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00:00I want to start with this recent announcement about a $10 billion equity investment that JP Morgan is going to be making in critical areas in the U.S. in terms of companies.
00:10What does this entail in terms of building out staff, building out capabilities beyond what you already have?
00:16Well, first off, it's great to be here. Thank you very much.
00:19The strategy has two prongs, and we're really excited about it.
00:23One prong is capital investment on our part, arguably equity into different ventures of up to $10 billion.
00:31And the second piece is $1.5 trillion of financing.
00:35Now, to be fair, we were arguably going to probably do close to $1 trillion on our own naturally,
00:41but this really gives us a chance to double down on critical industries for American security and for our allies as well.
00:49In terms of staffing, the capital investment, we're going to hire a new team to do that.
00:55They're going to be professional investors.
00:57They're going to make decisions independently on their own.
00:59We'll have an advisory board.
01:01And again, we're really excited about it, but that's going to be a new group which we hire for.
01:06In terms of the financing piece of it is we have a lot of infrastructure already in place,
01:12but we think we're going to need to hire some more people to help us expand the effort from roughly $1 trillion to $1.5 trillion.
01:19How much is that new group directly in competition in some ways with some of the private asset managers
01:23that have been investing heavily in infrastructure, particularly in this space?
01:27Sure.
01:27We just don't view it as competitive.
01:29And look, I know people love that narrative.
01:32They love talking about how banks and non-banks are fighting with each other.
01:36But we have a really, really long-term track record of engaging clients and managing the conflict
01:42when they are competing with us and when they're a customer.
01:46And the vast majority of the time, they're a customer.
01:48So, you know, while there will be specific deals probably outside this space more often in things like private credit
01:55where we really compete with each other, the vast majority of it will be an opportunity to partner.
02:00And I'm not worried about it at all.
02:01So partnering with private asset managers, how much are you also expecting to partner quite a bit with the government?
02:07We're in Washington, D.C., and they're doing the same thing evidently.
02:10We're doing this on their own.
02:12This is a J.P. Morgan initiative.
02:13It's entirely on our own.
02:15But we're realistic.
02:16There's going to be opportunity to partner with other people, asset managers, as co-investors.
02:21And there's the probability that we end up in a partnership or in the same investment with the government.
02:26And that's okay, too.
02:27Yeah.
02:27Well, in the meantime, you just reported earnings.
02:29And they were pretty incredible.
02:31All of the banks really came out with pretty tremendous results.
02:34The profitability in the banking sector in particular, pretty blockbuster.
02:39I'm just wondering how big the pipeline is to continue this type of activity in M&A and deals and debt issuance.
02:45Sure.
02:45I mean, I've honestly never seen a summer like we've had or a Q3 that we've had.
02:50But it's just incredibly rare that you have every line of business achieving such incredible results that you mentioned we reported yesterday.
02:58I mean, security services, payments, investment banking, markets.
03:02Normally, if markets is busy, nothing else is because it means something happened bad in the middle of August.
03:08And if banking is busy, markets tends to be slower.
03:11So it's a pretty incredible moment.
03:13Obviously, as you said, it's flowing through into earnings.
03:16It's hard to tell how much longer it's going to last.
03:18It won't last forever.
03:20But the banking pipeline is very robust.
03:23And we would expect that to continue through Q4 and hopefully into next year.
03:27What's spurring that?
03:28Is it really more certainty on some sort of geopolitical standpoint?
03:32Is it because the expectation of Fed rate cuts is percolating into markets?
03:36I think it's a little bit of everything.
03:37I mean, I would say corporate confidence is really high.
03:41The trend of the Fed is definitely helpful.
03:45But I don't think that's the primary driver.
03:47Tax policy is known.
03:48So I think some of the really big uncertainties earlier in the year are out of the way.
03:53Some still exist.
03:54And I think there's an opportunity for people to really lean in and make strategic transactions that they want to get done now.
04:01And there's been a little bit of a pipeline buildup that we're experiencing the benefit of today.
04:05You were talking about the narrative that people in the media like to spur about private credit and private asset managers versus the big banks.
04:12And, of course, that was kind of bolstered with some of Jamie Dimon's recent comments about cockroaches.
04:17You only see one.
04:18And maybe you see that there are probably others as well.
04:21And he was talking about some of the recent issues in credit markets.
04:24How concerned are you about some sort of systemic risk that is beyond the banking system that is really focused on credit?
04:32Sure.
04:32I mean, I'm a trader by background.
04:34I worry about everything.
04:35And Jamie, I think when he refers to cockroaches, I mean, he can speak for himself.
04:40But he's really trying to keep us and everyone else on their toes.
04:43And you're starting to see things that feel late cycle.
04:46And I would feel quite strongly that we're in the latter innings of a credit cycle.
04:51The problem when being the latter innings, you don't know if you're in the sixth inning or the ninth inning.
04:55And no one will ever know until afterwards.
04:57So, you know, equity valuations are very high.
05:00Credit spreads are very tight.
05:02You're starting to see things that Jamie was referring to.
05:06I mean, whether it's fraud or whatever it ends up being, but significant cracks in certain businesses and business models all make you nervous.
05:13So, while it could last certainly for another six or 12 months, we're just being a lot more cautious in how we think about credit.
05:20What does that mean?
05:21I know that there were bigger loan loss provisions that were set aside.
05:25But is it also in terms of tightening lending standards as well?
05:28I mean, we've always been very disciplined at J.P. Morgan.
05:31We always evaluate every deal on a standalone basis.
05:35And we're just making sure that we're sticking to what is our, like, core credit philosophy.
05:40Like, being very disciplined on the quality of the credit, the terms, the pricing.
05:46And I think as long as we continue to do that, we can be comfortable.
05:49We would hopefully avoid any very large missteps.
05:53What's the mood like here in Washington, D.C. at all of these meetings?
05:56I mean, do people have a great deal of optimism because of what we're seeing in markets?
05:59I think it depends on who you ask.
06:01I think in many ways people are just confused.
06:04There's so many cross-currents happening in the market at the same time, from geopolitics, global macroeconomics, markets.
06:12They're much more volatile than they were before.
06:14I think three themes really stand out to me that I get asked in virtually every meeting is the state of the U.S. economy.
06:22What's going to happen?
06:23Is the Fed going to keep cutting?
06:24All sort of bundled around how the U.S. is doing.
06:28The second is U.S.-China relations.
06:30Trade is back front and center, particularly tariffs.
06:33And I think it had been on the back burner, and now it's back.
06:37And then the last thing, because it's the IMF and there's a lot of emerging market clients and regulators here,
06:42is the value of the dollar, particularly against the EM, is a big focus.
06:45So we can dig into each of those.
06:46The first one, what do you see as the bigger risk?
06:49The idea of some sort of reacceleration and inflation or some sort of more significant deceleration and growth?
06:56I mean, I would say the biggest risk is both.
06:58If deceleration and growth with inflation staying sticky or potentially going higher,
07:04I mean, there's some inflationary currents in the system, fiscal stimulus, et cetera.
07:08So, you know, you could get a continued slowdown in employment while inflation stays sticky.
07:13And I think that's the most significant risk in my mind.
07:17Do you see signs of that?
07:18I mean, the labor market is definitely slowing.
07:22Growth seems to be holding up.
07:24But if the labor market continues to slow, that's going to be a crack for the consumer.
07:30And you potentially see changes in consumer behavior.
07:32And I don't see anything that's going to significantly drive down inflation.
07:35If anything, it will stay where it is or, in my opinion, tick up slightly.
07:39The other issue is the geopolitics of the moment and your global bank.
07:43I'm just wondering, from a global footprint standpoint, how much your life has changed over the past 6 to 12 months in terms of where you're expanding,
07:50how you're doing business as a U.S. bank, the biggest U.S. bank with a very international footprint?
07:57Look, international has always been extremely important to us, particularly in the CIB.
08:01And we see tons of opportunity around the globe.
08:05I mean, I would say in terms of standouts, it would be the Middle East and Asia, particularly Japan, Australia, Southeast Asia.
08:12But there's really opportunity for us to grow everywhere.
08:15And we're really focused on it.
08:17I think historically, as a big U.S. bank, we've really benefited from the size and scale of our footprint in the U.S.
08:24And we're obviously in the center of both inbound and outbound investment out of the U.S.
08:28But we're focusing really hard on trying to build those non-U.S. corridors, Middle East to Europe, Middle East to Asia, Asia to Latin America.
08:38If I think about our future, getting that right, and we're already good in those places, but really getting it right is super important for us.
08:46Is it awkward to have a presence in China at the same time that you're investing in strategically important companies in the U.S.?
08:55No, not in my opinion.
08:56I mean, we're a global bank, and there are plenty of our customers, certainly even U.S. customers of significance.
09:03They're doing business in China.
09:05Our job is to be there for them.
09:07So we're going to continue to do that.
09:09I mean, we're investing in the very long term everywhere, China included.
09:13Obviously, we're cautious.
09:15Obviously, we pay attention to geopolitics and the economics on the ground.
09:18But, you know, while there could be a worst-case scenario, more than likely there's a path where we continue to be a partner with China.
09:27It might be very different than the past, but I'm comfortable we're doing it thoughtfully, and we're going to continue doing what we're doing now.
09:32When it comes to the de-dollarization, do you actually see clients moving away from the dollar, or is this sort of something that people are hedging against and then going into dollar-denominated assets as quickly as they possibly can to get some sort of exposure to artificial intelligence?
09:47Look, I think there's two themes when people say de-dollarization.
09:51One is, what are they doing in the moment today with their U.S. assets?
09:55And we've seen very little evidence of people selling U.S. assets.
10:00What we've seen is people hedging their U.S. assets.
10:04So I think before, people had much lower hedge ratios.
10:07So if someone had a 50% hedge ratio, they're kind of going to 65 or 70.
10:13That's what we're seeing.
10:14We're not seeing them sell the underlying assets.
10:16The other part that people talk about is, like, is the dollar safe as the world's reserve currency?
10:21And I think it is.
10:23I mean, obviously, you can never predict forever, but I don't see that changing anytime soon.
10:29The AI story is something that your team has talked about and you're investing significantly in.
10:34And I was so excited to look at the headcount of J.P. Morgan after these earnings, and I was looking, okay, has it gone down dramatically as you invest in AI and all the AI and the chatbots take over humans?
10:44It actually expanded. It actually went up in terms of the headcount.
10:47How do you explain that in terms of the efficiencies?
10:49Is it working in terms of creating value?
10:53So I definitely think it's working, but it's still early stages.
10:56And we're simultaneously investing in it and reaping some benefits.
11:01But I think the really big benefits will come in the future.
11:04And you have to keep in mind, we're really growing.
11:05We're covering more clients.
11:07We're moving to more geographies.
11:08We're going to more cities in the U.S.
11:10It all requires people.
11:11So, you know, what we see in two years or five years could be very different.
11:15But for now, I don't think it's contradictory that we're investing in AI, getting the benefit, and our headcount went up a little bit.
11:22Do you expect that to continue in terms of the investment not necessarily reaping benefits over the next, say, year, two years?
11:28Or do you think it's going to be a more imminent type of transition?
11:31I think it really depends on the part you're deploying AI.
11:34I think we're already seeing the benefits in specific areas of some significance.
11:40Fraud detection, operational efficiency, those things are very impactful already.
11:46And there'll be spots where you'll see headcount change, I think, in the near future.
11:50And you're going to see other spots where you don't see headcount change at all because we use AI just to do a lot more.
11:57But I think this will play out over the next two to five years, not necessarily the next three to six months.
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