JP Morgan Chase & Co.

Q4 2021 Earnings Conference Call


spk_0: morgan chase and co earnings conference call will begin
spk_1: please and i were about to begin good morning ladies and gentlemen welcome to jp morgan chase his fourth quarter can fool your twenty twenty one earnest got this call me recorded your line will be muted for the duration of the call we will not go like to the presentation please stand by at this time i like to trying to call over to jp morgan chase chairman and ceo jamie diamonds and chief financial officer jeremy barnum stubborn barnum please go ahead
spk_2: thank you have a good morning everyone the presenters is available on our website and please refer to the disclaimer in the back is slightly longer this quarter to cover both her fourth quarter and for your results as well as spend some time talking about the i'll look for next year starting with the third quarter on page one the from reported net income of ten point four billion dollars a bs of three dollars and thirty three sons on revenue of three point three billion and delivered an rotc of nineteen percent
spk_3: these results included a one point eight billion dollar not credit reserve release which i'll cover and more detail shortly adjusting for this we deliver to seventeen percent or oh to see the scorer
spk_2: touching and a few highlights as we suggested last quarter we have started to see a pick up and longer have a person year on year and three percent quarter on quarter xp ppp with a significant portion of this growth coming from a w i'm and markets were also seemed positive indicators and card as well as increasing revolver utilization and see and i
spk_3: and it was an exceptionally strong quarter for investment banking particularly i'm in a as was another good quarter and eight of us on page two we have some more detail on the fourth quarter revenue of thirty points rebellion was up one person's year on year net interest income was up three percent primarily driven by bouncy growth partially offset by lower see be markets and i and an i are was down one percent largely driven by normalization nclb markets and lower production revenue and home lending mostly offset by higher ib fees on strong advisory you'll notice that we've added some memo line to this page this quarter to show and i and and i are excluding markets as was a third line of standalone markets total revenue which as we said before as more consistent with the way we run the company will be keeping this format going forward and you'll see later that this is how we will talk about the outlook if you look at things on this basis the drivers are the same but the numbers are little different and i excluding markets is up for percent and i are excluding market as up three percent and markets is done eleven percent on normalization expenses of seventeen point nine billion were up one point eight billion or eleven percent largely on higher compensation and credit cause we're not benefit of one for three billion reflecting reserve releases looking at the for your results on page three the farm reported net income of forty eight point three billion dollars be asked of fifteen dollars and thirty six cents and record revenue of one hundred and twenty five point three billion dollars we delivered a return on tangible common equity of twenty three percent or eighteen percent excluding the reserve releases and then onto reserves on page four we released one point eight billion dollars this quarter reflecting a more balanced outlawed due to the continued resilience and the macro economic environment or all that remains constructive but i reserve bounces still account for various sources of uncertainty and potential downside as a result of the remaining abnormal features of the economic environment on balancing and capital on page five we end of the quarter with a cd one ratio of thirteen percent up slightly and reflecting nearly five billion dollars of capital distributions to shareholders including one point nine billion dollars of not repurchases with that was good our businesses starting with consumer and unity banking and six tcp reported net income a four point two billion dollars including reserve releases of one point six billion revenue of twelve point three billion was down for percent a year on year and reflects lower production margins and home lending and higher acquisition costs and card partially offset by higher asset management fees and consumer and business banking many of the key bouncy drivers are in line with a prior quarter deposits rock twenty bros on your on your and four percent sequentially and klein investment assets were up twenty two percent you're on your about evenly split between market performance and flows combine credit and debit span was up twenty seven percent versus the fourth quarter of nineteen with each quarter and twenty twenty one showing sequential growth compared to twenty nineteen within that travel on entertainment's band was up thirteen percent versus forty nine ten the we have seen some softening in recent weeks contemporaneously with the american
spk_2: live
spk_3: card standings rough five percent year on year but remain down eight percent versus fortune nineteen however as promising to see that while revolving balance has bottomed and may have twenty one one since then they've kept pace with twenty nineteen growth rates and home landing loans were down one person you're on your butt up one for suncor run quarter as prepayments have slowed
spk_2: and it was another strong quarter for originations totaling forty two point two billion up thirty percent year on year in fact it was the highest fourth quarters and swine twelve driven by increase in both purchase and revival aims an auto average loans were up seven percent year on year and of one percent quarter on quarter after several reporters the lack of vehicle supply resulted in a decline in originations to eight and a half billion down twenty three percent you're on year so well loans acts ppp were up two percent you're on your and sequentially driven by card and auto and expenses or seven point eight billion or up ten percent a year on year on higher compensation as as continued investments in technology and marketing next the see i view on page seven
spk_3: see i be a reported net income a four point eight billion or revenue of eleven and a half billion for the fourth quarter and for the full year net income was twenty one billion on record revenue fifty two billion investment banking revenue of three point two billion was up twenty eight percent versus the prior year and up six percent sequentially ib fears were up thirty seven percent you're on your primarily driven by a strong performance an advisory and we maintained or number one ranked with a full your wallet share of my mouth percent and advisory we were up eighty six percent and it was the third consecutive all time record quarter benefiting from elevated i'm in a volumes like continued throttling twenty one specifically from midsize deals that underwriting v is rob fourteen percent driven by an active leverage one market primarily length of time position financing and an equity underwriting peers were up twelve percent primarily driven by are strong performance and i've yost moving to marcus total revenue was five point three billion down eleven percent against or record for for the last year compared to twenty nineteen we were up seven percent driven by a strong performance in equities fixed income was down sixteen percent you're on your reflecting a more difficult trading environment early in the corner especially in raids as was continued normalization from the favorable trading and trading performance last year and currency is emerging markets credit and commodities equity markets or down to percent on two billion dollars of revenue as continued strength and prime was more than offset by modest weakness and derivatives for the full year i could is revenue was ten and a half billion up twenty two percent and an all time record
spk_2: it was a particularly strong year for both investment bart banking and markets and looking ahead we do expect some modest normalization of the wallet and twenty twenty two however for purposes of the first quarter an investment banking the overall pipeline remains quite robust
spk_3: payments revenue was one point eight billion of twenty six percent you're on your or up seven percent excluding that games on equity investments and the year on year growth was from higher fees and deposits largely offset by deposit margin compression security services revenue of one point one billion was flat year on year
spk_2: expenses of five point eight billion or up eighteen percent year on year predominantly due to higher compensation as well as volume related and legal expenses
spk_3: and product costs were not benefit of one hundred and twenty six million driven by the reserve release i mentioned up front moving to commercial banking on page eight
spk_2: commercial banking report a net income of one point three billion and an r o e of twenty percent revenue of two point six billion was up six percent year on year on record investment banking revenue driven by continued strength and i'm an a and acquisition related financing expenses of one point one bill
spk_3: and where up eleven person you're on your largely due to investments and higher volume and run related expenses
spk_2: deposits rough eight percent sequentially on seasonality loans or down one percent you're on your and up two percent sequentially excluding ppp
spk_3: i won't rock person xp be be primarily driven by higher revolver utilization and originations middle markets and increase short term financing and corporate pine banking sherry loans were up one percent with higher new loan originations offset by not pay off activity
spk_2: and credit costs were not benefit of eighty nine million driven by reserve releases with not charge offs of two bases once and than to complete our lines of business editor i'm on page nine
spk_3: asset and was management more than an income of one point one billion dollars for the pre tax margin thirty four percent revenue of four and a half billion was up sixteen percent year on year as higher management fees and growth in deposits and lungs or partially offset by deposit margin compression expenses of three billion were up nine percent you're on the are predominantly driven by higher performance related compensation and distribution fees for the quarter not long term inflows were thirty four billion and for the full year or positive across all channels as a classes and regions totaling a record one hundred and sixty four gilliam a lamb or three point one trillion and overall client assets of four point three trillion up fifteen percent and eighteen percent you're on your respectively were driven by strong net inflows and higher market levels and finally loans up or person quarter on quarter with continued strength and custom landing mortgages and security space landing while deposits rot fifteen percent sequentially turning to corporate on page ten
spk_2: corporate reported a net loss of one point one billion revenue was a loss of five hundred and forty five million down two hundred and ninety six million year on year and i was up one hundred and sixty million primarily on higher rates mostly offset by continued deposit growth and and i are was down four hundred and fifty six million
spk_4: and primarily due to lower night games on legacy equity investments expenses of two hundred and fifty one million or down one hundred and ten million year on year
spk_3: so with that as we close the books on twenty twenty one we think it's important to take a step back and look at the performance over the last few years through the volatility of the coven period and then driven to discussing the twenty twenty two and medium term outlook so turning to page eleven what stands out is the stability of those revenues and returned to a very volatile period especially when you strip out the reserve build and subsequent release as and twenty twenty and twenty twenty one
spk_2: if you look at the revenue drivers on the bottom left turns side of the page you see overall revenue growth with some significant diversification benefits
spk_5: and i x markets was down nearly twenty percent on the headwinds of lower rates and carter evolve that we've discussed throughout the year this was partially offset by significant and i are growth acts markets largely from higher ib fees and a wi management and performance fees and we also saw strength across products
spk_3: and regions and see i'd be markets as the extraordinary march environment and twenty twenty did not normalize as much as we expected and twenty twenty one so when you look across the company we saw consistent modest revenue growth as well as good performance and the areas that we control notably staying in front of our clients to serve them well and managing are risks effectively resulting in quite stable were terms once again proving the power of the jp morgan chase platform turning to the next page
spk_2: the strong revenue performance and consistent returns have further bolstered our confidence and forging ahead with an investment strategy designed to ensure that were prepared for the long term
spk_3: and the left turns out of the page you can see the and about the expense drivers from twenty nineteen to twenty twenty one the first bar is structural and while the grow the two percent is modest over the two year period that include some covered related the fact that we would see a temporary including for example lower to nice band an elevator employee attrition and we do expect some catch up in those are facts as we look forward then the middle bar is three point four billion of growth and volume and revenue related expenses some significant portion of that is driven by increases and incentive compensation primarily from investment banking market and asset and wealth management the major areas where we have seen exceptionally strong results and were changes in compensation or more closely linked to changes in performance and remember we've seen a lot of market appreciation and strong flows and a w m and cc be so don't assume all of this see i be as you have forward because there are some versions of the world where the markets and fee while it goes one way and am goes the opposite way
spk_2: and then this bar also includes volume related non complex bounces such as brokerage and distribution fees some of which are true expenses and some of which are bottom neutral because they're offset with revenue gross ups
spk_3: then the last bar of one point seven billion as previewed with you this time last year is a result of our investment agenda which we've been executing largely according to our plans and consistent with our longstanding priorities you can see the breakdown of the total investment spend on the right hand side of the pitch nine point six billion growing to eleven point three billion across the categories that we've often discussed for continuing to broaden our footprint and expand or distribution network then marketing where the significant increase in spanned as part of the reopening and the second half of last year resulted in a full years spanned comparable to twenty nineteen
spk_2: and tax which we broadened to include tech adjacent spend reflecting er recognition that means more than just software development and encompasses data and analytics ai as well as the physical aspect of modernization such as their sars
spk_3: and what's really powerful to note here is our ability to make these investments which are quite significant in dollar terms and are designed to secure our future while still delivering actual on congress arms so are the next few pages let's double click into some of these investment areas to see what we're doing starting with examples of marketing and distribution on page or chance we've expanded our reach across the us and are thrilled to be the first bank and all contiguous forty eight states and important milestone and our branch market expansion plans we also continue to expand internationally including thirteen international markets as part of our commercial bank expansion china and both are see i be and eight of you i'm businesses and in the uk would chase uk where we've seen exciting progress since we launched in september although we expect us to be a multi
spk_4: your journey before having a measurable impact on the farm overall
spk_3: we continue to hire bankers advisers and investment banking private banking and wealth management really across all of the wholesale and consumer footprint where we believe we have opportunities to better penetrate geography some sectors to continue to grow share and as i just said the point of our investment strategy is to secure the future of the company so we're not making short term claims about share outcome causality but as you can see at the bottom of the page or market shares are robust and growing broadly across the company turning to bridge fourteen in addition to all of our distribution related investments a critical foundational component of our strategy is technology or we spend over twelve billion dollars annually with about half of that being investments are as we sometimes call it changed the banks band it's important to understand what's in the investment category about half of that is foundational and mandatory which include regulatory related investments modernization and the retirement of technical that in addition to other accused would you take initiatives to help us face the future on the left hand side you choose you can see some more detail around this modernization which includes migration to the cloud as well as upgrading legacy infrastructure and architecture data strategy that enables us to extract the value that exists in our proprietary data set by cleaning it and staging it in the right way as and and applying modern techniques against it attracting and acquiring top talent with modern skills and a product operating model which is obviously a popular buzzword these days but if you look through all that it reflects the simple reality the best products get delivered when developers and business owners are working together irritably with and and ownership underpinning all of this is our continued emphasis on cyber security to protect the farm insurance plans and customers as well as maintaining sound control environment moving to the right hand side the other half of the investments band as to drive innovation across our businesses and with our clients facing products we believe it's critical to identify and resolved customer pain points and improve the user experience and were attacking the problem with a combination of building partnering and buying and so a few examples of that on the retail side we've been able to eyes existing product offerings with applications like chase my home and launch a cloud native digital bank with our recent chase uk launch on the wholesale side will continue to innovate are execute trading platform commercialized block chain through onyx and are building out real time payments capabilities and edition or modernization allows us to more efficiently partner with or acquire more digitally centered companies and you can see several examples of this on the pitch so taken together our strategy and investments are critical to ensuring that we can to pay the most innovative players out there whether we're the ones pushing the envelope of innovation or responding quickly to the creativity of our competitors but doing so at scale with that let's talk about the outlook and the euro had starting at age fifteen as you remember from daniels comments in december the seventeen percent that we have talked about as a medium term rotc target is not realistic for twenty twenty two we do expect to see some tail wants to and i including the benefit of the latest implied and the expectation the car revolver it will increase but the headwinds likely exceed the tailwind as capital markets normalize of an elevated wallet and we continue to make additional investments as well as the impact of inflationary pressure years however despite these potential challengers for the near term outlook we do continue to believe and seventeen percent or to see as our central case for the medium term as rates continue to move higher and we realized business growth driven by our investments to let us try to give you more detail around forward looking drivers that could be headwinds or talents so first the rate for or central case does not require a return to a two and a half percent said phones target read as the current forward curve only prices and six twenty five business for hikes over the next three years assuming we realize the forward far from there we see the outcomes as being relatively symmetric with plus or minus one hundred and seventy five basis points of rotc impact as a reasonable range relative to our central case and of course they're obviously any number of right path to get there which could produce different outcomes over the near term in this illustration the downside assumes that rate stay relatively constant a current spot rates were was upside would be driven by a combination of a steeper yield curve more hikes together with a more favorable deposit reprice experience and of course what we are evaluating here is the impact of rates in isolation on an eye but for the performance of the company as a whole credit matters a lot and the reason why rates are higher will have an impact on that and markets in banking we feel good about the sure we've taken and there are reasons why the beginning of a rate hiking cycle could be quite healthy for fixed income earners in particular at least in the sand that it my provide a partial are said to what we would otherwise expect in terms of post go of it revenue normalization and our central case markets and banking normalize somewhat and twenty twenty two relative to that our respective record years and twenty twenty and twenty twenty one and be modest growth there after the downside case assumes a return to twenty nineteen trendline levels with sub gdp growth rates were as the upside case
spk_2: assumes continued growth from current elevated levels
spk_3: as we've been discussing and consumer the big surprise as we emerge from the worst moments of the pandemic was the lower level of carver hall even us band has started to return and our central case we assume healthy sales growth on the back of continued economic recovery and strong account acquisitions and that combined with relatively constant revolver age generate a strong recovery and revolving balances but there are those worry about a permanent structural shift and consumer behavior which could be a source of downside and in that scenario revolving balances could stay depressed relatives of a long term pre pandemic averages resulting in approximately fifty basis points of downside relative to are central case of course the could be an upside case where revolving balances recover much faster but we believe the risks year or more likely to be skewed to the downside and then was such an inflation for a second which is obviously increasingly relevant on balance modest inflation that leads to higher rates is good for us but under some scenarios elevated inflationary pressures on expenses could more than offset the reds benefits which could represent around seventy five basis points of downside and was not on the page another key drivers capital were even though we remain hopeful or central case assumes know recalibration of the rules and that we will operate at a higher cg one reflecting that we finish the year and the for a half percent juice a bucket which equates to a one percent increase from use of in the central case although as a reminder that does not become binding intertwined twenty four is a good opportunity to point out the q a deposit grows and grows of the overall financial system proxy by gdp growth of the factors and the original twenty fifty enrollees combined represent to for juice of buckets so in the absence of those we would still be in the three and a half percent bucket with that in mind any recalibration could be a tailwind and each one percent change in the cg one level is worth about one hundred and fifty basis points of rotc and to be clear for simplicity we've assumed a normal credit environment and the analysis on the page so when we take a step back seventy percent or man's or central case and the medium term for over the next one to two years we expect or on modestly below that target and light of all that let's talk about near term guidance on page sixteen we expect an eye excluding markets to be roughly fifty billion and twenty twenty two up approximately five and a half billion dollars from twenty twenty one as i mentioned upfront this is a change relative to how we've previously guided as we feel that the ups and downs of markets and i can be a distraction on the vast majority of that variation is likely to be bottom line neutral looking at the key drivers of that for twenty twenty two there are a few major factors rates with the market implied suggesting approximately three hikes later this year and the reasons deepening of the yield curve we would expect to see about two and a half billion dollars more and i've from that a fact
spk_6: you can see at the bottom right we've shown you the third quarter earnings at risk and an estimate of what we would expect to disclose in the ten k reflecting the year and rate curve and changes and the portfolio composition
spk_3: and as we know and are poorly filings there are lots of reasons to be careful and trying to use yard predict and i changes under a real world conditions but at a high level if you look at the numbers on the bottom right and what's happened to the yield curve recently you should find the two and a half billion increase relatively intuitive
spk_7: then balance she growth and max where we are expecting hires band a new originations to drive revolving bounces back to twenty nineteen levels and also benefiting from securities deployments towards the end of twenty twenty one and intertwined twenty two and partially offsetting both of those factors off
spk_3: of ppp so while we do expect i are to increase year on year depending on the path of rage it may take a couple of years to return to the full and i generating capacity of the company
spk_2: turning to seventeen
spk_3: as we set of the outset of the section we are in for a couple of years of sub target returns despite this we are going to continue to invest and we're not going to let temporary headwinds distract us from critical strategic ambitions and so looking at adjusted expenses we expect roughly seventy seven billion and twenty twenty two an increase of about six billion year on year or eight percent and before we go into the breakdown is worth noting while the you're on your increases eye catching a meaningful portion of it is actually annualisation of post reopening trans from the second half of twenty twenty one across various categories so starting with the first budget on the page which is the structural expense increase as i alluded to earlier we are seeing some catch up this year both from the impact of inflation and are compensation expenses as well as higher non comp expanse with a resumption of dna then volume and revenue related expenses remember that this is both comp a non top from a calm perspective to the extent we are assuming some normalization of capital markets revenues there should be a tail and year but keep in mind a couple of points the normalization assumption for markets and i be peace at this point is pretty modest and our assumption for a you am is were modest increases at the same time we have the impact of volume growth on non cop both and a wholesale and and consumer which is offset by lower auto least appreciation and most importantly we are adding another three and a half billion dollars of and bus mass which i would note includes the run rate impact of acquisitions as well as some of the runway the fact that i just mentioned and reflects similar themes to the ones i discussed earlier as i wrap up it's another good moment to stop and note how privileged we are to have the financial strength and the earnings generating capacity to absorb these inflationary pressures while also making critical investments to secure the future of the company
spk_1: so in closing on page eighteen we're happy with what we've been able to achieve over the last two years not only the business results some of which are highlighted here on the page but also continuing to serve our customers clients and communities and importantly executing on our strategic priorities as we look ahead we will continue to invest and innovate to be
spk_8: the and strengthen the franchise for the long term and while there may be headwinds in the near term as we continue to work through the consequences of the pandemic we've never felt better about the company and opposition and this very competitive dynamic landscape so with that operator please open the line for doing
spk_9: and want everyone least ten the
spk_8: and our first question is coming from the line of every kind of jury i'm from u b s please proceed
spk_9: i could morning
spk_3: oh jeremy my first question is for you and it on unpaid page sixteen and it's it's a two part question on this guidance the first is could you help us science the timing and magnitude of deposit beta that you presume and this fifty billion number as well as the size of security's deployment and the second part to that question is you know clearly were missing that white box trade in terms of see i be market contribution and if he could give us sort of real us to think about see i be markets in light of your comments about you know more modest normal as a asian versus the alum idea that this business is naturally liability sensitive right okay so three questions in their only take come money time so beta the under the day the reverse experience is gonna be a functional the competitive environment but for the purposes of of working to the guidance i can tell you that we're assuming that this hiking cycles gonna read generally similar to the prior hiking cycle all else equal the environment is all different and southern important respects i think the system the some around arm is flush with deposits was was acquitted in a way that it wasn't before so that good that good at the margin make make the revised a little bit slower on the other hand a competitive environment different especially was on the neo bank entrance and that could could go and yellow right from so it will be what it'll be but for the purposes of the gardens were assuming a replace experience similar to what we experience in the fire cycle in of deployment on you know obviously ah deployment is gonna be a situational decision but if you're looking at the four billion dollar bar on paid sixteen secure his deployment is a modest contributor on to that for billion i remember the bulk of it is on his the growth narrative a particularly and card and then and terms of markets and i you know the whole point of not guiding explicitly to markets and eyes to avoid getting struck dead by the noise their which can come from a lot of really kind of irrelevant places like you know interest rate hikes in brazil and cash versus features positions which is the example i like to give arm
spk_9: but big picture if you need you know something for your model or whatever it is a couple things we could to so if you look at the supplement ah we've actually been disclosing the arm markets and i know for some time and the supplements the actually have a pretty decent time series of that number of times if you were grass that thing against the fat hundred you'll actually see that there's a bricklayer negative correlation there and so you can draw some conclusions from that that i just well point out that like and any given moment
spk_3: relatively small changes to the mix of the markets balance sheet and really changed the and i quite significantly even in an environment of know in our policy rate changes so it's sort of like a health warning against up putting too much emphasis on that on that projection very clear thank you my second cousin question is on capital i'm if he could give us an update i know that january first is the adoption day for as a ccr could give us an estimate on the impact to c t wine and just to clarify that seventeen percent medium term o t c
spk_1: you guys are take into account that your g sub surcharge is four and a half percent
spk_10: yeah so i'm into the second one first so in short yes so as i sat in the script arm we are not assuming and a recalibration and that seventeen percent target so that does mean for and a half percent you said in in in the equity component of that number and terms of soccer the impact of soccer adoption was about forty blind
spk_11: hours of serve as art of the way so i think if you do the math that like ten this fantasy city one
spk_3: thank you our next question is coming from john mcdonald from autonomous research please proceed hey jeremy want to follow up on that and maybe a broader discussion of how are you managing the capital constrain as far as and the rising g serb and what what does it mean for the balancing share buybacks which obviously reduce this quarter are preferred issuance and other levers that you have
spk_10: yeah so
spk_3: you know as you know john and terms or share buybacks that at the bottom of our of our capital stock so you know to the thunder we're seeing robot long rows are other opportunities to invest in the business arm as well as potential arm and an opportunity is those are all gonna come ahead on of of buybacks and so so you know i'm an awareness or of guide on our on our by plans for next year which andress see be as you know are really quite flexible as a function of the earnings generating out his earnings generation outcomes the capital build bottom you know you can kind of draw your own conclusions and terms of the the growth in the minimums that we see in the future
spk_12: or as well as the loan growth as was some of the investments that were making and frankly in our kind of happy about that that says you know we want the capital's views that way rather than being used for by that
spk_3: okay and then as on the follow up a compound follow up on the new see eg one target or way you expect to kind of run this year if you could clarify that arm and also any color on them modest normalization of the thick and equities while it's that you could flush out yeah so in terms of the target i mean i said previously that twelve percent was not off the table arm and now remains true you know depending on the outcome of the rules are depending on the bottles ran game depending on all the various components you can see a world where i'm were twelve percent remains the minimum i'm arm but as you can see and as i as i said in response erica second ago the seventeen percent target assume something closer to thirteen percent as a function of the expected increases and g servants of other factors so you our kind of gonna operate in that type of range or throughout the year you know with with
spk_13: obviously the flexibility that we have
spk_1: oh and then sorry you also asked about arm normalization of markets and i refuse i mean i would say you know if you'd asked mean the middle of the year we were talking a little bit about thinking that a river of aversion to twenty nineteen run rate from the thing that like could happen in theory
spk_14: the way you you're right now are several cases obviously that we will see some normalization from exceptionally strong performance both and i refused and and markets but i think we're expecting that opposition to be you know a little bit last like nowhere near all the way down to the twenty nineteen levels are partially because the banking pipeline as really very robust ah you know we feel good about the kind of organic growth anachronisms on shoguns there and then fixed income we've already seen a decent amount of normalization they're actually and as a monetary policy environment evolves next year arm that could actually create you know some tail and for that business
spk_15: on a thank you
spk_14: next up we had lunch or from evercore isi please go ahead i thank you very much
spk_16: i wonder such as as damn will fall on and side by side it is great of blot out on first i'm curious on his if i over our eyes and say i'm forty percent use cause structural part normalization teenage sixty percent investment and i idea i just saw the further the break out in the bottom of
spk_3: i've that to push my mother's how much of that sixty percent the high volume the t v i'm investments as investments made another would you made a lot didn't either and maybe also and thus most of the last five fifteen months amateurs that was relayed kebab coming through the tnl weren't straight up brand new investments for twenty two entering for all those items that he was the blog
spk_16: right okay i think i get your questioning land so number one to the extent that we've done some am in a or the last fifteen months as you allude to and that that has introduced on expenses and the run raid the run rate impact of that is in the three and a half billion would have dinner with the know it's relatively modest contribution all i don't i had a
spk_14: one says probably like three hundred million or something like that so could be a little bit more on some some factors ah so that one when the other point is that you know there are different types of investments years of you look out for example the change in the marketing expands ah and the marketing investments that comes through marketing expanse in card a lot of the decision and of that actually haven't as part of the reopening in the middle of the year so that's actually already on the run rate whereas other aspects of of the investment and are obviously things that were executing now you know are expanding and places hiring people hiring technologist it to do things that we need to do so hopefully that enters requests a hm
spk_3: maybe like essential guide younger question but i think people get normalizing capital markets an iron that time the my dad that is blowing sort of the seventeen percent over time argot the question the simple kushner have is is the fact that you've mentioned multiyear shortfall is is that a function of finding of and i'd going for runway with the timing as top a murder trial often the high generator as you just answer the chance question
spk_17: ah i didn't want to get your line is breaking up a tiny bit i think i basically carrier question and i think the simple answer is yes so in other words were sort of saying that as we as the environment continues to normalize in a variety of ways so that includes ah palsy read online as asian rate for my position as well as run raid or normalization and markets revenues with the sort of some background expectation of growth or markets in investment banking revenues for the back on expedition and growth and when all of that plays out and is finished playing out on we believe we know we should be back to seventeen percent
spk_3: all else equal ah i'm so the you know you can kind of see i'm the it's not that long if you know what i mean in terms of like with the current forwards imply about when you get back to sort of more normalized policy right environment he turned out the we don't really know about twenty twenty three and i'd be very cautious and that
spk_1: cause i expect mortgage rates increase and isn't imply kirk
spk_18: yeah of the world very competitive as a want to point out that a seventeen percent return on tangible equity could you get that's a retro lives would be exceptional you can read confirming that kind of what with the we can do is pretty good
spk_3: thank you for our life i have about by like i'll take fifteen percent on to that we've got my life if i can guarantee that next up is on loan from can often from jeffries i thank say good morning or don't one an fps a couple of questions on on loans as you know you mentioned that you're starting to see some better activity i wanted to ask if you can kind of just flush out what you're seeing across commit corporate lending commercial lending noticing that that wholesale really need commitments were actually down three percent sequentially subpoena canada's talk as through what kinds are saying and doing and just you know how strong can that rebound on the on the corporate in commercial side could we see as we go forward sure yeah so in terms of see and i long grass on as i said on the we are seeing an uptick in lot and revolver utilization reds on especially in the commercial bank and it remains sort of skewed to the smaller clients ah but we are starting to see an uptick in that actually even in the bigger clients so that's i guess
spk_18: ratings time one of the things i've heard from the folks who those businesses as that one driver of that is you know
spk_3: his ceos and management teams who been burned by low inventory levels as a result of splash problems wanting to run higher inventories and that is maybe driving arm higher utilization their which as a result while it would i guess theoretically be a relatively permanent increase and utilization it is not a thing the you enter a project forward in terms of compounding the growth but at the same time we're also hearing really quite a bit of confidence and the see sweets and we know all siegel that should be positive for seen i longer for clearly you know the levels there are modest still in a world where capital markets have been exceptionally receptive to to investment grade issues and particular in and and more recently the high old are ya the issue and throughout throughout the sort of pandemic period and so people are well funded on from capital markets issuance okay second question is just on fees now couple of zig zags and mortgage banking security servicing which were both down have a little bit more than expected and car did get a little bit better can you just gotta give us a little bit a collar on the drivers of each of those please thank you yeah sure so there's a lot of stuff on there salami do on let me do mortgage and card so in mortgage on you'll see that if you sort of try to do have a margin calculation by taking the production revenue and dividing and and so on you do see you just seen apparently significant drop in in margin their so there's a few drivers of that one is that the margins be slightly elevated in the prior quarter as a result of the timing of the flow through of the loan specific pricing adjustments so that's that's one factor in addition ah you know you actually we did despite the fact that it was an exceptionally strong overall quarter of originations and for funded loans as we sort of see higher res towards the end of the quarter we did see the dynamic that you would expect in terms of dropped in ah you know sell one new lock or volume and so on so that all over the factor and then there's this sort of the normal organic ah dynamics that were you tend to see margin compression and mortgage with race selling off a little that so you have a bunch of factors driving as slightly lower number their ah you know but the overall mortgage and burn is quite healthy and though obviously with higher res we expect things to be weaker next year we're still for directing a three trillion dollar mortgage market next year was by historical standards is very robust so that that part and then in two in carla imagine the are looking at the card income line where we had a significant drop last quarter and this quarter of the numbers also for a relatively depressed relative to what we had two years ago and i was quite high so you'll remember that for carding come on we had a sort of one off item last quarter to pressing the number this quarter we have another sort of one off type item which is the impact of the south southwest cobra and renegotiation which is public ah so that's contributing to the to the card income homeland the revenue right a little bit but it's important to know that in the background of all this is the impact of the
spk_1: of the are you know customer acquisition amortization contra revenue expense ah which as you know amortize is over twelve months and so it's as i mentioned earlier as part of the big sort of increase in customer engagement as part of the reopening the middle of the year ah we rant that up by significant
spk_19: one hundred thousand and point offers in the market and stuff like that and so that's coming to the number so as a result when you look at the sort of boy your revenue raid for card of around ten percent ah i'm we actually see that as a reasonable central case for next year ah with the sort of elevated marketing and
spk_20: customer acquisition amortization ah being offset obviously by expected growth in i was the revolve narrative that we've laid up
spk_18: those are actually question yeah so i know a go
spk_3: to the questions from gym metal coming from see research a good morning
spk_21: excuse me i'm just cute as a doubling the investment span the so clearly seen success in the prior efforts so can you just give us a little a big pictured discussion on what you're seeing from a return on investment standpoint and and what time frame because i did you kind of alluded to ah two thousand and twenty three
spk_3: still being a little bit sub par and return so that mean the payback a little longer and he still expect significant growth syllabus and spending twenty three yeah sure so i mean and some level the question that you're asking is this is this for i know question of you know how can we be sure that the investments that we're making our our are paying back on what timeline and how to measure that and it out interests and we were just talking about card marketing i think of that as a continuum ya ya continuum of investment that start with card marketing where every dollar that we put into card marketing investment you know as part of a very sophisticated extremely data driven highly measurable are set of decision and to ensure that all of those are a creative and when we have sort of measurable outcomes in the short term so there's a lot of times their arm and is pretty se and you get feedback pretty quickly
spk_17: at the other end of the continuum is it out tech modernization type stuff which is a big part of the theme right now and those things are things that are just we obviously need to do them if we don't do them will be you know clunky and inefficient and hamstrung in the future when we're trying to compete and
spk_10: it's impossible to prove in some narrow financial sense that there's a tangible overturn pay back from that but we know that they're absolutely mandatory so when we think a little bit about you know the the the revenue outlook in our kind of normalize run raids we are certainly assuming that many of the investment
spk_3: that were making now that we've made over last couple years will produce the revenues that we expect ah i'm ill in that time horizon but a lot of what we're doing is not of that nature and and some signs those are actually the most important investments because of the hardest decisions to make them summer very basic know open for branches as a her million dollars a year obviously to pay back comes over time any down the salespeople kind of know pretty much of the payback is but obviously it comes over time we dated for a whole next and just think about it is expenses you suspect gobbled and toy story
spk_22: that's the top one the just a follow up on just on the and i i i think futures markets now pricing and for hikes if the get three hundred and your assumptions if we do get off for for ike starting in march is hundred zero change to the and i look forward to this year and you and your from for models
spk_3: yeah so if you look at the bottom left hand side of paid sixteen footnote three
spk_1: an extremely small print you up as good as the applied curve that we used as from january says so you can take that her of and whatever the current pervez and use the table on the bottom right and add a long list of caviar but i won't give you enjoy your own decisions but i mean as it should be a modest modest
spk_23: greece was much additional tell and very modest
spk_24: okay thanks
spk_25: while we wait the next question i i said something and accurate before i realize i was an accounting and i said at the forty billion ah center as the the standards or to relay increase in soccer as you do the math is obviously not ten basis point of said he wanted thirty business point of city once a correction coming through there next me a question from bet he classic for morgan stanley
spk_3: hi to boring hi betsy ah okay so couple of questions first on the and i outlook could you give us a sense as to what's embedded in that with regard to your thoughts on how balance sheet shrinkage of the sad right que te is gonna impact illiquidity pool and then how much of that luckily for you currently or assuming it's gonna get redeployed into the more duration in in your forward luck yeah sure so i mean i forget exactly what the markets assuming about the start of que te at this point you to choose their not polling it but from awesome i looked closely those expected to be a pretty long lag between sort of the the end of the hiking cycle and and the beginning of of duty to maybe people are now starting to accelerate up but in any case the important point is that as a result of the acceleration of of tapering the amount of bouncy growth you know is ending pretty quickly and therefore the impact on our system wide deposit growth should be quite modest this year on and that is and our assumptions are consistent with that in other words not assuming lots of deposit growth next year because ultimately you know that's gonna be primarily as a function of the fed balance she says
spk_25: but obviously we are still assuming modest growth rather than reduction as a function of duty if you know what i'm saying
spk_23: and then in terms of deployment in are you can see in the supplement that we already did some deployment this quarter it was primarily in the front of the curves or so being quite cautious about really buying duration bottom you know and if you look at again pitch sixteen
spk_25: you notice that we call out secured his deployment as a as a modest driver of that a four billion dollar increase that tigers bouncy growth and max so it's reasonable to assume that we might be my room i do a little bit of derision buying as if you know the rape her develops as as the forwards predict
spk_17: but it it shouldn't be too dramatic okay thanks and then my second question is just on ah the investments the three and a half a million in got incremental here and yeah i assume that this is built up bottoms up from business unit leaders you know requests to do everything you mentioned in the call and and my question here is what percent edge way like just got numbers but what percentage are you giving them this year in other words did they ask for seven you're giving them three and a half and we should expect another up tech materially and twenty twenty three i know jamie you mentioned you know seventy seven is a run rates that we should err grow from next year but and i'm kind of obvious slightly different question which is how much of what they need are you giving them this year and and a subset question is at what point does this fully fund your ability to get into the cloud for us consumer okay ty has that question
spk_3: we do not sit at a table and tell people you can only do x we sit at a table and as people would you want to do which the cigarettes it's a hundred percent
spk_17: within our capability for something we simply can't do you can you were tacky oh fourteen front of the same time or something like that and the that's that's number one so we want to make those kind of invested each one go through a rigorous process as is necessary some of the table stakes i do remember run the table one day be permitted to account open into an empty mtv as i just don't do an mtv to get it done notes i guess to serving your client properly and stuff like that and so and i said a lot i mean germy mentioned yours for his foreigner branch united states is thirteen sites overseas more countries more product is all of these we should be doing that you'd wanna do if you own a hundred percent of the company or may not be what you do we've have the meat and i next quarter of of x y or z or something like that so we're a second party question wasn't that it was oh the consumer digital stuff we get your i can start to be real numbers know that but that is a march and has that's the dirty and it's hard and we want to get there soon as possible pieces and pockets are already gotten their toes or applications or does sets already running on the private cloud summer in the public cloud some parts the company had of other parts the companies that's a lot of work and
spk_3: his you guys boy little bit of i called public spending and there were not going to score that either because we've got a talk to go the eighty four other bible expenses those are our responsibility and in iowa and them we have opportunities to do more we will do more can be have extraordinary capability adding judges or are by germany mention the us
spk_26: thompson drug capital i mean s o r g city and that we go the cabbage should be recalibrated
spk_3: even the regular he seems to be recalibrated the global side the global economy you put capital against us treasuries and cap against fed deposits and and let's see what happens i read a network of conservative enough with the expecting a lie really put or even some folks yesterday mentions that being questioned the of that prospects were being questioned of as arm acknowledge that there are issues route as a lot the dead are not good for the markets
spk_25: and that he the only thing i want to add to that which i was going to businesses and thing this whole like ask for ten and hope to get five i mean we would at we aim to manage the company much better than others come so i certainly don't have that type of authority as not way works and i think the important point is that what actually happens is a ton of scrutiny of the investment agenda you know two or three levels down in the organization with a lot of is when they're so that's where the conversation top and about whether this makes sense to do now whether through a priority
spk_17: now we have the capacity to do at whether you know it it in the cases where the returns or measurable worse for producing the right returns and not really part of how we operate the company and part of the discipline of the day to day and like a juvenile example if we can spend two billion dollars more get to the cloud tomorrow i would do that the second but this stuff function that we see this year
spk_27: i mean given the pace of competition and the impact of everything is going on
spk_28: it's it's possible we could see the tightest stuff function again
spk_17: it's possible but if it it if it's if it happens to be to good reason
spk_29: right and yeah i agree i've written about the competition is global copycat and number competitions direct five eleven competition is jane three competition is still a competition a splinter competition is paper cup didn't drug competition it's a lot of competition and we intend to win sometime the music i spend a few bucks
spk_1: and
spk_30: i got it thanks
spk_31: and as i am
spk_30: episode two embedded upon that is always said we're going to we want to be very very competitive and pay is a billion dollars a marriage increases lot more compensation for top bankers and traders and managers who i to say by the way didn't extraordinary job in the last couple years living the stop and your we will be competitive pay and i squeezed
spk_3: marginal but the shells soviet two next awfully has t to back from both research
spk_2: they are morning
spk_3: so wanna start up with a class shed on capital ah quarrels highlighted in his swan song speech the potential for basel for implementation increasing capital requirements as much as twenty percent for select banks are we haven't see a formal proposal from the said i was just hoping you could provide just some preliminary thoughts how your handicapping the rare ask of higher of you a inflation ahead of basel for adoption and to what extent is i contemplated in the updated razzi audience yeah sort of zero that don't give too much as it actually a different thing i was i find this is this is as it is a perfectly reasonable question so okay so here you got so when you look at those at the at the current state of the so called basil three on game or basel for proposals arm and you look at the art of you a components of them in isolation you've got the change in their credit conversion factors which also was a deal and you've got the fundamental review of the trading block which is quite complicated and is going independent do some by institution but as potentially for some for someone and then you've got the introduction of operational risk capital
spk_31: to start i sort of the way and if you look at sort of central get estimates of all those things you know in a in the simple way you will conclude that there's a bunch of our wi inflation but couple things first this all takes place in the context of know the global recovery community or at least in the last saying that this is some has enough capital and it doesn't actually need more capital and it's important to realize that what which with anyone does any real announced at all would come to that conclusion yeah
spk_3: so on and so it doesn't work to realize the of that as you know obviously there are additional tools so the most important one of which is how the sunrise albert floors and interact with the i'm with the introduction of of operation risk capital understand resort to relay and then in turn how that interacts potentially with the collins floor as well as more generally the fact that there are opportunities to tweak potential double counting and the sauce capital buffer against or to be and so on and so far so the point of all this is that there are more lovers and tools here than just the overall or of you a inflation and the way we see the world we don't ex back to basel three and game in and of itself ah to increase the dollars of capital that we need to as a company and you were conservative the same to for have present use if exactly and and we are allowing the user fee increases to flow through to the medium term rotc his options no thanks for clarifying that and ah for not putting on the topic ah basel for i've just for my follow up here are the current came out of that we were we were always very very aggressive we manage those things for me know the actual numbers i can scary aggressively manager fair enough answer we have a track record that supports that ah just for my follow up on card payment normalization and how you thinking about the cart the trajectory for card payment rates and maybe the speech your confidence level that we see car payment rates returned to pretend i'm nick levels just given the emerging threats from bnp alley you cited and still elevator personal savings rates
spk_22: yeah sure so am i still to be honest get a little bit confused between payment rates and revolve raise know this race ratios but i think it's a little bit simpler if you just take a step back you look at the revolve raid and you will get the overall level of revolving bounces arm and what we sort of expect for that so there's a few things to note so
spk_1: the reverberate having dropped quite a bit has more or less stabilizers all over the blood in the fourth quarter as a function of holidays span and maybe some woman around suffer bradley it stabilized in the meantime the growth an overall card loans has now for several quarters in a row produced modest growth in revolving harvey
spk_32: balances and or central case for next year basically assumes that that trans days and place so what's important about that is that we're not assuming some sort of aggressive rick on of the revolving great to the pre pandemic levels were simply assuming that it stabilizes and that overall
spk_3: car long growth therefore contribute it's fair share of revolving revolving long growth and so the kind of central case that we put on the page for the voluntary contribution to an i growth in twenty twenty two has very roughly speaking revolving balances getting back to the free pandemic levels by the end of twenty twenty two roughly and as far as they three my you add another was there another part of the question that are forgot no that's efficient as for okay great thanks so much next we have met a corner from deutsche bank
spk_32: ah good morning everything about seventeen percent medium term target i can help frame what you think or what thing assumed on the efficiency ratio ah and may maybe on kind of cough of operas
spk_33: ah yeah sure so in terms of credit causes as i said we're assuming a roughly normal credit environment that point so you know that would mean card charge off raids back into the of load amid three is type of thing as we said free pandemic we were assuming we would got to especially as we under right arm some
spk_32: so we hire loss loss of integers overtime and and building reserves as the long books grow importantly exactly ah i'm so i a i would just broadly described you know him and consistently would do a were describing it which is kind of medium term guidance and a norm was environment that the charge off environment said and turn be normal
spk_33: ah i'm so that that arm and then you're kind of asking me i guess about the overhead ratio little bit so you know personally i can i don't love that measure i think it's more of an output the an input and more often than not it's driven by revenue is not expenses and more often than not in the short term the revenue number
spk_17: swinging as a function of you know the raid curve so essentially the overhead ratio becomes a proxy for the fed funds rate which makes it not a great management or for the company but having said that you know in the assumptions that were using to build up that seventeen percent grade we do get back to something like
spk_3: like a fifty five percent over horatio what is jamie said before if that number has to go off to deliver the right returns in the long term at well like we don't consider to be a a constraint
spk_2: i haven't ordered fully and that implies to get back that that the fact that you have an outsize offering robbers for
spk_32: yeah right
spk_34: i think the officials ratio go wrong way again and twenty two
spk_17: but a couple years of pretty big offering right you gotta do your models okay yeah man i'm from a have operate in a world where in other inflationary pressures there's a lot of those pandemic facts and the numbers and we have some critical investment to make the notion of offering leverage the at the level of the companies overall numbers for me becomes is not terribly meaningful i'm not too gross as your question i understand why you're asking but it's just kind of not the way we think about it
spk_3: okay and out of character trait iraq maddening i still think ready for glock more than expected to advocate has moved out quite a bit and i'm just wondering what they think that opinion and and our or five bar get along and will go up or haven't gone up yet
spk_17: why will it from here
spk_18: thanks
spk_17: hello all for to we prepare for all up your all eventualities year when i got guess guessing a one but the consumer is very strong and i know is all respects the factor people suffering still and over know that that is in spite of all micron a spider supply chains
spk_3: twenty twenty one is one of best growth years ever and twenty twenty two looks like it either be three or four which is actually pretty good the consumers to train dogs more the balance to apprise up as a price drop jobs or when are plentiful wages are going up which is good for them you know what we're not against and sharing the wealth little bit of americans
spk_29: recovery with everybody as the consumer doesn't really good shape the spending mean did jeremy ticket to the numbers twenty five percent more there's been a free covert twenty five percent more the and that number to rise early order books for everybody else was goods and services novices bouncing around between good and so
spk_3: service dog i don't like that this is equal your and very good shape of cares and capability a cop is levels i went where they see and there's you know order books go up more cars more murders more patios more home improvements more homes more demand week we we have a shortage of homes in america
spk_17: so do you see the table set pretty well with odd for the growth our of it's obvious that in negative been inflation and your how that gives navigate stuff like that so or and might be so my views and are pretty good chance to be more than four or guy you could be six or seven and the i grew up in a world where you talk a raise up into raise it straight to and basic point in the saturday night
spk_32: you know and his whole notion that somehow can be sweet and gentle and knows every be surprised i guess mistake a does not mean we won't have growth it does not mean unemployment levels would any good position stuff like that so was
spk_35: and the other fact is it may very well be possible that the long range like a little surprised how low they stayed but at the loan rates may react more the actual to we and then qt and so one point the feds could be but in run off one hundred billion dollars or whatever number mother going to come up with and then you may see
spk_17: he one rage react to look at that and particular as you said about growth in demand for capitals doppler get that also tend to drive and your bond regional that so to always been equally of you look at a company and it's a very important we have huge firepower to grow to expand to make loans to ten duration in know and your you look at capital liquidy i just want to play at one point seven trained i these numbers i've never seen a bank with them so and he'd look at percentage is not just gross him as one point seven trillion dollars cash remarkable securities one train alone
spk_3: okay this five or six hundred billion of those cash amorphous your the could be deployed in higher you been assets are alone when and if the time comes depending on all these kaplicky trains and stuff like that we have to deal with and those are extraordinary number two point five trade deposits and we don't like taking your risky deposits ozery of they go
spk_17: the been queuing te and all that that limited to have that this bounties funded i've never seen a bank balance you like that much to get those kind of firepower overtime zenith navigate through the to the world and so
spk_1: where they were pretty good shape and the of i wish i could own understand the company be private
spk_36: type of weekend aren't they all that i was i thinking like the it's stance pressure or and increase that we're seeing as at morgan respect the see and twenty two do you think this is indicative of the broader market as you talk her readers outside of bag and they see the pipeline a volume
spk_3: do you think there's going to be material for pods on expenses for the broader market by a or yeah i would i would expect that is almost every ceos talking about know wages and soon inflation stuff like that but i just i don't want to be c don't please don't say i'm complaining about wages id wage is going up is a good thanks the people that the wage going up
spk_12: and your be to simply have to deal with changes in prices of you your commodity prices go up and down much road goes up the down wages go up there got lucky with yoshio should be cry babies about they should do that the job to serve your client as best you can with all the other factors out there done that opposed to it and but i do think you see
spk_36: more people are seen wage pressure chatter in some have more due to offset than others it hasn't stopped us from do anything zero not nada like cut back road plans or bankers markets are countries because a result of are some wage inflation next we have a question from be behind point of on from michael america
spk_37: good morning just to where you could follow ups one hour jamie own terms of capital deployment stopped us about in organic growth is is there any likelihood that you look at any larger him in a transactions use your currency at any point this year and should we see a slow down on a lot of and
spk_3: the piece of inorganic synthetic investments that you'd be been all over the last year if you could exist or still
spk_17: and i just wales so there's the word transactions like over your billions unlikely we'll always walk them open minded were looking all over the place for things to fit in his stuff like that and then the pace of syntax techno investors does get that won't change all and out for my my my version of that was which is consistent with jamie's his arm that you know what were we continue to be interested and looking i'm in a and we're doing that obviously yeah very large deals aren't realistic and the van dyke investment part is is definitely part of the stuff that we're looking not on will get deals that's helpful and just are double seeking the something jimmy did you mentioned you talked about when most mosquera banks leaving the ground open for syntax over the last few years is talk to us to the extent you can how these investments clearly the markets focused on near term expenses of our out to see pressures but talk to us to use or two years fast forward
spk_38: use how do you feel about gpm as a franchise competing with big tits trintech had to it
spk_17: a bad grade
spk_39: but you put it boots babbling gave me some of these people to very good job or any discern things we your banks should have done so we should be will self critical but we have the capability kind of the scale know these things were not and do with hamster yourselves to meet an overhead target that i just not gonna guard so at every of as it's a straight guy looks and a cup cup
spk_1: is very bright i mean they're bob and weave in the not changing and your that are static and i think sometimes you act like the static and enough that it's so but yeah we do a good job like today on consumer i'm sure saw you chase customers three trading lot a tmz are you get better better service more navigation bar more offers more try
spk_40: apple more work for and that you got more that funny you know and we've we've gotten friendlier an overdraft we've gotten that is what business or to for every single business so if you're i look at the the we read to the computer jp morgan as to be pretty tough competition like your take chase uk we've been very very clear that causes money and your lot of you want pay back tomorrow of i it up to go the numbers are we're there for the long run will be any products and services and countries for the retro lives okay so i doubt over the long run will fail we may not do we made up become the best digital bank in the uk or somewhere in the short run
spk_17: it's helpful thank you
spk_3: next we have my own from well final securities
spk_17: a high at a game yeah i hear you're ready to do and elbow and jp morgan like i feel confident yeah i did either you'd have been because you'd help me raise the equity capital well that's what i'm trying to figure out here with die out a year it's a little frustrating this call because the guidance is given had given all the the bad news without eddie targets i mean you're saying we have to wait two years the seventeen percent rotc despite the booming economy your guiding for the second year in a row of negative ah
spk_18: putting leverage i get it that's not how you run the a but fifteen billion dollars of investment you know that that one half over the last three years and at fifteen billion dollars is enough to capitalize the eleventh largest us back tell me you gave us that the you didn't tell us what to expect from all and that in terms of what specific
spk_17: market share games are you targeting what specific revenues do you expect when do you expect that can you put some more meat on the bones here because it's just that at five going to argue that bad look at work to gain share at ten billion dollars with that was said it worked against year but now you're going to fifteen billion dollars in it might not always work so well self can you a again put more me on the bones the stocks down five percent the feedback so far as like yeah you're spending the right height for investment on the next ten years that's great you're in there for the long term but it all lot of the investors are planning to that for their a tenure horizon
spk_40: michael i feel your pain after asians but it is very possible and twenty twenty three will ever seventy percent rtc it depends on how to deploy a capital depends on fixing a marketed the bench the bunch of stuff like that but every what's up with the four hundred branches there were building you know those things will recruit will get to contribution probably sure
spk_3: like we expect the thousand bankers were edited it in private beijing and and dog or chase while measures we're pretty sure get to break even by just weeks becca takes a couple years and so yeah we can't be and tell you all of those things and where mentioned some a tech stuff is just kind of we have to do in this little bit of bubble expense in that that even old bit above expensive and you headquarters and so we're we're we're pretty comfortable we're were doing the right things and were being a little conservative like your job you talking about the cards doctor term yeah i told by our focus group of cargo this year they was skeptical the american consumers very strong or products is or isn't very good
spk_17: your chase or we call no self directed investing as fifty five billion dollars i'd robin hood has and eighty the last time i saw some like that and actually heard bragging about our product because i would take not good enough yet but got fifty five billion dollars without a two inch virtually anything and your know marketing you know real stuff like that so is lot of stuff come in you know the you know that the computers we have to face some is acquisition we made will contribute to profit maybe not exactly it's way to i do with a right on it and i mention the deployment bouncy were pretty conservative the deployment bouncy that may not always be true i'll have my life and then i'll reach a week year after my power but as it relates to technology specifically a jeremy he talked about retiring technical debt and said that kind of playing defense but also on the offensive side where are you investing protect where you would expect more revenues not about digital bagging uk are you also going to brazil what other countries are you targeting for that yeah i mean i it's funny i wouldn't actually describe are drying technical data find decent i mean i think that's actually good example of the whole point of this conversation which is that were tearing technical that is an easy thing to not do if you're playing the fans focused on short term target but if you're playing off and for the law tom it's exactly the same decision they create some of the frustration that you articulating this critical for the long term citizen the country alone the company so that's i mean it has major changes we spend two billion dollars a brand new data centers okay cable show have all the cloud cuba you could have in private data services
spk_41: stuff like that with the of your data centers now we're not going to get involved with every time he talked your slave every part of a cake built up expenses going in and expensive going out for all this that causes your data centers which now completely up and running or you know applicable some are promote the upper the go and have the cloud eligible
spk_17: most the dad goes in have to be cloud eligible were running a whole bunch of major programs up which i don't think we just goes on a dub us and we're we're working with google and microsoft arrest them some of the clouds would have multiple cloud capabilities and this year
spk_42: a roughly thirty forty fifty percent of or apps or data will be moving to cloud related type to stop this stuff is absolutely totally
spk_17: valuable i mean ikea if you sat in his room and look at the power of the cloud and big data on risk flawed marketing capabilities your first customer satisfaction do with ellis complaints prospecting it's extraordinary you actually see some of that are ready and at how we manage of big
spk_43: for example with all of brought herbicides all the read somewhere or for was down this year
spk_1: there's a reason for that in always because he deployed huge kelly blue know so no we did we we have to do the things and remedy that that's a march and they'll be hugely valuable frozen you'll see some of that benefit which is why we're comfortable the will continue to grow expanded earn like i said he seventeen percent return cheswick
spk_20: capital i would take that like a push a button and gb that next twenty years i would take it and also if i did of the next twenty years the number pie be like your big part of gdp the i states remark
spk_44: of the hell out of ricky of for my palate
spk_3: of what i have my bible and right rather vague a market marketeers we expect to go up in retail deposit market share are investing market share private banking mortgage you're fixing for margaret your equity market share investment banking mortgage your global market your payments market share and security service market share commercial bakery market share and would did i miss i'd be surprised and even go down
spk_17: and when i could give you the number as per now we have one last question from jared cassidy from rbc capital markets
spk_4: did you the money germany jimmy jury i'm trying to figure out what the discussion topics gonna be first quarter of twenty twenty three when we talk about fourth quarter numbers and i think i may have more to do with credit monitoring about on the call today
spk_45: can you share with us the underwriting standards that you guys are using compared to what they were at the height of the crisis back and twenty twenty am assuming they're easier to the speaker because the economy stronger but also can you compare him to two thousand and nineteen hours and look today versus what you guys are doing in two thousand and nineteen
spk_3: yeah sure so i think broadly for the company those no really large change in our in our credit risk appetite and therefore and are underwriting standards i think i learned to little bit i looted a little bit to this earlier on which is there's a subtlety and in the in the card business where if you remember prepared
spk_2: damn act we had talked about you know car charge off raids you know being at three and a quarter and maybe trending all of bit higher over time as a function of some underwriting have some slightly higher risk vintages still well in and of box still within our overall credit risk appetite but just a slight shift in the in the comes
spk_44: additional the portfolio there are so yeah that happened back then and we just didn't see it flow through because of obviously the extraordinary ah dynamics those with pandemic and now we're exiting you know the fourth quarter this year with a card that charge off raid and you know and i forget the exact number of something like you know one point two
spk_20: for sanders on things out for to with you'll never see obviously exceptionally was so the question then becomes like at so and then i think somewhere in your question there was also about like when we sort of leaned into the reopening how did we modify the quite a box and standards and the answer to that is that we returned to essentially to the to pandemic
spk_17: level so we were obviously very confident in light of what we were saying about what can only run an edition to cut title bed and as back to it wasn't exactly a lot in none of that was completely mature the results were you have one one of the things in germany pirate ship when we will we've been over all a credit for years you know and we expect it eventually to normalize or you could argue how fast and were tiber credit card has been number you've never seen or live middle markets been lower than ever always feels below never more is below than ever cards to allow eventually to go normalize know eventually though and then we'll be kind of both enter my and other thing is it loan book and is very
spk_1: giorgio modeling just assume as the loan book rose we will add reserves pretty much proportionate the growth lumber hoping you'd be legal advocacy so all this stuff like that but to their that's a flip to the negative obviously for next year
spk_46: at one item
spk_40: and her gerard to your point about the fourth quarter of next year right i mean one lens look at that through is what do we think the trajectory of normalization of cardinal charge offices to the course of twenty twenty two i don't want to get into too much specific guidance there but you know the numbers that were voting on the page roughly assume that we get back to the that kind of like low three is around the end of twenty twenty two early two thousand and three in terms of cardinal charge ourselves yes on the one hand maybe we'll be talking a lot about the fact that those numbers are going up but they will have actually gone up exactly in line with occasions gray and just as a quick follow a jamie you in and germy talked about the balance sheet the way it is today and all that liquidity eats and i think jamie's than five hundred billion dollars can be put to use
spk_3: how long will you guys it will it take you to get to a balance sheet and a mix of business that looks like you would have thought back in two thousand and nineteen before this whole pandemic started in the bouncy do but it did or anyone a wave on the i again similar things outcomes of decision makers require stuff but the real fact is we got basel for a lot of changes and when all that happens we'll give you a little bitter update our deployed capital and it the balanchine stuff like that
spk_18: overboard no rush to reinvest for that bouncy will be very patient
spk_3: my client would have another question my human is open please proceed i yeah thank you just more detail on that check stand and at at what i asked the poorest on digital banking you're going to the uk what other countries are you going to
spk_40: again just looking for some more specifics at least on digital banking and a other tech areas we expect a ad revenue of take up not just i need be mentioned fraud and am now and ran somewhere and cyber and that that's all the or that table stakes as you would say but as far as actually getting revenue growth from your check investment and starting off with digital banking which new markets are you're entering
spk_47: yeah so under banking or not the gun disclose the a specific countries that were going into one doesn't wanna talk about the next year attack to the and i'm having this to validate my question as you know we have made some divestment and see in brazil so zell it is not exactly the same as i didn't have a built by us but we're we're there were
spk_3: engage a significant investment and and brazil's like a very interesting country from a consumer banking perspective of the digital play there is quite interesting so that's one example arm and yell obviously we're thinking about additional places to go and and we'll let you know and we do it
spk_12: okay any and the other tech investments were you could expect additional revenues of would that include i mean for example with your your marketing and degree reading a and big data for what kind of improved take rates you have or just again looking for more specific rig you can provide it
spk_3: yeah i mean i don't know i'm i'm totally not a big fan of these types of like anecdotal individual like tax stories i mean there's cool stuff like we're doing some you know a i enabled all lead optimization staff and a wm for example so in i could come up with a list
spk_17: the like twenty things like that but in reality it really much more about you know the embedding of the mars asian and the digitization of the whole ecosystem as part of customer engagement and competition and making the company more fish and and all that of stuff that examples like i spend ten million dollars on ak to that technology as opposed to like branch builder bangor hiring is jamie says and you can then attach a tangible revenue outcome to that we were and i'm sure we have some of those examples somewhere i don't have them with me maybe we can talk about them next quarter but i generally think that that sort of gets into lot of anecdotal stuff that destruction the they picture
spk_37: okay last one one that what what is your total tax pentagon advice on the deck how much that is to run the bank vs change the bank and then as relates to the cloud specifically what you expect that as a bold move to me when i'm okay
spk_17: the core bank at to the cloud
spk_48: what do you expect that to save one that gets done like it
spk_17: yeah so couple things if you go back to my prepared remarks so you know it's like twelve others spill and with more fifty fifty run the bank change the bank and ah you know within the change agenda you know half again is kind of modernization type stuff as opposed to
spk_3: ah features and products or gives you a little in my company you know one example which may be a little helpful and this tech platforms than i think these numbers accurate we do this while ago card runs a mainframe says was quite good your we have one the most efficient most economic your sixty million accounts of shudder it's been updated years but the mainframe system and the all data so
spk_17: when it gets modernize to the cloud the cost savings by running that a marginalizing it will be thirty four million dollars year that isn't the real point it the reader we're doing is what you get that the cloud that the databases that a uses to feed his risk marketing for had real time offers his stuff like that become accessible to an enormous out a machine learning so that you can when mike mayo is going home on a friday night we can offer you know what you like to eat a steak house you'd hear a meat of the offers and forged up it is ten times you did today and so that that's the real value the value isn't the a meteor costs a the you gone from thirty seven thirty million dollars when this advocate the or i got to thirty million dollars and the
spk_1: the thing allows you to do is to augment that shit that mainframe system you touch a mainframe system you got the old careful when you go into would make some modifications like the old days you to modify that mainframe system four times a year big releases and stuff like that across multiple for multiple reasons now you go in and more nice

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