JPMorgan Chase Q2 Earnings Call Transcript

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

The financial services provider quarterly revenue fell 2% to $25.1 billion from $25.6 billion a year ago. Net income in the quarter rose 77.8% to $4.8 billion or $1.09 per diluted share compared to net income of $2.7 billion or 28 cents per share a year ago.

JPMorgan Chase & Co. ((JPM))
Q2 2010 Earnings Call Transcript
July 18, 2010, 4:30 p.m. ET

Executives

Jamie Dimon - Chairman and Chief Executive Officer
Douglas Braunstein - Chief Financial Officer
Michael Cavanagh - CEO of Treasury & Securities Services

Analysts

Guy Moszkowski - Bank of America Merrill Lynch
Matthews O’Connor - Deutsche Bank
John McDonald - Sanford Bernstein
Betsy Graseck - Morgan Stanley
Meredith Whitney - Meredith Whitney Advisory
Mike Mayo - CLSA
Jason Goldberg - Barclays Capital
Chris Kotowski - Oppenheimer & Co.
Jim Mitchell - Buckingham Research
David Konrad - KBW
Ed Najarian - ISI Group
Moshe Orenbuch - Credit Suisse
Ron Mandel - GIC
Matt Burnell - Wells Fargo & Company
Carole Berger - Soleil Group
Gerard Cassidy - RBC

Presentation

Operator

Good Morning, ladies and gentlemen and welcome to the JPMorgan Chase’s & Co., Second Quarter 2010 earnings conference call.

This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please standby. At this time I will like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon, Chief Financial Officer Douglas Braunstein and Michael Cavanagh, CEO of Treasury & Securities Services. Mr. Dimon, please go ahead.

Jamie Dimon

Great. Thank you very much and folks, thank you for getting up these early hours. It has been a long time I guess. I just want to open real quickly to take Michael Cavanagh as last turn doing the Investor Relations call. So it is kind of a - but I want you all to know what a great job we think he has done in a large financial company in a very tough time in only respect getting numbers making sure we have got do things right, actually these cozy things of maintaining good relation with all of you so my congratulations up to Mike. I am excited about his new challenge and you will be still here in front of me in the future, just not on this call and I also welcome Douglas Braunstein, I don’t know how many of you know him but you will have plenty of time to get to him in the future. Previously he has been running the investment banking USA division including the bankers and equity debt to related capital markets and extraordinarily talented individual and he has obviously been to this process not less than two weeks so - to listen to have of course but I know he looks forward to see you and I know he will be a great CFO of JPMorgan Chase so I will now hand the call back over to Mike and when he is done we will be taking there some questions.

Douglas Braunstein

Thanks Jamie and I as well say thanks to the entire finance team at JPMorgan Chase. They did great for me and they are going to do great job for Doug and welcome Doug and congrats from me as well. So I am going to start and go through the usual slide deck that we have got here so if you start on Page 1 here on second quarter highlights, as you are seeing there in the 4.8 billion after tax earnings per share were $ 1.09 and revenue is about $ 26 billion in the quarter so we flag for the two big significant items and most of the rest of the stuff we are getting to watch your self out throughout the rest of the numbers but two big items, reduction to loan loss - balance of about a billion five or 36 cents after tax. I will cover this upfront once it is really coming out in three places throughout the firm. First is in the Investment Bank were we had about $ 350 million pretax, a reserve release that is really the same reason as the last quarter loan pay downs and loan sales putting up reserves. In the credit card business then you will see the lower current losses leading to a lower estimate subsequent losses and that leads to a reduction of reserves of about a billion five there and then finally in our commercial bank about 400 million pretax of reserve release which is just related to the periodic but normal requirements to our credit loss estimates in that business so those three places are what is driving me reduction to loan loss loans we still end the quarter with $ 37 billion on loan loss reserves and more than 5% on loan loss coverage. So we feel in very good shape on that score.

The other item is the U.K. bonus tax. We booked about $ 550 million after tax mostly running to the comp lines or often into the composition line mostly in our investment bank those two items together about 22 cents worth of net positive earnings of about 87 cents away from that. Broad characterization of those results is that most of our businesses perform pretty solidly as you see when we go through the numbers and a particular note is the decline in levels of actual charge-off losses in our consumer businesses both retail and credit card from prior quarters. Capital strength continues to be very, very strong, strong balance sheet continues I will get to that towards the end.

Now flipping on slide two, I am just going to skip everything I have said and now I will just go to the investment bank on slide three.

There you see a circled number profits of $ 1.4 billion in the investment bank I have already commented on the credit cost line which was done during the reserve release starting with revenues you see total revenues of $ 6.3 billion in the quarter three investment bank so starting with investment banking fees as you can see in for your self that we continue to be number one rank here to date in investment banking fee revenue and that amount to $ 1.4 billion for the quarter which is down from a very strong and capital issue is very heavy quarter in the prior year.

Moving to the market businesses, generally speaking we are back to the pre-crisis level for spreads and actually bind with lower levels of client activities of as a general matter throughout the quarter on average is the broad back drop but specifically in fixed income markets you see we had revenues of $ 3.6 billion down from last quarter in last year and that is the main areas for those declines from prior periods that was in credit market businesses rates and commodities areas included in the fixed income revenues of $ 3.6 billion about 400 million positive of benefits from DVA or credit spread typing on structure notes. Next in equity markets a billion dollars revenue and that included $ 200 million of DVA not much more that really highlight there nor in credit portfolio revenues just on expenses $ 4.5 billion remember that includes the UK bonus tax when you back that out the comps revenue ratio in the quarter was about 37%. So I flip through the investment bank.

Moving on to retail page four gives you what drives the P&L that we are going to see on the next slide. I will just say retail banking in the top portion of the page the - taking business retail branches you can read these through your self but you continue to see healthy underlying trends in the growth of the business whether it is stabilization growth in deposits remember we have been running of high cost deposits so the net growth here we are so good about and continued growth and other underlying trends. Middle of the page, other consumer lending and mortgage banking originations, total of about $ 38 billion worth of loan originations in the quarter that is part of a $ 156 billion of loan originations across the whole business including middle market small business in the broader company, so we continue to be originating credit for our clients at very good levels.

I will talk about real estate portfolios at the bottom in a second. If you flip to slide five you have the P&L for the retail business. I will walk you down the circled numbers on the left so in total retail the sum of all of this division made a 1.42 billion of net income in the quarter.

Moving down to the next circled box you see the retail banking side - just commented on the prior page earned $ 914 million in the quarter. I will let you read the commentary in the press release to the right here it is pretty straight forward of what is going on in the business and help you trends there. The next piece is the ongoing production origination of mortgage loans and other consumer lending including auto and there you see we had profits circled of $ 364 million. Again, I will let you read what is going on there and just point out that the $ 2 billion of revenues in that space continue to have a drag on it of loan or repurchase reserve level expense and reserving that - revenue there. That is little higher than it was last quarter flourished to over in fourth quarter last year but continues to be in our level of expectations but obviously continued on certainty to how that continues to progress.

And then finally at the bottom you have the real estate portfolio balances. Obviously this is driven heavily by our actual credit cost and prior period reserving no reserving at all in this quarter to the positive or negative just lower credit cost I will cover and so let’s go to that. That was a loss in aggregate of $ 236 million.

So if you flip the slide to slide six, you pick up the circled numbers on the left and the commentary then in the upper right, is that you see the substantial decline in the second quarter versus last quarter an year ago and actual current quarter charge-offs and that is on the back of the improved delinquency early -- delinquency that we have been commenting on for the past several quarters continuing to roll through as well as moderating levels of losses where we do have default, so lesser levels or moderating levels of loss severity. What we would say is that those trends appear to be stable from beginning quarter to end of quarter, so it is not clear that we can count on continued improvements from these levels. But in terms of our outlook, at these levels of delinquency and loss severity, if we hold where we are, we would expect to see our quarter losses run at the kind of levels that you see in the outlook box in the middle of the right-hand side. So at or below a billion dollars for home equity 400 million for prime mortgage and 400 million or so per quarter for subprime mortgage and so that has obviously changed from the outlook we previously given which you can think of we used to guide towards where we could see losses progressing upward towards in prior quarters as we talked about this guidance. Now we have sort of given you more of a outlook based upon a static level of delinquencies and loss severities running up these kind of numbers from here, so clearly an improved underlying of loss picture here, but still cautious and again no changes in our reserve levels in that business.

Moving on to our card services on slide seven here we see we have profits the circled numbers on the left show profits of $ 353, million credit card being the big story. So, as I have already mentioned the billion and half pretax reduction on loan loss reserves, so I will just focus on the actual charge-offs in the quarter which you see in the circled number on the left again the 9.02% charge-off rate in the quarter for the Chase portfolios as at X10 and improvement from last quarter you see the printed number in last quarter was 10.54% but - was inflated due to a payment holiday that I wont go into but on a real basis we dropped about 90 basis points in loss this quarter-over-quarter and you will see where we get to the outlook and we could see that improving again by maybe another 50 basis point 8.5% charge-off rate plus or minus for the Chase portfolios as we look into the next quarter would be our best guess given the level of trend we have seen. On the revenue side $ 4.2 billion of revenue that is down year-over-year, quarter-over-quarter and very similar trends to what we dynamics that we have talked about in the past so you have got a lower outstanding on lower sales higher level of the level of charge-offs that you have experienced, less balanced transfer activity as well as that is running off the Washington Mutual portfolio and now we are starting to get some impact of the Card Act legislation which is by about 25% of in our run rate in this quarter on the revenue side.

The next three businesses, the Commercial Bank, TSS and Asset Management, I will cover pretty quickly they are the dynamics of these businesses very similar to what they have been in the past so I will just flip through this quickly but hit a few items. So on Commercial Bank, it is $ 693 million that includes the 400 million reserve release, x debts to about 450 million or so after tax that is based upon the 1.5 billion level of revenue. You see here what continues to be strong the dynamic ideas I would point out if you look at the key statistics, you see end of period loans and leases the circled number $ 96 billion of loans and leases flourished to over the last quarter and down from a year ago so we continue to see maybe some signs of activity on the horizon but not yet translating into actual increase in loan demand and continue to low level of utilization in the low 30% to 32%. Utilization rates against the committed lines we have to our clients -.

Next Business Treasury and Security Services profits of $ 292 million in the quarter again general environment of low rate putting pressure on revenues here but in the second quarter we actually get a seasonal benefit embedded in and you can see in the security services side from securities landing particularly coming up in year particularly in second quarter of the year finally on the business side Asset Management on slide ten, $ 391 million of net income strong assets on demands within revenues related to that on continued strong investment performance which you can read on the right-hand side but one thing I would point out is you can see from commentary on lows on the middle of the right-hand side that were seeing outflows in sort of low, low spread, low risk, low return quantity products $ 29 billion and $ 26 billion for the last quarter in last year and that is partially of set on the flow side which flows back into longer term bond and equity type of funds.

Slide eleven, Corporate and Private Equity you see private equity very modest activity in quarter $ 75 million of revenue translating into $ 11 million of X tax profits so the big item being the corporate segment itself, you see $ 642 million of profits in the quarter. I will just jump through I think that is going that for a host of reasons think of that as a number that in future quarters coming quarters to trend more or like $ 300 million plus or minus but obviously there is one of these items that occur any one quarter to the next so in this particular quarter we had a level of securities gain coming out of our investment portfolio about $900 million and then in the expense side we had some higher litigation expenses booked in the quarter so those numbers we are watching through together with just over the quarter of higher levels in normal than what we see on an on going basis of portfolio side - of net interest income.

So moving to Capital on slide 12 you see Tier 1 Capital and Tier 1 Common Capital grew in the quarter from $ 131 billion to $ 137 billion and $ 104 billion to $ 108 billion helping drive with - total asset little bit of decline you see Tier 1 capital ratios and Tier 1 common very, very, very, strong at 12.1% and 9.6%. I already commented on the very strong level of credit reserves and I will just point out that at the tail end of last quarter carrying through yesterday we bought back about $ 500 million worth of stock in the past several weeks.

So finally on the quarter outlook, looking ahead on page 13, I think I covered well everything related to the home lending guidance on the left hand side so I will skip that. I will just give you an update and in terms of where we are on the overdraft these in retail we see that we are just updating our estimates there of the net income in fact previously on an after tax basis 500 million plus or minus now a little bit higher at 700 million plus or minus as a best current estimate of what the full impact - will it be only about half of that is currently running through our numbers.

On the credit card side we commented on the declining balances for a host of reasons then you could see and read for you self that we expect that to continue for the same reason that we are currently seeing including the run off of the WaMu portfolio and some legacy low yield balances in our outstanding. Credit losses we already commented on the 8.5% plus or minus charge-off rate for Chase and then on the Card Act side the total impact that we are expecting to see would be about 750 million plus or minus that now includes our view of what the final piece of legislation which was around what defines reasonable and proportionate fee is, it is a new item but I think - 750 plus or minus we used to be at 500 to 750 without that item but now with that in we think about it being in 750 million plus or minus and I already commented on the level of expected profits in corporate.

So the final thing I will comment on is the regulatory reform in slide 14. We are not going to say too much about this today other than these comments given at - today and there are still even pass this voting a lot to be defined by regulators and many uncertainties that makes it difficult to talk about this with precision but let me just run through what is on this page which is that we do recognize and we talked a lot about the many positive aspects that are going to becoming as part of the pending regulation. We are happy to see and we are always run our self in this way higher capital and liquidity requirements across the financial sector is a good thing.

Resolution authority we live through Bear Sterns and our self saw the problems of not having power to resolve institutions more broadly than just the traditional powers over commercial banks so we welcome that and we think it is a very good idea that system wide risk over site so some clearly some pluses that we look forward benefiting from on the other side or regulation. Definitely I have to point out that there are some challenges that come along with where we sit which is obviously what I already said that there is many uncertainties remain so while we expect to get this legislation today there remain hundreds of rules to be written and ongoing interpretations that we really define what this looks like there is a need to get global coordination obviously for this to be well executed and that is still to be done and then of course with anything of this kind of magnitude what is the ongoing interpretation that are going to come none of us really know what unknown hotspots are going to come for our business activities and our clients so that is on the challenges side but I would sum up that it is going to have a significant impact on many of our businesses. We are spending a lot of time thinking about this and particularly about how it is going to affect our clients because as you know we are very client focused side of businesses so a lot of energy is going into making sure we understand clearly what it is going to mean for those clients and going back to my first point very hard here with any kind of real certainties speak to about what the impacts could be here because the first point is that it is all going to face in overtime so it is not like the potential financial impacts are going to be here tomorrow this will gradually affect our results to whatever degree it does. One effect it does have is it is clearly going to be a result of how clients respond in terms of what they chose to, what services they avail themselves of and at what volume levels, so that is a little bit guess work at this stage and of course whatever impact there are going to be is going to be important to get it at least through adjustments of the business models, replacing the product and services and in many cases in our businesses the benefits that our shareholders will get back by having capital release as a result of some of the changes in this legislation.

So all more to comments we understand - we can be I just remind everybody but for JPMorgan Chase in particular we always thought about of running ourselves of a client-focused business, not heavily depend on proprietary activities which is the main trust of the ideas behind the legislation we are not at all disturbed by. In our client businesses investing for our client we have always had a clear separation between what we do is - due share for our client and where we run risk with the firm’s own capital so that is another start in the legislation that we are very comfortable with. Clearly you all know us as being highly focused on running a strong balance sheet with extremely strong liquidity and a strong capital base and again finally this is the strength of the fundamentals of the various businesses we chose to compete and in the diversified earnings power and margins that we get out of the businesses by running them well as part of what allowed us to really run we run away through the crisis and never have a losing quarter. So that is how we think about it as from here - is going to continue to do as we have always done which is to commit our self to implementing this regulation in a way that protects our clients and protects the competitiveness of the US financial system in JPMorgan Chase and doing that I will you know speak for us we have got hundreds of work streams around this place already engaged deeply in understanding and looking to implement this legislation in a thoughtful way that I just described. So not to say we have plenty more to discuss as time goes by on legislation and once we have our final points in better details to revive but these are thoughts for today on our score. So with that why don’t we go to questions?

Question-and-Answer-Session

Operator

Your first question comes from the line of Guy Moszkowski with Bank of America Merrill Lynch.

Guy Moszkowski - Bank of America Merrill Lynch

Good morning.

Jamie Dimon

Hi Guy.

Guy Moszkowski - Bank of America Merrill Lynch

First of all, I just wanted to say Mike, obviously, Jamie said it all, but you have done such a terrific job for all of us. I just want to thank you for that over many years at this point.

Mike Cavanagh

Thanks Guy.

Guy Moszkowski - Bank of America Merrill Lynch

There is no doubt that the decline in losses in delinquencies and the much lower expected loss guidance on the home mortgage side are a really big positive, but we know also that foreclosures have been slowed by various modification programs and forbearance programs, and anecdotally we still hear about people who are pretty delinquent who have yet to receive a foreclosure notice. Is this not something that you are worried about given the decline in that mortgage loss guidance, how should we think about all that?

Jamie Dimon

I would say Guy, as we have talked about before, we do worry about those thoughts, but make sure that when we actually take account of our current period charge-offs and our expectations for future losses, we are trying to be very cognizant of delays in courtroom filings and backlogs in courts and so forth to make sure that we are keeping current in our losses and our forecast of losses the best we can. So we are consciously concerned and try to reflect it in what we do.

Mike Cavanagh

We take the charge-offs on things that are delayed in foreclosure, and we do believe there is a little bit of a backlog due to foreclosures. We don’t think it is a way. We think it has already been in a high level or - level, but we do believe this is going to go up a little bit, but it is not going to be you know, two times what we have been experiencing.

Guy Moszkowski - Bank of America Merrill Lynch

Okay, that is helpful. Thanks for that. Can I just ask on the rest of warranties issue? You did talk about repurchases affecting the quarter a little bit. Can I just ask if you received the subpoena from FHFA and if you can give us a sense for your stance at this point on these issues, I remember that last quarter you added over $2 billion to reserve. Can we assume that that was built on an already significant reserve?

Jamie Dimon

Yes, so we did get a subpoena for information, which I believe went to all the major broker-dealers. They are not going to be regularly reporting on subpoena and stuff like that, and we do try to take account and repurchase reserves. They are still running kind of high. So we have a reserve. We have expenses and we think, with all reasons I think it might start coming down by early next year, because if you look at the images and the ages and the timings, you know, this may be a little bit lag too, but if they could very well come down.

Guy Moszkowski - Bank of America Merrill Lynch

And the final question I have for you is regarding the revised guidance on the CARD Act and OD stuff, the overdraft kind of stuff. Obviously, the changes in the regulation means that the few, who are no longer subsidizing a lot of products by pre-checking and the like for everybody else and you have given us an assessment of the impact, but should we assume that those are still static analyses and that you haven’t factored in there some of the re-pricing that you might do the kind of spread the cost of services more?

Jamie Dimon

Yes.

Guy Moszkowski - Bank of America Merrill Lynch

So over time there is probably some mitigation to those numbers.

Jamie Dimon

Yes.

Guy Moszkowski - Bank of America Merrill Lynch

Okay, thanks very much.

Operator

Your next question comes from the line of Matt O’Connor with Deutsche Bank.

Matthews O’Connor - Deutsche Bank

Good morning.

Jamie Dimon

Hi Matt.

Matthews O’Connor - Deutsche Bank

I think you guys have been more upfront than some banks about the non-interest income pressure out there from running off loans, reducing the carry trade, but I think it is fair to say the 2Q maybe came in a little bit lower than expected, just lower than what I have had. So I just wanted you to talk a bit about what drove this decline, and what do you think the outlook is on non-interest income dollars.

Jamie Dimon

You know, I think Matt it is in part I got to hold aside what goes on in the trading businesses. So holding that aside, the level of spread was down, just a touch and product comes down, a touch again. So it is really the volume declines across the consumer portfolios that will put a little bit of continued downward pressure on NIM dollars looking ahead.

Matthews O’Connor - Deutsche Bank

Okay, got much more modest than the billion dollar decline we saw this quarter.

Jamie Dimon

Yes, I think some of that was changed in the investment portfolio as well.

Matthews O’Connor - Deutsche Bank

Okay, and that is largely behind you?

Jamie Dimon

No, that is going to continue in that corporate line that Mike says will come down to $300 million. There is a big chunk of that is NIM coming down a little bit as we reposition the portfolio.

Mike Cavanagh

That is right. The run rate at the end of the quarter is lower as a result of those sales that generated the billion or so $ 900 million of gains, because I was just pulling forward some of that NIM.

Matthews O’Connor - Deutsche Bank

Okay, so the corporate that write-down, obviously the investment banks are always dependent on what’s driving trading and then ex those areas more modest pressure than we saw this quarter.

Jamie Dimon

Right, well credit cards balances have come down and they still run off mostly in the mortgage related areas in WaMu and J.P. Morgan Chase, and we gave you those numbers before. You can just build them right into your calculations.

Matthews O’Connor - Deutsche Bank

Okay.

Jamie Dimon

But remember that also frees up capital. So there is a flipside to that.

Matthews O’Connor - Deutsche Bank

Right. That was actually where I was going to go next. I mean, with the balance sheet coming down and as the revenue environment is tough, you have really got a lot of capital. It’s going to build. You bought back some stock. I think on a net basis the shares were unchanged. Is there opportunity to bring down the share count on a net basis or is that more?

Jamie Dimon

I think it is significant that we started to buy back some stock and which means we are value investors. So, think first that we are making a couple of statements here, and obviously it is one way to manage the capital base and reinvest money on behalf of our shareholders.

Matthews O’Connor - Deutsche Bank

Okay. This is not like regulatory, you bought back stock but the net share count didn’t decline.

Jamie Dimon

That is right.

Matthews O’Connor - Deutsche Bank

Only to actually net buyback stock.

Jamie Dimon

Yes, we might. There is a discipline to buyback we issue. Remember, a lot of reissue is restricted stock to employees, which sets over time. So every quarter mortgage shows up in share count. So a lot of things affect share count, but we as a discipline like to buy back at least what we issue.

Matthews O’Connor - Deutsche Bank

Okay, all right. Thank you.

Operator

Your next question comes from the line of John McDonald with Sanford Bernstein.

John McDonald - Sanford Bernstein

Hi Mike. Wondering if you could give any color on what changed on the NSF OD impact of your estimate there?

Mike Cavanagh

Certainly just refinements as we are getting further down the road of opting levels. It is the main driver, little bit less than we had originally forecast opting in and that is driving the numbers for impact a little higher.

John McDonald - Sanford Bernstein

Okay. Just to follow up on the NIM, and in the card business the NIM was down. Are the changes in the CARD Act reflected in the card NIM might be a lack of ability to reprice that kind of in there or could there be more NIM pressure in card from that?

Mike Cavanagh

There will be more pressure in aggregate on the results in cards, because we are only about 25% of the way. I got to come back John how much that will be through NIM versus other portions of the revenue. There are probably more to come, but it is the split of where it will sit NIM versus other revenues. We can come back and give you better clarity.

John McDonald - Sanford Bernstein

Okay, but that is embedded in the outlook you gave?

Mike Cavanagh

Yes.

John McDonald - Sanford Bernstein

Okay. And then any comments about potential improvement and line utilization just the precursor to any improvement in loan demand?

Jamie Dimon

Seeing activities again, same as last quarter strengthened what is going on in small business lending double the level that we originated last year, middle market and commercial is similar to what we said before. Plenty of dialogue going on between our clients and our bankers as folks get themselves ready to take some actions, but just not yet really manifesting itself in draw downs on lines or loans going up just yet. Hopeful we get some --

Mike Cavanagh

-- pretty significant, so wholesale loans actually showed fairly healthy credit, 23 basis points of loss from the investment bank and 73 basis points of charge-off in middle market. That is a sign of healthy companies and middle market loans, just take the middle market section, for the first time in years stopped going down. I look at it as a good sign too.

John McDonald - Sanford Bernstein

Okay. Last quick question on reserves, in card you have been releasing reserves for a quarter or two now in RFS, you didn’t add or release reserves. If the current delinquencies continue and your new laws outlook plays out would you start to release reserves in RFS. Do you think this year, if that plays out the way you think it is?

Jamie Dimon

Yes. The first thing about loan losses is you should assume that we don’t like to release loan loss reserves. So it isn’t like you should be saying, well, this company want to do it, to report its earnings, we don’t consider earnings. I have always called that income paper. It means nothing, okay, and we like to protect ourselves. So in credit card we have some pretty good insight over the quarter forward or even two quarters forward. But as you all pointed out there is far more uncertainty in mortgage lending, and we are extremely cautious and careful on it. And you know, if we have to take down reserves, put it this way, we will take them down only if we have to.

John McDonald - Sanford Bernstein

Okay, thank you.

Operator

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

Betsy Graseck - Morgan Stanley

Thanks. Hi good morning. A couple of questions, one is just on how some of the, you know, concerns are around the industry overall, and you know, this weighs on your stock as well from time to time. You know, the market is concerned about credit; you seem to be showing a significant improvement in credit this quarter.
Capital management and frankly I walked in this morning not thinking we were going to get anything and was positively surprised by the buyback. So you seem to be saying that that can happen. Two questions I have, one is on FinReg. In the past, you have indicated on the derivates side that if certain things happened and you did nothing, the hit to derivatives revenues could be in the $2 billion to $3 billion range. Are you changing that assessment at this stage given what we know about FinReg at this point in time?

Jamie Dimon

Yeah we are comparing apples to oranges. A while back when you were talking about derivatives, we were talking about if it all went to an exchange what could that mean. That is what that number was. This is completely different than that and has far more complexities to clients, global competition and it will phase in overtime and we don’t really know the effect. But I guess what we really look at is we want to make sure we can service our clients and we think we will be able to and that is probably the most important thing. Now, we will have some effect on the revenues and margins and volumes probably.

Betsy Graseck - Morgan Stanley

And Mike talked about capital release.

Mike Cavanagh

Yes. So obviously when we talked about the revenue impact, if derivatives going to exchanges in the extreme cases Jamie said, we never then really tried to quantify, just pointed out that that is a capital reducing event as well. So that is the point and some of these activities, there will be capital freed up as the business models adjust. So it very hard to put numbers on. The totality of the effects when you take into account timing, first blush issues that change and then capital release and business model change.

Betsy Graseck - Morgan Stanley

As your estimates kind of firm up, you will be sharing them with us?

Mike Cavanagh

Yup.

Betsy Graseck - Morgan Stanley

The last kind of big concern over the group is deflation. Could you just give us your thoughts as to how you are thinking about that and how you are trying to manage in an environment which obviously clearly is slower growth, but you could have some potential deflationary elements to it?

Jamie Dimon

I am not sitting here terrified over deflation to tell you the truth. And what we see in the economy is that maybe growth slowed down a little bit in June, but you still have fairly good underlying numbers in manufacturing and servicing confidence, China, India and so we try to protect our company and we really do, we look at exposure to kind of all the fat tails. So that is kind of one of the fat tails that I think we worry about, but we are not going to run the business guessing that there might be deflation.

Betsy Graseck - Morgan Stanley

Okay. And then lastly on capital, you did the buyback to eliminate the pressure that you would have had from issuance. Can you share with us what your thoughts are on capital levels that you think you would be able to manage to going forward or is it too early to say?

Jamie Dimon

Well, I would just maybe saying I think we have tons of capital and tons of liquidity. But we don’t determine regulatory requirements and as you know, Basel III is out there and we think even under any reasonable type of Basel III, we will be fine and we would adjust the balance sheet in a way that makes sense. A lot of things in Basel III which would probably dramatically change your business models and we would obviously adjust to that. So we think we are in a great shape. We would like to see a little more certainty around Basel III and we think there may be more guidance coming out in September and then November and our Basel III will be applied.

Betsy Graseck - Morgan Stanley

Great. Okay, thanks.

Operator

Your next question comes from the line of Meredith Whitney with Meredith Whitney Advisory.

Jamie Dimon

Hi, Meredith.

Meredith Whitney - Meredith Whitney Advisory

Oh, sorry. I was on mute, sorry. Good morning. I have three quick questions. One is on the general impact of whole loan sales to third-party services and how that impacted results on a relative basis to last quarter, last year and your outlook on that on a go-forward basis. And then I will wait to have my follow-up question, please.

Jamie Dimon

You are talking about wholesale commercial loans?

Meredith Whitney - Meredith Whitney Advisory

Wholesale mortgage loans, whole loan mortgage loans, packages of mortgage loans, because if I just sort of try to strip out the charge-offs from the loan balance decline and run-off, it looks like there were some loan sales in the quarter.

Jamie Dimon

Other than normal production and then sales to Fannie Mae and Freddie Mac in the warehouse.

Mike Cavanagh

Had some on the Investment Bank -

Meredith Whitney - Meredith Whitney Advisory

There is no impact from credit on loan sales to third party servicers?

Mike Cavanagh

No.

Meredith Whitney - Meredith Whitney Advisory

Okay. And then the second question is have you updated your outlook for home prices peak to trough?

Jamie Dimon

Yes, obviously we look at what you do and a lot of the people and embed it in some of our reserving and stuff like that - where we expect home price to go down a little bit more. But we also look at how it would be under much more adverse circumstances and we are in pretty good shape. We don’t know what is going to happen to home prices.

Meredith Whitney - Meredith Whitney Advisory

Okay.

Jamie Dimon

And we don’t think anyone actually knows what is going to happen to home prices.

Meredith Whitney - Meredith Whitney Advisory

Okay. And then my final question is last week, a couple of weeks ago, BIS came out with statements, on general statements, on bank dividends. I don’t know if you had a chance to look at it and offer your comments on this.

Jamie Dimon

I didn’t see.

Mike Cavanagh

I didn’t see them either, Meredith.

Meredith Whitney - Meredith Whitney Advisory

It basically said that they wanted to make sure, I am absolutely paraphrasing here, that when banks did re-implement dividends, there will be no risk of them cutting dividends again. So it just seemed like they were pushing out the whole dialogue on reinstating dividends to the banks.

Mike Cavanagh

I think that is part and parcel of the thoughts around Basel III that we need more clarity on kind of default.

Jamie Dimon

That is a policy statement, which I would generally agree with. But there is a judgment call there and -

Meredith Whitney - Meredith Whitney Advisory

Okay. All right, thank you.

Jamie Dimon

Thanks, Meredith.

Operator

Your next question comes from the line of Mike Mayo with CLSA.

Mike Mayo - CLSA

Hi, good morning.

Jamie Dimon

Hi, Mike.

Mike Mayo - CLSA

I guess I am not clear where you guys stand on the dividend. Now, there is some article saying you are not going to increase the dividend this year. Yet now, you are buying back stock. How do you think about the dividend?

Jamie Dimon

I think our business units are much closer to being best in class than you obviously think. The dividend, we have said three things, okay. We want to see the economy get better in terms of employment getting better, we want to see a significant improvement not for a month or two or even a quarter and charge-offs and delinquencies and we need more capital certainty.

The first two seem to be getting better; the third, it doesn’t. This capital certainty, Basel, et cetera. They are all starting to come inside in formation. Hopefully, we will have all of that clearly understood by the end of the year and we would like to reinstate the dividend, we think our shareholders want it. We just want to check off all those boxes so that we don’t have to cut the dividend again.

And buying back stock is just no way of, in my opinion, both capital management and doing very smart thing for shareholders. In fact, our preference there would be stock buyback and a lot of the stock was bought at slightly lower prices in 40, and so that is I think a very good thing to do.

Mike Mayo - CLSA

And what was the average price of the buyback?

Jamie Dimon

I don’t remember. My memory says 37 or 38.

Mike Mayo - CLSA

Okay. And then second question, I guess you are not quantifying the impact of the Dodd-Frank Act on the derivatives business, but can you just say how it could impact the revenues, margin, volumes, and capital, just so we can try to size a little bit better?

Jamie Dimon

I guess, one of the issues, first of all, there is timing. So when you say size it better, I don’t think a lot of you do forecast to go out three years. So you are talking about several years before it phases in. And as Mike said, there are capital effects, there are margin effects, there are volume effects and when you put them all together, we don’t really know. So it would be less accurate of us to take a guess at that and to tell you we don’t know.

Mike Mayo - CLSA

I mean, your guess is better than us. Is it 1%, 5%, 10%, 20%, some people have estimated 25%, 30%.

Jamie Dimon

Let them estimate whatever they want.

Mike Mayo - CLSA

Okay, that is fine. And then last question, I guess, does go to best in class. This is the first conference call since you made some big management changes, talking about the need for more non-U.S. expansion. Where do you see the end game in terms of the non-U.S. franchise of JPMorgan and now that you have so much more management and resources targeted for that, what are some of the milestones?

Jamie Dimon

Yes. So I think our investment banking and emerging markets platform is just as good as Goldman Sachs, for example. But you referred to investment banking, asset management, TSS are very global businesses, they have been global for a long time. So we are talking about augmenting and accelerating some of that.

And if you think about it in terms of locations for TSS, we will be adding locations to serve clients in custody and cash management. If you think of it in terms of asset management, we are always adding product and we are adding bankers. If you think of it in terms of investment banking, more bankers, more countries, more coverage, more research. That is not just in the bricks; it is also going to be in other countries around the world.

Mike Mayo - CLSA

All right. And just a last follow-up since we are bringing up peer analysis, I mean, Investment Bank division this quarter had a decline of almost one-half in EMEA and I was wondering if there is noise related to that.

Jamie Dimon

Yes. So I think the Investment Bank had a great performance, but it is true and we lost a little bit of share in a couple of areas. I think I told you last time that, I told we had a little artificial increase in share, because we were still strong in doing business, one of the people had pulled back a lot. So the competition is back. I think that is a good thing. We are going to have to fight for it inch by inch, foot by foot, yard by yard, mile by mile, and any number in any quarter, it can easily jump around a point or two or three, as you know.

So you know the way we look at it is more bankers, better bankers, more products, more services, more coverage of clients and we will earn share. So over the years, I expect the share to go up and not in any one quarter.

Mike Mayo - CLSA

All right. Thank you.

Operator

Your next question comes from the line of Jason Goldberg with Barclays Capital.

Jason Goldberg - Barclays Capital

Thank you. Just maybe a following up on that, can you just maybe expand a bit what you saw in fixed income trading during the quarter, maybe a bit more granular than what was in the release and it was hard to predict, but kind of what your expectations are at least first couple of weeks you are seeing for Q3.

Jamie Dimon

Yes. So I think Mike said, credit wasn’t as good this quarter, rates wasn’t as good this quarter and there was an article in the Wall Street Journal about commodities, so we lost a little bit of money in call. So that is nothing mystical, okay? Spreads and volumes are still good. Spreads are back to where they were before the crisis and volumes are still pretty healthy in our mind and I don’t know what the whole quarter is going to look like any better than you do.

Jason Goldberg - Barclays Capital

Fair enough. And then you noted in the release, in the commercial bank, all your losses tied to commercial real estate. Could you maybe kind of give us an update in terms of what you are seeing in that segment?

Jamie Dimon

Yes. So the 73 basis points includes commercial real estate. And when we say that, it is not bad numbers, we have very little, we don’t have a lot of commercial real estate that is risky. Actually, we make disclosures. I think it is still in the back of this presentation that show you by category. It is just that 60% to 70% of losses are coming out of the total real estate category. That is all it is.

Mike Cavanagh

And that is between true commercial real estate and the multi-family lending, both of those running higher than that average. And so middle market, commercial and industrial ex that would be a little bit lower than the 75 basis points, which goes back to Jamie’s point about the health of corporate America.

Jason Goldberg - Barclays Capital

Great. Thank you.

Operator

Your next question comes from the line of Chris Kotowski with Oppenheimer & Co.

Chris Kotowski - Oppenheimer & Co.

Yes. Standing back and looking big picture, I guess, given the revenue environment, the total revenues came in right about where we were looking for, but expenses were about and if you back out the U.K. bonus tax and back out the $2.3 billion charge last quarter, I mean it was expenses were it was off a bit and if I look at it, again sort of linked-quarter revenues are down 9%, but excluding those two special items, linked-quarter expenses are up about 2%. So I am curious, do you have a - is there a reason for that? Is that investing in future growth? Is that the drag of higher credit costs currently or -?

Jamie Dimon

Paul, I think Mike mentioned this. It was higher litigation costs this quarter. We are in a litigious society and a litigious time. So that will be one number. I think expenses are generally in some of the businesses as we are adding some people and adding branches and things like that. And then of course we continue to run higher costs in default and higher costs in foreclosed assets. I don’t know the year-over-year on that, managing foreclosed assets. So it is a variety of factors.

Chris Kotowski - Oppenheimer & Co.

Okay. And any outlook or this is the expected level of expense that we should expect for ?

Jamie Dimon

I think we kind of give it business by business. So if you go to corporate, that $300 million after tax is kind of NII and corporate overhead on the allocated, unallocated. That is probably the best, I think that by the number that is affecting that the most.

Chris Kotowski - Oppenheimer & Co.

Okay. And then on the capital management/return to shareholders question, I mean, I guess, you know, I understand the political sensitivities, it is an election year and no one likes bankers and all that. But even with the 500 million in repurchase, I mean, you are at close to $5 billion in earnings and your tangible common ratio is building up at a tune of about 50 basis points a quarter. I mean, is there some point at which the regulators just say uncle and just go ahead and do what you need to do?

Jamie Dimon

Well, I mean, buying back stock has just started. So that doesn’t have to necessarily end and as you know, we don’t tell you what we are going to do with buying back the stock, but we agree with you, I think we are trying to be clear.

There are a lot of uncertainties around capital. As those uncertainties are resolved and which I think when they do, we will have plenty of capital and that capital number is going to grow even faster over time, not slower as reserves come down, etcetera. We agree with you, we are getting capital heavy, we are buying back a little bit of stock. When we start the dividend, we want to be permanent. And if I have said it and I will say it again, if we are lucky, sometime by the end of this year and hopefully sometime if not that, hopefully early next year.

Chris Kotowski - Oppenheimer & Co.

And then I guess just going back to Guy’s question a little bit, I mean as the CARD Act was making its way through Congress, we could kind of see the offsetting revenues come into the income statement for most of the card issuers and the revenue margins started going up. And I am just curious with the NSF fees and the potential limits on interchange fees and all that, can you give us an idea of what kind of tests and experiments on the revenue offset side you are doing?

Mike Cavanagh

Well, in retail banking, I guess the big issue with both those things is how much of that will eventually be repriced into the business. If you a restaurant and you can’t charge for the soda, you are going to charge more for the burger.

And my guess is over time, it will all be repriced into the business and it may change the model a little bit, they may change pricing a little bit, they may change how many customers you can serve, they may change the products you roll out, but eventually all will be repriced in the business. And in retail banking, it will probably be, and you see a bunch of banks do it already, adding monthly fees or something like that. And in credit card, it will be possibly adding higher fees on credit card and a slightly higher going-in rates.

Chris Kotowski - Oppenheimer & Co.

Okay. All right. Thank you.

Operator

Your next question comes from the line of Jim Mitchell with Buckingham Research.

Mike Cavanagh

Hi, Jim.

Jim Mitchell - Buckingham Research

Good morning, Mike. One quick question. Is there any material DVA?

Mike Cavanagh

Yes, I thought to mention it, I am sorry. In fixed income, we had about $400 million of DVA and in equity markets we have $200 million of DVA.

Jim Mitchell - Buckingham Research

Okay. And then maybe more broadly in the credit side again, -- hammering away on the mortgage side, but your guidance on the home mortgage side is materially higher I guess in the run rate we saw this quarter. Is that just conservatism on your part, are you building in some expectation of higher losses, was there something unusual this quarter or as -- come in, is that expecting to kind of drive those losses a little higher?

Jamie Dimon

I think that we are extremely cautious on mortgage and we are going to be cautious until this is done, okay? There are a lot of factors that play here, there is a lot more uncertainty in it because of higher foreclosures, home prices, and we just by nature are going be cautious about it. And that is more of a kind of a static look about what it could be like the next couple of quarters, obviously hope it improves.

Jim Mitchell - Buckingham Research

Right.

Jamie Dimon

And Mike mentioned that the early indicators like front-end delinquencies and a bunch other things kind of leveled off a little bit in June.

Jim Mitchell - Buckingham Research

Right.

Jamie Dimon

-- to continuing to get better. So we are just trying to be cautious here.

Jim Mitchell - Buckingham Research

Any specific comments on home equity? There has been a lot of discussion about what the impact could be if there is some principal reduction on the first mortgage and what that could do to loss rates. I know we have talked about this before, Mike, but -

Jamie Dimon

Yes, we have done a lot of work in this too, okay? First remember, some of those mortgages are first liens.

Jim Mitchell - Buckingham Research

Right.

Jamie Dimon

Some of them are second liens with low LTV, okay? A lot of them are fine. But if you were in a HAMP program, we generally take a big hit like the first mortgage does. Think of it that way.

Jim Mitchell - Buckingham Research

Right.

Mike Cavanagh

When a first mortgage defaults at a high LTV, eventually the home equity is written off. That is already in the ongoing charge-off numbers. Though, I do believe it delays the loss a little bit. But we try to recognize that in our reserving, okay?

Jim Mitchell - Buckingham Research

Right. And as they go -

Mike Cavanagh

The right the hit is being taken after the first is written down. That is what happens.

Jim Mitchell - Buckingham Research

And after 150 days past due, right, you mark to realizable value anyway and that is included in that assumption, correct?

Mike Cavanagh

Yes. I just think the whole thing gets a little delayed. What happens in the seconds, they are current, the current later, then the first are current?

Jamie Dimon

Delayed effect in the seconds which we acknowledge, and we try to account for that.

Jim Mitchell - Buckingham Research

Okay.

Mike Cavanagh

It is a shocking number, I don’t remember it exactly, but something like half of all, in half of the cases where the first is in default. The home equity is still paying. Remember the home equity is a loan secured by real estate. It is supposed to pay. You are not supposed to walk away from a loan because the collateral is worth less.

Jim Mitchell - Buckingham Research

Right.

Mike Cavanagh

And lot of people who want to meet their obligations, we think is a good thing in life not a bad thing.

Jim Mitchell - Buckingham Research

Okay, great. Thanks.

Operator

Your next question comes from the line of David Konrad with KBW.

David Konrad - KBW

Good morning. A couple of quick questions, one, thanks for giving the DVA numbers, but I was wondering given the widening of credit spreads in Europe if there is a CVA adjustment in the trading line?

Jamie Dimon

In those numbers, it is pretty much a wash. Our credit portfolio revenue line has a whole bunch of things going on in it, but not worth. They wash themselves out in fixed income equity markets, deviate CVAs pretty much the numbers I just gave 400 and 200.

Mike Cavanagh

We are hoping the new accounting rules get rid of DVA by the way, because we-- wiser things that was ever done in accounting.

David Konrad - KBW

The second question, I know the risk in the market is kind of perceived financial stability of the local markets, and I think at least last quarter your exposure to state municipalities in terms of credit commitments was around 5% of your portfolio, just why don’t you give some thoughts on how you feel about the risk is in that portfolio and your strategy there?

Jamie Dimon

Yes, think of it is we think we are fine. We do think there are some exposures, and I think to some municipalities more than some of the states. We do provide credit and will continue to provide credit to states, municipalities, hospitals, state plans, state utilities and you know, it is part of our job. We are just trying to be cautious in terms of credit. We are not worried about it anymore than other stuff. I think we have always been very tight on it.

David Konrad - KBW

Okay. Thank you.

Operator

Your next question comes from the line of Ed Najarian with ISI Group.

Ed Najarian - ISI Group

Hi, good morning.

Jamie Dimon

Hi, Ed.

Ed Najarian - ISI Group

I think most of my questions have been answered, but I just had two quick ones. First, in terms of reserve recapture I know you probably don’t want to make too many definitive statements on the home mortgage side, but when we think about it ongoing on the credit card side, is there any way to think about the magnitude of reserve recapture relative to the improvement in the charge-off ratio or delinquency trends, you talked about sort of the charge-off ratio potentially going down another 50 basis points in 3Q, potentially delinquencies continuing to get better. Is there any way to sort of equate that pace with the magnitude of reserve recapture in the card business?

Jamie Dimon

Yes, I will give you a really simplistic way to do that. If you think your 12-month-old charge-off is going to be 8%, you are going to have 8% of reserves. If you think the normalized rate is going to be 5%, eventually your reserves will come down to 5% of outstanding. That is what will happen. This will happen over time. You know, we don’t know exactly what quarter, but eventually, and that is true for a lot of these reserves by the way and that is why a lot of things about reserving is a pro cyclical thing. You put them up in the worst of times, and then you take them down when things are getting better and so, of the $36 billion that Mike mentioned, a lot of that will eventually come back into income.

Mike Cavanagh

But that is another place where we look to see the accounting rules get away from that pro cyclicality before this cycle is fully over.

Ed Najarian - ISI Group

Okay. Thanks, that is helpful and then Jim, could you make any comments on investment banking pipeline or your view in terms of when and if investment banking revenue will start to pick up?

Jamie Dimon

You know, investment banking is doing fine and the pipeline is fine, but I always point out to you that the pipeline is a notorious. It can bounce up or down based upon the environment and animal, birds and whole bunch of things, but we see a lot of activity in the corporate world. And you know when they start, people start doing more M&A or something, I saw a couple of deals were announced this morning. So we will see.

Ed Najarian - ISI Group

I mean, would you expect to pick up in the second half versus the first half or do you think that is more of a 2011 event?

Jamie Dimon

I think that your guess is as good as ours.

Ed Najarian - ISI Group

Okay. Thanks.

Operator

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

Moshe Orenbuch - Credit Suisse

Thanks.

Jamie Dimon

Hi Moshe.

Moshe Orenbuch - Credit Suisse

I was wondering if you could kind of maybe describe a little bit how much capital you have allocated to the stock buyback program, like how should we think about you know, obviously 500 million is kind of probably less than where you would have thought the dividend might go on a quarterly basis, but how much is left there if any?

Jamie Dimon

The 500 million have started, and I think Mike.

Mike Cavanagh

We got a couple of billion dollars. Think if there is a couple of billion dollars worth of buyback in a yearly period just to keep net shares flat going back to another question. So, I would have that in mind over a full year’s time, and $2 billion to $3 billion is the kind of level for that. Whether we push through that is a separate issue.

Jamie Dimon

And I think it was the baseline. If the stock goes down and we have regulated, we could buy back a lot more than that. And if stock goes up, we may not buy back any.

Moshe Orenbuch - Credit Suisse

Great. Okay, and as far as kind of a separate question, you know, there were a couple of questions relating to checking account pricing related to the kind of overdraft fees, and debit card fees, why do you think it is that you know we had the Card Act related repricings in the industry kind of happen so much faster than checking accounts. We have kind of seen very few announcements of changes in checking account pricing?

Jamie Dimon

Okay, I just want to comment on stock buyback because it is really important, unlike we don’t believe that buying back stock is returning cash to shareholders. So we buy back stock when we think it is a great deal for the ongoing shareholders, not the shareholders we bought the stock back from. So, it is just a little different than other people look at stock buyback and I think that people are still estimating the effect of all the fees, and how it is going to function.

And I think that some things have announced are changes in products and platforms, and some things have made changes in deposit rates and some of that. So, it is a little bit lagged. And remember in credit card, in general the credit card companies were already losing a lot of money when some of the stuff got put in.

Moshe Orenbuch - Credit Suisse

Right. Fair enough.

Jamie Dimon

A lot of them on a standalone basis would not have made it, if they were not part of bigger companies.

Moshe Orenbuch - Credit Suisse

Okay. Fair enough.

Jamie Dimon

It had to do - people had to do things to save their lives.

Moshe Orenbuch - Credit Suisse

Got it. Last question is, it has been suggested that you would not really see corporate loan demand return until corporations have started reducing some of the cash they have on deposited banks, and you kind of referenced the decline of deposits primarily being kind of WaMu related high cost deposits. Was there any kind of runoff of corporate liquidity that might be kind of a precursor to loan growth on the corporate side?

Jamie Dimon

No. If you look in the businesses, there you will see pretty stable wholesale deposit liability balances.

Moshe Orenbuch - Credit Suisse

Great, thanks.

Mike Cavanagh

I think a lot of corporations are prefunded more than normal their future needs, and the bond markets when the bond markets opened up. So, you know, most people are kind of just looking at all the cash on the corporate balance sheets and say there is a lot, and the way to start spending it. When you start to see you know, plants being built and M&A deals, then you will see more real corporate lending.

Moshe Orenbuch - Credit Suisse

Great, thanks.

Mike Cavanagh

Even middle market, look at our middle market business, look at the numbers exactly, but 18 months ago we had 100 billion of loans and 100 billion of deposits. Now we have like 90 billion of loans or something and 130 billion of deposits from middle market clients. So, you could see that starts to show they are pretty flush too and huge unused lines.

Moshe Orenbuch - Credit Suisse

Thank you.

Operator

Your next question comes from the line of Ron Mandel with GIC.

Ron Mandel - GIC

Hi thanks. Two questions, one is in regard to the repurchase program. You know, if I am reading this right, it looks like about two thirds of it or one third of it was actually in the quarter, and then the other two thirds of the $500 million was in the current quarter, you know, since the end of June.

Jamie Dimon

That is right, that is right. It started towards the tail end and continued through yesterday.

Ron Mandel - GIC

Yes. So it seems like the average shares could actually you know, decline, you know, this quarter and if you continue the program decline going forward compared to the average in the second quarter because you know, so much of the repurchase program has been voted into this quarter.

Mike Cavanagh

Yes, but going back to what Jamie said the pace will depend on where the price is.

Ron Mandel - GIC

Right, and then separately I have a question about loan loss provision, and you know, the provision relative to average loans is ab