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JPMorgan Chase & Co  (NYSE:JPM)
Q4 2018 Earnings Conference Call
Jan. 15, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Fourth Quarter and Full Year 2018 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please standby.

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

Marianne Lake -- Chief Financial Officer

Thank you, operator. Good morning, everyone. I'm going to take you through the earnings presentation which is available on our website. Please refer to the disclaimer at the back of the presentation.

Starting on page one. The firm reported fourth quarter net income of $7.1 billion and EPS of $1.98, on revenue of nearly $27 billion, with a return on tangible common equity of 14%. Market impacts aside, underlying business drivers remain solid, including core loan and deposit growth, consumer sentiment and spending in a robust holiday season, capital market activity and with credit performance continuing to be very strong across businesses. For the full year 2018, the firm reported revenue of $111.5 billion and net income of $32.5 billion, both clear records even adjusting for the impact of tax reform, and so we're entering 2019 with good momentum across our businesses.

Turning to page two and some more detail about our fourth quarter results. Revenue of $26.8 billion was up $1.1 billion or 4% year-on-year driven by net interest income. NII was up $1.2 billion or 9% on higher rates and on loan and deposit growth. Non-interest revenue was down slightly with lower market levels impacting asset wealth management fees and private equity losses being offset by higher card fees and auto lease growth in CCB. Expense of $15.7 billion was up 6% year-on-year. The increase relates to investments we're making in technology, marketing, real estate and front office, as well as revenue related costs, including growth in auto. This was partially offset by a reduction in FDIC fees. As we had hoped, the incremental surcharge was eliminated effective at the end of the third quarter. And this is a benefit of a little over $200 million for the quarter across our businesses.

Credit trends remain favorable across both Consumer and Wholesale. Credit cost of $1.5 billion were up $240 million year-on-year driven by changes in reserves. In Consumer, we built reserves of $150 million in card on loan growth. In Wholesale, over the last several quarters, we have seen net reserve releases and recoveries. However, this quarter we had about $200 million of credit costs. The gain largely reserve builds on select C&I client downgrades driven by a handful of names across multiple sectors. While we are constantly looking at a granular level foreshadows, these downgrades are idiosyncratic and do not reflect signs of deterioration in our portfolios. The outlook for credit as we see it, remains positive.

Shifting to the full year results on page three. We reported net income for the year of $32.5 billion. Our return on tangible common equity of 17%, and EPS of $9 a share. Net income was a record for the firm as well as to each of our businesses even excluding tax reform. Revenue of $111.5 billion was also a record and was up nearly $7 billion or 7% year-on-year, $4.3 billion of which was higher net interest income on higher rates with growth and card margin expansion being offset by lower market NII.

Non-interest revenue was up $2.5 billion or 5% driven by CIB markets and growth in Consumer, being offset by private equity losses and the impact of spread widening on SBA. We ended the year with adjusted expense of $63.3 billion, up 6%, which brings our overhead ratio to 57% for the year even as we continued to make very significant investments across the franchise. And although we are showing modest positive operating leverage on a managed basis, remember our revenues were impacted by lower growth results given tax reform. Adjusted for this, or looking on a GAAP basis, we delivered nearly 200 basis points of positive operating leverage for the year and well over 100 basis points for the full quarter. On credit, the environment remains favorable throughout 2018. Credit costs were $4.9 billion, down 8% driven by lower net reserve builds in Consumer as well as the impact in 2017 of student loan sale.

Moving on to page four and balance sheet and capital. We ended the quarter with a CET1 ratio of 12% flat to last quarter. Risk weighted assets decreased with loan growth more than offset by derivatives counterparty and trading RWA given a combination in seasonality, market conditions and model enhancements. Our net payout ratio for the quarter exceeded 100% and we repurchased $5.7 billion of shares.

Moving to Consumer & Community Banking on page five. CCB generated net income of $4 billion and an ROE of 30% for the fourth quarter. And for the year, nearly $15 billion of net income and an ROE of 28%. Customer satisfaction remains near all-time high across our businesses. For the quarter, core loans were up 5% year-on-year driven by home lending, up 8%; card, up 6%; and business banking, up 5%. Deposits grew 3%, growth continues to slow given the rising rates environment, but importantly we believe we continue to outpace the industry. Of note, this quarter, we opened the first 10 branches in our expansion markets including D.C., Boston, and Philadelphia. And although it's clearly early, reception in the market and the performance of the new branches have been strong. Despite volatile market, client investment assets was still up 3% and we saw record net new money flows for the year. Card sales were up 10%, debit sales up 11% and merchant processing volumes up 17%, reflecting a strong and confident Consumer during the holiday season.

And in keeping with our focus on digital everything, of note, active mobile customers were up 3 million users or 11% year-on-year. Revenue of $13.7 billion was up 13%. Consumer & Business Banking revenue was up 18% on higher deposit NII driven by margin expansion. Home lending revenue was down 8% driven by lower net production revenue in a low volume, highly competitive environment. And of note, while not a material driver of overall expense, revenue headwinds here were offset by lower net production expense.

And Card, Merchant Services & Auto revenue was up 14% driven by higher card NII on both loan growth and margin expansion. Lower cost net acquisition costs principally Sapphire reserves and higher auto lease volumes. Card revenue rate was 11.6% for the quarter and 11.27% for the year as expected. Expense of $7.1 billion was up 6% driven by investments in technology and marketing and auto lease depreciation, partially offset by lower FDIC charges and other expense efficiencies.

On credit, net charge-offs were $18 million as modestly higher charge-offs in cards were more than offset by lower charge-offs in auto and home lending. Charge-off rates were down year-on-year across all portfolios. Economic indicators remain upbeat and given the breadth and depth of our franchise, we have a pretty good parameter. From everything we see, the US Consumer remains very healthy.

Now turning to page six, on the Corporate & Investment Bank. CIB reported net income of $2 billion and an ROE of 10% on revenue of $7.2 billion for the fourth quarter. And for the year, net income of nearly $12 billion and an ROE of 16%. In banking, it was a record year for both total fees and advisory fees. We went number one in global IB fee for the 10th consecutive year gaining share across all regions. Fourth quarter IB revenue of $1.7 billion was up 3%. We saw continued momentum in advisory, with fees up 38% driven by the closing of several large transactions. For the year, we ranked number two in wallet gaining share.

Equity underwriting fees were down 4%, but significantly outperforming the market. We ranked number one for the year and the quarter and so our leadership positions across all products globally, with particular strength in IPOs as well as in the technology and healthcare sectors. And debt underwriting fees were down 19% versus the strong prior year and better than the market. We maintained our number one rank for the year and continued to hold strong lead-left positions in high yield bonds and leveraged loans.

Moving to market, total revenue was $3.2 billion, down 6% reported and down 11% adjusted for the impact of tax reform and slight in of margin loan loss last year. A confluence of factors throughout the quarter including trade, concerns around global growth in corporate earnings, fears of a more mortgage fare, as well as other negative headlines caused spikes in volatility, which were amplified by markets by assets and liquidity. And although we saw a decent client flow, rates rallied, spreads widened and energy prices fell significantly, all against general market condition that was anticipating a stronger end to the year.

As a result, fixed income markets in particular were challenging with revenue down 18% adjusted. Weaker performance across rates, credit rating and commodities was partially offset by good momentum in emerging markets. Equities revenue was up 2% adjusted, a solid end to a record year. Prime continued to do well, but we saw clients deleveraging over the course of the quarter and cash and derivatives are solid in a tougher environment.

Treasury Services revenue was $1.2 billion, up 13% driven by growth in operating deposits as well as higher rates, but also benefiting from fee growth on higher volumes. Security Services revenue was $1 billion, up 1%. Underlying this was strong fee growth and a modest benefit from higher rates, together being substantially offset by the impact of lower market levels and the business exit. Credit Adjustments & Other was a loss of $243 million, reflecting higher funding spreads on our derivatives.

Finally, expense of $4.7 billion was up slightly with continued investments in technology and bankers, and volume-related transaction costs, partially offset by lower FDIC charges and lower performance based compensation. The comp-to-revenue ratio for the quarter and for the year was 28%.

Moving to Commercial Banking on page seven. The Commercial Bank reported net income of $1 billion and an ROE of 20% for the fourth quarter. And for the year, $4 billion of net income and an ROE of 20%. Revenue of $2.3 billion for the quarter was down 2% as the prior year included a tax reform related benefits, excluding its revenue was up 3% driven by higher deposit NII. Gross IB revenue of $600 million was down 1% year-on-year, but up 4% sequentially on a strong underlying flow of activity particularly in M&A. Full year IB revenue was a record $2.5 billion, up 4% on strong activity across segments, in particular, middle market banking, which was up 8%. Deposit balances were up 1% sequentially as client cash positions are seasonally highest toward year end, although down 7% year-on-year as we continue to see migration of non-operating deposits to higher yielding alternatives. We believe we are retaining a significant portion of these flows.

Expense of $845 million was down 7% year-on-year, as the prior year included $100 million of impairment on leased assets. Excluding this expense, was up 5%, driven by continued investments in the business in banker coverage, as well as in technology and product initiatives. Loans were up 2% year-on-year and flat sequentially. C&I loans were up 1%, reflecting a decline in our tax exempted portfolio given tax reform. Adjusting for this, we would have been up 4%, which is still below the industry as we focus on client selection, pricing and credit discipline.

But keep in mind in areas where we have chosen to grow such as in our expansion markets, we are growing at or above industry benchmarks. CRE loans were up 2%, also below the industry, as we have proactively slowed our growth due to where we are in cycle through continued structural and pricing discipline and targeted selection of new deals. Underlying credit performance remains strong with credit costs of $106 million including higher loan loss reserves largely due to select client downgrades.

Moving on to Asset & Wealth Management on page eight. Asset & Wealth Management reported net income of $604 million, with a pre-tax margin of 23% and an ROE of 26% for the fourth quarter. And for the year, net income was nearly $3 billion, pre-tax margin of 26%, and an ROE of 31%. Revenue of $3.4 billion for the quarter was down 5% year-on-year, with the impact of current market levels driving lower investment valuations and management fees, as well as to a lesser extent, lower performance fees. These were partially offset by strong banking results and the cumulative impact of net inflows.

Expense of $2.6 billion was flat, as continued investments in advisors and in technology were offset by lower performance-based compensation and lower revenue-driven external fees. For the quarter, we saw a net long-term outflows of $3 billion with strength in fixed income more than offset by outflows from equity and multi-asset products. Additionally, we had net liquidity inflows of $21 billion. For the tenth consecutive year, we saw net long-term inflows of $25 billion this year, driven predominantly by multi-asset, and in addition, saw $31 billion of net liquidity inflow this year.

Asset from the management of $2 trillion and overall client assets at $2.7 trillion were both down 2%, as the impact at market levels more than offset the benefit of net inflows. Deposits were flat sequentially and down 7% year-on-year, reflecting migration into investments and we continue to capture the vast majority of these flows. Finally, we had record loan balances, up 13%, with strength in global wholesale and mortgage lending.

Moving to page nine, and Corporate. Corporate reported a net loss of $577 million. Treasury and CIO net income of $175 million was up year-on-year, primarily driven by higher rates. Other Corporate saw a net loss of $752 million, including, on a pre-tax basis, funding our foundation for corporate philanthropy, $200 million this quarter, flat year-on-year, and including a $150 million of markdowns on certain legacy private equity investments market related.

The remainder is driven by tax-related items, totaling a little over $300 million, and within this are two notable components. The first is regular weighted tax reserve, and second, represents small differences between the effective tax rate for each of our businesses and that for the overall company as we close the year. So therefore there is an offset across our businesses. Our full year effective tax rate was just a little over 20%, in line with guidance.

Moving to page 10, and outlook. We will give you more full year outlook and sensitivity information at the Investor Day, as always. However, for now, I did want to provide some color and reminders about the first quarter. Net interest income will continue to benefit from the impact of higher rates on growth, but quarter-over-quarter will be negatively impacted by day count, and we expect the first quarter NII to be relatively flat sequentially. While it is too early clearly to give guidance on fee revenues, it's also fair to say that this quarter markets feel calmer and more positive and capital markets pipelines are strong. So if the environment remains supportive, we would expect normal seasonal strength in the first quarter. But I will remind you that the first quarter of 2018 included a $500 million accounting write-off, as well as broad strength in performance. Expect expense to be up mid-single digits year-on-year, obviously market dependent, primarily annualization effects. And finally, as I said, we expect credit to remain favorable across products.

So, to close, while the market in the fourth quarter were more challenging, we should not leave sight of the fact that 2018 was a strong year, indeed a record for revenues, net income and EPS, both reported and adjusted for tax reform. Fundamental economic data remains supportive of continued growth and we're generally constructive on the outlook for 2019. We have good momentum coming into the year and the Company and each of our businesses are very well positioned.

With that, operator, we can open up the line for Q&A.

Questions and Answers:

Operator

Our first question is from Erika Najarian of Bank of America.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Hi, good morning.

Marianne Lake -- Chief Financial Officer

Good morning, Erika.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

So, the way Bank's stocks have performed, clearly, investors are starting to worry about revenue trends near-term and of course credit which you addressed. I'm wondering if the revenue trends continue to be weaker than expected, if the overhead ratio of 57% that you posted in 2017 and 2018, is something that you could continue to level off to or will the investment horizon be more of a dominant factor when we're thinking about the overhead ratio?

Marianne Lake -- Chief Financial Officer

Yeah. So, I would say a couple of things. The first is just to remind you, that 2017 and 2018, I would look at a GAAP rather than a managed basis because of the adjustments to our revenues from tax reform. But that said, we have -- while we don't set expense targets nor do we set overhead ratio targets, we have given you some outlook that would suggest that we continue to believe that a combination of revenue growth and expense discipline notwithstanding the investments that we've been making. We should see our overhead ratios continue to be stable to trending down to the kind of mid-50%s or 55%-ish. Obviously, the timing of that will depend on rates and markets and everything else. So we would expect to continue to deliver positive operating leverage on higher NII on growth if nothing else and continued solid growth in fees. Clearly, in any one quarter, you can have pluses and minuses that can be market dependent, but generally over time we would still expect those trends.

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

Thank you for that. And just as a follow-up question, the market is also thinking that the last rate hike from the Fed was December. And I'm wondering how we should think about the dynamics of net interest income and more specifically net interest margin and deposit pricing if December was indeed the last rate hike for sometime?

Marianne Lake -- Chief Financial Officer

So I would say, first of all, just to say that -- the question mark about whether that's a pause or a stop, is it the end of a cycle, we don't think so, we think the outlook for growth in the economy is still strong, the consumer is still strong and healthy and we're expecting to still see maybe slower but still global growth going forward.

Having said that, just as a general matter, you've seen through our earnings at risk, as we have put more and more of the benefit at past rate hikes in our run rate each incremental hike from here has while still positive significantly lower sort of incremental NII drive and that the front end skew is a lower percentage. So it's not nothing, so clearly lower front end rates or lower long end of the curve or a flatter curve, all other things would be modestly negative.

But against that, you kind of pointed out the potential for this to lead to lower or slower reprice. And so, as the Fed pauses, it is fair to say there could be an offset from lower reprice as people digest the data and understand whether this is a pause or no. We would still look at -- we delivered $4.3 billion of NII growth in 2018, we'll still benefit in 2019 from the annualization effects of the higher rates we've already had as well as solid growth. So while you can't expect 2019 over 2018 to be at that level, it would still be strong NII growth year-on-year.

James Dimon -- Chairman and Chief Executive Officer

I would just add the why is equally, if not more important than the what. So if you -- if it is a pause because you're going to go into recession, you're going to reduce rates, that obviously is very different than if it's a pause, the economy is strong in their wage rates. You know which one you would choose.

Marianne Lake -- Chief Financial Officer

Right. And this is where the end of a cycle, it's no cycle we've ever seen before. So, in that scenario, if term loans and fund rates are at 2.5% -- no, 4%, 4.5%, 5%, 5%-plus, I think we've never seen that movie before, but that's not our central case. And by the way, the house fee, the research fee would still be to see incremental hikes this year, if not in the first half, in the second.

Operator

Our next question is from Jim Mitchell of Buckingham Research.

Jim Mitchell -- Buckingham Research -- Analyst

Hey, good morning. Maybe a question on the card business. There's been chatter about sort of pulling back on rewards to kind of focus more on profitability. I guess, how do you think about the strategy in cards right now? And can that -- I think the revenue yield in the card business was up 7 bps to 11.57%. Can that go higher from here as you maybe pull back on rewards?

Marianne Lake -- Chief Financial Officer

Yeah, I would say that, when we think about the product continually have in the constructs, rewards is a very important part of driving engaged relationships with our customers. Customers are very attuned to it and are looking for value in the product. Value and simplicity, and ease of use are the three things in the products that we deliver. And so, for us, engaged relationships drive profitability. This is a -- still a very profitable business. And so while we'll always make adjustments to our offerings, it's not the case that we are looking at meaningful pull back -- pull back in rewards.

And if you think about things like Sapphire Banking where we're looking to bring the impact of our products together, we're continuing to offer rewards based incentives to drive engagement with our customers. So we think it's a solid strategy, a business that already has good returns. It's fair to say that we've seen a lot of competitive response and competitive products in the marketplace that are driving high rewards, offerings too, and we've not seen that lower our ability to net acquire new accounts. So we feel great about the value proposition, the simplicity and the compelling products that we have.

Jim Mitchell -- Buckingham Research -- Analyst

Okay. So we think we about --

Marianne Lake -- Chief Financial Officer

That's already a very profitable business.

Jim Mitchell -- Buckingham Research -- Analyst

Right. And so we think about still seeing decent growth. How do we think about card losses specifically this year? You seem pretty optimistic on credit. Should we still expect some seasoning or do you think the macro trends are that positive that we hold steady? How do you think about credit in cards?

Marianne Lake -- Chief Financial Officer

So I think the macro trends are definitely positive, so they are creating tailwinds. But it's also true, we talked about the fact that if you go back to 2014-2015 that we had expanded our credit books, we had expanded it intentionally at higher risk-adjusted margins. But over the course of the last couple of years, as we've experienced outperformance, we've done sort of surgical risk pullbacks and we've amended our collection strategy, all of which have led to a charge-off rate for the fourth quarter in 2018, that's down slightly year-on-year, and for the year that's at 310 basis points, which is reasonably meaningfully below our expectations even as late as the end of last year. So we feel great that that kind of loss trend at that 310 basis points, maybe a little bit higher, is something we should look forward to at least into 2019 and it will be helped by a supportive macro environment.

And we are seeing -- if you unpick all of our trends, you see the phenomenon of three vintages, you'd see the mature vintages that continue to be stable to grinding lower in terms of delinquencies and loss rates. You see the older expansion vintages that have passed their peak delinquencies and are trending to a more stable low level. And then you do have, obviously, with new acquisitions, a cohort that are still seasoning, that will continue. But net-net, we're expecting a relatively stable loss rate that leveled similar to 2018.

Operator

Our next question is from Saul Martinez of UBS.

Marianne Lake -- Chief Financial Officer

Hey, Saul.

Operator

And I'm sorry, his line has disconnected. Our next question is from John McDonald of Bernstein.

Marianne Lake -- Chief Financial Officer

Hey, John.

John McDonald -- Bernstein -- Analyst

Hi, good morning. Good morning, Marianne. Just wondering on the markets commentary, obviously super-early in the quarter, but you mentioned things feeling better. Can you just talk about seasonality there, but also just what feels better so far? And then also in the fourth quarter what you saw in leverage lending market? How much did you have to take in terms of maybe marks and leveraged loans and hung deals, a little bit of color there would be helpful.

Marianne Lake -- Chief Financial Officer

Sure. Okay. So I would say that obviously the fourth quarter was challenging and there was a lot of market moves, a big sort of broad set off. And at that point there were elevated concerns around trade, global growth data. It was causing concerns, there were concerns that the Fed was going to continue to be hawkish and not necessarily as responsive to some of the things the market was worried about. So there were a lot of negativity. We think too much negativity priced into the fourth quarter and it started to change a bit when we saw the first really strong unemployment print, which reminded people that there's a very long distance between 3% growth and a contraction.

So yes, we could see slower growth, but still growth in the US and across the globe. A slightly more constructive narrative on trade and that continues to broadly progress, we hope and believe, in a positive direction, a more dovish outlook from the Fed, the potential for that to be pauses in rates, all being relatively supportive. And the fact that a lot of people were on the sidelines through the fourth quarter and investor appetite is out there for good value where it can be found. So I would say just early days in the first quarter, there are still obviously risks to the outlook and any of those things could go in both direction. But so far things just feel a little bit more positive and that's constructive. And therefore you would hope to see normal seasonal strength in January.

On leveraged loans, look, sort of just start diving into the sort of potential for that to be hung bridges. It's true that there was a significant market correction where the spreads widening across high yield bonds and leveraged loans in the fourth quarter. Clearly, stepping back while the industry leverage finance commitments are up, they are materially down from before the crisis and very different. So credit fundamentals look pretty good.

Having said that, and by the way, we paused on a lot of deals in the fourth quarter. We've maintained sort of protection in terms of flex pricing and flex protections. And as a result, the vast majority of our bridge book has still got a decent cushion. And that's not to say that there is no deals that have the potential for there to be net losses after fees, but nothing that we would consider to be significant and nothing in the fourth quarter.

I would also say that coming back to the first quarter, that actually the market could be quite constructive for fixed income into the first quarter given a more dovish Fed supporting corporate margin, corporate default rates is going to stay pretty low and we do have time. So none of the deals that we have need to be booked to market in a hurry and the market is moving in a positive direction.

John McDonald -- Bernstein -- Analyst

Got it. Thanks very much.

Operator

Our next question is from Al Alevizakos of HSBC.

Al Alevizakos -- HSBC -- Analyst

Hi. Thank you for taking my question. I again want to focus a bit on the market's performance. You pretty much mentioned like weakness across-the-board in credit, in FX, in rates, which I assume like it's the case. First of all, I want a bit of an outlook on how you think rates will perform now that volatility has picked up. And more importantly, you mentioned strength in emerging markets. Can I ask whether that was primarily in Asia or LatAm? Thank you very much.

Marianne Lake -- Chief Financial Officer

So it's -- no good ever comes of talking about how we think things are going to pan out in the first quarter, other than just the general comments I've already made, which is the environment should be more constructive and we are expecting decent volatility in client activity and we'll see how that pans out. With respect to emerging markets, Latin America was a big piece, but Asia too.

Al Alevizakos -- HSBC -- Analyst

Thank you very much.

Operator

Our next question comes from Mike Mayo of Wells Fargo Securities.

Marianne Lake -- Chief Financial Officer

Hey, Mike.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi. Can you hear me?

Marianne Lake -- Chief Financial Officer

Yes.

Mike Mayo -- Wells Fargo Securities -- Analyst

I guess, I'm a little torn between the year and the quarter. So I'll just ask it to Jamie. Jamie, it seems like you guys are very happy with the year with all the record revenues and earnings. But the fourth quarter, are you happy with the fourth quarter given expenses, credit fees?

James Dimon -- Chairman and Chief Executive Officer

I am fully happy with it. The franchise is strong. We're investing in new products and services, but we're not immune from the weather, volumes and volatility. We're not immune from market prices and assets going up or down. And I like the -- loans up 6%, and assets up sub-10%, long-term flow is up. I like the fact that credit card spend is up 10%, merchant processing is up 17%, shares in almost every business, market shares have gone up, that's what I look at. I really don't pay that much attention to being busted a little bit by the fact that volumes are low in the last three weeks of December. I honestly couldn't care less. And I look at more like in equities we've gained share and we're now bumping up to number one. Those folks have done a great job, of course, cash derivatives, prime broker, et cetera. And fixed income, we've maintained our share and we're adding products and services around the world and we don't know --

Marianne Lake -- Chief Financial Officer

And even gained share.

James Dimon -- Chairman and Chief Executive Officer

We don't know what's going to happen next quarter and I don't care.

Marianne Lake -- Chief Financial Officer

And we take the same position, like we had strong first half of the year, and we said, loan may continue but it may not. And one quarter doesn't make a trend and so we don't really react to that sort of micro even though it was driven by the macro. The real underlying business drivers continue to be strong and even in those businesses we are holding leadership positions and gaining share. And so there is two parts, and things will continue to move forward in a constructive manner.

Mike Mayo -- Wells Fargo Securities -- Analyst

Well, as a follow-up, let's talk about the weather. So the weather is lousy at the end of the year. And Jamie, you were just appointed to your third year as Chairman of the Business Roundtable. So in that role, what are you doing to help JPMorgan and I guess the other banks, in terms of China, the government shutdown, immigration, some of these headline issues that Marianne talked about having hurt the CIB in the fourth quarter.

James Dimon -- Chairman and Chief Executive Officer

Yeah, so December is terrible, but if you look at January, you have half of it back, genuine spreads and markets and stuff like that. And as BRT, I don't do anything to benefit JPMorgan. That's about public policy, that's good for the growth of American total. And it's very specifically stayed away from doing -- about banks there. But the BRT does take up trade and we are supportive of the fact there are serious issues with China. We'd like to see the trade deal gets done. It looks to us like they're marching along at least to this March 1st deadline date that they'll have -- enough will be done to kind of get an extension and hopefully complete the deal. We would like to see immigration reform, so proper border security, allowing people who have advanced degrees to stay here, having the doctors stay here, having more merit based immigration and having some path to citizenship. That is the BRT position. We want more innovation. We'd like to reduce regulations at the local and federal level to stop small business formation.

So if you look at the BRT, there are 10 verticals around it and we try to do things that are good for the growth of America. And bad policy can slow down the growth of America. As I pointed out over and over, it takes 12 years to get the permits to build the bridge. I mean -- and it took us 8 years to put a man in the moon. It is time that we reform ourselves and not blame anybody else for our own lack of that we don't have kids getting out of school of educations, whether you get jobs, that our innovation slow down, the government R&D spending is down. I always think it's look at yourself looking to do better and there's plenty this country could do better to help growth over the long run. It's not about helping it next quarter.

Operator

Our next question is from Glenn Schorr of Evercore ISI.

Glenn Schorr -- Evercore ISI -- Analyst

Hi there.

Marianne Lake -- Chief Financial Officer

Good morning, Glenn.

Glenn Schorr -- Evercore ISI -- Analyst

Good morning. A follow up on John's question earlier on leveraged lending. On slide 24, you see the balance on loans held-for-sale go from like $6.5 billion to $15 billion. I heard your comments on marks. I'm assuming that that is just a disruption and you go back toward your normal level that's in the pipes and progress, but I just want to make sure that I'm not making that wrong assumption.

Marianne Lake -- Chief Financial Officer

Yes, we're not expecting anything to be elevated.

Glenn Schorr -- Evercore ISI -- Analyst

Okay, cool. And --

James Dimon -- Chairman and Chief Executive Officer

That number goes up or down all the time just based on episodic what is cleared out of the books. There's nothing on a number that we're afraid of.

Glenn Schorr -- Evercore ISI -- Analyst

Understood. Curious on the credit, on the couple of marks in C&I. I'm just curious on how much of that is internal versus external rating agency? And I guess it's a feel for the underlying fundamentals. So how do you know we should treat that as idiosyncratic as you call?

Marianne Lake -- Chief Financial Officer

Yes, so it's internal and it's like five names, four sectors. We know the specifics. It is situationally specific. Remember, just to give you some context, for those who can drive the dollar value, regular way in any quarter, given the size of our portfolio, we might downgrade and upgrade hundreds of individual names based upon the circumstances. And so when we say that we're looking at this and saying that things are idiosyncratic, it's not just looking at the five situations that drive the biggest dollar value, it's also looking at the hundreds of downgrades and the hundreds of upgrades and seeing if there's any trends or net worrying signs there and honestly not now. And so if anything, marginally, we had more upgrades, but it's just there's nothing to see right now in our portfolios and we're looking.

Glenn Schorr -- Evercore ISI -- Analyst

Okay. Appreciate that.

James Dimon -- Chairman and Chief Executive Officer

We look for reasons to put up reserves.

Marianne Lake -- Chief Financial Officer

Yes.

James Dimon -- Chairman and Chief Executive Officer

Not to take them down.

Marianne Lake -- Chief Financial Officer

Only the paranoids survive. We are more paranoid than you are.

James Dimon -- Chairman and Chief Executive Officer

Right.

Glenn Schorr -- Evercore ISI -- Analyst

Last one. Obviously, markets all went down in the fourth quarter and we had some freeze-ups, if you will, in high yield first time in like 10 years. But I'm curious how you all think the markets functioned in general. In other words, things went down, spreads widened out, there was lots of fear, but it felt like the plumbing was working, but I don't want to put words in your mouth.

Marianne Lake -- Chief Financial Officer

Yes.

James Dimon -- Chairman and Chief Executive Officer

And half the people weren't even here the last two weeks in December.

Marianne Lake -- Chief Financial Officer

That's right. The plumbing was working. We didn't see any sort of algo or technology issues. We didn't see any volumes that can be coped with. While I said that there was a little bit of a lack of debt for the markets and liquidity, that's typically the case when you have one-way trends in a market and a lot of people similarly situated. So I would say that relatively functioned well, but challenging.

Operator

Our next question is from Andrew Lim of Societe Generale.

Andrew Lim -- Societe Generale -- Analyst

Hi. Good morning. Thanks for taking my questions. I just had a follow-on question from the vesting high-yield marks question. I mean, you seem to getting impression that there weren't really much in the way of marks. Is that because you got very strong hedging strategies in place and that the decline in FICC revenues mainly was due to the lower volumes?

James Dimon -- Chairman and Chief Executive Officer

There were no marks.

Marianne Lake -- Chief Financial Officer

There were no marks. In our bridge book right now, we have, for the vast majority, we have good cushion and we expect to be able to clearing price through the market and for anything that's even borderline, it's completely not material.

James Dimon -- Chairman and Chief Executive Officer

And I think some of the field did have a few marks.

Marianne Lake -- Chief Financial Officer

Yeah.

James Dimon -- Chairman and Chief Executive Officer

If you look at what happened to flex pricing, like mid-December, when things were at their worst, yeah, some of these things were very close to the end of their flex pricing, and that means they're very close to having some kind of mark. Of course, since then, the spreads have kind of come back 40%.

Marianne Lake -- Chief Financial Officer

Right.

Andrew Lim -- Societe Generale -- Analyst

Interesting. Thanks. And then my follow-up question is that also mean the capital markets had a tough time. But your wholesale lending, the grids accelerated quite nicely. And do you get the impression that corporates had a general shift to seek borrowing from banks such as yourselves, because they were shut out of the market?

Marianne Lake -- Chief Financial Officer

I mean, there was an uptick at the end of the year, you saw in the industry data, we saw it in our spot data. For us, in fact, it was largely driven by: one, investment grade loan that we extended at the end of the quarter, but there was a little bit of an uptick a little bit more in terms of acquisition financing on the balance sheet, but nothing I would call --

James Dimon -- Chairman and Chief Executive Officer

(inaudible)

Marianne Lake -- Chief Financial Officer

No. Nothing that I would call unusual or a trend. We didn't have to take down things that would have otherwise not cleared the market.

Operator

Our next question is from Matt O'Connor of Deutsche Bank.

Matt O'Connor -- Deutsche Bank -- Analyst

Good morning. I want to circle back on the expense flexibility. I think, in your base case you're pretty clear that you're targeting positive operating leverage and moving down the efficiency ratio to the mid 50%s. But what is some of the expense flexibility and where would it come from if the revenue is light? I think, in 2018, you accelerated some of the technology spend given tax reform, you've been opening branches, some of that stuff obviously can't be pulled back. But you always talk about some areas of flexibility. So maybe what are those and if you could kind of size or help quantify some the flexibility you have, that would be helpful. Thank you.

Marianne Lake -- Chief Financial Officer

Yeah. So I would say, first of all, that you saw that from 2013 through 2016, we had a pretty structural expense reduction program associated with simplifying our businesses. So in terms of the low hanging fruit and things like that, we would say largely that's been harvested. We are always looking to generate core operating efficiencies, so that we can absorb growth. And when we are investing in technology and data, one of the reasons to do it, customer satisfaction, product innovation aside, is for efficiency. So we are seeing some that come through. We'll continue to drive that down.

James Dimon -- Chairman and Chief Executive Officer

But the efficiencies and the investments are all in the number that Marianne gives and when she says up 5%.

Marianne Lake -- Chief Financial Officer

That's right.

James Dimon -- Chairman and Chief Executive Officer

Roughly mid-digits for --

Marianne Lake -- Chief Financial Officer

And so the way I would -- the way I would say it is that we continue to drive for expense discipline. But as long as you feel as we do that the decision criteria that we use to determine the investments we're making, which we think are strategically important for the long-term growth of the Company and the profitability of the Company supporting our clients, if those are good decisions for long-term growth, while we could obviously make changes, we would not look to do that. And so marketing expense, for example, is one area where you would say, there's pretty sizable and immediate flexibility nevertheless when we invest in marketing, we're driving new accounts and engage customers that drive long-term growth. So we invested through the cycle, we think it sort of differentiates our long-term performance and we'd like to continue to do that. 2019 over 2018, you wouldn't expect to see necessarily the same clip-ups that you saw last year. We did accelerate investments in 2018. And so more of the growth will be revenue-related, but still decent investments and the opportunity is still good to do that.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay. That's helpful. And then just on a sidebar here on the reserve bill as we think about credit quality, are we just in the period now where we should assume kind of some reserve build consistent with loan growth each quarter? Or was this just a quarter where you had a couple of the lumpiness that really drove it? I guess, what I'm getting at is, last quarter, you had --

James Dimon -- Chairman and Chief Executive Officer

We had pretty good model for it.

Marianne Lake -- Chief Financial Officer

Sorry, keep going.

Matt O'Connor -- Deutsche Bank -- Analyst

I guess what I'm getting at is, like it's -- are we at the point where like just a couple lumpy loans is going to drive a few hundred million reserve build or is it just -- maybe this is a bit unusual still?

Marianne Lake -- Chief Financial Officer

So, first of all, I just want to sort of point out that in the cards space, we hopefully continue to grow healthy mid-single digits. There's the seasonality to cards balances and losses, so you typically see reserve builds in the second half of the year, that's what we saw this year and actually a little bit lower year-on-year than last.

And in the wholesale space, you're going to see some things will be a bit lumpier and episodic given the nature of the loans that we have. I wouldn't necessarily say that we expect to see a trend of some significant reserves, but we've been flatted by recoveries and releases over the course of the last couple of years, partly or in large part, at least earlier, releasing reserves we took on energy, when the energy went through the downturn. And so, we'll have some downgrades, we might have some releases. I would, net-net, think that, as we grow, we would build, but not disproportionately.

And we're arguably at the best point in the cycle. So Jamie mentioned earlier, to the degree that we have the flexibility, we're making sure that we're reserved accordingly.

Operator

Our next question comes from Saul Martinez of UBS.

Saul Martinez -- UBS -- Analyst

Hey, good morning. Sorry about earlier. I think I need to figure out how to use my phone. (Multiple Speakers) No comment there. Lot of talk on macroeconomics and the policy backdrop in volatile markets. But as you mentioned earlier, you guys are in a pretty unique position in that you have pretty consistent dialog with a lot of economic agents whether it's corporates, governments, institutional investors and whatnot. But just a sense of what your clients are saying, what are they concerned about. Is there any concern on your part that some of these issues have sort of a self-fulfilling effect in that, it does end up leading to actions that precipitate a downturn or a recession?

Marianne Lake -- Chief Financial Officer

So, I mean, I think that we would look to the sort of macroeconomic data, which is still generally supportive and say things should be good. But for sure, the sentiment is not immune to external factors. And so manufacturing data has been a little weaker, I would say, CapEx is sluggish on, let's say, is around global growth. Government shutdown trades are not particularly helpful, uncertainly is not good for anyone. So there's no doubt that as things continue, if there's an level of anxiety and uncertainty, if it's not constructive for confidence and confidence to get stronger or less strong market. So, no, I wouldn't say, I think it's clear and present danger, but I think we should be extremely careful because sentiment, particularly consumer sentiment will be incredibly important. And right now, it's to good, right, sentiment in consumer and we just got back some sentiment from a whole bunch of our middle market companies that well neither are at their highs, are still very high.

Saul Martinez -- UBS -- Analyst

Right. Okay, that's helpful. If I could just ask about loan growth and just a more broad question about your ability to continue to outpace the industry and I suspect we'll get more color at Investor Day. But just want to get your sense of the sustainability of growth. And you mentioned on the commercial side, maybe you scaled back a little bit, maybe we're late cycle. But where do you feel like you can continue to outgrow the industry? Where do you feel like maybe it's time to scale back on risk a little bit?

Marianne Lake -- Chief Financial Officer

Okay. So I mean, I think it's incredibly nuance question because in general, home lending has a challenging market backdrop. For us, it's tale of two cities. We're doing quite well and gaining a bit of share in the kind of retail purchase market. And we're holding sort of pricing discipline in correspond and losing share there. So there's a challenging market backdrop. Card was doing well at -- and it's a factor of all things we talked about, our investments in digital product, rewards, all of the above. So we would like to believe that we'll continue to hold our own there.

Auto is extremely competitive. We play in prime, super prime space and we're seeing competition from people who have different economic drivers in our sight, credit unions and captives. And so we're willing to lose share to maintain returns there. You bifurcate C&I, we're growing in line or better than the industry in our expansion markets where we've been making the investments, where we've been adding specialized industry coverage, and we'd like to see that because of the investments we're making, but in mature markets where again being pretty prudent, I wouldn't call it tightening but being very selective.

Commercial real estate, particularly construction lending, yeah, we are tightening, we are being very cautious about new deals and selective about them. So it isn't the case anymore that we would say we're seeking to grow, although we ever were, loan growth is an outcome of a number of factors, may need a strategic dialog with our companies, but also the environment we're in and it's extremely nuanced. And in many of our businesses, we're going to protect profitability and credit discipline over growth at this point.

James Dimon -- Chairman and Chief Executive Officer

So let me just reemphasize that. We tell our management that we have no problem seeing loan books shrink.

Marianne Lake -- Chief Financial Officer

Correct.

James Dimon -- Chairman and Chief Executive Officer

We are not going to be sitting here ever in our lives and say you got to grow the loan book, you got to show loan growth. Remember, Warren Buffett used to say, in insurance business, sometimes, during the little business you're better off with the sales force, go play golf in order to make new loans. We are not going to be stupid. And the other thing you have to always keep in mind is not the loan, it's the relationship if you look at in total. And so, when it comes to middle market or all these other things, there are reasons that we stay in a business knowing there's going to be a cycle and we're not going to be children when there's a cycle. We know the losses are going to go up.

Operator

Our next question is from Betsy Graseck of Morgan Stanley.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi, good morning.

Marianne Lake -- Chief Financial Officer

Good morning.

Betsy Graseck -- Morgan Stanley -- Analyst

Are we playing golf all day yet or is that still far away?

James Dimon -- Chairman and Chief Executive Officer

Credit is pristine. Mortgage credit is pristine, middle market is pristine, underwriting standard has been pretty good, other than a few little pockets that Marianne has mentioned. But we saw people stretching in auto, we saw some stretching and we're not in the subprime credit card, but a little bit or few stretching that in. Leveraged lending, we're not worried about our loan book. I think you can have a logical conversation with kind of the non-bank loan book, but that's not our concern and it is what it is at the time, so --

Marianne Lake -- Chief Financial Officer

And I think where businesses are notably a little bit less relationship-driven, I think about kind of low loan new relationships, commercial term lending, real estate banking, mortgage, to a lesser degree, auto. We are seeing -- we are losing or ceding share where it makes sense to do it.

James Dimon -- Chairman and Chief Executive Officer

And competition there, we've done this before, is back everywhere and that's a good thing for America. That means the pricing is a little tough, and that you have to compete.

Betsy Graseck -- Morgan Stanley -- Analyst

Yes. So we're still off the golf course. All right. That's good. Just wanted to understand a little bit more on the expense side. I know it was a -- even with the weather, you guys put out a 14% ROTCE, which is obviously best-in-class. The question is, on the expenses, there's flexibility there, but yet I know you've got it to up-single digits in 1Q 2019. Based on the prior conversation, it seems like 1Q might be an aberration of mid-single digits or should I take that that's kind of the run rate you're expecting for the full year. So, why would 1Q be a little bit different, I guess, is really the question.

Marianne Lake -- Chief Financial Officer

Yes. So I wouldn't fully annualize the first quarter, but think about we've added bankers and advisors across our businesses, so you're going to get some annualization impact, particularly first quarter into first quarter. We had added more and more as the year progressed. Similarly something like auto lease where we grew our auto lease business, revenues and expenses strongly in 2018 and that will be in our run rate in the first quarter, so front office, auto lease, some of the technology investments we've been making, the annualization of those will be more pronounced first quarter to first quarter than fourth quarter to fourth quarter, because many of them were in our run rate in the fourth quarter. And then, outside of that, there's a bit more in real estate as we sort of execute on our head office strategy and then marketing, foundation completion, those things -- there are going to be timing.

So the first quarter will be higher. I wouldn't annualize it. We are going to see likely growth year-over-year much more because of revenue growth than because of investments at both year-on-year not the same level as the last year. And we'll obviously give you a lot more detail and insights and thoughts on ranges and everything at Investor Day clearly.

Operator

Our next question is from Brian Kleinhanzl of KBW.

Brian Kleinhanzl -- KBW -- Analyst

Hi, good morning.

Marianne Lake -- Chief Financial Officer

Good morning Brian.

Brian Kleinhanzl -- KBW -- Analyst

Hi, Marianne. Just a quick question on the balance sheet. I'm sorry if you gave this already, but can you kind of walk through the idea of lowering down the deposit with banks and kind of moving into repo what you saw in the quarter, and then kind of, is that just something that was temporary that's expected to reverse in the first quarter? Thanks.

Marianne Lake -- Chief Financial Officer

Yeah, so, I mean, it's fair to say that money market rates traded above IOER throughout the fourth quarter and more pronounced at the end of the quarter. And so, through the quarter and that year end, we were able to take advantage of the market opportunity to move out of cash into cash alternatives, thinking of reverse repos and short duration assets. And so for us, it was yield enhancing opportunity to redeploy cash and a mix change rather than adding duration and that continues to be the case into the first quarter. It contributed to our NIM expansion in the fourth quarter. We continue to have a bit of that mix shift in the first quarter and it's a market opportunity.

Brian Kleinhanzl -- KBW -- Analyst

Okay. And then a separate question, I know it's not a big revenue driver anymore, but within the mortgage banking, you had a negative gain on sale in the quarter. If you can just give us some color there what drove a negative gain on sale.

Marianne Lake -- Chief Financial Officer

Yeah, so in the quarter, as we were looking at optimizing our balance sheet, we actually did a sale of conforming loans to the GSEs of about $5 billion. The impact of that was to have a loss on the sale of the portfolio given that they've been originated at lower rates. So as rates are higher, the fair value of the loans is lower. Against that, if you were to look at the rest of the P&L, you'll see a benefit in net interest income because the interest rate risk of that has been transferred to the Treasury Department. So it's geography. It's is a loss on the sale of a portfolio against which there's funding breakage in NII. Just so that you know, when we -- our mortgage loan with RWA at 50% versus a security at 20% with better liquidity value. We did reinvest some of those proceeds in mortgage-backed securities in Treasury. So we'll earn that back over time, net to the company.

Operator

Our next question is from Steven Chubak of Wolfe Research.

Steven Chubak -- Wolfe Research -- Analyst

Hey, good morning. So wanted to start with just a bigger picture question on credit and the impact of normalization. Certainly the near-term guidance sounds quite encouraging. Jamie, you did make a comment recently at an investor conference, talking about how the banking industry is over-earning on credit, not particularly a controversial remark, but in the past you guided to a medium-term loss rate, blended basis of roughly 65 bps that does contemplate continued loan losses in Commercial. And just given that we're late cycle, I was hoping you can maybe speak to your expectation for what a normalized credit loss rate is for JPMorgan, given your current mix and where that might differ from your medium-term loss guidance?

James Dimon -- Chairman and Chief Executive Officer

So we're not talking quarter-over-quarter, we're just talking in general trends?

Steven Chubak -- Wolfe Research -- Analyst

I'm talking bigger picture.

James Dimon -- Chairman and Chief Executive Officer

Right. So Marianne has shown, year-to-year, what are consider normalized losses and for years we've been doing better than that, in credit card, middle market, large corporate, mortgage has come back down to a very low number. And at one point, it is going to go up. So I'm not -- we're telling you what's going to happen next quarter. Right now it looks like it's kind of steady state. But at one point, we will not be surprised to see it go up. I don't know if it could be second quarter or third quarter or fourth quarter and I don't know if we're late cycle. We don't exactly know where we're in the cycle and so we just won't be surprised to see it go up in the number. We look at it by product, we don't look at it in a total as it can actually -- the number may vary against the total.

Marianne Lake -- Chief Financial Officer

No, no. And I think -- I hate to say this because I know that you don't want to wait a few weeks, but we'll have a more complete conversation about kind of range of plausible outcomes on credit at Investor Day. But when we gave our medium-term simulation, we said, listen, we did a 17% return on tangible common equity in 2019 and our medium-term guidance is for 17%. We've under-earned against our guidance in other parts of the cycle, maybe we will over-earn against it, but NII and refi flags are higher and credit is benign, and at some point, we would expect those things to normalize, but we would continue to see solid growth in all of our drivers. So we don't know when it will be and actually we don't see anything that things -- I know you said, is it second, third or fourth quarter. There's no indication that it's in any of those quarters. But we'll have a more comprehensive discussion at Investor Day about range of plausible outcomes.

Steven Chubak -- Wolfe Research -- Analyst

All right. Looking forward to that. And just one follow-up for me on the IB outlook. Marianne, I was hoping I could unpack just some of your comments around the -- how the IB backlog. You cited that as being quite strong, but just looking at the individual businesses for M&A, ECM, DCM, especially given some of the economic pressures outside the US, what informs your outlook across each of those?

Marianne Lake -- Chief Financial Officer

Yes. So I would say that, first of all, we did see given the conditions in the fourth quarter a number of deals that got pushed from the fourth quarter into the first quarter, particularly in ECM and DCM. In M&A, it was a little bit more balanced. For every deal that got pushed or stopped there, there were more that came to take its place. But as a result, now as we go into the first quarter, pipelines across the board are elevated relative to last year are pretty strong. And at the end of the day, we talked about earlier, confidence is still high. Companies are still motivated to drive growth.

And so the environment should be constructive for continued M&A. Technology, healthcare, the biotech innovation, technology innovation momentum in ECM that we've been benefiting from and the IPO pipeline should continue market dependent. And notwithstanding December, actually a sort of lower outlook for rates in the US should broadly be a tailwind for fixed income in the first quarter in the first-half. So the second half of the year, I think, is going to be determined by how things shape up over the next several months. But looking into January, again, if the market remains generally constructive, we should see tailwinds across the businesses.

James Dimon -- Chairman and Chief Executive Officer

And I think the intentional backlogs, generally, you want them high because that's good, but they're all like an accordion too, they come and go. So that's not a forecast for the future that you'd definitely get those revenues, then you get delayed, particularly things like IPOs that you've already seen. And the other thing I'd just want to point out is a shout out to the folks in the investment bank, our market share went up in Europe, Asia, Latin America and the United States last year. That's what we really look at when we look at the business.

Marianne Lake -- Chief Financial Officer

60 basis points, full year, approx.

James Dimon -- Chairman and Chief Executive Officer

60 basis points, full year. And first time ever it went up in all four major markets.

Operator

Our next question is from Marty Mosby of Vining Sparks.

Marianne Lake -- Chief Financial Officer

Hi, Marty.

Marty Mosby -- Vining Sparks -- Analyst

Good morning. Jamie, I'm glad that you mentioned that we don't know the red in of the cycle because that's kind of just assumed because of the lapse of time, but not really the economic factors. And then the other piece of this is when you look at losses, they tend to be good until they go into recession then they're bad. There's no just kind of normalization. So the question about a normal rate of loss that we really have two dichotomous answers. We have a good answer, which is when we're expanding and the economy is stable. And we have a bad answer, one, our recession, it's kind of one or the other. Just wanted to see what you thought about that.

James Dimon -- Chairman and Chief Executive Officer

Yeah, you're exactly right. At one point, you're going to over-earn, and one point you're going to under-earn. And we try to -- when we look at the business, we kind of try to price through that. So we try to earn fair returns through the cycle. And I totally agree with you. We know it's going to -- they're going to change at one point. And we try to do a better job underwriting too, by the way. We're not -- we do work hard and make sure we out-underwrite other people as best we can.

Marty Mosby -- Vining Sparks -- Analyst

What's then the limits of volatility when you go into that bad period, which is what you want to do; you underwrite -- make sure you're defending against that cycle?

James Dimon -- Chairman and Chief Executive Officer

Exactly. And the other one you have is the reserves. You put them up, you take them down. So our total reserves, what $14 billion?

Marianne Lake -- Chief Financial Officer

Yes, $14 billion and a bit.

James Dimon -- Chairman and Chief Executive Officer

Yeah, but at one point, they were $30 billion. So we went from -- in the great recession, we went from $7 billion to $30 billion, back to $14 billion. And I call it income paper.

Marianne Lake -- Chief Financial Officer

Right.

James Dimon -- Chairman and Chief Executive Officer

It doesn't mean anything. It's just -- right, so when you go into that recession, your losses go up, any reserves have to go up. And we're completely aware of that.

Marianne Lake -- Chief Financial Officer

Although I think we could say for obvious reasons that we wouldn't expect any near-term recession if there is one to look anything like it did before. And even if it did, given the credit quality of the portfolios, performance will be not only absolutely better, but we think strong on a relative basis.

James Dimon -- Chairman and Chief Executive Officer

So other than if you look at the consumer that $13 trillion that's outstanding, other than student, which is fundamentally own by the government, the mortgage stuff that's been written is prime. So it's back to $10 trillion, but it's much better than what it was in 2007. And I think credit card, I forgot the exact numbers, it's much more prime than it was in 2007. I think orders are about the same, but order actually outperformed in the --

Marianne Lake -- Chief Financial Officer

There's more prime.

James Dimon -- Chairman and Chief Executive Officer

Yes, more prime, and outperformed in the Great Recession. I think, people, in general, has done a better job underwriting middle market and leverage stuff than it did last time. So I think you don't need -- if you start a recession soon, going into it, their credit portfolio is much stronger than last time.

Marty Mosby -- Vining Sparks -- Analyst

And the follow-up question to that is we talked about auto and some of those other places where you saw some of that deterioration. What our models showing is that actually the discipline and the reaction time to that deterioration is much quicker than when we saw the one to four family cycle in the last time, where you saw deterioration but growth just kept going. We've had so many banks jump in and say, look we've already pulled back on auto lending or we pulled back on multi-family. There's already been places where you've seen that discipline. So that discipline in itself puts a governor on economic growth which is why we're having less growth or slower growth, but yet it also creates a, like you said, a stronger portfolio for that eventual downturn.

James Dimon -- Chairman and Chief Executive Officer

And I agree with you, the lack of discipline we see is in student and a little bit in small commercial real estate.

Operator

Our next question is from -- I'm sorry.

Marianne Lake -- Chief Financial Officer

No, keep going.

Operator

Our next question is from Gerard Cassidy of RBC.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, Marianne.

Marianne Lake -- Chief Financial Officer

Good morning.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Can you guys -- there's been a lot of talk about leveraged loans and how this time around everything seems to be underwritten better. Are there any tangible statistics that you can share with us or maybe on Investor Day you might, to show us that, yes, the leveraged loan portfolio for you guys in particular is much healthier than maybe 2006, 2007?

And then second, on this leveraged loan issue, outside the banking industry, what are some of the indirect hits that you and maybe some of your peers may experience, none from the direct hit of a leveraged loan, but for some of the craziness that's going on outside the banking industry?

James Dimon -- Chairman and Chief Executive Officer

So can I just give the big picture, I think $1.7 trillion of leveraged loans, OK. So Term A is about half of that. These are very rough numbers, OK? Most of which were banks and obviously safer than Term B. A big chunk, over, I think, 60% or 70% of the Term B is with non-banks. And so, if you look at the banking system, if you look at the leveraged lending rich book in 2007, it was over $400 billion, today it's a number like $80 billion. In 2007, there were commitments in no flex. Almost everyone has plenty of flex now.

So when you look at covenants, there is kind of covenants, but there's flex and there is a whole bunch of other stuff in there. So it is far, far, far sounded today. Even these CLOs, you look to underwrite the two CLOs, they are far better underwritten with more equity, more sub-debt, more mezzanine stuff like that. And now go to the shadow banks, they do things slightly differently, a lot of those folks are -- they're quite bright. They kind of know what they're doing. Someone's going to get hurt there.

And the issue there in the next recession isn't going to be what the loss. And remember, most of the major banks don't fund a lot of that. We aren't taking huge indirect exposure to that by funding some of the non-banks. And I think the issue there is, for the marketplace, is going to be, when you have a real recession, the lender will not be there. So lot of these borrowers will be stranded. And so that -- and that's not -- that's an opportunity or a risk or something like that, but it's not -- I wouldn't put it in the systemic category.

Gerard Cassidy -- RBC Capital Markets -- Analyst

And do you think that --

James Dimon -- Chairman and Chief Executive Officer

By the way -- again, if you go back to 2007, it emerged in 2007, there was $1 trillion of bad mortgages that were kind of all over the place, the CLOs, SIBs. There are no SIBs. The CLOs are much smaller. The leveraged lending book is a much smaller book. Capital liquidity is much higher. So, it is nothing like 2007. You will have a recession, it just won't be like you had last time, affecting the banking system. It will affect the banking system. We are little bit canaries in the coal mine. We are not immune to what goes on in the economy. But it won't be anything like you saw last time for most of the larger banks.

Gerard Cassidy -- RBC Capital Markets -- Analyst

No, I would agree with that. And do you think Janet Yellen and other Federal Reserve officials comments about leveraged lending is more directed to the exposure outside of the banking industry than inside the banking industry?

James Dimon -- Chairman and Chief Executive Officer

Yes, I do.

Marianne Lake -- Chief Financial Officer

Yes.

James Dimon -- Chairman and Chief Executive Officer

And again, I don't think they were saying it's huge and systemic. They're saying it's something they should keep an eye on. And I think that the regulatory do keep an eye on that.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Right. And then just a pivot on a deposit question. Obviously, non-interest-bearing deposits are tough to keep as rates are going higher. Can you guys give us some color on the non-interest-bearing deposits? There was obviously a small decline. What parts of the business you're seeing that and the Fed's unwind of its balance sheet how much of an impact do you think that might be having on the non-interest-bearing deposits?

Marianne Lake -- Chief Financial Officer

So, the migration into product from non-interest to interest-bearing is predominantly or largely exclusively a wholesale thing. At this point there is not enough rate benefit in the interest-bearing savings to drive into product migration, definitely some growth outlook in CDs given pricing, but it's wholesale right now and it's mainly rate-related and not balance sheet related in terms of the Fed unwind.

James Dimon -- Chairman and Chief Executive Officer

Can I just make a comment about interest rates and the balance sheet of Fed? So, the interest rate is one thing but the balance sheet of Fed obviously is causing changes in the flow of funds. It's causing changes in -- the banks now have options other than reserves at the central bank because the two-year and three-year bond yields for corporate -- government bond is much higher, some people are preferring to own that, because they think they'd be paid better than corporate risk. So, changing the whole bunch of fund flows which concerns people, but I'd say it's part and process of normalization.

Marianne Lake -- Chief Financial Officer

Yes.

Operator

Our next question is from Ken Usdin of Jefferies.

Ken Usdin -- -- Analyst

Hi, thanks.

Marianne Lake -- Chief Financial Officer

Hi, Ken.

Ken Usdin -- -- Analyst

Hi. Good morning. There were couple of Fed or regulatory documents out in late December, one is codifying the three-year burning of stated CECL impacts. And then another one where they are pushing out till 2022 on their own implementation of CECL accounting in the supervisory stress test? I was just wondering, just any takeaways you had from reading that and any hopes you might have for just as we get toward some finalization of which way CECL goes and how it looks, aspirations around that and how that interacts with CCAR and such?

James Dimon -- Chairman and Chief Executive Officer

Before Marianne answers that question, I just want to do a shout out to Jefferies, because we actually look at what everyone does and every investment banking group, and you guys did a hell of a good job in healthcare this year.

Ken Usdin -- -- Analyst

I'll pass that along, Jamie.

Marianne Lake -- Chief Financial Officer

And following that -- it's hard to follow, I would say that we've been pretty clear about the fact that our biggest concern around CECL was like properly understanding not just for us but regulators to properly understand the implications for capital, not only in benign but in stressed scenarios, and what the implications of the outcome that it could have on the willingness of people to extend credit, particularly as cycles age and with the outlook for volatilities to increase. So, having a transition is obviously helpful. You should imagine that we would likely avail ourselves of that opportunity. That is what it is.

For me, the question that needs to be clarified is, if we are to include the impact of CECL in Company-run stress test, but the Federal Reserve is not going to include it in the stress test, we need to kind of understand the insight between those two things, particularly if that might coincide with a turn in the cycle in actual fact. So I think we're looking for continued clarity from the regulators about what exactly that means. If we're embedding these assumptions into our stress tests and our results sooner than they are, how do we think about the implications of that on our distribution plans and capital outlooks.

And importantly, if it really is the case that we have to upfront significant amounts of capital for longer term and lower credit quality loans, I do really believe even though the cash flows and the economics conceptually don't change that you might find people less willing to lean into growth for longer duration assets if there are concerns around potential volatility and we should worry about that.

James Dimon -- Chairman and Chief Executive Officer

And it'll be a big number for like credit card. So, if you put on 3% now on when you build the loan book by $100, the number would be 6%. Some number in the future will be much higher. So I do think particularly smaller banks will react fairly dramatically on how they run their loan books to do that.

Marianne Lake -- Chief Financial Officer

So, our view is that more on that just needs to be done in the industry about what this looks like. I hope that what was meant by we should include it in company run stress test is for us to collectively learn and for the regulators to have the time to respond to that. But remember, 2022, considering all the discussion we've had on this call about the cycle, how long the cycle is, when there's a turn in the cycle, I mean, we could actually face a stress before that. And so it's great that they are waiting a bit, but it might all be a bit of an academic point depending on what happens actually.

Ken Usdin -- -- Analyst

Yeah. That's a fair point. And, Jamie, you've also said in the past that you guys lend on accounting, right -- don't lend on accounting and lend on economic, right, but there's this kind of challenge to that that Marianne just mentioned about the unintended consequences. And so, it would be interesting to see that if there is in fact a point where banks don't lean in as you just mentioned, Marianne.

Marianne Lake -- Chief Financial Officer

Yes.

James Dimon -- Chairman and Chief Executive Officer

They will change.

Marianne Lake -- Chief Financial Officer

Yes. And we have the luxury or the flexibility of being able to say that we can continue to lend based upon the underlying economics, but someone who has a differently situated balance sheet and return profile may not be able to do that.

Ken Usdin -- -- Analyst

Okay, thanks for the color.

Operator

Our next question is from Mike Mayo of Wells Fargo Securities.

Marianne Lake -- Chief Financial Officer

Hey, Mike.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi. A follow-up on the net interest margin, two sides to the question. One is, commercial loan pricing, I guess, it's been kind of brutal you've had the BDCs, private equity firms, loan funds all competing. Has there been any let up with some of the dislocation the capital markets late in the year? And the other side, retail deposit betas, Marianne, you thought they would get a lot worse. I don't think it's been as bad as you thought. What was your retail deposit beta and what do you still expect?

James Dimon -- Chairman and Chief Executive Officer

Before Marianne answers that, can I just go back to the cyclical stuff? One of the issue -- it's not just CECL. A lot of things that have been built and since the crisis were really good, but there was more pro-cyclicality built into it. And so you're going to see the next downturn that we have a far more pro-cyclical accounting, liquidity and rules, capital rules and stuff like that, which we don't know the full effect of that. But if I was a regulator, I'd be very cautious about constantly building pro-cyclicality into the system. And I gave you the example, is our loan loss is going from $7 billion to $30 billion or whatever they went to back to $14 billion. It will affect how people respond to in the downturns. And it will cause people to pullback much quicker than maybe in the past in total.

Marianne Lake -- Chief Financial Officer

Okay. So, just on your question, so corporate loan spreads, I would say, we did see sort of pretty brutal grinding down in corporate loan spreads. But over the last actually couple of quarters, we saw them find a bit of an equilibrium and stabilize at levels. So while I would say it's still true to say that there is a lot of competition, at least in the space in which we're operating we're seeing spreads at relatively stable levels in the corporate space. And honestly, I don't remember saying that I thought we would see an acceleration that was dramatic in retail betas in the short-term. I mean, obviously at some point when we have this level of rates and the spread between market rates and rates paid get to a certain level and if normalization continues, we would expect to see reprice lags sort of catch up. But, we have not seen that yet outside of CDs in retail space right now.

Mike Mayo -- Wells Fargo Securities -- Analyst

And the way you calculate it, what was your retail deposit beta this quarter and how does that compare to the past?

Marianne Lake -- Chief Financial Officer

So, in checking and savings and lead savings, it's nothing. In CDs, it's something, but around to a very small number.

Mike Mayo -- Wells Fargo Securities -- Analyst

All right. Thank you.

Marianne Lake -- Chief Financial Officer

Thanks, Mike.

Operator

Our next question is from Gerard Cassidy of RBC.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you. Just a quick follow-up, Marianne. Have your investment bankers on the front lines passed on any concerns about the government shutdown? There's been reports that the SEC is not open. And is that slowing down the Investment Banking business and your thoughts on that, please?

Marianne Lake -- Chief Financial Officer

Yes. So, I would say that we've been -- we benefited from the fact that year-end and into the early part of January and holiday season have a light calendar, typically in January for IPOs in particular. But for sure, if we don't see the ability to get approvals from SEC on IPOs and to a lesser extent some of the M&A deals that need approvals from government agencies, it will be problematic in the ability to see those activity levels play out and fees be realized. So, it's one of many things that would behoove us to end this sooner rather than later.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you.

Operator

And we have no further questions at this time.

Marianne Lake -- Chief Financial Officer

Thanks very much.

James Dimon -- Chairman and Chief Executive Officer

Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 82 minutes

Call participants:

Marianne Lake -- Chief Financial Officer

Erika Najarian -- Bank of America Merrill Lynch -- Analyst

James Dimon -- Chairman and Chief Executive Officer

Jim Mitchell -- Buckingham Research -- Analyst

John McDonald -- Bernstein -- Analyst

Al Alevizakos -- HSBC -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

Andrew Lim -- Societe Generale -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Saul Martinez -- UBS -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Brian Kleinhanzl -- KBW -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Marty Mosby -- Vining Sparks -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Ken Usdin -- -- Analyst

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