JPMorgan Chase & Co. (JPM) CEO Jamie Dimon Presents at Goldman Sachs U.S. Financial Services Conference (Transcript)

JPMorgan Chase & Co. (NYSE:JPM) Goldman Sachs U.S. Financial Services Conference Call December 4, 2018 11:00 AM ET

Executives

Jamie Dimon - Chairman and CEO

Analysts

Question-and-Answer Session

Q - Unidentified Analyst

Okay, so we're delighted to have Jamie Dimon with us this morning. Jamie is now in his 12th year as CEO and Chairman of JPMorgan. Since the merger with BANK ONE, JPMorgan has outperformed the market by almost 100%, and they have distributed about $150 billion to shareholders. I think the first time Jamie that you spoke at this conference was back in December 2000 when you were CEO of BANK ONE. And we really do appreciate you coming back to talk to us over the years.

So I thought we could start off with just a broad question around your outlook for 2019. Obviously a lot of conflicting signals from financial markets, lots of concerns around where we are in the cycle. When you look across the business, what are the trends that you see, how do you think 2019 is going to unfold and how do you think it will differ to what we've seen this year.

Jamie Dimon

So welcome, happy to be here Dan. And so I'll ask the question, but it’s very important to understand we don't run the company guessing about what 2019 is going to be. We build bankers, systems, people, ops and stuff like that. If you look at the immediate economy, it's actually doing fine and so is the global economy.

So the IMF warned about slowing growth, but they still project 3.5% for the global economy, which is actually rather good. Europe doing it better, China 6%, Japan 1% and America looks like, something like 2.5%. The financial companies are in great shape, households are in good shape, debt service ratio is low, confidence is high. I know that Tim Sloane said here that business confidence, consumer confidence are at all-time high. So they are close to them.

So it looks like, we're doing fine. There obviously there will something will disrupt it and something will one-day change that. It may very well not be 2019. So I think, people should get in their heads that it may not -- there may not be 2020. So -- and if you said for fears out there, tariffs is one and it's not a huge fear, it’s just that you see the uncertainty it causes, it's a funny thing when indirect effects of the tariff, it's another direct effect, the indirect and confidence, reinvestment, people trying to figure out what the fat tail of a trade war means. So that’s what the market is swinging around.

And then the one is the rising rates, how much inflation whether it would be the reversal of quantitative easing. We don't completely understand what quantitative easing did. Therefore we can’t completely understand what the reversal of quantitative easing will do and with a different monetary transmission, different regulatory policies. Now it may not be quite as smooth as we think.

Unidentified Analyst

Okay. And perhaps outside the U.S., there's obviously again, a lot going on with Brexit, a lot of developments in Italy, questions in Germany, and then perhaps you can touch on the impact of trade and tariffs in China, where I think the impact will obviously be a lot bigger?

Jamie Dimon

Right. So we will do a quick thing in Europe. So Brexit is not good for Britain and -- but what we think is going to happen. Again, we don't really know is that something we've always kind of an agreement in principle. But think of that as, that's fine. Pom [ph] maybe going to be voted down and voted down two or three time before it's voted on.

The chance of a hard Brexit is rather small because it would be disastrous for Europe too. They will just delay something like that past March. But the real thing is what gets negotiated 21 months after the transition and there's a two year transition. That's going be very tough on the Brits. That's not going to be a simple thing. That's almost industry by industry.

Italy, it's all about the banks, Italian bonds. They relate to the Italian government with the European government. They're kind of sticking their finger in the eye of the European government and deficits and stuff like that you see in their bond prices. The issue with that is does it cause among [ph] on Italian banks is not good.

But having said that, I would stick more and you had a little downturn in Germany, which was unexpected, a little downturn in Japan. People react to short-term stimuli. It looks like Europe will still be growing at 1.5% to 2%. That's -- we always do a forecast for Europe next year. And China, it looks likely they’re going to be growing like 6%. It's absolutely clear the tariffs and the trades have a short-term. The reliance in exports is something like half it was 15 years ago. They reacted in kind to American raising tariffs. They kind of had a 90 day hiatus.

My guess is that after 90 day, I'm hoping they'll announce that they made progress enough to continue negotiating, because there’s no way you can finish the complexity of these trade negotiation in 90 days. And then we don't have a trade war that we have a negotiated agreement with China that resolves some of these very, very serious issues that we and the rest of the world has with China around trade and I'm hoping it gets there.

Unidentified Analyst

Okay. So let's turn to the outlook for your businesses and as an outsider looking in over the last three years you've gained market share in most of the businesses that you're in. Where do you see the best opportunity now for redeploying the capital, where do you see the best opportunity for you to grow the franchise and where do you see the biggest gaps relative to some of your peers?

Jamie Dimon

So one of the things, maybe you all saw in Daniel Pinto, who heads the global corporate investment bank. This chart that showed where we were in the 17 major areas of cash managed equity, equity cash, equity derivative, fixed income, all the train areas, ECM, DCM, et cetera. And we’ve obviously moved up to number one, two and three in almost all of them at this point.

The second chart is actually much more telling about what management should be doing, which is you split apart by region, by product, by et cetera all of a sudden we're number five. So our market share in United States investment bank is 10%, in Asia it's 5% and you go product by product you'll see the same thing. And then certainly investment banking areas or in United States we have a 15% share, in other investment areas we have a 5% share.

So that's how we do it piece by piece, which are G10 trade in this country, which are G10 trade in that country with our credit the trading market share is in that country to do that you basically are building systems, people, capabilities research, et cetera around the world to deliver it.

Same with -- when you look at the United States, I still thinking of fundamentally consolidating market you have less banks now more banks probably mergers and you probably pay more attention to that is we can't acquire, but we want to add products and services that make it great for a customer.

So now we have you invest you can do stock and bond trading for free if you're a software banking customer and we are going to add global investment when you haven’t decided of a price there yet. So I think over time we can gain share in investments maybe gain share in deposits.

Now we're opening up in -- we're not in all the markets so we're adding -- we've already done Philadelphia, Boston, D.C. et cetera. And we hope to gain share there. And so over time we want to be a pan -- a Pan American retail bank, which includes credit card, investing capabilities, private banking, et cetera. And so, we kind of look at each area and have plans to attack it. And we even -- when we do budgeting stuff like that we even look at like I don't look at a recession as a bad thing, I mean, it's bad for America, it's bad if you are unemployed, it's usually an opportunity for JP Morgan.

And so, I don't sit there and say oh my god this terrible aren’t we down and I say okay, what are we going to do to do even more. Do we want to doing so I think there will be opportunities in the downturn too, which hopefully we'll be prepared for.

Unidentified Analyst

Let me ask a follow up question on that. I mean, given the amount of capital and the amount of liquidity in the banking system today, do you think the opportunity for JP Morgan in a downturn will be equivalent to what we've seen in some of the prior downturns?

Jamie Dimon

Not quite like that, because I don't think you’re going to see people acquiring a lot of troubled banks in a downturn because of the complexity that, the lawsuits afterwards, the litigation. So I think you're not going to do with Bear Stearns again or something like that. I do think and we can't buy insured deposits anymore.

So we can't play that game if even if we have another [indiscernible], I think someone else will. I mean, if you are a bunch of the banks, I won't you give the names, I would absolutely have my mind on the target to acquire someone where it makes sense as long as it's clean. I wouldn't want to get involved in mortgages something like that again and have to pay the consequences of that after the fact.

Unidentified Analyst

Okay. So you've generated four years of operating leverage. So your efficiency ratio, I think has full on 300 basis points you’re very, very close to a 55% target. As you continue to gain share as the business continues to digitize, what do you think the medium term outlook for that is?

Jamie Dimon

Well, you have to put this in perspective. First of all we’re over earning in categories. I think it's very important to management to know that, so if you look at credit, we are over earning. Credit losses are literally almost at all-time lows. I mean, it’s been that way for quite a while. So when we talk about the 55% you got to normalize for certain things that you’re benefitting from, certain things you heard from Joe we're very close to where we should be.

The other thing I look at is that -- and we've always known this for, but you don’t know exactly it’s going to play out, competition will force a return to more normal type of pricing and things like that. So you can do better than your competition. So you can't like endlessly grow your efficiency ratio it's just not possible because eventually capital is going to force you do a better job with the client, which is a good thing.

And so, I'm very cautious about saying how we keep on growing, reducing efficiency ratio, because as you do that your clients is going to want more people to compete. And we've seen because of tax reform and other thing we've seen part being competed away. So there is certain things like in the train area where it repriced right away, and mortgages repriced right way. So it wasn't like you’ve got these benefits. And now of course mortgage is sucking a little bit.

So we hope to do better, but we're not aiming to dramatic improvements in efficiency. We also want to -- we will build whatever we need to build to build the right stuff for the future. So all businesses do that what do you build in terms of technology to serve people better fast, quicker, cheaper and create through processing. And we don't look at that as a discretionary item.

I look at that as you have to do that and whatever that is and we may come up here one day and say, now we spend another $2 billion or something because we think it’s valuable. So like building these branches and that’s a lot of expense before you have a benefit. But it's great for shareholders. Those branches we hope will be enormously profitable five years from now.

Unidentified Analyst

I have a question, when will JP Morgan stop financing private driven and detention [ph] companies. They are locking up everybody, including children and tearing our families apart. These are not one, Wacos, immigrants, [indiscernible] and yet, you have so much power to do something. Why don’t you?

Unidentified Analyst

Right. Could we get someone?

Unidentified Analyst

Why don't you have to divide? You're the biggest bondholder -- reported. Why won't you stop investing? You say you gave [indiscernible] this year in your shareholders meeting that you would stop. So you said you are looking to engage and you said nothing.

Jamie Dimon

Okay. So I'm not sure I'm going to follow that question. So perhaps we can talk a little bit -- is there anything. All right, so I should say this because it is important, the DRT which I'm a Chairman of, and JPMorgan support real immigration reform. [indiscernible] undocumented but taxpaying, law abiding undocumented more merit-based stuff. And so we're surely support of some of the underlying things that properly treat immigrants in United States of America.

Unidentified Analyst

Okay. So one of the areas that you have obviously increased your investment in considerably is technology, the tech budget is up $2 billion this year. You're now spending $11 billion. And I think…

Jamie Dimon

It's not up to, it's up $2 billion, but it's not over one year.

Unidentified Analyst

Okay. But you're now spending close well over 10% of revenues on technology. On my calculation, so I think it's doubled over the last five or six years. What do you see the trajectory for that being and what's your ability to fund increases in tech spending by rationalizing the other parts of the business over the next few years?

Jamie Dimon

Yes. So the way you should look at tech, and we look it couple of ways. The one is run the bank and then innovation. So maybe 30% of that number is more innovative stuff. And the stuff you need is automating things is straight through processing as you invest it's Chase Pay it's better products and services you have to do that.

So it isn't like I said you can cut that stuff, but I think it will be still not well served to do it. To run the bank part, you can actually drive down those of course all the time. Through better computers, agile manufacturing, there is cloud, internal cloud, public cloud, private cloud.

Anyone last here come on out. You should know that they do you have legitimate issues, those prisons that talk about are run by -- sanctioned by government agencies, audited by government agencies and a lot of us said we will do a much better job than private than the public prisons so I'm not an expert in that kind of things.

Unidentified Analyst

So perhaps on the technology side. Again, if you can talk a little bit about…

Jamie Dimon

Yes, so the running the bank part, you're always getting that -- you're not going to getting this costs all the time. Straight through processing cloud, public cloud more efficient and stuff like that. So it's both, but those both are standard, that's been going on my whole life. You’re reducing some costs, you are increasing other costs and I hated when people look at they just look at the one.

I mean, you remember we all spend a lot of money on Y2K, everyone had disclosed how much they spend on Y2K, doing it in the dollars on Y2K well it didn’t go away did it. So it's kind of artificial when you do that. So we do look at these things you spend the money to develop it then you have the ongoing costs, which obviously comes down a little bit and some setting applications forcing consolidation various systems, but the way I look at it, you should expect the tech budget to kind of go up over time. Hopefully less than revenues, but go up over time.

Unidentified Analyst

Okay. So let's just talk about the retail side of the industry. And if we look across other industry.

Jamie Dimon

This is a discipline by the way, when we sit down as management team we go through, we ask people are you building all the things you need? We don't tell them your budget is $1 billion and no more. We say are you building the things you need to compete and win in the future. And of course, we analyze everybody else too and every now and then the people doing a better job in that in certain areas and that makes us jealous. We want to do a better job.

And so, we want to build those things too and we think some of the things that are table stakes. So we all spend a lot of money building Zelle, P2P that was table stakes, we just spent a lot of time doing NP design and we said we should have done this years ago as a banking the whole banking industry should have done it. And so the other things which is you got to do it, you got to digitize certain stuff and don't spend a lot of time thinking about what the payback is. Because if you don't do it, you will lose a lot of business over time.

Unidentified Analyst

So let's talk about the medium to long-term outlook for the retail industry. So if we look at across other industries have digitized have consolidated and have globalized at the same time. Can you talk a bit about both and I'm particularly interested in if you think, you can export some of the expertise that you have on the retail side to other markets?

Jamie Dimon

So, I think, you will obviously there is huge economy of scale in our business and that those drive consolidation. It doesn't mean small players can't compete. It's just that they have to come up with different strategies and different ways of competing in local market, et cetera. And there's always going to be role for different types of banks in different areas. And global investment banking is also huge economies of scale. Like for every trading area, every function, every country, and there is also I call network effects.

So if bank in Brazil, you’re banking multinational is going to Brazil, your banking companies in Brazil and your banking Brazilian companies going around the world. So JPMorgan can serve those Brazilian companies all around the world, and we kind of a tri party, kind of a way to grow revenue grow our business. So even if Brazil is not doing well, it doesn't mean, we can't be banking more and more companies doing business going into Brazil. And so, there's a network effect.

On the retail side, we've always said, we're not going to go retail overseas. Because we have and we build these 400 branches, we're adding we call the four wall costs eight or nine people and rent. But we don't have to add risk legal credit compliance, audit and marketing, sales, services, languages, call centers that pretty much is almost at a very small variable costs. If I go and open retail footprints overseas, I've to add both costs, the local costs and then since we don't have the languages and we hope to -- all the system, you have risk, legal credit compliance like a lot of overhead.

And then if I have opened those branches in a different country, a different city somewhere, there is no reason for you go to Chase. And so, you'll be losing money pretty much the rest your life. Is it possible and so I’d add if you ever going to do something would you do a big acquisition that’s possible, I don't -- probably won’t take place in my tenure, but it's possible. But does the new digital world change your ability to do something differently that's also possible too. And you obviously what markets are doing, people are looking at ways they can grow overseas without the physical plant.

And so, we look at that, we think about it. If you look at it hasn't been there normally successful thing and each market is a little bit different. So you have to compete differently in Brazil, you do in the UK, then you do in France and you're doing -- you have different local competitors. But I do think is a possibility. You have seen kind of some company doing a good job coming across and we ever think that's the right thing for us to do. We'd be happy to do it.

Unidentified Analyst

Would you consider joint ventures on the retail side so that you could get some of the local expertise and then use some the experience that you have in that markets?

Jamie Dimon

We would, but joint ventures are always completely follow with problems, different agendas, different growth, different ability to invest, different ways you want to take risk or you can't take risk we are a bank. So we have huge restrictions what we can and can't do regulations, et cetera, compliance requirements. So I just -- it's hard for me to imagine that that will work successfully, but we're completely open minded. Every now and then someone call me up and said we think we can do it together. I'd be willing to look at that.

Unidentified Analyst

Okay. So let's talk a bit about regulation. And I appreciate nothing has been finalized, but Governor, Quarles has put out a number of NPIs. And they touched a lot of different aspects of how you run the business from capital to the Volcker rule, changes in risk weighted asset calculations. I mean, again, I appreciate the rules are not final so things can change, but when you look at the direction that Governor, Quarles is headed in, does it have an impact on how you think about running JPMorgan?

Jamie Dimon

Not really because, the first we run JPMorgan we have clients to serve. The middle market clients, investment banking clients, retail clients, mortgage clients, credit card, and we serve them. That's the number one thing we do. Obviously, we have to calibrate always other rules and as you know like that 19 capital requirements now in 19 different ways doing something. We try to optimize across that, but that's subjugated to doing a good job with the client.

And now certain things are pure balance sheet decisions, like I called portfolio decision. When you put it more on and off the balance sheet. That's 100% based upon regulations because we don't have to do that. So we do best execution is something like that. But you can't just go in and out of client businesses. And just to be very clear here, no one is asking that Dodd-Frank be throwing out. I would love to see some reporters write a story about Lehman Redux.

So Lehman Redux if Lehman was existing today and you had a similar crisis, they would have estimated something like 2.5 times more equity capital. They would have been able to survive the crisis. They would have had two times liquidity and they would have had, I think two or three times in the bailable debt [ph].

So even if they didn't survive the crisis, they would have the government has the right to take them over, which they didn't last time. They -- that bailable debt, at the moment of failure, they have more equity than any other financial institution in the world, it’d be massive over equitized.

So they fixed the main problem. Can you handle failures of major financial companies in a way that doesn't have this huge disruptive effect. Remember Lehman was a dis-worldly [ph] unwind. Around the world and caused a lot of confusion and panic and stuff like that. So that's kind of been fixed.

Some of the other stuff it's perfectly reasonable when you look at international standards to calibrate, coordinate, be a little more consistent, some of these things work account to purposes and some of the things that reduced mortgage lending a little bit, they reduced small business lending a little bit. So look at it.

Remember a healthier financial system changes some of these rules to make the financial system healthy not less healthy. Diversification a good thing not a bad thing and some these measures is treated like it's a bad thing. So I just think that regulators when they look at it and they between what the Fed has laid out, Randy Quarles in his speeches and then these, I think there were 4 or 5 treasury reports. They lay out a bunch of areas that should be looked at, how should we calibrated.

How can we fix mortgage securitization? How should you calculate liquidity so it actually functions better for the marketplace in a crisis? If you're going to have global standards around G-SIFI what should be the same, which would be different? So you might have different national standards, but they shouldn't be so different that you're putting one country and disadvantage to other countries for 20 year period.

And so, I hope they go around and look at it. We haven't seen a much relief yet, but hopefully there will be some coming down the road. I think it's important to do a better job for America.

So it's not about doing a better job at JPMorgan. I can give you very specific examples where the mortgage market has been highly constrained by some of these rules, including the fact that we don't have securitization rules. And that the Volcker rule, I'm not against the concept of the Volcker rule, but that the market liquidity is so tight and it's not -- we're not in a tough market. Well until things get really tough and people get scared.

And then you then you have the confluence of factors. Liquidity ratio is up, banks are intermediating, Volcker will stop people wanting to take additional risk. And we don’t know the full effect of that stuff. And I think regulators should be looking at that, thinking about what they did all the right things. It's not binary and it's not like anything you do that might be positive for a bank is a bad thing to do for the country. That's just not true.

Unidentified Analyst

So capital return is obviously an important part of the investment thesis in JPMorgan. How are you thinking about the distribution between buybacks and dividends? And if a soft cap gets completely removed, what type of dividend payout ratio do you think should people then could get to over the next two to three years?

Jamie Dimon

So again this is really a Board level decision. So I am about to say is kind of what I feel. If I had my druthers, dividends would be about 30% to 35% of normalized earnings. So I think one of the complaints regulars has that banks went to 80% of peak earnings at one point making it very hard from the cut when things went down, because people don't like cut in the dividend. So you make the dividend kind of permanent, you can count on it hopefully annual increases. So I say this not as a joke. Every seven year don't increase it.

I've seen it -- I've seen company after company get crippled over this every year the record every year 35 years. You don’t want to be the CEO who doesn't do in the 36 year. So I really do -- like every now and then just simply don't do it, tell your shares would be completely fine. So you don't put a burden on future, but regular dividend than the other 65% up to me, I’d reinvest it.

The highest and best use of our capital is reinvesting it and we're starting to do that now in branches use capital and new investments uses capital, in building technology, which uses capital. Every time we go into branches, we also do small business more mortgage lending, more LMI lending. So to me that is the highest and best use. That is why we're in business.

Stock buyback in my opinion is a very good thing to do when your stock is cheap. This notion that you should buyback stock at 3 times tangible book value as a return of capital to shareholders is crazy. I just don't understand it. If our stock was traded at 3 times tangible book I would just retain it. And I don't think -- I tell year you're not losing it. It's earnings is stored. So if you can use it down the road at a good return just retain it for now. If you can't use it at all for the foreseeable future then I would increase dividends and then return it back to shareholders through dividends and where you then can decide what to do with it as opposed to me by overpaying for my stock.

So I do think there would be more opportunity remember CCAR rules required banks to retain all its capital. Now they've got to where they are they still retain the capital needed to buyback stock. But I think more and more that it would have been used you can't have counterfactuals. It would have been used to grow and expand.

And the fact that it wasn't used to grow and expand did hurt the economy a little bit. And so, I think, it's good for banks to return back with their recirculating deposits and loans and obviously intelligently bad loans are bad, but more competition is always -- almost always good.

Unidentified Analyst

And what do you think the opportunity is going to be for you to redeploy capital into loan growth next year. It’s obviously been weaker, we're seeing some signs that it's picking up. Do you think it's just seasonal or do you think we're finally starting to see corporate loan demand pick up? And, I guess, the second question like a number of regulators have talked about systemic risks increasing as a result of non-bank competition in corporate lending outing. How do you see that right now?

Jamie Dimon

So you have to look at the businesses differently. So corporate, the large company that stuff that’s in the balance sheet the CIB, loans, revolvers, corporate bonds that gets circulated that kind of follows its own life and its own logic. And I look at middle market is the one that you can traditionally look and say when there's growth in the economy their receivables go up, their payables go up.

They need more capital to do fixed capital investment something like that. And that we have not really seen hard to figure out why, remember tax reform gave more cash, growth has been anemic. When growth is anemic you don't need to -- you can just -- you retained earnings you can do a lot of that investing, et cetera.

And so, now you're kind of starting to see a little bit more growth and I kind of expect to see more usage of revolvers in middle market lending. We haven't really, but I kind of still expect it to happen at this part of the cycle.

And then things -- certain things are portfolio type decisions. So you're not going to you -- don't want to aggressively make loans if you think you might be going to recession and certain types of commercial real estate or subprime mortgages or subprime auto or stuff like that. And that is where we turn the spigots, we will be when it turns spigots on of this new business. If you are an existing client, I’m going to be there servicing you. So it's a whole different issue. I'm not going to kick you out because I'm afraid of exposure. No we think that through. We want to bank our existing clients through the next recession and knowing full well there is going to be a cost of that, but that's how we kind of run the business.

And the other one is we don't have excessive risk built up in the financial system. I have seen CEOs talk about it somehow like 2007, now in 2007 there was over $450 billion of underwritten debt on the balance sheet of investment banks that hadn’t been syndicated yet.

Today the number is like $80 billion. And so dramatically different. CLOs are properly formed today they're more conservatively restructured to go through then the stuff is going to be more conservative. There are no shifts, they do a lot less off balance sheet vehicles of banks, et cetera. And I can go through a whole bunch of them. Almost all of the mortgage credits, remembers mortgage credit is like $10 trillion it's been pristine since 2009.

Other than some of the stuff that government has the FHA stuff, but that's not an exposure to system. Student lending is bad, but it's all owned by the government, and there is $1.3 trillion and is getting worse every single day. We see it having a little bit of an underlying effect on credit for the ability of people to do loans to get mortgage and stuff like that. So it’s hurting household formation a little bit.

And large corporate, the leverage lending market if I remembered correctly, there's $800 billion term A mostly like 85% owned by the banks. Pretty good stuff. There's $900 billion of term B mostly owned by institutional holders, hedge funds, insurance companies, some of these special vehicles, et cetera. And it's just -- it's not systemic it's there some of them get losses. And of course the regulators look at how often are we financing that $900 billion of term B. And our exposures are pretty light in that. I'm not worried about that at all.

I'll make a bet some banks somewhere doing something the stupid way. I mean that always happen, but you kind of want that but you kind of cleans -- that teaches you what not to do. So I don't think that this systemic in the financial system something will cause a recession. It could be that something is that rate there's inflation and rates going to go up and it can't go up at a benign way that you all feel good about, where you don't feel good about. And that's kind of a traditional recession. They have too much inflation, wages are going up. Our economies expect unemployment would be 3.3% at the end of the year, as after more people entering the workforce.

So it's very healthy thing but it also might be the tail end that the Fed do things that we're not used to it hasn't happened in so long. But it doesn't mean it’s not going to happen in 2020 or 2021 or something like that.

Unidentified Analyst

So volatility has picked up significantly across pretty much all products all markets in the fourth quarter. You've always said the end of QE is going to coincide with a pickup in volatility do you think that's what we're seeing. And how is it impacted your business?

Jamie Dimon

Yes. Well, it's I think you have more spotty here. Some people say we needed more volatility while I am trading sometimes volatility is good. Sometimes volatility is bad. And I can't go through what are the different reasons. But I don't think it is -- I think a little bit is QE. So the [indiscernible] been signs from treasuries that caused a little bit of volatility as opposed to buying treasuries. You have obviously trade, the reverse of QE, probably and heightened sense of issues around Brexit in Italy and issues like that. So, yes, that's caused more volatility.

In the meantime it may have sell that a little bit because it may be that that now the world is adjusted we've adjusted the new fears, Ps have come down a little bit and growth is going to continue. And I think that's a pretty good chance that's where you're going to sit.

Unidentified Analyst

And in terms of the performance of your business in the fourth quarter?

Jamie Dimon

Where you’re talking about trading?

Unidentified Analyst

Trading.

Jamie Dimon

Roughly equivalent to last year with almost a month ago.

Unidentified Analyst

Okay. All right. So we got a few minutes left, let me see if there's any questions from the audience. Yes, we have one here. Bring a mic around. Okay or you can speak up I can repeat it.

Unidentified Analyst

[Question Inaudible]

Unidentified Analyst

Okay. So the question is about a lack of liquidity in financial markets and how that could play out if there is a downturn I think in an anemic environment.

Jamie Dimon

I do, so we have $450 billion of HQ layer or something like that. And we are required to hold that under all these new rules and stuff like that. So we have tons of liquidity. It cannot be used in a market crisis under existing rules maybe the Fed will change those rules. And so, there's a lot of liquidity locked up in the banking systems.

So all those excess reserves are not excess, they cannot be used as they might have been used in the past intermediate, repo and buying portfolios and taking more trading risk and stuff like that. And kind of what's happened a little bit is you the investor are keeping more liquidity instead. And because of kind of Volker in that rule market making is less a view or if earn up a credit fund you say it's really hard.

So you really build into your mindset to hold more cash and you can -- it takes a long time to ease into positions and a long time that you guys focus on making a bid for $200 million of these bonds and then you making a bid for 20. And then might worked on a day. So liquidity has kind of moved in a different place.

The other thing about liquidity is as the Fed reduces balance sheet, it does reduce liquidity. It's hard to figure out exactly how and why, like I said, the transmission policy is different because of LCR and capital requirements and things like that. So I do expect the likely outcome is that liquidity will get worse not better. As the markets get more volatile that will make it even worse. Like all -- a lot of these fields put more collateral that happens. And so, to me, yes, you should expect a little bit of squeezing in liquidity as this takes place.

Hopefully it’s not like a pana [ph] squeeze it’s just like a squeeze. And that a lot of money managers learn to deal with it. You have to have some non-banks. I think some the non-banks when things get bad will not lend. So therefore that will also move a little bit of the lending capability to that sector.

So I think there is a little bit of a risk because they’re not going to be lending, this is an important thing that banks do. Banks, if you go to 2009 banks rolled over all the middle market loans at prevailing prices they didn't cop the middle market clients or even large corporate clients to say we're not rolling over to LIBOR plus 175 because I go buy your bonds in the marketplace at LIBOR plus 800.

But other market participants will not buy at LIBOR plus 175, when their choice is to go buy in the marketplace at 800. So think of hedge funds, some with lease backs, some of these lenders it just -- it won't happen. Therefore those folks have to go back to banking system that may not be able to lent them as much as they did before. We'll say it all sort out. JP Morgan we try to think through to be prepared to help those clients if and when the time comes.

Unidentified Analyst

Can we have another question at the front?

Unidentified Analyst

Just wanted to ask about [indiscernible] in the context of questions are raised about with all the Fed oversight of G-SIPs, how could something like that happen? What's your sense of that, is that a fair criticism or is it -- or not?

Jamie Dimon

I'm not going to go into the specific and no, so, I am talking about general most investment banks have reputation committees, risk committees, extensive rules and requirements to go through and I honestly don't happen there. I mean, Goldman is a friends of mine, I worked at Goldman Sachs for some 81 months [ph] most people don't know. And so I don't know.

I mean, that will come out hopefully. Sometimes it is -- and again I’m just being more generic something is an isolated thing. You're not going to get rid of the errant bump who is willing to destroy your company so they can commit a four directional make more money. And so you have rules in place, but you should be careful to say extrapolate everyone.

Unidentified Analyst

Are you saying that it’s not really a fair criticism.

Jamie Dimon

I don't I don't -- let's let them finish all their work. Yes.

Unidentified Analyst

Got a question about you.

Unidentified Analyst

You spoke fairly positively earlier about the regulatory health of the bank [indiscernible] all these one rule what it would be?

Jamie Dimon

I think G-SIFI is the -- was complete conceived unfair and then gold plated it. So the things in G-SIFI like there's like 12 categories makes thousands things, but things like cash in the balance sheet and very secure repo is double counted multiple the measures. And obviously cash in the balance sheet isn't quite the same thing. There's a thing called substitutability. So they make it it’s a bad thing if things are not substitutable. That would be risky except they include the substitutability, market making, equity underwriting and debt underwriting.

So when Lehman went down did anyone have a problem replacing that stuff. No they did not. So it's a false number. And so, I think that G-SIFI should be modified gold plating should probably go away. I'm not saying you shouldn't -- G-SIFI shouldn't hold more capital just if you going do the numbers do them right. Just like at my company. We don't be answer ourselves on the number we do the numbers right.

And then I think there's something about LCR, which I’ve already mentioned that caused a little bit issues. And I think the regulators know that and they can always modify that by the way. I think tell you within their control and they're already talking about making some changes to CCAR to make it easier for -- I mean CCAR you all should be complaining about CCAR. It makes it harder for you to manage to know that the capital is being deployed in a responsible consistent way the way CCAR is running. I think they are going to change some of that. There's other stuff that's been modified.

Unidentified Analyst

Okay, we have time for one more question, just in the middle here.

Unidentified Analyst

[Question Inaudible].

Jamie Dimon

All right, it’s nothing to do with that. So I -- we spend $1 billion on health care our expenses of $62 billion what I'm worried about at healthcare and so there's more of an effort with Berkshire, Amazon and JP Morgan about that we have a serious healthcare issue in America. It's almost 20% of GDP is $10,000 a person or more.

And Warren calls the tapeworm of business America and it’s the reason it's going to break our budget, the federal budget many years from now and there are problems with wellness programs obesity, misuse of drugs, high deductibles didn't work. End of Life is improperly constructed the laws need to be changed.

And you all, I'm sure a lot of you got your blood test or MRIs recently. You have no idea what they cost because you don't pay. But the differential in costs of an MRI can go anywhere from a $1,000 in New York City, I think the numbers are right $1,000 to $7,000 and there’s no qualitative thing about that as opposed to radiology. This is just an MRI.

And so, if we don't fix this it's really bad for America. And so you can help. Someone email I'll hook you up to people who find real teams of people where we’re trying to get how we attack the problem using big data brains legal testing things with a long term view and hopefully we'll have some good ideas that we’ll share with the world. Did not profit seeking is trying to look at a huge problem and see where we can help fix their problem.

Unidentified Analyst

Okay with that we're out of time. Jamie, thank you very much for coming.

Jamie Dimon

Great folks. Thank you very much.