JPMorgan Chase Q1 2010 Earnings Call Transcript

123jump.com Staff
28 Apr, 2010
New York City

Revenues rose 11% to $27.7 billion and net income rose 55.6% to $3.33 billion or 74 cents a share. The Investment Bank had net income of $2.5 billion. the investment bank just on the expense side, $4.8 billion of expenses in the quarter. Allowance for loan losses at $2.6 billion.

JPMorgan Chase & Co. ((JPM))
Q1 2010 Earnings Call Transcript
April 14, 2010 9:00 a.m. ET

Executives

Michael Cavanagh - Chief Financial Officer
Jamie Dimon - Chairman and Chief Executive Officer

Analysts

Glenn Schorr - UBS
John McDonald - Sanford C. Bernstein & Co.
Guy Moszkowski - Banc of America Securities-Merrill Lynch
Betsy Graseck - Morgan Stanley
Meredith Whitney - Meredith Whitney Advisory Llc
Matthew O’Connor - Deutsche Bank Securities
Michael Mayo - CLSA
Jason Goldberg - Barclays Capital
Moshe Orenbuch - Credit Suisse
Jeffery Harte - Sandler O’Neill & Partners L.P.
Nancy A. Bush - NAB Research LLC.
Edward Najarian - ISI Group
James Mitchell - Buckingham Research
Matthew Burnell - Wells Fargo Securities, Llc
Chris Kotowski - Oppenheimer & Co.
Ron Mandle - GIC
Carole Berger - Soleil Securities
Brad Ball - Ladenburg Thalmann & Co.
Richard Bove - Rochdale Securities Llc

Presentation

Operator

Please standby, we are about to begin. Good morning, ladies and gentlemen. And welcome to the JPMorgan Chase’s First Quarter 2010 Earnings Call. This call is being recorded. Your lines will be muted for the duration of the call. We will now go live to the presentation. Please standby.

At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon; and Chief Financial Officer, Mike Cavanagh. Mr. Cavanagh, please go ahead.

Michael Cavanagh

Thanks, operator. Good morning everybody. It’s Mike. We’re going to do the usual here, so I’m going to refer to a presentation that’s available on our website, so please get that in front of you if you don’t already have it. And we’ll go through that and then take some Q&A at the end. I’ll just remind people to look at the slide in the back that makes the comments about forward-looking statements.

And so with that let me just get going on page one. And just describe the high level trends and the numbers. So overall, $3.3 billion in net income for the company, earnings per share of $0.74 on strong revenue number of $28 billion.

You see this little table here that shows you what I’ll call some large significant items. I’m not going to go through them here because I’ll cover all of them when I hit the relevant business where they appear. I’ll just say it’s in two broad buckets as you can see from here.

One, it’s the adjustments to levels of loan loss or credit cost, loan loss reserves related to credit across Investment Bank, Retail and Card. That’s where you’ll hear those. And then a couple of items of significance in our corporate segment both investment portfolio gains as well as some litigation reserves we’ve put up there, so we’ll cover that when we get to corporate.

So the themes, though, are a very strong Investment Banking results on strong fixed Income markets revenue and continued strength in the investment banking fee side. Consumer credit trends you’re going to hear are all starting to look very good on the delinquency side and we’ll cover that further in the businesses.

Other businesses performing strongly as a general matter and the balance sheet and capital position, obviously as you’ll see continuing to be quite strong. I’m going to skip slide two. You can just look at that. It gives you the sort of GAAP picture, what the numbers look like that I just referred to versus prior periods. So let’s start with the businesses and do that with the Investment Bank on page three.

So here you see the Investment Bank had net income of $2.5 billion, the circled number there over on the left on revenues of $8.3 billion. That’s an ROE of 25% on the $40 billion of allocated capital we’ve in the Investment Bank that we just increased at the beginning of the year.

Going through some of the components, I already made the comment about how our investment banking fee number is a number one share on a year-to-date basis, $1.4 billion of revenues in the quarter on strong bond underwriting versus prior quarters.

You’ll see a page in the Appendix that gives you a sense for where we’re across the various capital raising areas but continue to feel very good about the Investment Bank corporate finance side of things and the prospects for the rest of the year, looking ahead and taking a look at the pipeline.

On the fixed income and equity markets side, I would just say very strong results and it’s generally speaking across all desks and all areas, $5.5 billion of revenues in fixed income markets and $1.5 billion in equity markets and so that gets you really to the overall revenues that we’ve $8.3 billion.

So the next item that really drives the Investment Bank P&L is credit costs, so here you see we had a release, an actual benefit, a net benefit in credit costs as reserve take-downs exceeded charge-offs. Charge-offs themselves were offset by reserves because as you know in this business, we downgrade and put up reserves in advance of a charge-off event. So there was for those amounts of actual charge-offs in the quarter there were already reserves covering the P&L, so it’s just a line swing there.

So the net release really comes from the fact that we had loan sales that were done inside our marks net of reserves and therefore, had excess reserves after we sold those loans and the same with some loan paydowns that happened as you continue to see the trend in end of period loans, dramatically changing versus prior periods, as large corporates have substantial access to the capital markets.

So the next point there, I would just say, allowance for loan losses at $2.6 billion after the change in reserves against loans is about 5% would be about 7% or so had we not consolidated the conduits as part of the FAS 166/167 stuff. So the issue there, moving on then to NPLs, I just want to point NPL’s down from $3.5 to $2.7 billion. [Multiple Speaker]

Moving little close Mike said that folks hopefully can hear me now, the last point I make in the investment bank just on the expense side, $4.8 billion of expenses in the quarter, two drivers there, 35% comp to revenue ratio. That is just an outcome of the real underlying detailed analysis we do on risk adjusted returns in the business by area comes out to that number.

In a strong quarter with $8.3 billion worth of revenue, you would expect to be at the lower end of the range that we talked about last quarter of 35% to 40%, but that number will bounce around based upon the underlying methodology and obviously it’s a first quarter accrual that will get trued-up and will be competitive and do what we need to do over the course of the full year.

The other item is some increased litigation reserves including for some mortgage related items in the Investment Bank as well. So that’s it for the Investment Bank.

Retail Financial Services, moving on to slide four. Here I’m not going to go through all these drivers. You can look at them for yourself. They generally trend consistent with what we’ve seen before, good growth in the Retail Banking side. And but what I do want to point out, we sent out an 8-K last week to just give you the new segmentation after Charlie’s Investor Day presentation telling you how we were going to attempt to get a better, cleaner view of what the mortgage banking origination side and auto and student lending, consumer lending businesses would look like without the noise of the real estate portfolios which have obviously been suffering and will continue to.

So that’s really what we’ve done in the middle box, is separate out and you’ll see it on the next profit and loss page, the same dynamic. At the bottom, real estate portfolios, it’s the totality of the home equity lending business, on balance sheet as well as the mortgage balances, whether it’s Chase originated, WaMu originated, those are the dynamics rolling through there.

What you see in the middle is the mortgage origination side, production revenue, MSR risks management, warehouse and so forth as well as the auto business, primarily is the big one away from mortgage.

So moving on to the next page which just tells you what happened on the P&L for the quarter. In Retail Banking you see net income was $131 million loss, up on the upper left there. And again, it’s a tale of two cities. So taking piece by piece, you see about $900 million worth of profits in Retail Banking, up a little bit year-over-year down a little bit quarter-over-quarter.

Couple less days on net interest income versus last quarter is the decline there and then behaviors as well as some of our changes in number of items, bringing down quarter-over-quarter some of the NSF/OD fees in this quarter versus the fourth quarter.

Moving on to mortgage banking, the only thing I’ll really point out is in the revenue side, when you look at the big comparison versus a year ago, I’ll just remind you that we made about $1 billion which was an extraordinary positive on MSR risk management a year ago was slightly positive this year and that’s the big swing factor in revenues year-over-year.

We continue to have embedded in those revenue numbers elevated levels of repurchased contra revenues there. Stable with what we had in the past couple of quarters about $400 million worth or so of repurchased reserve expense.

Finally, on the real estate side, you see the bottom line, $1.3 billion loss net of the continued high level of credit costs, but as well a $1.3 billion, $1.2 billion adjustment to loan loss reserves for the WaMu credit impaired portfolio.

So let me drill into credit trends here for Home Lending on page six. So I’ll point you now to page 15 in our Appendix, which shows you the delinquency trends across all the major portfolios on the consumer side including these portfolios in credit card and what you will see in all of those is improvements in early bucket delinquencies.

So we do see that, we’ll talk about it more when we get to credit card. So that backdrop is favorable for where we may go from here. But in the quarter itself, you’ll see, if you’re looking at the left of the page, balances continue to come down versus prior year in these portfolios. We’re not originating at these kind of levels, obviously, that we talked before. So balances continue to come down.

Charge-offs stabilizing a little lower than what it was last quarter and given what I just said about the early bucket delinquency trends improving somewhat, we’re hopeful that we may see some improvement in these numbers such that we don’t achieve the prior outlook which continues to be printed on the right side of the page.

We’re not yet ready to lower those numbers, but we’ll just say that that’s what we had said before. We’re seeing some positive trends and hopefully in another couple of months we can report some improvements on actual trajectory of charge-offs on the back of the improved delinquency trends, just not ready to do that yet.

When it comes down at the bottom right to just the WaMu Credit Impaired portfolios, as you know, we’ve to do life of loan reserving here and so all I would say here is we’re not seeing the pace of improvement in the WaMu portfolio, particularly on the prime side, whether it’s prime mortgage or prime option ARM that we’re seeing in the rest of the Chase portfolios on average due to concentrations in FICO scores, lower FICO scores and geographies.

And that slower pace of improvement, when you roll it through lifetime loss expectations and some of the other inputs, yields a true-up of the lifetime loss expectations that we’ve to reserve for, so that’s a $1.2 billion reserve addition in aggregate for WaMu credit impaired.

So moving on to Credit Card on slide seven. See net income of $300 million loss. The big story is credit. Let me talk about charge-offs first. So you’ll see on the Chase, over on the left side, down towards the bottom, you see the 10.54% net charge-off ratio, that’s excluding WaMu, which is the way we talk about it.

As you know, we had a benefit due to a payment holiday done early last year which is about a 60 basis point negative impact versus the same benefit last quarter. So on a normalized basis, right around a 10%, or plus or minus charge-off ratio.

I’ll say it now because it comes on the outlook page, that we see that normalized 10 percentish type of charge-off ratio in the next quarter trending more towards 9.5% plus or minus. And if these delinquency trends that you’ll see in the back Appendix continue, hopefully we get improvement further from there in the second half of the year. So on the back of all that we’ve had a lowering of our loan loss allowance by $1 billion in the credit card business on the back of everything I just described.

In terms of the rest of the P&L, you see revenues affected by the decline in outstandings, which is a large part driven by seasonal effects versus last quarter as well as rundown of WaMu portfolios and sales volumes seasonally down versus last quarter as well, affecting revenues.

Otherwise, feel good about the underlying health of the business and the progress we’re making there and so that is the main drivers of what’s going on in credit card for the loss this quarter.

Moving on now to Commercial Banking, slide eight. So the Commercial Bank made about $400 million worth of revenue. Not really a lot different about the story here than what we’ve talked about before, so let me cover it briskly here. But I’d say one thing to point out is continued slower pace of but continued reduction in level of loans and leases, $97 billion in the quarter, down from $100 billion last quarter.

So while businesses feel to us to be adjusted and poised to grow when they get orders in and have need to do it, they aren’t yet at that point. We’re seeing that more in small business. I didn’t cover that on the retail page, but we did see some pick-up in small business demand and lending there, about $2 billion of originations in the quarter. Here you’re yet to see that effect but we’re hopeful that that could be coming shortly.

On the other side of the revenue effect of the balance sheet to key liability balances, cash deposits that are left with us up from a year ago at $133 billion and up a little bit from last quarter at $122 billion. So that, together with continued good performance on the fee side in revenue, Treasury Services products and Investment Banking fees which continue to be strong, get you to about flattish revenue quarter-over-quarter and year-over-year.

Credit side improvement from last quarter with credit costs in total of $214 million. Largely, 75% of the credit costs coming from real estate related portfolios, which as you know were underweighted on a relative basis. And so nonetheless, we end the quarter with north of 3% allowance to loan loss reserves against 96 basis point charge-off rate in the quarter.

Treasury and Security Services on slide nine, again, I’ll start with net income, $279 million, up a little bit from last quarter but just covering the revenue side. So you see in Worldwide Security Services, the securities side, we’re still seeing the negative impact of declining deposit balances, as well as continued narrow and somewhat narrowing spreads on securities lending in the quarter and FX revenues we get off of that business not fully offset by the benefit of higher assets under custody at $15.3 trillion in the quarter. So the same dynamics continue to grind sideways on revenues in that business.

And then the Treasury and Security Services side, $882 million of revenues, you see the average liability balances beginning to stabilize, $250 billion last quarter and $248 billion this quarter, down from a year ago on the back of flight to quality moving against us after the peaks we saw in late 2008, early 2009. That flowing through on tighter deposit spreads for the revenue effect there and that’s really what explains the P&L in Treasury and Security Services.

Last business, Asset Management on page 10. About $400 million in net income, up a lot year-over-year, down a touch from last quarter, $2.1 billion worth of revenues on $1.2 trillion in assets under management. I’d say just remember that versus a year ago, revenues up, given the effect of higher assets under management there, on higher market levels. And versus last quarter, the decline is really just driven by the absence of performance fees which are billed largely as a seasonal event in the fourth quarter.

So health of the business looks good here. We’ve seen some decline in flows as client activity is putting money back to work out of liquidity products primarily but away from that we’ve actually seen growth in assets under management and flows in products away from liquidity products, which we think is a good sign of health of the business.

Lastly, corporate in P&L impact terms. You see total corporate, we had a little bit of private equity gains, revenues of $136 million which translates into $55 million worth of net income. And then in corporate, which is everything else we’ve $173 million of profits. So I’ll just hit on the three items that you see described on the right in the bullets.

So again, we had another quarter where we had strong gains. We don’t usually count on gains or guide for gains, but we had gains of $1 billion related to repositioning the corporate investment portfolio and some trading activity that happens there. So that’s $1 billion positive just to call out and understand that’s a significant item to the positive.

We may still have another quarter, we can always have quarters that have some effect on that line. We may have that again in the second quarter maybe not to this magnitude, as we continue to focus on how we want the investment portfolio positioned.

The second point is that we continue to benefit, though, running a large investment portfolio. The net interest income coming off the investment portfolio continues to run at a higher level than what I would call normalized.

And those two effects are the reason why on the outlook slide this number for corporate I’ve us guiding you lower on that as we get towards the end of the year to a number more like $300 million plus or minus.

One other noisy item in the quarter, not going to get into a lot of details on it -- you see we added $2.3 billion to litigation reserves in Corporate for the firm, largely related to mortgage related matters. Think about that as we’ve repurchased reserves that we’ve talked about related to the GSEs as an ongoing expense that we’ve been reserving for.

This relates to the broader question of all other ideas for claims against us from private investors and others related to whether it’s a good portion WaMu related. We just put a lot of energy. We’re not unique in having exposures here. We’ve talked about these potential exposures before. We just put a lot of energy into coming up with an estimate to put a marker down in our results and so that’s all on that item.

Capital on slide 12. You see we had 11.5% Tier 1 capital ratio and 9.1% Tier 1 common. Just remind people, you see the bullet below that table that we did adopt FAS 166/167, bringing variable interest entities on balance sheet.

The real effect is $88 billion worth of GAAP assets, very little risk weighted assets or de minimis risk weighted assets as we largely had that covered in our risk weightings before. The one real material effect was the fact that through our actual GAAP equity we had to put up loan loss reserves for the credit card receivables that came on balance sheet. So that was about $7 billion of reserves pre-tax, about $4.5 billion decline that just went to the equity account, negatively impacting capital but nonetheless you see the ratios are very strong and we end the quarter with $39 billion worth of total credit reserves ratio of nearly 6%.

So finally, on the outlook slide, I think I really covered this. Let me just pick through everything that you see on the retail side is as it was before. As I said, we’re not necessarily reaffirming this guidance. Hopefully, it could be better. But we’re not ready to change these numbers. We do see delinquency trends looking positive but we’ve to wait for that to really pull through and more to come in future quarters.

Card Services side, I’ve covered all this. Again, no real changes from what we’ve said before but for the lowering of the charge-off estimate on the Chase portfolio to down from what we experienced this quarter by about 50 basis points, looking into the second quarter with the likelihood of some improvement from there in the second half of the year.

Corporate I already talked about the $300 million plus or minus number that you could expect to see as we get towards the back end of the year. I’ll just remind people that to the extent that there is a bonus tax imposed in the U.K., we expect that to be a second quarter accounting event.

And so with that, that is the quarter and that is our outlook. I’ll just remind you we’ve got a couple of slides here after this that I won’t go through that just cover a few of the items I referred to earlier.

So with that, we can just open it up to questions operator.

Question-and-Answer Session

Operator

At this time, if you would like to ask a question, you may do so by pressing star then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster.

Our first question will come from the line of Glenn Schorr with UBS.

Glenn Schorr - UBS

Hi, Mike.

Michael Cavanagh

Hi, Glenn.

Glenn Schorr - UBS

So just top down, if revenues are very better, very market related, expenses are a little higher as comp normalizes and credit moving in the right direction but trending with directionally with the economy. When you look at the revenue front, you alluded to a little bit in your prepared remarks but can we kind of drill down and try to say where are the leading indicators for revenue growth? Because there’s clearly, there’s potentially a bank fee. There’s clearly a bunch of revenue headwinds related to the regulatory changes. Can we parse out where there are some leading indicators for revenue growth or is that kind of weights on the economy as well?

Jamie Dimon

Glenn, this is Jamie, just real quickly. Let’s all not call it a bank fee and call it what it is which is a punitive bank tax.

Glenn Schorr - UBS

Fair enough.

Michael Cavanagh

No. I think you heard me cover some of the items, Glenn. You hit on some of the businesses are market sensitive but clearly you look at the market sensitive results and you’ve got to feel good about the franchise we’ve got here. So if the market opportunities present themselves and we’re serving our clients and those businesses can do well.

We think secular trends there over the long term are good, obviously it’s too early to call what kind of regulatory impacts there could be in any of these businesses and how business models react. But we’re not worried about our ability to compete and do well in the market side businesses.

On the lending side businesses, you clearly have the dynamics of portfolios running off, affecting revenues. Away from that, though, again I think you see it in noise in some of the numbers quarter-over-quarter but I think we’re positioned to keep building the businesses taking market share and growing. So we’re investing.

The story I would say is, as you heard in Investor Day, investing for growth in all these businesses, more bankers, more branches, better products, California and the Commercial Bank. So that’s what I would point you to. But secular, I guess overlying trends of asset rundown and potential for regulatory impacts, yeah, we’ll have to deal with those. But we understand that and we’ll do fine.

Glenn Schorr - UBS

Okay. On that point, the things you’ve noted and others in the outlook related to whether it be overdraft policy changes, the anticipation of impact on cards, how much of the fee hits are kind of in the run rate versus on the comp?

Michael Cavanagh

In the first half of the year you’ll have a lot of the impacts on card side will be in the run rate. We’re still waiting for a few pieces of Card Act legislation to really be finalized, which won’t happen until June, reasonable and proportionate fees. But away from that we’re going to have it in our run rates shortly.

Retail, we’ve a partial impact of some of the actions we took on overdraft fees, reducing number of items in this quarter is already in the run rate. There’s some changes in customer behaviors anyway, lowering overdraft fees in the quarter.

And so the rest of those effects won’t come in until the latter part of the year when all the changes go in, third quarter, I guess. So by the end of the year you would probably see those kind of effects.

Glenn Schorr - UBS

Last quickie, FICC. You’ve been first of all performance is great, off the charts and you mentioned it’s across products, across regions. Interesting because VaR is down and you’ve been signaling competition’s healing. You also signaled I thought that ask spreads were narrowing. Was volume and volatility that strong that it carried the day to more competition and lower VaR?

Jamie Dimon

This is Jamie. Number one is VaR is just a measure which is an adequate measure of most things. Remember, you’re dropping very volatile trading months from a year ago and adding very benign trading months now to VaR. That’s a huge reason why VaR has dropped so much. It’s not just volatility.

First of all, people did a great job. Spreads are back to kind of where they were. Think of it as they’ve almost normalized and that’s fine. But a lot of client flow, a lot of volume and good trading around there.

Glenn Schorr - UBS

Okay. Somebody else’s turn. Thanks very much.

Michael Cavanagh

Thanks Glenn.

Operator

Our next question will come from John McDonald with Sanford Bernstein.

John McDonald - Sanford C. Bernstein & Co.

Hi, Mike. Was wondering on the repurchase reserve, any color on what drove the improvement in the rapid warranty expense this quarter? Because GSEs, do you know if they’ve hit their kind of peak vintages and if they’ve kind of full capacity at their put back activities right now.

Michael Cavanagh

No. That number is going to bounce around a little bit. Put back numbers were about similar to what they were over the last couple of quarters. And no insight into vintage burnout or anything like that yet.

John McDonald - Sanford C. Bernstein & Co.

No insight in terms of whether they’re at full capacity and whether they could step up in their activity levels?

Michael Cavanagh

Nothing different than what Charlie covered at Investor Day is what I would say.

John McDonald - Sanford C. Bernstein & Co.

Okay.

Jamie Dimon

The bad news may have peaked but let’s see if that’s true for a while longer.

John McDonald - Sanford C. Bernstein & Co.

Okay. On the NSFOD impact, can you give any color on the assumptions that are incorporated into your estimate of the $500 million hit and is it too early to have confidence in that? Is that really a guess on your part or do you have some confidence in that hit or is it too early?

Michael Cavanagh

I’d say it’s better than just a guess. We did work on it when we did it but it was an early estimate so let’s leave it at that. I mean, we need to see how everything evolves from here. But it was a reasonable estimate when we did it. We need to see how it actually pulls through.

John McDonald - Sanford C. Bernstein & Co.

You’re still offering customers the Opt-in. Have you considered the disallowance on overdraft on debit that BofA implemented and decided against that?

Jamie Dimon

So far we think the more consumer-friendly thing is to fairly offer the consumer option. Not to push it in marketing but to very fairly say you have this option or that option. That still is our intent. And BofA remember will offer that at the ATM for cash. They’ll notify the customer. So we want to treat the customer very fairly. We think offering them options probably is something they prefer. Remember, they can always turn it down.

John McDonald - Sanford C. Bernstein & Co.

Okay.

Jamie Dimon

And just remember, another option that the customer has is to link to other accounts, link to a credit card, things which are cheaper. We want to make sure we do all those things also for the customer.

John McDonald - Sanford C. Bernstein & Co.

Okay. Embedded in your $500 million is some estimate of how many customers opt-in, Mike, right?

Michael Cavanagh

Yeah

Jamie Dimon

That’s a very static analysis and we’ll look at it again and we’ll re-up it. We don’t think it’s going to change dramatically over time.

John McDonald - Sanford C. Bernstein & Co.

Okay. And One quick thing on the SOP3 portfolio the credit impaired. Mike, other companies are showing gains to their NIM and NII from purchase accounting accretion, seems to be related to the re-pricing of deposits better than they had marked or in some cases cash flows on the impaired loans coming in better.

Do you have that dynamic going on too and just don’t talk about it or is it just different for you because you had different assumptions in your marks?

Michael Cavanagh

I think two things. One, it depends on when you did your initial marks and where rate levels were, so there’s one effect of actual market driven assumptions at the time you did things. And two is we may have that dynamic over time. Remember, we do the SOP33 evaluation at sub portfolios, so we’ve been focused on our prime option ARM and prime mortgage portfolios.

Other ones have been behaving okay. If the day comes when we’ve a view that they’ll come in below lifetime loss expectations, we may have an adjustment to make. But that would be down the road.

John McDonald - Sanford C. Bernstein & Co.

So far, you’ve not had NIM accretion, material NIM accretion?

Michael Cavanagh

Correct. Yeah.

John McDonald - Sanford C. Bernstein & Co.

Okay. Thank you.

Operator

Our next will come from the line of Guy Moszkowski with Banc of America-Merrill Lynch.

Guy Moszkowski - Banc of America Securities-Merrill Lynch

Good morning.

Michael Cavanagh

Hi.

Guy Moszkowski - Banc of America Securities-Merrill Lynch

Yeah. I was wondering if you could just give us a little bit more of an update on what you’re seeing with loan modifications as they affect both first and second mortgages? And how that does or doesn’t inform the change in your tone, if not your guidance, where you’re saying that if trends continue then loan losses on home equity prime and subprime might not get to those guidance levels. To what extent are modifications affecting that thought process?

Jamie Dimon

Guy your first question, if you look at HAMP, which is a government program and I’m looking in total, not for JPMorgan. The government was aiming for 3 to 4 million mods. We actually think at current ramp rates, take a long time to ramp it up, we will get to about 2 million on HAMP. That’s what we believe, okay. In addition to that, most of the banks do other modifications which those are good for customers, so for us it’s more than double of what we’re doing in terms of HAMP mods.

On the mortgage lending categories, all of the indicators, new delinquencies, roll rates, step severities there, they’re all getting a little bit better and we think that’s good. And that trend stabilized late last year, January, February, March, we’ve gotten better, so it’s early.

Those are actual numbers. You’re guessing about what future changes might be because of legislation or stuff like that and we don’t know. We’re hoping they’ll get better. We also think a lot of that will be driven by the economy not by anything else.

Guy Moszkowski - Banc of America Securities-Merrill Lynch

But to the extent that a lot of people think that if you’re significantly modifying principal on even firsts, that that’s going to have a negative impact on seconds and the like, are you factoring that thought process into the fact that you’re saying that we might still end up with loss rates below the prior guidance levels?

Michael Cavanagh

Based on the way we see it now, Guy.

Guy Moszkowski - Banc of America Securities-Merrill Lynch

Okay. That’s fair. And then if I can just ask a little bit more detail on the $2.3 billion build in that litigation reserve. Can you help us understand better the distinctions between the funds that are available there and what you’re doing in the Investment Bank where you also eluded to building some litigation reserve there? And I’m not sure I understood the distinction that I think you were trying to make between what’s available for the GSE, reps and warranties issues and what this might be for?

Jamie Dimon

Okay. So let me make this simple, okay? In the Investment Bank, retail and corporate, we’ve put up rep and warranty reserves and litigation reserves for GSEs and all other mortgages including private securities.

We tried to do it diligently. Some of those numbers ran through the Investment Bank this quarter. We’ve broken out the numbers in retail and we put the numbers in corporate. A lot of the numbers in corporate relate to WaMu. We’re not going to give any other information.

We think we’ve properly accrued for reps and warranties whether they come through on the rep and warranty line or the litigation line. There are legitimate claims that some of these mortgages were properly done. It’s going to be done mortgage by mortgage. But other than that I think we’ve done a pretty good job of recognizing the problem early.

Guy Moszkowski - Banc of America Securities-Merrill Lynch

Thanks for that. I just have one more question which relates to the Investment Bank. I noticed that assets basically didn’t increase or only a very small amount. And yet, your revenues in particular in FICC were obviously extremely strong. Is there some color you can give us on increases that you’re seeing in turnover rate of average positions or something like that? Are you just turning the balance sheet very, very quickly?

Jamie Dimon

It’s hard to answer the question. There is plenty of client volume and I don’t know the turnover rates offhand and you might see the balance sheet go up a little bit over time from here.

Guy Moszkowski - Banc of America Securities-Merrill Lynch

Okay. Great. Thanks very much.

Operator

Our next question will come from the line of Betsy Graseck with Morgan Stanley.

Betsy Graseck - Morgan Stanley

Hi. Thanks. Couple questions on credit and capital. If the U.S. economy gets no worse is it safe to assume that you are done adding to reserves on a consolidated basis for the remainder of this credit cycle?

Jamie Dimon

Well, again, Betsy, your assumptions about what the future holds is as good as ours. Credit card, what we look at today, remember we’ve real visibility only really into next quarter. Those reserves could be coming down over time. Mortgage, the numbers are starting to look hopeful, so there’s so much uncertainty around mortgage that I want to see it myself before you actually start taking it down.

The real question for mortgage to me is how long the high losses last. That’s the real question for me in mortgage, not just the reserve number because huge loss is running through our books today and I think in commercial, I put all the wholesale in this, Investment Banking and middle market, it looks like underlying credit trends are getting better, including the reduction in non-performers, repair of non-performers and the financial stability of companies.

Betsy Graseck - Morgan Stanley

Okay. And on just the mortgage piece, there’s a recent HAMP out on earned principal forgiveness. Could you give us your sense of how you’re going to approach this new HAMP modification program?

Jamie Dimon

We’re working on that now and we’re not ideologically opposed to principal forgiveness. The issue with that it’s got to be done loan by loan to be fair. There’s no other way to do it that’s proper and fair both to the mortgage and to the bank and I don’t want to double count it because remember, if you do principal forgiveness, it’s not that different than reducing payments for five years.

So you can double count a little bit, but if we change our programs and we add some additional principal forgiveness programs, it might change some of those loss rates going forward, but we don’t know that for sure but it might. Remember, we already have a lot of reserves for this stuff. High losses are going through. Underlying trends are getting a little better.

Betsy Graseck - Morgan Stanley

Okay. And then…

Jamie Dimon

It’s also not completely clear what all the government programs, so we’re still working to kind of clarify what it is they meant on some of those programs.

Betsy Graseck - Morgan Stanley

How far along do you feel you are in the mortgage pig getting through the python, the sloppy underwriting that was done in the ‘06,’07, ‘08 period?

Jamie Dimon

53%.

Betsy Graseck - Morgan Stanley

53%.

Jamie Dimon

Look. Honestly, if things start to peak out and the economy gets better you’re through the worst part, but there’s a ways to go. As you all see, as I see what’s going on in Washington and things like that, so, but the underlying trends look good. We shouldn’t forget that.

Betsy Graseck - Morgan Stanley

And could you just give us some sense as to how you think about the capital that you’ve got right now, core Tier 1 9.1%. At what point do you feel you’re able to start managing capital either with dividends or buybacks?

Jamie Dimon

So I think we’ve been very clear on the dividend. We want to see real underlying employment growth for at least several months. That’s number one. Number two, we would like to see real and sustained improvements in delinquencies and charge-offs in mortgages and that’s not just one month. We would like to see it continue for a while.

Number three, I think we’ve pointed out as have other banks, there’s a lot of capital uncertainty. Uncertainty around Basel II rules, Basel III rules, dividend tax rules, bonus tax rules and we would like to see some of that clear up before we start using our capital.

So that number will probably continue to go up over time. We want to make sure that we’re always, always properly capitalized and this company is never questioned and if you end up with excess you capital you haven’t thrown it away, you just get to use it later.

Betsy Graseck - Morgan Stanley

Right. There’s just a question as you -- could you potentially be in the same position you are now with card where your reserves are very high relative to your forward look on losses. So could you end up in a position where you’ve got significant amounts of capital and you’re not able to deploy it as quickly as you would like?

Jamie Dimon

It’s possible, yes.

Betsy Graseck - Morgan Stanley

Okay. And then on real employment growth, are you talking about net job creation? Are you talking about just unemployment going down?

Jamie Dimon

I’m talking about net job creation. That is the really important thing, getting more people back to work. The other number has a lot of other calculations in it.

Betsy Graseck - Morgan Stanley

Okay. So that could have a fairly long tail to it.

Jamie Dimon

No. I think what I mean by real job creation is that we really believe we’ve got a sustained recovery. That to me is a couple hundred thousand jobs being added for several months in a row.

Betsy Graseck - Morgan Stanley

Okay.

Michael Cavanagh

The other one is our own credit costs. It’s not just delinquencies, it’s credit costs making the turn. So in retail they’ve stabilized. We would like to see them turn downward.

Betsy Graseck - Morgan Stanley

Sure. Okay. Great. Thank you.

Operator

Our next question will come from the line of Meredith Whitney with Meredith Whitney Advisors.

Meredith Whitney - Meredith Whitney Advisory Llc

Hi. Good morning. I wanted to ask you, the issues of mortgage modifications have been well covered. I’m more curious about the credit card modifications because there’s no government guidelines to follow with those and what your outlook is in terms of how much free capital is freed up by those, by actually the mortgage modifications or if the credit card modifications are what’s the main driver in improvement in early stage delinquencies or is there something else?

Jamie Dimon

There are no credit card modification programs any different today than there were way back. And remember, by the end of, the last two years we’ve written off close to 20% of the portfolio. You would expect in an economic recovery or even a stability that delinquencies and charge-offs would come down and in fact they are. We’ve written off a lot of the bad stuff.

Meredith Whitney - Meredith Whitney Advisory Llc

Yeah. I appreciate that. I’m just looking at the -- what you put out which is your card modifications that doubled from ‘08 to ‘09, so I’m just, if that’s a, yeah, I would expect that normally, but for the average consumer things have not gotten materially better. So I’m trying to figure out what’s going on?

Jamie Dimon

I think you’re talking about the things that are in credit workout and stuff. That just tracks charge-offs and bankruptcies and stuff like that.

Michael Cavanagh

So that is working through the bad stuff, the challenged stuff. So as you see that charge-offs are associated with that which is the charge-offs Jamie’s talking about and you’re left with a better performing portfolio at the end of that process.

Meredith Whitney - Meredith Whitney Advisory Llc

Maybe then that would it be then that the high-end is the most resilient with the low-end, if you could just provide a little bit more color in terms of what specifically you see with credit cards?

Jamie Dimon

Okay. In credit card, across income spans, FICO bands and vintages, we’re seeing improvements in delinquencies and charge-offs.

Meredith Whitney - Meredith Whitney Advisory Llc

Okay. And the main driver of that because obviously employment is not improving in your estimation?

Jamie Dimon

I think the main driver is the fact that the people who were worst off have already charged off.

Meredith Whitney - Meredith Whitney Advisory Llc

Okay.

Jamie Dimon

And in prior recessions, when unemployment stops going up, you start to see an improvement in those things. So that is typical in a recession, that the rate of change of unemployment is a bigger driver of credit card delinquencies and losses than simply absolute rates of unemployment.

Meredith Whitney - Meredith Whitney Advisory Llc

Sure. Okay. And then just a follow-up on your credit card. The portfolio through WaMu has obviously been in runoff. Where do you see that portfolio ultimately goes not the WaMu portfolio but the collective portfolio?

Michael Cavanagh

You mean in terms of, when do you start to see it stabilize in terms of size?

Jamie Dimon

I think the Chase portfolio, I would say which is $132 billion of it, is already, we believe it’s basically stabilized as it is and the WaMu portfolio, which is how much?

Michael Cavanagh

$20 billion.

Jamie Dimon

$20 billion.

Michael Cavanagh

Going to keep going down.

Jamie Dimon

It’s going to keep going down and I think we gave some of that number at Investor Day.

Meredith Whitney - Meredith Whitney Advisory Llc

Okay. All right. Thank you.

Operator

Our next question will come from the line of Matthew O’Connor with Deutsche Bank.

Matthew O’Connor - Deutsche Bank Securities

Good morning.

Jamie Dimon

Good morning.

Matthew O’Connor - Deutsche Bank Securities

If I could just ask a big picture question. Given that you’re getting more confident in the economic recovery and a lot of banks have significantly pulled back on credit, for example, Banc of America is now focused on just the super prime within credit card, essentially exiting prime and below, it just feels like there’s a lot of opportunity to lend as demand comes back to call it middle America and below. I’m just wondering how you’re thinking about, can you capitalize on some of that opportunity?

Jamie Dimon

Yes. I mean, I think you see us rolling out in credit card new programs all the time and I think auto loans are up and I think jumbo loans are up just a little bit, but they’re up, maybe double from a year ago. And we still have and we broke this out at Investor Day, a large liquidation in the home lending portfolio because people are no longer doing subprime, Alt-A and a bunch of products and option ARM and some of that we acquired from WaMu. That is going to run off. But the other stuff year-over-year, I think you actually may start to see increases.

Matthew O’Connor - Deutsche Bank Securities

Okay. Then on the wholesale side of the business, there’s a lot of commercial real estate that one could argue is going to change hands maybe out of CMBS, out of the regionals, into potentially banks like yours or that you could be involved in that process. How do you think that’s shaken out? And where are we in the process of some of that stuff getting restructured and can you make some money off that?

Jamie Dimon

Yeah. I think you’ve seen a lot of real estate stuff get restructured when it has problems. It’s kind of a delayed lag that’s going to happen over the next two years but if there’s a proper way to do real estate lending secured with the right developers and if we get some of the upside stuff we’d be happy to do it.

Matthew O’Connor - Deutsche Bank Securities

Okay. And then just separately, you talked about getting positioned for rising interest rates but it seems like you’re doing it relatively slowly and to be fair, most banks are adding securities and you’re taking them away, seems like it’s just a little bit each quarter.

So should we interpret that as you aren’t too concerned that either short or maybe more importantly the long end, is not going to go up meaningfully any time soon?

Jamie Dimon

I think the way to look at us today is today we were at a fairly neutral position and so I think the disclosure we make in the 10-K shows for interest rate, the whole curve going up 100 basis points, $300 million. But that’s -- call that a very, very neutral position.

So we’ve already gone from being short funded to neutral and the question is, are we going to change it from there. We don’t have to change it at all but my guess is we will change it and rising long rates help earnings. Rising short rates hurt earnings.

And so when you talk about neutralizing it, you’re going to neutralize one versus the other, a little complex but we like where we’re today and over time that portfolio will probably come down. That portfolio is just one measure of interest rate exposure.

Matthew O’Connor - Deutsche Bank Securities

Okay. All right. Thank you.

Jamie Dimon

And hasn’t come down that much that portfolio we’ve changed the components of it.

Matthew O’Connor - Deutsche Bank Securities

And I’m sorry, just a follow-up on that. Does that mean less extension risk or what do you mean by that?

Jamie Dimon

I would say we’re reducing some of the extension risk and reducing some of the credit exposure in it.

Matthew O’Connor - Deutsche Bank Securities

Okay. All right. Thank you.

Operator

Our next question will come from the line of Mike Mayo with CLSA.

Michael Mayo - CLSA

Good morning.

Jamie Dimon

Good morning.

Michael Mayo - CLSA

I’m still looking for some clarification. You had $8.3 billion of trading revenues, 30% of the firm’s revenues and I’m not really sure why the trading revenues were so high at $8.3 billion. I guess some questions would be, number one, how much proprietary trading was there?

Second part would be how much in derivatives by the way, what is the derivatives legislation do to you guys? And three, how much of that might go away if rates go up on the short-end faster than you expect?

Jamie Dimon

I think, I’d say it’s very little proprietary, when you talk about pure proprietary. It is a lot of client flow. We’re not only ones who saw that. I think you’re going to see other people report similarly good numbers, somewhat driven by client flow and its good results by our traders. They’re on the ball. They’re paying attention and rising rates don’t necessarily hurt your trading results. It’s not because we’re taking a mismatch in trading to see some of that.

There is some benefit from the fact that spreads keep on coming in and you have the reverse from last year, instead of losses from mortgage, legacy credit and mortgage positions, you have small gains in those things. But and we agree, we think it was a very good quarter for FICC in particular and we’re not going to tell you we expect it to continue like that all year.

Michael Mayo - CLSA

Back in the old days you gave some sort of guidance for fixed Income trading revenues, so if they were $5.5 billion this quarter, any guess at what a more normal level would be?

Michael Cavanagh

Yeah. Mike, I wouldn’t say we ever -- we always talked about trading as volatile and hard to predict. I mean, obviously, we’ve got an investment in people and balance sheet and infrastructure, so you would expect, you expect results that are positive. This was a strong quarter. No question about it. And so likely on average runs lower than this level but I’m not going to give you a number on where.

Michael Mayo - CLSA

And legislation on derivatives. Could that have a positive, negative or uncertain impact? What’s your thought?

Jamie Dimon

Well, it’s very hard to have a positive impact and the devil’s in the details here. When we oversimplify, we’re not doing justice to the issue. We do believe that most standardized things will go to a clearing house and that’s fine. And that in of itself doesn’t have a huge impact on revenues.

Then there’s the issue about how much of those and other trades go through an exchange in the transparency. That could or couldn’t depending on how it’s designed and how much room is left to do -- have exceptions over the counter or end user exceptions and that’s not defined yet. So it will be a negative, Mike and depending on the real detail, it could be several hundred million to a couple billion dollars.

Michael Mayo - CLSA

And then last follow-up, you’ve kind of addressed the fixed Income trading. On the equity trading side, implied volatility reached a two-year low in March. VICs dropped, volume increased to only 5%. So why did equity trading do so much better?

Jamie Dimon

Our traders did a good job. That was also cash derivatives and prime broker. So I put it all together. I think they all had a good quarter.

Michael Mayo - CLSA

Anything by region on all your trading, did Asia do better, Europe, U.S.?

Michael Cavanagh

Across the Investment Bank, Americas did great, Asia did pretty well, Europe did pretty well, but not as well as it had done before if I’m recalling the numbers correctly.

Michael Mayo - CLSA

All right. Thank you.

Michael Cavanagh

No particular areas of weakness. It was strong pretty much everywhere.

Michael Mayo - CLSA

Thanks.

Operator

Our next question will come if the line of Jason Goldberg with Barclays.

Jason Goldberg - Barclays Capital

Thank you. And I guess you addressed the derivative stuff. I guess a lot of uncertainty also with respect to changes to the securitization process as the SEC voted last week and now trying to include a 5% risk retention by the sponsors. Could you maybe talk about your thoughts about securitization activity going forward?

Jamie Dimon

You know, listen, first of all, I think in Credit Card it’s going to be virtually gone because the big credit card companies, most of them don’t need to do it at all. So some issuers will do it. And there’s a lot of detail on that 5%, so we’re not opposed to the concept of skin in the game. The detail is what tranches, how you do it. I think it will make it smaller but it won’t eliminate it. That’s my own guess.

And the real securitization markets that you haven’t seen come back yet are the mortgage securitization markets and I think at one point you’re going to see that. 5% will just change what kind of returns you need, what the spreads will be on the total securitization to give the person who’s going to own the 5% an equity like return on what they have to retain since it’s permanent.

Jason Goldberg - Barclays Capital

And then also I guess another area of uncertainty is comments were due from the banks for Basel at the end of this week and I know the Feds encouraged you to comment, kind of your thoughts on that and what you are looking to see change from the original documents?

Michael Cavanagh

We’ll get our comments in. We talked a little bit about this at Investor Day. There’s going to be a lot of things out there that the big issue is how all those ideas that are on the table and rightly so, how in the proposal they connect together with each other, the capital side of Basel III, the liquidity side of Basel III, together with everything that’s in play today away from Basel III.

So I think there, the biggest point is to just make it cohesive and thoughtful and take time to evaluate the impact analyses that are going to be under way as well. So I won’t give you a particular and it’s powerful potential changes in there that has been well commented on, but our feedback is in and we hope to see a process whereby we get a revised set of proposals towards the end of the year, after impact studies are done but we may not get that, we may just get a final rule. We’ll see.

Jamie Dimon

Okay. I think most people think some of the things in Basel, no one’s against proper capital and liquidity. That we need. A lot of those things in Basel III had too much. You can’t include agency and MBS as liquid securities, 30% of deposits have to be held. There is going to be a run on 30% of deposits. You need to all own T-bills against that.

I think a lot of that’s going to get modified appropriately. So the impact of Basel III will be when it’s ultimately rolled out will be substantially less than the impact that you saw on the initial Basel III proposal.

The other thing that’s really important for American banks is it needs to be consistent globally. That is an important competitive attribute. I think the regulators know that. If you have different countries do it, it would have a dramatic effect.

I also want to point out that Basel III will have a much bigger effect on non-U.S. banks. And so the European banks, they have to look at those numbers and they will have a different reaction to it and probably going to want to phase that in over two years to 50 to make up for the dramatic impact in the balance sheet.

Jason Goldberg - Barclays Capital

Thanks. And then just lastly, Mike, on the slide six on lending update, you talked about stability and improvement and delinquencies on one bullet. The next bullet you talk to the impact of foreclosure moratorium extended timelines in OREO and modifications. Any sense to kind of quantify the impact in terms of how much delinquencies are being impacted by those factors?

Michael Cavanagh

I mean, it’s really the back-end stuff, Jason. It just continues, the back ends have elevated levels of delinquency rates. I think 10%-15% is what we said once upon a time but haven’t freshened that up. But remember, it’s not an income statement effect, the fact that those are getting delayed because we’re being very active in making sure that we charge things down and realize economic loss just because of those very delays.

Yet it does create some inflation of back end delinquency rates, which is why we’re so focused on those charts early bucket delinquencies, mid-bucket delinquencies and then what’s going on in the 150 day plus where some of that stuff sits for longer before it gets cycled out is a separate issue that has some distortions in it.

Jason Goldberg - Barclays Capital

Okay. Thank you.

Michael Cavanagh

Yeah.

Operator

Our next question comes from the line of with Moshe Orenbuch of Credit Suisse.

Moshe Orenbuch - Credit Suisse

Great. Thanks. Just following up on the home equity discussion, it is, I mean, it’s encouraging that you’re hoping and seeing signs perhaps that the losses aren’t worse than you expected and could in fact be better.

It does seem, I guess from outside a little counter-intuitive. Maybe could you expand a little bit on your comments from the Investor Day about the rundown of kind of $60ish billion of the JP Morgan home equity portfolio. Is there anything that could make you revisit that? Some of the expectations for your participation in the mortgage market as we go forward?

Jamie Dimon

I don’t get the question.

Moshe Orenbuch - Credit Suisse

Well, I think, I guess, when -- at the end of the Investor Day, Jamie said inclusive of WaMu you had $230 billion of mortgage assets that were likely to run off the books, but over $100 billion of those were JP Morgan assets inclusive of a big chunk of the home equity portfolio. Are you still kind of committed to running down that much of your mortgage assets? Is there anything that might change there?

Michael Cavanagh

I think it’s really a function of just we’re trying to give a sense that those rundowns are real when you consider how much of even the Chase portfolio, when you apply current underwriting standards, given proven income as opposed to stated income, LTVs that are sensitive to forward home price expectations and lower, all those layered in against a reasonable set of origination levels that would qualify there, given where home prices are, is what’s driving that.

I mean, if those underlying factors allow us to do more volume at those kind of new lending standards, the numbers could be different. But that’s a reasonable guess on where we might find ourselves going over many years.

Moshe Orenbuch - Credit Suisse

Got it. Thank you.

Operator

Our next question will come from the line of Jeff Harte with Sandler O’Neill.

Jeffery Harte - Sandler O’Neill & Partners L.P.

Good morning, guys. A couple things. One, I suppose somewhat simply, how should we be thinking about the tax rate going forward, given how it’s been low for at least a couple quarters running now?

Michael Cavanagh

I’d say, I mean, look back on where we were running low 30s. We were a little bit lower than that high 20s this quarter, on a reported basis. So a little bit of audit settlements in this quarter deflated the ratio, but for that we would have been around in the low 30s, which is a decent place to see the number.

Jeffery Harte - Sandler O’Neill & Partners L.P.

Okay. And when we look at the home equity loss assumptions within RFS, the sticking with the $1.4 billion outlook versus the $1.1 billion it’s kind of running now, how much of that is just conservatism versus are there kind of modification spillovers or something else driving you to be conservative there?

Michael Cavanagh

I think it’s more of the fact that it’s a little hard right now given the inflection we’re seeing to tune up a better number to give you than to say that’s what we last said, hold the thought while we get some more months of experience under us. But given what we’re seeing in early buckets, it could be that we don’t hit those numbers.

That’s the best I can give you on that score, just not yet able and ready to give numbers as good as what we had before. But we’re just caveating that they’re not so solid anymore, given some of the early trends.

Jeffery Harte - Sandler O’Neill & Partners L.P.

And that’s kind of from the economic or credit statistics that you’re seeing versus what you’re looking for as opposed to there being some kind of a HAMP rollover effect or something else dragging on it?

Jamie Dimon

Look, the actual roll rates, delinquencies, charge-offs, by vintage, look a little better. But add to that the uncertainty around housing, government programs, new foreclosures, the economy, we’re being cautious.

Jeffery Harte - Sandler O’Neill & Partners L.P.

Okay. Thank you.

Operator

Our next question will come from the line of Nancy Bush with NAB Research LLC.

Nancy A. Bush - NAB Research LLC.

Good morning, guys. Quick question on what will happen in a rising rate environment. I mean, the Fed continues to keep rates low but the long end keeps creeping up here and making a run at 4. Can you just give me some idea how you look at NIM in a rising rate environment, how you think your core funding is going to trend, whether you expect an extraordinary level of deposit pricing competition, et cetera?

Jamie Dimon

Nancy, this is -- it’s hard to say because you’re talking about something that really relates almost more to competition than anything else. I believe that if you have a rising rate environment, short rates going up 100, 200 basis points, long rates going up 100, 200 basis points, but it’s because of a healthy economy everything will be fine.

If you have stag-inflation, rates going up, you don’t have a healthy economy, that’s probably the worst situation for a bank. And in and of itself, it’s not the interest rate exposure, it’s the other things that are going to drive that including as you pointed out, competition.

Nancy A. Bush - NAB Research LLC.

Okay. Any thoughts about, I mean, what you’re, I mean, obviously, we’ve been in an extraordinarily liquid environment here and deposits have been rising as a result. Any thoughts about what we will see in the real core deposit growth or lack thereof as rates start to rise? And whether you see any, you will see any need this time around because we’re coming off such a low rate base to really give consumers more of the rise than you might have otherwise?

Jamie Dimon

When we talk about interest rate exposures, we already built into that our assumptions about how much a rate rises you pass on to consumers. So we already assumed that and I’d say we’re pretty aggressive assuming that you have to pass on quite a bit of it, at least early on in an interest rate cycle.

And on the consumer side, you look at consumers, they have a lot of excess cash, if you talk to our economists. A lot of that’s also in money market funds. It’s a little bit different in deposit accounts. And but we’re going to compete for our clients business like everybody else and we’re assuming that it will be competitive going forward.

Nancy A. Bush - NAB Research LLC.

Okay. Thank you.

Operator

Our next question will come from the line of Ed Najarian with ISI Group.

Edward Najarian - ISI Group

Yeah. Good morning. Just a quick question I guess for Mike. I’m not sure if you’re able to break this down but we saw the net interest margin expand from 302 to 332. I’m assuming most of that came from FAS 166/167 as well as probably what went on with trade-in and the corporate securities portfolio. But is there a way to indicate the portion of that that might have been related to the core lending and deposit business?

Michael Cavanagh

I’d say it was about stable. I mean, no material action in that, nor looking ahead would I expect there would necessarily be when you put aside the deliberate stuff we’re doing in the investment portfolio or just the outcome of what’s going on in the trading businesses.

Edward Najarian - ISI Group

Okay. Thanks. And then just as a quick follow-up. The $2.3 billion for the litigation reserve, I know you indicated that you don’t want to talk in more detail about that. But should we consider that pretty much a one-time item and at least for now the expectation would be that that would not exist in future quarters?

Michael Cavanagh

Well, since it’s going