JPMorgan Chase & Co JPM CEO Jamie Dimon on Q1 2020 Results

Thank you, operator. Good morning, everyone. As you heard, Jamie is with me on the call, and I know I speak for the entire company when I say we are just thrilled at your fact. Before we get into the first quarter performance, you want to start by recognizing that this is an extremely challenging time for all of us, and our thoughts are with those most affected by COVID-19, particularly those on the front lines of the crisis. The presentation this quarter is slightly longer to address a few key topics as we navigate this environment, and as always, it's available on our website, and we ask that you please defer to the disclaimer at the back. Starting on page one, I'd like to highlight some of the ways we're responding to COVID-19 at the firm. We are focused on being there for our employees, customers, clients, and communities in what is an unprecedented and uncertain environment. And while we don't know how this will play out, we will be transparent here about our assumptions and what we know today. Our number one priority is to continue to provide our services in an uninterrupted way, but also providing a safe work environment for our employees. We're incredibly proud of all that our firm has been able to do over the past few weeks, so I'll just hit on a few examples here. We've mobilized our workforce around the globe to work remotely, including operations and finance teams, for oil and risk managers, bankers, and traders, ensuring they have the right tools to work effectively. Currently, we have about 70% working from homes across the company, and for many groups, that number is well north of 90%. And for those who still need to go into the office or into a branch, we are taking extra precautions and being extremely mindful of their safety. And we're providing assistance in other ways too. For instance, we're offering free COVID-related medical treatments to us employees and their dependents. On the consumer side, approximately three-quarters of our 5,000 branches have been open all the time with safety procedures, and many with drive-throughs. And the vast majority of our over 16,000 ATMs remain accessible. And while our call center capacity has been challenged, we clearly activated resiliency plans to address customer calls seeking assistance, and we put in place new digital and self-service solutions in record time. And while wait times have been extended, we're making good progress reducing them. For our customers who are struggling financially during this time, we're providing relief such as a 90-day grace period for mortgage, auto, and card payments, as well as waiving or refunding certain fees. We continue to support our customers and clients by providing liquidity and advice during this challenging market environment. And in the month of March, we extended more than $100 billion of new credits to wholesale clients, through more than $50 billion on their revolvers with us, and we approved over $25 billion of new credit extensions for clients most impacted. And for our small business clients, we're actively supporting the SBA's Paycheck Protection Program. The numbers you see on the slide are as of April 12, and as of this morning, we have more than 300,000 in some stage of the application process, representing $37 billion in loans, and we funded $9.3 billion to businesses with over 700,000 employees. And to help the most vulnerable and hardest-hit communities, as an initial step, we've announced an $850 million loan program to get capital to underserved small businesses and nonprofits, as well as a $50 million philanthropic investment. Now turning to page two for highlights on our first quarter financial performance. For the quarter, the firm reported net income of $2.9 billion, EPS of 78 cents, and revenue of $29.1 billion, for a return on tangible common equity of 5%. While the underlying business fundamentals this quarter performed very well, we recorded a number of significant items all due to impacts from COVID-19, which I'll discuss in more detail later. But at a high level, these items are a credit reserve build of $6.8 billion, approximately $950 million of losses in CIB, largely due to the widening of funding spreads on derivatives, and a $900 million markdown on our bridge book. It might be an obvious point, but the quarter was really the tale of two cities: January and February, and then March when the crisis started to unfold. And with that, I thought it would be helpful to talk through some key metrics that highlight this dynamic across our businesses. So let's go to page three. Starting with card sales volume on the top left, in March, we saw a rapid decline in spend, initially in travel and entertainment, which then spread to restaurants and retail as social distancing protocols were implemented more broadly. While most spend categories were ultimately impacted, we did see an initial boost to supermarkets, wholesale clubs, and discount stores as people stocked up on provisions, but even that is now starting to normalize. And you saw similar trends in merchant services, as highlighted in the significant decline in brick-and-mortar spend excluding supermarkets, whereas e-commerce spend has held up well by comparison. In investment banking, in the middle display, it was a surge in debt issuance by investment-grade clients as the market remained open and clients' desire to shore up liquidity was top of mind. It was the largest quarter ever in terms of investment-grade debt issuance, led by JPMorgan. And in markets, volatility drove elevated trading volumes across products, most notably across rates and commodities, which at their peak were more than triple our average January trading volumes. And on the far right, the public growth accelerated meaningfully in March, most notably driven by wholesale clients as they secured liquidity and held those higher cash balances with us. At the same time, we saw accelerating loan growth, in particular driven by revolver draws. And finally, flows in AWM were meaningfully different in March compared to January and February. Long-term flows through February were strong positive across all asset classes, but this was more than offset by outflows in March. On the Swiss side, we saw significant net redemptions and flows into our government funds during March, which more than offset prime money market outflows. Onto page four, in some more detail about our first quarter results. Revenue of $29.1 billion was down $782 million or 3% year-on-year, as net interest income was flat to the prior year, each of the impact of lower rates offset by balance sheet growth and mix and higher CIB market-related NII. Non-interest revenue is down 5%, driven by the significant items I already mentioned, which were largely offset by higher CIB market-related revenue. Expenses of $16.9 billion were up 3%, driven by higher volume and revenue-related expenses, continued investments, and higher legal expense, all of which were largely offset by structural expense efficiencies. This quarter, credit costs were $8.3 billion, including a net reserve build of $6.8 billion, reflecting the impacts of COVID-19, and net charge-offs of $1.5 billion, in line with prior expectations. Now turning to page five, we have some more detail on the reserve build. Our net reserve build of $6.8 billion for the quarter consists of $4.4 billion in consumer, predominantly cards, and $2.4 billion in wholesale, which builds primarily due to impacts of COVID-19 as well as lower oil prices. This reserve increase assumes in the second quarter that U.S. GDP is down approximately 25% and the unemployment rate rises above 10%, followed by a solid recovery over the second half of the year. In addition to these macro assumptions, specific to each business, our consumer reserve build reflects our best estimate of the impact of payment relief that we are providing to our customers as well as the federal government stimulus programs. And then wholesale, the majority of the build is in sectors most directly impacted by COVID-19, such as in consumer and retail, and also in oil and gas. We expect other sectors to be impacted to a lesser extent if we avoid a prolonged downturn. We have also assumed that the stress in oil and gas continues, with WTI remaining below $40 through the end of 2021. Actually, after we closed the books for the quarter, our economists updated their outlook, which now reflects a more significant deterioration in U.S. GDP and unemployment. If that scenario were to hold, you would be building in the second quarter, and builds could be meaningfully higher in aggregate over the next several quarters relative to what we took in the first quarter. A primary unknown is the duration of the crisis, which will directly impact losses across our portfolios. But that being said, our consumer portfolio skews more prime than the industry average, and the effectiveness of government support, customer relief, and enhanced unemployment benefits, while uncertain, undoubtedly will act as a mitigant. And so, even though our losses will be material, we will be doing what we can to help our customers recover from this crisis and help our clients and businesses. Now moving to balance sheet and capital on page six. Our balance sheet, capital, and liquidity going into this crisis were incredibly strong, and importantly, allowed us to facilitate client needs in a period of stress. And that, combined with our earning power, is an extraordinary base to absorb the inevitable losses to come. For the quarter, we distributed $8.8 billion of capital to shareholders, which includes $6 billion in net share repurchases up to March 15th. Since then, we've dropped our buybacks, which is both a prudent decision at the time and consistent with what we always say, which is that we would prefer to use our capital to serve our customers and clients. This capital distribution, along with our earnings for the quarter, and this coupled with significant RWA growth, resulted in the decline in our CET1 ratio to 11.5%. On our RWA, which you can see on the bottom right of the page, the key drivers of growth were market volatility, which could subside over time, and more importantly, an increase in lending at this critical time for our clients. Going forward, in order to leverage our value to serve our clients, we are prepared to use our internal buffers, which may mean our CET1 ratio falls below our target range. And if necessary, we can also use regulatory buffers to go below our 10.5% minimum. It's worth noting here that an environment like this is precisely why we have the buffers in the first place. We currently also have capacity and intend to continue to carry the 90-cent dividend, pending board approval. And as you can see in the CET1 walk on the bottom left, it is a small claim on our capital base. And before we move on, just a moment on liquidity. Even with everything we facilitated, our liquidity position remained strong. And looking forward, remember that we have significant liquidity resources beyond HQLA, including the discount window. Now turning to businesses, starting with Consumer & Community Banking on page seven. CCB reported a net income of $191 million, including reserve builds of $4.5 billion. January/February saw a continuation of strengths across the business, but again, March showed a major shift in trends. And across our consumer segments, we saw a drastic deceleration in spend across all forms of payments and a decline in origination volumes, except in the mortgage refi market. And on the small business side, we saw significantly reduced inflows to merchant processing activity early, which pressured payment and fee rates as well as line utilization and increased demand for credit. Turning back to the results, revenue of $13.2 billion was down 2% year-on-year. In consumer and business banking, revenue was down 9%, driven by the profit margin compression, partially offset by strong deposit growth of 8% that accelerated in the quarter. Profit margin was down 56 basis points year-on-year and is expected to decline further given the current rate environment. Home lending revenue was down 14%, driven by lower net servicing revenue and lower NII, partially offset by higher net production revenue. And in card and auto, revenue was up 8%, driven by higher card NII on loan growth and margin expansion. Average card loans grew 8%, with sales up 4% over the quarter, driven by January and February activity. Expenses of $7.2 billion were up 3%, driven by revenue-related problems from higher volumes as well as continued investments in the business, partially offset by structural expense efficiencies. And lastly on this slide, credit costs included the $4.5 billion reserve build I mentioned earlier and net charge-offs of $1.3 billion, driven by card and consistent with prior expectations. Now turning to the Corporate & Investment Bank on page eight. CIB reported net income of $2 billion and an ROE of 9% on revenue of $9.9 billion. In debt capital banking, in the first half of the quarter, we saw continuing momentum from last year, but as the market environment stressed, we saw delays in M&A announcements and completions, postponement of new equity issuance, and increased draws on existing lines of credit. At the same time, the investment-grade debt market remained open, and we helped our investment-grade clients raise approximately $380 billion of debt in the quarter across a wide range of sectors. By contrast, the high-yield market was effectively closed, and high-yield spreads widened significantly. As a result, our bridge book commitments were marked down by $820 million. And here, it's worth noting our bridge exposure is about a quarter of what it was entering the 2008 crisis and is a higher-quality portfolio. As we go through this backdrop, DCM revenue of $886 million was down 49% year-on-year, largely driven by the bridge book markdown. IBC fees were up 3% year-on-year, and we maintained our number one ranking with 9.1% share. While equity advisory was down 22%, not only due to market conditions but also reflecting delays in regulatory approvals pushing out the closings of certain large deals. We did, however, complete more deals than any other bank this quarter. Equity underwriting was up 25% versus a challenging first quarter last year, and we saw strong activity in January/February before the market effectively closed in March. And debt underwriting was up 15% and an all-time record. We maintained our number one ranking with 9.5% share, up 90 basis points from 2019. Blending revenue was up 36% year-on-year, driven by the impact of spread widening on loan hedges. Looking forward, while a rapid recovery in the economy could produce a corresponding rebound in activity, we could also see significant downside risk to our forward-looking pipelines if the downturn is protracted. Now moving to Markets & Investor Services. Total revenue was $7.2 billion, up 32% year-on-year. It's worth noting that even before the crisis, as we said at Investor Day, markets performance was strong for the quarter. Then the growing COVID-19 concerns triggered a major correction in equity markets, significant widening in spreads, and a spike in volatility, leading to extraordinary government intervention and a substantial change in monetary policy, followed by a sharp decline in Treasury yields. Simultaneously, we also saw a drop in oil prices. This unique combination of events led to further increased client participation and record trading volumes in several products. Fixed income was up 34%, driven by much stronger client activity, most notably in rates and currencies and emerging markets. Equity markets was up 28%, on strength in equity derivatives driven by increased client activity. In terms of outlook, it goes without saying that it's too early to project this performance going forward. In fact, low rates and low economic activity may even be a headwind. However, we are in a strong position to continue playing a central role in ensuring orderly functioning of markets and serving our clients' needs. And now on the Wholesale Payments, the new business unit we're recording this quarter, comprised of Treasury Services, Trade Finance, and the merchant services business which was previously part of CCB. Wholesale Payments revenue of $1.4 billion was down 4% year-on-year, driven by recording the classification of merchant services as client-focused. On preserving liquidity, we experienced higher deposit levels in Wholesale Payments throughout the quarter, offsetting revenue declines from lower rates and payments activity. In Securities Services, revenue was $1.1 billion, up 6% year-on-year. Market volatility drove increased transaction volumes and deposit balances, which offset the impact of the market correction on asset balances. In Wholesale Payments and Securities Services, the tailwind from this quarter, like elevated deposit balances, may be relatively short-lived and more than offset by the impact of low rates and potentially lower transaction volumes if the crisis is elongated. Credit adjustments and other was a loss of $951 million, which was one of the significant items that I mentioned upfront. Credit costs were $1.4 billion, driven by the net reserve builds I referred to earlier. And finally, expenses of $5.9 billion were up 5%, driven by higher volume-related expenses and continued investments. Now moving on to Commercial Banking on page nine. Commercial Banking reported net income of $147 million, including reserve builds of approximately $900 million. Revenue of $2.2 billion was down 10% year-on-year, with lower deposit NII on lower rates and a $76 million markdown in the bridge book, partially offset by higher deposit balances. Gross investment banking revenues were $686 million, down 16% year-on-year compared to a record prior year. While we remain confident in our long-term target, we expect some softness from our pipeline, specifically related to M&A and underwriting. Expenses of $988 million were up 5% year-on-year, consistent with ongoing investments discussed at Investor Day. Deposits were up 39% year-on-year on a spot basis and increased about $40 billion during the month of March, with about half of that coming from clients drawing on their credit lines and holding their cash with us as they look to secure liquidity. And the loan portfolio was up 14% year-on-year, mainly driven by increases in C&I loans. In March, the C&I loans were up 26% as revolver utilization increased to 44%, which is an all-time high. The real estate loans were up 3%, and here the story remains largely unchanged. Strong origination in commercial term lending driven by the low-rate environment were partially offset by declines in real estate construction as we remain selective. Credit costs of $1 billion included the reserve builds I mentioned and $100 million of net charge-offs, largely driven by oil and gas. Now on Asset & Wealth Management on page 10. Asset & Wealth Management reported net income of $664 million, with a pre-tax margin of 24% and an ROE of 25%. Revenue of $3.6 billion was up 3% year-on-year, driven by higher management fees on higher average market levels and net inflows over the past year, and then in addition, record brokerage activity in March related to the recent market volatility. These increases were largely offset by lower investment valuation gains. Expenses of $2.7 billion were flat year-on-year, with higher investments in the business as well as increased volume and revenue-related expenses, offset by lower structural expenses. Credit costs were $94 million, driven by reserve builds from the impact of COVID-19 as well. Long-term net outflows were $2 billion, as the strength in January/February was more than offset in March. At the same time, we saw $75 billion in net liquidity inflows, driven by significant inflows into leading government funds in March, as I mentioned earlier. AUM of $2.2 trillion and overall client assets of $3 trillion, up 7% and 4% respectively, were driven by strong net inflows, partially offset by lower market levels. Deposits were up 9% year-on-year on growth in interest-bearing products. And finally, loan balances were up 11%, with strength in both wholesale and mortgage lending. Now into Corporate on page 11. Corporate reported a net loss of $125 million. Revenue was $166 million, a decline of $259 million year-on-year, primarily due to lower net interest income on lower rates, partially offset by higher net gains on investment securities. Expenses of $146 million were down $65 million year-on-year. And now, which turns to page 12 for the outlook. At Investor Day, we showed you the path to 2020, where we expected net interest income to be slightly down from 2019. And obviously, since then, the backdrop has changed significantly. Based on the latest info and what we know today, we expect to see further pressure from rates, partially offset by balance sheet growth and CIB market NII, which results in NII of about $55.5 billion for the full year. And just an idea for the second quarter, we expect NII to be $13.7 billion. On non-interest revenue, it's always difficult to provide meaningful guidance, and even more so given the current heightened level of uncertainty. But based on our best estimates today, we do expect to see headwinds in 2020 compared to 2019. In addition to the two significant items in the first quarter, these headwinds include a $3.5 billion decrease in non-interest revenue, all else equal, which is also due to the impact of rates, and it's the offset to higher CIB market NII, and therefore revenue-neutral. We also expect to see pressure on AWM and investment banking fees. And we now expect the jump to expenses for 2020 to be approximately $65 billion, largely due to lower volume and revenue-related expenses versus the outlook we provided at Investor Day. It goes without saying, all of this is market-dependent, and we'll keep you updated at future earnings calls. So to wrap up, the challenges we are all facing as the COVID-19 crisis continues to unfold around the globe are unprecedented. Although we don't quite know what the path will look like going forward, what we do know is that we will continue to be there for our employees, clients, customers, and communities as we always have been. And we have the talent, resources, and operational resiliency to do so. Our employees have proven that being resilient is not just about maintaining operations; it's also about culture, and that feels stronger than ever with our teams around the world working harder than ever to continue to serve our clients, customers, and communities. We've never been more proud of our people, and we simply can't thank them enough. And with that, operator, please open the line for Q&A.

Sure. So first of all, start with their payment relief and forbearance there. I'll start by saying that we have already refunded millions of dollars in fees. We've approved payment relief for hundreds of thousands of accounts across consumer lending, and we obviously expect that to be meaningfully higher through time. These pauses, foreclosures, and auto repossessions, and importantly, we've made the process easier for our customers through digital and self-service options that we built in record time. But in terms of what we're seeing, those are the numbers. They're still, as I said, relatively small compared to what we think we'll ultimately see. In mortgage, just to give you context, outside of customers asking for forbearance, which is just a little over 4% of our service book at this time, the April 1st payments of Fannie, Freddie, VA, and card routine payments, payment rates are down a bit but still strong. We've seen a slight uptick in late payments in auto, but the quality of these portfolios was strong coming in, as we've done in surgical risk management over the last few years, and that makes these portfolios more resilient. And then in terms of how we think about a significant government intervention, I mean, I think the ultimate effectiveness of these programs, which are extraordinary in terms of the direct payments or the enhanced unemployment insurance, the ultimate effectiveness is, I think, the biggest unknown, but it obviously is being able to reach people back to employment. And so, you know, we have assumed, you know, as best we could for our first quarter results, the impact of those programs as well as the ultimate impact on payment relief that we'll be providing for our customers. But that is, for sure, an unknown, and we certainly expect to learn a lot more about that in the second quarter.

Sure. So as you probably know, Erika, that the Fed made some changes there recently, which, as you say, puts us in a 50% bucket as we go below 10.5%, and we have a reasonable amount of room below 10.5% to remain in the 60% bucket. I would say that that was very helpful clarification from the regulators in terms of how we should think about using regulatory buffers, so that was particularly helpful. And right now, we are focused on serving clients and customers, and we've looked at a range of scenarios so we can ensure that we're managing our capital quite carefully. Jamie talked about an extreme adverse scenario in his Chairman's letter that we looked at, assuming large parts of the economy remain in lockdown through the end of this year. And in that scenario, CET1 drops to about 9.5%. And so, you know, we think we have, you know, significant room to continue to serve our customers and clients through this crisis, but we are managing it quite properly and looking at a range of scenarios so we make sure that we're prepared.

Yeah, oh, and then you give the base case, I'm sure. So Mike, as we close the books for the first quarter, just to give it context, we were looking at an economic outlook that GDP down 25% in the second quarter and unemployment above 10%. It's just important to note that that kind of gave you a frame of reference of how to think about it. But there's a lot more that goes into our reserving, including management judgment of some like world-class risk management and finance people, and also other analytics. And so that just kind of gives you a frame of reference. But we do think about a number of other scenarios that we should contemplate in reserving. And we also thought about the impact that, you know, what's our best estimate of the impact of these extraordinary government programs as well as our own Chase programs. Since then, and I noted in my prepared remarks, our economists have updated their outlook and now have GDP down 40% in the second quarter and unemployment at 20%. That's obviously, you know, materially different. Both scenarios though do include a recovery in the back half of the year. And so all else equal, and of course the one thing, probably the only thing we know for sure, Mike, is that all else won't be equal when we close the books for the second quarter. But all else equal, given the deteriorated macroeconomic outlook, we would expect to build reserves in the second quarter. But again, a lot will depend on the ultimate effect of the extraordinary programs and how effective they can be in bringing people back to employment. And we're going to still have a number of unknowns, I would say, at the end of the second quarter. But we're going to learn a lot through these next few months that will inform our judgment for second quarter reserves.

Sure, thank you. So we haven't gotten specific guidance, but it certainly makes sense that the Fed would want to look at a scenario like that. We have been, as you might imagine, staying very close to our regulators through this crisis so they can have a very good understanding of how we are managing things. And then in terms of SCB, in fact, we'll learn more about that in June. We've given our best estimates of SCB and the impact it will have on our minimums, and that is absolutely incorporated into our thinking about how we'll manage capital through a range of scenarios here. But we'll learn more from the Fed in June.

Yeah, we got, you know, that the range of outcomes probably have never been broader. And so as Jeanne said, we have, keep our, has been a good place for us to start in terms of one scenario. But we have looked at a number of different scenarios as how this may play out. And obviously Jeanne articulated, you know, what we think could be an extreme adverse, and we're prepared for that too. So I think the most important thing is that we're prepared for a range of outcomes and we'll learn more about SCB in June.

Sure. So on the investment securities portfolio, you know, managing the balance sheets in this rate environment is obviously a different dynamic. And with lower rates as well as the deposit growth that you met with the Fed's balance sheet expansion, you do see a large increase in our investment securities portfolio this quarter, which makes a lot of sense. Right now in terms of the balance sheet management, we are completely focused on supporting client activity. Our balance sheet is harder to predict right now, but we are prepared for a range of outcomes.

Sure. So it's a great question, Saul. So I would start by saying that we haven't absolutely seen the stress emerge as of yet. So I wouldn't necessarily use the term mechanistic, but I would say that what we took in the first quarter is our best estimate of future losses. It's also important to note that we don't reserve for future growth. And so future growth, you know, would all else being equal, the reserve build. So I wouldn't necessarily think of this as, you know, materially different because of the people we didn't actually really think about the impact of CECL relative to the incurred model. I mean, the regulators computed their point of view on that given the change in the capital rules where 25% is assumed to be the difference, but that's their view. And like I said, we did spend a lot of time thinking about it. And, you know, I would say that it is, you know, it is our best estimate of the losses that will inevitably emerge through the crisis. And it is, like I said, a reserve which of course is different under CECL. And so again, all else equal, you can think it was larger than it would have been under an incurred model, but you didn't really think about it that way. And it's impossible, of course, to know what judgment we would have applied under a different model.

Yeah. So like so many other things, you know, it is difficult to predict. I will say that early here in the second quarter we have seen a pause on revolver draws, but it could very well just be a lull. And so we're assuming as we think about our own capital plans that we will see revolver draws continue in the second quarter, albeit at lower levels than the first quarter. And then of course, I mean, the pace of the paydowns will depend on, you know, the ultimate path of the virus and the economic recovery.

Sure. So there I would say that, you know, our approach, we always take a long-term franchise view on things like that. And so our philosophy has not changed. It is true, however, that the marginal cost of new activity is higher for us right now. And so that's a consideration. But I would say in terms of risk management, we do what we've always done and what we always do, which is, you know, manage carefully within our risk appetites. And I think that has served us well coming into this crisis. And, you know, we'll continue to stay close to our clients and manage that carefully.

Well, I'm glad you acknowledged that it's an impossible question and a hard one. And so there's a reason why we gave directional guidance here in terms of, you know, what could be. But it is just impossible to predict right now, as you point out. So but I will say, like, what, you know, if you think, there's obviously nothing that we can really say is confident about exit rate in 2021. But I will say, you know, based upon the latest insights, if you look at NII, you know, you could see growth in 2021 on balance sheet growth there. And then NIR is absolutely going to depend on the path of the virus and the economic recovery and when and how we all get back to work. And then you've given, you've given some guidance to think about. And then from a credit perspective, as I said, you know, we could see continued builds over the next several quarters. But the way it seems to work in theory, again, all else equal, is that that should be, could be behind us by the end of the year. And we then have those reserves to absorb the losses that will inevitably emerge over the back half of this year and into 2021.

Sure. So it is, I don't have the numbers to hand, or are, but they're public. It was, I suppose you can say it was based on our economic outlook at the end of March, which did have a recovery. I just don't have the 1580 numbers to hand, I think, and the unemployment. I think what's most important to note, Gerard, is that what basically what we're looking at, and you have a recovery in the back half of the year, but it still leaves you from a GDP perspective and unemployment below your launch point on absolute levels of GDP and above your launch point on absolute levels of unemployment. So it's a recovery. It is, you know, our latest outlook, and as I said earlier, is probably the only thing we know for sure is that that is going to change through time. But it is, you know, it is a recovery in the back half of the year that doesn't get back to where we started. And importantly, as we said, that we're prepared for a range of scenarios. So, you know, while that may be the case that we based our reserve levels off, it is not the only scenario that we are preparing for.

Sure. So there I would just start by, you know, I said it in the prepared remarks, but it's worth repeating. Our bridge book is about a quarter of the size it was in the financial crisis. So it's about 13 billion dollars. It's slightly down from where we were year-end. Importantly, you don't have any imminent closing deadlines and the market is actually performing a little bit better here in the second quarter. So we'll see where we land at the end of the quarter. But so much to safety marking with positions to market.

Yes. So based upon what we're looking at right now, spend was down, we talked about different categories, that spend in aggregate was down 13% in the month of March year-over-year. And we're seeing trends like that continue here in April. And with that, I would say that we would, given what we know today, expect outstanding to trend down from here.

Yeah, you got it, John. So we do continue to accrue, but it is the lower yield over the life of the loan.

Sure. So on the wholesale side specifically, that's the reason you see that dynamic is because of CECL. So, and is in the presentation so you can see the number. So the CECL adoption impact in wholesale was a net release. And so we've now built that. And so that's why you see that dynamic there. And then in terms of the reserving, when we close the books, which, you know, was early in early April, we do have to, of course, kind of snap the chalk line at some point and close the books, which is why we wanted to be very transparent about how you think about reserving going forward. Because like I said, all else equal, given the macroeconomic outlook that we're looking at, that we would expect to have a build in the second quarter and perhaps, you know, beyond. Because as I said, obviously, having run it incredibly fluid and we, you know, we really need to learn a lot about the ultimate impact of these programs because they are extraordinary and it should have an extraordinary impact. But we need some time to learn. And also, as you said, on the wholesale side, kind of one point of an overlay, but what you expect in terms of migration downward and downgrading, stuff like that, it also be made, you know, company by company, name by name, reserve by reserve. So a real detailed review of that.

Then in terms of planning for the worst, that would be helpful. The extreme adverse scenario that Jamie referenced in his Chairman's letter had 2020 credit costs of more than 45 billion. So clearly that is not our central case, but that's the kind of scenario that we are making sure that we're prepared for. And then just coincidentally, if you look at our credit costs from the fourth quarter of '07 to the fourth quarter of '09, across those eight quarters we had credit costs of 47 billion. So I just got the number, the reserves went from like 7 billion to 35 billion back to 14 billion. Right, reserving itself is countercyclical and often wrong. Then you're required to do it, but if somebody doesn't match revenues and expenses. And so we like to be conservative reserving, but I have to point out the costs of it.

Sure. Right. So you can think about the government stimulus as being incorporated in the macroeconomic variables. And then the payment relief, those are not referring to our own programs there. And there we, based upon our judgment and experience in the past, we, you know, apply some percentage of pull-through in the portfolio of people who will get payment relief. And then we think about the impact that that could have. Again, I would say both well-estimated for the first quarter, we'll, you know, we'll know a whole lot more about both of them for the second quarter. And pretend, remind me when we do the 10-Q for the quarter, we're going to lay out lots of various assumptions about CECL and what are the bounds with CECL. Is this precisely, we're going to spend all day on CECL, you know, which was 4 billion dollars and it's kind of a drop in the bucket, but a lot of data. So I go, all the data, we did it for the last crisis, we give you on level three and all these assumptions and stuff like that. No one ever looks at anymore.

Yeah. And we still have obviously several weeks and so before the Q, so we'll be able to, you know, give our best view on things in.

Yes, there could be. But, you know, that's only where we are at this point in the quarter. And so it'll obviously all depend on the market from now for the end of the quarter. But right now the market is performing a bit better and spreads have come in, as you mentioned a couple of times. Maybe, hopefully, that continues into the second or third quarter.

It may, because as long as the customer is performing under the forbearance program, they are not delinquent. But of course, it will all depend on whether these programs ultimately are able to bridge people back to employment.

Yeah. A little better. He prevented any point. What we may learn over the next 90 days is, of course, whether programs have been effective or whether they just delayed losses. And of course, with CECL being life alone, if it should delay losses, you can expect that that would, you know, we would be reserving for that.

It may be. It may be. Again, it is going to just completely depend on whether people are able to, you know, remain performing under payment relief or a forbearance program. But we don't really think about it that way. We think about what the ultimate losses will be and we reserve for that. But and then importantly, in the first quarter, the charges you're seeing, which is why I was clear to say it was consistent with prior expectations, because the charge-offs in the first quarter, of course, don't at all reflect, you know, the ultimate impacts of COVID-19. They were just normal, I would say.

Yeah. So I'm not sure specifically what programs you're referring to. I would say broadly speaking on the Fed's facilities, they're obviously very large programs rolled out very quickly and just an extraordinary response to, you know, unprecedented market conditions here. We are happy to leverage the facilities to intermediate these programs for our clients, but we are only using them where it makes sense to make sure that quantity, credit, and liquidity is flowing to where it's needed. So.