JPMorgan Chase & Co. ($JPM)

Okay. Good morning, everybody, and welcome to the 42nd Annual Strategic Decisions Conference. I'm Ken Usdin. I'm the large-cap bank analyst here at Autonomous. Really happy to be back and also joining us today for our first session, Jamie Dimon, Chairman and CEO of JPMorgan Chase. Jamie has led the company for over 20 years since becoming the CEO in 2006. And JPMorgan Chase has grown to now being the largest bank in the U.S. with over nearly $5 trillion in assets. So Jamie, thank you very much for being here today with us. Just as a reminder, before we go, there's the pigeon hole app you can submit questions through.

And we're going to start big picture, Jamie, so you've described the environment as cautiously optimistic, but recent company update and earnings. You talked also about several existing risks out there. So walk us through your base case of how you see the economy progressing from here across the different areas of the bank? And what are your top concerns as we look forward?

Okay. So welcome, everybody. I think I was cautiously pessimistic because I am quite cautious. And also just as a matter -- a base case is a mistake in this kind of environment because it's kind of a false sense of security that somehow you think this is a forecast and It'll be a little bit better, a little bit worse than that. I think it's more dramatic than that today. And so if you look at like the short run, the One Big Beautiful Bill is $300 billion of stimulus, deregulations of former stimulus. The AI expenses a former was $300 billion year-over-year, another $300 billion for next year. So all those things, money supply is going up, that's a stimulus, banks lending more money. That's a stimulant. So that's what we have today. And you see that. You see that markets, you have liquidity, it's pricing. But there's a long list of issues, which I think should concern people. And it's not concerning for banks per se. We're just canaries in the coal mine when it comes to that. But it is concerning for the free and democratic world. You have a real war taking place in Ukraine, unresolved. You have terrors in the Middle East, other than I ran and then you have -- obviously, Iran, you have huge global deficits. You have very high asset prices, very low credit spreads, so I just put that -- there's a lot of uncertainty there. There's Trade 2.0, people negotiating what that means for them, people looking at how they want to protect their nations. And then you have things like rare earth, our relations with China. So I just think it's a lot of uncertainty. Is it kind of a base case and you should really be looking at what are the potential range of outcomes. And when might these things happen or not happen. They may not affect the environment at all. They all may disappear over time. Then again, they may have consequences which are bigger than people think. So base case, so far, so good this year. Hold on, you really don't know.

And JPMorgan, you have top market shares across all of your businesses and your annual letter for the last couple of years, you've acknowledged that there's a lot of competition out there, some stronger than ever across all subsectors, traditional banks, nonbanks, fintechs, new digital entrants. So as you think about building the business for the next decade, what are the most important moats you have to defend? And what are the areas that you need to really focus on to ensure you maintain those leadership positions.

And things have changed. So if you go back like 15 years ago, -- it was almost like set pieces. Wells Fargo and Bank of America and JPMorgan and Goldman and Morgan and specialty banks and credit card companies and all that today, you do have this extraordinary amount of competition. And I think the view -- my view is they're very smart, and they're coming. Some have been quite successful, and we've taken pieces of our business that we could or would have showed it. I think it's very important that management acknowledges what it also missed, not just what it did well. And there's more money, there's more capability. AI and things like that will create opportunities, and they also create additional risk. So we look at -- you go by any area of payments, credit card, consumer banking, investments, every 1 of those areas has got all these different types of competitors and banks by their nature, didn't have very big moats before. So more Buffett talks about the moats, there are real moats out there for companies when your virtual monopolies or people can't catch up. So one of the biggest moats is having a bank that is hungry and not complacent and not arrogant and constantly investing in its future like technology. That does create a little bit of a moat temporarily. And so -- and I think in certain businesses, it's more than others. In payments, we're so big globally corporate bank. But if we don't build a new set of things like even with stable coins or JPMorgan deposit coin, that could be challenged too. So we are hyper focused on all these forms of competition and constantly investing to compete in that world.

And you mentioned AI. It's touching every part of the banking business already as it continues to evolve coding, ops risk marketing advice. From your seat, what are you -- what are the most tangible benefits that JPMorgan is already seeing as you embed it within the technology ecosystem? And how do you think AI is going to change the overall economics of banking as we look longer term?

Yes. So when we do -- we look at AI like any other technology, we're talking about all the time, it's an even business review, what are you deploying I've got -- I think there are 1,000 use cases today, but maybe there are 50 or 60, which I would put in the significant category. Some of them we do MPVs on. We know exactly what it is. We did this, we're going to save this money, overhead, error rates, better prospecting, better marketing. And the NPVs are real. We're saving real money and we see real changes taking place. But think of it as every job, every app, every application, everything and certain things won't change. I tell you, you're going to have to move money, raise money, send money, manage money, raise capital for people, but everything else can change. How that gets done. The blockchain gets used and how these other things. So AI is an enormously dramatic thing. It also creates a risk. You all know by my those mall that some AI, we do not do MPVs on. So we talk about our LLM, so if you're a JPMorgan, all these products and internal products with LLMs or something like that. And everyone in the room, we have 150,000 people using it a week every week. That's pretty powerful. And they would tell you if you surveyed them we're saving 4 hours a day. We don't MPV that because we don't see the productivity. That's -- it's just you telling us that it makes you more productive so far. But I do think it will drive huge amounts of change in productivity. And in my view, it will create -- it will create things we are better at we can win at. It will also probably create things that we're going to lose that because competitors will find ways to bite off something or do something like that. So we just have to be really, really good at it. I also don't agree with this notion that people say that, well, if JPMorgan does it first, and we're going to create higher margins than that last forever. It lasts temporarily. What happens in a competitive world is if I do something better, well, so is everyone else eventually and that gets competed away or it's being given to the client. So I think you can create temporary margin, but not permanent margin. I think it's a mistake to think that somehow it'll all accrue to you. That might be true in certain tech worlds. You and I can argue and debate all day long, how many wins are going to be in LLMs, but for banks, I think it will be competed away. And then, of course, what's also going to happen is that Fiserv and FIS will offer these same services to smaller banks, and they should. So it isn't like they're going to have -- we're going to have it, and they won't. Everyone is going to have it over time and find ways to use to do a better job for their clients.

Yes. And speaking of margins and returns, JPMorgan's had a long-standing 17% ROTCE target. And you've been above it for the last 8 years. Can you talk about the balance and the decision tree as you think about growth versus return given the fact that you've been above it at 20% or so and how you balance though, what type of growth and what type of return is the right?

So this is an important thing about -- first of all, 17% is pretty good. And if any you can do the calculation, if you can compound at 17% for 40 years, you're probably going to be worth 100% of the stock exchange, okay? So the notion that somehow we should do better than an excessive return in the marketplace. I think it's a little bit and also, we did a chart this year as Jeremy Barnum showed you all that said, how many banks have achieved over 17% of our 12 competitors over the last 10 years. I think it happened 8x versus 9, and we were 6 or 7 of them. that Cap did a couple of times, Goldman did a couple of times. So the notion is somehow I personally think that right now, we're over earning and I know that it's a hard concept, but I think credit losses are they kind of normalize, but they still may be a little low. Volumes are very high. So remember, when you have high volumes and low credit losses and certain markets that we have today, let's they've probably over-earning. But our competition is also very good. And everyone is good now. I mean it isn't like anyone who's really lagging behind on competition. That wasn't true years ago. So eventually, this will sort out. So after a dividend, our preference is always to reinvest the money if we think we get a good return. I think we can. So we're going to end up with $40 billion to $50 billion of excess capital, depending on all sorts out, which is more than everybody, by the way, they'll tell the higher CET1 ratio but I think we can. And I think the reason for that, because I wasn't so sure a couple of years ago is because the world is so big, it is so complex. The need -- you see these needs, the hyperscalers of countries of global capital markets of deficits around the world, you're going to need some very large financial institutions to handle it. And I think we have capital could be deployed in very good ways over time. I also pointed out, which is important that sometimes our capital is deployed by expenses. It's not deployed by capital -- and -- but to me, it's almost exactly the same thing. If I can put money in the ground and branches or bank or something like that, and I know I'm going to get a return on the ultimate return of 17% of the capital deployed, including the expense. I'm going to do more of that. and I really don't care that the expense ends up in year 1. And so we've always constantly invested in looking ahead that these are good investments. But this year, it might -- the expense might outweigh the everything else. So -- and think of a branch. That's what it branches. It loses money in the first couple of years.

Yes. So you mentioned CET1 capital, and we recently got the reproposal of the Basel III and the GSIB rules. And you've been vocal about the continuing overlaps and complications that still exist in the framework. Where and how do you see this impacting JPM in the industry from both a competitor's perspective and the economy from a gross perspective if the rules go through as proposed?

Yes. So the big picture, you can't really look at some of the stuff that we've done and think it's semi rational at JPMorgan, CCAR, resolution recovery, it will never happen. Unbelievable amount of work in is 1 scenario. And I actually think it's a mistake to say, "Oh, I can handle that 1 snares, JPMorgan's going to handle hundreds of scenarios. And so -- and we really do that. So to me, the CCAR is the test, and it's not a perfect test. And fact, it's completely flawed. And resolution recovery might be will never be used that way. And you saw a Silicon Valley Bank and First Republic and I mean let's just -- let's see things where they are, call them what they are and banks were not -- didn't have too little capital. And like even operational risk, it's in CCAR and it's in G-SIFI and it's in some other measurement. Now market risk is in this 1 that -- so our market risk capital today is like $80 billion. You make -- we make $150 million to $200 million a day. We've -- in the last 10 years, we've lost money on 30 days okay? So the business -- the worst -- and I've told us the regulators, the worst quarter we ever had ever, we lost $1.7 billion in trading, and we have $80 billion and it bounces around, of course, because there's risk you take there. But is that -- have we lost a plot in this state at 1 point. So I believe in being totally property capitalized, I think liquidity is much more in true for banks. How you have liquidity, how use the discount window, do you have concentrated deposits, all that kind of stuff. And so I think the regulators have a chance to really look at this and fix it all. And so -- and the last thing I'll say about G-SIFI, G-SIFI is definitely anti-JPMorgan. And quite -- in my view, quite deliberately so I really don't like it, how they look at short-term wholesale funding, which is flowed on the start of it. So look, whatever it is, we'll make our points to regulators, they'll decide. Are you going to see the capital come. You guys have done the studies, the capital is going to come down for most of our competitors. Maybe a little bit for us, net-net, will still do very well. I'm not even sure it's really good for our competitors for us to be up here and then to be here in capital. I think that creates a distortion in your view and help people look at the safety and soundness of my bank, it will be a positive particularly in a crisis. And so I just -- I think people should be really thoughtful why to do it. And the G-SIFI by that calculation is probably the dumbest calculates you've ever seen, like bar none, like look at the calculation, tell me that makes any sense. I understand the point that a bigger bank may create more risk for the system. In operational risk capital, they create assets. They make up assets as opposed to saying you're saying aside $20 billion for operational risk, they make up assets. They're artificial under face it, and it's 1 in 1,000 year loss. -- well came up with that. And even if you close down the business, they have the loss, you still have the capital. I can go on and on about these things were action. But whatever it is, we'll compete, both deal with that after I complain, we'll suck it up and move on.

Go end up further on liquidity. So to that point, you mentioned about changing liquidity rules. How would you address that while both protecting the regulatory environment and protecting the ability for banks.

So I think we can make banks safer. I want to get rid of this concept. When Silicon Valley bank failed that everyone goes into caff, the markets are moving, eras looking for the next a dead on. I think we can fix that. And I think it's much more on the liquidity side. And I actually recommended in my Chairman's letter like you could have -- if you can use the discount window. So JPMorgan has got the exact numbers, $1.5 billion of marketable cash and markable securities and something like $1.4 billion of uninsured deposits. It can be fully backed up and then leave the FDIC with other stuff, the insured deposits, a lot of other assets we have things like that. So I just -- I think if you set it up right, you can almost make banks fail safe, so you don't have to worry about it anymore. And if a bank fails, it just goes to a regular way. . Remember, when a bank fails, the other flow is that people say, taxpayer. The taxpayers never paid a penny for bank failures. We pay this huge moral hazard. They screw it up how they do a Silicon Value Bank, and we paid. I'd literally like to run the FDIC. I think it's a mutual insurance company and the people who we do a better job being responsible to that because I would be much tougher in other banks on the interest rate exposure and the liquidity exposure.

Jamie, you mentioned earlier that you prefer after the dividend to put money into organic growth and always build the balance sheet. And then there's buybacks and then there's acquisitions. On the last one, how do you think about inorganic growth opportunities? And where might acquisitions be a better use of capital rather than building or growing it internally?

So the good news is, I believe we can grow every business internally, organically. I think that's good that we have those opportunities. We can do in payments. We can do banking, we can do in an innovative economy. We can do it in global investment banking around the world. We can do asset management. We can do ETFs. We can do in consumer credit card, travel, connected commerce, every one of them. I think we can deploy capital and grow. Organic growth is hard. So if you sit around a lot of management meetings, the first thing they do when they're not doing well in organic growth is the start to about M&A. So like my measurement is, I don't want to hear about M&A. That's a separate conversation. What are you doing to grow your business, sales, branches, tech, profits, product, services, all that competition I mentioned a lot of those things we can be building ourselves and we don't or we can partner with somebody else. But yes, looking at acquisitions is important. It keeps you quite smart. And I do think there might be opportunities. And so we are on the lookout, but it's got to make sense. It can't be just a sky and pie in the sky type of things go make sense organically that we can integrate it, that we can -- the cultural to get it the right way it adds enhances our business. And it's not like some separate stand-alone thing they have to pay. We don't screw up. So because we have great businesses and we want to continue to build them. But I do think there might be in the next couple of years, a chance to put $10 or $20 million to work buying something. And when we do that, we'll explain to you why we think it's a great purchase. And but also, I think, just if you hear me, I think asset prices are high. including JPMorgan stock. So I'm not that fond of buying stock at these prices or companies. And we're quite patient with capital. I mean it's not like -- we just not bringing a hole in our pocket at all. It sits there for a while, no problem.

Speaking about high stock prices, and you mentioned earlier, good volumes. Maybe a couple of questions on the environment. Capital Markets backdrop has been really strong through the first quarter and still been active across both the markets business and investment banking. Can you give us an update on how the second quarter is projecting? I get this done with right away.

Markets, you guys -- I think your analyst estimates are up 11%, you're approximately right, might be a little better. Investment banking, you have it up 10%, you're approximately right. could be a little better, depending on how the rest of the quarter turns out because a lot of big deals that we've spoken about there. NII is the same we gave you last time $95 billion, expenses, we gave you $105 billion. We think it will be closer to 106, mostly driven by better performance. So it's a good extra $1 billion. .

Fees driving the incentives of payment. .

Trading. It's more than we expected, yes. And we budget that up conservatively by the way, that we don't budget pie in the sky stuff. So Yes. .

And on the environment, just the uncertainty that we've been moving through, what do you sense when you talk to clients in both the markets business, investment banking, commercial banking, about willingness to transact, sponsors, corporates, et cetera? Is it -- this is the new normal we go forward. Is there any hesitation? Any change in the environment? .

It's -- I mean it's gun co folks. I mean there are exceptions to that. But people are doing M&A is like the best year we've had. I've gotten how many years. ECM is going to be huge this year. But remember, ECM is like an accordion. It opens and closes. It can close tomorrow. But ECM, DCM, a lot of DCMs repeat. You know it's going to be there, but then the M&A related, obviously, that's different. And so -- but I think sponsors are busy. Companies are busy. There's a lot of exuberance out there. So yes, right now, it's good. But it wasn't '72, '86, 2000, 2007. That doesn't give me comfort I just -- I look at -- yes, it's exuberance. I mean -- and of course, it feels good. It feels good for all of us. But -- there's a huge amount of time -- I should have mentioned our deficits are so big. I don't know when that's going to come to bite. But I say I remind people of the deficit. It also fuels all the other stories you spoke about. The government borrows money and gives it to people, and that money gets spent. It also fuels corporate profits. So when we all look back over the $10 tillion or $12 trillion, we borrowed and spent in the last 6 or 7 years, we're all going to realize that drove corporate profits, too. Corporation it's just not all automatically. They're all genius all of a sudden. And the other thing I remember, corporate profits is at the margin, $1 trillion will drive $300 billion of profit or whatever the number is because every is making money at the margin, not the average. And that's why you have huge corporate profit results this year. And -- so we'll see.

So in terms of the other side of the environment, when you think about JPMorgan and the balance sheet, you've got strong reserves, a strong capital level you mentioned before. We talk through the potential risks to the economy, to the environment. What are you looking at in terms of the most substantial credit risk as you think about the portfolio and the overall environment? .

Yes, the -- first the way we look at credit risk is always through the cycle. So we don't look at it like what's you're going to do today or tomorrow or something like that. It's through the cycle on every -- at a very detailed level, -- so credit cards, subprime is different than credit card in the business card different than auto and auto leasing is different than all these things. We're going to have a credit cycle 1 day. And I don't know when that's going to happen. I think when it happens, it would be worse than people expect. So if unemployment goes to 6%, people will expect credit laws to be here, I think they be higher. I think they'll be higher in some banks and some private credit and stub stuff that may surprise you, some that other people are doing just because when I look at standards, and it's been so long since we had a real credit cycle because COVID lasted 3 months -- when you look at standards, there's been a stretch. There's a stretch on EBITDAs, add-backs. I mean how many people are doing stress test assumptions on credit. I think there's been a stretch on diversification, like too little sometimes, and you saw a little bit in software because you're always surprised a little bit where the industry gets hurt. I think covenants have gotten a little bit weaker. I think there's a stretch on risk. So we have a lot of people that got refi risk. And if things stay where they are, that's fine. But if rates go up, where credit spreads go up, that creates a lot more risk for leveraged companies. And I'm not sure all the marks -- you're going to see Mark's change. So you're soon going to hear about the marks on private credit and private equity relating to March 31. So obviously, software coming down 25%. What are they going to mark those down. And what does that mean? And of course, I'm not saying they're bad. And of course, some people do a very good job at this. And the problem with credit is some people aren't going to do a good job -- and as the ones who don't do a good job because all the problems, to go back to the mortgage crisis, the banks in subprime and near prime mortgages massively out -- they tillabadly, but their credit losses, remember correctly, we're 25% of the credit loss of the mortgage brokers. 25%, still 3x worse than they should have been. And so you're going to see some kind of cycle and they'll work its way through. I think it would be fine. We have, obviously, CECL, I remind people during COVID, I think we added $15 billion of reserves in 2 quarters, and then we reduced $15 billion over the next 3 quarters. So you will have -- because the CECL, which is also upfront or loss for lifetime, you have some dramatic swings in certain institutions that takes place. So I think it will be okay. I don't think it's systemic. If you look at like the big picture, corporations in general, their leverage is not that different than in the past. The total debt bars, I think if you look at consumers debt service ratios, they gain a little bit worse. They will be stretched if rates go up. So you'll see that in the subprime areas more than most, and you haven't seen that. And again, when I see people doing their reports, I don't see anyone looking at maybe interest rates be 300 basis points higher. And maybe credit spreads will be 300 basis points worse. And so you can have real stress in environment. And I just think what that happens will be kind of worse than we expect, but not systemic.

On the topic of private markets and private capital, a lot of banks, including JPMorgan, talked in the April earnings about the relative confidence in the portfolios and the quality of the books and the underlying characteristics. And made the market feel directionally better for JPMorgan, how do you see that as a potential opportunity going forward? How do you look at private credit, whether it's direct lending, or lending to the funds? And how do you see that interplay with private markets evolving over time?

Lending to the funds is 2 things, okay? It's arbitrage and we do arbitrage, too. I'm not generally in favorite, but that's what we do, that's what the rules are, the regulators, a lot of capital crafted. So we have no problem doing that. And their clients. So we get other business. When we look at those loans, we look at the client in total and -- we think they're rational. We think it adds leverage. If those assets fall 20%, the net asset values fell 40%. And so it does create something. I think if you have a downturn, people get a little concerned with some of that stuff. But we think that's generally okay. And then we look -- for us, loans are an outcome. They're not an objective. And listen, really closely, there are an outcome we do not make loans to make loans. And I -- and this is very important to me, if I can go in the marketplace and buy a loan at par, I haven't created value by making a loan at par. My grandmother could do that. That's not value to us. So we look at the relationship in total, and we know that people need credit and we provide credit in multiple different ways globally to clients, but it's also the whole relation that makes sense to us. And so I do think if you have a downturn, it will create a little bit of a competitive advantage to the healthy banks and by the healthy private credit funds, too, because some of them have a lot of -- have a lot of cash to do stuff with at that time because they've raised money. And so -- but that's always been true in downturns, healthy companies have opportunities. We also look at direct lending, and there are benefits to doing a direct loan. It's faster, smaller covenants, 1 person negotiated with generally it's more expensive. So we want to do it. If you're a client, we want to offer you the full range of products and you get to decide. We'll tell you the pros and cons of banks syndicate lending of direct loan. I think we have -- we've done -- I've got the number, $20 billion of direct loans ourselves. Maybe we still have $14 billion in the books because they obviously recirculate a little bit. And remember, middle market lending was always direct lending. And there's always a leverage component of that. So it's not new to us at all. It's just these folks built very successful businesses generating leveraged loans and excess returns. And that may -- we don't know what's going ball the spreads over time. And I do think -- and you've heard this from not just me, you've heard from a lot of people in private credit and other investment banks, they're going to converge at 1 point. As these loans get bigger and bigger and some are investment grade, you're going to have more people making markets and things like that.

So you mentioned stability of net interest income growing even with rates starting to decline. -- very resilient revenue base for JPMorgan. But with all these new digital capabilities that are coming about, whether it's tokenization, stable coins, agent, we talk about the deposit business in general? And how do you think all these new tools will or will not change the nature of deposit taking and how you approach it and costs, et cetera.

Yes. My bottom line assumption is it will make it more competitive, you have to pay more for money over time. But you got to really divide these component pieces. People who keep money in checking accounts for transactions I saw a Schwab reason you said, only 4% of the money in all their accounts is transaction money and that gets moved a lot. And -- and that -- and the same with corporate money. They're already being paid good rates. So if you take all these things, the whole spectrum, there are portions which I think are attackable by disruptors. And it will be around some of that. And we're going to -- we already talked about having a smart cash account. It's kind of -- it's nascent, I wouldn't call it like an earth shattering thing about how we can do a better job for you. . So if I ask you all, if you have a brokerage account with us and a checking account with us, we help you manage between the 2 and give you closer money market rates and some of the stuff, you might find it very attractive. And that's what we want to do. We're going to serve the client, that may cost us some money. But at the end of the day, if banks have to compete the money, they'll compete. -- stable coins, I'm not sure they're going to change -- I mean, I don't know why if you're in the wholesale business, you're going to want a stable coin. okay? Because I send you a stable other than there are benefits to say real-time, 24/7, and you can eliminate some FX risk on a salary that may make sense. We can do that today. So -- and JPMorgan deposit point pays you interest while you wait to do with it. But remember, a stable coin, you got to buy the stable coin, you got to own the stable coin and you got to sell the stable coin and their transaction costs on both sides -- and then you got to say to me, if you're a wholesale, I don't want you to albacore. -- just send me my money your money. And then you can earn interest or you can put it whatever you want or keep it Jore deposit point you're investing in JPMorgan money market fund or something like that. So I do think on the consumer side, internationally, there will be some use for stable coins, more for payments than as a transaction vehicle, but we'll compete with that. We already have the J.B. Borne coin. We already have intraday repo. We already have a blockchain. We already have Canexus. We already have we may do a stable coin or some group may do a stable coin we'll participate in over time. So I'm not afraid of that. I don't think it's going to fundamentally change the nature of money to tell you the truth. But I do think when they criticize today's infrastructure, not to get the banks just do it, but we have 24/7. Fed payments is not 24/7. SWIFT is not 24/7. We have 24/7 real-time payments. So it's just have the system over time adjust to that. And so I do look at it when you hear some of the stable coin, people could, they're right, but not right because we're dumb, right? Because the whole eco built up isn't yet ready to assimilate some of that. And we want them to I would love to have the Fed wire go 23/6 or something like that because I think it will be good for the system.

So on the other side of the revenue ledger, fee income is a big driver of JPM. We talked about a couple of the businesses already. whether it's investment banking markets, asset management, the payments business, as you look further out, what do you think are going to be the drivers of growth for JPMorgan among the fee side businesses?

Well, I mean, the way I look at it, look at the big picture. So I think all stocks and bonds in the world are worth $350 trillion or something like that. Okay? In 10 years, it'll probably be $70 trillion. And that's the public stuff. There's a lot of private stuff, which is worth hundreds of trillions. And so the actual underlying business, the fuel is going up. Now it goes -- the values go like this, but we're paid to custody that. We're paid to move it. We're paid to buy and sell it and very competitive prices. I mean when you do some of us, it's very cheap to move this and do things and you do it securely with all built-in fraud protections and -- so I think all that will grow. It just doesn't grow in a straight line. It doesn't make it a bad business. So I think markets can grow. There'll be more products and markets. I think they're private and public come together, that would probably create some opportunity. Wealth Management, we still have about 1% share in this huge segment from $100,000 to $10 million, 1%. You got to imagine why not 10%. We have 10% in most of the businesses. So we've opened up branches in rural areas. I think that could be a successful strategy and help reason America. I think the strategic resiliency initiative is going to be bigger than we thought. -- helping a lot of these companies that are -- for security and resiliency purposes, grow and expand. And so I think it's -- we'll have a little bit of growth everywhere and some would be fee-based. -- some are not. They're NII-based, but even that is a little bit of a subscription business. I remind people in the banking -- in the consumer banking business, when I used to get to the banks, you have cheap deposits. You do not have cheap deposits. People have to stop saying that. To have a checking account cost us $250 a year, mostly fixed. For that, you get a wide range of services. The revenues come from NII. So the cost of the $250, having ATMs, wealth management planning, fraud protection, all these things you've built in and products and services and special segments. And so yes, we will compete in that. And I think in that, but there are also opportunities that we have -- always have a bunch of skunkworks going on. So I think there's puts some buy stuff in my mind. We actually could be good new opportunities for us. opportunity I talk about maybe could be worth $100 billion in 10 years, not $1 billion. Maybe I don't know if that's true, but you can imagine we think about that. And Chase U.K. We're not doing that. They have a checking account in the U.K. Right. Okay. there's Revolut. I mean I'm jealous. It -- but why not chase U.K. being as good as Revolut, and we have some competitive advantages. And they're very smart. I mean you watch these people, they move. We learned a lot by watching some of these folks. And we got to get faster and better sometimes. And if you look at my letter, I criticize is a little bit for being a little too slow and some of the stuff like that. So we have opportunities that you don't know about yet. You just recently opened also in Germany, the direct bank to as part of -- and that gives us a pan-European license and a platform you can use across Europe and more simple regulations, 1 regulator. This doesn't really in.

We doing I'm doing -- you mentioned some of the capital you use is actually going through the income statement and the expenses that you use to build the bank over time. And over the course of time, that expense growth has been higher than peers, and you've been very consistent and it helps the flywheel generate revenue. So walk through the benefits of -- well, first of all, how do you continue to find all those new things to continue to spend incrementally on. But the benefits also within that of self-funding and how you kind of balance between revenue growth -- expense growth for revenues, but also expense growth that actually creates efficiencies.

Well, we do well. I mean, I always feel about margin improvement, continuous more, you don't -- that's not -- we're a capitalist world folks but just it's an irrational concept that somehow we can create more and more margin. And somehow people -- I believe what Jeff Bezos says, "Your margin is my opportunity." And so -- but we look at them separately. And we disclosed some of this, not all -- there is no expense that we make that we think is an investment that we don't do the same announcement that you would expect us to do. okay? And sometimes analysis may be wrong, but it's pretty thorough about we think we can get a return on that. If we didn't think we get a return, we simply wouldn't do it. On technology and some of these other things, it's the same thing for the most part. -- because there are certain things I say, that's just -- you got to keep your operations good. You got to keep your -- like we didn't do an NPV on creating digital account opening 10 years ago. It's a waste of time. It's table stakes. So when you're the client and you have to get that service for me to try to NPV it and then not have it is a bad idea. And then when you look at the NPV, what people do -- and this is what happens in big bureaucracies, and of course, finance and risk and everyone is going to look at it. And they have to estimate how many will use it? Are they better accounts and worse accounts -- do they use a branch at all. If they use a branch, we charge them for the branch? Is it marginal here? Are you going to use a debit card and you build this big model, and it's totally filler ship you want digital account opening. And I just -- people will wait to tremendous amount of time. So -- but on a lot of tech, yes, we do it. But I can't do an all tech, o we don't try. We need to have the best operating systems and -- but other things, yes, we know when we build an AI system for fraud, we kind of know what the return is. And we can back test it. There are a bunch of things we do. So -- and we try to be pretty rigorous in that. As you know, when the tech budget is always the hardest because some of it is just qualitative. And if you leave a company where it's securities operations and back office stuff isn't very good. that is a bad idea. And so you're constantly upgrading that kind of stuff and it's just in your expense base. It's not -- you can call it an investment, but I just look at the normal regular operating behavior.

And as you...

View at the company, here's what I say to people when you have a business review with us, I want you to lay on the table everything you think you should be doing. I don't want you to say to me, it wasn't in my budget. I want to keep the number to 5%. I want you to say to me, this is what I would do if I own the company today, all of it back office, front office, tech, AI. So we have a real conversation about how we're investing in the business and then make a deliberate decisions, we're going to exert why. But for the most part, the good investments we're going to do them. Take marketing. We spend a lot of money in marketing. If you walk into my office today, which could happen and Marion Lake or House Beer can walk in my office and say, we found a way we could deploy another $500 million in marketing today, can we do it? . And we will go through the numbers, and my answer is if it has a very good ROI, of course. And then I have to tell you that our expense budget might be higher by $500 million this year. But I would do it in a second, I wouldn't hesitate. I would do it if it's $4 billion because we know it's going to have a return. And that part of why you see our -- we continue to grow the franchise because we're making investments that drive the future and not protecting the past.

And to that point, you consistent -- are very consistent about just pushing that agenda and moving forward. But even in softer environments, how do you make that decision tree of what should stick on the page, what could be deferred? Or is it always we are building for the future.

It's almost always we're building for the future. we priced up through the cycle. We make mistakes. So we trim our sales. It's not like we don't say -- sometimes it didn't work. We have failures out there. We're pretty blunt about that internal. So every now and then, we waste some money. And sometimes, we have -- I call hobbies like every year, I think you showed look at all your hobbies. I start a lot of them. If you ask the medicine they say, "Well, those are your hobbies. you started those ideas, and they're not working. And sometimes, you got to try it in the second time and the third time in a fourth time. Other times, you just kill them. It was a good idea. It didn't work, move on, close it down. So we do a little bit about -- we try to be very disciplined on that. So -- but some of the things that we have today started as hobby is that it took the third or fourth time before we got it right, like self-directed investing, for example. And One of the questions is wealth management in general.

One of the questions that's come in is related to tech and investments. But how do you -- can you talk a little bit about JPMorgan and broader system readiness for Cyber tax -- cyber attacks in the world of LLM and the developments we've seen there.

I wrote in my Chairman's letter, Cyber is our biggest risk. And it's not just ours. I think it's for the system at large, for banks, but it's also true, you could say when you go industry-rated telecom, water utilities, you can go on in our government services and I said it will be made worse by AI. And I think I wrote that a couple of weeks before, Mythos came out. And those it just amplifies it dramatically. And I think they did the right -- I think Anthropic did the right thing to tell the government and then start this glass wing effort, the glass wing effort is not meant to disadvantage anybody. It's meant to give people a chance to figure out what we need to do to fix this on your own applications, open source code, how patch you need to take place -- we're probably going to build some utilities. We could do open source. So it's for everybody. If we fix the open source thing, it's fixed -- as long as you have the up-to-date version, it's fixed for any company you do business with. I do think we got to get it to other banks. And this be very capably roll it out because you don't want to give it to people who don't know what to do with it. It is dangerous. It's a nuclear weapon in the hand of someone. And so even if you go out to a company, you want to make sure they know how to handle it, and they're going to have restricted access and they know how to test it and a lot of kind of stuff. So this has to be done properly. I think the government is doing the right thing to slow it down. I think you saw that President Trump spoke to President Xi about it because we have a common interest in this one. This is not our cyber or their cyber. Deep Seek eventually have it deep seen but this can be used by inside of threats. It can be used by various things. And you have a lot of government -- a lot of hardware may be compromised. -- because it's got embedded software, that cannot be patched. And so we have to figure it out, and we're doing it. All the big banks are working together now. We're trying to inform other banks where we are. The governments can have to decide with Anthropic when it's given to other people. But we're doing it for the system. This is not done to benefit large banks or small banks or anything like that.

Another question that's come in is can you talk about incoming Fed chair and the outlook for both the ability to lower mortgage rates, but also the debate on the Fed balance sheet size and if you think that there's a right path forward for that.

First all, I know Kevin Marsh, I have a numerous respect for him. And I think he's generally right about the Fed went off and did a lot of stuff. It started with Janet Yellen basically, and I recall DI and climate and regulations became I mean, literally, like so screens for punishing banks and things were overdone and supervision. I won't even go through -- and that's kind of a regulatory policy. Remember, they're not independent regulatory policy. This also opens them up to a lot of criticism, about thinking they're independent on regulatory policy when that regulatory policy follows the same rules as all other things, cost benefit studies, public notice and a lot of that just didn't take place at all. I mean 0. And in some case, no for thought about the consequences of some of the things they did, like private credit, like stuff going to insurance companies, which is what they should have done because we've seen all of our benefit, the systems stay safe. And so -- so I think they're right to look at that. I think they will. Remember, Kevin is going to walk in a room with 12 governors. And he knows them all, and he probably knows them all. And they're smart people are going to be convinced. So it's not going to be like immediate -- that's number one. I think he's right about the size of the Fed balance sheet. I think that we had too much government stimulus and too much monetary stimulus over the years. And I think it was required during the great financial crisis, I think it got overdone in COVID -- and I think the reasons to reduce it. But -- and this is a big but to reduce the Fed balance sheet, you must change liquidity rules and regulations. It cannot be done without changing them, and that's going to take time. I think they all know that, and they're going to take study. They're smart people. They want to, okay, good point, Mr. Wash, that's -- let's take the time to study the impact of how we use the discount window and how many buffers banks have and how they do stress test and liquidity, and we don't want to make them less safe, we want to keep them safe. So it will take time. But I think if they do that, they can reduce the Fed balance sheet. -- and then go back to kind of old-fashioned monetary, focus on monetary policy and then focus on also across the system. And so we'll see what it takes. But it's just going to take time. It can't happen overnight. And the other thing is they don't control the 10-year rate, you do. The notion that they can do operation twist. They can do all that kind of stuff, but they do not control it. They influence it. And even the short rate, I remind people, because we all said they control the short rate, they do, but not really because when inflation goes up, they have to follow. -- they're always trying to look forward to all the data labor weaknesses and anticipate things. But at the end of the day, if inflation goes up, which it might, I'm on the side that I think you might have a little more inflation than people expect. They can't do what they want -- and so it isn't complete independence like they're independent of facts. They're not. And so now they -- and you can mediate mortgage rates more. Fannie and Freddie are buying mortgages that will have a little effect. But at the margin, these things aren't going to change mortgage rates a lot. I think what would change it, by the way, is changing some of the rules and regulations. And we estimated, and I've told them this that securitization requirements, excessive requirements, excessive servicing requirements and excessive origination quiet at 50 basis points the average mortgage. They could be fixed with no additional risk. And we -- and I've been talking about that for 10 years. That's what they should be doing. All the other stuff won't matter.

Another question from the crowd. Can you talk just a little bit about the leadership bench and the leadership squad that you could see as you look forward to leading JPMorgan someday?

Look, you know -- you guys know a lot of the leadership people. I won't go with I think the high quality, very smart. I think there are potential successors inside the company that's, of course, up to the board. There are people you don't know where you may have meant a little bit who are potential successors down the road from here. So we feel good about it. But it succession is always going to be hard. And so we're quite contest about it. It is the most important thing like next. That is -- we understand that, and my Board understands that, and I understand that -- and I do think -- I do think I wrote about this year about culture, too. I think culture gets misused. I always didn't want to use it. But I think culture is critical, not being arrogant, knowing your facts divide into segments get detailed understanding it open like literally speak up, everyone's got to speak up. Everyone's got to have a point of view. All information like my management team sees everything. My operating committee is nothing we don't talk about. And we tell the board the same stuff, by the way, so it's completely open. And you said this should also give you comfort. And I think this is a great -- this is like you talk about all these governance rules that regular has put in place. A lot of it just waste time. There's 1 that matters, which they didn't do, by the way. Only 1 that really, really matters about Chairman, CEO and proper Board governance, my board meets every time without me, every time, and they've been doing that since the bank wants, you're talking about 26 years. And it's good for me because I leave to when I think I leave the room, and then lead director, calls me back, give me some time to give you a coaching -- sometimes they tell me, we think you're wrong about that or can you give us more detail. But I'm only trying to do the best job I can but it allows them to have a complete open conversation without feeling the consulting me. You're in a room or even asking a question because sale get installed sometimes. So that is really important. And it's important for succession, too. And they know all the senior people. And there's no guide like gains they can play golf with them, they take them to lunch, they have their own opinions about that. And I believe that's a very good way for them to participate in that decision.

So last one, 1 of the most interesting things I've seen out of the company over the last year, these new business initiatives, security resiliency, the special advisory services, American Dream initiative. Tell us about how that's different of a different thought process at JPM and now that's also going to encourage growth while also helping customers.

So they're a little different security resiliency I was just asking -- are we right about policy and sometime complained about. But I'd like to ask -- I always ask management, if you're in the room and me, okay, you're king for a day, what would you do? And so I asked -- we asked the question, okay, we know this is a big issue -- and you know what focuses active pharmacy ingredients, production capability ships, it's everything, missile production like and we say, what can we do to help? We're just going to help. And we've been asked to help by certain military officers and to get involved. And that's all we did when we did the analysis. We've broken into 29 subsegments, Jones space, intelligence, API, Pharmaceuticals LNG to Europe is security. LNG in America is not security. So we're trying to be Boeing military security. Boeing aircraft is not security. And so we try to figure it and then we simply said, we're going to add 50% to we're already doing. That's the $1.5 trillion. Todd Combs has been a great add to the company because it's just a brilliant think about industries, and he helps us, of course, a broad spectrum of stuff is on my floor and I'd love talking to them. is doing the $10 billion, which might be more in investing in some of these companies, where we think it would help security resiliency in a variety of different ways, including AI, by the way, -- so that's what we're doing. And we think it's commercial. There may be a philanthropic component. -- think of welders. We are going to be short, 2 million welders and nutritions in the next 5 years. We need welder and nutrition schools in the right place, okay? And that might require some philanthropy, which we're fine with. So it was a very thoughtful process Doug and Troy running it. There's a whole group of people. Jay Ryan is -- I mean, he's in Australia today. He's been around the world for us and -- and we're beefing up research. So if you look at it -- and this -- I love research, you know how much I think research adds to the world, entice but industries and countries. But like we've done research on the ship ecosystem, the API ecosystem, the earth ecosystem, so that we're getting smart about the whole ecosystem so we can decide and then we're going to advise them policy because we do think policy makes a big difference. The American Dream, we already did, we just named it, and you're going to double down on it. Small business, mortgages, affordable housing, -- we're going to do it local, so we're going to Alabama this summer. We're doing a whole bunch of stuff that is just more, and we think we do that again, commercial. There may be some flowthropathy related to it. Special advisory services is different this is taking me at doing a hobby. CEOs call me up and they say, Jamie, we get advice and government affairs or crisis management or Board management or lessons on CEO or cyber, AI or -- and we did it ad hoc. And so I simply ask to people, it shouldn't be at hoc. These are real service provided people, directors and that would just formalize it. is Myers is running it. And how can we provide it at cost money. So we have to beef up some of these areas because we get a lot of requests. And this is kind of meant for clients, not meant is a free service to anyone who wants it. you're a client of this company, we want to provide you things that can make your company better. It's good for us because the country is good for you. And so far, it's been quite successful. So SRI has been -- we're doing it in the U.K. We just -- I'm going to the U.K. next week, and we're rolling out a whole thing there in the U.K. with the Chancellor and we're doing in Japan, Korea, Australia, where Jay is today, -- so -- and it's been fun. People -- a lot of patriotism come out of that, about how we can help secure the free and safe world, which I do think is the most important thing facing us, by the way. Not the economy.

Great. What better way to end than a plug for research in there. So we're out of time. Thank you -- please join me in thanking -- thank you for joining -- thank you so much.

Thank you.