Glenn Schorr: Cool. Maybe one other follow-up. You’re always investing. You clearly get paid in growth across the franchise, as you do. But relative to a lot of other banks that have been keeping the expenses a lot closer to flat, do you envision an environment — or maybe I should rephrase that, what type of environment would have JPMorgan pull back on this tremendous investment spending wave that you’ve been going through?
Jeremy Barnum: Sure. So, I think the first thing to say, which is somewhat obvious but I’m going to say it anyway, is that there are some like auto governors in this, right? Like some portion of the expense base is directly related to revenue, whether it’s volume-related commissions, whether it’s incentive compensation, whether it’s other things. So, there are some auto-correcting elements of the expense base that would happen automatically as part of the normal discipline. So that’s point one. Point two is that independently of the environment, we are always looking for efficiencies. And it’s a little bit hard to see it, and in a world where we’re guiding to, I guess, now with the special assessment added $91 billion of expenses, it’s hard to tell a story about all the efficiencies that are being generated underneath, but that is part of the DNA of the company.
That does happen in BAU all the time as we grind things out, get the benefits of scale, and try to extract that efficiency. And I think to get to the heart of your question, which is, “Okay, in what type of environment would we make different strategic questions?” And in the end, I think that’s a little bit about what that environment is really like. So, if you talk about, like, a normal recession with visibility on the cycle, would we change our long-term strategic investment plans, which are always built up from a financial modeling perspective, assuming resilience through the cycle? No, we wouldn’t. Could there be some environments that, for whatever reason, change the business case for certain investments or even certain businesses that lead us to make meaningfully different strategic choices?
Yes, but that would be because through the cycle, analysis has changed for some reason. I just don’t see us fundamentally making strategically different decisions if the strategic outlook is unchanged simply because of the business cycle in the short term.
Glenn Schorr: Awesome. Thank you.
Jeremy Barnum: Thanks.
Operator: Thank you. Our next question comes from Matt O’Connor with Deutsche Bank. You may proceed.
Matt O’Connor: Good morning. You mentioned one use of capital is to lean into the trading businesses with your balance sheet and we did see the trading assets going up Q-Q, which is probably seasonal, but also up a lot year-over-year, but not necessarily translate into higher revenues. And I know they don’t like match up necessarily each quarter, but maybe just elaborate like how you’re leaning into the trading with the balance sheet and how you expect that to benefit you over time?
Jeremy Barnum: Yeah, sure. So, let me break this question down into a couple of different parts. So, I think what Jamie was sort of suggesting is that you can think of a concept as kind of like strategic capital versus tactical capital, for lack of a better term. And what he’s kind of saying is that in a moment where you’re carrying a lot of excess capital sort of for strategic reasons, you have the ability, at least in theory, to deploy portions of that with kind of like into relatively short duration assets or strategies or client opportunities in whatever moment for whatever reason and what might be thought of as a tactical sense. So, he’s just pointing out that that’s an option that you have and the extent to which this quarter’s increase in Markets RWA is a reflection of that maybe a little bit, but probably not.
I agree with you that it’s hard in any given quarter to specifically link the change in capital in RWA to a change in revenue. There’s just too many moving parts there. But for sure one thing that’s true is that the higher run rate of the Markets businesses as a whole that we talked about a second ago is linked also to higher deployment of balance sheet into those businesses. So as you well know, we pride ourselves on being extremely analytical and extremely disciplined in how we analyze capital liquidity, balance sheet deployment, GSIB capacity utilization, et cetera in the Markets business. And we don’t just chase revenue. We go after returns fully measured, and that’s part of the DNA and we continue to do it and we will. So, we still are operating under multiple binding constraints and obviously the environment is complex.
So, the ability to sort of throw a ton of capital at opportunities is not quite that simple always. But big picture, we are clearly in a very, very strong capital position, which is in no small part in anticipation of all the uncertainty, but it does also mean that if opportunities arise between now and when the Basel III endgame is final, we are very well positioned to take advantage of those opportunities.
Matt O’Connor: Got it. And then just separately, within the consumer card businesses, you highlighted volumes were up 9% year-over-year. Obviously, still a very strong pace. Any trends within that that are worth noting in terms of changes in spend category either overall or among certain segments? Thank you.
Jeremy Barnum: Maybe a little bit. Jamie already alluded somewhat to this. So, I do think spend is fine, but not boomy, broadly speaking, I would say. You can look at it a lot of different ways, inflation, cohorts, et cetera. But when you kind of triangulate that, you get back to this kind of flattish picture. There is a little bit of evidence of substituting out of discretionary into non-discretionary. And I think the single most notable thing is just this effect where in the — while it is true that real incomes have gone up in the lowest-income cohorts, within that there’s obviously a probability distribution and there’s some or rather just a distribution of outcomes. And there’s some set of people whose real incomes are not up, they’re down, and who are therefore struggling a little bit unfortunately.
And what you observe in the spending patterns of those people is some meaningful slowing rather than what you might have feared, which is sort of aggressive levering up. So, I think that’s maybe an economic indicator of sorts, although this portion of the population is small enough that I’m not sure the reader cost is that big. But it is encouraging from a credit perspective, because it just means that people are behaving kind of rationally and in a sort of normal post-pandemic type of way, as they manage their own balance sheets. And that’s sort of at the margin good news from a credit perspective.
Matt O’Connor: Okay. That’s helpful. Thank you very much.
Jeremy Barnum: Thanks.
Operator: Thank you. Our next question comes from Gerard Cassidy with RBC Capital Markets. You may proceed.
Gerard Cassidy: Hi, Jeremy.
Jeremy Barnum: Hey, Gerard. How are you doing?
Gerard Cassidy: Good. Thanks. Notwithstanding your guys’ outlook for uncertainty, and of course, Jamie talked about it in the Shareholder Letter and addressed it also on this call when he was here earlier. Can you guys share or can you share with us the color on what’s going on in the corporate lending market in terms of spreads seem to be getting tighter? It’s not reflecting, I don’t think, a real fear out there in the global geopolitical world. And any color just on what you guys are seeing in the leverage loan market as well?
Jeremy Barnum: Right. So, I think what’s true about spreads in general, just broadly credit spreads, including secondary markets and to some extent the leverage lending space, is that they’re exceptionally tight. So, I’m sure that’s reversed a little bit in the last few days. But broadly throughout the quarter, we’ve really seen credit spreads tighten quite a bit. You even see that a little bit in our OCI this quarter where losses in OCI that we would have had from higher rates have been meaningfully offset by tighter credit spreads in the portfolio. So broadly, sort of in keeping with the big run up that we saw in equity markets and the general sort of bullish tone, you saw quite a bit of credit spread tightening. That — in secondary markets.
That I think has manifested itself a little bit in the leverage lending space in the normal way that it does and that there’s a lot of competition among providers for the revenue pool and you start to see a little bit of loosening of terms, which always makes us a little bit concerned. And as we have in the past, we are going to be very well prepared to lose share in that space if we don’t like the terms. We never compromise on structure there. So, you are seeing a little bit of that. I think that away from the leverage lending space and the broader C&I space, there was a moment a few months ago where I think in no small part as a result of banks generally anticipating this more challenging capital environment and sort of disciplining a little bit their lending, you are seeing a little bit of widening actually in those corporate lending spreads.
I don’t know if that trend has like survived the last few weeks, and it’s always a little bit hard to observe in any case. But I would say broadly the dynamics are the tension between people trying to be careful with their balance sheets and the fact that overall asset prices and conditions are quite supportive and secondary market credit spreads have rallied a lot.
Gerard Cassidy: Thank you. And I guess as a tie-in to that question and the answer, we’ve read and seen so much about the private credit growth in this country by private credit companies. Can you give us some color on what you’re seeing there as both as a competitor but also as a client of JPMorgan? How you balance the two out where you may see them bidding on business that you’d like, but at the same time you’re supporting their business?
Jeremy Barnum: Right. Yeah. I mean, I think that tension between us as a provider of secured financing to some portions of the private credit, private equity community, you’re talking about different parts of the capital structure. But we do recognize that that we compete in some areas and we are clients of each other in other areas and that’s part of the franchise. And it’s all good at some level. But narrowly on private credit, it is interesting to observe what’s going on there. So, I would say, for us, the strategy there is very much to be product agnostic actually. It’s not so much like, oh, is it private creditors or syndicated lending? It’s what does it take to be good at this stuff? And what it takes is stuff that we have and have always had and that we’re very good at in each individual silo.
So, you have — you need underwriting skills, structuring skill, origination, distribution, secondary trading, risk appetite, credit analysis capabilities. And this is what we do and we’re really good at it. And increasingly what you see actually is that as you see us doing a little bit as the private credit space gets bigger, it starts to make sense to actually bring in some co lenders, so that you can sort of do big enough deals without having undue concentration risks. I mean, even if you have the capital, you just may not want the concentration risk. And so, in a funny way, the private credit space becomes a little bit more like the syndicated lending space. At the same time, the syndicated lending space being influenced a little bit by these private credit unitranche structures gets pushed a little bit in the private credit direction in terms of like speed of execution, other aspects of how that business works.
So, we’re watching it. The competitive dynamics are interesting. Certainly, there’s some pressure in some areas. But we really do think that our overall value proposition and competitive position here is second to none. And so, we’re looking forward to the future here.
Gerard Cassidy: Appreciate the color. Thank you.
Jeremy Barnum: Thanks, Gerard.
Operator: Thank you. Our last question comes from Charles Peabody with Portales. Your line is open.
