Operator: Your next question comes from the line of Ebrahim Poonawala from Bank of America.
Ebrahim Poonawala: I guess just first question around reserves and less to do with the mechanical finance and what you — the ACL. But when we think about the 80% base case, Jamie, that you mentioned, I think if I heard you correctly, you said that had an unemployment rate of 4.3%. I guess, philosophically, I guess, Tim, like in the past, you’ve talked about 2024 could be worse in terms of debt maybe we do get a delayed recession. So just give us a mark-to-market around your operating outlook over the next, I guess, 12 to 24 months. Are you expecting a recession? And if that’s the case, shouldn’t you be weighted a lot more to the downside than just the 80-10-10 split that you have? .
Timothy Spence: Yes. So let me answer the question about the outlook, Ebrahim and then I think we’ll go to Jamie to talk about the dynamics around the specific ACL. So look, I think our outlook is that it’s hard to know. Like I watch — we watch the same equity market indicators that you do. We see the trends on unemployment. We see that signal around inflation moderating. And I hear a lot from folks about the increased probability for a soft landing. We just don’t get paid to manage to a Goldilocks scenario outcome here, right? Because for every positive indicator, you still have like a yield curve that’s more inverted than it has been in decades. You have data coming out of the red book that suggests that same-store sales in retail across the US has been negative since the beginning of the year, the consumer spending on a real basis, so take the impact of inflation out, like flat or down in five of the last seven periods you have a negative ISM in terms of what we’re seeing their freight levels, whether it’s exports and imports or the over-the-road stuff here in the U.S. continuing to be depressed, like those are not positive signs.
And if you buy the thesis that the — what we’re experiencing today is the interest rate environment we had 12 months ago, that we’re seeing all of that in a world where Fed funds was 150, 175, right? So at least from our point of view, while it’s very possible that we end up with a soft landing here. And I think even if we end up with a mild recession that it is not one that’s characterized by unemployment levels, that we still are going to end up in a recessionary environment. The last thing I just want to make sure that I flag because I think sometimes words matter is, we talk about an RWA diet where other people talk about balance sheet optimization. What we’re really saying is tightening credit supply and higher risk spreads, right? And those things have an impact on M2 that compounds whatever gets done on M1, that are the other factor that’s sort of lingering out there that I think that we need to take into account as we’re looking at the outcomes.
So that’s probably a long way of saying, I don’t know any more than you do in terms of where we settle, but we’re going to always plan around a more conservative outcome because if we’re wrong, everybody does well. And if we’re right, we’re better positioned to deliver stable earnings for you.
James Leonard: And in terms of scenario weightings, we anchored to the 80-10-10 distribution because that is the probability assignment by Moody’s for each of those scenarios occurring. So that as you saw in this quarter, the scenarios eroded, unemployment ticked up about 30 basis points or so on a peak basis in their baseline scenario. And as Tim mentioned, it’s certainly possible that we have a full employment soft recession. But we believe that obviously, the reserve is adequate and at 208 basis points of coverage, we feel good how we’re positioned.
