J.P. Morgan Chase (JPM.US) Q3 conference call: Bank moats are stable and can withstand “AI deposit grabbing”, hedge fund leverage risks are manageable, and long-term high interest rates will drag down the economy
The Zhitong Finance App learned that J.P. Morgan Chase (JPM.US)'s results for the third quarter of 2026 exceeded expectations and held a performance conference call.
Chief Financial Officer Jeremy Barnum reported in his opening statement that the company achieved net profit of US$15.3 billion, earnings per share of US$5.57 billion, and a return on tangible common stock (ROTCE) of 20% during the quarter; revenue of US$50.9 billion, an increase of 8% year over year, and a 9% year-on-year increase after excluding a net loss of US$658 million in investment securities, mainly driven by growth in market business revenue, deposit balances and asset management fees. Expenses of $27.3 billion, up 12% year over year, mainly due to increased business volume and revenue-related expenses and front-office recruitment and wage inflation; $2.7 billion in credit costs, including $2.2 billion in net write-offs and $539 million in net provisions; and the standardized CET1 ratio at the end of the period was 13.9%, down 30 basis points from month to month. By business, consumer and community banking net profit was 5.7 billion US dollars, revenue increased 9% year over year, debit and credit card spending increased 10% year over year, and customer investment assets exceeded 1.4 trillion US dollars; net profit of enterprises and investment banks was 8.2 billion US dollars, and revenue increased 14% year over year, of which investment bank fees increased 14% year over year, fixed income transactions decreased 4% year over year and stock trading surged 49%; net profit from asset and wealth management was 1.8 billion US dollars, profit margin before tax was 36%. Client assets of $7.9 trillion. In terms of outlook, the company gave a net interest income of about US$255 billion, total net interest income of about US$28 billion, and expenditure of about US$275 billion in the fourth quarter, and a benchmark situation of about US$107 billion excluding net interest income from market operations in 2027, with a net credit card write-off rate of about 3.2%.
The Q&A session focused on the two main lines of AI shock and interest rate paths. In response to the risk that smart AI will disrupt deposits, Barnum emphasized that profit-chasing capital flows and fintech competition are not new issues, and that the company's strategy is still to maintain the share of the main bank relationship; Chairman and CEO Jamie Dimon said that no external intelligence will be allowed to enter the company, and that he does not want thousands of “uncontrolled intelligence” to appear. Regarding the 2027 net interest income guideline, Barnum disassembled that it increased by about $5 billion from the annualized level in the fourth quarter, of which about a quarter came from interest rate hikes reflected in the yield curve (expected once in December and twice in the first half of the year), and the rest was a continuation of balance sheet growth and structural trends; the 2027 expenditure is expected to be about 114 billion US dollars, and the company's preliminary judgment is close to that. In terms of capital allocation, Dimon explained that buybacks fell from about $7 billion to $1 billion, mainly because there were better endogenous investment opportunities, and had nothing to do with AOCI, speculations about the environment, or even Basel III; the company had about $30 billion in excess capital, and had already surpassed $200 billion in the first year of the $1.5 trillion deployment of the 10-year security resilience plan. Management also responded to issues such as tightening credit terms, consumer resilience, deposit beta, hedge fund leverage and leveraged financing, interest-free deposit growth, liquidity rule reform, and AI-related concentration risks; in the case of medium-sized enterprise customers, the company said it did not see any so-called excessive demand for capital. Customers generally “worry about others and are doing well themselves,” but high interest rates and rising investment costs have brought some caution.
The market is most concerned about three lines. The first is AI's threat to banks' low-cost deposits: bank stocks reacted after the launch of several personal intelligence products. The company acknowledged that competitive pressure actually existed, but emphasized that decades of branch networks, value propositions, and customer trust formed a moat, while clearly blocking shared credential fund transfers and screen scraping. The second is the interest rate and credit cycle: Dimon said that whether the economy can withstand the 10-year US Treasury yield rising to 6% and the Fed's interest rate hikes several times is a “prudent situation” that must be prepared, but it is clear that this is not a prediction; the company also tightened credit standards, and suggested that prolonged high interest rates will eventually drive up the unemployment rate and drag down consumer credit performance. The third is regulation and return on capital: the market is concerned about the final rules of the Basel III Agreement and the final finalization of G-SIB capital at the end of the year, possible adjustments to liquidity rules (discount window, HQLA, LCR), and how companies can deploy about $30 billion in excess capital after the pace of repurchases slows down. Furthermore, management did not give clear guidance on investment banking and market business in the fourth quarter: the outlook for investment banking fees is still constructive, but activity has slowed slightly in the second half of September; in principle, market business revenue does not provide guidance, which only suggests that the third to fourth quarter usually experienced seasonal declines, and emphasized that the recent seasonal pattern is not typical.
Presentation session
presenter
Good morning, ladies and gentlemen. Welcome to J.P. Morgan's Q3 2026 results conference call. This session will be recorded. [Moderator's Reminder] Now let's move on to the formal presentation. The forward-looking statements and explanations relating to non-GAAP financial measures relating to this statement can be found in the performance press release and investor presentation materials posted by J.P. Morgan Chase on the Investor Relations website. Please wait. I now entrust the meeting to J.P. Morgan Chase Chairman and CEO Jamie Dimon, and Chief Financial Officer Jeremy Barnum. Mr. Barnum, please begin.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Thank you so much and good morning everyone. The company achieved net profit of $15.3 billion for the quarter, earnings per share of $5.57, and a return on tangible common stock (ROTCE) of 20%. The above results include a company-level net loss of $658 million in investment securities. Revenue was $50.9 billion, up 8% year over year. Excluding net losses from investment securities, revenue increased 9% year-on-year, mainly driven by rising market revenue and deposit balances, and increased asset management fees for asset and wealth management and consumer and community banking businesses. Spending was $27.3 billion, up 12% year over year, mainly due to rising business volume and revenue-related expenses, as well as front desk staff recruitment and wage inflation. Credit costs were $2.7 billion, with net write-offs of $2.2 billion and net provisions of $539 million. On the balance sheet side, the standardized CET1 ratio at the end of the quarter was 13.9%, down 30 basis points from the previous quarter, as net profit was offset by other comprehensive income (OCI) losses, rising risk-weighted assets (RWA), and capital allocations.
You will notice that we have updated the classification of the risk-weighted asset change table to make it more useful for reference. Standardized risk-weighted assets increased by approximately $52 billion this quarter, mainly due to increased loans from banks, markets, and asset and wealth management businesses, as well as the impact of rising energy prices and increased market volatility. Let's take a look at each business segment. Consumer and Community Bank (CCB) reported net profit of $5.7 billion. Revenue of $212 billion, up 9% year over year, was mainly driven by rising credit card business balances and returns, asset management fees, deposit balances, and car rental revenue.
There are a few points worth highlighting. Debit and credit card spending increased 10% year over year, and various consumer categories continued to grow, including gasoline and travel, supported by consumer demand. Deposits increased 4% year over year, and growth was even stronger this quarter. We continued to expand our customer base in consumer banking and commercial banking; according to the US Federal Deposit Insurance Corporation (FDIC), we maintained our top position in retail deposit share. Client investment assets surpassed $1.4 trillion, up 15% year over year, driven by market performance and strong capital inflows. Next is the Corporate and Investment Bank (CIB), which reported net profit of $8.2 billion. Revenue of $22.7 billion was up 14% year over year, with strong performance across all businesses.
Investment bank fees increased 14% year over year, reflecting the strong performance of various product lines, particularly the advisory business. While our outlook remains constructive, supported by continued customer engagement, recent changes in the market environment have slowed business activity slightly, so it remains to be seen how it evolves beyond this quarter. In terms of market business, fixed income fell 4% year over year, and lower commodity, interest rate, and credit business revenues were mostly offset by an increase in foreign exchange and emerging market customer capital flows. The stock business grew 49% year over year, and various business lines continued to outperform, especially the main brokerage and derivatives business. Let's look at Asset and Wealth Management (AWM) again. AWM reported net profit of $1.8 billion and a profit margin of 36% before taxes. Revenue of $6.9 billion, up 14% year over year, was mainly driven by increased management fees due to rising average market levels, strong net inflows, and rising loan balances.
The net long-term capital inflow of US$51 billion was mainly driven by the continued strengthening of the fixed income business. Asset under management (AUM) was $5.2 trillion, up 13% year over year; client assets were 7.9 trillion US dollars, up 15% year over year, driven by continued net inflows and rising market levels. Finally, the corporate sector (Corporate) reported a net loss of US$455 million, including the net loss of the aforementioned investment securities, with revenue of US$93 million. Next is the outlook. I'll update the full-year guidance by giving fourth quarter guidance, and the corresponding hidden figures for the full year are listed on the page. We expect net interest income excluding market operations for the fourth quarter to be approximately $255 billion, and total net interest income for the fourth quarter to be approximately $28 billion. As in previous years, we have provided a benchmark for net interest income excluding market operations in 2027, which is approximately $107 billion, which we will further refine in the next quarter.
It is important to note that this benchmark situation is based on a series of assumptions, which are clearly highly uncertain even under the most ideal circumstances. In terms of expenditure, we expect the fourth quarter to be approximately $27.5 billion. The corresponding full-year increase reflects increased business volume and increased revenue-related expenses, due to continued high levels of business activity. Finally, we continue to expect a net credit card write-off rate of around 3.2%.
That's the opening statement. Now that we're happy to answer your questions, please start asking.
Q&A session
presenter
[Moderator's Tip] The first question came from Bank of America's Ebrahim Poonawala.
Ebrahim Poonawala, Bank of America Securities, Research Division
I'd like to ask a question — there has been a lot of discussion over the past few months about everything surrounding AI. If there are two aspects I would like you to respond in detail: First, when it comes to the risk of disruption caused by intelligent asmatic AI (agentic AI), I know you've talked about it in the past. Can you talk about your views based on your understanding of this technology? Second, in the context of the emergence of various “rogue agents” (rogue agents), what are the challenges of implementing intelligent asana AI within banks? Will this make it harder for banks to actually deploy intelligent asana AI when dealing with competitive challenges?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
I'll go first, would you like to add? OK. There are a few things to say about disrupting this. The market is clearly very concerned about the Smart Cash solution; I think it's just a small piece of the whole story. However, this product has actually been launched in the past few weeks, and is still in the very, very early stages. Essentially, it is still in the nature of a targeted pilot. However, it is very interesting to be able to use this to understand what customers really care about and to observe the sales situation of such a product in actual combat. So there will be more progress in the future. It's in the early stages, so far so interesting. I think the bigger picture is — there were several personal intelligence products released this quarter, which really attracted a lot of attention in the market, and we saw a slight reaction from bank stocks after these products were released. From our perspective, on the one hand, this isn't new — but that doesn't mean we're complacent. If you think about the nature of competition brought about by these agents, it's actually the intersection of two things we've been discussing for a long time. The first is the flow of money chasing profits. Obviously, we have experienced various interest rate cycles today and in the past, and we are all facing a lot of competition from the chasing of income and capital flows. Our strategy has always been to focus on the share of the main bank relationship rather than chasing every dollar of profit-seeking capital. That doesn't mean the competitive pressure isn't real; it's just that it's nothing new. Another part is competition from fintech companies that are constantly innovating to deliver great customer experiences. We've also discussed this for a long time, and it's clear that we must maintain the same level as them and actively invest enough to ensure that people get the experience they want through various channels, including digitalization. In this sense, the so-called intelligent personal intelligence is just an intersection of these two things; it is nothing new. As I said, that doesn't mean we're complacent. We have invested a lot of time in it, and it is worth watching how this field will develop and what we will launch ourselves in the future. However, if we really take a step back from our competitive position, we value our cards quite a bit. This is largely due to decades of investment in our branch network and value proposition, especially the trust our customers place in us.
Jamie Dimon, Chairman and CEO
I'll just add that internally, we use intelligence to do useful things, and we'll continue to do that. We also use it to serve our customers, but our focus is always on serving our customers well. So it's not like we're against intelligence or support intelligence or anything. They're tools; you use them to serve your customers. There is also a layer of defensive consideration, which is the need to ensure that our customers are not harmed by this, which is indeed a concern. Think of it as a concern about AI agents, and this concern is magnified because you don't want uncontrolled agents, and there are probably thousands of such agents.
That's why we're always on the customer's side. People using these tools should understand the risks involved. There is a shift of responsibility here, and they should understand that there has been a shift in responsibility. If they're being misused, they should know it's being abused. Therefore, we must protect our customers in the right way, and we are also developing corresponding tools for this purpose. At the same time, we will not allow any external intelligence to freely enter the company because this is too risky for customers and J.P. Morgan.
Ebrahim Poonawala, Bank of America Securities, Research Division
Understood, this information is very useful. Also, when evaluating the risk that interest rates may rise even further than what was seen in the third quarter, what are your latest views on economic resilience — can it withstand 10-year US Treasury yields of 6% and the Federal Reserve's interest rate hikes a few more times? When we discount this, do you think the risk of market events or economic pressure is significant?
Jamie Dimon, Chairman and CEO
I think we have to — we're always prepared for all kinds of different events. This isn't the same as predicting them, because we want to be a strong company that helps our customers, communities, and the world's economies no matter how good or bad. So, of course, this kind of thing can happen, and we never rule it out. They may occur for good reasons, such as strong demand for capital and a sharp increase in productivity; they may also occur for bad reasons, such as global inflation being sticky; they may not be because of the US itself, but because of what is happening overseas. So we're not predicting. I've always thought the probability of happening was higher than others thought, and I still generally think so now, but this isn't a prediction; just treat it as a careful preparation.
presenter
The next question comes from Truist's John McDonald.
John McDonald, Truist Securities, Inc., Research Division
Jeremy, I want you to break down in detail your new 2027 net interest income outlook, that is, the benchmark situation, including some assumptions about balance sheet growth, deposit pricing, and the impact of higher interest rates.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
OK, John, no problem. If you start from our fourth quarter net interest income guide excluding market operations of $255 billion, annualize it, you'll get roughly $102 billion. So we're actually leading from this level to an increase of 107 billion US dollars, or about 5 billion US dollars. Of this $5 billion, about a quarter is related to the yield curve. We remain asset-sensitive, and may be slightly more asset-sensitive than the EAR (Quantitative Interest Rate Risk Index) shows because the consumer deposit beta is lower than the model assumes.
Therefore, about a quarter of this comes from interest rate hikes as reflected in the current forward curve. I remember once in December and then twice in the first half of the year. I'll describe the rest quite bluntly as a continuation of the balance sheet growth and structural change trends we've seen this year.
In other words, consumer deposits continue to grow moderately, and wholesale deposits continue to grow — wholesale deposits may be slightly weaker than this year's very strong performance, but we're actually unsure. Then there are credit card loans, which are clearly likely to continue to be an important driver of net interest income at comparable levels. So actually, this is a pretty straight forward story. I gave the prerequisites, and I mentioned those prerequisites in my opening statement.
Jamie Dimon, Chairman and CEO
Let me add one more point. I think this number faces a higher than normal level of uncertainty because there are so many things happening in the world. And obviously, it also has to do with our own practices, which we can adjust at any time.
John McDonald, Truist Securities, Inc., Research Division
Ok, this helps a lot. Jeremy, moving on to spending, do you have an initial opinion on next year's investment spending plans, other spending drivers, and how they compare to the current Wall Street forecast for next year's spending?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
OK. We're trying to make a distinction between net interest income and expenses: although Jamie is right, we can change net interest income by adjusting the balance sheet structure, but overall, without intervention, net interest income is more like an attribute of a balance sheet at any point in time and is less sensitive to the budget cycle. So at this point in the year, we don't think there's a good reason to pretend we have no idea about 2027. Spending is slightly different; it's still sensitive to budget cycles, and there are many autonomous decisions to make. Although we have some initial opinions, this matter is not fully settled. John, of course, you remember that we pointed out last year that our initial assessment of spending showed that the market's consensus expectations were a bit biased.
Things seem to be significantly different this year. Currently, we see a consensus estimate of 2027 spending at around $114 billion, and our current preliminary judgment is not much different from this figure. So it can be said that there is no new news on this issue. Next, we'll see how the budget cycle ends. As Jamie pointed out, I think the uncertainty is not only about the macro environment, but also about how fast the investment landscape is changing, and the impact of AI, etc. So there are a lot of variables. But for now, the agreed expectations don't seem to be much of a difference.
presenter
The next question comes from UBS's Erika Najarian.
L. Erika Penala, UBS Investment Banking, Research Division
My first question is about capital management. We've received many inquiries from investors about the difference between the $1 billion buyback and the regular pace of around $7 billion. I know there's no such thing as a regular rhythm, and I know that buybacks are the last priority. But can you please take us through how we should view your capital priorities, especially given that we've heard that the Basel III Endgame (Basel III endgame) and Global Systemically Important Banks (G-SIB) rules will be finalized by the end of the year.
Jamie Dimon, Chairman and CEO
OK. I think we've already told you that we have about $30 billion in excess capital — this is just a rough estimate of the final rules, and we don't know the final outcome — but that scale is quite plentiful. The capital hierarchy hasn't changed: after paying dividends (hopefully they stay stable), we love investing in endogenous growth. For our shareholders, this is the highest and best use of capital. Obviously, buybacks come after it, especially when the share price rises. So the main reason for the decline in buybacks is good news, which has nothing to do with AOCI, speculation about the environment, or even Basel III.
What we think now, and this is different from what I told you in the past — we can reallocate this portion of capital over the long term to a place with good returns. Allocating capital for a long period of time to places with high returns is far better than buying your own stocks with a profit yield of around 6% at the moment. The reason is simple; this is a good thing; it is good for shareholders. As an example, I believe there are many others, namely the Security Resilience Program (SRI), which we told you to invest $1.5 trillion over 10 years. I have the impression that we haven't disclosed the exact figures yet, but it may have been over $200 billion in the first year, and we will disclose and do some related work. But I'm guessing the actual scale will be much larger than that. The world needs capital, the world needs advice, the world is becoming more complex, and the scale of global assets under management is growing. So we think it's good news in the long run. We can't tell you what the next 6 months mean, but that's why we're doing it. We hope to be able to allocate this capital well for shareholders.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
I'll just add one more point, Erika. If you pay attention to the trend of the CET1 ratio — we were initially around 15.7%, but now it's down to 13.9%, and we've done a lot of internal configuration during this time. There has been a lot of endogenous growth in risk-weighted assets, as well as some of the investments Jamie mentioned. We also made a number of repurchases during this time. But now, as Jamie said, compared to the excess capital and environment we have, our endogenous speed of allocation makes it clearly reasonable to keep dry powder (dry powder).
Jamie Dimon, Chairman and CEO
I'd like to praise the investment bank team a little bit. They've recruited a number of very talented people on SRI (Safety Resilience Program), and we're also lucky to have Todd Combs invest some of our capital here. They came up with a lot of ideas, and now they're not just meeting to discuss them. They've helped fund some interesting projects, and we have more ideas. They have also done a great job in policy work in this area, such as how to speed up America's safety and resilience in shipbuilding and other fields. We had a major announcement in Philadelphia. So I'm proud of them. We have quite a few retired people who have taken the initiative to come back, not so much for anything else but out of patriotism. It was an amazing effort for the company.
As we pointed out, it was global, and the global response was outstanding. I have a copy of the material at hand, and I have over $10 billion or $20 billion in financing in one country alone. So there's more to come. I would categorize the “American Dream Initiative” (American Dream Initiative), the “Innovation Economy Initiative” (Innovation Economy Initiative), and the global “Commercial Banking Program” in the same category. These things are paying off. We believe we are doing the right thing that is both good at doing business and getting good returns.
L. Erika Penala, UBS Investment Banking, Research Division
Follow the question for a follow-up. This sounds very positive for the future level of business activity, and in a broad sense. Jamie, I know you've attended some media events over the past few weeks and talked about project pipelines (pipelines). In this context, and especially considering market concerns — the sharp drop in global bond markets has had a chilling effect on the level of business activity — can we talk about what project reserves mean to the level of business activity, whether on Wall Street or the real economy (Main Street)?
Jamie Dimon, Chairman and CEO
OK, before I answer it, let me say one thing: bond fluctuations in the market, that kind of fear won't change our approach. Whether it's good or bad, we serve our customers. We know — I call some economic trends the weather, and that's not exactly what I'm saying here. Project reserves are no problem. But I've pointed out many times before that the project reserve is like an accordion, and it can be opened and closed very quickly. In the US, as Jeremy said, the situation is arguably “delayed,” but we don't really understand it, and we'll have to look at it again. I recently went to Europe, where the project reserves are actually quite healthy, and the IPO aspect is even better than we expected. So we don't know — but serving the customer well and doing the job well is the most important thing. Project reserves. We always make predictions for project reserves, using the probability you mentioned...
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Probability adjustments.
Jamie Dimon, Chairman and CEO
And one thing we're sure of: it must be wrong.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
It should be emphasized that when Jamie and I said “I don't know,” I think we meant: of course we don't know exactly how much investment bank fee revenue will be in the fourth quarter. But I think we do know that the overall environment is stable and supportive, and there are many businesses we want to do and need to do. As you pointed out, Erika, considering this round of interest rate sell-offs, it's no surprise that the market will take a breather and pause to ensure that buyers and sellers can agree on valuations. So basically in the second half of September, we did see a slight slowdown. Next, we'll see how the fourth quarter evolves — sorry, it's entering the fourth quarter. But I think the big picture is pretty clear.
presenter
The next question comes from KBW's Chris McGratty.
Christopher McGratty, Keefe, Bruyette, & Woods, Inc., Research Division
Then there's the question of capital allocation. Can you talk about areas where you are reluctant to allocate capital? Looks like there are plenty of opportunities to launch. Where did you drop it off? Where do you see deal structures or peers doing things you might not want to do?
Jamie Dimon, Chairman and CEO
I won't be too specific, but we are tightening our credit slightly. I think some credit terms have been looser. You've heard us and others talk about this before: a bit too much PIK (interest in kind), a little too weak contract terms, a little too much putting new debt in front of stock debt (priming) in the capital structure, a bit too aggressive. We just think there's no need to go after this kind of thing anymore.
Christopher McGratty, Keefe, Bruyette, & Woods, Inc., Research Division
OK, great. Second, consumers' health has received a lot of attention. What I want to ask is the durability of withstanding such interest rates. I remember you mentioned that debit and credit card spending increased 10% year over year. If interest rates remain current after a year, what are your expectations for consumer affordability?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Obviously, if you keep real interest rates at a very, very high level for a long time, to some extent, this is meant to cool down economic activity to fight inflation. It's hard to imagine this not having an impact on consumers. So far, judging from current data, this is indeed the reality of the past few years: in the face of a series of headwinds, consumers have shown considerable resilience — and in other situations, these headwinds may present challenges. But I think it's quite a delicate issue to deduce consumer credit health on the condition of higher interest rates. Fundamentally, however, the picture is simple: consumers are currently very healthy, mainly because the labor market is healthy. But central banks need to cool down the economy, and this involves an aggressive and lengthy cycle of interest rate hikes; almost by definition, this means rising unemployment, which in turn leads to weaker consumer credit performance.
presenter
The next question comes from Ken Usdin of Autonomous Research.
Kenneth Usdin, Bernstein Autonomous LLP
On the consumer side, we are happy to see a 4% year-over-year increase in consumer and community bank deposits. What I want to ask is, apart from factors related to smart devices, what do you see in terms of revenue-chasing behavior? Deposit margins have been rising for the past few quarters, which is also a good thing. What I want to ask is whether your expectations for deposit growth or how you respond to the current market and deposit competition pattern have changed?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
OK, this is an important question, and a good one. I think the simple answer is: our core expectations haven't changed significantly. Over the past few quarters, as income-chasing capital flows have subsided, we have seen a resurgence in consumer deposit growth, which remains our basic expectation. This is the big picture. I do think that after this outlook was formed, we saw an increase in the interest rate environment, which did raise the question: What impact will it have on consumer deposits? Under normal circumstances, high-beta products — such as time deposits (CDs) and high-end deposits — will obviously pay higher interest rates. Other than that, you might expect some degree of internal migration, shifting funds from checking and savings accounts to time deposits or similar products, leading to an increase in the weighted average interest rate.
We may also see a little additional outflow pressure, which will weaken deposit growth slightly. But these are all just speculations. This largely depends on which side of the debate you're on: some people think that part of the cash sorting (cash sorting) that will happen has already happened, so these are relatively insensitive to slightly higher interest rates. I personally don't think so. I think the situation is more like a continuous spectrum than black and white. So I'd expect a little extra pressure. But at the end of the day, it's a matter of degree; no one really knows. The good news is that core business performance was unusually strong, thanks in large part to net new chequing account openings—I remember around 650,000 this quarter.
So the performance was really, really strong, which proved our value proposition, the level of customer engagement we saw through our marketing efforts, and the strength of the brand. Therefore, from a long-term perspective, this is the most important; the impact of short-term interest rates can only be anything.
Kenneth Usdin, Bernstein Autonomous LLP
Very good. One more question about the marketing business. Obviously, we're seeing a clear divergence: the stock business continues to be strong; and as you mentioned before, there are some more difficult year-on-year bases, and the impact of higher interest rates on the fixed income, foreign exchange, and commodities (FICC) business. Has customer demand for balance sheet use (i.e. capital occupation) changed? Does it seem “undemanding” like the stock business? Please talk about the state of the market business in terms of business activity, and your willingness to provide a balance sheet — but more importantly, the demand-side situation.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
OK. Overall, the short answer is that there have been no substantial changes. Yes, I like what you mean by “infinity” — exactly. I agree with you that capital requirements are excessive; this statement is quite appropriate. Frankly speaking, I haven't heard anything to the contrary lately. But as far as Jamie's views on tightening credit are concerned, it's more like a general reminder to make sure we sort everything out carefully. At a time when AI is currently an overwhelming subject, it has brought a lot of innovation and is also appearing in many different fields. Capital is mobilized through various mechanisms. We just need to follow very, very closely to make sure nothing gets missed.
presenter
The next question comes from Wells Fargo's Mike Mayo.
Michael May, Wells Fargo Securities, Research Division
Can you talk about the extent to which AI has helped J.P. Morgan? I saw you ranked high in a recent AI and banking survey. But I squinted at the earnings report and wanted to find these benefits, but I wasn't sure if I could find them. I think -- if these numbers are out of date, you can update them. You're investing about $2 billion in AI, and the benefits are about $2 billion? If this data is out of date, please update it. Also, please respond to the risk that AI agents may remove deposits from J.P. Morgan. In this regard, can you talk about your value proposition, customer trust, and how you protect customer privacy and how seriously you value it?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
OK, Mike, let me straighten out a few points. First, with regard to AI spending, you're right; I think we did mention that figure in some media. I don't think it's completely accurate, and we've corrected it later. That AI spending figure was clearly much lower back then — I'd say around $700 million a year — and I think that figure is a bit out of date now. But more importantly, there is a lot of statistical influence here: if you factor in the time everyone spends thinking about this, you can probably calculate a higher number. So now, it's not something that can be circled alone. It is fairly well scattered across the organization and is clearly a very, very high priority task.
On the question of earnings, you're right; we've quantified it in the past. I actually really want to get rid of this practice right now. I think that quantification in the past was accurate on its own, but it includes a lot of machine learning things that can be said to be “before generative AI,” which are particularly important in preventing consumer fraud. This is relevant, but I think when you and others are asking about AI now, you're really asking about the impact of generative AI and intelligent asana AI on productivity and cost items in various fields, especially software engineering, and elsewhere. Maybe you're asking about marginally exciting new revenue opportunities. So I think this is the most relevant focus right now. And I'm very reluctant to spend a lot of effort quantifying it, because the result is often a waste of time for many people within the agency, and we actually need them to focus on what they do.
So, as far as the observability of earnings is concerned, you're right that these benefits aren't visible in our current quarterly results. I think this is probably no surprise, because no matter how important, dramatic, and exciting the subject is, it will take a long time to produce visible results in an organization of our size. Personally, I can say that even within my own financial support technical team, I'm starting to see more and more exciting use cases and types of benefits.
We experimented with some of the secondary legacy tools that needed to be rewritten to see if we could complete the rewrite in one go in about two or three weeks — the results weren't perfect, but you started to see some very exciting opportunities for acceleration and productivity changes. As for how long it will take to show up, we'll have to look at it again. And apparently, some of the benefits will be offset by the cost of the token, which is another topic. But we're excited and there's a lot going on. I think your other question is about intelligence and trust, and I've already answered part of it earlier. But overall, as Jamie points out, the “true north” (true north) here is to protect customers — and of course the company, but the focus is more on intelligence that enables customers to fund their accounts.
I think currently, some services that provide this kind of ability rely on shared credentials; and we've long opposed this practice, as well as methods such as screen scraping. It's not safe. So as long as we have the ability to block, we will block to protect our customers and ourselves. It's important for customers to understand that if they hand over their credentials to an agent and the agent does something they don't want to do, they are responsible for the consequences. This is not an ideal state of affairs. We're trying to find the right approach. It's part of the whole puzzle. From a broad perspective, trust is clearly an asset, and it took us decades to build it. As I said before, we are very optimistic about the cards in our hands at this point. But we must be clear: being trusted is no excuse for complacency, nor a reason to provide a mediocre customer experience. So we really have to do these two things at the same time.
Michael Mayo, Wells Fargo Securities, Research Division
Just a quick question about the cost of tokens. Compared to smaller banks, do you enjoy a scale advantage in token costs? Also, are you moving more towards open source model AI systems that are much less expensive?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
There's a point in every aspect. I'd say our strategy is very focused on keeping lockdown to a minimum, maximizing selectivity, and maintaining cost management capabilities. So part of the strategy is: model agnostic, tooling framework (harness) unrelated, and being able to run both proprietary models as well as open weighting and open source models, some of which run in our own data centers. So this is largely an “all you need” strategy, which aims to obtain the best available capabilities at the best price and take control of one's own destiny.
Jamie Dimon, Chairman and CEO
Also, there are tools that model route requests to the best, fastest, and cheapest - you don't need to use the most expensive thing for every query; many times people just use the one they're most used to. These will all be put in place gradually to keep costs under control.
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The next question comes from Royal Bank of Canada's Gerard Cassidy.
Gerard Cassidy, Royal Bank of Canada Capital Markets, Research Division
Can you talk about the outlook for deposit beta? Obviously interest rates are starting to rise, and federal funds rate futures indicate that there will be more rate hikes in the next 3 to 6 months. And considering the growth in your consumer deposit base since the last round of austerity in 2022 and 2023, how do you view what might happen this time around? Also, obviously, our starting point was much higher than the interest rate level in 2022. Does that mean your deposit beta might not be that high this time around?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Gerard, that's a really good question. I think this is an important thing that everyone should seriously consider, because this specific interest rate cycle — the recent interest rate cycle — can be said to be even more unprecedented than the previous one. We don't have much historical data to show how people will react when interest rate hikes start from a starting point like this round. So I'd say it's been an extraordinary decade.
I think one thing is very important for everyone, especially those who rely on historical data to train models, and that is: this historical data set isn't rich enough at all. So it's important to think outside the box. But in this context, I think as far as we are concerned, the beta story is actually quite simple: you can almost think of our business as a dividing barbell — one end is a bunch of very high beta deposits, such as most wholesale deposits, as well as time deposits, high-end deposits, and consumer deposits; the other end is a bunch of very low beta deposits. The problem is probably not the pricing of a particular product — although it always responds to competition and market conditions — but rather the migration behavior between products in the current cycle. I don't think we — our own expectations are that the situation will be more or less similar to past performance. But I do think it should be pointed out that this is a different cycle, so we have to consider all scenarios as before.
Gerard Cassidy, Royal Bank of Canada Capital Markets, Research Division
Very good. Let's change the question next. The International Monetary Fund (IMF) released the “Global Financial Stability Report” earlier this month. They said that the hedge fund industry has grown substantially and is now in their view a systemic risk. Leveraged financing, in particular, is classified as another type of high risk. Obviously, this falls within the scope of your business, as well as that of your peers and competitors. Can you share your insights on how to manage these risks? These businesses are much bigger today than they were 10 or 15 years ago, so what are you worried about?
Jamie Dimon, Chairman and CEO
We are worried about a lot of things, but not about how the IMF sees it.
Gerard Cassidy, Royal Bank of Canada Capital Markets, Research Division
Understood.
Jamie Dimon, Chairman and CEO
They're not wrong because some of these things are highly leveraged.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes. I mean, there's nothing wrong with that, but it's also a bit obvious. Let me also say, this is actually nothing new, right? The hedge fund industry has been linked to our business for decades, and has long been a source of systemic risk. Everyone knows this, including hedge funds themselves — they are increasingly institutionalized, highly professional in risk management, and have good control over their own margin relationships. So the risk is there. Obviously, the essence of this trip is to understand risk, manage risk, and prepare for the unknown. But I would say that hedge fund leverage, as a source of systemic risk, is largely a “known unknown.” That doesn't mean it's risk-free, but we know roughly what it is.
Jamie Dimon, Chairman and CEO
Recently, there have been several times of deleveraging. The scale is small. Some are on the stock side, and some are fixed income arbitrage. Wall Street has handled it quite easily.
presenter
The next question comes from Glenn Schorr of Evercore ISI.
Glenn Schorr, Evercore ISI Institutional Equities Division, Research Division
Just a quick question about the impact of intelligence and AI on the entire deposit portfolio. My question is: From the perspective of how do you and regulators view liquidity stress testing and liquidity risk management, how secure and protective are you? Has the mere existence of this technology changed things? I don't know if I'm thinking too far ahead of schedule, but...
Jeremy Barnum, Executive Vice President and Chief Financial Officer
OK, Glenn, I understand the question. You could say this is essentially a downstream product of the “Silicon Valley bank crowding out is a social media phenomenon” narrative. And we've never been too convinced by this statement. I think a better way to understand the situation at the time is to have an extremely concentrated and fragmented deposit base, non-operating deposits of a wholesale nature, and almost a single culture among the people who shaped their perceptions. So let's say, in a world with only TVs and fax machines, you'll probably get basically the same results in terms of squeezing speed. The process of turning a fax machine into a wire transfer might take 8 more hours, but the core elements are the same. So I think in this new world empowered by new technology, everyone is very passionate about telling a “quick escape of deposits” story.
But I'm not so sure that cliff effects (cliff effects) actually exist. Of course, so in a world where consumer money flows through smart devices, it's really easy to construct a story: in some types of crises, money is easier to transfer. But I think the right way to ensure stable deposits is to run the company with “fortress principles” (fortress principles) to give people confidence in you. As for convenience — what I'm saying is that you probably shouldn't expect “hard to transfer money” to keep your deposit stable.
Glenn Schorr, Evercore ISI Institutional Equities Division, Research Division
I think that makes sense, thanks. There's one more...
Jamie Dimon, Chairman and CEO
Looking back, we have $1.5 trillion in cash and marketable securities, so we're not worried about J.P. Morgan's liquidity at all. But if you take a step back, banking services are necessities — credit cards, debit cards, fund transfers, savings, and branch network requirements. And one way to earn a return on these services is net interest income from those idle funds. But if you can't do that anymore, over time, you'll change your approach. A subscription system, of course; you'll combine an investment account with a checking account. So as time goes on, it will adjust. We want to do a great job for our customers. It costs a lot of money to run these banking systems, most of which are fixed costs.
So I'm not worried for a long time. But in the short term, of course, you have to figure out how to handle this kind of thing. I really think you're asking a different question, and that is: should regulators think about how they're going to deal with some of this stuff. Yes, of course they should. This is a new world with all these robots and intelligent bodies, will anyone be damaged and cause problems as a result? Maybe. If I were a regulator, I'd try my best to be prepared for this.
Glenn Schorr, Evercore ISI Institutional Equities Division, Research Division
Understood. I also have a question about concentration risk. The open stock market knows nothing about this and doesn't care. But bank loan books, bond books, and insurance portfolios care. So my question is: in this amazing competition for hyperscale enterprises to expand their computing power, everyone wants to finance them, and they have the capital and capital. But from your point of view, can we complete the financing without touching some concentration limits? In other words, can the market absorb the scale of expenditure implied by computing power?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes, this is a great question indeed. Because we've really been thinking a lot about our current exposure in this regard. But arguably, the more important question is: given the scale of capital expenditure that has already been announced in this ecosystem and needs to be incurred, and the resulting capital demand from the financial system, how much appetite we have for future exposure. So there are a few points. First, it is clear that the concentration of a single issuer must be managed. And it's clear that, given the nature of these structures, you must be professional enough to assess your indirect exposure, direct exposure, your position in the capital structure, and the value of collateral — to properly assess your exposure to individual issuers across the ecosystem requires extensive detailed credit analysis.
You can assume that agencies will control this concentration. I think one thing we've seen in the past year is that the market is increasingly using different parts of the capital market ecosystem to provide diversified financing for this round of construction as much as possible. Moreover, there is a large amount of capital out there waiting to be invested. So part of it will come from the banking system, and part from elsewhere. But at the system level, I'm not sure — some people are talking about crowding out effects (crowding out effects), which is worth watching. But at any rate, I think we need to focus on our agency-level risk appetite and institutional-level exposure. I think here, in addition to the obvious single subject's focus, another thing that needs to be very careful about is the AI theme itself, because the AI theme has spread so widely in the market, it's not just traditional construction loans.
There are now more and more working capital revolvers (working capital revolvers). You can also see it in the stock market. It's almost everywhere. So you really need to run some stress tests to test the resilience of the entire enterprise when the overall theme changes significantly. It's something we spend a lot of time thinking about. Currently, our relevant exposure is still quite limited compared to our overall wholesale exposure; but that doesn't mean we can stand alone if there is a major shift in AI sentiment. Frankly, I think that up to now, I'd be surprised if anyone said they could not be affected.
presenter
The next question comes from Morgan Stanley's Manan Gosalia.
Manan Gosalia, Morgan Stanley, Research Division
I'd like to know about the commercial banking situation. How are your core midsize enterprise customers performing? Is there also an endless demand for capital there? Or rather, as short-term interest rates rise and the middle of the curve rises, do you see a decline in demand there?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes. I think when we talk about our endless capital requirements, we're not talking about our core midsize enterprise customers. In that group, the theme for some time was: people are worried about others, and they are doing well themselves. The subject is always the same — we do these surveys, and they also say “I'm worried about this, I'm worried about that” and then ask “How are you?” “We're fine”. So that's a pretty interesting development. Undoubtedly, higher interest rates, investment costs, inflation, and diesel narratives are all difficult for midsize enterprise customers. So we've seen them do their best to deal with it. I think this has really caused a bit of caution in this area. But I think the balance sheet is strong. People have been through a lot in the past few years, so they are quite prepared. But yes, I don't think the excessive capital requirements apply to this segment of the customer base.
Manan Gosalia, Morgan Stanley, Research Division
Understood. Also, let me ask you separately, Jeremy. Regarding the liquidity aspect, you have pointed out in the past that in order to fully release excess capital, you need to see changes in liquidity rules. As regulators are about to launch new liquidity proposals, if you get more approval for your discount window (discount window) readiness, how will this change the way you manage your balance sheets? In what time frame?
Jamie Dimon, Chairman and CEO
I think the regulators are right to re-examine all of these things. Not only the discount window, but also the Federal Home Loan Bank (FHLB), and the discrepancy between disposal and recovery. There is also what initially counts as high-quality liquid assets (HQLA) and how to calculate liquidity coverage ratio (LCR). I think they should look at it from this perspective: I think they can build a safer bank by deploying more capital and more liquidity that can be used in the market. That should be the goal. But really — this question is hard to answer because it depends on them. In any case, J.P. Morgan Chase will serve our customers well, do our job well, and do our part. But I think they should do it. So we'll wait and see. We're not going to guess what they'll do about the many proposals out there, some of the international rules, but I applaud them for reviewing this.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes. I agree with everything Jamie said, and this is really particularly complicated on multiple dimensions. What I want to point out is that we actually talked about this at the company update, and in a sense it also gave an answer: we said at the time that the system had a healthy level of capital but was constrained by relative liquidity. The problem was that — at least marginally — this would allow you to allocate your assets to much more risk-intensive tools. A more balanced state will often shift assets to a lower risk intensity direction, so you can serve a wider range of economic sectors, including mortgage loans, consumer loans, and some more secured commercial and industrial (C&I) structures.
Jamie Dimon, Chairman and CEO
If they want to reduce the size of the Federal Reserve's balance sheet, they will have to make some changes.
presenter
The next question comes from Deutsche Bank's Matt O'Connor.
Matthew O'Connor, Deutsche Bank, Research Division
I hope you can talk more about how you have achieved interest-free deposit growth when many of your peers are unable to do it. Also, in an environment of higher interest rates, how do you view this type of deposit — if it continues to grow?
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes. I think I've talked about this to some extent when answering John's question about the 2027 net interest income outlook and our views on consumer deposit growth. But I would like to reiterate a few more points: First, our net new checking account growth was unusually strong, at 650,000 this quarter. So people are actually responding. They respond well to marketing, respond well to brands, and respond well to the value proposition of the product portfolio we have spent decades building and providing to consumers.
So I think this is really good news, and it is also a driving factor for the revival of consumer deposit growth. As I pointed out, in this cycle of interest rate hikes, the question is how these balances will perform, how much pricing pressure will change, how much migration we'll see to higher beta products, etc. I'll have to watch it again. I think we're currently relatively optimistic, and we don't expect drastic changes for minor partial changes. But we do think a lot about different interest rate regimes and their possible impact on deposit betas. I think that's part of being prepared for everything.
Matthew O'Connor, Deutsche Bank, Research Division
OK. I think I'm asking more specifically about interest-free deposits; I think this is more on the commercial and corporate side. I'm just looking to see if some details can be provided in this regard, such as key drivers such as cash management products.
Jamie Dimon, Chairman and CEO
In terms of cash, most interest-free deposits are consumer deposits, precisely because we are developing this business and have different products for different types of consumers. I think the wholesale side, that is, the commercial side, is much more competitive.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes. To be honest, I think the disclosure here is a bit confusing, partly because of the famous ECR product, which sometimes makes people think that the wholesale side has more interest-free deposits than they actually are. This is simply a phenomenon caused by the reporting rules we have to abide by. If you want more details, Matt can follow up with the Investor Relations Department (IR). But overall, I'd say wholesale deposits have always been — and will continue to be — more competitive on the margins; but the way of thinking is not that product design allows us to increase interest-free deposits, but rather: as part of the product portfolio, what you earn on deposits is a comprehensive profit margin, depending on how good your service is. And we have a pretty good record of winning shares and commissions based on product quality.
presenter
The next question comes from Jefferies's David Chiaverini.
David Chiaverini, Jefferies, Research Division
J.P. Morgan Chase's goal for a return on tangible common stock throughout the cycle was 17%, and now it's 21%. Are you seeing anything in the macro or competitive environment that could accelerate the process back to 17%? Or is it just not in sight?
Jamie Dimon, Chairman and CEO
We've always said 17% is the level throughout the cycle. I think the picture is pretty good right now—big business volume, high asset prices, pretty low credit losses, etc. So if you can earn 17% steadily over a long period of time, that's a very good return for shareholders. This is our goal. I don't want to change my mind if something happens in the market. So far everything is fine. Hope we can enjoy a good environment for a while. We just don't know when it will end.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
We don't want to write empty songs, and I don't want to annoy you with that kind of rhetoric. But if you look at the entire business system, every business has performed extremely well. The conditions are unusually favorable.
Jamie Dimon, Chairman and CEO
Every company is like that.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes, it's not just us. And that's not historically true. Historically, in an environment of high interest rates, you tend to see more internal diversification—some businesses perform better, others worse, and vice versa. Therefore, almost all business segments we have experienced recently are in a record state, which is not typical by historical standards.
David Chiaverini, Jefferies, Research Division
Makes sense. Next, move on to credit quality. You've already talked about the consumer side. Can you talk about the health of corporate credit? Looks like you've added some additional provisions to the wholesale business. I'd like to hear your comments.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Of course. Yes, the increase in provisions for the wholesale business is actually only due to new business activities; it is not a downgrade in ratings or changes in outlook. So I would say that the outlook for corporate credit is currently quite stable. But clearly, there are problems outside, and we need to see how they are transmitted to borrowers' performance — energy prices, fuel input, higher interest rates. These are all manufacturing challenges in different sectors of the C&I sector as well as the commercial real estate (CRE) sector. So I'll keep watching. But so far — apparently it's still early — overall, we think the company's balance sheet is in pretty good shape. So I've always been resilient, but I've also accumulated a lot of pressure. We'll have to see what happens.
presenter
The last question comes from Kunpeng Ma of CITIC Construction Investment Securities.
Kunpeng Ma, CITIC Construction Investment Securities, Research Department
I have a question about market business revenue because we see some fluctuations in market revenue from quarter to quarter. So I don't know if you have a reliable estimate of the quarterly market business revenue. Also, it would be helpful if you could provide some thoughts on the key business dynamics underpinning such estimates.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Yes. I wasn't able to fully understand your question, but I think you're asking about the market's business revenue outlook for the fourth quarter. As you know, we don't actually give guidance on this. This is clearly very, very difficult to predict, and essentially depends on external factors and forces. As a reminder, there is often a clear seasonal decline between the third quarter and the fourth quarter. It's also important to note that between the third and fourth quarters of recent years, we experienced some slightly unusual seasonal patterns. So our current basic assumption is: with no other conditions changing, there will be a normal seasonal decline between the third and fourth quarters; be sure to use the proper historical context to understand the word “normal”, and all the usual prerequisites apply. We've seen a lot of fluctuation, lots of things happening, anything can happen.
Jamie Dimon, Chairman and CEO
I don't think the fourth quarter will have the same seasonal decline, first...
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Interesting.
Jamie Dimon, Chairman and CEO
There's so much happening in the world.
presenter
This concludes today's question time.
Jamie Dimon Chairman and CEO
Thank you very much.
Jeremy Barnum, Executive Vice President and Chief Financial Officer
Thank you very much. See you next quarter.
presenter
Thank you all for attending today's conference call. You can hang up now. I wish you all a great time for the rest of the day.