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JPMorgan Chase & Co. (NYSE:JPM)

Goldman Sachs Financial Services Conference

December 11, 2013 8:00 AM ET

Executives

Jamie Dimon - Chairman, President, CEO

Analysts

Richard Ramsden - Goldman Sachs

Richard Ramsden

Okay. So thank you all for coming. It’s obviously a great pleasure to have Jamie Dimon, CEO and Chairman of JPMorgan here to talk about the outlook and to talk about JPMorgan.

I thought a good place to start would be if you could give an update on your businesses as you see them today perhaps you could break it into consumer, corporate and capital markets? And then perhaps talk a little bit about your expectations for those businesses going into 2014?

Jamie Dimon

Okay. So first of all, welcome everybody. So the way to look at our company, we have four really good franchises, okay. You can call them, it’s in the upper quartile, it’s the global asset management, global corporate investment banking, U.S. commercial, U.S. consumer. Each one has a good returns, good business, high stat scores, look at every single one, we are actually gaining customer satisfaction, our customers like us. Thinking about it yesterday, we want to ease a little higher in the ACSI and JD Power kind of ranking, JD Power number one small business in three of the four regions of the U.S. They all have a good scale. They all earn good margins and even in the current environment they are all in good returns.

So we have a really good stack of businesses. I will give you a long view and then I will give you a short view, okay.

The way I look at it is, our clients, okay, investment clients, investors, corporate clients, U.S. private bank, U.S. consumer, U.S. commercial bank, it’s got a pretty bright future. I mean you look out 10 years, you talk about [inaudible] equity and debt, will investors need to be making investments in research, is the private banking clientele going to grow. These numbers are going to double in the next 10 years. And in some of the emerging markets triple. So the opportunity set is huge and they are not going away. So with all the changes we are going through those clients they need loans, trade finance, derivatives, equity, U.S. commercial bank clients need loans, cash management custody et cetera. So I think it’s actually a very good long term future.

The issue that you have to face today is that we are obviously in 2014, the way I look at it is, we’ve got control issue we got to fix. We are going to. We are taking that axe to it. We are going to fix the problems that have been identified. And we have got a huge amount of regulatory change. So you got CCAR, [CLAR] [ph], [inaudible], Volcker, LCR, you got legal entities, resolution, there is a lot of stuff. It doesn’t stop where I just said about the underlying business but we have to adjust this new world and adjust to that you will have to take a lot of effort. So I want to start [inaudible] a great franchise and [inaudible] great franchise and adjust it.

If you ask a very simple question, what is all the new rules mean, capital, liquidity, et cetera, hard to tell exactly and go one by one, all things being equal our expenses will be higher our returns will be lower. But, I also think that you can see a lot of change taking place, certain things [will be] [ph] shadow banks, certain things re-price, investment banks, corporate investment banks are going to do a lot of optimization. So we will be doing client by client SOR, Basel III and optimizing differently in the world of re-price, the franchise will still be there.

Richard Ramsden

So what sort of environment are you preparing for next year from an economic standpoint and I guess the key question is, Fed tapering looks like it’s going to start in some manner, at some point next year. How do you think about the impact of that on your businesses more broadly?

Jamie Dimon

So we don’t, we plan. We are doing really intensely now. The other fact, I meant to mention, a lot of what I call pruning, simplifying, pruning, you should do it all the time. Every year business look at what do I need, what do I need, how do I serve my clients? It will be a little more intense this year. And you have already heard us talk about spin-off private equity, stoppage in lending, things like gifts cards are not going to do. I got a friend called up so Jim I used to love getting gift cards at Chase, can’t get them anymore but you should know that since you don’t sell them outside the branch right now there are people are selling gift cards and but we can’t do [inaudible] gift cards. So we have to make certain decisions like that.

And we budget not expecting a great economy. I think you could be surprised on the upside. I think this budget deal is a big deal not to get the numbers, hope you don’t have to go through that crisis again. We are not going to shot ourselves in the foot. And the global economy seems to be picking up. If you look at the [setting for market] [ph] is in a very good shape. And I’m just not as worried about taping as everybody else. I think the normalizing interest rates and normalizing markets and treasuries is a good thing. You are going to have volatility. So every time you wake up, you are going to – we got to try to read the by language of Janet Yellen and Ben Bernanke and everybody and it’s going to cause the five year and the 10 year to bounce around and stuff like that.

As long as the economy is growing, it doesn’t matter that much. It matters to 20 million people who pay attention to it. It doesn’t matter to the 6 billion people in the planet. And so we overreact to it. You are going to have volatility. And as long as we have growth, I think it should be fine and stronger the growth, the quicker they are going to taper.

Richard Ramsden

Are there any particular, I mean, you said you think it’s going to be…

Jamie Dimon

And all things being equal, if they are not, interest rates going up will benefit our company.

Richard Ramsden

Right.

Jamie Dimon

I think most banks are positioned at this point.

Richard Ramsden

I mean it sounds like you are preparing for somewhat of a better environment next year but not dramatically better but within that are there any geographies of products that you are particularly excited about, that you really think can do well in 2014?

Jamie Dimon

Yes. Look I think investment banking could be stronger than people think in 2014. We are not planning for it. We are not budgeting for it. If you ask me, I think the odds of it being better than being worse are pretty high. The U.S. economy can easily grow at 3% plus next year. That would help every single business in the United States. And the emerging markets, if you look at the emerging markets opportunity, they’re huge. They are not going away.

And so you look at, obviously, you can say well, Brazil is not doing great. But, you go country by country and if you said where is the amount - with the growth of global multinationals and assets under management and private banking clients over the next 10 years, you are talking about huge growth, huge growth.

And the way we plan for that, by just adding branches, bankers, products services, even things like – think about having a Chinese desk in Brazil to handle the flow of Brazilian companies going to China and Chinese companies going directly to Brazil, so you have Mandarin and Portuguese speaking bankers. So there are things like that which will be big opportunities and the companies that have the global network they’ll be in a pretty good position to serve those clients.

Richard Ramsden

Can we talk a little bit about strategic priorities for next year and I guess, this year you didn’t make any major announcement but as you touched on, you did get out of a number of smaller businesses which is non-core. Can you talk a little bit about why you are in that process, I know it’s an ongoing one but have you done the bulk of what you think you need to do in the near term?

And secondly, If I was to ask you for your top 1 or 2 priorities maybe not for the next year, maybe for the next one or two years, what would they take?

Jamie Dimon

So again I say the strategies of the businesses will not change. This huge cross-sell, we do as much cross-sell as the Wells Fargo. The U.S. commercial bank does 25% of U.S. investment banking revenues now, think about that. That’s a huge competitive advantage. So the strategy won’t change, most of this is surgical. Pruning old products, some businesses that we just don’t need or they create too much control risk where they kind of mucking up the work.

So the real focus this year is just same strategy, just – and we are doing all the surgical stuff right now. So when we do our Investor Day in February, I give you a whole list of things that we are changing. But, it won’t change the strategies and getting through the year and adjusting to this new reality, the new global financial architecture that is probably number one. The control agenda, the regulatory agenda while we just continue to hopefully grow organically.

Richard Ramsden

Okay. Can you speak a little bit on the competitive dynamic, and I guess there is two questions. The first is, how would you characterize the competitive dynamics today versus banks but also I think probably more importantly how do you see it versus the non-banking sector. So you have seen a lot of MSRs shifting out of the banking system into non-banks, a lot of leveraged loans now held outside of the banking industry. I mean that’s obviously been the trend for a while, but over the last six months have you seen that competitive dynamics?

Jamie Dimon

Yes. We have seen a little bit. Remember non-banks, shadow bank it doesn’t make them bad. It is going to happen. Everything that takes place inside the banking system will be priced outside of the banking system. And therefore, if the capital and requirements are too high here, people over here will say I’ll do it for less.

We are actually seeing hedge funds starting to do middle market loans. Look I’m in favor of competition. I’m completely fine with that. As a policy matter, I’m not sure the banking regulators are going to want that because the darkest, deepest moments in 2008 and 2009, JPMorgan was there for all of our clients. And the darkest, deepest moments in 2008 and 2009 a lot of people in the market panicked. Banks can’t panic, we can’t be [inaudible], we have to be there just for our clients when nobody else is. So regulators are going to look at the positive [inaudible].

In the meantime, we have seen – you are going to see certain things move into non-banks, as things get re-priced. I don’t think it’s going to affect the core of our business. I don’t think they can do equity, debt, major investor services or fixed income market the way we do. They might take over certain credit correlation books because it will be too expensive to do it over here, still not going to affect emerging markets, securitized products and a whole bunch of other things.

And so but we are going to keep a close eye on that and as the final rules are done, what I just said it may change a little bit. The banks will take their different strategies. And you have had – I know you’ve had a lot of people up here, some of them are not changing, some are being much more radical in how they look at what business is going to stay in or stay out. We like where we are, we are earning good returns where we are and I think we will be making adjustments over time. We are not going to prejudge what the outcome of all these things are, I think that would be a mistake for us.

Richard Ramsden

Okay. So you talked briefly about how you thought investment banking revenues could surprise next year, I guess the surprise over the last three years has been you got equity markets that are rallied every year, you got debt markets where you had spreads continuing to narrow, [Tel] [ph] risk in Europe has been largely reduced. Yet, it’s been I think three years in a row where capital markets revenue are being flat.

James Dimon

Right.

Richard Ramsden

Did you see that as just a point in time or is that the new normal do you think?

James Dimon

That one, I don’t honestly know. If I had to guess, I would say a point in time that the wealth of the world, okay, is going to double over the next 10, 15 years. That means that you all who represent investors would have a lot more money to manage [inaudible] to do a lot more buying and selling, so my underlying thing is that the underlying business is probably going to grow but you have all seen and this happened to our whole career. Spreads have been coming, I mean, spreads [execute] [ph], derivative and bonds, munis, equities will be coming down, which is a good thing. It’s a good thing for investors; it’s a good thing for issuers et cetera. So that will happen things will electronify. You sew a lot of things they go electronic and the spreads dropped by – [execute] [ph] by literally 80%, 90% sometimes the volumes go up 10x. So you got to – I don’t want to prejudge how this is all going to happen.

Richard Ramsden

If we turn to capital in the latest FSB guidelines JPMorgan is now the only U.S. bank that’s in the 9.5% category. Can you talk a little about I guess two things, the first is, do you in anyway see that as a competitive disadvantage for any business, and secondly, as you go through this process of getting out of non-core businesses or simplifying some of the businesses you are in, is there an opportunity for you to move down, is that something that you would want to see happen or you’d love to [inaudible]?

Jamie Dimon

One of the things we are doing right now is we are pushing things like SLR, Basel III, which is largely gone down to the – literally the training desk et cetera. We are pushing G-SIFI and CCAR whatever causes CCAR down to that level. So when we make the decisions of products and businesses we could say how much of that’s due to G-SIFI, so we don’t like being in the highest bucket. We are in the high part of the highest bucket, so we will manage G-SIFI to stay where we are or try to get it down over time. That’s not a one year effort. We are going to manage that like we manage anything else. And there are certain things that we have to create much more G-SIFI and other things some are actually changeable, some we are still trying to understand, how they actually calculate [cross border][ph], a lot of - some of which is [grow size] [ph] and grows [cross border] [ph] and grows to financial institutions, other we can actually effect.

AFS securities are negative, well we can hold loans. Level three assets are negative, well, we can drive level three assets down. So we are going to manage that like we manage anything else. We still don’t want to go in the higher bucket. I think what you have seen by the way is that we have told the world we are going to run at 10% plus and will calibrate more down the road, we understand on the rules. So we’ll run close to 10% plus in Basel III, 5.5% on SLR, give ourselves proper cushions.

Everybody else is – they are not going to [inaudible] the lowest, they can’t run either. So people I think most investment banks will be at 10%, a lot of the U.S. commercial banks would at the 8.5%, 9%, so there is not quite the competitive disadvantage that some people think it might be.

Richard Ramsden

Okay. So you set the 15% return on equity target I think three years ago and I mean I know that doesn’t anticipate a benefit of higher rates, but I hope you will get soon but also it didn’t incorporate some of the regulations, [inaudible] obviously, what’s happened over the Basel and liquidity requirements. When you think about that target today given everything that’s happened in the last three years does it still sound…?

Jamie Dimon

We will be adjusting that. A lot of we have already done it by the way or when we do Investor Day in February. And I’m going to be very simplistic here, is that, if you said, now it’s 10% more [capping] [ph] than before all things being equal, doing no analysis, your say okay it’s going to reduce your return by approximately 10% or 1.6% or whatever it is. And then if it’s a higher cost structure because we’ve said we’re spending $1 billion more in controls, compliance et cetera, that’s going to be $2 billion more by the end of 2014, some of that’s permanent.

On the other hand, our expense point is, where I think Marianne Lake, the last time she came forward said it was $59.5 billion to $60 billion kind of and that’s ex the corporate litigation and some foreclosure later matters. So even though we are spending a lot more money that $60 billion is going to come down in total next year, we are just going to drive it down. So again the question is is there a way to make up for that.

So the static analysis, if the 16 goes to 14.4, whatever the number is, again, I look at that, yes, it’s true but that’s before optimization. That’s before re-pricing. I don't think that you’re going to have all this bench around the world holding these line of capital and the revolvers look like the same. And even if they, and so I think revolvers, repo, operating deposits, trade finance, all these things use a lot of balance sheet, they are low risk, they use a lot of balance sheet, they have to be re-priced a little bit. And that’s okay.

And the optimization you’re talking about, you can do it kind of by client, by business line, by product, by country. So, when you look that, it’s okay if you return on Basel III was – on a client was 15%, now it’s 12%, what do you need to do to get it back to a good return, a fair return, a return you have to earn in the marketplace by the way. You may ask them, you got to get operating deposits down, [inaudible] backup, you got to do, give us a little more fee revenue whatever it is to get it back to fair returns.

Richard Ramsden

Can you just talk a little bit about how that hasn’t worked in practice, when you go to clients and say look, this is now what it’s costing us because of the capital and liquidity requirement, what is the client response? Are they adjusting on the standard or do they - are they starting to go and look elsewhere to see if they can get (inaudible)?

Jamie Dimon

Well, they understand it. But they don't care if the market is going to price it just because you want 20 basis points more doesn’t mean they are going to give it to you, they won’t, I don't care what it is, I can still get 20 basis points over here. What I’m saying is, it will get -- something will get re-priced. People will optimize. It is not possible that kind of capital and you think revolving and the products may change. You actually, you and I can sit here and range [inaudible] about products, okay. Maybe the revolver, to reduce some of the charges and stuff, you can take down half of it in 31 days, half of it -- third in 90, another 25%, 90 days, another 25%, and they go back to number of, we’ve had in the old days, guidance [earnings] [ph] where your – it’s not a firm commitment, where the banks says I will be there for you, I think that people are going to change products and services and re-price and adjust to the new world.

Richard Ramsden

I mean, I guess that …

Jamie Dimon

You know the static analysis were okay, were okay. So, I’m not -- the whole world is not created equal, not everyone does get the same return, people do certain business models, our business model has given us good return, real organic growth and we’ll adjust.

Richard Ramsden

We do seem to live in a world where regulators are heading in different directions. I think it’s clearly what the U.S. is trying to achieve is a little bit different to Europe and Asia. I guess two related questions, the first is, do you think the domicile in banking is going to become a competitive advantage or disadvantage over time. And secondly, how would you rank order the U.S. in terms of attractiveness other domicile from a regulation standpoint?

Jamie Dimon

That’s a tough one. So I’m hoping that the regulators -- I think the regulators are working on having not common but common enough resolution that you know if you’re talking about – getting rid of too big a sale for JPMorgan, it’s got to work here and it’s got work in London. And so, they are having those dialogs about how they’d work single point entry, how do you combine single point entry with ring fencing I think they’re actually going come to solutions in that. I really believe though eventually didn’t want to destroy the international goal of banking system but just trying to figure out how to protect the countries and protect deposit et cetera.

So I don't know yet, I mean the America is still one of the greatest destinations for business ever; still true today. So it’s still a great place to domicile. We have a healthy, look at our banking system, they are just -- it’s really strong, capital, liquidity, which I think is a good thing. And certain standards will be adopted elsewhere also.

So over time I think you will have some kind of convergence; it doesn’t have to be exactly the same to have good competition globally. I mean if rules are so different that JPMorgan can’t compete in Europe, that’s a problem. But as long as they are roughly equivalent, that’s not a problem. But in fact, remember we had different rules for a decade. For a decade, just 20 years or 10 years, you probably know better than me, European banks had much more leverage, much more unsecured wholesale funding, much lower RWA, the way they calculate it, even for the same risk assets and we still did fine. So I’m not always seeing that one too.

Richard Ramsden

Obviously, the latest will be coming out with Volcker, I know you’ve had all the 24 hours to digest it but I guess my question would be, do you think the regulators from your initial read have struck the right balance between maintaining liquidity and financial market versus protecting safety [inaudible]?

Jamie Dimon

Yeah, so I think for the most part the banks have already gotten rid of proprietary trading, adjusted all these kind of strategies and like you said, look I’m glad, I’m glad that we now have some certainty, we can figure it out and we’ll deal with the management of Volcker at this point. People are going through all the detail and obviously that matters a lot. So but America has great markets, I think after this we’ll still have great markets.

Richard Ramsden

Can you talk about…

Jamie Dimon

And great markets are critical for successful economies. If we go around the world and look what they don't have great kind of financial and capital markets and they probably don't have very good economies.

Richard Ramsden

Can you talk about CCAR process, and perhaps not just for 2014, but over a longer term perspective? So you obviously are generating loan capital, I know you’ve said you’re prioritizing getting compliance over the next 12 months. So how should we as investors think about the type of capital returns, one - for both 2014 but also once you’re compliant of all the regulations when they are set in place?

Jamie Dimon

And so, it’s a -- I have always been a believer in stress testing, this is very, very, very detailed stress testing. You are talking about hundreds of models that are almost like underwriting models and forecasting models et cetera. And when you put it with those having in that was like you’re using credit like, where your counter party goes, your major counter party goes bankrupt or you have a problem that’s worse than everybody else in the system and can you handle that too. So it does create a much stronger system.

We are going to embed CCAR in all of our forecasting, budgeting, planning, processing, so that it comes as part of the mindset how we do it. And of course as we, no more [battle], we are going to be able to manage CCAR too. We know [we] created. We know how to go there and as you see most of the banks, (inaudible) my target, they are going to move quickly to the targets, I think mostly want to get there right away, they are not going to wait anymore.

And then after that those banks will be earnings good returns and they got to give some of them back to shareholders. Right now, they are talking about 30% dividend, no more than 30% earnings but as dividend, that may have to change because higher dividends maybe formal rational way of paying the shareholders than buying stock back if the stocks are high. So they need to have probably more flexibility over time in CCAR and but you’ve seen they buildup in capital it’s huge, some of the banks already way so far above their targets, I don't know how they’re going to deal with that over time. We also don't know the final rules on how the [conservation popular] work et cetera and we need to understand that before we actually set real targets.

Richard Ramsden

You previously said when your share prices were around this level, you didn’t think buybacks, was that attractive as a capital management tool, would you reiterate that comment today?

Jamie Dimon

Yes. (inaudible) numbers in it, Chairman had a couple of years ago, that a certain prices that they are no brainer, even if you hair cut your earnings, yes, if you’re buying a tangible book value of last year enhancing earnings, enhancing casual book value per share and you’re creating more cash flow, you’re creating more. As the stock goes up, obviously, that’s less true.

And so, if you’re buying your stock back at 10x and its still is a rather good buy, because if you believe your franchise value. So I wouldn’t say at this price it’s a bad buy, at a price, I think my own quote, its not a rational thing to buy stock back at any price. And you have to have a view about whether; I’m not worried about the departing shareholder because I’m giving care to the departing shareholders(inaudible), I want to make sure the remaining shareholder benefits from it. So I am just not a believer at giving cash back to stock buyback is good for your shareholder.

So when the stock price goes up, you buyback less. You don’t have to be -- you got an exact price to do it. And what they mean is, if you have a revaluation of bank stock, , it’s going to happen one day, since a lot of banks will be better off paying higher dividend than being forced to buyback stock at high prices and then what the investor decide what to do with the excess cash.

Richard Ramsden

So I want to ask a little bit about the legal issues as well before we turn it up to the audience. And I guess my question would be how do you think about or how did you think about choosing to settle versus choosing what the site and I guess having gone through the process over the last 12 months, what have you learned from it?

Jamie Dimon

Yes, it’s hard and it’s not, its a board level type of thing, it’s hard to go through that kind of thing. I have said before more than we ever expected but you really are given two choices and they are both bad. And it’s hard to deal with that, because you normally in business you think you can do other things and we made the choice that we feel was better for shareholders, pay the price and try to move on. We’ve got a lot of the litigation and mortgage behind us, we have more to go, you read about (inaudible) in paper the other day. We have to get some of these things behind us. So we can do our job, our job is to serve clients around the world, that’s our job.

So I want to get it behind us, the two choices we ought to settle now, pay ex whether, the numbers where you think you can fight. And a lot I got calls from shareholders saying, fight. But think of the fighting part it actually may not cost you less, you be in courts for two, three, four or five years, your people will be interviewed, your company will be demeaned in the press non-stop, it’s really, really painful.

So you may have paid a premium to settle, we thought it’s far better thing to do, it is very hard to go to court in some of the matters if you are a bank and I don’t want to threaten that the health of my company ever.

Richard Ramsden

Okay. Just, x litigation expenses is what - if we think about the run rate of expenses for you, I think its gone from whole of $54 billion in 2010 to about $59 billion today, so about a $5 billion increase. And that’s obviously against the backdrop of revenues really haven’t done that much. When you think about that $5 billion increase, how much of that do you think is permanent as a result of regulation technology combined?

Jamie Dimon

I cannot compare 2010 to the numbers and in lot of stuff and I believe, actually don’t remember the 2010 number. I do remember that we said that, last year was like something like 60, again x quarter litigation this year 59.5 to 60 and that we will have, if you said what is the total actual cost in compliance risk, legal, audit, et cetera to deal with your issues, build up run rate by the end of 2014 is $2 billion. There is a lot other happened that, I mean, I think if you said technology and ops huge amount of effort that people who are just going to work on for (inaudible), the actual focus and from where it measures far higher than $2 billion.

The $2 billion for the most part is permanent, its not going to go away, some of it will go away, we are not going to consult (inaudible) the time, some of the systems we’ve built that make it cheap to reduce certain things. But I think it is permanent, but I told you that 2014 we expect our expense to be lower than they were in 2013. So, we will fight a lot of other efficiencies, we don’t normally announce big saving programs or stuffs like that, but if you look at business-by-business we’re in the efficient side of it.

Our efficiency margins in CIB are among the highest in industry in the consumer bank and backing up mortgage there, kind of a little bit better than average. In the commercial bank, we’re among the highest out there and net asset management on the highest out there. So the mix of business actually, I look at it by business, I don’t look at it by just a gross aggregate number.

But we’re going to drive huge efficiency and that’s, we’ve always try to do that and this year we tried more intensive budgeting probably ever done by pushing down G-SIFI CCAR, we’re pruning different things, we are analyzing every line of business, we’re driving down expenses, we’re doing technology, as tough as we’ve ever done before to make sure we stay a very efficient company.

Richard Ramsden

Do we have any questions from the audience?

Question-and-Answer Session

Unidentified Analyst

Just to talk a little bit more, I think you answered Richard’s question about the choice between [suspecting and litigating], what about, what you would have done differently and also how you view the regulatory environment in your relationship with regulators now?

Jamie Dimon

So fortunately we always want a good relation with regulators and we’ve always tried to have one, we have to have one, we’ve always tried to be like partners, it obviously got worse, and we lost track it at some how over the last several years and we’re trying to get back. So, we are going to have a shot at them, we are going to chop it, we try to be very transparent, I think our senior regulators yesterday and day before and our senior people responsible, the mistake biggest mistake we made, we pushed far too down the organization because senior people say that’s what you want, that’s what will get done. I’m not going to hit that big one theoretical debate about something and so we’re going to try to meet all their requirements.

Looking back Bear Stearns would have happened today. So you’ve said with my board, if you are on a board and you said would you approve a Bear Stearns, remember Bear Stearns is imploding and if you are going to offer to me a zero I would not have taken it, we were asked to do, we thought we can handle it, we thought we put up enough reserves and pushed it kind of that to handle most the down sides, we’ve got a lot of great things from Bear Stearns. It absolutely helped our company and of course the board, investment banking mortgages, research certain technology et cetera, but you wouldn’t take this kind of unlimited risk that it became after effect and obviously we paid more money. 80% of our mortgage problems are Bear Stearns in WaMu. And WaMu, again, a huge benefit to the company that would get the eyes open totally, we were building in California and Florida, this is a good just model with the branch systems. We built a lot more branches and on top of that small business, private banking, middle market and more investment banking. That’s working. And that’s going to work and grow for years. So you still might go to WaMu, the problem WaMu, we had a hard time with is that we were forced to give up some of indemnities we got, when we negotiated to buy WaMu.

So if you are going to be buying bank in FDIC, you got to say a little of those indemnities worth if another omni government could tell you, you could got to give them up. And so I don’t know what happen if we are doing WaMu again. I don’t know how to make that air tight.

Unidentified Analyst

Jamie, can you just talk about the broader ramifications for what you and (inaudible) the industry, so I guess resolution is [it certainly was] probably gone through acquisitions in the last crisis. Do you think that means the things like OLA will get pushed down further because a lot of regional banks now need to be self resolvable because consolidation is going to be the same at the (inaudible) historically?

Jamie Dimon

Again, I think that the regulators are going to warn bank mergers again and that is one form of resolution, it is immediately the best form of resolution. And so I think they are going to – try to come to ways that people actually buy the assets and leave behind the liabilities not get caught in this small trap that we got caught. And I believe in (inaudible) investment bank so we already have plenty of capital to cover a whole bunch of things. I don’t know how far it’s going to get pushed down. It might get pushed down a little bit further, yes, because of the resolution.

Unidentified Analyst

Thank you. Can you talk a little bit about the outlook for FIC over the next few years, you’ve had comments in the past about the regulatory pluses and minuses and a little bit further along down the road. We would just love to hear your update there? Thank you.

Jamie Dimon

Yes. So again, the big picture is that there should be more business. And of course, it’s a volatile violent business. So the actual flows are like by week, by day, by month, by quarter. But we said over time, its actually a good underlying growth business, it grows with inflation, grows with companies, grows with (inaudible) or grows with corporate needs. The things that are affecting FIC now are going to be obviously with the deals with new derivative rules that would deal with new capital rules, people have some lower balance sheets, it’s hard to put it all together, there still be a FIC business, still it would be a good business. Spreads will change a little bit, liquidity may change a little bit, but its not going to go away, some of it may partly move to shadow banks and such would it’s hard to tell, but I still think we are going to be a big winner in FIC -- over ten year.

I don’t know, I can’t tell you exactly if that’s next year. I think we have told, you all before in the past that some of all these derivative requirement sets et cetera about a billion dollars, but that’s just a rough estimate and I’m not sure how much you are going to see next year.

Richard Ramsden - Goldman Sachs

Any other questions from audience? Go ahead.

Unidentified Analyst

(inaudible) I think, some of the hardest hit states, have you found any U.S. demand in terms of as you – you decreased your requirements there has been more demand from --?

Jamie Dimon

Are you talking about mortgages?

Unidentified Analyst

Yes, mortgages.

Jamie Dimon

So I think mortgage - most of the compare mortgages, way a while back I must say six to nine months [went to] I would call normal standards in hardest of states, until then people in Nevada, Florida, New York, et cetera, the LTEs were lower than normal, people had more credit overlays, IT went to normal in the hardest states.

We haven’t seen a tremendous amount of action, we’ve seen a huge recovery in housing, and house building, supplying demand is in balance, in some places in a short supply, they still, I think a lot of people still having the credit overlay in general that is you are delivering mortgages to Fannie, Freddie or FHA were being tougher than they want, within their standards are and as to protect ourselves and represent warranties et cetera.

And that, and again I think when the QM rules when always think definitive that will hopefully go away, because mortgages are still two types from the consumer standpoint, some people can get them, some people pay more for them and they don’t really have to.

Unidentified Analyst

What the elastic demand you think if let’s say you go down to the absolute minimum what would be your best guess?

Jamie Dimon

I don’t, I don’t think would be enormous, you are talking about 10, 15 basis points in total. And you guys made them those numbers, but I don’t know how much is driving it. You see purchase volume, going way up anyway, I think when people have jobs and things like that they want to buy homes, home prices are down they are still very affordable.

Unidentified Analyst

Perhaps as a follow on to that, I mean if we look at your charge-offs relative to what you think are normal, I think your below normal in every category x mortgages.

Jamie Dimon

Yes.

Unidentified Analyst

As the economy normalizes, would expect charge offs to pick up or have underwriting standard being just so tight over the last four years that it’s largely independent?

Jamie Dimon

So corporate, I am going to go by each business real quick, corporate has been very good and very low with good recoveries -- we won’t say normalize it as 1% but its quite a little high probably lower than that. And obviously, that bounces around if you got large losses or small losses. Commercial bank has been unbelievably good right through this whole crisis relative to what you might have expect in a crisis, so whatever we gained is normal there, we still (inaudible) 50 basis points, mortgage will normalize, so prime will come down to 3, 4 new prime.

The (inaudible) is pristine. (inaudible) big risk, giant recession, we still got a very low rates, home equity we get done it will be, I think we always said normal they were 75 basis points. Credit card is the one surprisingly we told normal was 4.5%. Last quarter we were 2.8. The lowest we have ever seen. And there is a chance, it’s a going to go a little bit lower. We look at the early low rates or stuff like that so we are going to come back on Investor Day and probably adjust a normal from 4.5% to something lower than that.

And (inaudible), our book of business part is people use their credit cards and the stability of the home owner and the consumer et cetera. So that will come down and hopefully pay down.

Unidentified Analyst

Jamie, other side of, good view of the U.S. economy, are you seeing improving demand from what consumers and corporate are you seeing, corporate loan demand becoming more broad base?

Jamie Dimon

Yes. The corporate market is wide open. I mean you see that every single day. Lowest gainers hasn’t really changed very much, they changed a little bit and they will talk about governance and stuff like that. They haven’t changed that much. And the pricing, all the spreads if you just said okay there is normal cycle for next seven years and high yield, you still make a risk adjusted return. They are not terrible.

I think that we have not seen or all going to see, what we all want is to see business and consumers or the 16 million car sales or credit card spend which is going twice industry up 10%, week after week after week. You have seen some recur in the consumer through balance sheet clearly recovered.

On the corporate side, I think he just is waiting for the to (inaudible) to come back. They have a lot of cash, a lot of wherewithal, corporate – U.S. most corporations, how much more cash -- you want me to hold, they say 50% more, 75% more. This overseas, they are waiting for rating agencies, they are waiting for good reason to build a new plant. But, the middle market revolvers, the average usage used to be 45%. It’s 32% today. They have a lot more in deposit and a lot less user revolver. But American business wants to grow. So you have seen business expenditures anchor like still below replacement or close to it.

The lowest has been the percent of GDP I think since the Great Depression. And it dipped a little bit in 2009. That’s going to come back. That’s going to come back from the combination of consumer demand, consumer confidence, business confidence, stability in Washington, which I guess, I think this deal they did is thank you, thank you, thank you for not doing, what they did again.

That guy said, last year, we stood at the edge of a great [presenters] and this year we took one leap forward. Fortunately, this time we took one leap backward. I think that kind of stuff is damaging consumer confidence, business confidence, international confidence, international market, it was embarrassing. Thank God. I’m going to send Paul Ryan and Patty Murray an email this morning that just says thank you, thank you, thank you and may God bless you.

Richard Ramsden - Goldman Sachs

Okay. On that note Jamie, thank you very much.

Jamie Dimon

Thank you.

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