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

Once again, you're asking me a question that we dislike answering these questions, we tend to telegraph too much competitive information, but I'll do my best, anyway. We have tremendous organic growth opportunities across the franchise. Many of them we've been executing a growth initiative across for decades. And so I think if you had to sort of stack rank where do we see the greatest impact is generally the businesses that they add more clients. They build deeper relationships, but they also have adjacencies with other parts of the CIB. So think about being the most important bank to the innovation economy, where we bank the GPs, we bank the startups. We like the founders and we bank the venture capitalist. So we have the private bank, our capital markets business, our commercial bank, all serving the entire ecosystem at once. You could say the same thing about private equity. Huge market opportunities to be the bank, most important financial partner to the private, say, private capital sector and there's tremendous opportunity to grow that. We started in the U.S., and we've been building out globally. This is an opportunity to revenue -- incremental revenues are in the multiple billions of dollars over time. attached to that are payments investments to support seed-stage and early-stage companies. It's a big payments opportunity to grow an innovation economy business outside of the U.S. and to accelerate client capture in the U.S. And then we have some very simple, highly proven growth initiatives that still have a ton of room to run. So we started with the acquisition of Washington Mutual in 2010, a national footprint expansion in Middle Market, where we added 4 or 5 cities every year. From -- starting from scratch, completely de novo with that now several billion dollars of incremental revenue, and we've sort of moved up the food chain city by city. It's a very data-driven, prospect-by-prospect, run through our algorithm, pick the best names, hire the best bankers in these cities, and it's a payment-led deposit gathering business for us. We started a version of that with mid-cap companies outside of the U.S. from scratch in 2019. That's now well over $1 billion of revenue. So I can go on and on and on. In markets, we're making investments across I've touched on it earlier, systematic trading capabilities and security services. We're investing in to really to best meet our clients where they're going, more complex solutions, alts and ETFs and digital assets. So we have we are on offense. We are growing -- and one important point I want to make is there is no like explicit growth target anywhere kind of hell or high water, you've got to grow at this kind of growth rate or hit these kind of revenue targets being very deliberate capital discipline, client reaction disciplined when we're hiring bankers, we're maintaining a very high bar on the talent that we're bringing in with this sort of deliberate multifaceted through the cycle growth agenda that we've been executing is a big part of our success story. And we're focused on, as I said at the very beginning, those opportunities that have product adjacencies and business adjacencies that put a multiplier effect on the client acquisition. And it's -- we feel we have a lot of conviction in it because just given the track record we have.

Got it. Maybe talk about private credit kind of an on-op theme. But if growth maybe or these headlines appear to have slowed down recently, maybe competition is used, you tell me, but just maybe kind of updated thoughts about private credit. And also just maybe just talk to -- it's a business you kind of read a couple of years ago in terms of what that impact has in your plans there.

It's the private credit market, I touched on it earlier is sort of open for business. There was a wave of redemptions. There were a few sort of a flurry of sort of idiosyncratic defaults. We still worry about private credit, just like we worry about bank credit. It's been a very benign credit cycle for the past 15 years. So when there is a downturn, the sort of secondary and tertiary players may not fare very well. But put that aside, I think there are a lot of -- the market is open, it's constructive. It's competing sort of head-to-head with the traditional bank market and institutional fundraising is fine. I think the outflows, redemptions are sort of under control. So I think that -- it's an asset class that's I think, in a decent place now relative to where people thought it was certainly earlier in the year. As we think about serving private capital, gets back to this sort of ecosystem coverage model that I described earlier. We want to be the most important bank to private capital. So we have dedicated teams across all of our private equity, private capital clients. We can serve the GPs. We can serve the portfolio companies, we serve the founders and the owners. And we've -- the businesses that we've added to support that as we have a private capital advisory group primarily in place to manage private secondaries. We have a PE M&A team dedicated to sponsor M&A. We have private research. So for these private for longer companies, many, many of our clients are staying private much, much longer. We're building a base of research so that the market can build an understanding around some of these businesses and certainly ones in newer industries. And then we have strategic financing solutions, which is meant to be -- bring the best broad-based financing solutions to the table between debt capital markets, banking teams in our markets financing capabilities. And so it's a product agnostic, solve the problem, don't sort of come in and bring the traditional solution, and that's been really quite impactful. So a combination of all of that is in showing one face to this investor community, I think, has made a big difference for us and has been a big value driver.

Got it. I think within CIB, payments now generates more than $5 billion in quarterly revenues and increasingly a strategic differentiator. Maybe which areas within payments businesses you're most excited about? And just how you think about that growth trajectory in the coming years?

It's a great business. It's -- as you touched on, it's running at scale. It's the #1 if U.S. dollar bank. We move on any given day, $12 billion to $13 trillion in payment volume a day sometimes volumes spike higher, I think that's just -- I say that just to give you a sense for the scalability and the absolute size of the business. But even as big as scaled and as mature as it is, we've doubled the revenues over the last 5 years. So that puts you in a sort of mid-teens compounded growth rate. That is a fintech-like growth rate. And it was a very deliberate outcome from the payments led strategy, where we're investing in being our clients' primary operating bank. Having the right payment solutions like liquidity solutions to compete and win to become the primary operating bank and then investing in the banking client channels where we saw panic-led opportunities, the biggest payments wallets, the biggest deposit gathering opportunities. That's the expansion of the middle market, the new economy, mid-cap overseas, and that's really driven a lot of the success. We think momentum and opportunity will come on being the easiest bank to deal with with global activities, global REIT global -- being global with easy reach. All of our clients are going overseas, and they're going earlier than their life cycle than they otherwise would have. It's just -- it's a force we're seeing happen across the market. So our clients need to have cross-border solutions from small to large. So we're investing in our payments corridors. We're investing in global or real-time payments. Digital solutions, it's sort of -- it's table stakes. So being global, being the best global investing in the payments corners across Brazil, China, Middle East, India, that's important for us as well. And then there's a broad base of innovation coming through our payments business for real-time payments to agentic commerce and payments. We have our Kinexys blockchain solutions, which is our deposit tokens and capabilities there as well as I touched on digital. So innovation will be a big part of it. And the last point I'd say on payments as important as innovation is safety and stability and trust. It matters a lot to clients. So spurt in the world with elevated cyber concerns, having a platform that's at scale and as resilient as ours, matters a lot to clients, safety of payments, security of payments. We invest heavily in that, and that's a huge differentiator for us. And those kind of solutions, I think, stand out in the market.

And the digital asset landscape is certainly evolving the [indiscernible] Act is today or is today I haven't seen the outcome there. But maybe just talk about opportunities, potential risk from stable coil blockchain payments. I know you have Canexus, there's a debate out there, the impact of stable coins can pay yield, how that impacts things.

We've been focused on this for maybe a decade, the ways to apply distributed ledger blockchain to our banking business sort of led us to the formation of our Kinexys' franchise. We have an extremely high quality team. We have 1 of the most mature institutional blockchains in the market. It's operating effectively growing daily. I think so far since inception, we've moved over $4 trillion, $5 billion a day. The honest truth is that these are very nascent products with not a tremendous amount of demand. On the 1 hand, the world needs 24/7 payments, the ability to move collateral and information on the blockchain, all these -- everything that -- all the utility you could get theoretically out of the technology, there's definitely a need for it. But it's not as simple as I think people fully appreciate the cost of these different blockchains are different. The drop rates are different. There's very little interoperability. There's still questions, regulatory questions around KYC. So this is -- I would describe it as being very, very nascent. As it relates to Stable Coin, we just don't see a lot of institutional demand. And any institutional demand that we see is related to crypto. I mean just to dimension it for you, the total volume of stable coin transactions in 2025 was less than the transactions we moved on our Kinexys blockchain for B2B non-crypto related transactions. So it's just not something that we're panicked about. We can build a stable coin very quickly. We have the team in place to do that. We have a JPMorgan deposit token. We're at the table everywhere we need to be. We're looking at ways to innovate. But this is a ways to go to play out. And then you put on top of it the outcome of the CLARITY Act. We'll see where that goes. As you said, there's some procedural vote in the Senate today that I think is -- however that turns out, that could be quite profound. There is the chance for an adverse outcome there where you would have real regulatory arbitrage, which would be in our strong opinion, bad for the system. I think it's much more heavily impact smaller banks that can't afford to build their own stable coins. And whether there's money movement from bank deposits to stable coins, it's too early to know whether it will happen or what quantum of movement will occur, but that's definitely a risk. But I think there's a lot that has to happen before this is sort of at scale and meets the safety and regulatory expectations that the rest of our products do. But we're in the mix, and we have tremendous subject matter expertise.

About 10 minutes ago, 10 questions, so we'll go lightning round. But Deposit growth has kind of been strong. Just maybe in terms of what your expectations are looking out. Competition was increasing, maybe not so, just maybe talk to what you're seeing in the CIB?

It's the same as it's always been competition for high-quality operating deposits is intense. We ended the year last year at $1.2 trillion in deposits. It is up 14% year-over-year. Midyear this year, we were up 10%. We're investing in our deposit gathering businesses, and we're investing in the products and solutions that let us win that primary operating bank status. And I mean that's kind of the rapid fire answer. It's going to -- every one of those wins is heavily competed for. It always has been, but that's why having the capacity to invest in these products and solutions, I think, is a key differentiator.

And then on the loan side of the balance sheet, I'd love to talk about kind of core CIB loans and lending capabilities there, but also we've seen an uptick in kind of financing in the market business. There's been some headlines around the industry around that. Just maybe talk to both.

Just traditional C&I loan growth is coming from all the places you would expect. There is a big step change in borrowing related to funding the AI super cycle. The message I would leave you with there is we're maintaining our underwriting discipline. We're being very selective on transactions. We're making sure our portfolio remains granular with exposure limits to frontier model companies, the hyperscalers. You could very quickly fill up on this stuff. And so we're being very deliberate on how much we want. And then we understand what the blast radius would be of a range of different adverse scenarios for however, AI may play out. But for the near term, we see opportunities to safely deploy credit. All the other categories I described through the course of our conversation, the manufacturing, there's a buildup there. There's working capital increases across our client franchise, higher capital spending and much more cash M&A. So all the traditional ways in which our clients borrow are seeing sort of strong activity across the portfolio. It's incredibly competitive, and we're maintaining our client selection and underwriting discipline. On markets, I touched on it earlier, there's been a structural shift in the financing wallet. If you look at in equities, we're seeing much more significant demand for prime financing, infrastructure financing. And in FICC, it's more broad-based. There's some leverage around private credit. That demand is steady, and we're also seeing clients looking for financings around commercial real estate. And so it's -- we think these aren't temperamental wallets. We think these are going to be around for a while. And I think that you can see that across the industry, everybody's financing revenues are growing at a pretty reasonable level. But those are high-quality loans provided to clients that provide -- generally provide other flow business. And we're being very capital efficient and pricing credit disciplined as we deploy that capital, both in C&I and across our markets businesses.

I guess was on talk of people kind of tightening a bit in some of the financing businesses given the growth we've seen over.

I think it looks like anything else that people got rattled the private credit, sort of the disruptions you saw in private credit, and maybe looked at their margin levels and their collateral rights and sort of make sure they felt good about their market terms.

You talked a bit earlier about credit quality, and you kind of mentioned watching some of the secondary and tertiary players in private credit. Credit metrics are really, really benign, whether it's data centers or leverage finance, commercial state. I guess what kind of areas are on the top of your "watch list?"

It's benign. Our nonperforming loans are less than $5 billion. Our net charge-offs for second quarter around 12 basis points. we're looking at we're rising rates, good her clients. We're looking at clients that could be in harm's way if the straits of Hormuz stay closed, not just oil clients with oil as an input cost, but there's fertilizer, there's aluminum. There's refined product. There's a range of different commodities that are kind of trapped because of that, there's a -- we have all that data, and we're mapped to all those clients. We're watching those. We're looking at clients that are potentially in harm's way for AI disruption. Those exposed to the low end of the consumer demographic. And we're not you don't sort of have a set it and forget it kind of credit portfolio, we dynamically manage our loan book. So anybody who we think is going to face a stress event, we're out proactively working with them. But how are you going to -- if oil stays high for this extended period of time, what's your plan? And we're working hard to make sure our clients have multiple ways to deal with whatever kind of scenario they're facing. And that proactive approach, I think, really takes the bottom out of our -- when we -- if you see some of these stress events persist. And those are the big areas that we're watching at the moment. But right now, it's -- we've been able to -- anything that we've been concerned about, where we have clients that aren't interested in self-help, it's been easy to get refinanced out. So this editing the business that we proactively do so it takes the low end of our credit. The sort of risky end of our credit spectrum. We're not waiting around for bad things to happen.

And then, I guess JPMorgan is one of the largest advisers of M&A globally. I guess when you look at CIB, what role do you think acquisitions could play in kind of future growth for you?

It's an area we've been investing in talent and capabilities, both in the advisory side and in just in terms of boots on the ground across our banking teams globally and...

But I guess in terms of JPMorgan doing acquisitions...

Look, I never say never, but I would not expect M&A to be a major growth driver for the CIB and really largely because we have so much organic growth potential in front of us and have a lot of conviction around everything we're doing there. We picked the bankers. We picked the loans. We picked the tech stack. We -- there's no integration distraction. So we have a very high bar for inorganic opportunities. That said, we are in the market constantly. We look at everything that could have any relevance to our business. And so we have business development teams that are pretty much always -- they're looking across payments, markets, should we acquire client data, and we're in the flow. It makes us smarter. We might partner with these companies, but our bar is very, very high. We are ready to opportunistically acquire. We have sort of a shopping list, if it makes sense with the right valuation, if there's a market disruption. And as First Republic showed you, we have teams that know how to integrate M&A, which is a skill to do that well. Synergy capture, getting domain over the targeted assets getting operating risk under control. I mean nobody sort of even knew what was happening. We bought First Republic. It's sort everyone sort of assumed you announced the deal, it's done. But that's that having that innate capability is quite valuable. We're ready. We're always ready. If there's something we can do opportunistically at the right value, but we're going to be very disciplined.

Got it. And maybe one final question. CIB did 18% ROE last year, 22% in the first half. Your caption capital allocation has gone up. J. Morgan as a whole has seen its G-SIB score go up quite a bit. Just how do you think about kind of managing returns, allocating capital? What do you think is like the right return? And how does kind of an ever-increasing G-SIBs core impact what you do?

So only one dial on the dashboard. I mean we look at lots of different variables to sort of measure our performance and manage the business. We also heavily focused on shareholder value creation. So there's a lot of forces at work. When you think about our 16% target, it's just our best estimate of what our through-the-cycle return would be, just given the economic outlook the regulatory uncertainty, the prospect that we're over earning on credit, just given the comments around how benign it is right now and how robust the markets are overall. And it gives us some room if you're over earning or under earning on deposits. So 16% feels like the right through-the-cycle target. If you -- I'd say a few points about that. If you deconsolidate CIB business by business, we have market-leading returns across the entire franchise. So it isn't like there's any shame at 16%. That's a consolidated number, so that's point one. Point two, we are at those return levels, why we're making very significant investments in digging deeper moats around our franchise. Expansion growth platform capabilities, being a market leader in technology and data, cybersecurity and resiliency takes a lot of capital. So we're not holding back to manage for greater margins and returns. We're heavily investing in the future, making the requisite investments to protect the value of the business and delivering market-leading returns. I think that's a sign of an incredible franchise when you can do that. And if not -- I don't want this to be a lot gets lost in the averages, if you break it the CIB into its components, that's the story in each of these these businesses, we're quite proud of that.

Great. On that note, please join me in thanking Doug for his time today.

Thank you.