Ryan Kenny: Thank you.
Operator: Thank you. Our next question comes from Gerard Cassidy with RBC. You may proceed.
Gerard Cassidy: Good morning, Jeremy. How are you?
Jeremy Barnum: Hey, Gerard.
Gerard Cassidy: Jeremy, you guys have put up a really strong ROTC number of 22% for the quarter. And when you dive into your different segments, what really jumps out at us is the 40% ex-First Republic ROE in Consumer and Community Banking. I know you and Jamie have talked about your over-earning on credit, we get that. But in view of all of these fintechs and all these other non-bank competitors that were all supposed to pick away at everybody’s market share, you guys have put up great numbers here. What’s the drivers behind an ROE, even when you take that credit over-earning out, what’s driving this business profitability at such high levels?
Jeremy Barnum: Yeah, Gerard, I’d say a couple of things there. So first, it’s not just credit, it’s also deposit margin, right? So when we talk about over-earning on NII, a disproportionate amount of that is coming out of the consumer franchise for all the reasons that we’ve talked about. But I would also point out, sometimes we don’t like the word overearning because right now, customers are happy, and they’re doing CDs. And the broader answer to your question about why we’re able to compete effectively really comes back to a decade, two-decade long history of investing for the future and recognizing that there’s a holistic value proposition here that includes branches and the app and all the online services and the entire suite of products and services that is around this enterprise, which drives engagement and customer loyalty.
And we’re seeing some of the benefits of that now, although we’re not complacent. The competition is still there, the fintechs are still there, and we know we need to continue investing to preserve the value. And it’s also true that the particular circumstances of the current rate and credit environment means that the earnings are a little bit above normal, but that core franchise is extremely robust.
Gerard Cassidy: Very good. And then as a follow-up, which ties into your answer on the deposit margin and consumer and your earlier comments, you and Jamie, about the internal debate inside JPMorgan about the migration of rates going higher on the funding side. Your noninterest-bearing deposits, I think, are around 28% of total deposits, which is slightly above the 26% you guys had back in 2018 or 2019 or pre-pandemic. Is this expectation that you’re going to see more of the noninterest-bearing deposits going to interest-bearing or is it just the repricing of interest-bearing deposits that have some of your folks inside JPMorgan a little more cautious on that net interest income number?
Jeremy Barnum: That’s a good question, Gerard. I think it’s a little bit bigger picture than that. And I’m not sure. I get your question. It’s a good question, but I’m not sure that the reported interest-bearing, noninterest-bearing split is the best one to look at this through for a couple of reasons. So first, like between wholesale and retail, we’ve got some amount of noninterest-bearing in wholesale that’s sort of the ECR product, and so you see some dynamics there that play out. And in consumer, in a world where savings is paying a relatively low rate paid across checking and savings, the migration dynamics are probably not that different right now. But then, of course, even within consumer across both consumers and small businesses, you’ve got slightly different dynamics in terms of how people manage their operating balances.
So I would tend to zoom out a little bit and see this as a holistic answer that’s driven by internal migration from checking, savings, to CDs, from ECR to interest-bearing and wholesale. And then our potential response to the rate environment, the competitive environment, the overall level of system-wide deposits in terms of product-level reprice that may or may not happen at the moment in the future.
Gerard Cassidy: Great. Thank you.
Operator: Thank you. Our next question comes from Erika Najarian with UBS. You may proceed.
Erika Najarian: Hi, good morning. Jeremy, my first question is for you. Again, sort of maybe re-asking the question a different way. Your new guide for net interest income for this year would imply an exit run-rate of $22.9 billion in the fourth quarter. As we think about the dynamics in higher for longer, on one hand, your fixed rate assets will continue to reprice. On the other, you’ve been asked a lot about the deposit dynamics that could continue to creep higher. How do you think about those puts and takes as we think about that relative to that exit rate of $22.9 billion in the fourth quarter?
Jeremy Barnum: Yeah. So, Erika, I think the simple answer to your question is those — I believe that fourth quarter exit number equates to a $90 billion run rate ex-Markets. And we’re kind of saying that…
Jamie Dimon: It was [$2.5 billion] (ph).
Jeremy Barnum: Yes, it’s not what I meant to say.
Jamie Dimon: She said $22.9 billion.
Jeremy Barnum: I didn’t hear that. Okay. Anyway, so call it $90 billion run rate on an exit rate basis, and we’re saying that we think something a bit more normal is closer to $80 billion. So that’s one building block. Underneath that, I think one thing that’s interesting actually, is that as the percentage of the deposits which are CDs increases, the sort of balance between internal migration and betas and rate and volume is a little bit less binary and a little bit smoother. So when we look at this type of stuff and we model migration, balances, product-level reprice, as you get out of that lower zero bound with 0% CD mix world, things get a little bit smoother, I would say, overall. So it will be interesting to watch that, but it’s obviously one of the most important things for us as a company right now.
And we think we can manage it, but it’s also worth remembering that the big picture point is just the client franchise. And we’ve often said, we’re very focused on primary bank relationships, and we didn’t lose any of those in the last cycle. We’re not planning to lose any in this cycle, and that’s what sort of a long-term focus means for us.
Jamie Dimon: And I would just say quantitative tightening there. That will be a large number, and we don’t exactly know the effect where wholesale, consumer — remember also the Fed has the RRP program, which is also sucking money into the Fed directly reducing deposits. That’s still [$1 trillion, too] (ph).
Erika Najarian: Thank you. And my second question is on maybe zooming out on the Basel III endgame impacts. It’s clearly complex, overly complex. And I completely agree with you that it is unnecessary at this point and very backward-looking. I guess what is not complex is the fact that you generated 75 basis points of CET1 this quarter while your RWAs are down. And I guess my question here is, is that, I understand that we’re in the public advocacy process. I hear you loud and clear in terms of how this could have harm in terms of pricing for Main Street and dislocating the pipes in American capital markets. But for JPMorgan, has this changed your natural return profile of 17%? Jamie, I know you lingered a little bit on 14% when you were at Barclays in September. But at the end of the day, it feels like for your — for the portfolio managers that own JPMorgan through the cycle, this Basel III endgame really harm your natural earnings power and returns.
