JPMorgan Q2 Earnings Call Transcript

123jump.com Staff
16 Jul, 2011
New York City

The financial services firm stated quarterly revenue improved 7% to $27.41 billion. Net income for the quarter rose 13% to $5.43 billion. Earnings per share grew to $1.27 compared to $1.09 per share last year.

JPMorgan Chase & Co. ((JPM))
Q2 2011 Earnings Call Transcript
July 14, 2011 9:00 a.m. ET

Executives

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

Analysts

Glenn Schorr – Nomura Securities International, Inc.
John McDonald – Sanford C. Bernstein
Betsy Graseck – Morgan Stanley
Jason Goldberg – Barclays Capital
Guy Moszkowski – Bank of America/Merrill Lynch
Moshe Orenbuch – Credit Suisse
Paul Miller – FBR Capital Markets
Michael Mayo – Caylon Securities
David Hilder – Susquehanna Financial Group
Matthew O’Connor – Deutsche Bank
Jeffery Harte – Sandler O’Neill
James Mitchell – Buckingham Research
Meredith Whitney – Meredith Whitney Advisory Group LLC
Edward Najarian – ISI Group
Gerard Cassidy – RBC Capital
Ronald Mandle – GIC
Matthew Burnell – Wells Fargo Securities, LLC
Christopher Kotowski – Oppenheimer & Co.
William Tanona – UBS
Michael Holton – The Boston Company

Presentation

Operator

Good morning, ladies and gentlemen, welcome to the JPMorgan Chase’s Second Quarter 2011 Earnings Conference Call. This call is being recorded. Your lines have been placed on mute throughout 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. I’m going to walk you through the earnings presentation. It’s available on the website. We’ll take questions after walking through the presentation and please refer to the disclaimer regarding forward-looking statements at the back of the presentation. So with that let’s turn to page one.

For the quarter, we generated net income of 5.4 billion, $1.27 a share on 27.4 billion in revenues. We’re highlighting several significant items in the quarter. They’re included in the numbers for the lines of business throughout the presentation but I’ll walk through them quickly. First, as we’ve done in previous quarters, we’re noting significant loan loss reserve releases. This quarter we have a $0.15 per share increase in earnings from a reduction in card services, allowance for loan losses.

We are identifying a $0.12 per share increase in earnings from securities gains in the investment portfolio and corporate. Third, you’ll see a $0.15 per share decrease in earnings related to incremental expected costs for foreclosure related matters and I’ll talk about that later. And then finally, a $0.19 per share decrease in earnings from additional litigation reserves predominantly for mortgage-related matters and that runs through corporate.

We ended the quarter with significant Tier 1 common, $121 billion. We continue to maintain strong Basel I and B III ratios of 10.1% and 7.6% pro forma respectively and these capital ratios also incorporate the impact of the repurchase of $3.5 billion worth of JPMorgan shares in the quarter.

You’ll also see ROE in the quarter was 12%; our return on tangible common equity of 17% and those two numbers are circled on the next page. And then broadly speaking, we did have solid performance across the lines of business, but there were two positive trends for Credit.

First, we are reporting positive loan growth across each of our wholesale businesses, total loan growth in wholesale, $32 billion year-over-year or 15% and $12.5 billion or 5% increased on the quarter. And then second, we’re continuing to show improvement in our consumer credit trends, but I’ll talk about those in specifics.

So with that, when we turn to page three, which is the Investment Bank, you see circled net income of 2.1 billion, that’s on revenues of 7.3 billion with strong IB fees in the quarter of 1.9 billion, that’s up 37% in year-on-year. We continue to be ranked number one in fees, but it still remains a highly competitive marketplace.

We demonstrated particularly strong results in our advisory and equities revenues this quarter and for those that like to look at the league tables, they’re in the back on page 19. We had solid market revenues of 5.5 billion, up 20% year-on-year, down 17% quarter on quarter from the first quarter which is seasonally strong.

4.3 billion in revenues in fixed income and this generally represented consistent client flows across all of our businesses in fixed income despite the difficult macroeconomic environment. 1.2 billion in revenues in equities, very good results particularly given the volume declines in the cash market and the overall volatility, prime services continued to grow this quarter and we launched our International Equity Prime Brokerage platform in Europe, we expect to do the same in Asia in the first quarter of 2012.

Credit costs, you see a $180 million reduction in the allowance for loan losses, that’s largely related to net repayments and you see non-accrual loans declined to 1.7 billion this quarter. Just remember, we do expect credit costs to normalize going forward. Expenses in the quarter are 4.3 billion in the Investment Bank, down 4% year-on-year and you see comp-to-revenue ratios of 35%.

We continue to expect to maintain a 35% to 40% comp to revenue range for the full year. And the final note is you did see modest loan growth in the IB balances up 3% quarter on quarter. Some of that growth is driven by the build out in our loan book associated with the Global Corporate Bank and on the international side revenues grew for the first six months of this year 11% from the first six months or first half of last year.

Page four, Retail Financial Services, this is, as you remember, the consolidated view. I’ll just spend a moment here, a little over 580 million in net income in the quarter on $8 billion worth of revenue. Let’s jump into the details on page five.

So if you go to the top of the page on page five, retail banking, we had solid performance in net income of 1.1 billion, that’s on revenues of a little over 4.6 billion -- a little under 4.6 billion. Revenues were up 5% year-on-year, that’s a function of higher debit card revenue, deposit-related fees, investment sales and offset slightly by lower deposit spreads.

Key drivers from the prior page, we had 6% deposit growth, investment sales revenues were up 10% year-on-year, business banking originations up 31% year-on-year. We built 52 new branches this quarter. And then just a quick note to the right, you see on Durbin we do anticipate the annualized gross revenue impact for the retail banking segment to be $1 billion plus or minus. As you know, the final rules won’t be implemented until the October 1, so we won’t see that impact until the fourth quarter and we’d expect mitigating actions to close a significant amount of that gross impact over time.

Bottom of the page, Mortgage Banking, Auto and Other Consumer, net loss of 450 million on revenues of 2.2 billion. Revenues excluding MSR of 2.1 billion reflect $34 billion of mortgage loan originations this quarter, wider margins year-over-year, solid performance in Chase Auto in the quarter and then you see lower repurchase losses, 223 million for the quarter, remember that’s contra revenue. And just a comment on repurchase losses, they are lower than trend line this quarter just for timing-related matters. And we do expect the next two quarters to be more in line with our guidance of 1.2 billion for full rate -- full 2011 run rate.

You see expenses in the segment of 2.6 billion and that includes 1 billion incremental I discussed on page one related to foreclosure-related matters. Other expenses continue to remain elevated as well and that largely reflects the ongoing high cost associated with default-related expenses.

With that why don’t we turn to page six and the real estate portfolio? You see net income loss of 66 million, that’s on revenues of 1.2 billion, down about $150 million year-on-year and that is a function of lower NII associated with portfolio runoff. Balances declined year-on-year a little under 30 billion, a little under 7 billion quarter-on-quarter, but the NII impact is consistent with the guidance we’ve previously given you related to a $700 million run rate for 2011.

Details of credit on page seven. You see the circled number here, net charge-offs of $944 million, modest improvement versus the prior quarter. If you take a look at page 17 in the appendix, you’ll see delinquency rates have also declined modestly across all the portfolios and all other things being equal, that would have a positive impact on future charge-offs.

I would remind folks that the second quarter tends to be positively impacted by seasonality. So you might see modest increases in the back half of the year, all other things being equal. So if you step back here, given some of the uncertainty in the economic environment, the impact of severities related to potential declines in HPI and future delinquencies as well as some of the industry discussions with regulators, we’ve made no changes to reserves this quarter in either our non-credit impaired or our purchase credit impaired.

You also see we’ve maintained our guidance of $1.2 billion plus or minus per quarter. Obviously, if these trends that we just reported continue we’ll readjust that guidance.

Page eight, we’ve updated a slide here that we used in Q4. It really lays out all our thoughts related to the mortgage-related reserve positions and I’d say there are two pieces to this slide. On the top, you’ve got real estate portfolio reserves and agency repurchase reserves, so start with real estate.

NCI reserves $9.7 billion at the end of this quarter; they’re more than two times our second-quarter net charge-off annualized rate of $3.8 billion. On the PCI side, we believe we’re appropriately reserved based on our best estimates of life of loan losses for this category. You should note that includes HPI deterioration of approximately 5% from current levels and in order to give you some sensitivity, an additional 5% decline in HPI, which would be a total of 10% from today, would add about 1.5 billion to our reserves for that category.

On the agency repurchase reserve side, $3.6 billion of reserves -- and remember, our guidance is $1.2 billion plus or minus for 2011 for RFS. So if you stop and think about these two items, if credit trends do improve and repurchase demands diminish over time, which inevitably they will, this may lead to a further reduction in those two reserve levels.

Now, the last two items talk about incremental exposure. So first, foreclosure-related matters. We added $1 billion to previously existing reserves for this category and we believe our current reserves are our best estimate as to the various costs for a whole multitude of complex foreclosure-related matters but that includes fees and assessments related to foreclosure delays as well as payments for other settlements including the DOJ State Attorney General and others.

For private label, we continue to build litigation reserves for this issue. We added to that in the quarter, as I told you and so if you step back for these two items, we believe these reserves are our best current estimates, but we do have a long way to go until these items fully play out and we could incur additional expenses for both of them but ultimately in time we expect the cost for all of these items on the page to normalize.

So with that let me move on to page nine, Card Services. Circled net income of a little over 900 million, revenues of 3.9 billion, credit continues to be the story here. If you focus on the circled numbers at the bottom of the page, a 5.28% charge-off rate for the Chase portfolio, that’s an improvement of a little over 90 basis points from last quarter. 30 plus day delinquencies declined to 273 this quarter, that’s improvement of a little over 50 basis points from last quarter and is a very low rate on an absolute basis.

As a result of these improvements in our delinquencies, we did reduce our estimated future losses and as a result, released $1 billion of loan loss reserves pre-tax. And then just a quick moment on guidance for Q3 because of the continued signs of improvement we’re seeing, we do expect 3Q charge-off rate to be 4.5% plus or minus and that was our estimate, as you may recall, that we would reach that level mid-2012. So rapid improvement in this portfolio.

Revenue picture similar to last quarter but down year-over-year and the lower revenues in year-over-year are driven by an average reduction in balances outstanding of 21 billion year-over-year. That’s been offset similar to the prior quarter in very positive sales volume, Chase volumes up 10% year-over-year, 11% quarter-on-quarter. We continue to believe that sales volume is outpacing industry sales growth and, as a result, we think we’re improving our market share.

I’d also highlight net revenue rate at the bottom, 11.95% excluding WaMu and Commercial Card. That’s up almost 50 basis points quarter-on-quarter and it’s in line with the steady-state target of 12% that Gordon shared with you all at Investor Day. And then a final comment on balances, we do -- we are experiencing very high repayment rates and if those persist, outstanding balances could be between 115 and 120 billion at year end.

Page 10, the Commercial Bank, circled net income of $600 million, that’s on record revenues this quarter of $1.6 billion. Revenues up 9% year-on-year, that’s growth in liability and loan balances, record gross IB revenues this quarter for the customer base. You see a circled end of period balance of loans of a little under 103 billion, that’s up 2.5 billion quarter on quarter, 7 billion year-on-year and that balance has increased for each of the last four consecutive quarters.

The middle-market end of period balances are up 17% year-on-year and they’ve actually increased five consecutive quarters. And again, we think loan growth is a mix of demand, market share gains as well as the effects of the buildout of the WaMu expansion states. The utilization rates for loans continues to remain low, but we did actually see this quarter a modest uptick in middle-market utilization rates.

And then just a final note, you see the liability balances grew almost 20% year-on-year to 163 billion. That continues to be driven by clients generating free cash flow and their own balance sheets continue to improve.

Page 11, Treasury & Security Services, net income for the quarter of 330 million, up 14% year-on-year, 5% quarter-on-quarter. TSS revenues and margin continue to be negatively impacted by the low rate environment we have. Revenue growth in the quarter, up 3% year-on-year, 6% year-on-year if you excluded the transfer of Commercial Card to Card Services; record assets under custody here, 16.9 trillion in WSS; record trade loan balances 27.5 billion, up 68% year-on-year, 8% quarter-on-quarter. And just remember as well, the second quarter gets seasonal benefit from the dividend season and ADR activity.

Expenses continue to be up as we continue to invest in our international footprint and we’re starting to see some benefits to that. International revenue this quarter represented 55% of total revenue for TSS, that’s up from 49% a year ago and revenue internationally is up 16% year-on-year, 9% in the quarter.

Page 12, Asset Management, you see circled revenue of 2.5 billion. Solid revenue growth, 23% year-on-year, was driven by higher performance fees, positive markets relative to last year and positive flows into our long-term products up 19 billion quarter on quarter. This is now the ninth consecutive quarter of positive long-term flows in Asset Management.

Circled net income of 440 million in the quarter, that’s up 12% year-on-year, modestly down quarter on quarter and that’s on higher expenses from investment spend and higher performance-based compensation. Here again, international revenue is up for this business 27% year-on-year.

13 is Corporate/Private Equity, 444 million in net income for private equity in the quarter, a strong quarter. Gains reflect a number of specific realizations, improvements in the market value of positions we held in the quarter. You see corporate reported net income a little under 60 million and two items run through this that we already noted, the securities gains as well as the litigation expense. We continue to have guidance -- absent these significant items and absent private equity, Corporate should generate $300 million plus or minus per quarter.

Page 14, Fortress balance sheet, I’ve covered most of the items. We’ve added some additional items, a chart at the bottom and some bullet points I want to highlight. Remember as it relates to Basel III, the countercyclical buffer and the G-SIFI surcharge are going to come in over time and you see that in the chart to the bottom left. The minimum in January of 2017 will be 7% and you see our current estimated Basel III of 7.6% today.

Second observation is we continue to believe we’re going to generate significant excess capital over this period. And I would say after investing for organic growth and consistent with meeting those guidelines over time, we expect to be able to return excess capital to our shareholders and we don’t intend to accelerate the compliance as it relates to the G-SIFI surcharge, but we’ll get there over time.

I think page 15, I’ve covered, operator. So with that, why don’t we open the line up for questions for Jamie and myself?

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time, if you would like to ask a question, please press star then a number one on your telephone keypad. Once again, that’s star one to ask a question. Your first question will come from the line of Glenn Schorr with Nomura.

Glenn Schorr – Nomura Securities International, Inc.

Hi, thanks. A quick follow-up on your comments on the Fortress balance sheet. If you don’t plan on accelerating and you’re obviously generating a lot of excess each quarter, do you have buy-in from the regulators to deploy as you see fit? And I’m not implying that you’re going to have a 100% payout ratio for the next five years, but curious on your thoughts on that.

Jamie Dimon

So we have to apply under Icap, whatever it’s called, to regulators to increase dividends and buy back stock. We already announced we added the permission to 8 billion. It’s quite obvious to us we’re going to have a lot of extra capital and cash, not just in the next short run but over the next several years and we will apply for more as appropriate. I can’t tell you exactly what they’re going to do.

Glenn Schorr – Nomura Securities International, Inc.

Understood, understood. How about another swipe at capital at a different angle? If you -- I think people are underestimating your ability to mitigate on the risk weighted asset side, and that will actually -- supercharge actually your capital ratio growth over the next couple years. If you look at the buffer itself, the G-SIFI buffer, the way I calculate it you have about an $11 billion capital penalty relative to any given pure play of the businesses that you own. Is there anything that can be done about that whether it be a spin or shrinkage or -- I’m almost as frustrated as you about it, but curious to get your thoughts on what can be done about it?

Jamie Dimon

You couldn’t possibly be as frustrated as me, okay. But so I guess -- so you’re right, it’s how you calculate it but a lot of things are going to happen, Glenn. For example, I think it will force competitors in a lot of areas to go to the higher number. So you’re going to find a lot of people, they won’t be able to survive at seven in whatever business they’re in because all the other competitors are going to be at eight or nine or something like that.

But assuming your number is right, it is not a huge drag on returns, but it also gives the opportunity to cherry pick the businesses you want. So I think you will see a lot of very tight management at RWA businesses, balance sheet items, in a lot of the ways I personally think are a waste of time, but that’s what will happen so that you can get good adequate returns on capital.

In some ways a G-SIFI will be a plus; you’ll wind business that other people will have a hard time competing for. In other things, it could be a negative, like for example owning consumer assets might be a negative. On the other hand, you can originate, sell, securitize, so you can still be in the generation business but not necessarily the holding the asset business. And I also think you’ll see plenty of non-banks, good and bad, grow to handle and own some of these other asset classes and other forms of securitizations do the same thing.

So it’s a long road and I still think we’ll have very good businesses when all is said and done.

Glenn Schorr – Nomura Securities International, Inc.

Okay. Thanks very much. I appreciate it.

Operator

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

John McDonald – Sanford C. Bernstein

Yeah. Hi, good morning. Doug, there seems to be a big buildup in liquidity on the balance sheet, you mentioned that. Can you give a little color on that? Is this being driven by the lack of investment options amid low rates or is it being driven by the new regulatory rules that might be coming out around liquidity?

Douglas L. Braunstein

We just -- we have deposits coming in middle market, TSS and we accept those deposits and we have to invest them. So it’s not a deliberate building up of liquidity. It’s just dealing with the deposits as they come in. Remember that liquidity is only one side of the balance sheet.

John McDonald – Sanford C. Bernstein

And then any color on the net interest margin this quarter? Was that the big driver of the decline sequentially in net interest margin this quarter.

Douglas L. Braunstein

It was a combination, Glenn, of we sold some certain assets, the Kohl’s portfolio, a mix in our loan balances towards more lower yielding assets and then deposit inflows you talked about.

John McDonald – Sanford C. Bernstein

And is there any -- do you have any outlook on net interest margin or net interest income, Doug?

Douglas L. Braunstein

I think if rates stay where they are you can continue to expect to see modest pressure on NIM.

John McDonald – Sanford C. Bernstein

Okay. And then just a question on expenses, did you see the increase in FDIC premiums this quarter and could you tell us what that was?

Douglas L. Braunstein

Yes, we did, and approximately 100 million.

John McDonald – Sanford C. Bernstein

Okay. And that’s flowing in now?

Douglas L. Braunstein

Run rate on a 1 billion change run rate total, increase of 100 million this quarter.

John McDonald – Sanford C. Bernstein

Okay. And then…

Jamie Dimon

We’re paying more FDIC insurance and we’re paying for all the bankrupted banks.

John McDonald – Sanford C. Bernstein

Okay. And last thing from me, Jamie, could you give some commentary around your exposure to the European countries that are the subject of concern and how you think about sizing downside risk for you guys?

Jamie Dimon

Right, so Greece, Italy, Ireland, Portugal and Spain is still about the net exposure. So it’s net of collateral and it’s non-sovereign collateral of about $15 billion. Think of those exposures at the banks, sovereign and corporates and we’re managing that exposure to -- we have a big business with those countries and we intend to be in those countries for a long time. So we’re not going to cut and run. In my Chairman’s letter, I wrote about worst case, which I do not expect to happen even today, that it causes maybe $3 billion after tax. That’s my best guess, by the way, so that can obviously be dramatically different. I still don’t expect that.

The real impact of failures over there would be on what does it do to the global economy, what does it do to other exposures in Europe, what does it do to exposure in the United States. And you can guess that as well as I can. I don’t expect it will be a disaster for French and German banks obviously with exposures in France and Germany and elsewhere but I think those things will probably all be fine.

John McDonald – Sanford C. Bernstein

Okay. Thank you.

Operator

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

Betsy Graseck – Morgan Stanley

Hi, just a follow-up on that. Some people look at the disclosure and looking at different pieces of the disclosure you can come to different conclusions as to whether or not you’re a net buyer or seller of protection on your credit. Could you just give a little color as to how you’re thinking about that as it relates to the European exposure that you have?

Jamie Dimon

Buyer of credit exposure on the five nations I just spoke about?

Betsy Graseck – Morgan Stanley

On -- I mean, you can’t get to that level of detail obviously in the disclosure, but you can see whether or not ….

Jamie Dimon

Here’s the problem with the numbers you see because there is a public disclosure that shows those five countries like being $100 billion.

Betsy Graseck – Morgan Stanley

Right.

Jamie Dimon

Right? But that $100 billion does not include collateral, it does not include hedging and we do a lot of hedging, both specific name and country hedging. So that’s the issue with that. So my 15 is net of hedging, net of collateral and I mean non-sovereign collateral. So we wouldn’t include Greek collateral, Greek sovereign collateral for a Greek repo. We would only include collateral outside of Greece.

So that’s where the 15 comes from. That is the best estimate of the exposure, it bounces around all the time.

Betsy Graseck – Morgan Stanley

Okay, and then….

Jamie Dimon

You said -- there was some report in the press today I saw that Greece and -- I mean Germany and France was 300 billion, same issue. Those are very gross exposures and the numbers would be 10% of that.

Betsy Graseck – Morgan Stanley

Can you give us a sense as to how big of an exposure you’re comfortable with?

Jamie Dimon

Yeah, we’re comfortable with the 15 billion right now.

Betsy Graseck – Morgan Stanley

Okay.

Jamie Dimon

Remember, the bulk of that is Spain and Italy and a lot of that is also corporate. And you know, corporates are -- you’ve got to be very careful when you talk about -- even when you had failures in Argentina and Mexico a lot of the corporates were okay. So you’ve got to be very careful. We’ve been doing business with those countries for a long period of time. So our current thinking is that we’re going to continue to do business there and manage those exposures, we’re not trying to drive them down.

Betsy Graseck – Morgan Stanley

Well then, how ….

Jamie Dimon

And I hope -- I hope that one day some of these European nations appreciate the fact we’re not cutting and running.

Betsy Graseck – Morgan Stanley

And then just separately on the Moody’s, last night, announcement that they would put the U.S. government on review. How do you think about managing the risk around that?

Jamie Dimon

Well, you know, when you say manage the risk around that, that’s a tough one to answer. The risk around -- were you talking about just a downgrade risk? I think that’s manageable, but that will cause problems and issues because some people need AAA collateral, some people can’t own, so it will cause issues. I don’t like the downgrade issue but a government default issue is far more severe than that. And that would cut across (inaudible), revolvers, takedown of revolvers, money market funds, securities lending, something like $3 trillion or $4 trillion of treasuries and uses collateral around the world. It would change the pricing of securities; some flyers, some owners will be forced to sell because they’re not allowed to own default securities.

I don’t know what the rating agency would do if the United States goes in real default. If it goes in real default can they keep the United States at AA plus? I don’t know. If they move it down to D, which is default, that would cause a lot of other issues and people would be forced to sell. So there’s huge cross currents in that and it’s not the kind of thing that I think people should play with. And what surprises me about the conversation at all isn’t -- you can talk about all the potential catastrophic outcomes, but I -- no one can possibly say, in my opinion who is semi-rational, could possibly say that there’s no chance of a catastrophic outcome. And therefore why would you take that risk?

Betsy Graseck – Morgan Stanley

And then just lastly on Basel III. Can you give us a sense as to how you see the RWAs trajecting, I mean should we be looking for this type of shrinkage rate Q-on-Q going forward or how to use think through that?

Jamie Dimon

You know, first of all it’s so far out, so we’re going to -- I think what we’re saying now is that we originally made a statement we were going to go to the 7% right away, we’re at 7.5. We don’t need to be higher than the 7.5 and I’m not sure the regulators want people to move higher than that very quickly because they do believe that would cause a lot of banks to dramatically reduce their balance sheets.

We’re going to generate so much excess capital, but there’s no need to be over 7.5. So one of the things that will drive excess capital is the runoff and what I call natural mitigation. There are certain things the balance sheet will run off -- big uses of capital. Think credit hybrids, re-securitizations, mobile rated things. And then there will be other decisions we make over time of businesses we may not want to be in because they use up too much capital.

And so it’ll be a wide variety of things, but I think at the end of the day we’ll still be looking at very good returns for our shareholders in the capital we do deploy.

Betsy Graseck – Morgan Stanley

But I guess the other thing is as RWAs are coming down you’re going to see that ratio drift up obviously, all other things equal and there’s only so much you can buy back, at least at this stage. So you’re basically ….

Jamie Dimon

That ratio is going to drive up so fast people are going to be surprised and not just for us, by the way. I’ve mentioned this before. You’re going to see a lot of banks in the U.S., and maybe some banks around the world, start to generate huge amounts of excess capital. Everyone is at a different time table, so maybe some banks may be a quarter or two behind us but it will happen and then they won’t know what to do with it, that’s what’s going to happen.

We’re going to have huge excess capital in the banking system in about 12 months, way beyond what the banking system needs. And God knows why we have to hold all that capital, but that’s where we are.

Betsy Graseck – Morgan Stanley

I guess what I’m saying is, we shouldn’t expect that you’re going to be able to manage to your 7.5% ratio Q on Q?

Jamie Dimon

All I’m saying is we don’t see any need to go over that. We may not be able to avoid going over that, is that what you’re saying?

Betsy Graseck – Morgan Stanley

Yeah.

Jamie Dimon

And then if we have that problem, we’ll figure out what we can do.

Betsy Graseck – Morgan Stanley

Okay. Thanks.

Operator

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

Jason Goldberg – Barclays Capital

Thank you. I guess within the Card business it looked like NII came down quite a bit and I guess a lot of that’s Kohl’s, or part of it’s Kohl’s at least, and then fee income kind of went up quite a bit. Is there any kind of movement within that we should know about or kind of strategy shifts?

Jamie Dimon

What did Kohl’s issues (inaudible)?

Douglas L. Braunstein

Kohl’s, you’re right, -- you know, we had 3.7 billion of assets out, impacted NII, we had high -- remember, that was more of a loan trade as opposed to a fundamental business trade, so we had high expenses associated with that. And then fee income is up because we’ve got more transactors and that’s a function of sales volume.

Jamie Dimon

Which is great, I mean the sales volume is up 10% or something, it’s really…

Douglas L. Braunstein

That’s right.

Jamie Dimon

…extraordinarily good.

Douglas L. Braunstein

If you exclude Kohl’s, sales volume was up 13%.

Jason Goldberg – Barclays Capital

Got it. And then I guess a commentary on agency put back I guess seemed positive. I guess one of your competitors a week or two ago, I guess took the other taxing, they were seeing a change in agency behavior and accessing more put backs from Fannie Mae. Just have you seen any I guess adverse changes in kind of what they’re doing?

Jamie Dimon

No. We’ve estimated agency put backs and obviously it’s changing the timing issues, but we did, it was our best estimate. If we see a different thing we’ll let you know. We’ve been a little conservative on that, hopefully.

Jason Goldberg – Barclays Capital

Got it. And then just lastly, I mean you talked about recouping a portion of the Durbin amendment and I know it’s something you talked about in the past. Any terms of being able to quantify that or kind of where you are in terms of kind of putting strategies in place?

Jamie Dimon

Yes, so, it’s $1 billion and it’s very -- we’re not going to do anything that’s not consumer friendly. So a lot of that recruitment will be -- and some of this already has a little bit of rewards programs and we’re going to test various things and we already have -- you already have some checking accounts that have modest fees in it. So we’re going to come up with something that will help mitigate that a little bit.

Jason Goldberg – Barclays Capital

Got it. Thank you.

Operator

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

Guy Moszkowski – Bank of America/Merrill Lynch

Good morning. A question on the home lending net charge-off guidance. You’re under $1 billion now for the quarter for the first time in a long time; I’m conscious of the seasonality comment that you made. But with the guidance still at 1.2 billion, is it realistic to think that it could pop that much based on your models? I mean, how much would we need to see unemployment rise or home price depreciation accelerate in order to get back to that $1.2 billion kind of number?

Jamie Dimon

Yes, so, the reason -- you’re right, it should run lower than $1.2 billion. But embedded in our thinking as the home prices go down a little bit, there’s a lot of uncertainty, we still have the DOJ and the AGs. There are going to be changes in how we have to modify loans and service loans. We have foreclosure delays and all that kind of stuff, so we’re just trying to be conservative here. It’s not likely to be higher than $1.2 billion next quarter.

Guy Moszkowski – Bank of America/Merrill Lynch

Fair enough. Thanks very much.

Operator

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

Moshe Orenbuch – Credit Suisse

Thanks. Just following up on a couple of the last point you made. I mean, as it relates to the mortgage, Doug, I think you had said that actually the reserves that you’ve taken for that, including the $1 billion this quarter, include your expectation of the costs of an AG settlement. Would that -- I mean is that correct?

Jamie Dimon

Doug.

Douglas L. Braunstein

Yes.

Moshe Orenbuch – Credit Suisse

So, if there were a settlement announced that was consistent with what you’re expecting, the P&L impact would be small or nothing going forward?

Douglas L. Braunstein

Yes, it’s just an estimate, so it will be plus or minus something. But, yes.

Moshe Orenbuch – Credit Suisse

Okay. And just to also kind of follow-up on the Durbin question, I mean, you mentioned kind of things that could be consumer friendly. Have you kind of looked at or tested any kind of changes in products that might kind of be able to get better interchange rates than a debit product like switching people to charge cards? Is that something that you’ve kind of looked at? I mean how should we think about…?

Jamie Dimon

We’re going to look at every possibility. And there are a lot of restrictions we can do because they blocked off like a charge card where automatic deductions at the end of the year.

Moshe Orenbuch – Credit Suisse

Right.

Jamie Dimon

But we’re going to look at every possibility and hopefully offer our customers great products and great services, better than our -- than some of the non-bank competitors and get paid for it.

Moshe Orenbuch – Credit Suisse

Great. Okay. And I guess maybe just kind of following up on the capital question. Last quarter you kind of felt like -- you kept talking about the stock buyback as being relative to where the price of the stock is. I mean, would it be fair to say that given everything that you see now that in the third quarter you’d still be deploying capital in that direction?

Jamie Dimon

Yes, but we’re not going to tell you what we do day in and day out, but we (inaudible) $3.5 billion around these prices and we -- we’ve said we had a capital generation, so, permission to buy more.

Moshe Orenbuch – Credit Suisse

Thanks.

Operator

Your next question comes from the line of Paul Miller with FBR.

Paul Miller – FBR Capital Markets

Hi. Thank you very much. On the foreclosure expenses that you’ve taken now, I think either with the MSR evaluation and this one’s a straight up $1.3 billion, do you think you got that ring fenced? Do you think you need to continue to take some of these expenses or do you think you’ve taken most of them at this point?

Jamie Dimon

So, GSE, I think we’re done. The foreclosure delays and settlements, et cetera, we have an estimate. My guess is it could a little bit higher, but it’s not -- hopefully not a huge number. MSR, more could be done, it could be a little bit but it shouldn’t be a lot more and the private-label stuff will probably go up a little bit, but I doubt it will go up more than the reserves we’re going to have to take down in the next 12 months.

Paul Miller – FBR Capital Markets

Okay. And the other -- go ahead.

Jamie Dimon

Because it’s possible we’re very over reserved in mortgage land too. So, but that’s litigation. It’s going to take -- we think it’s going to go to litigation, but we don’t know how you can do it the other way. So that’s why we have it under litigation and we’re not going to disclose exactly the numbers for that.

Paul Miller – FBR Capital Markets

Okay. And the other question is on -- going back to the NIM question again. With rates staying here, and I think you said a little bit earlier in the call that you expect modest declines in NIM, at what point do you just let the balance sheet start to roll down? I mean what does that sacrifice? Because if you grow your balance sheet, it seems like you’re going to have more NIM pressure. Do you just let it roll off with rates at these levels?

Jamie Dimon

We don’t look at it in NIM, okay. NIM is just -- like we have profits and we have clients. So the clients -- deposits, you don’t really want to turn them away if they’re good clients. So even if you have to invest at a very small spread, you probably would do that, right?
Building your business and obviously we are constantly managing our interest rate exposure and rates going up will help us, whether -- we could change that tomorrow and increase our NIM, but then you’re taking far more exposure against rising rates.

Paul Miller – FBR Capital Markets

Okay. Thank you very much, gentlemen.

Operator

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

Michael Mayo – Caylon Securities

Hi. For the investment banking revenues quarter-over-quarter, Asia was the lowest in a while and Europe didn’t go down as much as the overall segment. Can you describe what’s happening there?

Douglas L. Braunstein

Yes, Mike. You know Asia, just lower volumes. It’s a heavily equity-related business in Asia both in Investment Bank and markets and lower volumes second quarter. In Europe, we had good performance this quarter in our markets businesses and the Investment Bank.

Michael Mayo – Caylon Securities

And the markets businesses, why did it get better? Are you benefiting from the volatility? Is there more activity? What’s happening there?

Jamie Dimon

It’s just -- you know, everything was down a little bit from last quarter, but all the businesses pretty much continue to have pretty good flow -- you know, client flow businesses. And…

Michael Mayo – Caylon Securities

I guess I’ll just ask my question straight out, I mean, is there a chance for another scenario like you had in the United States in 2008/2009 in Europe over the next couple years given what they’re going through?

Jamie Dimon

Mike, your guess is as good as ours on that. Of course, it’s possible that some of these things start to get worse and cause severe problems and so we’re very conscious of that. And how it flows back to the United States, it’s hard to tell.

Michael Mayo – Caylon Securities

Let me shift gears. Syndicated lending, how much did that contribute to the growth in wholesale loans and what were your syndicated lending fees this quarter? And what’s your view on the market overall? It seems like it’s really growing quickly.

Jamie Dimon

Yeah. No, it’s a good business, but it’s only -- it’s less than 20% of the 1.9 billion of total investment banking fees and the balance sheet -- remember, only some of that stays on the balance sheet. We sell all loans, we syndicate loans, we have distressed stuff that goes off the balance sheet. Set the build-up -- most of the build-up I think Doug already mentioned was global core banking and the conduit business which we still think is a good business.

But the syndicate business, the investment bank balance sheet, loan balance sheet stuff bounces all over the place because corporations always have the ability generally to go to the markets. So they’re always deciding between bonds and loans and even of the loans, some of that -- a lot of that stuff gets syndicated.

Michael Mayo – Caylon Securities

Let me shift gears to credit cards. You improved the loss rates by 100 basis points, now you expect another 75 basis points lower. You’re typically pretty conservative in your guidance, what gives you such confidence that those losses are going to go down so much?

Jamie Dimon

Well, Mike, we have tremendous visibility of next quarter already just by looking at delinquencies and roll rates. So you have very good visibility one quarter out and some visibility two quarters out.

Michael Mayo – Caylon Securities

So what’s your new…

Jamie Dimon

We won’t go up -- we won’t be that -- we won’t go up in the next quarter, put it that way.

Michael Mayo – Caylon Securities

What’s your new estimate for mid-2012?

Jamie Dimon

Well, we’re not going to give you one. But it’s -- if things continue the way they are it will be pretty good.

Michael Mayo – Caylon Securities

And then lastly, what was the average price where you buy back stock last quarter?

Jamie Dimon

Do you know the number?

Douglas L. Braunstein

Yes. A little under 44.

Michael Mayo – Caylon Securities

Okay. Thank you.

Operator

Your next question comes from the line of David Hilder with Susquehanna.

David Hilder – Susquehanna Financial Group

Good morning, thanks. Two timing questions and then one about the reserves. Would you expect to have changes in debit card or consumer pricing ready by October 1 to begin mitigating immediately?

Jamie Dimon

No. So you’ll see the full effect of Durbin will be fully felt in the fourth quarter; it will be about $250 million and it will be barely mitigated in the fourth quarter.

David Hilder – Susquehanna Financial Group

Okay. And any thoughts on timing of the resolution of the state attorneys general investigation on foreclosures? There had been some speculation that it might be resolved by now.

Jamie Dimon

I would do anything to get it done today but our counsel advises us that it could take a quite a while. There are a lot of parties engaged in this. And I gather people have gotten much closer on it, but if we get that call we’ll be on an airplane, we’ll be down there and we’ll be signing up. One of the reasons to do that is it’s good for the United States of America to get behind us all this stuff to fix it and move on. Delay foreclosures and all the uncertainty around mortgages is not a good thing for the economy, I think you understand that. So we stand ready to do it as soon as we can.

David Hilder – Susquehanna Financial Group

And -- thank you…

Jamie Dimon

It’s got to be done right. We’re not going to do it and be subject to double and triple jeopardy. We’d rather litigate it.

David Hilder – Susquehanna Financial Group

And for the Corporation as a whole, was the total litigation reserve expense in the quarter 1.3 billion or that’s in corporate or were there additional litigation reserves elsewhere in the segments?

Jamie Dimon

There are always other pluses and minuses and you’ll see some of that when the 10-K comes out because we have to disclose that now -- the 10-Q I mean.

David Hilder – Susquehanna Financial Group

Thanks very much.

Operator

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

Matthew O’Connor – Deutsche Bank

Hi, guys.

Douglas L. Braunstein

Good morning.

Matthew O’Connor – Deutsche Bank

I guess first following up on the net interest margin and net interest income dollars, obviously the NIM percent was down a fair amount this quarter, but the net interest income dollars was down a little less than 100 million and where the balance sheet is starting to grow from here do we see continued stabilization and then some growth in the back half of the year in the dollars?

Douglas L. Braunstein

You’re going to have declined pressure from the portfolio runoffs a little less for card over time but continue in RFS and loan balances are going to drive the aggregate dollars and we’ll see where demand is.

Matthew O’Connor – Deutsche Bank

Okay. And then just separately, as we think about the macro environment and a lot of us have been waiting for higher rates and more activity overall and hopefully it’s going to come, but it’s hard to have too much confidence in that any time soon. Is there kind of a plan B in maybe it’s the investment spend in card, retail, asset management, the deposit pricing? Just what are some of the contingency plans that you have if we’re stuck with low rates for a few more years and we’re just kind of hobbling along -- along with 2%-2.5% growth?

Jamie Dimon

I’m not sure what you mean by plan B. You know, we’re not going to stop growing our business and hiring bankers and opening branches and growing checking accounts and trying to do more trading business and making middle-market loans because you have a peculiar interest rate curve. And if it squeezes margins a little bit in some places so be it. We could change that in two minutes. So if you wanted to increase NIM we could just increase interest-rate exposure and increase NIM.

Matthew O’Connor – Deutsche Bank

I guess the concern I hear from some investors is that banks in general continue to hold out hope for higher rates and that the deposits will be worth more and keep a bigger expense infrastructure than what’s needed for the current environment hoping for rates to rise, revenues to come back and is this possible looking out two years from now that things aren’t that much different than what we have right now?

Jamie Dimon

If they’re not that different we’ll still be fine, you know, we’ll figure out ways to price products and services and make it a margin and we’ll be fine.

Matthew O’Connor – Deutsche Bank

Okay. And then just lastly if I may, as we think about your private equity business, it’s continuing to churn out very good returns. I think there could be some limits on what you can do in this segment with regulation going forward. Are there any thoughts or opportunities to unlock some of that value or how it might play out in terms of being sold or spun out?

Jamie Dimon

You’re making a good point. We have -- we are blessed to have One Equity Partners which is we just think an exceptional group of people. And obviously, we always say about private equity, those gains themselves are going to be lumpy, they’re not going to -- but we’re like Warren Buffett in that this one, we prefer 20% lumpy -- average but lumpy returns than 12%. And so over time this number will go up or down, but it’s real earnings for the company, it’s just you can’t look into your model every quarter, but doing this for the company and we expect to get those 20% returns over time.

Matthew O’Connor – Deutsche Bank

And I guess my question was about the business as a whole, will this still be under the JPMorgan umbrella or over time will it be ….?

Jamie Dimon

Yes.

Matthew O’Connor – Deutsche Bank

Okay. Thank you.

Operator

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

Jeffery Harte – Sandler O’Neill

Good morning. A couple questions left. One, as we look at you building a lot of excess capital and as we look at there potentially being a lot of distressed sellers out there, how are you thinking about the potential for acquisitions to cross a regulatory capital threshold and maybe push your capital requirements up even higher than the 9.5% kind of Basel number people are talking about now?

Jamie Dimon

Look, we don’t know the final rules on that yet. Remember, that stuff won’t be in effect for eight years, so give us a little time on that one. But we would certainly use our capital if we thought there were things that we could do that were great for shareholders whether it’s buying a company or buying assets. So if you have any brilliant ideas, give us a call.

Jeffery Harte – Sandler O’Neill

Okay. And secondly, when we talk about the five European nation exposures and the gross versus the net, how can we get some comfort from the outside about the effectiveness of hedges? Because I keep having flashbacks to the crisis where things like monolines were viewed as effective hedges and we found out they weren’t.

Jamie Dimon

Right, but we didn’t have a lot of that either, did we? So I’ve already said it was non-sovereign collateral, so some of these things have collateral that’s usually pretty good, we’re very careful we take as careful. Some of the hedges are not perfect; there are some country CDS hedges that are offsetting company type of exposures and we have specific name exposures that are sometimes directly offset.

And some of it’s in the training book or derivative exposure would change over time. But we -- that’s why the 15 billion and we’re pretty conservative on it and obviously you can make money be worse off or better off than you think, but it’s not going to move by 15 billion. It’s going -- you’re talking about being plus or minus a 1 billion here or there.

Jeffery Harte – Sandler O’Neill

Okay. Thank you.

Operator

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

James Mitchell – Buckingham Research

Hey, good morning. One question on fixed income trading that held up I think a lot better than people were expecting. We saw a year-over-year improvement for the first time in five quarters, I guess a better comparison versus a year ago. But also is that a sign that we’re starting to see spread compression ease in fixed income as things normalize here or is that unique to you guys just showing some good market share? How should we think about your results there -- was it just lumpy or do you think that’s indicative of the market industry sort of stabilizing?

Jamie Dimon

I think I can categorize it as that spreads have normalized, they came back to normal for a while. Obviously, it changes in every business a little bit and that flows have been good, have been good fairly much across all the products. Some months were lower than others and -- but it’s really those two things.

James Mitchell – Buckingham Research

Okay. Fair enough. And on the deposit side you had a big improvement, I think $50 billion or so sequentially on average deposits, most of that seemed to be in TSS. Is that a reflection of a flight to safety given the macro concerns out there? And if so, does that continue into July?

Jamie Dimon

I think a little bit was a flight to safety and a little bit was just people managing their own balance sheets. And there’s a lot of liquidity around the world and some of it went away early in the quarter -- not all of it.

James Mitchell – Buckingham Research

Okay. Thanks a lot.

Operator

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

Meredith Whitney – Meredith Whitney Advisory Group LLC

Hi, I have three questions, please. The first is the -- the broadest one which is, you’re stuck with higher capital, you may not like it, but you’re stuck with it. One thing, you can cut expenses or you can re-price? So, can you talk about across the businesses and maybe particularly in investment banking, what you’re doing in terms of repricing and how you manage that with competition?

Jamie Dimon

Yes, I don’t think in the wholesale businesses you’re seeing repricing yet because I don’t think a lot of these things are actually effective yet. I think you’ve seen some repricing in consumer business and more relating to all the other legislation, you know, the card, the overdraft and stuff like that. So -- but I don’t think you’ve seen it exactly yet in wholesale businesses.

Meredith Whitney – Meredith Whitney Advisory Group LLC

But you need to? And I know just anecdotally you’re repricing some of your products. Where -- are we not even in stage one yet, is that what you’re saying?

Jamie Dimon

We’re not even at stage one of repricing.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Okay.

Jamie Dimon

There are a lot of other changes coming too, you know, margin requirements and how these things get applied globally, the liquidity requirements which I think will cause some repricing, so -- but very little yet.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Okay. But even from a cost structure basis, to offset that there’s got to be repricing.

Jamie Dimon

Yeah, I think you’re going to see repricing in certain types of deposits and certain types of loans, certain types of revolvers, shorter duration revolvers. I think you’re going to see those things, you haven’t really seen them yet.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Okay, okay. The second question is on if you could -- I know this is a stretch, but if you could provide some type of outlook on the impending announcement I guess that’s coming over the next two weeks vis-à-vis Fannie, Freddie and new housing initiatives. How that -- what the scenarios could be? Either if it’s Fannie, Freddie backstopping or guaranteeing mortgages or potential cram down, what the best policy in your opinion would be and then what various -- limited various policies, how that would affect you? And then I have one last question.

Jamie Dimon

Yes, so I guess again, the one that’s going to happen is reducing the maximum size that they’ll guarantee from like 750 to 630, whatever it is. We don’t think that’s going to have a substantial impact. I think it was 1% of the volume is done in between those levels. So the impact of that will be jumbos will go up a little bit and where you sell the agencies will go down a little bit.

Most of the changes they’re talking about are not in the near term, they’re just talking about them to be effective years from now. And so there’s plenty of time to figure out how to do that.

At the end of the day, we’ll be in the mortgage business and I think it will return to being a good business. It will be much more conservative, much more carefully done, there will be much different servicing standards and -- but I don’t think the announcement is going to change that much.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Okay. Thank you. On the investment banking side, your DCM results are so much better than what we’ve heard from the rest of the Street. And so what we hear from the rest of the Street is that there’s a risk off trade during the quarter, volumes were low, people got a lot of -- obviously this wouldn’t be flow, but people got risk-averse because they got a lot of the moves (inaudible) what not wrong early in the quarter. And your results were so strong. Is that suggestive of the fact that your clients are more risk aggressive or can you put that into context with the rest of the industry?

Jamie Dimon

When you say DCM, are you talking about primary issuance or are you talking about trading, secondary?

Meredith Whitney – Meredith Whitney Advisory Group LLC

Primary issuance.

Jamie Dimon

So we kept…

Meredith Whitney – Meredith Whitney Advisory Group LLC

And trading.

Douglas L. Braunstein

We kept the number one share and….

Jamie Dimon

And we were more the bigger -- more of the lead manager of the number one share.

Douglas L. Braunstein

That’s right. So -- kept the number one share -- market share actually for us grew a little bit in the second quarter as a percentage matter.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Okay. And that’s…

Jamie Dimon

Part of the DCM numbers also are syndicated loan which we were obviously pretty strong in too.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Okay. So maybe that makes up the difference? Could be?

Jamie Dimon

Yeah.

Meredith Whitney – Meredith Whitney Advisory Group LLC

Well, congratulations either way.

Jamie Dimon

Thank you.

Douglas L. Braunstein

Thanks.

Operator

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

Edward Najarian – ISI Group

Hi. Good morning. Two quick questions, just in terms of the home lending portfolio, we saw that drop about $30 billion year-over-year and that’s in line with the outlook that you’ve given. Any update on the pace that we can expect that portfolio to continue to shrink over the next year or two? That would be the first question.

Douglas L. Braunstein

10% to 15% a year.

Jamie Dimon

Forever.

Edward Najarian – ISI Group

Forever. No, I guess maybe that’s what I’m looking for. Any idea when you think that might start to stabilize, obviously not in the near term, but down the road?

Jamie Dimon

It’s going to go down 10% or 15% a year until it’s close to zero, that’s what it’s going to do.

Edward Najarian – ISI Group

Okay.

Jamie Dimon

Listen, the world isn’t doing subprime any more, the world isn’t doing -- well, so home equity will come down to a number then stabilize, but it’s a lot lower than it is today. And Jumbo is a decision that you make whether to put on balance sheet or not and I think that class of asset will be most affected by some of these G-SIFI things. So we’ll see on that one.

Edward Najarian – ISI Group

So?

Jamie Dimon

We can buy or sell portfolio things anytime we want.

Edward Najarian – ISI Group

All right. So you expect that to continue to come down pretty much at that pace at least over the next several years?

Jamie Dimon

Yes.

Edward Najarian – ISI Group

Okay. And then second question would be is there anything that would stop you as you continue to deploy excess capital? I know it looks like you have about 4.5 billion left on your current repurchase authorization, you may want to increase your dividend. Is there anything that would stop you from going back to the Fed before the end of the year to get more approvals to deploy even more capital than you have approved right now?

Jamie Dimon

Well remember, the Board is the primary driver of capital decisions and so, no, the Board -- if we think it’s appropriate to go to talk to the regulators again about capital, we would.

Edward Najarian – ISI Group

Right, prior to the next round of capital stress tests?

Jamie Dimon

Right. But I think it’s important to point out the Board is responsible for this company, not just the regulators.

Edward Najarian – ISI Group

Okay. All right. Thanks.

Jamie Dimon

It’s still America. Capitalism is still alive. If the regulators start making all capital decisions then they should be the Board.

Edward Najarian – ISI Group

Okay. Thanks. Yes.

Operator

Your next question comes from the line of Gerard Cassidy with RBC Capital Markets.

Gerard Cassidy – RBC Capital

Thank you. Good morning. Can you guys share some color on the asset yields? In your loan portfolio we’ve been hearing anecdotal evidence that competition is very, very aggressive. Did you guys see that this quarter as the yields came done sequentially to 5.36% from 5.62%?

Douglas L. Braunstein

So that, Gerard, was really a mix-related issue. Spreads on loans, if you look at our commercial bank middle market, stayed very healthy this quarter.

Gerard Cassidy – RBC Capital

Good. The other question I have is regarding Jamie’s comment about what could happen if the U.S. is downgraded to a AA plus. Would that actually help your business? Would you guys see an increase in business as people start shifting their portfolios?

Jamie Dimon

It’s possible, but we’re not wishing for it.

Gerard Cassidy – RBC Capital

Sure, no, no, I understand that.

Jamie Dimon

It’s a bad way to win. We want to see the United States be happy and growing and jobs, that’s what we want to see. And if that’s…

Gerard Cassidy – RBC Capital

Certainly.

Jamie Dimon

If for some reason that’s not great for JPMorgan to share, so be it.

Gerard Cassidy – RBC Capital

And then finally, on the comment you guys made about the payoffs or repayments on the credit card portfolio, you expect them to remain pretty high. The guys on the front line, are they telling you why you’re still seeing such high repayments on the credit card portfolios? What’s driving the consumers’ behavior?

Jamie Dimon

Well, I guess part of our repayment has just been a mix to much higher quality clients, more transactor clients. So some of that was expected. It’s going to stabilize soon and so, no, the rate may not actually change at one point. We’ll eventually have growth in the portfolio anyway.

Gerard Cassidy – RBC Capital

Great. Thank you.

Operator

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

Ronald Mandle – GIC

Hi, thanks. Yes, Jamie, I was wondering if you could elaborate on your comment you made early on about the fact that the G-SIFI [ph] will have higher capital ratios might force the companies that would be in lower buckets to actually have higher capital as well? I wasn’t sure I really understood that point.

Jamie Dimon

Yes. So I’m saying, and I do this by business, okay. If you are a company right below the G-SIFI, and some of these G-SIFI’s or SIFI’s have a lot more capital, you may start losing business because of that because it might be easier for Boards and investors and people to say, you know what, leave those deposits with the G-SIFI, put it over here. So I’m saying it may become a small competitive disadvantage for the non-SIFI.

And so I could see that you’re going to -- I could see you might hear from some of the smaller banks that they’re going to be