Lending Slowdown Won’t Derail U.S. Economy

JPMorgan Chase & Co. (NYSE:JPM)

Barclays Global Financial Service Conference Call

September 12, 2017 1:05 PM ET

Executives

Jamie Dimon - Chairman and Chief Executive Officer

Unidentified Company Representative

Looking at the Morgan tale over there is like looking at family. One of the – or perhaps the greatest experience of my career in the financial industry was watching Jamie Dimon navigate JPMorgan Chase through the financial crisis of 2007, 2008, and 2009, it was a tour de force. The courage he showed in defending the financial industry, the knowledge he had about the scale and the scope of the crisis and the relationships that he had around the financial world, regulators, politicians, other bankers, he was clearly a steward of getting the financial industry ultimately out of the financial crisis and being able to work with Jamie on the operating committee of JPMorgan at the time was something that I'll never forget.

The other thing I want to say is contrary to little bit of what's been in the press. Over the last year and half for me there have been a number of times where it's been very tough at Barclays. And invariably the CEO who have called me out of the blue to offer advice, and encouragement and support has been Jamie. The character he has showed by demonstrating his friendship to me over the last year and half is deeply special.

So with that I want to introduce and bring up arguably the most important and respected leader of a financial institution in our generation, Jamie Dimon.

Jamie Dimon

Thank you. I hate these chairs.

Unidentified Company Representative

Jamie thanks for joining us, two years ago when Jamie did this, he went no tie, this year he went no tie and jeans. I'd be curious, two years from now what he comes with.

Jamie Dimon

Last year was a record year, so I can change my pants, like a hedge fund guy. Hey Jeff, thanks for those very, very kind words, you know Jeff and I had a great partnership for a long time, he helped navigate through that crisis and we had a hell of a team, so we do, all of us at JPMorgan wish him the best at Barclays.

Unidentified Company Representative

Before I guess the Q&A, I mean we'll just do quick questions, polling the audience like we've done for all the other presentations so far, but first off do you own JPMorgan stock? Over weighed, market weighted, under weighed or no? Wow, so I would say JPMorgan has been relatively more over – one of the more owned stocks to present so far. I move to the next question which I've asked all the presenters or the audiences or the presenters so far is just, what facts would you look at most to increase your exposure?

Profitability by a larger margin, the most comprehensive which I'm sure I'm going to touch as we get into this. Jamie, maybe the best place to begin is, in addition to obviously being Chairman and CEO of JPMorgan, you are an original member of – you were an original member of the President’s Strategic and Policy Forum and you are Chairman of the business Roundtable, which is obviously you're working on promoting a better economy. Maybe just kind of give your broad overview in terms of how you see the U.S. economy at the moment and where – how you think we stand …?

Jamie Dimon

Okay, first I'd comment on the ROE thing, and ROA. The improvement, we’ve had the highest among the banking sector for years, return on tangible equities I think is absolutely critical for the balance sheet of a bank. So our book value per share over 10 years has gone from like 16 to 52, so I feel pretty good about it, that would be hard to improve it, because it is in a competitive environment, but if you recently get to same kind of 14% year after year after year, we've done a great job to shareholders, so I'm –

The U.S. economy is doing fine, it's been chugging along at 2%, less than 2% on average probably for the last seven or eight years. It's the longest – one of the longest recoveries we've ever had, 10 years is the longest, I don’t think that has end to not end. I would say a very important factor is it's been half of a normal recovery.

I think the question that then comes to me is, why is it half of a normal recovery and if you do a quick turnaround the world by the way, Europe is doing better than 2%, Japan is doing 1.5% to 2%, China is going to make is 6%, Brazil has gone from negative 4% to 0%. So you kind of have for the first time called synchronized, the first time like 12 years, just about everything is starting to grow a little bit, which I think is a plus for everybody.

Unidentified Company Representative

And maybe one more ARS question before we get into the next question as a follow up to that. Of Treasury's recommended changes, what in the audience you think will be most beneficial to JPMorgan?

It looks like you know capital followed CCAR and then Volcker. I guess, Jamie, maybe just maybe you can more talk broadly in terms of what you think are the regulatory environment at the moment, you are closer to that than a lot of us are. What you think anything we've done in the final months of this year or is it more next year and how do you think this all plays out?

Jamie Dimon

I think the regulatory environment has not changed a lot because we don't have the people in their job, so you now have the OCC head which was passed by the Senate, Randy Quarles, Fed Chair, Vice Chair just passed by the senate. You don't have an FDIC person yet, so you are not going to have these huge changes in regulations. We don't expect to have any regulatory legislative changes so that's not our hope or belief. We do think the treasury laid out a very good math of issues that that should be looked at all calibration.

So I hear a lot of regulators say we shouldn't change anything. Somebody's phone is ringing over there. All this calibration is – it's really – what they should look at is not, it's not binary, we're not going to go backwards, we are not going to get rid of a lot of stuff done in Dodd-Frank, I think some good stuff was done, but you should have calibration of what really make sense around CCAR, GSIP is a complete artificial calculation. SLR, the mortgage market, that mortgage, it wouldn't affect us much, but that will affect you as economy the most, if they open up the mortgage market little bit more to slightly lower credits, not subprime, slightly lower. Our economies think that's up to a $2 trillion of lost mortgages over a five-year period.

So I think you'll see a bunch of those take place. Some are quicker because they had to make the change and some will take a while, because it's got to go through a process, so the Federal Reserve, Randy Quarles who thinks that we should change CCAR, he's got to go to the committee and explain why his analytics, but I think over time we'll see some of them relax and that will help the US economy a little bit.

Unidentified Company Representative

You have the FOMC meeting next week, how do you see this whole balance sheet in relation playing out and particularly with respect to both, the banking industry, the interest rate market and how do you think this impacts banks and liquidity and JPMorgan?

Jamie Dimon

So, you have a bunch of questions there. So the Fed's QE – not just the Fed, remember the ECB, the Bank of Japan, the Federal Reserve, total QE is something like $10 trillion to $12 trillion. The QE is still going on, so like even in the last couple months something like several $100 billion of purchased securities, all you hear now is talk about reversing that. So the Fed has made it clear they are going to and they made is kind of clear how they are going to do it, we don't really yet know how the DoJ or their BOE are going to do it, and the ECB and they are all important, because these are global markets.

QE, I'm hoping, I think the circumstance which they reverse it are important, so if you have a healthy economy and they are kind of raising rates and reversing QE that is very, very different than if something else is going wrong. I think it's a little bit of wishful thinking, so I'm not predicting bad things, but you don't really know, it is going to be a multi-year plan. We hope it's seamless, we hope it's painful, the hope the economies are good, what is the chance if not? We never had QE therefore we never had the reversal of QE and it will have some consequences when people reverse it. So if you ask me that the 10-year bond, we all have a lot of economists, particularly 10 year have been depressed by maybe 1%, but we don't know, and they are also reversing in light of all these other rules and regulations, monetary policy is different than it was before, not just because of QE, but because of LCR, SLR, CCAR, all these other things, so if they're reversing it we'll see.

So my view is, hold onto to you hats, it's not clear and we are going to be sitting here from a year some might get hurt, things might be more volatile of the economy. I think, GDP is moving little faster than the numbers show. There is a great article in the paper the other day about inflation being higher because it doesn't measure quality very well or doesn't measure new products at all. So, I think that we can't expect serendipity forever, so as a company while I'm not predicting bad things, we're always prepared for it. Bad things would be very volatile bonds, [Indiscernible] is going to more than people think and the inability of the Fed to reverse policy because we're about inflation, they are about something else and those are all possibilities.

For JPMorgan alone we're fine, it's not a JPMorgan comment, let me take up $1.5 trillion which is the expected out of reserves so I figure our share will be about 10%. There is a huge question and a lot of debate about if it comes out of wholesale or retail, there is a big difference, okay. If it comes out of retail, it's taking permanent funding from banks, when it comes out of wholesale just offsets other things and so that debate is important but I – look I think the bank is still so strong it will be fine, and then we have to watch the effect of the credit markets, capital markets and consumer and lending, how much lending takes place.

Unidentified Company Representative

And as a follow-up to that, we have been in this very low volatility environment for a while now, perhaps do you think that's more – it is a cycle trend? Is that a cyclical trend? You think it eases once QE gets lifted and I think that plays out.

Jamie Dimon

It's definitely cyclical folks, I mean you have a volatile market one day again, markets and markets people panic, people panicked in 2008 and 2009, they panicked in the 1989, they panicked in 1994, they panicked in Asia in 1997, they panicked in the Internet thing in 2000, the people will panic, you will panic. You will all be running through the door like everybody else and regulators will panic and – come on, and I just said, the government support $12 trillion securities that has to have some effect on depressing volatility, particularly around all the benchmark, all the benchmarks. Remember the benchmarks do affect the non-benchmarks and stuff like that. So market will become more normal again one day and again I think the most important thing to keep in mind is the why. If the world is growing healthy and jobs are going up, wages going up and rates are going up and QE is reversed, that's very different than like what Paul Volcker had to do, like raising rates in a recession, because of inflation and so the why to me kind of dwarfs the what and I'm starting to keep an eye on both and we are happy on which one is more important at the time.

Unidentified Company Representative

Maybe to segue into the regulatory trading question, I know sometimes you view it as noise, but I'll get you all that by the audience, but maybe just talk about kind of current market conditions and what you are seeing?

Jamie Dimon

Let me give you a warning first, we're considering not giving any guidance on trading anymore, okay, I'd personally think it's a waste of time, not the trading is, I mean so when I said that thing about trading, someone said, you don't want to talk about it because it's a bad quarter or something like that, that's just not true. Even trading folks, we have 1,000 people around the world on major trading floors, serving huge clients of research, execution, ideas, building systems, trying to embed it in product and service, it's critical for JPMorgan Chase.

And what happened this quarter isn't related to the business you are running, you know so you are trying to have a good trade you are trying to makes sure you are in the right side of the market. We have an exceptional business and it will be down about what [Indiscernible] estimate around 20% or something like that this quarter. Remember last quarter for us a year ago was a particularly good quarter and for some of the other folks it wasn't, like it's hard for me to I know what Citi said this morning, last night and I couldn't understand exactly what Goldman said, but there's still, and mind you they are still helping numbers, making good returns, doing a great job serving clients that's right where we're about. And so we're quite completely comfortable with those businesses and…

Unidentified Company Representative

Fair enough.

Jamie Dimon

Maybe I'll say, is it under 20 or over 20? This is going to be the headlines in Bloomberg and Reuters and…

Unidentified Company Representative

With respect to, I would say, core loan growth, you guys have outperformed the industry, although I think even kind of year-to-date running a bit lower than what you would have thought at the start of the year. Just maybe talk to in terms of what you are seeing in the lending environment, how you are thinking about the back half of this year, and kind of as you think about kind of planning for 2018?

Jamie Dimon

Right, so the way to look at us is the in the global core investment bank, it's not – it's kind of episodic, deals come in, they go out, they get syndicated, so we don't really look at that as expected growth and not growth. And in commercial bank we had quite a bit of growth, it's been more in commercial real-estate, that's the area which has slowed down, based upon a slowdown in demand and we all expected that, so it wasn't anything dramatic there.

And then the big one in consumer, credit card is up a little bit as you've seen over time and auto is – I forgot what the auto number is, but again we could turn that on and off, the big one has always been you put on your balance sheet with mortgages, so a lot of the actual growth is the mortgage growth and again those are portfolio decisions. So you can generate mortgages, you can keep them, you can generate them, you could sell them and so it slowed down a little bit because of competitor spreads and things like that.

Unidentified Company Representative

And maybe switch gears and talk about the deposit side of the balance sheet the deposit betas have been I think certainly been I think lower than people anticipated and I still think it to be the case, you know I guess particularly kind of get back to the QE question is, as the environment progresses from here, how do you see that playing out?

Jamie Dimon

Right, so first remember we do deposit beta by product, so you know there is really hundreds of them and then we just summarize them and people saw that as one, there is not one, obviously very different in certain wholesale products and certain retail products and it's different in some types of retail products and other types of retail products, but it has been a little bit lower than people expected, more than they – remember we had very artificially low rates so there is always this thing about what happens to the first 50, 70, 500 basis points anyway.

Remember, we didn't give any of it back, we basically ate all that ourselves and some effect the financial systems is just taking part of that back. We do expect a more normalization of beta and beta has gamma, so the first so many basis – 25 basis points is zero, the next 25 basis points might be a 2%, the next 25 might be 10% and 30%, and so people build it into the models and it's all in the NII we forecast and give you all and stuff like that. We expect it to be higher than in past, because you know the number in this one, higher than in the past because it's easy to move money, it's going to be very important for banks to have retail deposits, so we think there will be more competition for that.

There are things like online banks, so we think it maybe a little higher than in the past, but we haven't seen an inflection point yet, and I know if it's going to happen to the next 25 basis points or the 25 after that, but eventually you are going to have more beta being passed on.

Unidentified Company Representative

Interesting. One of the fields I guess kind of in this conference which is the continued control focus on cost, so it's been obviously cost come out of the industry for the last several years of adapting regulatory environment, but it kind of continues to be a focus and you guys talked about some incremental cost base you have done. I guess is there more work to become more efficient is more ability to leverage your scale and just how do you think about that?

Jamie Dimon

Yes, so the first way you leverage your scale is by doing more business in the same bench, I mean that is number one, okay. And you add a branch any four walls, not adding all those additional clusters you have generated and stuff. So we own – we are always trying to be cost conscious and I call waste cutting, you know try to become more efficient, get rid of things you don't need. We don’t have, we generally have programs that people have, we just – we're always looking and we wish to do better, I do think there are ways to take the basic cost we have now and make them more efficient.

Now when we tell you guys, we just give you one number that includes becoming more efficient and doing more stuff. So the doing more stuff generally we had a huge dispense in technology, you know digitizing things, getting Access online, and investment bank and SaaS and electronic trading, automatic thing gain, everything in mobile and online those cost would go on, so it mean some of the table stakes, we don't sit and do MPV analysis on P2P, we are going to have P2P for clients and we think that we have to do something like that. So we don't look to see – we have told you all our cost to be $58 billion this year, that's all-in, that includes a lot of investing and some efficiency, my guess is over time we'll get more both of the cost in general go up, partially can we see expansion opportunities.

We see ways that we can grow this company, add clients and add marketing and add products, which is what we are here to do. So and we've given you a kind of long term cost target we've got is 55% and we think that's reasonable, I don't think it's reasonable at one point to say what if you are 55%, why not 53%, and then why not 50%. We do within what they call a capital society and at one point you have to compete and sometimes there is competitions on price and you are going to have price competition, we're going to compete on price we have to and of course that keeps your margins lower than they would otherwise would be.

Unidentified Company Representative

And I think that's a good segue into the next ARS question, Jaime mentioned investments…

Jamie Dimon

What is ARS?

Unidentified Company Representative

Automated Response System, I want to have these quick…

Jamie Dimon

Oh this thing, okay.

Unidentified Company Representative

Actually you want me to get you one?

Jamie Dimon

No.

Unidentified Company Representative

But we would like to see JPMorgan invest in one, technology; two, marketing; three, payments; four, consumer; five, wholesale; six, asset and wealth; seven, trading and eight, branches, the branch footprint. Interesting, so technology will be one; payments and followed by asset and wealth management interestingly.

You talked about technology a bit, just maybe explain one of the highlights up from your Investor Day, in February it was you had the whole technology innovation forum. I guess, kind of what you are doing, I guess when you kind of measure yourself against the peers, have you kind of viewed JPMorgan's technology spend, is there an advantage among the big banks that they have and would the expectations be the bigger banks and get a lot bigger with the expense on some of these mid-sized or even super regional banks that don't have the same ability to spend on technology?

Jamie Dimon

I think remember that some of the middle sized banks and small banks they get the economies of scale by buying the same through a third-party provider. So that they don't get, they don't get everything and then they get all the products, you go by savings systems and various things and pretty good prices from some of those third party providers. So and I think well done technology is a competitive advantage, just like real stone [ph] not well done, it's bad when you are spending too much money and not getting anything forward and stuff like that and so we always look at all the competition.

At the end of the day, they job of us is to deliver something to better faster cheaper in a way you want it more and that means right now digitizing, it means in trading electronic types of – various types of trainer algos or something like that. In consumer it means getting it online, getting straight to processing, you know getting a loan instantaneously, and so many things we have to build, something kind of have an we do of course all of that, we have our general manager meetings, we go through every bit, what we are building the next generation of technology and you are not allowed to say what we can't afford if this year, you have to put on the table, what do I need to be the winner next and you have to have that because this is not a six month cycle, you can't treat technology like a six month cycle.

And then some of the technology through infrastructure for technology itself, so if you think of your middle offices and stuff like that, your data centers, we are building data centers periodically and they cost a lot of money. So we are going to build brand new data centers which are great, secure and stuff like that so it's never ending cycle that I think is a competitive advantage, because once we could build, if we build it right and we can deliver to more people, obviously you've built something that's good and you have more flow and the more flow the better the economics are to the bank.

Unidentified Company Representative

Payments also I guess was a screened highlight, can you maybe just talk to, I think a better – a little over a year from a introduction of Chase Sapphire Reserve, which has got a lot of attention from investors maybe talk to that and then maybe update us in terms of your hope chasing that Chase stake?

Jamie Dimon

So Chase Sapphire Reserve is a product, you know we are a huge credit card company with a 22% share in United States of America and we wanted an upscale product and it worked and essentially we sold more – in two weeks that we had expected to sell like in a year or something like that, that's good news. Obviously this stewards your P&L because I wish to tell people accounting is bit of a fiction. There are some products that spread revenue and expenses over the same time and the same light, credit card, the marketing expense gets spends over 12 months and the revenue comes in over seven years that's what it is. So I think that's why I made that clip, if I looked at another $4 million I would have, because that's going to hope we have a good return, we still expect that.

A lot of you point out in your things that we'll see how the card performs over time, that's obviously true, which is spend which is balance, which is always credit loss, so you can always be a little bit surprised on that, but we think it's been a great card acting pretty much roughly what we expected coming up on the first cycle of people signing up again and paying that obviously is a big deal. But we look at the business much broader than that. We have freedom, we have ink, we've got our cobranded cards, so our debit business or cards, we are one of the huge processors and that's – you know we want to do that, we want to embed that the way you want to use it, not the way we want to use it in addition to that Chase Merchant Services, we think it's a fabulous business and we can help drive business in Chase Merchant Services by working in better deal through Chase, not better deals necessarily, but cleaner, simpler, modified to fit what they really need, what they really want.

We can also work for more and more data around, data around customers to the extent we can and then we're trying to get Chase Pay embedded in as many place as possible. Chase Pay we don't know, you know obviously we have it in the Starbucks, we're getting other places. It's a used case, if you look at Chase Pay, people with embedded wallet, you have a piece of real-estate where people can click on it, we'd like to be there and we'll see how it pans out.

We're obviously spending money on it, but I do think that whole line, I want to be able to go to consumers and also if we do well, some of those things will create pull in the card. People might want our card, because it's so usable with double benefit program with Starbucks, so we're hoping that there is a little bit of a virtuous cycle across all of these things and some of that remains to be seen, I'm pretty sure pay for itself, where it becomes a virtuous cycle of substance we'll see down the road and but we think the payments business is critical, we also think is the ones most subject to disruption. You know why so important to do well and do it now and it's great through process and to do a great job for the merchant, a great job for the customer and always make sure you're taking care of both.

Unidentified Company Representative

And maybe the thing that got some attention earlier this year was when you took a $1 trillion of servicing from State Street, the BlackRock business, I guess the presumption was that you can get more aggressive in that business, and more we are going to just talk to we haven't seen any additional headlines in terms of what your thoughts…

Jamie Dimon

So if you take JPMorgan Chase, you know is an investment vehicle. We have a tremendous amount of what I would call, a very steady earnings. Cash management, asset management, some of the lending fees, some of the consumer businesses, some of the spend businesses and custody. so custody is a great business, we're obviously quite big in it, throwing so many players, but in custody one of things – the proof of all of our businesses now is, there is duplicate work done by the asset manager, by the custodian and by other parties involved in that.

So part of this thing that we did with BlackRock and it was with BlackRock is how can we make it everything simpler. How can we – when you go straight through processing, reduce error rates, reduce the data entry you have to do so the client gets more. The client this being BlackRock and in this case also it maybe BlackRock's client, because if they are custodian we can offer these services to, the thing is just straight to processing, you can enter a ticket once and already seize multiple systems suppose you got to enter it, and see as you have now entered with the broker-dealer and then you have to enter with the custodian, you have to enter with the clearing house and something like that, so that was – by using technology to just to do a better job for the clients and you could do more including data and anyone.

Unidentified Company Representative

I guess one of the things that really to us it seems like with the JPMorgan is if you think about right, you went after the higher end credit card with the Sapphire Reserve you are kind of going more into the custody business with the BlackRock deal, you'd start on obviously the Merchant Acquiring Business cutting the deal with Visa, what other areas is JPMorgan looking to kind of flex its muscle, may be use its size to advantage, compete more aggressively on price and I mean what could we expect going forward?

Jamie Dimon

So I think I'll start to answer, so I think, one of the things I'd like is that, every of our business we can grow organically. So you could take the consumer businesses, versus credit card, merchant processing, auto, retail banking, you grow organically, for retail banking it might be new locations, it might be more products, so we've mentioned before we're going to have some kind of online trading capability we can offer Chase management clients and digital banks.

Now of course from competition, for all these any reason why JPMorgan can grow in that business, same with commercial banking, you know we've added I think about 20 cities in the last four, five years, they've become pretty profitable pretty quickly, but that's just based to build on private banking we think is a long way to grow, asset management is a long way to grow. So in every business where we think that we have quite – well, you know in investment banking it's a little bit harder because it's hard to look at your share and fix and so you are going to gain a lot of share now there is more places we can gain.

So if you look at the total, maybe we can't gain over, but we can certainly gain in that country, or that product or that service, we do go a little bit deeper. Same thing with basic investment banking services and cash management and custody they are scale businesses and you have to build them and compete, build the technology and the client go on it, you can do cash management with automatic data and give the treasurers so that they can move money around the world automatic, FX changing with the currency you're consolidating into, that's what they want, those we could do it well, and it runs across our pipes and straight through processing so in cash management country we are going to be a real competitor and there is size, scale and scope, I look at all these as they grow over time.

The investment banking business, I'm actually quite bullish about it, because I think people forgetting a fundamental or they often don't think about it, which is where you pay too much in terms of trading this month or this quarter, McKinsey did a study that says that they are going to be – we are going to double the number of $1 billion companies over the next 10 or 12 years. Any study we at asset management says, the assets under management in the world are going to double in 12 or 15 years, double again and the growth will be faster than emerging markets.

Now the raw material that you all have to deal with is going to go way up, and that quote is going to happen, it's episodic, it doesn't go all at once, mortgage is up, mortgage go down, but over time the total amount of bonds and stocks and equity and stuff like that will grow over time, and so somebody is going to drive it, is going up, the margin of the business is maybe going down, right they are and they are they are and they are kind of the scale, so we have to find a way to let all of you do more in an effective way for your clients, but try to get the share in that business.

So, I think when you look at ECM, DCM, assets under management, cash management, custody, certain FX flows and certain flows like that, they are going to be going up over time and you want to capture that and you won't look at capturing that in a quarter, you look at capturing that over a decade and that's what we are doing, systems that can build that over a decade.

Unidentified Company Representative

You mentioned retail banking and I guess a bunch of times at this even you've kind of talked about maybe entering new market de novo, and we really get to see that, is that kind of something so interested in and how you think about that?

Jamie Dimon

Yes, one day. I mean there are bunch of regular hurdles to do stuff like that right now, but one day you will see us do in de novo markets and remember that technology to lead behind the regulatory framework so that mobile banking isn't done by states, isn't done by cities and anywhere and we are going to have a mobile bank. So you can imagine we have healthy debate to tie the company, where do you want the mobile-only, what do you want the mobile is maybe a different type of brand structure, with ATMs structure, ATMs could do more, so you could see us testing various about how we are going to invest in that, but I think you have more mobile banking, more products that have ability to do online and some kind of physical footprint over time that accommodates all of that.

Unidentified Company Representative

Let me go to the final Audience Response System question. Irrespective of the CCAR approvals, what do you think is the best use of capital for JPMorgan? One, organic; two, acquisitions.

Jamie Dimon

What about management compensation, retention of talent, I mean seriously.

Unidentified Company Representative

You were talking about the secular investment banking (Multiple Speakers) is Jeff still here? For organic, not surprisingly filed by higher incurring dividends.

Jamie Dimon

Totally great.

Unidentified Company Representative

I guess, maybe, you know I think if you kind of look at CCAR results this year, I mean give it in…

Jamie Dimon

Organic growth, if you are earning the regulatory capital and it's real sustainable it's the invariable part, it's invariable for more – worth when all of the stuff so obviously that's usually on our mind, we grow organically, good results.

Unidentified Company Representative

I guess given that you still generate a lot of excess capital given kind of the above average ROE you kind of kicked off with. I guess how do you think about capital return maybe over the next several years and you are kind of getting close to that two times financial book number, balancing dividend by that more…

Jamie Dimon

So the sort of most important thing to me is, the big picture, I'll tell you about the shorter run, because it's slightly different. The big picture is you always want to do organic first and have enough capital do it and obviously enough capital to do at bad times, it will be bad times. Once you've done that, or if you think you have so much capital, you don't really need at all, you can still grow organically, steady dividends. Because shareholder I speak to a lot of shareholders, they want this steady dividend and I think stock buyback should be opportunistic. And of course CCAR made is not opportunistic and I think you see exactly what I'm going to do, I'm believe buyback stock is cheap, buyback what is expensive and you have to make a judgment call.

Just in my Chairman's letter usually I said, if we could buy back stock, I've got – I discounted analysts estimates over five years by 30%. I say we're buying, I think it was tangible book value that if you buyback a big block of stock what happens five years later. And five years later if you believe your earnings and believe your assets and we do, five years later you earnings per share is like you know like 15% higher and your tangible book value per share is like 15% higher, it was some number like that, kind of a no-brainer.

So, you know as the stock goes up, I wrote in the chamber of this year without this kind of estimates, you'd – some of that logic applies we'll have two times book and so we're still buying back stock, but the real issue in the short run is all these new rules that are coming, there is still something is coming up Basel, a lot of people are running higher than their targets, this business force retention of capital and the inability to use it, partially because I mentioned, you know we couldn't growth mortgage market we really should have.

I speak to lot of regional banks, they couldn't do small businesses and middle market loans they really wanted to do it, so they will all bit constrained which meant they ended up with more and more capital, they had a big block of excess capital, which I do think is kind of true for the American banks and I don't know what people are going to do to return it, you could have a sit there and use it over time, but somebody making a different strategy how they return to the shareholders, I think it's a mistake to automatically buyback stock. I just think that that's you know a mistake and I don't look at buying back stock at three times kind of a book as returning cash to shareholders. I look at it as I'm hurting my current shareholders, okay, we are not going t do it, I have come up with something different.

And might be just a much higher dividend for all, I mean just simply bump it up and tell people we're keeping higher for a while, I mean growing to it and you can use that to turn a lot of a capital over a couple of years and never reduce your dividend, so all other strategies and when they will be talking to you all about which ones you like the most.

Unidentified Company Representative

Interesting, you know maybe it has a very, very benign credit environment at the moment, you once said I'm [indiscernible] an accident happens every seven years or so, when you look out I guess, which areas are you most concerned about maybe kind of that just point back from?

Jamie Dimon

Well, it's not credit. You know if you look at credit, it's almost the best it's ever been ever, so also my credit card, middle market, large corporate, there are tools, there is exception of subprime, I do think somebody get hurt leasing in subprime, but it's not systemic, there is problems to lending, but it's owned by the government which means you'll never know about it, though you will pay for.

And again it's not systemic, so it is – we actually start to see it now affecting credit, okay we actually see a differentiation in, more in near prime and subprime type of students, not students, students debt and how they can get mortgage and do auto and stuff like that, so it has a little bit of a systemic effect. So it's pristine and we always manage the business too knowing there is a cycle, I can't control the cycle, but nothing we do is – maybe some times we are over earning, so we know over earning certain years from now and some under earning, but we went that cycle, we've been pretty accurate in that, so it's not credit.

Most I worry about generally would be, I had mentioned QE, again I'm not predicting it, I just think it'd be silly not to have in the back your mind, it may not unfold as smooth people think, if it doesn't who gets affected and why they get affected and how it might affect you.

China, I think China is going to do fine, I think when Bridgewater writes about all the business with China is going to fine this one, I agree with that. But they are building up an increasing imbalance in their financial think of nonperforming loans and how they manage that. We don't know the number it's impossible to tease it out. We try every now and then. But even it's a trillion dollars or more, they can handle, that sort of a 6%. I’m not going to go from geopolitics, you can guess about those as much as I can. Obviously, we look at all these disaster scenarios be prepared for whatever event unfolds anywhere in the world.

And the other one, which is to me it’s the most important is public policy. You've and you've had positive and minuses, you've had Brexit that creates a series of risk, it create a whole series of risk for the Eurozone. But now it's been offset by the fact you have a young pro-business president in France. So the geopolitics makes a huge difference. And so you always keep your, I mean, politics and policy more than geopolitics, so we always keep our eye on that.

Unidentified Company Representative

You question that a couple asked me to ask is around this whole Equifax and how you think that plays out the impact of JPMorgan? How you think about?

Jamie Dimon

Yes. So the big issue first off is, Cyber is a big deal. And people are vulnerable, we know people are vulnerable, we know their issues, that's number one. So I'm always sympathetic when someone gets attacked. Of course, and I'm not going to go through the specific case of what happened? How it happened? Is something that that could happen to anyone or something they didn't do the right things and all that is going to matter?

And so, obviously, that is important. But it's also important to me is, we've got – we're going to try for customers. I don't think it affect JPMorgan in a big way. When we always have our fraud and risk alert and stuff like that, we're pretty sophisticated how we do that. So we can incorporate these in our models. We watch very carefully. You can adjust things. So it might be something, but I wouldn't put it in the material category and – but this is just another example of things that happen.

I would guess, it's happening more and you just don't know about it. To see, you have to report to the people who have the capability to report it out. And so it's a big deal. And I think this whole issue about privacy and that is a big deal. And we have a – we’re making a huge special effort to protect and control that. I'll give you an example, we didn't deal into it. We basically said, we're into it a lot of your viewers meant for somebody into it things are you give them your bank pass code.

And they would come screen scrape the data and maybe more, not so they needed for almost anything. Somebody aggregated, which means creating 30, 30, 50 times a day, and then use it to market and sell stuff like that and they had your bank pass code. Well, obviously, that’s risky to the bank, as risky to the aggregator, because you may not know this if that money is lost, because it’s some fault of theirs. You're not protected by JPMorgan Chase.

So if you have left your money a bunch of these places and your bank pass codes tough [indiscernible] okay? And so we said it, we want to be customer-friendly. So we want you to decide how you data gets used. So we went to and we didn't do into and we said, okay, you decide, they will be very clear how to use it and we're going to push then the data, which is far more secure. They don't have your bank pass code.

So into, it's more secure, in JPMorgan, it’s more secure, and you're more secure, and you have total control of it. So that's the type of stuff we're trying to do around data and breaches. And I think this issue is going to be a big issue for 10, 20 years, and you've seen it around Facebook and Google, and it's just starting. The intersection of cyber and stealing is going to an important part of that.

Unidentified Company Representative

So you use and not use them up?

Jamie Dimon

Yes, because, they’ll, have you – again, and I don't want to talk about demos like that. If money is taken out of an account, because your bank pass code was misused by a third-party, that third-party is responsible, not JPMorgan Chase. Now, of course, the lawyers are [indiscernible], there’s a little bit of question mark around, not according to me.

I know exactly it’s going to pay for that and without the money, too bad. And so, yes, it's a big deal, because remember that is a little bit of a free ride to the system. We spend billions of dollars in AML, KYC, almost a $1 billion – $700 million in cyber and the beneficiary them, so they are not many more.

So we're very careful about how we do it. And again, we want to be a customer-friendly. So that we did [indiscernible] we should – we have really rolled out in a big way to be a table stakes. We did [indiscernible] we want to do an MPV, if you don't do an MPV, just build the damn system. And it may not be as good as demos to start. But the fact is table stakes that you can go to your account, your quick players like that, move money to friends in different banks, it was seven banks. It could be opened up to all banks.

So we're not doing – it wasn't done for JPMorgan Chase. It was done to create a banking product, which is really good than we probably should have done before to me and it's a real-time secure and guarantee. And if you lose money at all, you're protected. So it's a big deal.

Unidentified Company Representative

Interesting, and with that we'll move to the audience for some questions, I see a hand in the middle.

Question-and-Answer Session

Q - Unidentified Analyst

What's the risk that the non-bank financial tech companies take the payment system away from the bank so to speak? And kind of unrelated what is your view on this bitcoin craze and do you have traders that are trading that coin?

Jamie Dimon

Yes, so the real traders have traded. If we have a trader trading bitcons five of them in a second. For two reasons, it's against our rules and they're stupid, okay. And both are dangerous so I mean your bitcoin. I mean you really clear in this one forget the block chain there’s technology is to be rolled out we think it's good we blog people blog they know it's testing they we’re testing it. If it could be built up over time and do things better that’s quicker cheaper. There’s still issues around the security. When we have there’s it’s a pretty secure system that does a lot of stuff and this is a different system and you got to make sure that you can protect it. But the currency I know we heard about this recently and Oaktree Howard Marks wrote about it in the bunch theories back to little so somebody said.

The currency isn't going to work okay you can have a business where people can invent a currency and that’s in air. And think the people who are buying it are really smart. It's worse than two of the balls okay it won't end well. And it won't end well for two reasons. One is someone's going to get killed and then the government is going to come down. The second is you just saw in China governments like to control their money supply. The first thing a nation does when it forms itself literally the first is form a currency they have a bank and it has some kind of support legal support legal tender sometimes support like gold or silver that is a currency. So whatever and where think that bad that is this one is worse.

So it will blow up China just kicked them out it’s selling through its money somewhere else it will be but I don't ask me if it is short I'm not going to it could be 20,000 for this happens, but it will eventually blow up it’s a fraud okay. And honestly I'm just shocked anyone can see it what it is. And so the only good argument I've ever heard before there's one good one. So there may be a market for particularly bitcoin you can keep itself the $21 million coins is that if you were in Venezuela or Ecuador or North Korea or a bunch of parts like that or if you were a drug dealer a murderer stuff like that you were better off doing bitcoin than U.S. dollars. You were better off bypassing the system in your country even if what I just said is true. So there may be a market for that but be a limited market.

On the payment system I think that was the payment system is the most open for disruption partially, because as we do have some antiquated it’s not JPMorgan, but not as antiquated. We didn't have a p-to-p system ACH can do some things and other things. The Fedwire and the chip system will do some things than other things. So I've always thought that that this is an area we had most it's been around us like and using us like PayPal were used banks, but there all had but now they're not now there are people taking with effect to these deposits and that core deposits.

So I do think there's a chance so it’s going to come in into payment system. And they find ways of looking at better, faster, quicker cheaper that's a PayPal was that is more expensive but it’s easy to use and as ubiquitous you put any card in there was it a loss or banks going to all card in there. And so and but again they use a bank ACH and that is basically using the banking system. So I do think and so on can make a something that that works better it's easy to move money around that's what demo was. Demo when you're using your telephone number and or text number.

You can move money to a friend that's pretty cool and we should have done it it’s a shame on us. We should have done things like square when the payment process they did really well. As the front end user case that they could process cash. We didn't think about worrying about whether merchant deposits cash out of the food truck or something like that. And they gave them data we didn't really think about what kind of give the customers and do more. So they did a great job being give the customer they want and make it simple look at their problems build into the merchant processor.

And we need do a better job in the bank and the bank is doing those things that use case by use case whether we do it with a friend or do it ourselves to do with a party or third-party that's fine. But we've got to be a lot more creative to make it sure we do a good job serving the client. But real-time payments will be one or close to real-time in wholesale there will be other things that the market will demand that we don't give it to them yes you’re going to have disruption.

Unidentified Analyst

Out we beat it, okay.

Unidentified Analyst

[Indiscernible]

Jamie Dimon

Thank you for that. Chase is very good at service, maybe hope we got enough people and you get almost everything you need why you need a bank. But remember if we do live in a very competitive environment, so we do a fintech competitors, big bank competitors, non-bank competitors, so attitude is, we have to – we can't get complacent and it's [indiscernible], so what we are adding X, Y, we are adding Z, so if you look at retail banking over the years, if you've added better and better for ATMs, online bill pay alerts, linkages, [indiscernible] awards, [indiscernible] loyalty, and so we have a lot more coming, because in the arms race, but absolutely I think you'd see the best providers out there gain share over time.

Like I said, one of the big differences it's national, it could be national is very – for many years very restricted to regional state-by-state and physical, while the physical part has become less important, maybe not unimportant, but less important, so yes, I think you are going to see people gain share and that share gain it may not be very politic in United States, but the fact that it works for customers is pretty politic and if you take a walk around the world by the way, excluding Germany every other major developed nation is much more consolidated than United States.

So when you hears politicians joining and screaming, [indiscernible] six banks, five really big ones, okay. France, a handful; UK, a handful; Italy, a handful; China, a handful, now you go around the world; Japan, handful and they have 20 shares, 30 shares and all these various things and but there is competition, you always going to have competition, the governments will demand the competition, but competition doesn't mean 7,000 or 6,000 revenue in the numbers today.

Unidentified Analyst

May be time for one quick question if there is one.

Unidentified Analyst

Quick question on blockchain technology, not on bitcoin. When you look at blockchain, I wanted to know from you when are we expected to see the implementation of whatever the case, the use case you guys are seeing, for example, cutting cost in the settlement procedures or anything like that. When will be able to see the implementation of the blockchain technology for JPMorgan?

Jamie Dimon

So, if you look at blockchain a little bit, it's a technology, but unlike certain technology and we get bigger computers, faster stuff, ubiquitous it gets rolled out right away, and we get it started faster. So we have a technology and it's everywhere, network 3G, 4G, 5G. Blockchain have to be done and you said it importantly by used case. There is nothing you have a blockchain, oh this is great, we are going to do it for loans, you are going to do it for settlement [indiscernible], no, you got to like hold that into a blockchain.

So it is a refactoring of existing systems, it will take a while, so most banks you guys are doing in, but we've already used it for CDS, we've already used it for loans, we've already used it for – as we get more comfortable you'll see people rolling out, but it could be rolled out, so you are talking about decades before – maybe like that was smaller, most of the banks have experts who are doing it, we're still testing, learning, applying, you may have to redo it because I think you could do it. So it's not going to happen overnight, it can happen piece-by-piece as we all get comfortable in how we function with blockchain and there are different miles around the two and that's maybe standard developed at one point.

With that, please joking me in thanking Jamie for his time today.

Jamie Dimon

Thank you very much. We are going to leave probablya three to five seconds.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows:

You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: >transcripts@seekingalpha.com. Thank you!


Trending Hairstyles

Source : https://seekingalpha.com/article/4106323-jpmorgan-chases-jpm-ceo-barclays-global-financial-service-conference-transcript

JPMorgan Chase's (JPM) CEO on Barclays Global Financial Service Conference (Transcript)
Finance Brief: Senate GOP Considering Budget With $1.5 Trillion Tax Cut
Housing bubble makes Canadian economy ‘accident prone’
Weekly Economic and Financial Commentary: Here Comes the Story of the Hurricane(s)
Welcome to the insanity
Overseas problems won't derail growing U.S. economy, analysts say
Lending Slowdown Casts Shadow Over Economy, Banks
ASX futures point to modest opening advance, $A edges higher
10 years on, what might cause the next financial crisis?
Fed's Stern: subprime woes won't derail economy