JPMorgan Q1 Earnings Call Transcript

123jump.com Staff
10 May, 2011
New York City

The financial services provider total quarterly net revenue dropped 9% to $25.22 billion. Net income in the quarter surged 67% to $5.56 billion. Earnings per share rose to $1.28 as against 74 cents per share a year ago.

JPMorgan Chase & Co. ((JPM))
Q1 2011 Earnings Call Transcript
April 13, 2011 9:00 a.m. ET

Executives

Douglas L. Braunstein – Chief Financial Officer
Jamie Dimon – Chairman and Chief Executive Officer

Analysts

Guy Moszkowski – Bank of America/Merrill Lynch
Jason Goldberg – Barclays Capital
Edward Najarian – ISI Group
Glenn Schorr – Nomura Securities International, Inc.
Betsy Graseck – Morgan Stanley
John McDonald – Sanford C. Bernstein
Moshe Orenbuch – Credit Suisse
Gerard Cassidy – RBC Capital
Michael Mayo – Caylon Securities
Jeffery Harte – Sandler O''Neill
Matthew O''Connor – Deutsche Bank
Ronald Mandle – GIC
Matthew Burnell – Wells Fargo Securities, LLC
James Mitchell – Buckingham Research
Christopher Kotowski – Oppenheimer & Co.

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase''s First Quarter 2011 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 stand by.

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

Douglas L. Braunstein

Thanks, operator. It''s Doug here. I am going to be taking you through the earnings presentation; it''s available on our website, as you know. We will take questions after walking through the presentation. And with that let''s turn to page one.

For the quarter, we generated net income of $5.6 billion, $1.28 a share and that was on revenue of $25.8 billion. As we''ve done historically, we are highlighting several significant items in the quarter right up front. I am going to try and cover them in some detail here but they are included in the numbers for the lines of business.

First item is a $0.29 per share increase in earnings and that comes from a reduction in the credit card services allowance for loan losses. I''ll talk you through the specifics of net charge-offs and our delinquency rates when we get to credit card later on.

Second item is a $0.16 per share decrease in earnings, that''s from a fair value adjustment to our MSR servicing asset, and this adjustment really represents the impact of the actual and/or anticipated increases in servicing costs, including the compliance with our anticipated requirements that are going to be imposed through the OCC and Fed through a consent order that we anticipate receiving later today.

The third item is a $0.10 per share decrease in earnings and expected cost for foreclosure-related matters. And these costs are really our best current estimate for affidavit-related delays as well as certain legal expense. We don''t view these costs as run-rate expense, but to be clear there could be further costs around this matter before we''re finished.

We ended the quarter with Tier 1 common of $120 billion, strong Basel I and Basel III ratios of 10% and 7.3% respectively, you see those on the page; an increase of about 20 basis points quarter-over-quarter. You''ll also see on the next page ROE of 13%, ROTCE of 18%, also strong results, and broadly speaking, we had solid performance across our businesses but I''ll dive into those.

I have covered all the items on page two. So if you skip to page three, we''ll start talking about the Investment Bank. Circled net income here on the page of $2.4 billion, that''s on revenue of $8.2 billion. Investment Banking fees in the quarter were $1.8 billion, up 23% year-on-year. We continue to be ranked number one, but it remains a very highly competitive market. Results this quarter reflect record debt underwriting fees and if you go to page 19, you can see our league table results.

Markets revenue this quarter of $6.6 billion, that really reflects very strong client-based revenue. And it was generated in part through the volatility that we experienced in the first quarter in the markets and us at helping our clients manage through that volatility. While these numbers are slightly down from a record first quarter 2010, still very strong results.

$5.2 billion of revenue you see on the page in Fixed Income. There was strong performance across all of our asset classes there -- rates, FX, credit, securitized products and strong performance in commodities. $1.4 billion in revenue in Equities this quarter and that also represented strong performance across cash, derivatives and prime services. DVA for the quarter relates to the structured notes both in Fixed Income and Equities, was not a material number, was a positive $20 million and it really didn''t change quarter-on-quarter performance.

You see here CPG reported a revenue loss of $190 million and just a reminder, there are three items in that number. Typically NII and fees on retained loans are going to be about $200 million plus or minus on a quarter and then you have the market impact of hedges on the loan book which were negative this quarter and the impact of CVA and DVA which were also negative in the quarter and that led to the result.

Credit costs $429 million benefit and that really reflects a reduction in loan-loss allowances largely related to loan sales and net repayments. And just a reminder again, here is where you approach a more normalized credit environment. This item is going to return to bring an expense item on an ongoing basis.

Expense in the quarter you see were $5 billion, up 4% year-on-year, that''s really due to higher performance-based compensation and that''s partially been offset by lower non-comp expense. Comp to revenue ratio, you''ll see on the page, is 40% this quarter. And just a reminder, it''s going to vary slightly quarter-on-quarter based on business mix. But we continue to expect our full-year guidance to be consistent with what we shared with you at the end of the fourth quarter which is 35% to 40%.

One final note here, you see the loan balances in the Investment Bank up 2% modestly, and you''ll see that uptick to the extent that we continue to have active participation in the Investment Banking market, particularly the strategic advisory business and you will see that in an uptick in our loan balances.

With that I''ll turn to page four, RFS, just a moment on this page. This is a consolidated view. RFS for the quarter was $208 million on $6.3 billion worth of revenue.

And let me jump into the details really on page five. At the top, Retail Banking had solid performance, net income of a little under $900 million on revenue of $4.4 billion. Revenue was up modestly year-over-year and that was net of an impact of lower deposit-related fees.

There were some key drivers on the prior page. I''d highlight deposit growth of 4% year-over-year; investment sales revenue up 11%; we built 33 branches in the quarter. Expense in the quarter was up 9% year-over-year and that''s really the continuing theme of investment. Our branch builds, our sales force build out, we''re up a little under 4,000 sales force year-over-year in the branches.

Mortgage Banking, Auto and Other Consumer Lending -- there was a net loss of $937 million here on revenue of a little under $700 million. And the results here were impacted both on the revenue line and the expense line by the two significant items that I covered on the first page. I am not going to talk about those.

Revenue of $1.9 billion excluding the MSR risk management results really reflects $36 billion in mortgage loan originations this quarter, higher volumes, wider margins in the first quarter of last year, but lower volumes and lower margins than the fourth quarter of last year. Revenue here also reflected solid performance in the quarter for our auto business.

The other number that''s included in that $1.9 billion you''ll see is repurchase losses of $420 million for the quarter, that''s a contra revenue item. The repurchase losses here are really slightly above the trend line this quarter and it''s primarily related to some refinement of certain of our repurchase estimates.

But I would say going forward, we continue to expect repurchase losses to be on a quarterly run rate consistent with our $1.2 billion plus or minus for the year. I''ve covered really the significant issues in MSR risk and expense and other than those highlighted issues the other line items for costs and servicing really reflect our production and volumes in the quarter.

With that, I really want to turn our attention on page six to the Real Estate Portfolios, talk -- briefly on this page.

Net income loss of $162 million, that''s on revenue of $1.2 billion, that''s down a little under $400 million year-over-year. The lower revenue number is really a decline in NII and it''s a result of the portfolio run off; balances declined year-over-year a little under $32 billion, $7.5 billion quarter-on-quarter and we told you about that.

Consistent with that you''d expect full year NII to be down around $700 million. NII was also down on some spread compression.

On the credit side, what I''d like to do is go through the details on page seven. So if you turn to page seven in the home lending update, you see circled net charge-offs on this page for the quarter were $1.1 billion. They are modestly improved from our prior quarter, but they are certainly in line with the delinquency trends that we saw in Q3 and Q4.

If you exclude the one-time adjustment that we talked about in the fourth quarter, you look at Home Equity and Sub-prime net charge-offs are relatively flat. And you see the Prime mortgage net charge-offs actually improved quarter-on-quarter.

And then if you took a look at that graph we put on page 16 in the appendix, what you''ll see is delinquency rates have really declined modestly across all of our portfolios and all other things being equal, that should have a positive impact two quarters out on our future charge-offs. The other comments I''d make on this page, as you''ll see, we didn''t make any changes at all to our reserves in either our non-credit impaired or our purchased credit-impaired portfolio in the quarter, and we continue, given some of the uncertainties in the market, to maintain our net charge-off guidance of $1.2 billion plus or minus in the quarter.

Page eight, let''s shift focus to Card Services. Circled net income on this page was $1.3 billion, revenue of approximately $4 billion, credit costs, really the focus in this quarter, they were down significantly to $226 million. And if you look first at the bottom two circled numbers on the page you see 6.20% is the charge-off rate for our Chase portfolios; that''s an improvement of 88 basis points quarter-on-quarter that follows a 98 basis point improvement from Q3 to Q4. And then you see the 30 plus day delinquencies declined to 3.25% in this quarter, that''s down 41 basis points quarter-over-quarter and we''d expect to see modest improvement there in the second quarter.

The result of that improvement is the reduction in our future estimated losses and as a result of that the $2 billion pre-tax loan loss reserve relief that I covered on page one. Just one other moment here on our guidance for the second quarter, we''d expect the charge-off rate for the Chase portfolio to be 5.5% plus or minus and we do hope there''s some modest upside in the ultimate rate for the second quarter.

On the revenue line of $4 billion, it''s down 10% year-on-year, 6% quarter-over-quarter. And again, there''s a consistent theme here on revenue, that lower revenue is driven by $23 billion lower average balances outstanding year-over-year. And also we had a 100% run rate impact for the Card Act in this quarter relative to the first quarter of last year. Positive note here, you look at sales volumes, Chase volume was up 12% year-over-year, a little over $75 billion of spend from Chase cards.

And as I mentioned last quarter, we really believe we continue to outpace the industry sales growth data and that reflects itself ultimately in improved market share, which means when customers are going to stores they''re taking out their Chase cards more often than any other. It also does reflect some underlying positive sales trends for consumers in general.

One other quick note before I move on. On January 1, you''ll see on this page and in the supplement we transferred our Commercial Card business from TSS to Card Services, modest increase in revenue, increase in loan balances and actually a reduction in margin as a result of all of that.

Page nine, Commercial Bank. You see circled net income of $546 million, that''s on revenue of $1.5 billion. Revenue is up 7% year-over-year, that''s a function of growth in loan balances, growth in liability balances, actually some wider spreads year-over-year, higher Investment Banking fees year-over-year, and that''s offset by continued spread compression in our deposit taking businesses. Credit costs in the quarter $47 million, you see that on the middle of the page; that really reflects stable-to-improving credit trends in this business.

Losses really continue to be weighted towards our Real Estate Portfolio, but the losses in Real Estate also declined in the quarter. And again, I''d just caution that we will expect this portfolio over time to trend towards the normal through-the-cycle net charge-off rate of about 50 basis points that we talked about at Investor Day.

Circled EOP loan balances you see on the page of $100.2 billion, that''s up modestly again this quarter, but I want to dig a little deeper. Loan volumes for the C&I portfolio have increased now for four consecutive quarters. Middle-market loan balances, the average balances are up $4.3 billion or 13% year-over-year, which is quite substantial and balances have been up now for 12 consecutive months. And while we know that our loan growth in that area is a mix of market share gains and demand, this type of trend speaks more in part to what we believe is increasing demand in the space. Utilization rates in the first quarter have begun also to show the first signs of modest improvement and it''s the first time we''ve seen uptick in several quarters there.

And one last comment -- you see the growth in liability balances, 17% year-over-year growth; we''ve got $156 billion of balances and clients continue to generate cash and we hold that cash for them. And I think that speaks, again, to the quality of the customer base.

Treasury and Security Services on page 10, circled net income of $316 million in the quarter, that''s up 13% year-on-year, 23% quarter-over-quarter. Revenue of $1.8 billion, that''s up 5% year-over-year and if you dive into WSS, revenue was up 9%, that''s really driven by net inflows and higher market values of assets under custody.

You see the other circled number on this page, $16.6 trillion of assets under custody, that''s a record number. TS revenue was up 1%, but if you exclude the move of Commercial Card to Card Services, revenue was actually up 7% in the quarter.

And you''ll see in our supplement, the build out, as we''ve talked about, of our international businesses, it''s really reflected in trade loan balances. Those are $25.5 billion in the quarter, that''s up 86% year-over-year, it''s up 21% quarter-over-quarter and we hope to continue to grow that business.

Expense continues to be up 4% year-on-year and that is a function of the discussion we''ve talked about in terms of investment, particularly around international. Although this quarter it was offset by that transfer out of the Commercial Card business. And then one other quick item here, you see this credit allocation income expense, the details are in the footnote, but we''re basically trying to capture the sharing of the economics associated with the Corporate bank credit book.

That''s actually a net benefit this quarter of $27 million. And this line item is going to be a little more volatile than what we''ve done historically, which is charge through the credit cycle charge to Treasury and Security Services.

Page 11, Asset Management. You see circled net income of $466 million in the quarter, that''s up 19% year-on-year. Circled revenue of $2.4 billion, that''s up 13% year-on-year. And revenue growth was really based on a few factors. We continue to have strong net inflows into products with higher margins; record asset under management inflows actually into long-term products this quarter of $27 billion, that''s the eighth consecutive quarter of long-term flows, and that was offset by outflows in liquidity products of about $9 billion.

We also had the benefit of higher market levels this quarter and on a quarter-on-quarter basis lower mortgage production but higher year-over-year. Expense growth, the same theme we''ve talked about, up 15%, largely reflecting higher headcount. We''ve added a little over 1,100 people to our front office in the last year.

Page 11 -- I am sorry -- page 12 now, Corporate and Private Equity. You see the top number, $383 million worth of net income from Private Equity in the quarter, that''s really reflecting gains in the number of realizations, also improvements in the market value and our positions in the quarter.

And you just remember here, financial results are going to vary based on the timing of those realizations, market valuations, but you should expect to see an appropriate return over time for this portfolio. Corporate net income reported $339 million. This line item is also going to be lumpy, but over time trending to $300 million plus or minus.

CIO treasury will contribute to that. It''s consistent with the guidance that we gave you this quarter, but it''s going to be volatile based on timing of our investments and gains in our positioning. As you''ll see when we release our Q, we continue to be positioned with the portfolio to take advantage of a rising rate environment and that''s reflected in our NII in this quarter. Also, there are going to be a number of one-time items in the quarter. This quarter we had litigation expense of $350 million in Corporate.

Page 13, Fortress balance sheet. I think I''ve really covered most of the points on this slide. What I will remind everybody that hasn''t focused on it is we did, as you know, increase our annual dividend to $1 a share up from $0.20 a share. And we also authorized a $15 billion multi-year share repurchase program, $8 billion of which we can repurchase in 2011.

Page 14 is the outlook page. I think I''ve covered all of this in the discussion. And so what I''d like to do, operator, is open up the line and have Jamie and I available to answer questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Guy Moszkowski with Bank of America.

Guy Moszkowski – Bank of America/Merrill Lynch

Good morning. Just a quick question on the Investment Bank first of all, obviously revenue was very strong relative to I think probably what a lot of people might have expected. But you had a little bit of negative operating leverage in that your expense moved up more than your revenue. And that revenue was down ever so slightly. And your comp ratio in particular was 40% as an accrual I guess for this quarter versus 35% a year ago. Can you give us a little color? Is that a mix shift? Is that you''re trying to be a little bit more conservative on bonus accruals? What''s driving that?

James Dimon

A little of each.

Guy Moszkowski – Bank of America/Merrill Lynch

And to the extent that it is a mix shift, can you describe it to us a little bit?

James Dimon

It''s just more client-related business. We accrue higher client-related business.

Guy Moszkowski – Bank of America/Merrill Lynch

Got it. And there has been some concern, I think, over the last few months in the marketplace that large dealers like yourselves, given some of the uncertainty about capital costs, Basel III, et cetera, are a little bit reluctant to put long-tail derivative positions on? Is that being reflected at all in your results and might that have something to do with the decline in the margin?

James Dimon

No. So in terms of the capital and the risk weighted assets already represent in effect Basel very close to -- or at least our best estimates of Basel III. And while it''s possible some people are doing less long tail derivative stuff, I would not put it in a material category. This is a lot of client volume, a lot of client flow, lot of activity.

Guy Moszkowski – Bank of America/Merrill Lynch

Thanks for that. Your balance sheet shows a really significant increase in your deposits both year-over-year and sequentially, $65 billion to $70 billion. Can you give us a sense for what the big drivers are there?

James Dimon

Yes. I''ll answer this question, but then you''ve got to let someone else ask a question, okay, Guy?

So first of all, if you look at deposits, okay, Middle-Market, I mean, Commercial Bank deposits are way up, TSS deposits are way up, Private Bank deposits are way up, Retail deposits are up. Clients have a lot of money and they''re investing a lot and, as you know, we keep the benefit. There is a lot of money washed around the world and obviously we''re a beneficiary of some of that. You can see it by business if you go in deeper to the supplement.

Guy Moszkowski – Bank of America/Merrill Lynch

Okay. I''ll step aside. Thank you.

James Dimon

Thanks, Guy.

Operator

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

Jason Goldberg – Barclays Capital

Thank you, good morning. I respect how you gave the credit card guidance of improved losses going down I guess to 5.5% annual rate, yet you''re still carrying a 7.25% reserve. I guess ultimately where should we see that number go to and I guess how much does it lag the improvement in NCOs?

James Dimon

The reserve -- look, obviously the reserves are coming down over time precisely because of what you mentioned. The reserves are based on a forward-looking view of charge-offs. As charge-offs come down the reserve will come down and eventually they will be the same. If you''re reserving effectively for 12 months of losses and things are steady eventually they''ll be the same. A normalized charge-off ratio will eventually be 4.5%, that''s through-the-cycle, to be obviously lower than that or higher than that.

Jason Goldberg – Barclays Capital

Got it. And then, Doug, on just one of the comments you made when going through the first of the one-time items, you mentioned that some of those foreclosure costs should continue. With respect to the MSR adjustment, is that I guess one-time and we shouldn''t expect any other change go forward once we get this consent order?

Douglas L. Braunstein

Yes, Jason. The $1.1 billion is both our existing and our anticipated cost, right? That''s the net present value of those changes and that''s a one-time item. That''s not to say the MSR asset we''re going to constantly revalue. The $650 million, we don''t believe it is a run rate item, but what I did say is there can be clearly be further costs associated with the foreclosure and affidavit issues before we''re finished.

James Dimon

And it does not include any related penalties.

Jason Goldberg – Barclays Capital

Right. Okay and then just lastly, in looking at -- you gave the Basel I and Basel III Tier 1 common ratios, and it looks like the spread between the risk weighted assets on both those numbers is up $400 billion this quarter. But it was also about $400 billion in the year-ago quarter. I guess through mitigation and the like would we expect I guess a further reduction or for that spread to narrow or how should we think about it in terms of it doesn''t look like there''s been much mitigation on the RWAs for Basel III?

James Dimon

Yes. Because a lot of things are running through RWA, but I think what we said last time is that mitigation -- most of which, not all of which, most of which will happen by the end of this year was $[150] billion of risk weighted assets?

Douglas L. Braunstein

Yes. And I would say it''s towards, in fairness, Jason, you''d expect to see more of that towards the back end of the year as we get closer to the sort of market-based market risk rules.

James Dimon

And that''s all things being equal, which they are not.

Douglas L. Braunstein

Right. We''re going to be very -- look, we''ve got ample capital and we''re going to be very careful to the extent that we choose to mitigate it''s got to make sense for us over the long term as an economic matter.

James Dimon

We''re not going to do it and lose money.

Jason Goldberg – Barclays Capital

Makes sense. Thank you.

Operator

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

Edward Najarian – ISI Group

Yes. Good morning. A question really regarding capital again, you talk in the release about managing, at least in the near-term, to perhaps a 9% Basel I based Tier 1 common equity ratio versus your 10% level currently. And obviously the Basel III base ratio of 7.3% continues to build.

So I am sort of wondering if you can give perspective on what that means in terms of how you''re thinking about driving excess capital into buybacks each quarter. It looks like you could literally drive all of your retained earnings into buybacks and still be very adequately capitalized. Are you thinking that you could do that much? If you''re not willing to buy back that aggressively, how else would you consider soaking up excess capital or would you indeed let those ratios just continue to build? Just trying to get some perspective because -- capital seems to …

James Dimon

We can only buy back $8 billion of stock according to the guidelines from the Fed. We are going to buy back, regardless of price, $3 billion which is what we issue -- or approximately what we issue every year for stock-related compensation and the other part is discretionary. We''re not going to automatically do it. It will be price-sensitive and if we build up excess capital so be it.

Douglas L. Braunstein

You know, Ed, the other thing I''d just remind you, we''ve got a lot of growth opportunities and we''re really actually focused on investing that excess capital in those growth opportunities and that''s where our priority is going to be.

Edward Najarian – ISI Group

Okay. But I guess …

James Dimon

You also know the final Basel III guidelines we have to hold to. I mean, we think 7% is plenty, but that may not be the final guideline.

Edward Najarian – ISI Group

Okay. So I guess the answer is you''re really to let those ratios continue to build in the near-term?

James Dimon

I would assume that''s going to happen because there''s almost very little we can do to stop it.

Edward Najarian – ISI Group

Okay. Thanks.

Operator

Your next question comes from the line of Glenn Schorr with Nomura.

Glenn Schorr – Nomura Securities International, Inc.

Hi, there. Doug, just a quickie on the average rates on the balance sheet on page six. You''re looking at the trading assets and it went up like 45 basis points -- a pretty big jump on a one quarter basis. Is that just duration extension on the mortgage assets or hedging related?

Douglas L. Braunstein

Investment banking or the whole company? Is it just the whole company?

Glenn Schorr – Nomura Securities International, Inc.

Whole company, whole company.

Douglas L. Braunstein

Yes, I think that''s really just a function of some better cost in dollar roll financing, but I''ll get back to you specifically on it.

James Dimon

I don''t (inaudible).

Glenn Schorr – Nomura Securities International, Inc.

No problem. And sometimes this next one is just an allocation thing, but leverage at the IB, if you just look at average assets to the equity allocated is creeping up a little bit. And I just didn''t know if the high teens to 20 range is an okay resting range, if regulators have any commentary on that lately?

James Dimon

I think we said the $40 billion anticipates the IB being at 8%; we''re assuming some mitigation here in the IB kind of by the end of the year on a stand-alone basis. So -- and remember, that balance sheet of $250 billion or so was very, very short-term liquid stuff. So the adjusted asset is like 600 and the equity is 40.

Glenn Schorr – Nomura Securities International, Inc.

Okay. That''s cool. Last one is, Jamie, you made your points well in your shareholder letter on why the 7% is enough and your thoughts around the SIFI buffer. But I guess my question is with Switzerland going at 10 plus and now the U.K. coming out this week at 10 plus, how much if any impact do those markets have on -- to your understanding, with our regulators? And do our regulators take into account say risk weighted assets to tangible assets or total assets or bank assets, the GDP, other metrics that might not make this an apples-to-apples comparison?

James Dimon

So I think the baseline Basel stuff is attempting to be a global agreement to have a level playing field for everybody. There are some flaws with that, which are also in my letter, because there are different laws now in the United States regarding derivatives, Volcker, the uses of preferred dividends, et cetera, but I think it''s an attempt by regulators to have a global agreement.

Each country is going to set its own what they call the SIFI or global SIFI surcharge. So each country can do something in addition to the 7%, but I personally don''t think that because the U.K. and Switzerland do it that the United States should feel like it has to do it. I mean each country is a slightly different thing. In Switzerland, their bank is dwarfed at the size of their economy, that''s not true here. I also have a chart in my show letter about that. So there are other reasons why other countries might go to higher ratios.

Glenn Schorr – Nomura Securities International, Inc.

Do you have any idea of timing?

James Dimon

The United States should do what''s good for the United States, not what''s good for Europe.

Glenn Schorr – Nomura Securities International, Inc.

Understood. Do you have any idea on timing, Jamie?

James Dimon

I believe we''ll get more guidance maybe sometime late this summer.

Glenn Schorr – Nomura Securities International, Inc.

Okay. Keep fighting the fight.

Operator

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

Betsy Graseck – Morgan Stanley

Two questions. One just on a follow-up on the SIFI question. Does the size of the SIFI charge change how you think about allocating capital or how you would think about doing M&A?

James Dimon

Well, honestly, if it is just a little bit more, no. If it is a lot more, probably and we are going to have to wait and see. I also think it is very important, after you think about it a little bit, the market is going to price things. Just because a bank holds 10% doesn''t mean the market is going to affect use 10% to price something. So your competitive market is going to be based upon something different. So it''s hard to figure out exactly what that means. My attitude would be we''d run the businesses at a 7% or 8% Basel III and hold the excess at Corporate.

Betsy Graseck – Morgan Stanley

Okay. And then on a separate question just on mortgage. There is some discussion from the FHFA on changing the servicing fees for the conventional Fannie/Freddie loans. Can you just give us a sense as to how you are thinking about how that would impact your business model and what you would do differently if this fee change were to occur?

James Dimon

Yes, no, I actually think there is an intelligent thought about having it different for performing versus defaulted loans. It is far more expensive to default a loan. So the devil is in the detail, but it''s a good thought, a good concept and in general, it would eventually reduce the size of the MSR, which would be fine with us too.

Betsy Graseck – Morgan Stanley

But you''ve been underinvested in mortgage relative to your peers. I mean would you be looking to take more share of this were to go through?

James Dimon

It really depends how the whole mortgage business turns out. I mean we''ve really got to wait and see what the future liabilities are for future mortgage origination, et cetera before you decide to do something like that.

Betsy Graseck – Morgan Stanley

Okay. And then lastly on QRM and other risk retention proposals that came out a couple weeks ago?

James Dimon

We think the skin-in-the-game concept is a good idea. We think that it would be fine with us. It has a lot of consequences, but we would be fine with that. And the QRM; either way it can work as long it is all properly designed. So we don''t really have an ax in this fight about how it is going to take place, but we just hope that however it takes place is really well thought through and we would be happy to work with people to help to try to make sure that is done.

Betsy Graseck – Morgan Stanley

Okay. It does become more balance sheet intensive though, right?

James Dimon

Yes, but balance sheet intensive wouldn''t bother us if they''re good assets.

Betsy Graseck – Morgan Stanley

Okay. Thanks.

Operator

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

John McDonald – Sanford C. Bernstein

Hi, I am trying to get a handle on what might be a normalized expense run rate relative to the $6 billion base this quarter. You pointed to the $650 million provision, Doug, for foreclosure issues and I think you said $350 million for litigation expense this quarter.

Douglas L. Braunstein

John, that was only in Corporate.

John McDonald – Sanford C. Bernstein

Just in Corporate, okay. Was there litigation expense elsewhere that you --?

Douglas L. Braunstein

Yes. We''ll have that across all the businesses.

John McDonald – Sanford C. Bernstein

Okay. But that''s the only one you highlighted, correct?

Douglas L. Braunstein

Yes.

John McDonald – Sanford C. Bernstein

And then maybe just broader, Jamie or Doug, you could give some thoughts about where expense is cyclically elevated today throughout the company and might come down over time as we start to think about a normalized expense base is relative to what we see today?

James Dimon

Well, we really do this by business, but you had a chart, Doug, that you showed me that showed -- in fact, if you look at IB comp, back that out and you look at the overhead --.

Douglas L. Braunstein

Overhead is largely consistent as a percentage of revenue. The nature of that expense is different, right, because we''re investing a lot in various businesses to grow them over time and you''re going to see some of that in the revenue items. But if you back out all these one-time types of items and you separate out the IB comp, expense is largely consistent as a percentage of revenue for the last several quarters.

James Dimon

But it''s a little elevated this quarter.

Douglas L. Braunstein

A little elevated because of -- largely IB comp.

James Dimon

But backing that out there is other expense that is modestly …

John McDonald – Sanford C. Bernstein

But then from a broader perspective I assume in RFS you''re carrying a lot more people related to mortgage workouts and mods?

Douglas L. Braunstein

That''s going to stay at an elevated level for a period of time.

John McDonald – Sanford C. Bernstein

Okay. But that would be the main area if we''re thinking about a few years out where expense might be cyclically….?

James Dimon

Eventually overhead expense from default and foreclosure REO will probably drop $300 million or $400 million a quarter. And that''s not including repurchased stuff which is another couple hundred million dollars a quarter.

Douglas L. Braunstein

Yes. And, John, I think one of the charts, just to be helpful, if you go back to one of the charts Charlie did at Investor Day, I think he tried to quantify over time what those expense ought to come down by.

John McDonald – Sanford C. Bernstein

Right.

Douglas L. Braunstein

That''s a good place to look.

John McDonald – Sanford C. Bernstein

And any thoughts for this year more near-term on the size of higher FDIC expense that you might see when that kicks in later this year?

James Dimon

Yes, as you talk about number for us, it''s now going to be north of $1 billion. And I think last year it was $800 million, so I think it may be $500 million more than it used to be.

John McDonald – Sanford C. Bernstein

Okay.

James Dimon

I kind of object to how they went about that and so there will be more conversations about how those charges go through. The FDIC was supposed to be deposit insurance. And remember, we pay for the deposit insurance. JPMorgan paid as a government guaranteed and it''s a government program paid for by banks. So we''ll have paid through this crisis about $5 billion of FDIC but this is going to increase that for us.

Douglas L. Braunstein

And, John, just as a technical matter, you won''t actually be able to -- even though we know there''s an increase on the way, we won''t -- you won''t actually see that in our numbers until the actual increase is implemented which is third quarter.

John McDonald – Sanford C. Bernstein

Okay. And then just one other separate question. What factors are driving your outlook on card balance growth for kind of a stabilization mid-year and maybe a little growth in the back half?

James Dimon

Well, because we had two books of business that are kind of running off -- running down, WaMu and some of this balance transfer stuff. And we actually had broken that out in an earlier presentation too. And those predominately will be completed by the third quarter. So there we just know we''re getting stable kind of balances.

John McDonald – Sanford C. Bernstein

Okay. And the card NIM, net interest margin, was up even as the balances shrank. I am just wondering how it is that happening. Is that less suppression going on or are there some repricing benefits also in there?

James Dimon

It''s a lot of different things, but remember we -- some thing -- there was some repricing, but it''s also run-off of low return balance transfers. So there''s a lot of things in there.

Douglas L. Braunstein

And remember also, John, in the NIM you get the reversals from declining charge-offs and so you''re going to see that benefit. We''re going to -- that number is going to move around a bunch.

John McDonald – Sanford C. Bernstein

Okay.

James Dimon

It will generally head up a little bit.

John McDonald – Sanford C. Bernstein

Okay. Thank you.

Operator

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

Moshe Orenbuch – Credit Suisse

Great, thanks. I was just wondering, Doug, you had alluded to the fact that the trading profits had been kind of driven by the facilitated client activity. Was that activity kind of uniform during the quarter or was it lumpier? And if you would, did it continue into April?

James Dimon

Fairly uniform.

Moshe Orenbuch – Credit Suisse

Okay. And just maybe a little more broadly, just as it relates to the mortgage -- as it relates to the mortgage business and all of the related issues that you''re going through with the servicing. Can you relate that to the administration''s plans for Fannie and Freddie and could there be -- are they talking to one another in terms of those two sets of issues? And is there some way that this could be kind of -- the banking industry could kind of help out and perhaps get either assets or assets and revenue out of this over some period of time?

James Dimon

I wrote about this a little bit in my Chairman''s letter. Look, the government laid out three kinds of baseline ways to set up the GSEs and the mortgage markets. And one of the points we''ve made is whichever one happens, we all agree it should protect the taxpayer, that we want a healthy mortgage market, but it has to be designed properly.

Any one of the three could actually work to do those things. And I think that''s one of the reasons the Treasury laid it out is so you could have a conversation and response and think through the effect on the markets, how quickly you can do it. Obviously there''s a lot of politics around the GSE, so hopefully we''ll have a really good healthy mortgage market when it''s said and done. A healthy mortgage market means it''s got to be good for consumers and it''s got to be good for investors, otherwise you will not have a healthy mortgage market.

Operator

And moving on to the next question, your next question comes from the line of Gerard Cassidy with RBC Capital.

Gerard Cassidy – RBC Capital

Thank you. Could you guys share with us -- you had great success in your market share numbers on the merger and advisory role in the Investment Bank in the U.S., I think it was over 40% market share. How did you guys get such a great market share?

Douglas L. Braunstein

Those market share numbers are going to move around, large deals are going to move it. We really do focus on longer-term trends and we also focus on the revenue line because folks can be involved in things and they''re not making a lot of money. So I would focus really on the revenue line. Generally speaking, we had a number one share in fees, that''s because we''ve got a great client franchise across the Investment Banking platform.

Gerard Cassidy – RBC Capital

Great.

James Dimon

Like most of the big transactions.

Douglas L. Braunstein

Yes. We''re in most of the big transactions this quarter, but that will move quarter over quarter.

Gerard Cassidy – RBC Capital

Does your strength in the balance sheet help with that M&A work as well?

Douglas L. Braunstein

We look at our total relationship with clients and the ability to actually provide them financing is clearly one of the benefits that we bring to a client. And it works in significant transactions; the AT&T transaction is a good example of that.

Gerard Cassidy – RBC Capital

Sure.

James Dimon

And some of the smaller -- not having a balance sheet is helping them. So it''s both.

Gerard Cassidy – RBC Capital

Can you share with us what you think the process is, if you wanted to raise your dividend again later this year because your earnings are stronger than expected, do you have to go through the formal process that you just went through or is it less formal with the regulators to raise the dividend sooner than a year from now?

James Dimon

I wouldn''t be looking for a dividend increase if I were you the next couple of quarters. But the regulators have made it clear that -- which I think is a reasonable thing that you have quarterly stress tests and stuff like that. We would have permission to do more on the deal if we wanted to, a little bit more. But at one point we would obviously go ask them in this environment.

Gerard Cassidy – RBC Capital

Sure. And then finally, recognizing your business has changed quite a bit in the last 10 years, if we get to normalized net charge-offs, possibly 75 basis points to 100 basis points, similar to what JPMorgan had in the late ''90s, do you think the loan loss reserves to total loans could come down to 200 basis points or less?

James Dimon

Sure. The answer is yes, but you also have all these new accounting laws and rules and stuff like that. So we believe a strong reserve is a good thing to have an unquestioned balance sheet.

Gerard Cassidy – RBC Capital

Thank you.

Operator

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

Michael Mayo – Caylon Securities

Hi, in TSS you have record assets under custody, but revenue versus the fourth quarter were down a little bit. What''s going on there? Are you cutting prices or what?

Douglas L. Braunstein

No, that''s -- we have a dividend season in WSS and that''s going to have a positive impact on the second and the fourth quarters, nothing more than that.

Michael Mayo – Caylon Securities

Okay. And then the middle-market loan utilization, what is the actual number this quarter versus last?

James Dimon

This quarter is 35 and last quarter was what …?

Douglas L. Braunstein

Of middle-market?

Michael Mayo – Caylon Securities

Yes.

James Dimon

Just middle-market.

Douglas L. Braunstein

I don''t know just middle-market

James Dimon

It was a little bit less.

Douglas L. Braunstein

Yes.

Michael Mayo – Caylon Securities

And do you have the same figure for large Corporate?

James Dimon

No, because it''s not a relevant figure for large Corporate because large companies can access bonds, loans, bilaterals, they go in and out for a whole bunch of different reasons, so we don''t really actually track it.

Michael Mayo – Caylon Securities

Okay. And capital markets, what''s the backlog like?

James Dimon

It''s fine.

Michael Mayo – Caylon Securities

It''s fine? Flat? Up?

Douglas L. Braunstein

It was about 100 basis points less.

James Dimon

We don''t -- again, the backlog itself is a very volatile number. And there are a lot of things that are being worked on that are not on the backlog. So the flow of business looks good. And that''s -- it looks like it''s going to be fine. Companies are pretty active financing and --.

Michael Mayo – Caylon Securities

On that topic, in terms of syndicated lending --?

James Dimon

Last quarter, the middle-market utilization was 34.1.

Douglas L. Braunstein

Yes.

James Dimon

If this number is right.

Douglas L. Braunstein

Yes.

Michael Mayo – Caylon Securities

So 34.1 to 35?

Douglas L. Braunstein

Yes, about 100 basis points.

Michael Mayo – Caylon Securities

But that''s just for the $38 billion of middle-market?

Douglas L. Braunstein

That''s correct.

James Dimon

That is more relevant than some of the other ones. The other ones bounce around a lot.

Michael Mayo – Caylon Securities

And then lastly, on syndicated lending, you''ve been in the news? So how much in fees do you get this quarter as acting as an arranger and how much did the syndicated loans contribute to the $9 billion of growth in your wholesale loan balances?

Douglas L. Braunstein

So we had in aggregate for our debt underwriting businesses, it was a record quarter. And syndicated loans were a meaningful part of that. Our growth in loan balances -- one of the comments I made, as you saw, balances up quarter-over-quarter. That''s --.

James Dimon

There''s not non-business.

Douglas L. Braunstein

No, that was a $2 billion number.

Michael Mayo – Caylon Securities

I was looking at -- on the supplement, overall wholesale loans to companies is ...

Douglas L. Braunstein

Yes, but that''s across TSS, Asset Management, the Commercial Bank and the Investment Bank and that''s, quite frankly, trade loans …

James Dimon

…. billion, Middle-Market is up a couple of -- $3 billion. So that''s across the whole spectrum of businesses.

Michael Mayo – Caylon Securities

So, however you measure it, how much did syndicated loans contribute to the loan balance?

Douglas L. Braunstein

You know, we…

James Dimon

Predominately it''s only in the IB and not a lot, maybe $1 billion or $2 billion, but it wouldn''t be a lot.

Douglas L. Braunstein

Yes. Not a lot.

Michael Mayo – Caylon Securities

So who buys a lot of this paper? The AT&T deal clearly was in the news, but you were able to offload it pretty well. What''s the demand for buying and who is buying it?

James Dimon

It''s mostly other banks, but there are other buyers in there, certain funds and investors who also buy.

Michael Mayo – Caylon Securities

And then in terms of the covenant-lite deals, it seems like you''re doing a lot more of those. Do you feel good about the quality since you had more covenant-lite deals in the first quarter than you did all last year for the industry?

James Dimon

Yes, I would say we''re doing covenant-lite deals uniquely. I think covenants have gotten lighter as lending has eased a little bit. But again, if you''re looking at it for the country it''s probably a pretty good thing. I don''t think it''s gotten to the point where you would look at it as it was like it was in the summer of ''07.

Michael Mayo – Caylon Securities

Right.

James Dimon

And also covenant-lite is only one factor. You can have covenant-lite and great credit. To me it''s really the credit, the deal, the leverage, not just the covenant.

Michael Mayo – Caylon Securities

All right. Thank you.

Operator

Your next question comes from the line of Jeff Harte with Sandler O''Neill.

Jeffery Harte – Sandler O''Neill

Good morning, guys. A couple of things left. One, when I look at the Corporate segment, and I know the guidance is to Corporate net income of plus or minus $300 million over time. One of the things that really drove that higher was the spike in the investment securities portfolio in the second quarter of a couple years ago.

We''re seeing that investment portfolio start going up again sequential quarter. Is that a function of just there''s no loan demand out there on the consumer side, so that''s where you''re kind of putting capital? Or is there something else as far as -- I guess I was expecting the size of that portfolio to be declining, not increasing.

James Dimon

Right. But you''ve got to look at both sides of the balance sheet here, because we have a lot of deposits, which when we get the deposit obviously we invest it. So I would say it''s largely related to both the deposits and then our own -- how we want to manage the interest rate exposure to the company.

And remember, it''s costing us money how we''re managing the interest rate exposure to the Company. And some of that product that''s in the CIO portfolio -- a lot of -- I forgot the exact number -- a lot of it what I call spread product, it''s like zero duration but it''s got a spread in it to protect us from rising rates.

Jeffery Harte – Sandler O’Neill

Okay. And you talked some about -- I mean with middle -- I guess what I am going to try and get at is the trend in kind of commercial clients'' outlook or confidence. We see utilization rates up in middle-market, the Investment Banking backlog is still pretty good, trading volumes are up. Have you noticed any change in kind of how your commercial clients are maybe looking at the world over the last six months with some of the volatility and events we''ve seen?

James Dimon

I think if you look at Corporate, Mid-Corporate, Middle-Market and even small business, they''re generally across-the-board stronger than they were. And that''s -- anecdotally it''s surveys, it''s capital, it''s cash, it''s deposits, it''s lending conditions, financial conditions. So you''re seeing confidence come back. Obviously, laying on top of that a little bit is -- with some of these things happening around the world from Europe to Middle East and Japan, but it''s not clear that''s going to derail these companies going about their business, hiring people and even small business demand.

Small business loans were flat for our total Company quarter over quarter, but this quarter is generally a very low quarter. So it''s a very good sign in our opinion. We''re starting to see real small business loan demand.

Douglas L. Braunstein

Yes. Loan demand was up year-over-year in RFS over 50%.

James Dimon

And I assume we''re going to see that with the competitors too by the way, that that''s not just us.

Jeffery Harte – Sandler O’Neill

Okay. Because I mean certainly things are stronger across the board than they were when we were on the gates of the abyss. But even over the last year you''ve continued to see that trend it appears?

James Dimon

Most things are better than they were a year ago; even the bad things are better than they were a year ago.

Jeffery Harte – Sandler O’Neill

Okay. Thanks.

James Dimon

So we pointed out mortgage losses were -- we were losing $2 billion a quarter in charge-offs and mortgages. It''s now down to $1.1 billion. And remember, the early signs of delinquencies will drive foreclosures six months, 12 months from now. In other words, those are going to start coming down at one point later in the year, early in 2012, not go up. That''s a good sign not a bad sign -- even though they''re still very elevated right now.

Jeffery Harte – Sandler O’Neill

Okay. Thank you.

Operator

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

Matthew O''Connor – Deutsche Bank

You mentioned some of the strength in trading or the bulk of the strength in trading was client driven. And I guess specifically on the FICC revenue, they held up quite nicely year-over-year. I was wondering if you could give a little more color from a product mix point of view. There''s the Sempra deal in there and I think you have maybe a little more commodity focused …

James Dimon

Before we do that, we''re going to -- we''re thinking about hiring Deutsche Bank to help us in our capital structure here in the United States.

Douglas L. Braunstein

Matt, it was really -- in fairness, it was across the board; almost every asset class in fixed income had very strong performance and commodities was one of those asset classes that had very strong performance. Part of that is we''ve made a number of investments in that business. That commodity revenue, like all of the other businesses this quarter, was predominately client flow.

Matthew O’Connor – Deutsche Bank

And can you just remind us from a mix point of view of how much of FICC is commodity driven?

Douglas L. Braunstein

We''re not going to -- we don''t give percentages because it''s going to move obviously based on quarter performance. It''s had a very good first quarter, but it isn''t outsized in any (multiple speakers).

James Dimon

Markets, credit, FX, rates.

Douglas L. Braunstein

Yes. That''s right. It''s not outsized in any way, shape or form relative to all those other businesses.

Matthew O’Connor – Deutsche Bank

Okay.

Douglas L. Braunstein

Very consistent.

Matthew O’Connor – Deutsche Bank

And then I was debating -- we hosted a call the other day and there was some debate on the FICC fee pool over the next several years and some were debating that it would be a lot higher, some were debating it would be a lot lower. And obviously this is something that''s -- it''s virtually impossible to predict. But you do have to have some view as you think about staffing levels. As you think about a continued macro-recovery, higher interest rates, maybe some leveling off of commodities. What does the FICC revenue pool look like a few years down the road?

James Dimon

Just put aside for the second spreads and put aside for a second how good you are at trading, the underlying growth is going to be pretty good. If you look at global capital flows, global network, global balance sheets, the growth of multinationals, the need for FX, the need for trade, the need for -- the underlying number is actually pretty good over a decade.

I mean, you can -- any one quarter you could be dramatically different because the spreads -- how you''re actually trading them and -- but I would say it''s a pretty -- the needs of investors are going to grow a lot over the next 10 to 20 years, not a little.

Matthew O’Connor – Deutsche Bank

Okay. And then just several (multiple speakers).

James Dimon

And that includes corporations, governments, super nationals, sovereign wealth funds -- when I actually talk about some of these flows over the next 10 or 15 years.

Matthew O’Connor – Deutsche Bank

Okay. That''s helpful. And then just separately, sort of a follow-up to Glenn''s question about the average rate table on page six. The securities yield also went up quite a bit from 2.44% to 2.89% and I guess that''s a --.

Douglas L. Braunstein

What page is that on?

Matthew O’Connor – Deutsche Bank

Page six of the supplement. And I guess that''s a line item that doesn''t fluctuate all that much unless you reposition the securities book. I am trying to get a better sense of maybe what''s going on there. And then obviously we''re all trying to figure out what the overall NIM might look like going forward as well.

James Dimon

Yes, so the portfolio we have obviously move around, it''s also global, okay. And I think I just mentioned we went to more spread product than -- and we invested more money and we have a lot of mortgages. So 2.89%, you can go buy mortgages at far higher rates than that. We also put on some prime, like $2 billion of prime jumbos coming out of the private bank at much higher rates. So we can give you a better answer than that. But I think it''s just those things I just mentioned.

Matthew O’Connor – Deutsche Bank

Okay. And then any thoughts on just the overall NIM percent? I know you don''t manage that; you look business line by business line. But the NIM is relatively stable this quarter. Any thoughts going forward?

Douglas L. Braunstein

I think you''d expect just from some mix a little pressure on -- modest pressure on NIM overall next quarter.

Matthew O’Connor – Deutsche Bank

Okay. All right, thank you very much.

Operator

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

Ronald Mandle – GIC

One thing, just following -- thanks, just following up on the NIM, you said maybe a little pressure in the second quarter and then you also said, Jamie, that it''s expensive protecting against higher interest rates. So do you think the NIM will keep going down or will it stabilize now that market rates have stabilized? What''s your thinking beyond just the next three months?

James Dimon

I think Doug answered -- the underlying trend is down a little bit, but obviously we could make big decisions that change that very quickly. And if rates go up our NIM could actually expand a little bit, which is not -- if you look at the implied curve, that''s not going to happen right away. But if it does happen we''ll -- our NIM will actually go up, not down.

Ronald Mandle – GIC

Right, okay. And then you also referred, Jamie, to the valuation reserve loan-loss reserve eventually matching charge-offs. But right now the reserve was up, as I say, in round numbers about 200 basis points higher than the charge-off rate in the quarter. And with the new accounting proposals, do you -- will we really see that match or do you think that will have provisioning and reserving over the cycle that will be less volatile and have a bigger difference than just the match that you were referring to?

James Dimon

We don''t know yet because these are all just proposals out there. And the proposals are different for consumer, for defaulted, for wholesale. So -- but I hope when it''s said and done you have a better matching and less [post of totality], it will be more countercyclical will be my hope.

Ronald Mandle – GIC

We all share that opinion. Just one other question. In regard to private equity, you noted in the outlook comments that it''s likely to be volatile. But with the private equity shops looking for exits and trying to monetize their investments and being pretty successful it would seem like there''s a possibility that you could stay at that high level for well into this year and maybe longer. So I am wondering if you have any elaboration on that point?

James Dimon

Yes, so I think Doug mentioned it will be lumpy, but we like lumpy as long as there''s 20% average. And I think our folks, particularly One Equity Partners have done more than that over time. So yes, we hope -- we''re optimistic but we don''t count on it.

Ronald Mandle – GIC

Right. Okay. Thanks very much.

James Dimon

We tell them to just run your businesses, make your investments and when you want to do what''s right for the investment do it then, don''t worry about the timing or the Company. But, yes, we expect profits from them over time.

Ronald Mandle – GIC

Okay. Thank you.

Operator

Your next question comes from the line of Matt Burnell with Wells Fargo.

Matthew Burnell – Wells Fargo Securities, LLC

Good morning, thanks. An administrative question and I am sorry if I missed this if you said it before. But what were the amounts of CVA, DVA included in the trading results this quarter?

Douglas L. Braunstein

Just in fixed income and equity is $20 million.

Matthew Burnell – Wells Fargo Securities, LLC

Okay.

Douglas L. Braunstein

Almost nothing. I said it was non-material.

Matthew Burnell – Wells Fargo Securities, LLC

Right. And then in the Investment Bank, it looks as if non-accrual loans fell by about 24%. I am curious as to whether or not that was driven entirely by sales or what else is going on there?

James Dimon

It was one big restructuring.

Matthew Burnell – Wells Fargo Securities, LLC

Okay. And then finally, in terms of the RFS portfolio and, Doug, I think you talked about this earlier in the call, core overhead ratio appeared to be in the low 60s. How much of that includes some of the organic branch expansion Charlie talked about in the Analyst Day, or is that largely just due to the mortgage costs that you''re bearing right now?

Douglas L. Braunstein

In retail itself, in that division it''s all about branch builds and the expense associated with that in retail banking, right. In aggregate for the division there''s -- the two significant items we highlighted have a material impact on both the revenue and the expense line.

Matthew Burnell – Wells Fargo Securities, LLC

And in terms of the expense, how much run rate is in there for the branch build specifically?

Douglas L. Braunstein

Dollar amounts? I don''t know the answer to that specifically.

Matthew Burnell – Wells Fargo Securities, LLC

Okay. Thanks very much.

James Dimon

But I think a lot of the headcount add quarter-over-quarter is because of adding salespeople and branches.

Douglas L. Braunstein

That''s right.

Matthew Burnell – Wells Fargo Securities, LLC

Okay. So that''s not necessarily branch build out per se, but it''s more headcount in the current branches?

Douglas L. Braunstein

We built 33 branches in the quarter, but we added -- over the year we added almost 4,000 sales force to the system. So we''re adding salespeople both in our existing branches and the new branch builds. And I think we''re expecting to build out for the rest of the year 100-200 branches.

Matthew Burnell – Wells Fargo Securities, LLC

So that build out should accelerate over the course of the year relative to the Q1 run rate?

Douglas L. Braunstein

That''s right.

Matthew Burnell – Wells Fargo Securities, LLC

Okay. Thanks very much.

Operator

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

James Mitchell – Buckingham Research

Good morning. Just a quick question on capital allocation in the card business. I saw that you guys cut your capital allocated to that business by $2 billion. Is that mostly because of a reduction particularly in the Longbow portfolio? Is there some other driver of that?

James Dimon

Mostly it''s a reduction in the portfolio.

James Mitchell – Buckingham Research

Okay. And if we think about the retail -- the RFS business as that mortgage portfolio runs off, should we also see some similar types of declines over time in the allocated capital to that business?

Douglas L. Braunstein

Over time, ye