JPMorgan Chase & Co. ($JPM)

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's First Quarter 2026 Earnings Call. This call is being recorded. [Operator Instructions] The presentation is available on JPMorgan Chase's website. Please refer to the disclaimer in the back concerning forward-looking statements. Please stand by. At this time, I would like to turn the call over to JPMorgan Chase's Chairman and CEO, James Dimon; and Chief Financial Officer, Jeremy Barnum. Mr. Barnum, please go ahead.

Thank you very much, and good morning, everyone. This quarter, the firm reported net income of $16.5 billion and EPS of $5.94 with an ROTC of 23%. Revenue of $15.5 billion was up 10% year-on-year, primarily driven by higher markets revenue, higher asset management and investment banking fees and higher NII, driven by the impact of balance sheet growth, predominantly offset by the impact of lower rates. Expenses of $26.9 billion were up 14% year-on-year, largely driven by higher compensation, including higher revenue-related compensation and growth [indiscernible] employees as well as higher brokerage expense and distribution fees. The increase also reflects the absence of an FDIC special accrual release in the prior year and credit costs of $2.5 billion with net charge-offs of $2.3 billion and a net reserve build of $191 million. And in terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 14.3%, down 30 basis points versus the prior quarter as net income was more than offset by capital distributions and higher RWA. This quarter's [indiscernible] RWA is up $60 billion, primarily driven by the markets business, reflecting higher client activity, seasonal effects and higher energy prices which resulted in higher RWA across market risk and credit risk ex lending. Now let me spend a few minutes on the recently released Basel III game and G-SIB reproposal. I'll start by acknowledging that this has been a long journey and getting it done across multiple regulators and applied to the full set of U.S. banks is unquestionably a difficult top. With that said, we do have some concerns with elements of what's been put forward primarily with the [indiscernible] proposal. On the left-hand side, we show you our preliminary estimate of the impact on JPMorgan Chase next to what the Fed has disclosed but the category 1 and 2 banks in aggregate. Our results are worse in each category, estimated RWA is higher, G-SIB is worse. And because our CCAR losses are below the floor, the Fed's reduction is not going to apply to us. The result is that under the proposed rules, our CET1 capital would increase around 4%, while the Fed's estimate for large banks is about a 5% reduction. Our long-standing position has been that the agency should calculate each component of the capital requirements correctly without regard to what that may mean for any specific firm or for the broader industry. And to the extent regulators want to add conservatism, they should make that explicit rather than embedding it in methodological choices. Turning to G-SIB on the right. the surcharge on the reproposed rule looks quite high when placed in the historical contacts as the chart clearly illustrates. As many of you know, we have been on the record for the better part of this last decade, advocating for averaging smaller buckets, GDP scaling and reweighting short-term wholesale funding to 20%, and we were glad to see many of those concepts in the NPR. However, while we have every reason to believe that the Fed's published estimate of a 3.8% reduction in capital associated with G-SIB NPR is accurate when defined [indiscernible] it's important to understand that under the current role, the surcharges for almost all of the G-SIB banks are scheduled to increase meaningfully over the next 2 years, simply as a result of recent growth in the system despite, in our view, no change in real world systemic risk. In addition to that background increase, the proposed change in the short-term wholesale hunting methodology adds about $22 billion of G-SIB specific capital, principally to the money center banks, of which we represent about $13 billion. while in the process, making the methodology less risk-sensitive and less consistent with the Fed's original rationale for including it. This could have been addressed by better adjusting for growth in the system, but it wasn't enough. The net result is that we need to plan for 5.2% in 2028, a 70 basis point increase from the current 4.5% requirement, which, when combined with the RWA increase from the Basel III game NPR results in a total increase of about $20 billion of G-SIB capital based on our current balance sheet. This persistent miscalibration of the U.S. surcharge is obviously bad for international competitiveness. But more importantly, domestically, this means that the cost of credit from JPMorgan Chase to U.S. households and businesses is likely higher than it is from other domestic non-G-SIB banks. We recognize that we are larger and more systemically important than even large domestic peers. But in the end, the question is, how much more should the cost be. It is very hard to reconcile the principles articulated in the 2015 Fed G-SIB white paper with an outcome where JPMorgan Chase has $109 billion of G-SIB surcharge. Obviously, the rules aren't final yet, and this is what the common process is for. As Jamie wrote in his Chairman's letter, everyone wants to move on. So our comments will be very focused. But we feel strongly that the framework should be coherent and the system would, therefore, be better off with these outstanding points addressed. Now moving to our businesses. CCB reported net income of $5 billion. Revenue of $19.6 billion was up 7% year-on-year, predominantly driven by higher card NII largely on higher revolving balances and higher operating lease income in auto. A few points to highlight. Notwithstanding the recent volatility in market and gas prices based on our data, Consumers and small businesses remain resilient with consumer spend growth continuing above last year's pace. Average deposits were up 2% year-on-year and quarter-on-quarter, driven by account growth and moderating yield-seeking drugs. Client investment assets were up 18% year-on-year, driven by market performance and healthy net inflows and Home Lending originations of $13.7 billion increased 46% year-on-year predominantly driven by refi performance. Next, the CIB reported net income of $9 billion. revenue of $23.4 billion was up 19% year-on-year, driven by higher revenues across the businesses. To give a bit more color IB fees were up 28% year-on-year, driven by strong performance across M&A and equity underwriting, partially offset by lower debt underwriting. Looking ahead, in engagement and pipelines remain healthy, but of course, developments in the Middle East could have an impact on deal execution and timing. In markets, fixed income was up 21% year-on-year with strong performance across the businesses, partially offset by lower revenue and rates. Equities was up 17% from increased client activity. Turning to Asset & Wealth Management. AWM reported net income of $1.8 billion with pretax margin of 35%. Revenue of $6.4 billion was up 11% year-on-year, predominantly driven by growth in management fees on strong net inflows and higher average market levels as well as higher book [indiscernible]. Long-term net inflows were $54 billion with continued strength across fixed income, equity and multi-asset. AUM of $4.8 trillion was up 16% year-on-year client assets of $7.1 trillion were up 18% year-on-year, driven by higher market levels and continued net inflows. And before turning to the outlook Corporate reported net income of $699 million on revenue of $1.2 billion. In terms of the full year 2026 outlook, we continue to expect NII ex markets to be about $95 billion. We now expect total NII to be approximately $103 billion as a function of market decreasing to about $8 billion, predominantly due to rates, which we expect will be primarily offset in NIR. The adjusted expense outlook continues to be about $105 billion and the card net charge-off rate continues to be approximately 3.4%. With that, we're now happy to take your questions. So let's open the line for Q&A.

[Operator Instructions] Our first question comes from Steven Chubak with Wolfe Research.

So maybe to start on the AI cash tool, which, Jamie, you commented on in your letter. There's been lots of focus on this particular at least launch given that this is a tool which could potentially result in some consumer deposit pressure as well as drive some impact on increased competition as well as higher deposit betas. I was hoping you could just speak to how you see deposit competition unfolding as similar smart tools become more widespread?

Yes. So it's a great question. And obviously, there's early stages for this particular product. So you have to look at it literally segment by segment, how people manage their money, how they want to manage their money, people are pretty dead, particularly the higher net worth. They have tons of choices. They [indiscernible] many different places. And so the question for us is, how can we make it easier for them to manage their money in a way they're comfortable. Most of you on this call, you have in your mind, how much days is the checking account and then you write a ticket to a money market fund or a deposit account, something like that. And that's all we're trying to do. And we provide great values to people. If you're comfortable with JPMorgan. I remind people, if you have this product, you have ATMs, you've got branches, you've got a device, you have instant payment systems like Zelle. So we look at the whole basket, how we can do a better job for the client. And yes, basically is some margin somewhere and create more competition somewhere. [ That's life. ] Jeff Bezos has always says, your margin is my opportunity. And I kind of agree with that. We're trying to look at the world and the point of view of the customer, what more can we do with them. And this is really early stages. And as you know, there's tons of competition out there for the money.

Yes, exactly. And the only thing I was going to add to that, it's sort of understandable just got an intention because it has sort of AI in it, and it's kind of interesting. But I assume he says like -- and as you highlighted in your question, competition for deposits has always been very intense. It continues to be intense and we have both external and internal competition from higher-yielding alternatives and people sort of optimize that and the start of running the business. And as also Jamie just alluded to, this thing is like kind of not even live yet and it's sort of targeted at a very small subset of the client base, particularly clients with investments where we think there's an opportunity to take a larger share of the investment wallet as part of this. So I would -- it's understandable the amount of interest that it's gotten, but I think the right way to think of it as sort of as an experiment right now.

No, that's helpful context. And maybe switching gears just to the Basel III capital proposal certainly helpful in terms of how you frame some of the shortcomings, some potential areas for improvement. But maybe just focusing in on the RWA inflationary impacts. Does the guidance that you've laid out contemplate any mitigating actions you might pursue? Is there any potential mitigation that you envisage? And do you have any preliminary views just on the magnitude of SCB relief that you could see from the removal of some of the double accounting of markets or operational risk. I recognize that piece is a little bit more opaque.

Yes. I mean those are interesting questions. I think, obviously, we are kind of well practiced over the course of the last 1.5 decades on understanding the rules in detail. And ensuring that we're using our financial resources efficiently to support the client franchise. So -- and I think the hope is that the rules land in the stage where there is nothing in them, which sort of takes an otherwise good and healthy business and makes it completely noneconomic. I think we've alluded to a couple of areas where if you look at the presentation slide on the bottom right-hand side, we talked about targeted RWA clarifications needed. There's this issue with like high-yield repo collateral and some stuff about advice lines where the proposal is [indiscernible] what the actual impact would be in and some versions of the world, we think it creates rational results. But broadly, I don't think this is a story about optimization at this point. I think this is a story about a rule set that is converging to a place and then we need to just grow the business and deploy the resources to serve our clients. Obviously, we have said a lot about G-SIB on this page. And I guess I don't really have more to say unless you have the big question on G-SIB, but that is the one area where we think it's kind of a significant disincentive to a particular type of business, in particular some markets business. And I guess I would just make the point that we've often made publicly that the depth and breadth of U.S. capital markets is a key competitive national advantage. And regulatory capital rules that at the margin discourage a dynamic secondary market in the United States with active participation by banks is, in our view, sort of not great. So that's part of the reason that we're so focused on G-SIB because it disproportionately affects that business.

Anything you could speak to just in terms of the removal of the double accounting.

Yes. Sorry, I forgot about that part of your question. Yes. So as you know, like we're currently below the floor, right? So obviously, if that is like the new normal, then if the double count is addressed by moving further things from stress testing, it wouldn't have an impact. If the double count is addressed by modifying the operational risk calculation in RWA, then it might have some impact. And obviously, it's far from guaranteed that we will be a bank that is permanently below the floor. But I suspect that issue is more relevant for institutions who business mix is such that they're going to tend to structurally be above the floor. It's a little bit unclear for us as things settle down, whether we're going to bounce around above and below the floor or tend to be structurally above the floor. We'll see. But I think removal of the double count is definitely something we support. It's probably not our #1 priority at this point because some progress has been made on that.

Can I just also just mention on the market -- global market shock, it's never been in the real world, all these years, including during the COVID and then before the [indiscernible] is nothing like what they have. we already have $80 billion or $90 billion of capital for the trading books. So those numbers are just -- they're completely out of whack with reality. And operational this capital, I can't avoid saying it is another crazy of 2 -- 1 in 1,000 year thing, and then worse than that might be they create risk-weighted assets. Every company in the world has operational risk and they artificially create risk-weighted assets, which do not exist, and this locks up a lot of capital liquidity [indiscernible] for no good reason. And I understand there's operational risk. I think there are real ways to measure it, by the way, which I'd point out, which is not this artificial academic exercise, but there's operational [indiscernible] margin loans that are late and using subprime [indiscernible] or as opposed to prime collateral and how you process things, and that's where they should really be focusing, reducing actual operational risk as opposed to these calculations but you can't change. Like if you -- if they all come to the mortgage business and you got out of the mortgage business, it still stays there. Like who would do something like that. And so it's time to really look at the stuff and do it right.

Our next question comes from Erika Najarian with UBS.

Jeremy, my first question is for you. You modified the market's NII outlook given the change in rates between end of February and today. I'm wondering, as we think about the ex markets NII number of $95 billion, you retain that. What are sort of the offsets to higher rates in the asset sensitivity if we don't have cuts for the rest of the year?

Yes, sure. So it's a good question because I think we have said that we're also sensitive and rates are a little bit higher as a removal of the cuts in the back half of the year. And so you might have otherwise expected us to revise the NIX markets up a little bit. But just to do a little mental math, EAR that we've just disclosed $1.8 billion as a result of the fact that were pretty backdated. The impact on the full year average is only about 20 basis points. So the amount of upward provision that you might have otherwise expected is really quite small when you do that math. And there were some other bits of up and done noise, some rounding next. So that is essentially the reason the number is not changed. I don't think there's too much to read into it.

Got it. Perfectly clear. And my second question is for Jamie. Of course, we were all unpacking your Chairman's letter from a few weeks ago. And one of the topics that you wrote about and you've spoken about at length in the past, is on private credit. And I think we fully appreciate what JPMorgan's view here is. But given all of the headlines that this topic is garnered I guess, good question here for you and your team is, if we do have a recession and higher defaults and higher severity and cumulative losses and leverage lending, what is the ultimate loss back to the banks? Because as we understand, the banks are fairly well protected in terms of structure. And while you address this in your letter for those that maybe hadn't had time to read it and that are listening to this call, you think that if we do have a default cycle in private credit, it will be systemic?

No, I mean I was quite clear, I don't think so, and I gave the big numbers. Private credit leverage lending is like $1.7 trillion. [indiscernible] bonds like something like $1.7 trillion, [indiscernible] syndicated leverage loans like $1.7 trillion, investment-grade debt, $13 trillion; mortgage debt, like $13 trillion; and there's a lot of other stuff out there. And I pointed out that I think there's been some weakening in underwriting, not just by private credit elsewhere. And there will be a credit cycle 1 day. And I think when there's a credit cycle, losses will be worse than people expect relative to the scenario. I don't think it's systemic. It almost can't be systemic at that size relative to anything else. But when recessions happen and values go down and people [indiscernible] higher rates, build the address the stranded system. And are people prepared for that? I can't speak for other banks, but these -- most of these things are they on top of -- you have very large losses in private credit before at least it looks like banks are you get there or something like that. So it doesn't mean you won't feel some stress and strain and you might have to do something about it, but I'm not particularly worried about it. I'd be more worried about what is the credit cycle, how is that going to filter through the whole system. That to me is a bigger issue. I also pointed out, corporations in general, the debt's not too high, consumers, in general, does not do -- most of excess debt is in government debt at this point. And so there are positives and negatives you look at what's going to happen if there's a cycle. And of course, we always worry about what happened in their cycle. And like I said, I think it will be worse than people expect and you go look at what happens in other cycles to various credit and industries, et cetera. The other thing which almost always happens is that there's an industry with surprising people. So if you go back to the year 2000, people are surprised there was utilities and telecom, [indiscernible] stocks that got hit. Things changed. And going to '08, it was media companies and newspapers, [indiscernible] things change. This time, you have all the 2 year for about software, which we'll see might be soft or might not. But something always happens that people don't expect in credit.

Our next question comes from John McDonald with Truist Securities.

I wanted to ask a question about reserves. Can you talk about scenario weighting and how you're evolving views on the macro risks out there factor into your reserve setting process and how that played out this quarter?

Yes, John, good question because I think at a high level, if you look at the allowance, it's like quite small, and you might wonder like what's going on there given everything that's happening in the Middle East, especially given our historical stands about wanting to be conservative and concerned about the geopolitical dynamics. So a couple of things in there. One, as you know, we start the reserve, the allowance calculation process with sort of model-based approach that's based on economic forecast. And so -- and actually, just to make it easier to track, let me start the punchline, which is we actually did not change the wage this quarter. And so with that said, on sort of unchanged was flowing through the economic outlook actually lowered the weighted average unemployment rate and the allowance build up from 5.8% to 5.6%. So that created some tailwinds across the numbers primarily in consumer, but also a little bit in wholesale. And we also had a little bit of a lease consumer in home lending, I think it was about $150 million which was an HP or maybe 110 or something. But anyway, which was an HPI upward revision, so kind of unrelated to everything else. Under the covers, there are some builds in wholesale as a function of loan growth and also some minor syncratic downgrades here and there, nothing dramatic. But in the place that you would expect to see allowance build, you are seeing some. But at a high level, we did sort of have a very conscious debate about this as a company like should we add downside skew the wage this quarter given [indiscernible] that's going on. And our conclusion was that the existing kind of conservative bias in the land was sufficient, and we would just wait and see to see how things develop. And to the extent that things hopefully, they don't. But if we get some of the downside case outcomes with higher energy prices that wind up having an impact on the core global economic outlook, and that would actually flow naturally through the process. And so we'll we can see kind of how [indiscernible]

Okay. And then separately, I was wondering about any changes to your outlook for loan and deposit growth, your balance sheet growth was very strong this quarter, a lot of it seeming to be in the markets business. So I'd just like to give some more color on the drivers of growth this quarter and how it affects your outlook for loan and deposit growth this year?

Sure. So I would say that this quarter's growth, as you said, early markets, primarily low dentistry stuff lot to RWA, secured financing and various stores and a lot of that is seasonal. So there is a sort of background trend of growth in the size of the markets business and in the size of the market's balance sheet, but I don't think that anything happened this quarter that was sort of particularly off trend in that respect. In terms of the firm-wide overall outlook, I think, arguably the single most significant number is the what we said about card loan growth expectations, a company update, which is that we said we expected 6% or maybe a little bit more. and that hasn't really changed. That's still kind of our core expectation. And the rest of the franchise, it's really pretty modest growth overall. We actually have some headwinds in home lending as a result of some preselect portfolio roll off and stuff like that. But to a significant degree, some of that's going to get driven by acquisition financing, that we hold on balance sheet for a while that some of that's a little bit of a driver in this quarter as well. And of course, if things deteriorate, which we very much hope they don't, that tends to produce lower loan demand. So we'll see what happens there, but we're going to be there for our clients for whatever they need. And then the final building block of this is markets, which, as you know, has been actually, interestingly enough, the primary driver of wholesale loan growth recently. But there, it's going to be very opportunistic. A lot of it is kind of the data center lending type stuff and related things where we're going to participate with the terms make sense. So we're going to be very willing to walk away if we don't like it. And so that's going to be more a matter of just seeing what the opportunity set looks like and how we feel about the risks.

Our next question comes from Manan Gosalia from Morgan Stanley.

You have one of the best views in -- on the U.S. consumer. You mentioned that the economy is resilient, the consumer is healthy. Could you give us some more color on what you're seeing there? How resilient is consumer spend and credit if energy prices remain high? And are there any signs of cracks that you're seeing at all?

Yes. So it's a good question. It's the right question. It's a question we get a lot, and I sort of struggle to say something new and interesting every quarter. There really is not anything or interesting to say this quarter. We looked at it through every angle early roll rates, delinquency rates, cash buffer, spend, discretionary spend, nondiscretionary spend, it all looks consistent with prior trends and fundamentally, healthy. So let me add maybe just a little bit of nuance in the context of energy prices and what's going on this quarter. So I think the cost is something like 3% of the typical consumers spend expenditure, at least in our portfolio. So it's not nothing, but it's not overwhelming. We look to see if there's kind of evidence in there of people trading decreasing other discretionary spending to adjust for higher gas prices, but it's just kind of not enough yet to be visible. I would caution, though, I think it remains fundamentally the case. The biggest single reason that the consumer credit performance is healthy is that the labor market is strong. And if you get bad outcomes in the Middle East, much higher energy prices or other problems that sort of do eventually frac what has been, I think, many people's perspective, I think surprisingly resilient American economy and a very resilient U.S. consumer, and that winds up having [indiscernible] labor market, and you will see that come through clearly. But right now, in the end, the story remains the same, which is Brazilian consumer that's doing despite higher gas prices.

Yes. And I would just add, we're really getting too fine-tuned here, but it's being helped right now by higher tax refunds too.

That's really helpful. And then a separate follow-up just on the trading business. One is, are you seeing any signs of that volatility here? Or are things -- things in March still pretty good? And then if we look at trading assets that were up pretty significantly quarter-on-quarter. Was there anything specific in the environment that drove that? Was that business as usual? Or is this some of the deployment -- the ongoing deployment of excess capital, Jeremy, that you've been talking about?

Okay. So sorry, I think there are several embedded questions in your follow-up questions. Let me try to do this efficiently. So in short, no, we haven't really seen any so-called bad volatility. I'm sure there are pockets of that in some markets. But broadly at a high level. I think what we mean by that is the types of extremely gappy discontinuous markets with low liquidity they keep clients on the sidelines. And as I say, I'm sure there have been pockets of that in certain subsegments of certain asset classes. But in general, that is not -- has not been a characteristic of this quarter, which is, I think, part of the reason that the performance has been very good. On trading assets, as I said a second ago, I think that was mostly BAU growth, mostly seasonal low-risk density and not particularly a function of capital deployments one way or the other. I think to the extent that, that plays out, that will be a longer-term phenomenon and just to refer you back to my comments and company update, I think, to really get that right, you need both to free up capital, but also to free up to allow banks to deploy against the broadest possible set of opportunities as for the real economy, not just kind of high-risk density opportunities that require less liquidity per unit.

Our next question comes from Mike Mayo with Wells Fargo Securities.

Jamie, in your CEO letter, as was mentioned, you talked about private credit, and you mentioned the $1.7 trillion private credit market, which didn't really exist 2 decades ago, as you know, how much of that $1.7 trillion would you say is a substitution effect from banks to private credit? And how much of that might be types of credit you never would have originated in the first place. And with the regulatory changes and what's happening in the market, do you think you can recapture some of that share? And more generally, what are you doing with regard to the collateral there are new headlines in the past quarter that you're becoming more conservative with that. And lastly, what kind of Fred are you getting? Are the treads improving on this or staying the same?

Yes. So those are all really good questions. So the trains actually was there before. There was always this and the banks did it in some ways it was arbitrage because banks were really discouraged from doing leverage lending over a certain overseen leverage. And then of course, the competitive will find new ways to do things, which we're not against how they do it. There's a little bit of [indiscernible] arbitrage and all these various things. But I do think -- I mean it's really hard to say that half that probably was arbitrage that banks could pick up some of that. Banks also look at relates differently. When a bank does alone in middle market leverage lending, that's what this is. We've been doing this for a long period of time. When we look at the relationship through extensively, not just the loan but the rest of the relationship payments custody asset management type of services, et cetera. So maybe some will come back. I'm not particularly concerned about it. And the spreads, you can just track how spreads move around every bank does it differently. And every bank charges differently and stuff like that. But depending on how concerned they are they going to raise the reason with the charging for private credit. -- private credit spreads themselves but they charge their clients have gone up and down. And you've actually seen loans go back and forth every now and then from the private credit market, the bank syndicated loan market. So we'll see. And we always had what we call marketing rights. So if you look at the underlying collateral, and that's just the right that protects you and gives you sort of [indiscernible] like that. Obviously, if you ever see credit getting worse, and it's gotten not terribly worth the actual credit which a lot of these private equity -- private credit guys pointed out, the actual credit hasn't gotten that much worse. There are pockets where it has. And and credit spreads themselves haven't gotten much worse in general, but there are pockets where it has. So we'll be watching it closely. We think we're okay on all that. base be seen. I think the big point to me, Mike, I don't think it's systemic, but I do think it was a credit cycle, and I'm not referring to private credit here, because of underwriting leverage and picks and competition, and we've got a cycle for a long time, a lot of people late to this game, I just don't expect every player is going to be the same. I think some will be -- it won't be a bell curve there'll be something different than that. And people can be surprised that some of the players aren't particularly good at it, and that business will probably come back to banks.

And then separately, Jeremy, you mentioned no change in the core NII despite being asset sensitive. And in terms of the deposit growth, you had some really amazing deposit growth and then kind of hit air pocket for a little while in this quarter, conservative deposits were up 2%. I guess taxes probably helped that out. Is this the start to getting back on that higher deposit growth path or not yet?

Well, I think air pocket is a little strong word but fair enough, I recognize the dynamic that you're describing. And I think it's a little bit too early to sort of say, like, day like we're back with like super robust consumer deposit growth, partially because of your point actually about tax. I think you're right, that probably is contributing a little bit right now. But at a high level, we talked about a company update, consumer deposit growth expectations being low to mid-single digits. And I think that is still the belief, and I think we'll be a little bit more confident in that, as you say, once we get through tax season, so maybe we'll know a little bit more next quarter. But I will say that through the lens of like net new checking accounts, where I think we said in the EPR that we did over 450,000 this quarter. So that driver of sort of long-term consumer deposit franchise growth is in place. And it just becomes a question of at the margin, how are you seeing flows develop and what that does to kind of balances per account as we talked about a company update. So -- it's the right question, something we're watching a little bit early, but unchanged expectations and some signs, as you point out, that the trends might be improving slightly. And then just to complete the picture, -- on the wholesale side, as you recall, last year was an exceptionally strong year for wholesale deposit growth. So our expectations for this year were a little bit more modest Actually, you're starting out pretty well, some of the typical year-end seasonal increases that we tend to see roofs have not quite rolled off to the extent that we would have expected. So I still think the core view is for significantly less robust growth than last year. But from a core franchise perspective, things feel pretty good there.

Next, we will go to the line of Gerard Cassidy with RBC Capital Markets.

Obviously, the first quarter, the expense levels were a little elevated relative to the full year guide, if you annualize that out, of course. Can you give us some color that how you're going to bring down the following 3 quarters to be able to hit the year-end guide that you gave us at about $105 billion.

Yes. So I would somewhat discourage you from like annualizing quarterly expense run rate because there's a lot of seasonality in the volume and revenue-related component of that as a function of the seasonality of the market revenue in particular. But I think -- and I think in reality, as you well know, Gerard, that's kind of like not how we manage the company, meaning I don't think you meant this obviously, but the implication of your question is that like all the numbers were a bit high in the first quarter, let's like run around and find some expenses to cut in order to meet our guidance, and that's kind of like not how we do things like we just manage the expenses holistically every day of the week. But at a high level, I think you're actually getting on something important, which is that when you consider the exceptionally strong performance of the Markets & Banking business this quarter, you actually might have otherwise expected us to revise up the full year expense guidance because realistically, I think no one could have -- it's impossible to imagine that we would have budgeted the level of performance that we saw. This quarter in markets and banking and that...

I'd say some is expected to be quite good. I hope every quarter is good, and then our expense target would be to spend more money could be did so well.

Okay. But I still want to make my point, which is that, Gerard, I would discourage you from drawing the conclusion that for the purposes of the full year we are going to see the amount of implied internal offset between volume and revenue-related and other expenses that and the failure to revise the guidance this quarter. It's just a little early in the year. So let's see how things play out in the next quarter or so.

If volumes -- and if every quarter was good this quarter, we will spend more than $105 million for a very good reason.

Yes. No question.

Five is not a promise. It's an outcome of business results.

Which you've said in the past, Jamie, good expense growth, we all completely understand. As a follow-up question on digital assets, stable coin, on the continuum that we're on for adopting these types of new technologies. Can you guys give us an update where you see this moving in terms of deposit impact possibly. But more importantly, payments, obviously, you're a very large payments company. And how are you guys assessing it?

Sure. I mean there's like so much to say on the stable coin front. Obviously, there's a lot of like legislative and regulatory stuff going on. I think, Gerard, your question is a little bit more about sort of long-term impact on the payments ecosystem. So I guess, through that lens, I would actually start with the wholesale business and talk about all of the innovation that we've done in sort of modernizing payments through [indiscernible] and the way that some of that is starting to play out and giving a lot of our customers kind of exciting new features like programmable money and different hours and the associated Tokens deposits, all that type of stuff. So we're super excited to embrace the [indiscernible] of innovation and be part of it. And the question a little bit is how does that relate to our existing franchise and in the context of wholesale payments, I think it's just part of an overall product offering. I think sometimes people think that you're going to have some stable coin thing that's going to like radically disrupt the existing wholesale payments paradigm. And I think that's not quite the right way to look at it, only because wholesale payments is already ratably efficient, extremely low-margin business with very sophisticated clients. And so it's not as -- a little bit to Jamie's earlier comment, it's not like there's 1 of these like your margin is my opportunity type situation and wholesale payments. It's already a very modern, very technology sophisticated, pretty low-margin business where we're constantly doing that, including with some of these sort of new technologies. On the consumer side, people talk about like what is the consumer use case for stable coin and one version of it, it's like digital cash and there's the obvious like KYC implications of that. And I think maybe that's where you get a little bit into the legislative and regulatory tranche where there are some new developments on that whole thing associated with this [indiscernible] to what extent is the payment of rewards or proxy for interest and that sort of turns it into its stable going being an interesting form of innovation. It's just regulatory arbitrage and that you can run a bank without being subject to the important regulatory protections, both prudentially and for consumers in terms of KYC and stuff like that. So we're eager to compete. We're eager to innovate. We're innovating all over the place. We definitely support certainty that comes from this legislation. But as we get close to some form of finalization there, it's very important with the same product be regulated. Same risk be regulated in the same way, and it doesn't become the case that you just create a giant arbitrage back door or the provision on the payment of interest for stable funds. So we'll see how that plays out.

Our next question comes from David Chiaverini with RBC Capital Markets.

Actually with Jefferies. So wanted to follow up...

Welcome to [indiscernible].

I wanted to follow up on the consumer deposits. So interest-bearing deposit costs were down nicely in the quarter. Could you talk about the opportunity going forward in light of the changes in the forward curve?

Okay. That's an interesting formulation. I sort of don't actually know the number you're quoting, but I suspect it's just a function of the rate curve [indiscernible] came through last year. Go ahead.

I would just keep it simple. The margin would be about what it is today, give or take, a couple of basis points up or down. There are a lot of factors in there, like what kind of accounts you're opening tax refunds and all that kind of stuff. So -- but roughly the same for now.

Yes. I mean I was going to pivot to the broader question, I guess, what you talked about in terms of opportunity. And I think that there's -- as Jamie says, there's just the yield curve flowing through the high beta portion of other franchise. And then there's the load portion of the franchise, where I wouldn't say lot of opportunity to price down because I think as is well known, the price there is already quite low, but it's in the context of an overall service bundle where a lot of clients have relatively low balances are getting a lot of value in the package. So I guess I would be there.

And then shifting over to a follow-up on private credit. So there's still a lot of attention on this in the banks. I think the banks are well protected. But can you remind us of the structure of these loans in terms of typical advance rates and embedded credit enhancement that protects your position?

Asked you for too much of the information. They are seeing their loans on top of leveraged loans, so you're senior to the actual loans themselves and the -- each one is different. The loan to value, the trigger the loan to value and all the things like that. So -- but you can probably figure those out or if you look at the disclosures on the PTCs, et cetera.

Yes. I do think it's reasonable to to remind, I guess, the market of some things that we've said before about this space, right? So yes, the each client, each relationship is a slightly different structure. But at a high level, as Jamie pointed out, it's a senior position the portfolios are well diversified. There are a number of protections that we have, conservative advance rates, good underwriting, sector concentration caps, cash flow traffic mechanisms, et cetera, et cetera. So as we often say, nothing that we do is riskless, but this is a space that we're quite comfortable with as a function of very close scrutiny on the way that we do the business and ensuring that the underwriting is high quality and then we've got a bunch of structural protection [indiscernible]

And the BDCs have statutory rules that they can't exceed in terms of loan to loans at the part, which is sometimes and sometimes a little bit more than that.

Our next question comes from Ebrahim Poonawala with Bank of America.

I guess just one question on AI, one on the risk side, one on the opportunity side. On the risks, maybe Jamie or Jeremy, if you can just give us a sense of it's very hard for investors and for us from the outside to handicap cyber risk. We saw the headlines last week around L&M enabled cyber risks being discussed in D.C. Like is this a different level of risk? And how would you characterize the preparedness of the banking system to handle this if something were to happen and we see headlines. I'm just wondering what would be the implications of that as we think about just systemic risks, et cetera.

Cyber -- we've been talking about cyber risk for a long time. In fact, I think I said in the Chairman's letter is our largest risk. So I think every industry is different. So in context, I think JPM is very well protected. We spent a lot of money. We've got top experts. We're in constant contact with the government. We're constantly updating things but AI has made it worse. It's made it harder. Of course, we read about my dose, which we're testing now and looking at it, it does create additional vulnerabilities. And maybe down the road, better ways to strengthen itself too but the side risk isn't isolated to banks. It's like you can look at almost any industry. And also banks, of course, are attached to exchanges and all these other things that create other layers of risk, which we work with a lot of people to protect themselves. So it is a complex one. It's a full-time job, and we're doing it all the time. And while we're trying to get the benefits AI, we also are very cognizant of the risk of cyber. I think the government is aware of it, too. And remember, you have cyber criminals, you have cyber states, you have cyber everywhere, and that's why you have to be quite careful. So I'd say the banks in total are rather well protected. That doesn't mean everything that banks lion is that well protected.

Yes. And I think there's 1 just minor extension of what Jamie said that it's worth pointing out, which is, obviously, we've -- he's specifically been talking about the importance of being prepared for cyber risk for many, many, many years. But I think even more recently, even before this sort of latest set of headlines around the latest on topic models, there's been a clear understanding that AI and generative in particular, brings both risks and opportunities from the cyber risk management perspective. So it's not like this is the first time that anyone's thought about the way in which these more recent generative AI tools can both make it easier to find vulnerabilities, but then also potentially be deployed by bad actors in attack mode. Obviously, now you've got an even higher level of attention as a result of the apparently much greater capabilities of the latest models, but that is still happening on a continuum we've been engaged with for really quite a long time.

And [indiscernible] the bone, I think it's also important to look at -- a lot of it is hygiene is your new software being tested before it goes in place, if you ask them to do certain things to protect the company, how do you protect your data, how you protect your networks, your routers, your hardware, changing your past codes. I mean, a lot of is just doing all those things right, [indiscernible] the risk. And you're seeing a lot of banks they haven't had some of those rise like ransomware and things like that, at least nothing I know.

No, that is helpful because I think it's something that investors struggle with. On the opportunity side, I think what -- it feels like the productivity boost, which for us translates into what the long-term efficiency ratio could be meaningful from AI deployment just given the speed at which the technology is evolving maybe talk to that? And also, does it create new business opportunities where maybe it's extending the perimeter of JPMorgan's business into new things that were harder to do and are now easier to sort of put together and grow as a business, given AI-driven technologies?

So on the first question, I think it's a bad idea to think that you're going to deploy AI and improve your efficiency ratio because in the competitive world, I'm going to do it. Everyone else is going to do it. The benefits will be passed on to the marketplace. It's not like you're entitled to have your ROE go to 15%, and that will stay there because you do it better than everybody else. You make it a head start, you want to head start, but I just don't -- I think that's just not a rational thing to somehow that will be the ultimate outcome. But the second question absolutely creates opportunities because if you look at -- if you just take our consumer business, it's true that all businesses, but just take the consumer business with the data you have and now we call it connected commerce, we do travel and offers and all of these various things that people want. So you can use your relates to the client, the data you have to make the client happier. We do a lot to reduce risk and fraud and scan by using AI. We do a lot better job of prospecting. We offer AI services to clients, et cetera. So it will enhance a lot of things you can do directly, and it will create more adjacencies in my opinion, if you could use it quickly and wisely.

Our next question comes from Matt O'Connor with Deutsche Bank.

I want to start with a big picture question on trading. It's been amazingly strong this quarter over the last few years really no matter whether markets were good to bad. We've had shocks in commodities this quarter, rates, credit, equities, and it's not just you and others kind of managing well, but it does seem like the client base is also managing it very well. And just wondering if you have any thoughts on that on why it's been so on strong across variety of environments.

Yes. So just to put it in a big picture, which our folks do an excellent job. And if you meet with them, you'd be very impressed their knowledge, their brainpower and we buy and sell almost $4 trillion a day. And you make a little bit each time you buy and sell, then you have to manage the exposure and the risk. So they do a great job in that. Every now and then you're on the road side is something a credit or a commodity or rate side or something like that. And you see that. But to me, that's that's kind of the question doing business. That's like a retailer having inventory that they can sell. The real question is, do you serve your clients every day with great products and great service and great execution and the answer is yes, and that's where the real business is. And what you see today is much more volume and the volatility, which generally helps because it makes spreads a little bit wider, all things being equal. There will be times where you're going to be sitting here in to say that volatility killed us on the wrong side of something. But in general, you're serving huge investors around the world who have $350 trillion there was so much products and services. That's the business of trading. And I remind people, it's not that different when you go to Home Depot, they have inventory. They put it in, they put it out, they mark it up. They mark it down. They don't call it trading, but there's that element of risk management there. So our fabulous people doing a great job for clients, very conscious of the risk they take. Sometimes they we take a risk that we were on. We're okay with that. We never panic over that. We don't -- you've never seen us say, my God, we were on the wrong side of this trade. No, because we're there serving clients. And very often they're also arbitrate the client wants to sell, and you're not really dying to buy if you do it any way to serve a client. And so it's a business. It's a very good business.

And just one minor extension of that that I think supports the larger point is the thing we've said a couple of times now, which is, yes, the revenues have been great and the performance is very good. We're deploying a ton of capital in this business actually and a lot more over the last few years. And I think the returns that we're getting are good there, they're actually below the 17% for the company as a whole, that's fine, and we're serving clients and it's much better than alternative uses of capital. But I think the important thing to understand is that it's not as if you're getting giant amounts of revenue growth with the same capital base in ways that you might think are unsustainable. Part of what's going on here is that we're deploying more capital and getting healthier turns.

That's helpful. And then I guess a good segue into kind of a broader capital management question. Obviously, a lot of comments on the reproposal and -- but as we think about kind of capital management going forward, any updated thoughts onand you still have a big buffer obviously, on sales acquired levels 3 years from now or 2 years from now. maybe generate a ton of capital, obviously, very solid buybacks this quarter. You grew organically, as you mentioned. But just any updated thoughts on how to think about capital allocation going forward?

Yes. So obviously, we have a lot of excess capital. Today, we measure around $40 billion. Obviously, that could change depending on ultimate rules and regulations. And we prefer to deploy the capital serving clients. And the way you see us serving clients, we have more bankers, innovation economy, more global banking, doing commercial banking overseas, opening countries, opening payment systems, opening branches, that is ultimately what deploys capital over time. building the client base. It doesn't happen overnight. The outcome isn't deployed capital. I mean the goal isn't deploy capital build wonderful businesses that use capital intelligent over time, developing with their clients, mainly with the client focus on it. And I think when I look at the world today, if you look at the world that is so big and so complex and the capital needs, when you look at the small we're one of the biggest small business bankers out there. But look at the capital needs of countries today. the remiliturization of the world, the infrastructure that people need. I think they're going to be huge capital needs of companies but huge mergers. I mean some of these companies, when I look at the , we're not big enough to serve them anymore. And so we think there will be more opportunity to serve large clients in a way that they need it, over time, and that could be M&A, it could be countries, it could be helping them building infrastructure they need. So -- and that will happen over time. We're not in a rush -- our preferred way of using capital is not buying back stock today. we're doing it, fair market value and all that, but I'd rather buy back stock where you think it's a real discount and the ongoing shareholder gets the benefit is buying it cheap. In fact, I want to remove that little thing that says cash returns to investors, which is a dividend and stock buyback. I don't particularly like that because I think it puts you in an artificial position thinking that's always a good thing when it's not.

Our next question comes from Glenn Schorr with Evercore ISI.

That last comment leads into my question. I'll just merge my question and follow-up together because it's easier. So those things that you just mentioned, Jamie, on the big capital needs, some of those are very long duration. I'm curious on how much you think of that plays into a long-duration private markets balance sheet or can big public banks finance that. And so you mentioned in your letter, the market might be a little too relaxed about higher for longer rates. And I'm curious how you see that playing into all these direct lending BB and B credits that need to get refinanced. And while we're at it, the follow-up is, can you size your private credit exposure. So sorry to smush that altogether, but I'll end it on that.

So Jamie, sorry, if you don't mind, let me just answer Glenn's second question first because I think it would be useful for the market to have the size number out there. So I'll do that quickly and then if you want to take the first part of the question. So Glenn, let me just bring this in context because I think the question of private market exposure and the definition of that. It means, as you know, a lot of different things, love different people. So let me just quickly run through. Remember, last quarter, we did a walk in the context of NBFI from the 330 in the call report to the 160 that we consider core NBFI exposure, which we defined in that context, I won't go through that again. So inside of that $160 million, there's about 50 that we would call private credit, and it's essentially the portion of that 160 of NBFI, which involves leveraged loan investors. So that's some of the stuff that we've been talking about almost all in terms of leverage in BC lending that has all these characteristics in terms of underwriting, diversification, cash flow trapping, et cetera, which is why we're broadly comfortable with it. So I just thought it would be worth sizing that in that context. There are obviously other pieces of that, like direct lending, subscription lines that are variously in or out of very different measures and then you could consider like in a broader definition, but our sense is that thing that people are interested in is this kind of like leverage loan, back leverage type stuff and that's about $50 billion for us. So with that, I'll hand it back to Jamie for the first...

Yes. So the way I look at it, so banks aren't going to warehouse very long data stuff in their balance sheet. But when you have investment grade even large noninvestment-grade, private markets and public markets are going to come together. The people have to make markets in those things, do research and those things. I think it's going to be harder for private credit to do, not all of them, but to do large investment based stuff, though, they've done it. But like I said, they have to compete with us on that, and we're willing to do it too. We only take the customers do. They want to do a large direct lending, investment-grade deal, we will present that side by side with a banks syndicate alone or something different. But I do think you're going to see a lot of creative capital, a lot of greater financing. A lot of the institutions out there need long-dated assets, think of pension plans and social security plans, all these various things like that. So our job is to intermediate a couple of ideas to turn it over, sometimes put in the balance sheet, the stuff of the balance will be shorter dated, but it's all opportunity. And I think the requirements of the world are going up fairly dramatically in the infrastructure at large, almost everything is infrastructure today, utilities are roads and bridges and data centers and GPUs and so it's all there, but we're going to do a great job serving clients. And so we're not worried about that. But I do think you'll see in certain categories, private markets and public markets come a lot closer how they look at value and trading and secondary markets, et cetera.

That concludes your question, Glenn?

Yes. just just to [indiscernible], the higher for longer part and if that has an impact on some of that B, BB paper that's coming due for refinancing.

Yes. No. Glenn, that's like a basic risk management where when you look at the world, you got to look at what's going to happen a recession forecasting enough to be saying for JPMorgan, we have to be prepared for a recession and that you have station. You see people mentioned that we have to be prepared for [indiscernible]. Obviously, if you have stagflation, and higher rates for longer credit spreads gap out, that will put a lot of stress on strain on leveraged companies as they refinance. And those get fixed. Sometimes people put more capital credit, sometimes reduce their CapEx plans. It's not an immediate example overnight, but it would put a lot more stresses training people. And I'd pointed out that if there's a credit cycle, I do expect it will be worse than people think relative to the scenario. It's not a disaster. We use the credit cycles. We'll be big boys about it. But asset prices will go down, credit spreads are going down. People make it a little nervous about some of those things. We don't think it's systemic, that's more I would put category of traditional recessionary behavior.

Our next question comes from Jim Mitchell with Seaport Global Securities.

Just maybe a quick question on investment banking. It seems like activity held up pretty well in March. But just wanted to get your thoughts on that. Has there been any pushing out of any pause on activity levels and pushing out of the pipeline? Just any thoughts on the pipeline and how you're looking in the near to intermediate term?

Sure. Yes. I mean I think it's true that activity held up well. The other thing that I think is worth noting is that some of the robust result this quarter is the result of actually accelerated timing on M&A deal closure and some of that was as a result of faster-than-expected regulatory approval. So that's obviously all to the good. But I think it's sort of unrelated one way or the other to like overall sentiment. On the question of overall sentiment on the pipeline, I would describe it as resilient, maybe surprisingly resilient, given everything that's going on. But I also think the time lines in the Middle East are quite short. There are deadlines or negotiations. I think it's reasonable for people to kind of proceed with their plans in the hope or maybe expectation that we've got relatively quick resolutions. But if things start getting derailed, I would be surprised that you do see some impact on sentiment and on deal decision-making. But right now, it seems quite resilient.

Okay. And just a follow-up on the balance sheet growth in markets. It has been strong, I think up over 20% year-over-year. Were you saying when you think about the impact of the G-SIB surcharge on JPMorgan specifically, does that start to impinge your ability to grow that as much as you want? How is that factoring into your capital decision in the markets business?

I think the answer is yes. And that's a big part of the reason that we time that we spent today talking about the problem for the surcharge. It disproportionately improves the markets business and disproportionately accrues to the relatively low risk density type of stuff that the client base really needed to these days. And that's why we think it's important to regulators think very carefully about what they're actually trying to achieve here.

I'll add one other thing. We will obviously use our brainpower to do something I don't like doing, which trying to find a lot of ways to serve our clients properly and reduce the G-SIB charge, which is usually gold [indiscernible]. So I'm not sure the outcome is great for the system, but we will find ways to do it.

Our last question comes from [indiscernible] with China Securities.

I have a quick follow-up on private credit. I totally agree with Jamie that there is no systematic risk come as long as we assume the every type of capital expenditures continue with good yield outlook. So it comes down to the company-specific questions. Mike, how does JPMorgan ensure its capability of selecting the top-tier projects. How do you ensure you stay with the good guys and stay away from the stock.

Yes. So we are quite disciplined on credit. Certain things we turn down, we don't like the covenants, the underwriting or the ability to move assets out of the secured company or something like that. And we're perfectly willing to have our balance sheet go down. In in fact, we think credit is getting stretched, you will see us not make loans. Actually, we don't want to -- we're just not willing to meet those terms. And so that's how we do it. We underwrite when it comes to most clients, including driving credit, we intertie the company, the loans, the covenants, all those various things. And credits are discipline. Like I said, loans or all of them are an outcome of doing good business. Sometimes if the loan book drops 10% next year, we will be completely fine if we thought the loans that we're walking away from where irresponsible.

Thanks very much.

Thank you all for participating in today's conference. You may disconnect at this time, and have a great rest of your day.