JPMorgan Chase & Co. (JPM) Bernstein's 39th Annual Strategic Decisions Conference 2023 (Transcript)

JPMorgan Chase & Co. (NYSE:JPM.PK) Bernstein's 39th Annual Strategic Decisions Conference 2023 June 2, 2023 10:00 AM ET

Company Participants

Daniel Pinto - President and Chief Operating Officer

Conference Call Participants

Unidentified Analyst

We're happy to have JPMorgan Chase up next. We've got Daniel Pinto, who's the President and Chief Operating Officer of the company. Daniel, thank you so much for joining us today.

Daniel Pinto

A pleasure to be here.

Unidentified Analyst

So you had an Investor Day last week. For those that couldn't make it, maybe you could just kind of give us some highlights of the top messages that you and Jamie and the team wanted investors to walk away with.

Daniel Pinto

Yes. So yes, we had it like a few days ago. It was essentially, we reaffirm our strategy that is based on four pillars to be global, diversify, operate and scale and have our complete set of products. All the businesses presented to have the strategy and their target return on equities and their opportunities. Even though it shows that the company is doing very well, we've been returning very good returns over time. There are plenty of opportunities for growth and improvement in many, many areas within those businesses.

We talk a lot about risk management and resilience and the amount of liquidity that we have, almost $1.5 trillion of cash and marketable securities, almost $500 million of loss-absorbing capital. So the company is in a very good position, and we've been very conservative and disciplined in the way we manage our risk.

We give some -- Jeremy gave some guidance on NII, $84 billion this year, including First Republic, and around mid-70s through the cycle. We reaffirmed the 17% return on equity through the cycle. So -- and expenses were -- I think that is 81 were the guidance we gave. So I'd say it was a good gathering. It wasn't a lot of big news this year, but it's good to keep all of you updated on what we are doing on a day-to-day basis.

Unidentified Analyst

For sure. Sometimes it's good not to have anything big and new.

Daniel Pinto

Yes. We think so.

Question-and-Answer Session

Q - Unidentified Analyst

Great. Well, no, it's a good update, and we'll dig into some of those things as well. Just talk a bit about some of the macro issues. What's your view around where we are in the Fed cycle? And how much of the impact of the cumulative hikes in QT has been kind of felt in the markets and the economy so far?

Daniel Pinto

Yes. So when you look at the global economy and the U.S. economy, at least for now, is doing fine. So both Europe, the U.S. and other parts around the world, there is growth and the economies are growing. So the impact of interest rates always have a lag, and we will have a lag for sure. There are some indications where you see that there is some signs of slowdown. When you look at credit conditions are tightening a bit, but credit demand is also relatively weak. You saw to-date unemployment rate going up and some numbers in the employment numbers, not necessarily the payroll numbers today, but others that they are showing some degree of a slowdown.

So I think that my view is that is likely the Fed will get towards 5.5%, and they will pause. And then time will tell. So they will give the time to see if the lag effect is really going to occur inflation. And if it doesn't, probably we'll have another small set of highs. It may be another 50 or something like that. So that's why it's difficult to see or to know what is -- it's most likely, we'll have some recession at some point. How deep or not is going to be -- is difficult to assess. Obviously, they have to go one more round, they probably will be a bit of a deeper recession. So we will see.

When I look at our own numbers, so we still see consumption mainly to the credit card business, doing fine. They're still positive, but decelerating a bit, particularly in March and April and [Indiscernible] in May. Delinquencies, they are normalizing. They're not deteriorating, but they are normalizing towards the ‘19 levels. So this looks okay for now. I think that there are plenty of issues going forward. So that's why I think there will be a recession at some point, but I don't see for the moment a crisis. It's just a slowdown in the economic cycle to deal with inflation, and that's probably it.

Unidentified Analyst

Is there anything in particular about QT? And just Jamie had mentioned that he was more worried about QT than some of the investors in the room. Is there anything in particular that he's trying to draw attention to there?

Daniel Pinto

Well, what we have is a massive monetary expansion in 2020 in this country and in other places around the world. And now we are going to see the -- we are seeing the reversal of the QT, which has one more tool. The Central Bank uses when short-term rates don't create all the facts that they want to create and need to give more certainty across the curve, they use QE and then QT to unwind that. I don't know. There are -- as I said, there are a lot of uncertainties, and QT is one of those.

But there are others. One of the areas that is very concerning to me more in the medium term than in the short-term, when you think about the amount of debt that sovereign countries -- but in the developed world and in the emerging world, but even in the developed world, in the last 20, 30-years, debt-to-GDP ratios really has gone up a lot. And just in the U.S. to stabilize it to, let's say, the ‘19 levels, not much they will require a fiscal adjustment that you know is not going to happen. So -- and it's similar in other places around the world. So it's very likely that, that GDP will continue to grow at least for now.

And in a world where interest rates most likely, they will stay more elevated than in the last 20-years. And deficits, that may come down a bit, but it's still going to be contributing to it. So that is something that is concerning in the medium term, in the U.S., in Europe, in Japan, in many other places and in emerging markets. So the sustainability in the long-term and the dynamics of the debt market is going to be something that we want to keep an eye on, not something that is pressing now, but we should keep an eye in the years to come.

Unidentified Analyst

And how about the U.S. banking system? What does JPMorgan see ahead in terms of the impact of what the Fed is doing, both hikes and QT on industry deposit flows and deposit reprice?

Daniel Pinto

Yes. So the -- clearly, when you look at the -- as the Central Bank started quantitative tightening, deposit levels starts coming down. So deposits are a function of QT, RRP and lending. So the dynamics of those creates a level of deposits in the system. What we have seen is [some] (ph) for the company overall. We have seen some slowdown in the amount of deposits, and then we recovered some in the last couple of months. So -- but we see that probably deposits, particularly in retail, may continue to decline slightly towards the beginning mid-part of next year and then stabilize as quantitative tightening finish and start growing from there as we normally happens.

So on the industry overall, when you think about what that the Fed looks, that -- so how far, more or not, they are going to go with quantitative tighten? And most likely, they're going to look at the level of un-reserves. And if they go -- if they are -- looks like the comfortable level is between $2 trillion, $2.5 trillion. If they were to go below that, that will be an indication that funding markets will be tight, so therefore, probably a slowdown that way.

So we will see. We have a dynamic this turnaround that is the RRP program that sort of takes deposits out of the system. That is something that we haven't experimented much in the past. It's been there for a while. But now with money markets having this ability to -- money go to money markets and then go to RRP is something that, at some point, probably what the Fed would want is the amount of RRP start lowering down, stabilize reserves and that create that proper balance.

Unidentified Analyst

So it's been a tumultuous year, obviously, for U.S. banks. JPMorgan has done fantastic. But what are the lessons learned so far about risk management, business model, balance, and resiliency this cycle so far?

Daniel Pinto

Well, the lessons -- it just -- for us, we think in the following way: we have a -- our central scenario that we run the company, and we are constantly looking at other scenarios and assessing what happened if those scenarios were to take place, how will the company looks -- will look like?

And one of those scenarios that we were thinking about in the past is, so what happen if we are wrong and inflation is a little more resilient and interest rate go up a little more? So that's why -- and we said, well, is that the part of the probability? Probably not, but it was some probability. So therefore, we are very conservative in the way we manage our liquidity and the way that how much duration do we have in our portfolios. So therefore, when interest rates did go up, so obviously, we did have some negative -- potential negative mark-to-markets in the held-to-maturity portfolio and in the loan portfolio and the accrual portfolio, but it was a very small portion of the loss, would have been a very small portion of the capital as you compare with others.

So essentially, it's all about how conservative you are, how prepared you are for the more extreme scenarios. And in those extreme scenarios, how will the company look like. So what do we need to do? We never put the company in a situation where if one of those scenarios, where do we have to really -- we are going to be in a very, very tough, tough position. So that's how we think about it. That's how we thought about it.

And we always be prepared. And by being prepared, we were able to do the acquisition of First Republic and only that, onboard thousands and thousands of clients coming for those banks, in the private bank, in the commercial bank, in a small business. So -- and we have the ability to do that, keep the ability to absorb that without really consuming a big amount of capital. The whole First Republic was some liquidity drain and 40 basis points of capital. So…

Unidentified Analyst

And what are you focused on now from a risk management perspective, some of the tall scenarios people should keep in mind?

Daniel Pinto

Well, I think that we are very focusing the potential outcome of inflation and monetary tightening and economy and recession and all that. That's one set, which, as I said, I -- the system is a lot more resilient than it used to be. So it's difficult to see short of a geopolitical issue that we'll talk in a second. So if all these scenarios, they may create accidents in some sectors, in real estate or somewhere else, we have several accidents, the situation with the banks, crypto, the LDI situation in the U.K., several scenarios, but they were self-contained and the industry was resilient. And that problem was contained to that segment, and that was it. So that should make everyone more comfortable that the industry is, by far, in a better place than it was in the in the past.

So be prepared for those accidents, even they are not systemic is something that we are focused on. Clearly, the big scenario that is really very difficult to predict, and it could create a systemic situation, is a substantial deterioration of the geopolitical environment. So an escalation of the war or a further deterioration in the U.S.-China relationship, those things, they will have a massive economic impact, global impact and those clearly that will be systemic. Everything else there are things, but they are not, in my view, systemic.

Unidentified Analyst

There's been concern, we've heard some this week about potential credit pullback as regional banks, in particular, look to build their capital ratios, protect against overexposure to commercial real estate and things like that. Are you seeing that more broadly? Is that a concern for the economy and a role for JPMorgan or private credit to fill in there?

Daniel Pinto

Well, there is no doubt, you can see that regional banks and smaller banks, they are building up liquidity, building up capital, they are lending a bit less. So for sure, there is a tightening credit conditions, particularly coming from that segment. I don't think that the big banks have really changed the lending standards at this point, because of that. And I think that private credit has plenty of dry power to absorb some of the demand. The problem is more that the demand is not there rather than the supply of credit. So there is less -- obviously, if you look at the graph, in the country, credit conditions are tightening, but loan demand there is also coming down, like the more -- the biggest part of that is mortgages.

So, if I look at our own company from the peak, the refinancings have gone down around 95%. And probably new purchase origination -- new origination activity has gone down from the peak around 50%. Overall mortgage origination between refi’s and purchase from the peak is down 75%, so that’s something.

And then when you look through the sectors, so we have seen some loan demand that is coming up from the smaller part of the business in retail. So business that all those small business, they got the benefit of the PPP programs and all these programs, when you go towards a smaller segment of those. So those have -- they have consumed a big portion of their buffer, and now they need some lending for working capital. So we have seen some demand there. So the bigger part of that segment of the business banking, they still have substantial amount of offers, and we see some demand of loans in the middle markets.

And then credit cards, where we have seen -- well, I think that Marianne mentioned that we are finally back towards ‘19 revolving levels, slightly above that. But there is still -- there is excess savings in the accounts, a bit less in the less affluent segments and more in the more affluent segments, but still quite a lot of buffers there too. So there is not a huge amount of loan demand in the first place in any segment.

Unidentified Analyst

And then can you talk a little bit about JPMorgan's commercial real estate portfolio? Not -- you're not very exposed on the office side, but some of the other banks are, so it's a concern. Maybe some just more general observations you have about real estate.

Daniel Pinto

Yes. So we did a bit of work to understand the dynamics in the real estate market in the last several months. And so the real estate market’s totality in this country is around $13 trillion, $14 trillion, commercial real estate. Offices -- the average insertion loan-to-value was in the low-50s. If you were to do a mark-to-market of that portfolio now at the new cap rates and new occupancy rates and all that, so that probably, the loan to value at the moment is between 70% to 80%. So definitively, it has been a deterioration. So an asset class that an insertion was $2.2 trillion, giving or taking, probably now is sometime between $1.5 trillion to $1.7 trillion. The amount of lending against that is $1.2 trillion. That is roughly half by -- provided by banks and have provided by the markets, CMBS, some insurance companies, other participants.

So out of all that, $600 billion of lending. So we have, including First Republic, around $15 billion, $16 billion. So it's around 8% to 9% of the total amount of our commercial real estate exposure that two-thirds of -- close to two-thirds of our commercial real estate portion is multi-family lending and multi-family lending. Essentially rents, they've been catching up with inflation, so it hasn't been deterioration. We have a very conservative portfolio with relatively low loans to -- loan to value.

So the office -- and then you have retail that a lot is being refinanced already, industrial, the other segments, they’re fine. So the issue is real estate. There is still a cushion overall. Clearly, lower quality business -- buildings in some areas. West Coast, for example, they are more impaired. So I think that we see that as an opportunity. There will be plenty of opportunities to refinance all those portfolios and all those business, but it's something that you want to keep an eye. It's very likely the occupancy rates has gone up -- has gone down to roughly, at the moment, 87%, 13%; vacancies starting [8%, 9%] (ph).

So if you were to go another few points out, a lot of the equity gets wiped out and then there may be some losses, but still cushion. And in the risking of things, it is a problem. Don't get me wrong, because a lot of that exposure is with the regional banks and community banks. But I don't think there is a systemic issue. It is something that will be dealt over time through restructuring all these loans.

Unidentified Analyst

So let's shift gears a bit and talk about JPMorgan Chase. Just remind us about your philosophy on running the company for long-term profitability. How you manage for long-term returns, plan your investment spending and decide on -- you've got a 17% RTC target. How do you land on that and...

Daniel Pinto

Yes. So there are two things. There are several things here. So first is when we think about our returns for the long-term, so based on our economic outlook and investments and all that, we also stress those numbers. So you saw in Investor Day, the page with the color curves that Jeremy presented. And essentially, what that page show is how returns change in the different economic environments. And essentially, it was in the range between an unemployment rate of 5% to a bit over 7%. So you see the different returns for the company. And in that -- in any of those scenarios, clearly, in the more extreme scenario, it's not going to be 17% return on equity, but it will be way above the 10% return on capital. So the issue that the company is very well diversified is very important.

And I made in Investor Day, I remember to -- I talked about in 2020 what happened. So where the NII was impaired, NIR really drive, and it was Investment Banking, it was Asset Management, it was origination of mortgages and it was amazing performance in markets. In 2022, they obviously happen. So where NII really went up, and then all those -- markets is okay, but everyone else really shrunk quite a lot. So when we think about this is how we run the company, and in terms of investments, we are very disciplined. We have our strategic priorities for the company and for the businesses, and then we allocate our investments based on that.

Unidentified Analyst

So in terms of capital rules, it seems clear that you and your peers will have some level of increase in minimal capital requirements. We're waiting to get Basel III and a base different level of stress testing in the future. How are you thinking about and planning to operate in a world where you're likely to have some level of higher capital?

Daniel Pinto

Yes. So it's very likely, as we said, that the end gain of Basel III will bring, some way or the other, some more capital. And probably the situation with -- we just have in the last couple of months will have some implications of capital liquidity, which is very unlikely. Even the big banks were fine here. So it's very unlikely that we're going -- that we are not going to have an impact on it. So what is our benefit is that we are a very profitable company. So our earnings capacity is very good.

And -- but we hope that the way that the increase in capital, as is happened, is a rational way to do it. And it comes by reviewing also some of the misalignments that we have today, like for example, G-SIB. So G-SIB, you can argue if it is a good or bad tool. But for sure, you cannot argue is that the economy has grown a lot, and they haven't recalibrate at all even if they have the ability to do it. So probably some capital comes in certain forms and there is a recalibration of G-SIB, which is a good thing. So who knows? It's difficult to know what it is. But at the end, we've been, all the time, optimizing for the capital and trying to balance a business that in a way that is diversified through cycle. So we will continue working on that.

But also, there are ways where we can optimize more of the capital. We are doing a lot of work with our own clients. So as you look at the corporate investment banks, just to pick an example, we deployed, let's say, 70% of the capital of the unit to finance clients, either corporate clients or market clients through markets, through repo and prime corporate through lending. There is a substantial portion of those clients of this deployment of capital that some portion doesn't cross the cost of capital. But quite a lot, quite a portion of that -- that portion -- part of that portion is in the segment between 10% to 16%, which is our target. And then what we are doing is just going and talking to those clients, just explaining that if you want to use, no problem in deploying capital to you, but you have to have a balanced business over the long-term.

And if you do that, the clients do react well. Because obviously, we can always withdraw the capital. So -- but that helps to have a more healthy dialogue, and I think that we will be able to optimize over time even more. So like that, there are plenty of things that we are always constantly to optimize.

And then the other piece beyond JPMorgan is that when the regulation comes, and they bring more capital. They have to keep in mind the regulation than the regulators how much do they want of the business to leave the regulated space. At the moment is a lot is leaving. Private credit is growing. Private equity is growing. So there are -- that is also important that it will not continue shrinking and shrinking and shrinking the regulated space to create a bigger and bigger situation in the unregulated space.

And then there is one more point is, yes, so far, we have the bigger banks exploring more and more and more capital, but profitability is still quite good. So because these businesses are becoming so difficult and expensive to run, that we have seen more and more consolidation of the wallet into a bigger player. So -- and the fact that we have more capital and more liquidity, it may be expensive to keep that, on the other hand, gives the confidence that the companies will run, and we are in a good position. So therefore, we don't have the risk that others may have. So we'll see. Time will tell. We will learn in the next few months how is it going to play out. But the most likely scenario will need some more capital.

Unidentified Analyst

And has it caused you to pivot a little bit into less capital-intensive businesses? And is that part of -- the last couple of years, you've done a little bit more bolt-on M&A of perhaps non-traditional businesses?

Daniel Pinto

Well, we always -- so for us, the secret of success is to have this sort of balanced business. And at the end, you cannot go and pick, I'm going to do all the light-capital, high-return business and hoping that someone else will do everything else. So that business model, I can tell you, it doesn't work. So you have to find the balance. So therefore, you want to have that balance. And as I said, if clients are consuming a lot of resources and they are not doing enough of other things, so that client have to readjust the relationship with us. So we will continue to optimize, but I don't think that we can pivot it massively to be super capital light because it's not our business model, neither what it going -- what is going to optimize the relationship and the returns for our clients.

Unidentified Analyst

Sure, sure. So how have you used the bolt-on M&A to kind of fill in product niches or explore new areas and just not that you've done a lot, but maybe just a little bit of context for it.

Daniel Pinto

Yes. So we are -- we do it for two reasons. The first reason, in every business, so if you want to be the best, you need to understand the competition really, really well and not be defensive, understand. So one way to understand is just constantly searching all the companies that are operating in the space. It could be in markets, it could be in asset management, it could be in payments, in retail, whatever it is. And then through that process of understanding how the competition operates, so you will find things that they may be interesting, in many cases, partnering that they can -- we have an amazing distribution platform with clients of every kind. So for them to distribute our products through us, and we have done some of those.

And in some of those is we realize that if we ended up buying a particular company, it will accelerate our go-to-market or will bring certain technology that we don't have or certain client base that we don't have. Like, for example, InstaMed, it was a way to pair services to the health care business with our payment infrastructure and then attack that vertical. And in some other cases, we have partnered with others to do that and probably we'll do some more acquisitions in the future.

So -- and in any case, our strategy is always organic. So the first thing is like figuring out how we're going to grow our business organically. And then when we identify these opportunities, we go and look. And the first analysis that you do is how can we build it ourselves and how much is going to cost? And what will be the timing to market if we build it ourselves? And if we do it, so what is the value that they bring that accelerate the timing of the market is cheaper to buy than build it ourselves and things like that.

And then we incorporate them. We do a quite a good job in not killing the small company. So allow them the time to settle into JPMorgan. And obviously, they have to upgrade to our control standards for sure. But given the time that the big organization doesn't really kill the small company. And we have learned a lot, and we have done quite a few so far. So the process is quite good.

Unidentified Analyst

So on the organic front, another change for you over the past few years is that you started to build out a U.K. consumer and maybe a broader European consumer bank. Can you just give us an update on that initiative and kind of the time line to get to profitability and longer-term ambitions?

Daniel Pinto

Yes. So how do we come out with this one is very simple. In the past, we always said, there is no way that we are going to do retail outside the United States, because it was impossible, either through acquisitions, because it would have mean to buy several banks and different platforms and trying to integrate really, really difficult; or organically that it will take 1 million years to build branches and all that.

So the retail business in the United States is an amazing business, very profitable, massive scale, great set of products, very good. But you never know when it could be disrupted by someone, by the technology platform and someone else. So we see this as a way over the long, long-term to diversify and complement our fantastic U.K. -- U.S. retail business. So we choose the U.K., because of the market that we know the most. We have a lot of infrastructure. We know the market and all that.

And we said, well, we are going to try and see what is the -- why are we doing it? We are doing it to build a business. We are not doing it just for funding of this or that. So we are building a business. We are selling a set of products, and we are complementing that set of products from checking accounts to saving accounts to wealth management offering, through credit cards at some point and other lending, secure and unsecured lending products.

So the U.K. business is growing well, $20 billion in deposits, double in the last 12-months, 1.6 million clients, 1 million clients, 1 million active. So it's all going according to plan. We said that we are not going to spend. The net cash burn will not be higher than around $450 million. So -- and we are doing that. So the U.K. business, we think that it will start breaking even around ’27. But -- and then we will be other European countries. And we will consider if there are portfolio acquisitions or other things that we could do to bolt into the thing and accelerate growth, we will do it.

And then C6 in Brazil, it was another way to get into this digital space in the third biggest retail market in the world. So -- and we'll see how it goes from there. So it's relatively small in the scheme of things. But it's something that over the long-term, will -- if successful, will develop a lot of value and diversification value to the company.

Unidentified Analyst

Has anything surprised you so far as you've built that over in the U.K.?

Daniel Pinto

Well, one of the things that -- I don't know if there is a surprise, but the Chase name recognition in Europe, it wasn't very high at the time. So everyone knows JPMorgan, but we don't use JPMorgan for retail. And then very quickly the brand recognitions that, that should have massively. And then how sensitive the name, essentially, the quality of the service is really good. And now that the brand recognition is very high and the financial -- how financially solid this company is, it gives you a big competitive advantage.

So how fast the amount of clients react that we want to have react to a bit of dollars of marketing is really amazing. So, we could grow a little faster, but we don't want to grow as fast until we have a more complete set of products. So we want to do this in a very conservative way. But the brand recognition is just, sort of, shoot up massively, and we got the Best Bridge Bank award a couple of weeks ago. So the client experience is pretty good.

Unidentified Analyst

Great. Let's shift gears and talk a little bit about the Corporate Investment Bank. You gave some updates at Investor Day and some context for the industry background, that was helpful. So when we think about your markets business, Sales & Trading, Fixed Income equities, where you did $29 billion of revenues last year, how are you thinking about the size of the industry wallet this year? And maybe could you put that in context of where we've been in the last few years?

Daniel Pinto

Yes. So we show here a page that the average -- the wallet in market has been coming down constantly until ‘18 – ‘17, ‘18, ‘19. The average of these three years was $163 billion. It went up from ‘20 to ‘22 at $212 billion. So we think that this year, coalition things that this year will go down by 4% against that average or 7% against last year. So I think that we didn't know all clearly the wallet increased substantially in 2020 with all the market volatility and all that. And we're expecting at the time a faster normalization, meaning down, but it didn't happen.

The market remained liquid and relatively volatile. So the wallet has been relatively stable, a bit up or a bit down. But in the 200 levels and no more into the 100-plus. And I think that it will be stable around that. I think this year will be a bit lower. But over time, probably we'll see the wallet growing probably in line with the GDP and in line with market developments from this level, so that's a good thing.

Unidentified Analyst

On the Investment Banking front, obviously, revenues this year are below what we've seen in the last couple of years, and you predicted a little more slippage in the wallet this year. What -- and maybe a rebound later on in investment banking, what's needed to kind of get things going there?

Daniel Pinto

Certainty. I think that, at the moment, there is too much uncertainty about the path of the economy, inflation and other factors and valuations. That really make the process a bit sluggish. So we have a good pipeline that we are executing. It's not that there are transactions going on. But we do believe that this year, the wallet -- last year was $78 billion, down from $133 billion and from $95 billion the year before. So last year was in line with 2019, and this year, we think that the wallet will be around $70 billion.

The other thing, the difference between last year and this one, normally, the distribution of the wallet among the products is around 35%, M&A; around 45% to 50%, debt; and the rest is equity capital markets. Last year was 47%, M&A; and 36% or 37%, debt; and the rest, equity capital market. This year is normalizing a bit. M&A is still a bit elevated, around 38%, but debt is -- it will be around 45%; the rest, equity. So that really plays a bit better to our mix, because we have the more balanced Investment Banking business around, very good in M&A, in equity and in debt. So when the cycle is like this, so we tend to increase our market share, but it will be a tough year.

I think that probably next year, as we have some clarity about the cycle, probably we'll see a bit of a higher wallet, probably around [$80 billion] (ph) next year. And I think that more in the medium term, my view is that the wallet will be in the range from 19 to 20, which is between say, $80 billion to $95 billion.

Unidentified Analyst

And with you having high market shares across these businesses in Investment Banking, I know you always say you can't be perfect everywhere. There's always opportunities. So what's the strategic focus for you?

Daniel Pinto

Well, we need to continue improving in M&A. We've been improving over the years, but still some room to do to improve there. And then in some sectors. We're still in some sectors, we have improved a lot in technology, but there are some sectors within technology where we need to invest in other industry. So it's just in some regions. So when I look around, yes, we've been number one in Investment Banking for the last 14-years. When you start looking in the subsectors, there are plenty of areas, either in regions or in industries where we can do a bit better. And for sure, we need to continue investing in M&A.

Unidentified Analyst

And back to Sales & Trading for a minute. You've got low-double-digit market share. You're huge, obviously. Can you still see sales and trading consolidate into the hands of bigger players like yourself?

Daniel Pinto

Yes. I do believe that, that trend will continue. We saw a number that is quite interesting in 2017 to 2019. The average wallet of the top five players in markets, they own 41% of it, the total wallet. The same -- the top five players from ‘20 to ‘22, they have over 44%. So it was almost 4 points of increasing wallet. So I do believe these are business that you can only be profitable, if you are a scale player at scale.

And over -- with the increase in the wallet has made some of the peripheral players to invest for a bit and then try to gain a bit of market share. But I think that you will have to have a lot of more market share in order to be profitable and to have a business that is sustainable and a business that is profitable enough to continue investing.

So I think that the bigger players, particularly in this business, have the competitive advantage of the profitability that allow us and others to invest at a pace that is different than everyone else. So therefore, the quality of the services is better. And then if you pair that with the deployment of balance sheet, which is very important for our clients, too, so the mix is really difficult to beat. So I do believe that markets wallet will continue -- over the long term will continue to consolidate.

Unidentified Analyst

Got a few more minutes. I just want to tackle a couple of things here. Technology spend, the journey for tech spend seems to be a never-ending one for banks. And you see overseas a lot of this at JPMorgan. Just kind of big picture, how should we think about where JP Morgan is on the road to kind of modernizing its consumer and wholesale businesses. And what's ahead on that front?

Daniel Pinto

Well, I will say that technology transformation modernization is the most important thing that this company has to do, with no doubt. And we are somewhere along that journey. We've been investing over the years, not just in creating more and more features for our clients, also replacing and modernizing all the core infrastructure. I'll give you an example, payments.

So we are -- we built three new platforms, Graphites for payments; GLASS for liquidity; and what -- and Graphite, for example, is in the plan to replace eight payment platforms that are quite old and gradually, we are replacement. Graphite, all today, is processing one-third of the totality of the $10 trillion of payments that we do around the world. So -- and then Helix is the third platform for merchant acquiring. So that we have to do.

And then when you start seeing that, you see the real efficiencies, how much more you can process without adding $0.01, what -- how much better the quality of services to the clients is. So it is something that we have no choice other than doing it. I can see how the investment in technology that we are making, that is substantial, $15 billion is a lot of money. That investment is really allowing us to scale without extra cost. So we have -- investment in technology has gone up, let's say, by 10% or something like that the last year.

And still, we process like 40%, 50% more volume, and we have got a lot of better utilization of our internal cloud and virtual services and data centers. And all that over time, will improve as we move a lot of our applications to the new data centers, a lot of our applications to the cloud. So this is something that there is no choice. You have to do it. The returns that we have allow us to do it and do it as -- we will go on that as fast as we can efficiently go because it's crucial for the future of the company.

Unidentified Analyst

And maybe just the last question, just kind of how do you ladder that in overtime to kind of also achieve what goals you have for efficiency and returns and long-term growth? Just kind of pacing of investments to balance against your other goals to grow the company and deliver good returns?

Daniel Pinto

Well, both are -- so it's not everything about modernization. It's about also investments in different and better services to clients. So the -- we will try to go as fast as possible as it is sufficient. If we were to say, well, we want to spend, we are not going to do this, just in case you get the wrong idea here. So -- but it's worth to say, well, we're going to do another $5 billion in technology, that will be wasted money, because there is no proven way that you can hire the talent at the quality that we need to do that.

So we will try to do whatever is efficient and balance the money that goes towards modernizing the core infrastructure and the money that is about redeploying and redeveloping applications to create better and better client services. And it's all linked to our strategic priorities for the company and for each of the businesses.

So then we go from that. And then whatever is not strategic, so we kind of cut the line. If you want -- if you leave everything to the bottoms up and the bottoms up exercise, which is important, but you will add a millions of little features to things that they are very relevant. So we are -- we all really look very deeply into that. And we said, well, these things are the things that we are going to do. And all those, we are not going to do. And that's how we do it. And that all this investment in technology, they are creating and being the driver for all these returns that we are producing. So therefore, we will continue to be very disciplined. We see an increase in productivity.

We are hearing, for example, one of the investments is better developer’s tool to improve the experience of the developers. So therefore, they can, with the same money, do more. But that's the thing. So you create these tools and do all this. And I think that we have done a good job. We're still a long way to go, because this is a big company that have thousands of applications and thousands -- and a lot of legacy technology, but we are in a good -- we have made a lot of progress.

Unidentified Analyst

Great. That's really helpful, you giving us a great perspective, Daniel. Thank you so much. Appreciate it.

Daniel Pinto

Thank you.