Categories Earnings Call Transcripts, Finance

JPMorgan Chase & Co. (JPM) Q4 2020 Earnings Call Transcript

JPM Earnings Call - Final Transcript

JPMorgan Chase & Co. (NYSE: JPM) Q4 2020 earnings call dated Jan. 15, 2021

Corporate Participants:

Jennifer A. Piepszak — Chief Financial Officer

James Dimon — Chairman of the Board and Chief Executive Officer

Analysts:

Steven Chubak — Wolfe Research — Analyst

Jim Mitchell — Seaport Global Securities — Analyst

John McDonald — Autonomous — Analyst

Erika Najarian — Bank of America Merrill Lynch — Analyst

Betsy Graseck — Morgan Stanley — Analyst

Ken Usdin — Jefferies LLC — Analyst

Glenn Schorr — Evercore ISI — Analyst

Mike Mayo — Wells Fargo — Analyst

Brian Kleinhanzl — Keefe, Bruyette & Woods — Analyst

Gerard Cassidy — RBC Capital Markets — Analyst

Matt O’Connor — Deutsche Bank — Analyst

Charles Peabody — Portales — Analyst

Andrew Lim — Societe Generale — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s Fourth Quarter 2020 Earnings Call. [Operator Instructions]

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

Jennifer A. Piepszak — Chief Financial Officer

Thank you, operator. Good morning, everyone. The presentation, as always, is available on our website and we ask that you please refer to the disclaimer at the back. It’s slightly longer this quarter given we’re not having Investor Day. And so, after I review our results, I’ll spend some time on our outlook for 2021 as well as touch on a few important balance sheet topics that are top of mind for us.

So starting on Page 1 for the fourth quarter, the firm reported net income of $12.1 billion, EPS of $3.79 on revenue of $30.2 billion and delivered a return on tangible common equity of 24%. Included in these results are approximately $3 billion of credit reserve releases.

Before we get into more detail on our performance, I’ll just touch on a few highlights. First off, our customers and clients continue to demonstrate strong financial resilience in the face of an unprecedented pandemic, as evidenced in our credit metrics thus far. We saw continued momentum in investment banking and grew our share to 9.2%. In CIB markets, revenue was up 20% year-on-year, driven by strong client activity and elevated volatility in the quarter. And in AWM, we had record revenue, up 10% year-on-year. On deposits, we saw another quarter of strong growth, up 35% year-on-year and 6% sequentially and Fed balance sheet expansion continues to increase the overall amount of cash in the system, while loan growth remained muted, up 1% both year-on-year and quarter-on-quarter.

On to Page 2 for more on our fourth quarter results. Revenue of $30.2 billion was up $1 billion or 3% year-on-year. Net interest income was down approximately $900 million or 7%, primarily driven by lower rates and mix, partly offset by balance sheet growth and higher markets NII. Non-interest revenue was up $1.9 billion or 13% on higher IB fees, legacy investment gains in corporate and higher production revenue in home lending. Expenses of $16 billion were down 2% year-on-year on lower volume and revenue-related expenses, partially offset by continued investments. Credit costs were a net benefit of $1.9 billion, down $3.3 billion year-on-year, primarily driven by reserve releases of $2.9 billion that I’ll cover in more detail shortly.

Turning to the full year results on Page 3. The firm reported net income of $29.1 billion, EPS of $8.88 on record revenue of nearly $123 billion and delivered a return on tangible common equity of 14%. Revenue was up $4.5 billion or 4% year-on-year as net interest income was down $2.8 billion or 5% on lower rates, partly offset by higher markets NII and balance sheet growth. And non-interest revenue was up $7.3 billion or 12% on higher markets and IB fees as well as higher production revenue in home lending. Expenses of $56.7 billion were up 2% year-on-year, driven by volume and revenue-related expenses, higher legal and continued investments, partially offset by lower structural expenses. And credit costs were $17.5 billion, reflecting a net reserve build of $12.2 billion due to the impacts of COVID-19 and net charge-offs that were down year-on-year.

Now turning to reserves on Page 4. We released approximately $3 billion of reserves this quarter across wholesale and home lending. Starting with wholesale, we released $2 billion due to improving macroeconomic scenarios and the continued ability of our clients to access capital markets and liquidity. In home lending, we released $900 million, primarily on improvement in HPI expectations, and to a lesser extent, portfolio run-off. And in card, we held reserves flat as we remained cautious about the near-term, especially with the number of unemployed still nearly two times pre-pandemic levels and potential payment shop coming to consumers from expiring benefits.

And so with the near-term outlook still quite uncertain, we remain heavily weighted to our downside scenarios. And at nearly $31 billion, we are reserved at approximately $9 billion above the current base case. And to touch on net charge-offs for the quarter, they were down about $450 million year-on-year and remained relatively low across our portfolios. Looking forward, we still don’t expect any meaningful increases in charge-offs until the second half of 2021. And with the recent stimulus, it could be even later.

Turning to Page 5. We’ve included here an update on our customer assistance programs, and you can see the trends are largely similar to last quarter and further evidence of the resilience of our customers. The vast majority what’s left in deferral is in mortgage with $10 billion of own loans and $13 billion in our service portfolio. And in terms of what we’re seeing from our customers that have exited relief, more than 90% of accounts remained current.

Turning to balance sheet and capital on Page 6. We ended the quarter with the CET1 ratio of 13.1%, flat versus the prior quarter on strong earnings generation, largely offset by dividends of $2.8 billion and higher RWA. As we stated in our press release last month, the board has authorized share repurchases and we plan to resume buybacks in the first quarter up to our Fed authorized capacity of $4.5 billion after paying our $0.90 dividend.

You can see here on the page, we’ve included the liquidity coverage ratio for both the firm and the bank, which we believe is important to look at together in order to better understand the liquidity profile of our balance sheet. The firm is at a healthy LCR of 110%. However, the bank LCR is 160%, reflecting the extraordinary deposit growth that has meaningfully outpaced loan demand.

Now, let’s go to our businesses, starting with Consumer & Community Banking on Page 7. In the four quarter, CCB reported net income of $4.3 billion and an ROE of 32%. Revenue of $12.7 billion was down 8% year-on-year, reflecting deposit margin compression and lower card NII on lower balances, largely offset by strong deposit growth and higher home lending production revenue. Deposit growth was 30% year-on-year, up over $200 billion as balances remain elevated and as we continue to acquire new customers and deepening primary relationships.

Loans were down 6% year-on-year with home lending down due to portfolio run-off and card down on lower spend, offset by business banking, which was up due to PPP loans. Client investment assets were up 17% year-on-year, driven by both net inflows and market performance. On spend, combined debit and credit card sales volume in the quarter was up 1% year-on-year, which reflected debit sales of 12%, largely driven by retail and everyday spend and credit sales down 4%, largely driven by T&E.

In home lending, overall production margins remained strong. Total originations were down 2% year-on-year, but were up 12% quarter-on-quarter, both driven by correspondent and we lean into the minister channel after pulling back earlier in the year. For the year, total originations were $114 billion, including nearly $73 billion of consumer originations, both the highest since 2013.

In auto, loan and lease origination volume was $11 billion, up 29% year-on-year. And across the franchise, digital engagement continues to accelerate. Our customers use Quick Deposit for more than 40% of our check profits, which is nearly 10 percentage points higher than a year ago. And in home lending, nearly two-thirds of our consumer applications were completed digitally using Chase My Home, and that has tripled since the first quarter. Over 69% — overall, 69% of our customers are digitally active with business banking at 86%, both higher than a year ago. Expenses of $7 billion were down 1% year-on-year and credit costs were a net benefit of $83 million, driven by $900 million of reserve releases in home lending, largely offset by net charge-offs in card of $767 million.

Now turning to the Corporate & Investment Bank on Page 8. CIB reported net income of $5.3 billion and an ROE of 26% on revenue of $11.4 billion for the fourth quarter and an ROE of 20% on revenue of $49 billion for the full year. The extraordinary nature of this year has meant that we had records in almost every category for both the quarter and the full year. In Investment Banking, IB fees were up 25% for the year and we grew share to its highest level in a decade. In the quarter, Investment Banking revenue of $2.5 billion was up 37% year-on-year and up 20% sequentially. The quarter’s performance was driven by the continued momentum in the equity issuance market as well as strong performances in DCM and M&A.

In advisory, we were up 19% year-on-year, driven by the closing of several large transactions. The M&A market continued to strengthen this quarter, and in fact, announced volumes exceeded pre-COVID levels. Debt underwriting fees were up 23% year-on-year, driven by leverage finance activity and we maintained our number one rank overall. In equity underwriting, fees were up 88% year-on-year, primarily driven by a strong performance in follow-ons and IPOs. Looking forward, we expect IB fees to be up modestly for the first quarter and the overall pipeline remains robust. We expect M&A to remain active on improved overall CEO confidence and the momentum in equity capital markets is expected to continue, of course dependent on a successful containment of COVID.

Moving to markets. Total revenue was $5.9 billion, up 20% year-on-year against a record fourth quarter last year. Fixed income was up 15% year-on-year, driven by good client activity across businesses, particularly in spread products as well as the favorable trading environment in currencies in emerging markets, credit and commodities. Equities was up 32% year-on-year, driven by strong client activity and equity derivative and cash throughout the quarter across both flow trading and March episodic transactions.

Looking forward, we expect markets to remain active in the first quarter and we have seen strong performance since the start of January, but it’s obviously too early to predict the full quarter. And for the remaining quarters of this year and the full year, the comparison will be particularly challenging given the extraordinary performance of markets in 2020. Wholesale payments revenue of $1.4 billion was down 4% year-on-year, primarily reflecting the reporting re-class in Merchant Services. And Securities Services revenue of $1.1 billion was down 1% year-on-year. On a full year basis, a headwind from lower rates were almost entirely offset by robust deposit growth. Expenses of $4.9 billion were down 9% compared to the prior year, driven by lower compensation and legal expenses.

Now let’s go to commercial banking on Page 9. Commercial banking reported net income of $2 billion and an ROE of 36%. Revenue of $2.5 billion was up 7% year-on-year with higher lending and investment banking revenue, partially offset by lower deposit revenue. Record growth investment banking revenue of $971 million was up 53% year-on-year. And the full year was also a record, finishing at $3.3 billion, surpassing our previously established $3 billion long-term target. And given our investments in bank coverage, we believe there is continued upside from here.

Expenses of $950 million were flat year-on-year. Deposits of $277 billion were up 52% year-on-year and 11% quarter-on-quarter as client balances remain elevated. Average loans were up 1% year-on-year, but down 3% sequentially. C&I loans were down 4% on our revolver balances with utilization rates nearing record lows as clients continue to access capital markets for liquidity. And CRE loans were down 1% on higher prepayment activity in both CTL and real estate banking. Finally, credit cards were a net benefit of $1.2 billion, driven by reserve releases.

Now on to Asset & Wealth Management on Page 10. Asset & Wealth Management reported net income of $786 million with pre-tax margin in ROE of 29%. And for the year, AWM generated record net income of $3 billion with pre-tax margin in ROE of 28%. For the quarter, revenue of $3.9 billion was up 10% year-on-year as higher performance and management fees as well as growth in deposit and low balances were partially offset by deposit margin compression. Expenses of $2.8 billion were up 13% year-on-year, primarily due to higher legal expenses related to the resolution of matters previously announced. But excluding this, expenses would have been up 4% year-on-year on volume and revenue-related expenses.

For the quarter, net long-term inflows were $33 billion, positive across all channels, asset classes and regions. And this was true of the $92 billion for the full year as well. In liquidity, we saw net outflows of $36 billion for the quarter and net inflows of $104 billion for the full year. AUM of $2.7 trillion and overall client assets of $3.7 trillion, up 17% and 18% year-on-year respectively were driven by net inflows into both liquidity and long-term products as well as higher market levels. And finally, deposits were up 31% year-on-year and loans were up 15% as clients continue to increase our liquidity and look for investment opportunities.

Now on to Corporate on Page 11. Corporate reported net loss of $358 million. Revenue was the loss of approximately $250 million, relatively flat year-on-year. Net interest income was down $730 million on lower rates, including the impact of faster prepays on mortgage securities as well as limited deployment opportunity on the back of continued deposit growth. The declines in net interest income were largely offset by net gains this quarter of approximately $540 million on several legacy equity investments. And expenses of $361 million were roughly flat year-on-year as well.

Now shifting gears, I’ll turn to our outlook for 2021, which I’ll cover over the next few pages, starting with NII on Page 12. As you can see on the page, we expect NII to be around $55.5 billion in 2021, and this is based on the latest implies, which reflects this deepening yield curve we’ve seen over the past few weeks. As you can see that we do expect to be able to more than offset the impact of low rates in 2021 from continued deposit growth and higher markets NII. But it’s important to note that it takes the loan growth to truly realize the benefits of a steeper yield curve.

I’ll also just remind you that the increase in CIB markets NII is largely offset in NIR, and this component is highly market dependent. And so as it relates to loan growth, while there should be some opportunities in AWM in wholesale, we expect headwinds, at least in the near-term as corporate cash balances are at all-time high, card payment rates are elevated and there continues to be significant prepayments in home lending. But we do expect these to normalize and see loan growth pick up in the second half of the year, particularly in cards.

Therefore, our fourth quarter 2021 NII estimate of $14 billion or more is a reasonable exit rate. And notably, that’s in the zipcode of our 4Q ’19 NII when rates were significantly higher than they are today. We’ve also included on the right side of page some risks and opportunities, and obviously this isn’t any relative, but are the drivers that could be most impactful to this year’s NII outlook.

Now turning to expenses on Page 13. As Jamie mentioned last month, we do expect our expenses increase in 2021. And based on our latest work, we expect that number to be around $68 billion, up versus the prior guidance of $67 billion, largely due to higher volume and revenue-related expenses and the impact of FX, both of which have offsets in the revenue line as well as the impact of expenses from our recent acquisition of cxLoyalty.

Then taking a look at the year-over-year expense growth, you can see it’s primarily due to investments, which I’ll cover in more detail on the next page. Our volume and revenue-related expenses are up slightly with some puts and takes there. That’s obviously market dependent, but remember, any changes there do come with corresponding changes to our top-line. And in structural, we expect a net reduction of approximately $200 million. Notably, this includes a decrease of $500 million, reflecting the realization of continued cost efficiencies and was largely our fixed cost base. And you can see that it is partially offset by the impact of FX on our non-U.S. dollar expenses.

It’s important to note that while structural is coming down, this doesn’t represent the full extent of our productivity and we’re realizing efficiencies in each category here. For example, our software engineers are becoming more productive and we are reducing our cost to serve as we’re seeing more customers use our digital tools to self-serve.

Moving to Page 14 to take a closer look at our investment spend. Over the past few years, our investment spend has been around $10 billion and we expect that to increase to nearly $12.5 billion in 2021. You can see that we’ve highlighted on the page the major areas of focus that we’ve been consistently investing in for years, which should continue to strengthen our franchise and drive revenue growth.

Starting on the bottom with technology, this represents roughly half of the overall investment spend. And these tech investments are across the board as we look to better meet our customer and client needs, improve our customers’ digital experience, strengthen our fraud detection capabilities as well as modernize and improve our technology infrastructure cloud and data capabilities.

Moving to non-tech investments. We expect marketing spend, largely CCB, to return to pre-COVID levels this year after being down in 2020. We continue to invest in our distribution capabilities across all of our businesses. This includes hiring bankers and advisors, not only in U.S., but also internationally as well as expanding our physical footprint. We’ve been continuing to execute against our branch expansion plans in new markets, having opened 170 branches so far out of our planned 400, and expect to be in all contiguous 48 states by new 2021. Jamie is laughing.

And the other bucket on the page is a catch-all for everything else, including real estate and other various investments across our businesses. These expenses were very stable the past few years and the increase in 2021 is largely related to our $30 billion commitment to the path forward, which includes promoting affordable housing, expanding homeownership for underserved communities and supporting minority-owned businesses, and then as well as expenses related to our acquisition of cxLoyalty.

So in summary, you can see that we continue to invest through the cycle. And it’s these investments that we believe position us well to outperform on a relative basis regardless of the environment.

Now I will turn to a few balance sheet and capital-related topics, starting on Page 15. Over the next few slides, I’d like to provide you some insight on how recent monetary expansion and corresponding growth in the financial system is creating new challenges for bank balance sheet. More specifically, this expansion is putting significant pressure on size-based capital requirements, which is likely to impact business decisions, including capital targets.

We’ll start with what has happened this year. In response to the COVID crisis, the Fed’s balance sheet has significantly expanded, which has resulted in $3 trillion of domestic deposit growth across the U.S. commercial banks. What’s important to note is that this QE is unlike anything we’ve seen before. In the current QE, we have experienced a much bigger and faster expansion. And that expansion has come without meaningful loan demand beyond PPP, as you can see in the loan-to-deposit ratio on the page. This has resulted in bank balance sheets, which are larger, but more liquid and less risky.

From a bank capital perspective, the key question to ask is, how long will this persist. On the chart, you can see that the QE3 online kept the Fed on pause for several years before a modest pace of reductions. So even if the Fed immediately signals tapering, which of course is not the base case and follows the pace of the last online, it will take many years to return to pre-COVID levels. Of course, the unwind speed is uncertain, but I think we can all agree that bank balance sheets will remain elevated for some time.

Now let’s go to Page 16 and see how this will impact capital going forward. Few factors that are top of mind for us are GSIB, which we’ve been talking about for a long time and also SLR, which is not something we typically talk about, but given the overall system expansion is now on focus. On the graph, what you can see here are the historical trends of GSIB and SLR base requirements, overlaid with the path of the Fed securities holdings. You can see that during the original calibration of these rules, which included significant gold plating, the Fed balance sheet was notably lower. With the recent growth in the Fed balance sheet, we are seeing upward pressure in increases to GSIB requirements as well as the SLR shifting from a backstop to a binding measure, which will impact the pace of capital return, and these dynamics will likely persist for an extended period.

The Fed temporary relief of SLR expires after March 31. This adjustment for cash and treasuries should either we made permanent or at a minimum be extended. With these exclusions, you can see how this remains a backstop measure, not a binding one. And on GSIB, there has been public dialog about the need to index the score to GDP as a proxy to account for ordinary economic expansion over time. And this was also cited by the Fed as a possible shortcoming of their framework.

For 2020, GDP was clearly not the best proxy for system expansion, but the principle still applies. GSIB was designed as a relative measure between large and medium-sized banks. And therefore, it certainly reflects an overall system expansion, which impacted small, medium and large banks alike. By future-proofing GSIB at inception with the adjustments outlined on the page, you can see the resulting GSIB score profile, lowered over time, but more importantly, flatter over the course of the most recent system expansion. While we recognize that prudent bank capital requirements do promote safety and soundness, satisfying these heightened requirements is certainly not costless [Phonetic] which is why these two areas, GSIB and leverage are top of mind for us in 2021.

Now let’s look at the impact of this on marginal deposits on Page 17. In addition to what we’ve already discussed, there are two more building blocks required to see the full picture of marginal deposit economics, and they are interest rates and loan demand. We’ve experienced a combination of both lower interest rates and lower loan demand, which have reduced the NIM of marginal deposits to practically zero, which you can see here on the chart. And this is an issue for all banks, not just GSIBs or JPMorgan. However, what is specific to the larger banks is that when the SLR becomes binding, we may be required to issue new debt and retain higher equity, which ultimately makes the marginal deposit a negative ROE proposition in today’s ultra-low rate environment.

The key test and question is, what could happen next? We could simply shy away from taking new deposits, redirecting them elsewhere in the system or we can issue or retain additional capital and pass on some of their costs, which is certainly something we wouldn’t want to do in this environment. And therefore, we strongly encourage a serious look to these sized-based capital calibrations with an appropriate sense of urgency as we will soon be facing this critical business decision.

All of this can be addressed through a few simple adjustments, namely, an extension of the SLR exclusion and GSIB fixed as we’ve spoken about over time. But to be clear, we believe the framework as a whole has made the banking system safer as we experienced in 2020. But we’re also seeing evidence where the lack of coherence and re-calibration is risking unintended consequences going forward.

With all that said, before I close things out on capital, here is how we’re thinking about target CET1 levels. While GSIB pressure remains and the need for re-calibration is high, our SCB optimization can provide some offset, allowing us to manage to a 12% CET1 target. The recent stress test showed an implied 20 basis point reduction to SCB, and we have continued our optimization efforts since the re-submission. So we’re hopeful for a lower SCB later this year, of course that’s scenario dependents.

At this point, it’s too early to provide specific color on the impact of SLR, so it’s just important to know that in the absence of any adjustments to the measure, we may have to issue preferreds or carry additional fee if you want over the 12% target I just mentioned. We obviously can’t emphasize these key messages enough and these factors are clearly front and center as we think about managing our balance sheet and capital targets in the near and medium-term.

Now before we conclude, note that we’ve included a few additional slides on our businesses and the intent is to give you an update on their strategic highlights our performance as well as provide the latest financial outlook. These initiatives we talked about at last year’s Investor Day still remain our focus and we continue to execute and make progress against them.

So to wrap up, 2020 was an incredibly challenging year, but it also showcased the benefits of our diversification and scale and the resulting earnings power of our company, while our employees relentlessly focused on supporting our customers, clients and communities. While downside risk do remain in the near-term and it could be significant, several recent factors help us feel more optimistic as we look ahead to the recovery in the medium and longer term.

So with that, operator, please open the line for Q&A.

Questions and Answers:

Operator

Certainly. [Operator Instructions] Your first question comes from the line of Steven Chubak with Wolfe Research.

Steven Chubak — Wolfe Research — Analyst

Hi. Good morning, Jamie. Good morning, Jen, and Happy New Year.

Jennifer A. Piepszak — Chief Financial Officer

Happy New Year, Steven.

James Dimon — Chairman of the Board and Chief Executive Officer

Happy New Year to you.

Steven Chubak — Wolfe Research — Analyst

So I wanted to start off with a question on the NII outlook. The 2021 guide implies a rather healthy step up versus the $54 billion, Jamie, that you had reiterated just last month. In your updated NII guide for ’21, what are you assuming regarding the deployment of excess liquidity given some of the recent curves steepening? And separately, what are your assumptions around the trajectory for card balances and overall growth in ’21, especially in light of the expectations for additional stimulus, which we saw, at least this past year, could drive further consumer deleveraging?

Jennifer A. Piepszak — Chief Financial Officer

Sure. So I’ll start with excess liquidity. So I think there the theme is we’re being opportunistic or patient. So as you think about the recent moves that we’ve seen in the yield curve, in the grand scheme of things, those could be small moves. And as we think about managing the balance sheet, it’s not just about NII, of course, it’s about capital. And so there is risk in adding duration at these levels in a further sell off. So we’re being very patient. But we have been and we’ll continue to be optimistic. And you will see that we did add $60 billion to the portfolio in the fourth quarter. So that’s what we’re assuming in the outlook is a very balanced view on deploying the excess liquidity.

And then as a separate…

James Dimon — Chairman of the Board and Chief Executive Officer

In the implies curve.

Jennifer A. Piepszak — Chief Financial Officer

Yeah, in the implied curve. Yeah. And then on card balances, it is quite extraordinary what we’re seeing in terms of payment rates in the card portfolio, which of course is very healthy as consumers use this opportunity to deleverage. So there is an offset on the credit line. But we are expecting that to normalize in the back half of 2021 as spend recovers. But that it is certainly a risk for us if they remain elevated. So that’s why everything listed on that page is the plus, minus because everything could be an opportunity and a risk.

Steven Chubak — Wolfe Research — Analyst

Fair enough. And just for my follow-up, wanted to ask on capital. Both the slides are really interesting, highlighting the impact of QE on the leverage ratio and GSIB scores. You’ve been critical of GSIB surcharges and the need to re-calibrate these coefficients for some time. You haven’t really seen much progress there, kind of feels like Waiting for Godot. And if the Fed is slow to re-calibrate the minimum leverage ratios to account for this QE-driven deposit growth, what mitigating actions can you take to ensure you’re not capital constrained as balance sheet growth continues? And maybe any revenue attrition we need to contemplate as part of those mitigating actions?

Jennifer A. Piepszak — Chief Financial Officer

Sure. So I’ll start with GSIB, if we take that in turn. So starting with GSIB, as I said, we do think that we have opportunity in the SCB, of course that’s scenario dependent and based on the Fed model, but we do think we have opportunity there based on the work that we’ve been doing. It will be very difficult for us to get back to 3.5% with the current expansion. So we are expecting to remain in the 4% bucket. But as you know, that’s not effective until early 2023, so that gives us time to manage SCB, as I mentioned, as an offset.

On the leverage issues, we have — we can cure this through issuing preferreds, but we haven’t made that decision yet, as I said, because it is a critical decision for us to think about. And as you think about capital return, it would depend on where our stock price is as we think about the economic value of issuing preferreds to buyback stock. So there is a lot for us to think about over the next couple of months.

James Dimon — Chairman of the Board and Chief Executive Officer

And I’d just add. The G-SIFI because it’s very important. If we were on the international standard, our G-SIFI would be 2% not 4%. And we’ve been talking about, they were supposed to adjust GSIB before the growth of the economy, and effectively, the shrinking size of the banking system because the banking system itself is getting smaller as mortgages go to the non-banks and private credit goes elsewhere and the rest of the international Chinese banks are growing, etc. So these adjustments should be made. And we pointed out, there is $1.3 trillion of liquid assets and marketable securities on our balance sheet, which shockingly reached G-SIFI 2. G-SIFI has no risk-weighted measurements to it, no diversification to it, no profitability to it, it’s just kind of these very gross measures, and it needs to be re-calibrated and same with SLR. I mean, so do we expect it to happen? Probably not in our lifetimes because we politicized bank, detailed bank numbers. And so — and we can live with it for now. But in the long run, it’s not good for America, that much of a disadvantage to our competitors overseas.

Operator

Your next question comes from the line of Jim Mitchell with Seaport Global Securities.

Jennifer A. Piepszak — Chief Financial Officer

Hi, Jim.

Jim Mitchell — Seaport Global Securities — Analyst

Hi. Sorry, I was on mute for a sec there. Maybe just talking about loan growth, you saw a pretty nice improvement in the wholesale side. You talked about some opportunities in ’21, it seems to be mostly coming out of the CIB. Is that sort of acquisition finance? What’s driving some of the improvement on the wholesale side?

Jennifer A. Piepszak — Chief Financial Officer

Yeah. I would say acquisition financing is the opportunity on the wholesale side. When we — there may be some opportunity in the back half of 2021 in C&I. That feels like it’s returning to BAU, but I think that’s going to take some time. But as I said, we are at historic levels of cash on corporate balance sheets. And so outside of acquisition financing and C&I, it will be challenging, C&I in the back half of 2021.

Jim Mitchell — Seaport Global Securities — Analyst

Okay. Fair enough. And then maybe on your expense assumptions for the $68 billion. You don’t really mentioned at all any — the CIB. You would think that if we are, as everyone assumes, we had a record year in 2020, 2021 maybe markets and IB fees are lower. Is there any kind of — are you building in some lower — revenue-based compensation expense in that $68 billion or is that potential a positive?

Jennifer A. Piepszak — Chief Financial Officer

So we capture that in the volume and revenue-related, Jim. It just happens to be more than offset by volume and revenue-related growth elsewhere.

James Dimon — Chairman of the Board and Chief Executive Officer

Like I just point out, that $68 billion, we don’t make commitments or promises. So that $68 billion, I would love to find $2 billion more of investments, literally. I mean, we’re seeking every way to find more to do to help clients around the world and stuff like that. So that’s kind of our current forecast. And fortunately, we found some more to do, including cxLoyalty and opening more branches and some of the technology we’re building, etc. But I would like to find more. It would be the best and possible highest use of our capital.

Operator

Your next question comes from the line of John McDonald with Autonomous Research.

Jennifer A. Piepszak — Chief Financial Officer

Hi, John.

John McDonald — Autonomous — Analyst

Hi, Jen. Given the outlook for net interest income and expenses, it seems like the efficiency ratio is going to tick up a few hundred basis points this year, ’21 versus ’20. And I know you don’t manage it necessarily year-to-year, but just kind of over time, you seem to have a mid-50s efficiency target. Just kind of wondering how you put guardrails up for yourselves in terms of expense discipline in managing over time to have positive operating leverage and an efficiency carter?

Jennifer A. Piepszak — Chief Financial Officer

Sure. So I’ll start by saying, you’re absolutely right that we don’t manage the efficiency ratio in any quarter or even any year, but operating leverage is very important to us. And then we gave last year at Investor Day at about a 55% efficiency ratio. I’d say in a normalized environment, we haven’t had anything that structurally has changed. And so that should still be achievable for us in a normalized rate environment and otherwise normalized environment.

And then as it relates to expense discipline, it is a bottoms up process. And so everywhere around this company, we are looking to get more efficient and holding people accountable to do just that, which is why I call out on the slide that structural is basically everything that is an investments or volume and revenue-related. It isn’t necessarily a representation of all of our expense efficiencies. So the discipline is everywhere and it’s the way we run the company and we do believe in the importance of operating leverage through time, no doubt.

John McDonald — Autonomous — Analyst

Okay. And then as a follow-up. On the NII walk, you’ve got $1 billion incremental NII expected in ’21 versus ’20 from markets, CIB markets. Can that be true if markets revenues is down year-over-year? Can they both be true? And just maybe explain that.

Jennifer A. Piepszak — Chief Financial Officer

Yes. It can absolutely be true. So markets is — I mean, in most of our businesses, we don’t run them NII versus non-interest revenue, it is an accounting construct. But markets, it’s particularly true. So yes, that is possible. In NII, the markets business, you can think about as it’s liability sensitive. So you’re going to see the benefit of lower rates in NII. That doesn’t necessarily imply anything about the overall performance.

James Dimon — Chairman of the Board and Chief Executive Officer

We have positive carry. The trading profit goes down and the carry goes up, but the absolute number is the same.

Operator

The next question comes from Erika Najarian with Bank of America.

Jennifer A. Piepszak — Chief Financial Officer

Hi, Erika.

Erika Najarian — Bank of America Merrill Lynch — Analyst

Hi, good morning. My first question is on the outlook for card losses. The 2.17% net charge-off rate was certainly eye-opening relative to what happened in 2020. And the discussions actually that I’ve been having with investors on the trajectory of card is, do you think that the bridge that the government built is strong enough that we may not see a spike in losses in card like we’re all expecting? And Jim, given your comments earlier, what would you need to see to feel more comfortable about releasing reserves from your card portfolio?

Jennifer A. Piepszak — Chief Financial Officer

Sure. So it’s interesting that you brought up the bridge being strong enough. It does feel like at this point in this crisis, the bridge has been strong enough. The question that still remains is, is the bridge long enough? And so while we just had recent stimulus task that makes us feel better about the bridge being long enough, but we have to get through the next three to six months. So it feels like we’ve been saying that since this crisis started, but I think it is particularly true at this point obviously given the vaccine rollout.

So consumer confidence is still low relative to pre-COVID levels. You can convert that with — compare that to the wholesale side, we’re seeing your confidence is up. That’s not true on the consumer side. And so the next three to six months is going to be critically important for us to assess whether not only is it strong enough, but is it long enough and do we see consumer sentiment tick up a bit. There is also possibility for payment shops as some relief programs, whether it be on forbearance or tax load on benefits received. There are things that could hit the consumer in the next three to six months that we need to think about.

James Dimon — Chairman of the Board and Chief Executive Officer

I would add. Very different for sub-prime and prime. And if you look at our portfolio, it’s mostly prime. And the folks in the prime category have a lot more income, a lot more savings, housing prices are up, they did not lose their jobs. So the news there is actually not a good. On the lower quartile, it’s the opposite. Even now, we just did all those stimulus checks and we did about 12 million of them, which have already been processed.

Jennifer A. Piepszak — Chief Financial Officer

12 million.

James Dimon — Chairman of the Board and Chief Executive Officer

12 million or 12 billion, approximately. And at the bottom — but the folks who had $1,000 in their accounts with the accounts are coming down and they just got — they obviously need it. The folks in the higher end, they obviously don’t need it quite as much. So it’s positive — we expect it to go up, but it’s possible somehow it doesn’t happen in some dramatic way.

Erika Najarian — Bank of America Merrill Lynch — Analyst

Got it. And Jamie, my second question is…

James Dimon — Chairman of the Board and Chief Executive Officer

Can I make other point, it’s very important.

Erika Najarian — Bank of America Merrill Lynch — Analyst

Yes.

James Dimon — Chairman of the Board and Chief Executive Officer

We do not consider taking down reserves, recurring or low income. We don’t do it to show a profit. We don’t consider the profit. It’s ink on paper. It’s based upon lots of different calculations. Obviously, we want real losses be lower over time. But just if you — if our card reserve is like $17 billion, we took it down next quarter because we have more optimistic outlooks. We’re not going to be sitting here cheering about that. We’re cheering that America is doing better, but we don’t consider that earnings. And I think you all should look at it a little bit differently now, particularly with the changing accounting rules.

Erika Najarian — Bank of America Merrill Lynch — Analyst

Yeah. I think your investors appreciate that. And the second question I had for you, Jamie, is in last — on last year’s Investor Day, it was clear to your investor base that you were looking to inorganically enhance your scale in AWM. And what’s interesting is that the discussion that I’ve been having with your investors more recently is, them wondering whether or not you would consider a larger deal, maybe in payments, given that a lot of investors and banks are thinking that that’s the — this is the part that seems to be potentially more vulnerable to technology competitors. What are your thoughts there? And I guess, my own thought process has been tempered by Jennifer’s presentation on capital, but wanted to get your thoughts there?

James Dimon — Chairman of the Board and Chief Executive Officer

We have — our capital [Indecipherable] Can we have so much capital? We cannot use it. If you look at what happened this year, our capital went from 12.4% to 13.3%, but I think advance is more representative of real risk, it will be 13.8%. That’s after doing $2 trillion of loans, $12 trillion of reserves, $12 trillion — $12 billion of reserves, $12 billion of dividend. I mean, we’re earning — if you look at pre-tax, pre-provision was $45 billion or $50 billion a year. So we’re in very good shape to invest.

The most important thing is that we grow, every business grows organically, every single one. Opening branches and accounts, doing payments. And we’ve put a lot of time and effort to payments, we’re quite good at it between credit card, debit card, Chase Merchant Services. But I agree with you — but we’re open for inorganic too. Inorganic shouldn’t be an excuse not for growing organically. And it’s not just asset management, it will be any area where we could do. I don’t — cxLoyalty was a neat thing, InstaMed was neat thing, we’ve bought 55 IP, which is a special way to manage the money, tax efficiently.

And so we’re going to build it ourselves or buy it, we’re open-minded. Anyone who have good ideas for us, let us know. We have to be able sell it, but we felt, we would also look at buying it. And like I said, we’re always looking for ways to invest more of our money intelligently. We’ve got tremendous set of assets. We also have a tremendous set of competitors, particularly in payments, consumer lend now and a bunch of other areas. So you saw GooglePay, you saw Walmart is going to try to expand it. They’ve been in long time, they’re expanding. And we like competition, we believe in it, but we have to be really prepared for that. And that is deeply on our mind and how we run our business.

Operator

Your next question is from Betsy Graseck with Morgan Stanley.

Jennifer A. Piepszak — Chief Financial Officer

Hi, Betsy.

Betsy Graseck — Morgan Stanley — Analyst

Hi, good morning. Jamie, a question on cxLoyalty because I thought UR loyalty program and capability set there and your payment space and your consumer facing space was quite good. So I’m just wondering what the rationale was? And is there an expectation that you’re going to be leveraging that into non-card portions of your business? Was that part of the — so what was this deal?

Jennifer A. Piepszak — Chief Financial Officer

Betsy, I’ll take that one. So this — we’re really excited about this one. And really with any tech platform, scale matters. So combining our scale with cxLoyalty’s innovative technology will be a win not only for our Chase customers, but for cxLoyalty’s existing clients and suppliers. And then you’re right to point out our existing UR platform, but that today is predominantly used as the points redemption portal. So there is a huge opportunity to capture a greater share of our customers’ spend on travel, which is $140 billion on and off of. So in addition to capturing the full economic value of the existing redemptions on the platform, we also have an opportunity to really turn it into a great place for our customers to book travel.

Betsy Graseck — Morgan Stanley — Analyst

Okay. But still focused on the card space as opposed to moving into other parts of your relationship with consumers?

James Dimon — Chairman of the Board and Chief Executive Officer

It’s consumer. This thing of it is consumer.

Jennifer A. Piepszak — Chief Financial Officer

There’s no reason it have to be card only.

James Dimon — Chairman of the Board and Chief Executive Officer

Jen mentioned a number, like more than 30% of travel expense goes through our cards. Something like that. And so we want to give a far better experience to our own customers when it comes to what we offer them through travel. You’re right, ultimate rewards always does a good job, but why wouldn’t you try to double that over time or triple it.

Jennifer A. Piepszak — Chief Financial Officer

And we think we can do a better job for their existing clients and suppliers. So it won’t just be about Chase customers.

James Dimon — Chairman of the Board and Chief Executive Officer

Exactly.

Betsy Graseck — Morgan Stanley — Analyst

Okay. And then the follow-up question just on the technology budget increasing, I mean, I know this comes after a year of being somewhat stable year-on-year. And just wanted to dig into the comment we made on the page around data analytics, cybersecurity and artificial intelligence capabilities. Again, you’ve been a leader in this for a while. So the question is, where is the white space that you’re moving into? And can you give us a sense as to how important this is for some of the expansion that you’re doing geographically in U.K. digital and some of the European footprint that you’re expanding into?

James Dimon — Chairman of the Board and Chief Executive Officer

So first of all, cyber, what we’re going to do, we have to do whatever it takes, and we are going to do that in everything we do. But you mentioned, we’ve built brand new data centers pretty much around the world, which are a lot more efficient. They’re going to be effectively — they’re not cloud-based, but they have all the cloud technology, etc., for our own private cloud. We’re moving other stuff to the public cloud. We’re refactoring applications to get there. We’re re-doing all the data. You all know that issues with data is not good, things were bad. But data has been always different in accounts. If you’re trying to build these data lakes, you can use AI, machine learning better, and it all do haste. The cloud is real, the cost is real, the speed is real, the security is real, the AI is real, the machine learning is real. So every single business and was every single meeting we go through we’re talking about what are we moving to the cloud, whether it’s internal or external. Whether we’re adding AI machine, are we getting the data analytics right, and it is global. And we don’t spend that much time on it, but every single business is doing it. You have a tremendous amount of AI being used in Asset & Wealth Management or CIB, in trading, in commercial banking, prospecting, and it’s literally the tip of the iceberg. Whatever we say today, 10 years from now would be probably 50 times more than we’re doing today. And I would spend anything to get it done faster.

Operator

Our next question comes from the line of Ken Usdin with Jefferies.

Jennifer A. Piepszak — Chief Financial Officer

Hi, Ken.

Ken Usdin — Jefferies LLC — Analyst

Hi, thanks. Good morning. A question on capital return and capital usage. In the deck and in your press release you mentioned that you’re looking to get back into more return of capital. You mentioned, $4.5 billion net and there is still the net income test. And I just wanted to ask you to kind of walk us through how you think about — how do you think about full usage of that $4.5 billion? And then how do you think forward vis-a-vis the comments we just talked about with regards to potential external opportunities? And what’s the best use of that incremental capital given that you still have a healthy amount sitting there?

Jennifer A. Piepszak — Chief Financial Officer

Sure. So we always start in the same place, which is we would much prefer to do the things that Jamie has been talking about than to buyback our stocks. So we would much prefer to deploy it to organic growth or acquisitions. Having said that, we do, as you point out, have significant excess capital at this point.

When we look at the first quarter, the Fed capacity was defined by the trailing four quarters of profits. And so when you back out our dividend, that’s where you get to the $4.5 billion. So that is the capacity that we had for this quarter, and we’ll do up to that amounts, obviously. I don’t know that we’ll do the full amount, but we’ll certainly do — obviously can’t to more than $4.5 billion. And then, we’re certainly hopeful that we can go back to the BAU under the FCB framework beyond the first quarter as we think about buybacks, but we’ll wait to see what the Fed said at the end of the first quarter.

Ken Usdin — Jefferies LLC — Analyst

Okay, great. Thanks.

James Dimon — Chairman of the Board and Chief Executive Officer

It’s easy to manage your capital down to the 12% or whatever we said. In that regard, we have been getting permission from the Fed. They don’t imply, that’s what they could do. That’s the way it should be done eventually one day.

Ken Usdin — Jefferies LLC — Analyst

Yeah, understood.

James Dimon — Chairman of the Board and Chief Executive Officer

The only other thing I would to point out is that, we’ve been consistent at two times tangible book with our earnings power and dividend and all the stuff like that, it still makes sense to buy back stock. But that diminishes every point 2.1 and 2.2 or 2.3, we would much rather use our capital to grow organically or inorganically.

Jennifer A. Piepszak — Chief Financial Officer

Yes. I mean we’ll always look at the effective return of us buying back our stocks for our remaining shareholders. And if we think it makes sense relative to the alternative, we’re going to keep doing it.

Ken Usdin — Jefferies LLC — Analyst

Yeah. Consistent with what you’ve said in the past. Thanks. And just a question on the card business. You mentioned, how much of that spend goes through Chase, and just your — given that we still have some uncertainties with regards to a true return to open, your card segment revenue yield actually did improve a little bit. Just wondering if you can kind of help us just think through, just the pushes and pulls you see on the card business with regards to your expectations of spend improving, balances improving and competition underneath? Thanks.

Jennifer A. Piepszak — Chief Financial Officer

Yeah, so competition remains very, very strong. As it relates to the revenue yield, it’s a little bit of noise there because balances are down so much and that’s what that’s derived from. So there’s a little bit of noise there. Importantly, we do — if GDP get back to 2019 level by the middle of the year, we expect spend to continue to recover and perhaps significantly so in the second half. As it relates to travel, whether it’s the second half of ’21 or ’22, we are confident that our customers will continue to travel and there is pent-up demand I’m sure for travel. And so we are excited about those opportunities whether they come you know in ’21 or ’22 or beyond.

James Dimon — Chairman of the Board and Chief Executive Officer

And we take very seriously the new entrants like the Goldman Sachs card and there are bunch of other folks who are doing similar things that we expect to see more of that.

Operator

The next question comes from Glenn Schorr with Evercore ISI.

Jennifer A. Piepszak — Chief Financial Officer

Hi Glenn.

Glenn Schorr — Evercore ISI — Analyst

Hello there. Thank you. So I think it’s good time of the year to get your mark-to-market on — your thoughts on the competitive landscape. And I know every business is competitive, but I’m more curious on the new side of competitors and maybe I’m talking more about the consumer and commercial banking right now, but between all the neo banks that either want to pay much more than you guys on deposits or charge no fees or the buy now pay later models, or things where you also even play in banking as a service in trying to provide banking products to big technology companies with big client footprints, I’m most curious to see is this just normal evolution and not changing things or is there something bigger going on here that you want to comment on? Thanks.

James Dimon — Chairman of the Board and Chief Executive Officer

So, I’m going to — in the commercial bank there is probably less than you think. I do think they are alternative credit providers, but we just do lot of things for our clients, they can — co-investment banking, FX, swaps, cash management, custody, asset management, etc. So it’s slightly different. I get consumers telling me this, we wrote in the Chairman’s letter years ago that Silicon Valley is coming. And I think it’s just more and faster and better and quicker and we have to just be very conscious of that, includes pay now pay later and we have some of the products ourselves, but our job is to make sure we use our unbelievable strength in client base and capability. And then Gordon always points out, we have that kind of products there, our goal is to keep it simple, clear, basic, what the customer wants, just to deliver more and better. And so we’re quite conscious. And then I would also add by the way, it’s not just that we’ve — the team looks at Ant Financial and Alipay and all these other competitors. I expect one day, you are going to see other big foreign banks back here again, including the big Chinese banks, the biggest ones are bigger than us, and that may be five years or 10 years out, but we better be thinking five years or 10 years out. And so — they are all coming. We were comfortable, but we’re still exercising and taking our vitamins, okay.

Jennifer A. Piepszak — Chief Financial Officer

And as a note, even our investments are growing as much as we are, because we’re very well aware of it.

Glenn Schorr — Evercore ISI — Analyst

Fair enough. Keep taking those arguments. Maybe along the same lines, I think you’ve spoken about the power that the data of your own client footprint and franchises have. I’m just curious we haven’t heard that much lately about what you’re collecting, how you can use it, how you can use it to enhance the customer experience, accelerate growth, you have all this at your fingertips and people talk about data as being the new gold, I’m curious on how you’re thinking about it right now?

James Dimon — Chairman of the Board and Chief Executive Officer

Yes, yes, and yes. That’s all we’re going to tell you. I mean I talked about how important AI is obviously. The AI data directly related and some of it gets used very well, but if you sat down some of it doesn’t get used well. We have restrictions, far more restrictions than some of our Silicon Valley competitors, but still there are ways to use our data to do a better job for our clients. And we do a tremendous amount of red in marketing risk, fraud, cyber, you name it and we use a lot of that — like lot of that stuff also protects our clients in cyber.

Operator

Your next question comes from Mike Mayo with Wells Fargo.

Mike Mayo — Wells Fargo — Analyst

Hi. I’ll ask my question and then go back in the queue. I guess I missed your Investor Day. We have four slides to talk about that I guess. If your capital cup, just run us over, maybe your expense budget — run us over too. I mean spending is certain, returns are uncertain. So it seems like there is more questions this year than — in the past you did get positive operating leverage last year during the pandemic. So yes, you’ve earned the right to go ahead and spend more, I think most people would agree, but still there is so many questions. So I’ll just ask on CCB, looks like Slide 16, you mentioned going to all 48 states by mid-2021, I didn’t really get all of that. So what — how many states have you been in? And by the time you get to 48, how much spending is that, what’s the game plan, what’s your plan with branches, others are shutting branches after the pandemic, you’re expanding. If you could just give some color on that or if Gordon’s on the call, we can hear from him to.

James Dimon — Chairman of the Board and Chief Executive Officer

Gordon is not, but — so we started this a while back to explain the branches and stuff like that. We are still — we are closing plenty of branches. So if you look at what we are doing, I forgot the number, I believe we closed like a 1000 in the last four year, five years and we’ve opened like a 1,000 something like that, but — and I think we did bank when JP Morgan deal we were in 21 states, 23 states. And when we started the expansion, originally, we were very conscious that the world use less branches, the shape of the branch is differently and we made hub-and-spoke and always testing new things and stuff like that, but we still have almost a million people today who visit branches. And that is down, but it’s a million people a day. I forgot the number, 60% to 70% of accounts are still open in branches, small businesses still need branches and the new branches that we opened in Boston, Philadelphia, DC, they have been doing quite well. And the shocking thing is doing quite well in card, consumer, investments, small business. So as we go to all the other states, we just want to be and we know we have to have certain size. We are not going in any state just to plant a flag, that will be kind of waste of time. We look at the major markets, number of people already know us through Chase and stuff like that. And so we’re optimistic that the strategy will pay off and it will enhance our businesses, our capabilities. And other things, I’m not going to tell you because it is very competitive. I think we’ve shared too much with our competitors in the past, so I’m going to shut myself up a little bit.

Jennifer A. Piepszak — Chief Financial Officer

Mike, I can just add a little bit of color on the numbers. So we had said that we were going to open up 400 new branches in market expansion. So we have done 170 so far. Importantly, in 2020 we did fewer than 90 and in 2021 we’re going to do 150. And so of course we — you know buy 2022 or 2023 that’s going to start to sunset. So there are in the numbers, multi-year investments that will — they’re ramping maybe in ’21, but they will ramp down. Now that will obviously give us capacity to reinvest those dollars, but we have a lot of capacity within the numbers you see on the page to continue to increase investments without necessarily the absolute number going up. In tech as an example, 10% or 20% of that number in any given year is completed. So that gives us more dollars to reinvest. And then the only other thing I’d add on branches is this like the franchise value that comes with opening up these branches in new states is extraordinary and I think underestimated because it gives us the ability to do state and municipal business that we wouldn’t have otherwise been able to do. So it’s not — it’s not just about consumer banking.

James Dimon — Chairman of the Board and Chief Executive Officer

And it gives me a chance to go to North Dakota, which is the only state I’ve never been in. Believe it or not, we always do a lot of middle market and credit card in North Dakota. We just didn’t do consumer banking. So I do, the second when I’m allowed, I am on my way to like this marker [Speech Overlap] New Head of Investor Relations, who is sitting in this room right now, Reggie Chambers, I’m sure you’ll get to know, this was part of what he did for the Sun Belt, which is the all the branch expansion, but I’m going to restrict him in how much he can tell you, but — and including looking at different formats. We’re not blind, we make sure that you have — the world changing in digital all that so — and we can very quickly — it just so you know I’ve got the number changed the fleet. Like if you said, you’ve got the world changing more rapidly, we’re completely comfortable that in a five year period we can dramatically reduce the size of the fleet or the cost of the fleet etc. while serving clients.

Mike Mayo — Wells Fargo — Analyst

So just kind of like what you did with commercial bank in a few years back going to every state, I guess, but so 48 states where were you say a year ago or three years ago, just to give final context to that?

James Dimon — Chairman of the Board and Chief Executive Officer

48 states, three years ago. By the way commercial bank same thing, we talked about expansion. So when we bought WaMu, it took years. But we said we’re going to do $1 billion in the WaMu states, which is mostly California, Florida, Atlanta, so we got, well, we’re very close to hitting that, I think that number is like $908 million this year or something like that. I told the teams we reviewed it yesterday that when we hit a billion, I want to send a case of really expensive wine to guy called Steve Walker, who do it for us and [Indecipherable] like great bankers, great capability and stuff like that. We were doing $400 million of investment banking business when we did the Bank One deal with J.P. Morgan through the commercial bank. We set a target of $1 billion, then $2 billion, then $3 billion, we exceeded $3 billion, because I think we did $3.5 billion. The new target is $4 billion. It’s now in 25% to 30% of domestic US investment banking which include DCM, ECM, M&A through that network and the Investment bank is — the commercial bank expanded into healthcare, technology, and we have a couple of the areas we’re going to be rolling out soon. So these expansions really makes sense. They pay for themselves, they are relentless, they are hard to do.

Mike Mayo — Wells Fargo — Analyst

Okay. I’ll re-queue.

James Dimon — Chairman of the Board and Chief Executive Officer

And remember the commercial bank generally need branches. It’s very hard to — we’ve done it, but it’s very hard to build the quality business, without a retail branches when your commercial bank. But you will see very few commercial banks that don’t have retail branches.

Operator

Your next question comes from the line of Brian Kleinhanzl with KBW.

Jennifer A. Piepszak — Chief Financial Officer

Hi Brian.

Brian Kleinhanzl — Keefe, Bruyette & Woods — Analyst

Hey, good morning. Just a quick question on the expense outlook. I know that there is a small piece in there related to the workforce optimization. But I guess taking a broader context as we get through COVID-19 and move to the post COVID-19 world, the general thought process was that there would be this big expense save opportunity coming from that, work-from-home environment, but it doesn’t really show in your expense outlook. Is that something that you didn’t expect to see beyond 2021, is this step down expenses?

James Dimon — Chairman of the Board and Chief Executive Officer

But in the big picture, our people expense is $33 billion, our real estate expenses is I must say $3 billion. So, yeah — and I do think we could be much more efficient than that, but I don’t think it’s like a game changer.

Jennifer A. Piepszak — Chief Financial Officer

And we can’t move our footprint that quickly anyway, so we do — we do have time here to make sure that we do it really thoughtfully.

James Dimon — Chairman of the Board and Chief Executive Officer

What Jenny is thinking about moving the financial part that is Florida.

Jennifer A. Piepszak — Chief Financial Officer

Hawaii, Hawaii that’s right.

Brian Kleinhanzl — Keefe, Bruyette & Woods — Analyst

And then just a follow-up, maybe on the international thoughts for the billion hopes of additional revenue on the international, if you could just give a update on how that’s tracking so far?

James Dimon — Chairman of the Board and Chief Executive Officer

A billion what?

Brian Kleinhanzl — Keefe, Bruyette & Woods — Analyst

On the international revenue expansion that you were looking for.

James Dimon — Chairman of the Board and Chief Executive Officer

Well, first of all investment Bank is expanding — everywhere as best we can and so is asset management. And we’ve always feel that China and stuff like that — the commercial bank started international expansion effort to cover company’s overseas that we do business with here that we’re not covering and is doing fine, it’s mostly expense right now. We added bankers and products and services and legal and compliance and we didn’t add — we’ve been adding client as we’re quite happy with it. I should point out that we just had the best year ever in Asia. I think it was up like 20% or something like that so and Asia is still will be one of the fast growing markets in the world. So our — and that’s kind of country by country to make sure we get that right.

Operator

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

Jennifer A. Piepszak — Chief Financial Officer

Hi Gerard.

Gerard Cassidy — RBC Capital Markets — Analyst

Hi Jennifer, hi Jamie. Can you guys share with us, obviously there has been a change in the administration and in the Senate, and a number of regulatory body heads are going to be replaced this year including the OCC and the Consumer Protection Bureau. Can you guys give us some color what you’re thinking about what may change from a regulatory standpoint with different political party controlling Washington now?

James Dimon — Chairman of the Board and Chief Executive Officer

Yeah, our focus is always the same. We’ve got 60 million US clients, we’ve got 6,000 investment clients around the world, we got — we run this coming to serve clients, communities, hospital, we financed $100 billion to states, cities, schools, hospital this year. That’s what we do, obviously we want to satisfy all of our regulators. So I do expect that there’ll be new set of regulators, have a new set of demands, some we agree with. We want to do a better job in climate for the world, we want to be more green, we want to help the disadvantaged, we rolled out an enormous amount of programs for racial quality and things like that. So, yeah, but there’ll be tougher that’s life, it is life around the world. We’re going to — we have to deal a whole bunch new regulators, which we’re trying to satisfy and the ECB etc. And so I don’t think things will change or like that much and competitively everyone is in the same kind of boat. And so it will be fine. We want the new President to be successful.

Gerard Cassidy — RBC Capital Markets — Analyst

And then following up Jennifer. You talked about on page 17 of your slide deck, the issue with deposits and the marginal benefit of these deposits and you guys are wrestling with this issue, can you share with us and you already have talked about the branch expansion in all 48 states, continue with states, how is this going to be managed as best you can over the next 12 months to 24 months, because obviously long-term you want that branch expansion, but simultaneously as you’ve pointed out, you may be getting a negative ROE if you don’t get relief on the SLR. And is there a chance that you will get that extension on the SLR from the regulators?

Jennifer A. Piepszak — Chief Financial Officer

So I’ll start with, we certainly remain hopeful that we’ll get the extension. Importantly, as we think about branch expansion near term rate headwinds we certainly consider that, but at the margin there not a factor given the long-term franchise value associated with the branch expansion. And the fact that it’s not just about deposits for any one consumer anyway because we have the opportunity to have a much broader relationship with them and all of that is factored into the branch expansion. But we do consider in the analytics there the near term headwinds from rates, but there is a steady state number which is more of a normalized level of rates. So it doesn’t — at a margin it might change some decisions around marketing, but it doesn’t have a big impact on us.

James Dimon — Chairman of the Board and Chief Executive Officer

The bigger decisions on that which we have a lot of leeway on is out of the investment bank. It’s repo, deposits, corporate clients, trade finance, all those other things. So the — this is managed very, very closely. Remember GSIB uses one of — say 20 constraints we managed by business, by product, by area, by region, by –.

Jennifer A. Piepszak — Chief Financial Officer

Yeah, and we bring it up. Obviously it is an issue for us in the near to medium term should we not get the extension and it’s one that’s important for people to understand, but we bring it up more so because it should. Another example of where lack of coherence around these rules can have an impact, not just on JP Morgan. So we don’t bring it up just because of the impact on JPMorgan. We bring it up because it is perhaps one of the better examples of the need for recalibration. You have to have the right incentives in the system for it to work through time and we’re just seeing that’s not the case.

James Dimon — Chairman of the Board and Chief Executive Officer

We were able to reduce deposits $200 billion within like months last time. So we don’t want to do it, it’s is very customer unfriendly to say, please take your deposits elsewhere. But, they do have a lot of these larger corporate client who have other options and bunch of deposits, but money market funds or something like that. So, we are mad. It is not — none of this is going to be an issue for 2021, folks. I mean fundamentally, it is just how we were a company. And even if that temporary relief goes away, and I’m always against temporary relief, because for this exact reason, it creates another cliff, even if it goes away we’re fine. We just have to manage it much tighter.

Operator

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

Jennifer A. Piepszak — Chief Financial Officer

Hi Matt.

Matt O’Connor — Deutsche Bank — Analyst

Hi. Maybe a bit of a basic question, but why is markets revenue or trading so good still not just for you, but the overall wallet? I gather it to be investment banking business, the feeder businesses still very good, there’s lots of liquidity, banks have lots of capital, but of course rates are near zero, budget tight, volatility is low. I’ll take away some of the answers, but just conceptually it’s been very strong. It sounds like the hope is it will remain strong. What’s really driving it?

James Dimon — Chairman of the Board and Chief Executive Officer

There is $350 billion of global financial assets. $50 trillion — $350 trillion and probably in 10 years or 20 years that number is going to be $700 trillion. People have to buy and sell to hedge, finance, with money around the world, FX, currencies, our pension plans, obviously, volumes go up and down. Spreads generally over time has been coming down, what you would expect in a competitive market. So with the expansion of the balance sheets of the central banks around the world that Jen showed you, the $3 trillion or $4 trillion in the Fed, but globally it is $12 trillion. And companies have a lot of financing to do and then of course when you have higher DCM and higher ECM and higher M&A that also drives a lot of trading. And so you got to kind of put that all in the mix.

Matt O’Connor — Deutsche Bank — Analyst

And obviously, the question is how sustainable is this? And I guess one argument could be that technology has allowed banks to increase the velocity, you can talk about this for some time. Do you think that is a structural change that will benefit the businesses and specifically for you guys over a long-term time period?

James Dimon — Chairman of the Board and Chief Executive Officer

The way we look is we kept our share of what things we’re trying to find digitized. And the business has done a kind of the way we expected them to do it. So yeah, we think scale matters, technology matters and hopefully we think we can even grow our share. This is just trench warfare. So we expect to grow it, but we — I don’t — it’s a very hard to say what the base level is. And we thought that the base level kind of bottomed out sometime last year, but will stay as high as it stayed in 2020 then I doubt. It may not go back to what it was, it may be higher than that.

Operator

The next question comes from the line of Charles Peabody with Portales.

Jennifer A. Piepszak — Chief Financial Officer

Hi Charles.

Charles Peabody — Portales — Analyst

Good morning. I have a couple of questions related to fintech and unfortunately I was born in a wrong generation, so I need a lot of help. How dependent is the fintech world on the banking system? As I understand they lay on top of the pipes in the plumbing of the banking system. Do you have any leverage in a competitive world against the fintech world? And then secondly, I noticed that the OCC gave banks the green light to use public blockchain networks and stable points, can you explain how — what important that has to JPMorgan?

Jennifer A. Piepszak — Chief Financial Officer

Okay. Sure. So that guidance enables an offering of stable going on a public blockchain. So that doesn’t impact JPM point. JPM point, you should think about as the tokenization of our customer deposits. So it’s obviously very early, we’ll assess use cases and customers demand, but it’s still too early to see where this goes for us.

James Dimon — Chairman of the Board and Chief Executive Officer

And we’re using blockchain for sharing data with banks already and so we’re at the forefront of that which is good. The other question was about fintech. Look first of all, they are very good competitors and I pointed out to a lot of people you know, PayPal is worth $250 billion, Squares were done in $120 billion, Stripe is worth $80 billion, Ant Financial is down quite a bit now, but they are there. They are strong, they are smart, some effectively ride the rails. So we bank a lot of them. We help them accomplish what they want to accomplish. And you have — so my view is we’re going to compete, we’ll need to and we have to look at our — look inside about what we could do better or could have done better and things like that. So I’m confident we will be able to compete, but I think we now are facing old generation of newer, tougher, faster competitors who — and if they don’t buy the rails of JPMorgan, they can ride the rail on someone else. So you see I have told you before, everyone is going to be involved in payments. Some banks going to white label, which makes which makes fintech competitors white label the bank and build every sort of thing on top of it and we have to be prepared for that. I expect it to be very, very tough competition in the next 10 years. I expect to win, so help me God.

Charles Peabody — Portales — Analyst

Thanks. Do they need the banking system to complete their loop of service or can they work completely outside the bank?

James Dimon — Chairman of the Board and Chief Executive Officer

The most will do for now, but I think it’s a mistake because it’s going to be forever. The game of bank licenses, Utah is giving industrial licenses, like I said banks are white labeling. So it’s effectively the same thing. If a fintech companies uses a white label bank just to process their business, they’re basically a bank. What the regulator will do, I don’t know, but we have to assume that they’re going to do it. And that some don’t need — will find ways, not to use their banking system which they have done. I mean if you look at a whole bunch of the things they have used stuff around the banking system, which is fine, I’m not against that. The regulators may have a point of view about that one day, but I’m less worried about that, I’m going to worry about us.

Operator

Next question comes from the line of Andrew Lim with Societe Generale.

Jennifer A. Piepszak — Chief Financial Officer

Hi Andrew.

Andrew Lim — Societe Generale — Analyst

Hi, good morning.

James Dimon — Chairman of the Board and Chief Executive Officer

[Speech Overlap] our examples unfair competition, which we will do something about eventually. People who we will make a lot more on debit because they activate under certain things. The only reason they compete is because of that. People basically don’t do KYC AML and create risk for the system. And I can go on and on, but that part we will be a little bit more aggressive on, people who improperly use data has been given to them by client. Okay, so you can expect that there will be other battle that take place here.

Andrew Lim — Societe Generale — Analyst

Hi, sorry. It’s Andrew Lim here. So I just wanted to pick your brains on inflation, hopefully inflation metrics are picking up. If we look at rates, if you look at the inflation indicators and that’s like a lot of people are jumping on this replacement bandwagon, but I just wanted to see what you are seeing on the ground in a real world as to how this might be manifesting itself even in commercial banking or in investment banking in terms of like the month, products or volatility. Is that something that you see as a theme developing?

James Dimon — Chairman of the Board and Chief Executive Officer

I mean look, we don’t have that much more insight than you do, you do see signs witnessing in commodities and certain products and consumer goods and stuff like that, it’s hard to tell that supply lines that can’t keep up with demand or you have long-term trends. China is no longer ending the world. That can change inflation. I think — and we looked at — Jenny, can give you the numbers, always using implied curve. I think the best way to think about it is, I think this should be a much bigger conversation next year because we have good growth. I think we have good growth and part inflation, but that will become part of conversation, how bad, what I’m going to do and things like that. Just so the risk management thing, you got to build into your mindset that you’ve got to look at there has been a possibility. So I think a year ago, people have said not possible before COVID and now because the world has done $12 trillion of QE and something like $10 trillion to $12 trillion of fiscal stimulus, you’ve got to put on that thing a scenario where you have higher inflation and not 2%, that would be great it is like Goldilocks, but like 3%, 4%. Just so you understand what the risk is that and how we manage through that. It is not the worst thing in the world by the way, the worst in the world is no growth.

Andrew Lim — Societe Generale — Analyst

Great, okay. And for my follow-up question, you talked about how you resolved the issue of excess deposits by pricing way about $200 billion of those. So I’m just wondering why you don’t do that now or is the quantum of the problem that much bigger?

James Dimon — Chairman of the Board and Chief Executive Officer

We don’t have to.

Jennifer A. Piepszak — Chief Financial Officer

We don’t have to. It’s also — it is slightly different in the sense that there was capacity in the system then to absorb it. This is an issue for everyone. So that could be a challenge. We can’t make them go away.

Operator

Your next question comes from Betsy Graseck with Morgan Stanley.

Betsy Graseck — Morgan Stanley — Analyst

Hi. Just a couple of quick follow-ups. One, Jamie, on the topic of payments and competition, Libra’s — Facebook’s Libra is back out there getting re-branded as Diem and you know their goal is basically to be global payment network or at least to create one. And I’m wondering does the OCC stable coin approval do anything for you, you already have JPM coin obviously that’s internal to your own footprint, but I’m wondering is there any benefit of the OCC stable coin approval, is there anything with regard to the Libra competition that’s coming that would drive changes that you’re making in your own platforms?

James Dimon — Chairman of the Board and Chief Executive Officer

I don’t think so. I don’t think so. We expect stable — obviously there is this talk about several banks having digital currencies and stuff like that. Their currency is digital, we move around the world. It’s in central banks where it will move by electrons and stuff like that. So I do expect that stuff is coming and it may not change our world that much, but some of the competitors we want to do, but they want to be in payments. They want the payments data, they want to move the money. Again, it’s going to be a regulatory issue about what that means. [Speech Overlap] not unfair. That’s the only thing, I can point to. As always, we can do it safely and competition can do then it’s hard to argue that’s unfair.

Jennifer A. Piepszak — Chief Financial Officer

And as I mentioned earlier, you might have missed it, but it does not impact JPM coin, JPM coin is different. You should think about that as tokenizing deposits to make payments easier for client.

Betsy Graseck — Morgan Stanley — Analyst

Right. Yeah, no, I totally get that. I was just thinking hey, if OCC is allowing stable coin maybe they’re trying to help move the center of this back into the banking system. That was kind of question. The follow-up was just on, back to Slide 14 and the other purple area, were the non-technology expenses are moving up year-on-year and part of that is the $30 billion commitment to the path forward initiative. And Jamie, I wanted to understand, like how you’re thinking about that $30 billion, what kind of time frame is that over and where that money is going? I mean we put a note out as you know, this past quarter on housing and on housing inequality and wondering how you’re thinking about how you’re going to be investing that $30 billion in kind of output that you want from it?

James Dimon — Chairman of the Board and Chief Executive Officer

So we believe that inequality is a real problem. And people don’t always know but 40% of Americans make $15 an hour or less, which is $32,000 year something like that 50 million don’t have employment and people at the lower end are dying quicker than they die before. So first time in our lifetimes, our grandparents lifetimes Americans mortality is getting worse, not better. And society have to fix these problems, now we need healthy growth, but you also need education, infrastructure, health care, and for doing the racial problem has been around for hundreds of years and with all the things that took place after even after the civil rights, we haven’t made the progress we should have made. So we — and fortunately, lot of other people and companies take this really seriously. How can we help all of American citizen in particular the black community who has been left behind for so long. So our effort is five years, the $30 billion includes, exact numbers we published $8 billion of mortgages to lower-middle income neighborhoods, black neighborhoods primarily black neighborhoods it includes affordable housing, building affordable housing includes billions of dollars for entrepreneurs of color, it includes education.

We recently went over a million secure card, which is what we expected to do because these are cards that have all the benefits of banking ATMs, online bill pay, for $495 a month for lower-paid individual who are doing more, more education. Of those 400 branches we are opening, 25% or more will be in LMI neighborhoods. We are financing MBI’s and CBFI’s. So it’s a serious effort, it costs hundreds of millions dollar a year. There are hundreds of people work here. So we have a debt how many loan we are going to put in this neighborhood and how many loans we are going to put in that neighborhood and we are going to report it that to you. We’re not going to — and we — we’re doing work, we don’t mind things not working, but it will change courses and stuff like that. And so, and obviously it includes hiring more open black community training here and stuff like that. So I think these efforts — in my own view is that the corporate world have to do this, if you want to fix it. It’s not going to happen. We need good government, it is not going to happen just with good government. The jobs at the local level. Unemployment sell branches 20% for ’20 is still high. The kids didn’t have computer to go home and do their Zooming and schools didn’t have them. And then fortunately, a lot of philanthropies, including my wife, sent a lot of computers to people there, but we have to do something about this. We are always so forth. And in my view we should do it for more purposes of loan that would be sufficient, but for commercial purposes do it. If all American doing better, outcomes and more jobs and healthier people, less crying, less prisons, less drugs, and so it’s time to get our act together and again I think business has to work in collaboration with government to do it. I just don’t think it is going to happen alone. It is not going to happen just by yelling at people. The successful companies do not create the slums, but they can help fix them.

Operator

Your next question comes from the line of Mike Mayo with Wells Fargo Securities.

Mike Mayo — Wells Fargo — Analyst

Hi, just following up more on the market expansion, in commercial banking, could you just drill down deeper on the international part of that expansion and what’s left to be done in US?

James Dimon — Chairman of the Board and Chief Executive Officer

I think — I’ll answer US, but I think the US — again, we are not going to share so much information from now on. But it’s the same thing we looked at all the major SMSAs with the middle market companies, we are doing deep dive in how many there are, and I think we’re now in 75 of the top 75 roughly. So that expansion is now just going deeper not maybe more at this point. They’ll be helped little bit by the retail expansion. I think overseas, I just don’t the number of my head, but you’re talking about that will eventually cover, and I could be dead wrong in this, but 1,000 more clients overseas. These are headquarters or subsidiaries of foreign companies that we probably do business with, headquarters subsidiaries in US and we could share more of this with you later down the road. And tell Charlie, he can’t imitate me on this one.

Jennifer A. Piepszak — Chief Financial Officer

Mike, I would just add just from an expense perspective it is important to remember on the international front that we’re riding existing rails that are already there in the CIB. So we can — this is an extraordinary opportunity to hire bankers and we already have the infrastructure.

James Dimon — Chairman of the Board and Chief Executive Officer

And we usually jelly bank in the US subsidiary or US headquarters.

Jennifer A. Piepszak — Chief Financial Officer

So it’s not the list you might think from an expense perspective.

Mike Mayo — Wells Fargo — Analyst

Okay. And then just a follow-up on the other questions that have been asked related to fintech. Jamie, you said you’re going to win, right. But based on valuations of the PayPal, Stripes, and Visa, Mastercard anything that fintech related. I mean they trounce valuation of your stock. I think the market saying that others are going to win. So how is JPMorgan is going to — I mean you said Silicon Valley is coming, what that was like six years ago or something and then each year we say yeah we missed it, we missed it, we missed it well –?

James Dimon — Chairman of the Board and Chief Executive Officer

Mike, we never said we missed it. We’ve been doing fine in the last five years, but I do agree with you, I gave that to the management team. My whole operating committee a little deck that show Visa 500 billion, Mastercard 350 billion, PayPal 220 billion, Ant Financial 600 billion, Tencent 800 billion, Alibaba — trillion, think what Google, Apple, Amazon, you go on and on but absolutely we should be scared chillers about that.

Mike Mayo — Wells Fargo — Analyst

So how are you going to win? I mean, just like –.

James Dimon — Chairman of the Board and Chief Executive Officer

I’m not going to tell you. But we have probably resources, a lot of very smart people. We just got to get quicker, better, faster and that’s the — which we do, we’ve got — we’ve done an exceptional — looking for what we’ve done, you would say, we’ve done a great job. But other people done a good job, too. Some have monopolies virtually, it is a whole different issue, but –.

Operator

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

Gerard Cassidy — RBC Capital Markets — Analyst

Thank you. Hi, just one follow up. Obviously, Jennifer, you pointed out that your mortgage production revenue was quite healthy in the quarter and you’ve penetrated the correspondent champ. Can you guys share with us on the servicing side, with the new — with the forbearance programs that the government has put into place, is that a positive or negative for servicing revenue as we go forward?

Jennifer A. Piepszak — Chief Financial Officer

I don’t we know exactly how to answer it, Gerard. All I can say is that when we give customers the help that they need, if that’s what the bridge them to the other side of this thing for sure it is good. So I don’t know precisely what the math is, but there’s no doubt it’s good if it helps get our customers to the other side. We service their mortgage.

Gerard Cassidy — RBC Capital Markets — Analyst

In the past when loans go into delinquency obviously and there is — in a mortgage-backed security, obviously you guys have to advance the funds and stuff, but the deferral loans are not in that — I’m assuming they’re not in that category. Is that correct?

James Dimon — Chairman of the Board and Chief Executive Officer

Yeah. You are absolutely right. Cost of servicing a defaulted loan is like 10 times considering a non-defaulted loan. So Jen is right. Although we don’t prudently default, there is probably a small benefit.

Gerard Cassidy — RBC Capital Markets — Analyst

Okay. Okay.

Jennifer A. Piepszak — Chief Financial Officer

I got you. We are talking about advancing the servicing cost. Got it.

James Dimon — Chairman of the Board and Chief Executive Officer

Okay, thank you. I appreciate it.Folks, thank you very much for spending time with us. Hope to see all soon.

Operator

[Operator Closing Remarks]

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