately reserved for a full range of economic scenarios. If you break it into C&I and CRE and C&I, it has been -- the losses and the downgrades have been like just that idiosyncratic. It's 1 or 2 situations where they're not secular. It's sort of -- you have to think of a company that had an outsized exposure to the government as a customer. We've seen everything that the government has done to cancel contracts and sort of the consumption profile. Their companies were caught sort of flat footed in that. I don't think that's going to -- that's happened. There could be more of it, but it isn't like we have a tremendous amount of risk to that across the portfolio. You have some tariff stress in the system. I would say that until that sort of dust has settled on trade and all of that is washed through, it's possible you could see more downgrades and possibly some charge-offs, especially for clients that sort of the lower end of the risk spectrum, more thinly capitalized, tighter margins that aren't as able to adjust their supply chain. But depending on how the tariffs play out, you might see stress. Nothing that we're certainly not panicked about. We're watching it all carefully. And those clients aren't standing still waiting for that to happen. They're securing liquidity. They're changing their business models through evolving and adapting. So -- and then in CRE, our commercial real estate portfolio is quite solid. The one area that we continue to watch is office. Our office exposure is less than 10% of our portfolio. And even while office fundamentals are weak, they're starting to see some signs of improvement. It certainly feels like we're off the bottom in office. And for us in real estate overall and certainly for our office portfolio, we feel like we're well reserved for whatever might happen across the commercial real estate sector.

And I guess just on the fee side, you touched earlier on just strong kind of equity issuance. We've been reading a lot more about kind of corporate M&A picking up. Maybe just talk to kind of your outlook for investment banking, both maybe near term and then just looking out.

We're actually turning out to have a pretty good year in investment banking. I reflect on our Investor Day where it was in the days following Liberation Day, we were much more sanguine about the outlook literally a couple of weeks after that, the markets kind of took off. Team has done a great job and then the last several months have been quite busy. It's been one of the busiest summers, certainly maybe one of the biggest busiest August we've had in a long time. Again, like markets, we still have a few weeks to go in the quarter. But if things progress as we expect they will. Just based on our pipelines, we're sort of picking our Q3 investment banking revenues at up sort of low double digits. Again, like markets, anything could happen, but we feel there's a lot of animal spirits at the moment. Big M&A is back. It's maybe one of the biggest last few months we've had in a long, long time. There is a strategic imperative to be global, big, diversified, integrate your operations, and there's also a sense that you have a finite window of time to complete large M&A before the regulatory sentiment may shift back. So I think that we're expecting to see large M&A continue until something happens that slows it down. ECM, market is wide open. I mean, big IPOs are back. We've had 4 big IPOs, over $1 billion. They're performing well. The pipelines are good. There's a lot of invested cash, seeking liquidity, both in venture capital and private equity that's looking to find the market. So we expect the ECM business for us to continue to be robust. And then the technicals in DCM are really strong. Spreads are at historic types. And most of our clients are taking advantage of open credit markets to either fund their cash M&A or term out any floating rate exposure they have. So literally across the board in banking, the teams are quite busy, and we feel great about sort of the outlook there. I wouldn't say just a couple -- just to offset the revenue growth in both markets and banking. Sorry to cut you. With the higher outlook in both of those businesses, you're going to see higher performance-related expenses, as we call them good expenses. It's just comp will correlate to the outsized performance in both investment banking and in trading.

I mean the company overall has talked about $95.5 billion of expenses overall for the year. I guess any kind of thoughts around that number? Or you have to wait for Jeremy on the earnings call?

I think I'll wait for Jeremy on the earnings for that.

And then just to...

We're watching every nickel and dime.

And that was up low double digits year-over-year on the trading front -- on the IB front.

Correct.

And then maybe shifting gears to -- on the payment side. I guess JPMorgan services clients, all different shapes and sizes and industries across the world, a lot of different solutions. Just maybe talk to you -- we could probably spend the whole session on this, but just kind of recent initiatives where you kind of see the biggest opportunities there.

So I would bring -- if you're very interested in the details on this, I'd bring you back to our Investor Day presentation, the gentlemen that run that business, Max and Umar did a good job of outlining it. We've got organic growth potential across our payments franchise, almost every client segment, every market, every geography. The big drivers, if I had to sum it up just in a few minutes, we're expanding our footprint strategically. So with that, we can better serve clients in regions. If you expand in Middle East, you expand in Europe and Asia, you become truly their Asia bank, their Middle East bank, their European bank. It also brings new customers as you extend your footprint into those new geographies. That will be a big growth driver for us long term. With the investments we're making in our platform and capabilities on digital, it's exposing us to very significant fee pools and deposit gathering businesses, both the middle market and innovation economy and digital, having a best-in-class end-to-end digital experience is a big investment priority for us in payments. And I think sort of moving along the innovation spectrum in the merchant services business that we have. We have an omnichannel embedded finance, embedded payments capability to service platform businesses. This is very unique, but it could be a big revenue driver for us over time. And sort of the last point, I would say, is sort of more Horizon 2, Horizon 3, or Kinexys or distributed ledger blockchain business, we're right in the middle of wherever that market may go. We've been spending a lot of time just sort of thinking about product opportunities and solutions, staying close to our clients on that.

I guess against that in payments, there's right -- there's -- you're competing against a lot of different players, banks, nonbanks, tech, fintech and the like. Just -- maybe just talk a bit about the landscape and kind of just where you see the competitive threat?

I mean it's extremely competitive in every product, in every market, and in every client segment. I didn't think all our traditional universal banks, global banks, regional banks, commercial banks, certainly all the fintechs depending on sort of the payments product continuum. The other thing to just highlight too, unlike the transactional investment banking business, to win payments business, you have to convince a CFO or treasurer to lift up their treasury operation from an incumbent that's otherwise doing probably a reasonable job and move it to you. So you've got to display some combination of much more resiliency, reliability or value. You're going to increase effectiveness or bring efficiency to their treasury middle office. That is a very -- think sort of more software sales. So the investments we're making in our operational resiliency, cybersecurity, user experience are all contributing factors to our win rate. The investments we're making in our onboarding and service journeys for our clients are all contributing to our win rate. The fact that JPMorgan is one of the few players that has an integrated merchant services, trade and treasury services business that can bundle all of those capabilities together is contributing to our win rate. And if you just sort of look back at the historic, our payments fee revenue growth sort of low to mid-teens, that's quite impressive. We do -- while we do grow with our clients, to grow payments fee revenue in the teens is something we're extremely proud of. Given the point I said earlier, you're literally lifting it out of an incumbent and moving it over. I think the other notable benefit of sort of putting these businesses together as we did 1.5 years ago, is we're acquiring customers earlier in their life cycle. So we don't have to displace an incumbent. We're becoming the primary bank for client at inception, which is a much -- reduces your cost to acquire that business, and it's a much easier game to play. But I think just -- if you just look at our market share over the last 5 years, we've added 3.5 points a share. And so we feel like the things -- the steps we're taking to invest in our platform capabilities and user experience are really contributing to our success. But man, there is competition everywhere.

I guess one area we hear a lot about recently is just stable coins. Some cases -- some use cases sound better than others, but cross-border and non-U.S. transactions kind of come up a bit. I just kind of love to get your thoughts on that and just kind of better understand JPMorgan's approaching it.

Time will tell whether there's going to be large, scalable, profitable wholesale solutions that emerge. But over 5 years ago, we saw the utility, the advantage to financial services of being smart, undistributed ledger and blockchain technologies. We formed a center of excellence. We have a very qualified team that's been in place for a long time innovating, both for blockchain solutions in terms of how we run the bank, but also in terms of product and capabilities. With the enactment of the GENIUS Act, hopefully, it will bring a range of regulatory certainty and an operating framework such that maybe some of these products to give oxygen to some of these blockchain type stable coin type products. Absent that, I think it was just more experimental. So this GENIUS Act is a notable milestone in sort of the build out of a digital type payment solutions. But we're ready. We've already had open for business, a permission private blockchain payments capability that's moved over $2 trillion. Right now, we're doing a proof of concept, cash on chain, public blockchain. It's a theory on blockchain, JPMorgan deposit token. So who knows where this will go exactly, but we're taking a first principles design approach. We're staying very close to our clients. They're seeking speed, simplicity and 24-hour access. And I think that we'll be right in the middle of wherever this goes. But it's very early stages at the moment.

Got it. And then maybe just kind of rounding up the businesses, security services, I think it kind of gets sometimes overlooked. I think people are surprised when they realize JPMorgan is actually the third largest player in this business. Maybe just kind of talk to kind of what you're seeing there.

Yes, don't overlook the security services business. It is kind of tucked within the CIB, but it's an incredible franchise on its own. It does completely benefit by being a part of an investment bank and part of a trading operation. Most of our top clients are also investment banking clients and markets clients. And so the actual -- the utility of having those broad-based relationships is a huge strategic advantage for them. The business is performing extremely well. We have had record revenues for each of the last 5 years. 2024 was a record year for us. Second quarter was a record revenue year for us. And we have industry-leading margins. You mentioned we're in the top 3, but we have industry-leading margins at 32%. And I think beyond the actual number, that's 32% while we're making significant investments in bringing new customers on and in our platform and our capabilities. So it's a fantastic franchise. It brings a lot of stability. It brings -- it's a deposit gathering business for us, and it's a predictable revenue stream that's nice to have sort of tucked within the CIB, and it's certainly accretive to our growth rates.

And maybe this ties into that. But at Investor Day, you mentioned -- I think you made the comment, we're only beginning to see the full potential of kind of the interconnected businesses. Kind of maybe -- love to hear kind of what you see as the largest growth opportunities within CIB.

Yes. The point I was making in that comment was -- is more of what was the strategic rationale of putting our commercial bank together with the corporate and investment bank, commercial banking, if you remember, was an independently reported business for JPMorgan for over a decade or more. And we always operated in harmony and strong partnership with the corporate investment bank. But having now been 1.5 years as one business, the power of that is really starting to unlock. I mean, the leaders of all these different components of CIB are sitting together every day, and we're seeing the potential to actually even better serve clients. And there's many notable examples. One of the biggest examples is how we show one face to large client ecosystems like private equity and venture capital. And so the CIB, the broad-based capabilities of the CIB to serve the GP, either the venture capitalist, so the owners of the private equity firm, portfolio companies or start-ups, the founders and the private banking markets business, financing and the investment banking and show one face to these large and growing client ecosystems, I think is truly unmatched. That's one sort of real powerful example. I think sort of -- if you think about the 70,000 middle market companies we're calling on, the 50,000 middle-market companies we had called clients, we're doing more and more investment banking business for them. There is no top tier investment bank that has a commercial bank attached to it. And so these are warm institutional relationships. And so our cost to acquire the investment banking business there is dramatically less than our traditional investment banking competitors. And you can see the growth rates in that part of the investment banking sector are really outsized. So those are two big sort of notable examples where you put these teams together, and there's been real tremendous combustion and there are many, many more. We announced the strategic financing solutions team, which is sort of a joint venture between our debt capital markets team and our markets finance businesses, bring a much higher level of comprehensive financing solutions to this private equity ecosystem that I described earlier. That was something that came out of the combination of these two businesses. So there are many, many examples. And the other sort of asterisks on this, it was never motivated by expenses, but it's turning out that we're finding ways to like really even though we're all part of one company, as one single business unit, we're finding ways to do things more efficiently. And there's actually been a decent efficiency prize in this effort as well.

Interesting. You mentioned deposits earlier in CIB, I think it's $1.2 trillion in deposits. So obviously, a big contributor balance is up like 12% year-over-year. Maybe just talk to kind of what's driving that growth?

Yes. Our strategy and payments is to be a primary operating bank to our clients, help them make payroll, manage their payables, collect receivables, manage liquidity. If you do that, if you are truly their primary operating bank, you will get core stable operating deposits, that's the prize. And so we're investing in our products and solutions to drive that outcome. And we invest organically to expand our business to acquire clients as the primary operating bank. That's been a big deposit driver for us. You've seen that in the innovation economy. We've seen that in middle market. We've seen that in across our multinational franchise where the investments we've made in our global pooling liquidity solutions has really been incredibly competitive and successful. And then as I touched on earlier, our security services businesses, it's actually a really positive contributor to our deposit portfolio. So a combination of all those forces has really been -- it's been a -- gives us a good foundation for future deposit growth. And I just -- the one sort of thing that always gets lost in the story is the power of having an asset management business attached to JPMorgan, we have hundreds of billions of dollars of yield seeking liquidity that leaves our clients to get swept to money market accounts in our AWM business. None of that is captured in the P&L of the CIB, but it's certainly captured in the P&L of JPMorgan Chase, and that's complete extension of our treasury platform as clients -- many of our clients have different liquidity requirements to point.

Good point. Inorganic expansion is something that got an outsized play on the second quarter earnings call. I guess when you look across CIB, what areas do you believe acquisitions could be helpful?

We've just got so much of organic growth. It's not something that we look at everything, and we are -- every one of our business heads has a business development mindset, a team dedicated to sort of playing in traffic to make sure that we're thinking about the art of the possible, imagining what we -- how we feel if one of our major competitors woke up and own something that we might have wanted. But we're not -- there's no strategic imperative that we need to acquire anything. Hopefully, you can get the sense in some of the points I've made this morning. We have ways to invest capital, ways to invest to grow our franchise organically. And when you can handpick every banker, handpick every client, handpick every loan, handpick every market, it's a far better way to grow the franchise than to pay a premium for someone else's business.

Private credit is another area that's gotten a lot of attention. I guess JPMorgan kind of touches that term in many different ways. But just kind of love to get your thoughts on the state of play. We've seen a lot of growth in that segment, kind of your thoughts there and just what role is JPMorgan playing?

It's a tremendous market. It's grown dramatically in the last several years. It's now multiple trillion dollar market. It's over half the C&I lending market. So it's here to stay and something that we watch very carefully. You all as investors and students of banks should sort of appreciate as well as anybody that banks that have grown loans at over 20% at an extended period of time tend not to do well. So there will certainly be winners and losers in this asset class over time. There are some outstanding players and then there's some secondary and tertiary players. And so we're not so worried about the outstanding players. Many of them, most of them are clients of ours. The secondary and tertiary players it's -- they've not been through a hard recession. I wouldn't consider the pandemic a hard recession. So we'll see what happens if we see 2, 3 quarters of real tough economic climate. We touch the segment in several ways. We're the bank to the GPs. We take them public. We sell these businesses. They're investment banking clients, their markets clients, and we finance their portfolios on a very strategic basis and conservative advance rates. And then the second part of the business is we have the product offering with the exception is in the investment bank and in our markets business, we're not an asset gatherer. It's a solution set we're bringing to solve problems or help our clients. The teams aren't motivated by, "hey, let's go grow a bunch of direct loans." And so we were public at our high-yield conference early in the year. We announced $50 billion of capital availability to be in the direct lending business. It was meant for nothing other than to signify that we have the balance sheet, we have the scale, we have the capacity, and we're open for business. But it is in no way a target that we hate. We got to -- we expect to are working hard to fund $50 billion of direct loans. I will also say that we're running all these credits through our pre-existing credit rails, the same underwriting expertise that's been in place for generations at JPMorgan and look at all of our middle market loans, all of our buyout loans and have delivered extremely strong credit performance for us for decades. So -- we're running it through the same rails. We're maintaining the same credit discipline. All it is for us is just a way to be much more holistic and comprehensive and product agnostic in delivering a solution. So we're in the game, but it isn't the one and only thing we're doing.

Another hot topic has been the evolving regulatory environment. Just maybe talk to, right, potential changes in stress testing, Basel III, G-SIB SLR. Just how does it impact how you run CIB, other businesses that are not as attractive to become more attractive? And just how you -- just how the evolving landscape impacts you?

I mean, we obviously study every moving part of the regulatory framework. But the honest truth is we sort of see through that. We run the business for the long term. We seek to do the right thing for clients to make the right economic decisions and try to set up the franchise to thrive through any potential economic outcome. I mean, just sort of -- since the financial crisis, we sort of wave of historic bank regulations washed into the business. We've been adjusting in navigating, but the true -- the north for us has been to serve our clients, run the business with a proper economic lens on the franchise because you don't know what can happen from day to day. I think the point I would make is -- and Jeremy has made this point publicly many, many times, there's been a tremendous wave of regulations washing into the banking sector. Nobody has really taken a step back and looked at how these rules and regulations intersect with each other and what good or bad comes out of it. We're absolutely in favor of a strong regulatory environment that creates the safety and soundness that everybody wants. But I think that we're at a point where these things just overlap with each other and create a lot of unintended consequences. And it certainly feels like now is the time to take a fresh perspective on capital and liquidity rules. So we'll see where it goes. But we're sort of steady as -- goes in terms of what our strategy is, and we're sort of seeing past it. We're imagining if there is a capital relief, we know exactly what we would do. We're studying all the range of alternatives, but we're not counting on it. You also don't know what the market pricing response would be depending on whether some of these rules get enacted or changed. So I don't know if that's a great answer or not. But we've been living in the sort of regulatory environment that not dysfunctional might be harsh, but it's been tough to sort of make long-term decisions, knowing that on any given day, something could change. So we sort of get back to what do our clients need, what's the right economic lens, how do we build a franchise that will thrive to a range of different economic scenarios or regulatory scenarios.

No, it makes sense. I guess, in that vein, if we kind of look at this new CIB, it's kind of been around 6 quarters. ROE has kind of been running 17% to 20% despite investment banking fees maybe not being where they could be and allocated capital increasing. You've talked to kind of 16%. I guess two questions. I guess, kind of given the increased diversity of the business, just how do you think about the variability of returns? And then secondly, is something greater than 16% conceivable just given your market share opportunities, global scale positioning and the like?

So I'll take the last part first. So the 16%. So everybody is sort of on the same page was a medium-term outlook that we gave at Investor Day. It's just simply that. It was an outlook. It was not an aspirational target in any way. And as we sat on stage at Investor Day, we didn't know where the regulatory framework was going to go. The economy was wobbly. So that point in the market, it's very real reasonable to consider that we're over earning on credit, we're over earning on deposits, and the investment banking landscape as we telegraphed at that point was very uncertain. So 16% was not an aspirational target. Medium-term outlook, given the facts and circumstances we felt at the time. The other notable point is 16% is pretty good and best-in-class by any standard and a lot of different subcomponents of the businesses we're in. And on top of that, the 16% outlook for us includes a tremendous amount of investment in our future platform capabilities, technology, organic growth, bankers, systems, AI, our whole stable coins initiative. So all of that's in there, and we're still delivering strong returns and margins. So I don't want to be defensive around the 16%. It's just meant to be a conservative guidepost for all of you. Is it possible that we can outperform it? We've shown that we can. And I think depending on where the economy goes, what happens with the regulations, there's a real chance that we could do that. In terms of variability around the margins and the returns of the business, having run the commercial bank for 12-plus years, that was a high ROE, much more stable revenue stream, margin business in CIB. So just by putting that together with CIB, I think you get -- it's accretive to sort of margin stability and return stability. I think another notable point we touched on it earlier is the increasing percentage of financing revenues as a part of our markets business. It's a much more stable returns and margins in that. So I don't -- it's very hard to mention and quantify. But I think as the business mix has shifted pro forma for the combination, this new commercial and investment bank, you should expect some degree of increase in stability of margins and earnings and returns. At least we're hopeful that's the case.

Great. Okay. It's a good point to leave it on. Doug, thank you so much for your time today.

Thank you. Thanks, everybody.