JPMorgan Chase (JPM) Q1 2022 Earnings Call Transcript

JPMorgan Chase (JPM 0.49%)
Q1 2022 Earnings Call
Apr 13, 2022, 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 first quarter 2022 earnings call. [Operator instructions] At this time, I would like to turn the call over to JPMorgan Chase's chairman and CEO, Jamie Dimon; and chief financial officer, Jeremy Barnum. Mr.

Barnum, please go ahead.

Jeremy Barnum -- Chief Financial Officer

Thanks, operator. Good morning, everyone. The presentation is available on our website, and please refer to the disclaimer in the back. Starting on Page 1, the firm reported net income of $8.3 billion, EPS of $2.63, and revenue of $31.6 billion, and delivered an ROTCE of 16%.

These results include approximately $900 million of credit reserve builds, which I'll cover in more detail shortly, as well as $500 million of losses in credit adjustments and other in CIB. Regarding loan growth, we're continuing to see positive trends with loans up 8% year on year and 1% quarter on quarter ex PPP, with the sequential growth driven by a continued pickup in demand in our wholesale businesses, including ongoing strength. On Page 2, we have some more detail on our results. Revenue of 31.6 billion was down 1.5 billion, or 5% year on year.

NII ex markets was up 1 billion, or 9%, on balance sheet growth and higher rates, partially offset by lower NII from PPP loans. NIR ex markets was down 2.2 billion, or 17%, predominantly driven by lower IB fees, lower home lending production revenue, losses in credit adjustments and other in CIB, as well as investment securities losses in corporate. And markets revenue was down 300 million, or 3%, against a record first quarter last year. Expenses of 19.2 billion were up approximately $500 million, or 2%, predominantly on higher investments and structural expenses, largely offset by lower volume and revenue-related expenses.

Credit costs were 1.5 billion for the quarter. We've built 902 million in reserves, driven by increasing the probability of downside risks due to high inflation and the war in Ukraine, as well as builds for Russia-associated exposures, and CIB in AWM. Net charge-offs of 582 million were down year on year and comparable to last quarter and remained historically low across our portfolios. On the balance sheet and capital on Page 3, our CET1 ratio ended at 11.9%, down 120 basis points from the prior quarter.

As a reminder, we exited the fourth quarter with an elevated buffer to absorb anticipated changes this quarter, the largest being SA-CCR adoption, as well as some pickup and seasonal activity. In addition to those anticipated items, there were a couple of other drivers. The rate sell-off led to AOCI drawdowns in our AFS portfolio. But keep in mind, all else equal, these mark-to-market losses accrete back to capital through time and as securities mature.

And price increases across commodities resulted in higher counterparty credit and market risk RWA. While, of course, the environment is uncertain, many of these effects are now in the rearview mirror. And as a result, we believe that our current capital and future earnings profile position as well to continue supporting business growth while meeting increasing capital requirements as we look ahead. With that, let's go to our businesses, starting with consumer and community banking on Page 4.

CCB reported net income of 2.9 billion on revenue of 12.2 billion, which was down 2% year on year. In consumer and business banking, revenue was up 8%, predominantly driven by growth in deposit balances and client investment assets, partially offset by deposit margin compression. Deposits were up 18% year on year and 4% quarter on quarter, consistent with the last quarter. And client investment assets were up 9% year on year, largely driven by flows in addition to market performance.

In home lending, revenue was down 20% year on year on lower production revenue from both lower margins and volumes against a very strong quarter last year, largely offset by higher net servicing revenue. Originations of 24.7 billion declined 37% with the rise in rates. And as a result, mortgage loans were down 3%. Moving to card and auto, revenue was down 8% year on year, primarily on strong new card account originations leading to higher acquisition costs.

Card outstandings were up 11%, and revolving balances have continued to grow, ending the quarter above the first quarter of '21 levels. And in auto, originations were 8.4 billion, down 25% due to the lack of vehicle supply, while loans were up 3%, Touching on consumer spend, combined credit and debit spend was up 21% year on year, with growth stronger in credit as we see a continued pickup in travel and dining. And as the quarter progressed, we saw a robust reacceleration of T&E spend, up 64%. Expenses of 7.7 billion were up 7% year on year, driven by higher investments and structural expenses, partially offset by lower volume and revenue-related expenses.

Next, the CIB on Page 5. CIB reported net income of 4.4 billion on revenue of 13.5 billion for the first quarter. Investment banking revenue of 2.1 billion was down 28% versus the prior year. IB fees were down 31% year on year.

We maintained our No. 1 rank with a wallet share of 8%. In advisory, fees were up 18%, and it was the best first quarter ever, benefiting from the closing of deals announced in 2021. Debt underwriting fees were down 20%, primarily driven by leveraged finance as issuers contended with market volatility.

And in equity underwriting, fees were down 76% on lower issuance activity, particularly in North America and EMEA. Moving to markets, total revenue was 8.8 billion, down 3% against a record first quarter last year. Fixed income was relatively flat, driven by a decline in securitized products, where rising rates have slowed down the pace of mortgage production, largely offset by growth in currencies and emerging markets and commodities on elevated client activity and a volatile market. Equity markets were down 7% against an all-time record quarter last year.

This quarter, however, was our second best, with robust client activity across both derivatives and cash. And prime continued to perform well with client balances hovering around all-time highs. Credit adjustments and other was a loss of 524 million, driven by funding spread widening, as well as credit valuation adjustments relating to both increases in commodities exposures and markdowns of derivatives receivables from Russia-associated counterparties. Let me take a second here to address the widely reported situation in the nickel market as it relates to our results this quarter.

We were hedging positions for clients closely linked to nickel producers who generally sell forward a portion of the coming year's production. The extreme price movements created margin calls, which we and other banks are helping to address. Because this is counterparty-related, not trading, it appears in the credit adjustments and other line where it contributed about 120 million to the reported loss I just mentioned. It also drove approximately half of the increase in market risk RWA that I noted on the capital slide and was a driver of higher reported VAR, which will also be elevated in our upcoming filings.

Payments revenue was 1.9 billion, up 33% year on year, or up 9% excluding net gains on equity investments, driven by continued growth in fees, deposit balances, and higher rates. Security services revenue of 1.1 billion was up 2% year on year, driven by higher rates and growth in fees. Expenses of 7.3 billion were up 3% year on year, mostly due to higher structural expenses and investments, largely offset by lower volume and revenue-related expenses. Moving to commercial banking on Page 6.

Commercial banking reported net income of 850 million and an ROE of 13%. Revenue of 2.4 billion was flat year on year, with higher payments revenue and deposit balances offset by lower investment banking revenue. Gross investment banking revenue of 729 million was down 35%, driven by both fewer large deals and less flow activity. Expenses of 1.1 billion were up 17% year on year, largely driven by investments and volume- and revenue-related expenses.

Deposits were down 2% quarter on quarter as client balances are seasonally highest at yearend. Loans were up 5% year on year and up 3% quarter on quarter, excluding PIP. C&I loans were up 3% sequentially ex PPP, reflecting higher revolver utilization and originations across middle market and corporate client banking. CRE loans were up 3%, driven by strong loan originations and funding across the portfolio.

And then to complete our lines of business, AWM on Page 7. Asset and wealth management reported net income of 1 billion with a pre-tax margin of 30%. Revenue of 4.3 billion was up 6% year on year, as growth in deposits and loans and higher management fees and performance fees and alternative investments were partially offset by deposit margin compression and the absence of investment valuation gains from the prior year. Expenses of 2.9 billion were up 11% year on year, predominantly driven by higher structural expenses and investments, as well as higher volume and revenue-related expenses.

For the quarter, net long-term inflows of 19 billion were positive across all channels, with strength in equities, multiasset, and alternatives. And in liquidity, we saw net outflows of 52 billion. AUM $3 trillion and overall client assets of $4.1 trillion, up 4% and 8% year on year, respectively, were driven by strong net inflows. And finally, loans were up 3% quarter on quarter, with continued strength in mortgages and securities-based lending, while deposits were up 9%.

Turning to corporate on Page 8. Corporate reported a net loss of 856 million. Revenue was a loss of 881 million, down 408 million year on year. NII was up 319 million due to the impact of higher rates, and NIR was down 727 million due to losses on legacy equity investments versus gains last year, as well as approximately $400 million of net realized losses on investment securities this quarter.

Expenses of 184 million were lower by 692 million year on year, primarily due to the contribution to the firm's foundation in the prior year. Next, the outlook on Page 9. We still expect NII ex markets to be in excess of $53 billion and adjusted expenses to be approximately $77 billion. And we'll update these and give you more color in investor day next month.

So, to wrap up, once again, this quarter, the company's performance was strong in a particularly volatile and challenging environment. We helped our clients navigate very difficult markets, provided support to relief efforts, and implemented economic sanctions of unprecedented complexity with multiple directives from governments around the world. And of course, our thoughts remain with everyone, including our employees affected by Russia's invasion of Ukraine. Looking ahead, the U.S.

economy remains robust, but we're watching high inflation, the reversal of QE, and rising rates, as well as the ongoing effects of the war on the global economy. With that, operator, please open the line for Q&A.

Questions & Answers:

Operator

Please stand by. And our first question is coming from John McDonald from Autonomous Research. Please go ahead.

John McDonald -- Autonomous Research -- Analyst

Thank you. Good morning, Jeremy. I was wondering about the net interest income outlook. I know it sounds like we'll get more in investor day, but it's very similar to what you gave in mid-February.

And obviously, rate expectations have advanced since then. Could you give us a little bit of color on what kind of assumptions are underlying the net interest income ex markets outlook?

Jeremy Barnum -- Chief Financial Officer

Yeah. Good morning, John. Good question. Yeah, look, obviously, given what's happened in terms of Fed hike expectations and what's getting priced into the front of the curve, we would actually expect the excess part of in excess of 53 billion to be bigger than it was at Credit Suisse.

So, you know, to size that, you know, probably a couple of billion dollars. But we don't want to get too precise at this point. We want to run our bottoms-up process. We -- you know, there have been very big moves, and we're going to want to get it right.

And so, we'll give, you know, more detail about that at investor day.

John McDonald -- Autonomous Research -- Analyst

OK. And as my follow-up, could you give us some thoughts about the markets related at NII? What things should we think about there, whether it's seasonality or how it's affected by rising rates?

Jeremy Barnum -- Chief Financial Officer

Yeah. I guess I would direct you to my comments, I think one or two quarters ago, on this. But generally speaking, that number is pretty correlated to the short-term rate. So, you know, all else equal, you'll see a headwind in there as the Fed hikes come through, which, you know, in general, on the geography, we would tend to expect that to be offset in NIR.

But it's noisy. It can shift as a function of, you know, obscure balance sheet composition issues, as I've mentioned in the past, you know. And so, that's why we don't focus too much on that number.

John McDonald -- Autonomous Research -- Analyst

OK. Thank you.

Jeremy Barnum -- Chief Financial Officer

Thanks, John.

Operator

And the next question is coming from Ken Usdin from Jefferies. Please go ahead.

Ken Usdin -- Jefferies -- Analyst

All right. Thanks. Good morning. Jeremy, just wanted to follow up on your comments about capital and, you know, being able to provide room for organic growth.

You know, with 5.2 SLR, 11.9 CET1 versus your longer-term targets, can you talk about what that means in terms of the buyback potential from here? And do any of the RWA inflation items come back off that you just, you know, saw in the first quarter? Thanks.

Jeremy Barnum -- Chief Financial Officer

Yeah. Thanks. So, let me just give some high-level comments about the CET1 trajectory and so on. So, as you know, we went into the quarter with elevated buffers, knowing that we would have denominator growth as a result of the adoption of SA-CCR.

And so, of course, that happened. And, you know, we would have expected roughly to be at 12 .5, right in the middle of the range for this quarter. Of course, it was an unusual quarter in a number of ways. And so, we saw RWA inflation from market risk, which we've talked about.

And the AOCI drawdown and, you know, a number of other slightly smaller factors producing the 11.9. From where we sit here, to your point, a number of these items are, in fact, going to bleed back in relatively quickly, some faster than others. So, we would expect a significant portion of the RWA inflation to bleed out, obviously, to decay out. The AOCI drawdown will obviously come back over time.

And probably, most importantly, you know, to the prior question, the higher rate outlook is -- it's improving the revenue outlook, which will, of course, accrete to capital. Um, so then if you line that up against the sort of rising minimums, of course, we have the increase in the G-SIB requirement in the first quarter of '23 coming in. And then there's the question on SCB, where, you know, we don't know, obviously. But given the countercyclical nature of the stress and the fact that the unemployment launch point is a lot lower and that the unemployment rate is floored in the Fed's scenario, you might expect SCB to be a little bit higher when it's published in June, you know, effective in the fourth quarter.

But that gives us time to make any adjustments that we need to make. So, I guess to summarize, when we put all this together between improved income generation, some of the denominator decay effects, and the various levers that we have available to pull across the dimension of time as new information comes into play, we really feel quite good about our capital position from here and the trajectory as we look forward and minimums, you know, evolve.

Ken Usdin -- Jefferies -- Analyst

And just a follow-up there, too, is there anything you need to consider structurally in terms of like, you know, adding preferred to help bridge the gap? Or is it just going to be enough to organically build back with, you know, possibly, you know, just utilizing less buybacks will allow things to just grow back?

Jeremy Barnum -- Chief Financial Officer

Yeah. I think the -- I guess, in general, we haven't wanted to say a lot publicly about our preferred actions. As you know, some of these instruments are callable and, you know, we have choices to make about whether or not we call them to adjust to different situations. So, I think that's an example of the types of levers that we have available to pull as the environment evolves.

But from where we sit today, with the numbers that I'm looking at, you know, we have a pretty clean trajectory to get to where we want to be.

Ken Usdin -- Jefferies -- Analyst

OK. Thanks, Jeremy.

Jeremy Barnum -- Chief Financial Officer

Yup.

Operator

The next one is coming from Betsy Graseck from Morgan Stanley. Please go ahead.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi. Good morning.

Jeremy Barnum -- Chief Financial Officer

Good morning, Betsy.

Betsy Graseck -- Morgan Stanley -- Analyst

I had a question for Jamie. In your annual letter, you've mentioned how you expect to achieve double-digit market share over time in payments. And when I -- what I wanted to understand is if you could unpack that a little bit, because when I look at payments, you've got a lot of different sleeves. For example, in consumer credit cards, you're at 20%, 25%.

In Treasury, I think you're at 7%. So, could you give us a sense as to where you think you are in this total payments category you're talking about, what you're expecting in terms of drivers to get to double-digit, and what kind of timeframe you're thinking about there. Thanks.

Jamie Dimon -- Chairman and Chief Executive Officer

Yeah, so, Betsy, so that number, the double-digit relating just to wholesale payments, not to consumer payments, which, obviously, we already have a fairly significant share. And we've gone from 4.5% to something a little bit north of 7% over the last five years. And we're just building out -- and I gave some examples, and I'll give a lot in the investor day coming up. We're building all the things we need, real-time payments, certain blockchain-type things while it's the -- just a couple of acquisitions.

They're building out our wholesale capabilities to do a far better job for clients globally around the world and supported by, what I would say, very good cyber-risk control, which clients really need to, by the way. So, it's kind of across the board. There's nothing mystical about it. But it's an area we want to win in.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. And getting to double digits is over, you know, the same kind of time frame with the same pace going from 4 to 7? Or you think you can accelerate that --

Jamie Dimon -- Chairman and Chief Executive Officer

Yeah, I wasn't --

Betsy Graseck -- Morgan Stanley -- Analyst

Because I see what's --

Jamie Dimon -- Chairman and Chief Executive Officer

I wasn't meaning to put a time frame up, but I would say five years. But you'll get more update on this in investor day.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. And then just the follow up here is, on the NII outlook, where you indicated, you know, the curve suggests the plus side and, you know, is it a couple of billion? And I guess the question I have is, you know, historically, you've been looking to reinvest that benefit from rising rates. You know, you did that last cycle as well. You know, what I hear -- what I'm hearing is that, you know, maybe you don't want to size it for us right now today because you plan on investing it and explaining that at investor day.

Jamie Dimon -- Chairman and Chief Executive Officer

No.

Betsy Graseck -- Morgan Stanley -- Analyst

Is that a fair takeaway or not?

Jamie Dimon -- Chairman and Chief Executive Officer

No. No. No. That's --

Jeremy Barnum -- Chief Financial Officer

No. No.

Jamie Dimon -- Chairman and Chief Executive Officer

We don't look at it that way like we're reinvesting NII. We -- the investing stuff, we look at all the time we're investing. And, you know, we're investing a lot of money for the future kind of across the board. But that's not why, as you're saying, as --

Jeremy Barnum -- Chief Financial Officer

Yeah. I mean, I think fundamentally, you know, we have had confidence in delivering our 17% ROTCE through the cycle. We talked a little bit over the last couple of quarters about, at the time, some short-term headwinds to that, mostly as a function of the rate environment and a couple of other things. The investment plan is a strategic plan that recognizes that sort of confidence in the 17%.

The fact that that moment may be getting pulled forward as a result of the Fed's, you know, reaction to the economy has no impact on how we think about spending.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. Great. Thanks for -- Thanks for that.

Operator

The next question is coming from Steve Chubak from Wolfe Research. Please go ahead.

Steven Chubak -- Wolfe Research -- Analyst

Hey, good morning. So, I wanted start off with the question on QT. In the past, you've spoken about the linkage between Fed balance sheet reduction and deposit outflow expectation for yourselves in the industry. And with the Fed just outlining a more aggressive glide path for balance sheet reduction, how should we be thinking about deposit outflow risk? Any views on how data may differ versus last cycle, given a more aggressive pace of Fed tightening?

Jeremy Barnum -- Chief Financial Officer

Hey, Steve. So, this is a fun question, so let's nerd out a little bit. I'm sure Jamie will jump in.

Jamie Dimon -- Chairman and Chief Executive Officer

And then I'll simplify it for you.

Jeremy Barnum -- Chief Financial Officer

OK. So, look, I think we've talked a little bit about what happened in the prior cycle, right? So, you had QE and then you had big expansion in bank deposit systemwide expansion. And then at the tail end of that cycle, you had RRP come in, and then RRP has gotten sort of quite big as QE finished. And so, now as you look at potentially kind of running that whole thing in reverse, you might actually expect that the first thing that would happen is that RRP would get drained and only later would bank deposits start to shrink.

But I think you correctly point out some of the nuances in the Fed minutes. And when you sort of combine all the effects together, you realize that there's a lot of interacting forces here. And it's really, I think, very intelligent people differ on their predictions about what's going to happen here. And just to outline a couple of those.

So, it's worth noting for starters that, in general, industrywide loan growth outlook is quite robust. And that should be a tailwind for systemwide deposit growth. So, as you note, yup, QT will start in May and all likelihood for the minutes headwind. Then, you just have to look at what's going to happen on the front end of the curve, particularly in bills.

So, the Treasury has to make decisions about weighted average maturity and what makes sense there. There's obviously a little bit of shortage of short-dated collateral in the market right now. So, you know, that might argue for wanting more supply there. The Fed has to make decisions about portfolio management.

They talked in the minutes about using bill maturities to fill in gaps and so on and so forth. And so, those things are going to interact in various ways. I think one thing that's worth noting, though, is that if you wind up in a state of the world where bank deposits drained sooner than people might have otherwise thought, in all likelihood, that's going to be the lower-value, nonoperating-type deposits. So, you know, in any case, we'll see.

But to simplify it for a second, our base case remains modest growth in deposits for us as a company. And just pivoting away for a second from the system to us, you know, from a share perspective, we've taken share in retail deposits, and we feel great about that. And in wholesale, you know, we've had some nice wins and a nice pipeline of deals there. So, that's the current thinking on that topic.

Jamie Dimon -- Chairman and Chief Executive Officer

So, the answer is we don't know. OK? And you guys should read economist reports. But the fact is, initially, it probably won't come out of deposits. Over time, it'll come out of wholesale and then maybe consumer.

We're prepared for that. It doesn't actually mean that much to us in the short run. And the beta, effectively, we don't expect to be that different than it was in the past. There are a lot of pluses and minuses.

You can argue a whole bunch of different ways. But the fact is it won't be that much different, at least the first hundred-basis-point increase.

Steven Chubak -- Wolfe Research -- Analyst

No, that's really helpful color. Thanks for allowing us to nerd out with you guys on that. Just one more topic or a follow-up, I should say, Jamie, just in the shareholder letter, you had spoken about how the market's underestimating the number of Fed hikes that might be needed to curb inflation. What's your expectation around the level of Fed tightening? I know it's difficult to make such predictions, but maybe if you could just help us understand, given your own rate outlook, how that's been forming, how you're managing excess liquidity, given the significant capacity that you have to redeploy some of those proceeds into higher-yielding securities.

Jamie Dimon -- Chairman and Chief Executive Officer

Yeah. So, I think the implied curve now is like 2.5% at the end of the year and maybe 3% at the end of 2023. And look, no one knows. And, you know, obviously, everyone does their forecasts.

I think it's going to be more than that, OK? I can give you a million different reasons why because of inflation and just about deposits. And we've never been through ever QT like this. So, this is a new thing for the world. And I think it's more substantially important than other people think because the huge change of flows of funds is going to create as people, you know, change their investment portfolios.

So, I think we're going to be fine because we're going to serve to help our customers and gain share. So, you'd say, what does it do for JPMorgan Chase? JPMorgan Chase will be fine. We got plenty of capital, plenty -- with all great margins. We've already had the returns we want and all the things like that.

So, you know, I would just be cautious. I think what you should expect is volatile markets. Again, that's OK for us, you know. And the Fed -- you know, we think the Fed needs to do what they need to do to try to manage this economy and try to get to a soft landing, if possible.

Steven Chubak -- Wolfe Research -- Analyst

And then the appetite to deploy the excess liquidity?

Jamie Dimon -- Chairman and Chief Executive Officer

No, don't expect that.

Jeremy Barnum -- Chief Financial Officer

Yeah. OK. We can leave it there.

Steven Chubak -- Wolfe Research -- Analyst

OK. Thanks so much.

Operator

The next question is coming from Glenn Schorr from Evercore ISI. Please go ahead.

Glenn Schorr -- Evercore ISI -- Analyst

Hi. Thank you. I wonder if you could talk through the changes in the macro assumptions for the -- to capture that downside risk in CECL assumptions. Just because what I want to get to is where we came from, where we're at now, and then we can impose our thoughts on each quarter as we go, just --

Jamie Dimon -- Chairman and Chief Executive Officer

I don't want to spend a lot of time on CECL, OK? I think it's a complete waste of time. Basically, all we said is the chance of a severe adverse event at 10% higher than it was before. That's all we did. Very basic.

And that led to big --

Jeremy Barnum -- Chief Financial Officer

It really is that simple, Glenn.

Jamie Dimon -- Chairman and Chief Executive Officer

And we don't know -- and it's a guess. You know, it's probability-weighted hypothetical, multi-year scenarios that we do the best we can. But to spend a lot of time on earnings calls about CECL swings is a waste of time. It's got nothing to do with the underlying business.

Charge-offs are extraordinarily good, matter of fact, way better than they should be. I mean, you know, middle market, 1 basis point; credit card, 1.5. We would have told you the best it'll ever be is 2.5. So, credit's very good.

That will get worse. NII is going to get much better. Things are going to normalize. We're still earning 16% or 17% on tangible equity.

And, you know, obviously, you have -- yeah.

Glenn Schorr -- Evercore ISI -- Analyst

I -- the 10% is what I wanted because your guess is better than my guess. So, that -- I appreciate that.

Jamie Dimon -- Chairman and Chief Executive Officer

I don't -- Glenn, with all due respect, I do not believe it is.

Glenn Schorr -- Evercore ISI -- Analyst

OK. Um, well, I mean, pinky bet. So, I think you might have just answered, but I want to make sure I ask it explicitly. The follow-up I have on credit and I know it's in much better shape and it depends on the go-forward, but are you seeing any stresses in the levered parts of the debt markets, meaning levered loan, high-yield CLO private credit.

Anything in there that makes you like turn a side-eye?

Jamie Dimon -- Chairman and Chief Executive Officer

Just a spread widening and a little bit less liquidity.

Glenn Schorr -- Evercore ISI -- Analyst

It doesn't sound so bad. And maybe the last one --

Jeremy Barnum -- Chief Financial Officer

Yeah. You know, I mean, Glenn, I think -- look, we -- no one likes to be complacent about this type of stuff. And obviously, in this environment, everyone's looking very closely everywhere for any risks and trying to steer on the corner. But as of right now, we're really not seeing anything of concern in that kind of spot metrics, so to speak.

Glenn Schorr -- Evercore ISI -- Analyst

Maybe the last quickie on credit is just with everybody having a job and there's wage inflation and excess cash, are there any buckets, you know, of income that you're seeing the early stage delinquencies picking up?

Jeremy Barnum -- Chief Financial Officer

In short, no. You know, it is an interesting question as you look across our customer base, particularly in card and, you know, sort of the heavily debated question of real income growth and gas prices and what's that doing to consumer balance sheets. And so, we're watching that, especially in the kind of LMI segment of our customer base. But right now, we're not actually seeing anything that gives us reason to worry.

Glenn Schorr -- Evercore ISI -- Analyst

OK. Thank you for all that.

Jeremy Barnum -- Chief Financial Officer

Thanks, Glenn.

Operator

The next one is coming from Gerard Cassidy from RBC Capital Markets. Please go ahead.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you. Good morning, Jeremy.

Jeremy Barnum -- Chief Financial Officer

Hey, Gerard.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Jeremy -- hi. Can we follow up on your comments about building up the reserves? I think you said it was $902 million that, you know, you guys built up, and it was due to high inflation and the war in the Ukraine. How much was due to inflation? And when you made that comment, is it because you're concerned about the lower-end consumer spending more money for fuel and food that may lead to greater delinquencies down the road? And how much was that due to the Ukraine situation?

Jeremy Barnum -- Chief Financial Officer

Yeah. Glenn, it's really a lot more general than that. So, just to repeat 900, build; 300 name-specific, primarily related to Russia-associated individual names. The other 600 is portfolio level.

And as Jamie just said, it simply reflects increasing the probability from a very low probability to a slightly higher probability of a, you might call it, Volcker-style, Fed-induced recession in response to the current inflationary environment, which, obviously, is in part driven by commodity price increases, which are in part driven by the war in Ukraine. So, but it's not, you know, a super micro portfolio level thing, except to the extent that our models, you know, handle that. It's a top-down modification of the probabilistic ways.

Jamie Dimon -- Chairman and Chief Executive Officer

One of the things I hated when CECL came out is that we spend a lot of time at every call yapping about CECL. I just think it's a huge mistake for all of us to spend too much time on it.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Understood. And then, as a follow-up, Jeremy, if we look at the AOCI number that you gave us, and you were very clear about it, you know, it's going to accrete back into the capital as those securities mature, two things, is there anything you can do, assuming if the long end of the curve continues to rise and probably giving you maybe a bigger hit on AOCI as we go forward? Is there anything you can do to mitigate that, whether to shrink that, you know, the available-for-sale portfolio, which looks like it was $313 billion at the end of this period? Or do you just have to grow the revenue, as you pointed out, as another way of growing your capital?

Jeremy Barnum -- Chief Financial Officer

Yeah. I mean, I think that, obviously, we always try to grow revenue sort of independently of anything else. I think the large point here is, yes, there are some things that can be done to mitigate this. But the big picture is that the, you know, central case path is one that gets us to where we want to be when we need to be there in terms of CET1 and leverage.

And if things don't play out as along the lines of the central case, we have tools and levers available to adjust across a range of dimensions, so --

Gerard Cassidy -- RBC Capital Markets -- Analyst

OK. Thank you.

Operator

The next one is coming from Mike Mayo from Wells Fargo Securities. Please go ahead.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi. I have a question for both Jeremy and Jamie. Jeremy, I guess the SLR 5.2% close to the minimum, you explained that. But since quarter end, AOCI probably has gotten worse.

And I'm guessing your SLR might be very even close to that minimum. So, I understand your central case, it's fine. Your outlook is good. But at what point do you say you stop buybacks? Or do you think you'll buy back maybe half of the $30 billion authorization? Or does JPMorgan even put on asset caps, given just the amazing asset growth over the last three months? So, that's my question for Jeremy.

But the bigger picture is for you, Jamie, your CEO letter. The takeaway was in the eye of the beholder. Like, Jamie was really worried about a recession this year, now he's not. So, the first question certainly ties into the second.

So, Jeremy, plan for buybacks, stopping at asset cap. And then, Jamie, your view of the broader economies and that feeds into your expectations for capital growth. Thank you.

Jeremy Barnum -- Chief Financial Officer

OK, Mike. So, let me take this capital one. So first, let's not talk about asset caps. That's just not a meaningful thing.

I think that's a distraction, and the terminology is unhelpful. Then, in terms of the leverage ratio, just remember that the denominator of that number is so big that it actually takes like pretty big moves to move the ratio. So, 5.20 is actually still pretty far away from 5%. And, of course, there are relatively easy-to-use tools to address that as well as was alluded to earlier.

In addition, I do think it's worth just reminding everyone of how the ERI restrictions work now relative to how they were at the beginning of the crisis. Just briefly, just to remember that based on the redefinition, if you drop into the regulatory buffer zone, you're subject to a 60% restriction, which, based on our recent historical net income generation, still gives us like ample, ample capacity to pay the dividend and so on. So, you know, it's obviously not part of the plan, but it's just worth remembering that the cliff effects that we had in there at the beginning of the pandemic are no longer there. And then, in terms of buybacks, just a reminder that the $30 billion authorization is a, you know, nontime-bounded SEC requirement.

It's not the old CCAR standard. So, it's just a signal that we want to have that capacity and that flexibility. But it doesn't really say that much about how much we're actually planning to do in the near term.

Mike Mayo -- Wells Fargo Securities -- Analyst

Are you allowed to say what you're planning to do in the near term? Like, just in -- like, if you're kind of like half the level last year, do you think you can keep that? Or does this slow down? Or you're not giving guidance?

Jeremy Barnum -- Chief Financial Officer

Yeah. So, let's talk about buybacks for a second. So, in the kind of post-SCB world, we haven't been guiding a lot on the pace of buybacks, mainly because, as you know, they're at the bottom of our capital stack. So, we're focused on investing in the business, providing capital to support growing RWA, acquisitions when they make sense, etc.

And buybacks are an output. As we have discussed, in the current environment, the rate of buybacks is clearly going to be less than it was in the 2021 period as a result of the interaction of all those effects. And that's a good thing. It means that we have better uses for the capital.

And if things evolve one way or the other, then the rate of buybacks will be an output. But it's one of the tools in the toolkit.

Mike Mayo -- Wells Fargo Securities -- Analyst

OK.

Jamie Dimon -- Chairman and Chief Executive Officer

Mike, I would just add, you know, if you look at liquidity and capital, it's extraordinary. And we don't want to have buffers on top of buffers. So, we're going to manage this pretty tightly over time. And obviously, we have AOCI and earnings and CECL, all that, but being conscious of all of that, we can manage through that.

And we've done some acquisitions this year. And so -- and plus, we are adding -- we're planning to have more capital for the increase in G-SIFI down the road, which reduced stock buyback and -- but the amount -- I look at the amount of liquidity, the earnings, the capital, that's the stuff that really matters. And at the end of the day, it's driving customers. You know, we serve customers, which is why we're here.

We don't serve managing SLR. That's kind of an output of stuff we do. And so -- and then, your question about -- I think it was about recession basically. Yeah, do you want to repeat the question, Mike?

Mike Mayo -- Wells Fargo Securities -- Analyst

Yeah. No, I mean, if you read your CEO letter, and that's great. You're the chief worry officer. You're the chief risk manager.

You're bringing up all the things that, you know, keep you up at night, which is great. But you can read it one way and say, "Hey, Jamie and JPMorgan thinks there's going to be a recession this year." And you can read it in other way, saying, "Hey, things are fine, but these are some tail risks."

Jamie Dimon -- Chairman and Chief Executive Officer

OK.

Mike Mayo -- Wells Fargo Securities -- Analyst

So, do you think -- and I'll repeat what Glenn said. Your view is better than mine, and I'm not going to accept anything else. You have a lot of people, a lot of resources. Do you think the U.S.

is going to have a recession this year based on everything you know?

Jamie Dimon -- Chairman and Chief Executive Officer

Yeah, I don't. But I just want to question this. First of all, I can't forecast the future any more than anyone else. And, you know, the Fed forecasted and everyone forecasted, and everyone's wrong all the time.

And I think it's a mistake. We run the company to serve clients through thick or thin. That's what we do. We know there will be ups.

We know there will be down. We know the weather is going to change and all that stuff like that. What I have pointed out in my letter is very strong underlying growth, right now, which will go on. It's not stoppable.

The consumer has money. They pay down credit card debt. Confidence isn't high. But the fact that they have money, they're spending their money.

They have $2 trillion still in their savings and checking accounts. Businesses are in good shape. Home prices are up. Credit is extraordinarily good.

So, you have this -- that's one factor. That's going to continue in the second quarter, third quarter. And I -- after that, it's hard to predict. You've got two other very large countervailing factors, which you guys are all completely aware of.

One is inflation/QE-QT. You've never seen that before. I'm simply pointing out that we've -- those are storm clouds on the horizon that may disappear, they may not. That's a fact.

And I'm quite conscious of that fact, and I do expect that alone will create volatility and concerns and endless printing and endless headlines and stuff like that. And the second is war in Ukraine. I pointed out in my letter that, you know, war in Ukraine. Usually, wars don't necessarily affect the global economy in the short run.

But there are exceptions to that. This may very well be one of them. I don't -- I'm not looking at this on a static basis, OK? So you're looking at this war in Ukraine and, you know, sanctions there. Things are unpredictable.

Wars are unpredictable. Wars have unpredictable outcome. You've already seen in oil markets. The oil markets are precarious, OK? So, I pointed that out over and over that, you know, people don't understand that those things can change dramatically for either physical reasons, cyber reasons, or just, you know, supply demand.

And so, that's another huge cloud in the horizon, and I -- we're prepared for it. We understand it. We're just -- I can't tell you the outcome of it. I hope those things all disappear and go away.

We have a soft landing and the war is resolved, OK? I just wouldn't bet on all that. I just, you know -- and, of course, being a risk manager, we're going to get through all that. We're going to serve our clients, and we're going to gain share. We're going to come to that earning tremendous returns on capital like we have in the past.

Mike Mayo -- Wells Fargo Securities -- Analyst

All right. Thank you.

Jamie Dimon -- Chairman and Chief Executive Officer

You're welcome.

Operator

Next one is from Matthew O'Connor from Deutsche Bank. Please go ahead.

Matt OConnor -- Deutsche Bank -- Analyst

I was hoping you guys could comment on the -- there are some articles on the nickel exposure and how the losses could have been significant if the trades hadn't been canceled and from the actions that were taken. And then, just as a follow-up, you guys have talked about kind of looking at that business and reevaluating how you think about some of the outsized risks, and maybe you can update us on that process.

Jamie Dimon -- Chairman and Chief Executive Officer

We've already told you. We're helping our clients get through this. We had a little bit of loss this quarter, we're going to manage through it. We'll do postmortems on both what we think we did wrong and what the LME could do differently later.

We're not going to do it now.

Matt OConnor -- Deutsche Bank -- Analyst

And then, I guess, I mean, more broadly speaking, you know, given what we just saw where it was probably a several standard deviation event and kind of, as you mentioned, markets might do more of these unusual things, like, does it make you step back and look at other portfolios, other businesses and try to reduce the next --

Jamie Dimon -- Chairman and Chief Executive Officer

In my life, I've seen so many 10 standard deviation events to be shocked.

Jeremy Barnum -- Chief Financial Officer

Yeah, exactly. Yeah.

Jamie Dimon -- Chairman and Chief Executive Officer

So, obviously, we're aware of that all the time in everything we do.

Jeremy Barnum -- Chief Financial Officer

Yeah. And I would take it one step further. I think the whole paradigm of saying it's a 10 standard deviation event is naive, right? We know the returns are not normally distributed.

Jamie Dimon -- Chairman and Chief Executive Officer

Right.

Jeremy Barnum -- Chief Financial Officer

We know that. Regulators know that. The capital framework recognizes that in a broad variety of ways, including things like stress. So, I don't think -- of course, you can't predict where and in which asset class and in which particular moment you're going to see these types of fat tail events.

But the framework recognizes in a range of ways that that's the case. And that's how we manage risk, and that's how we capitalize.

Jamie Dimon -- Chairman and Chief Executive Officer

So, we do CCAR once a year, as you guys see. But, you know, we actually run a hundred different various stress tests every week with extreme movements and things. You know, and that's what we do. And, you know, we're always -- you're always going to be a little surprised somewhere, but we're pretty conscious of those risks.

And all events like this, we always look at -- but it doesn't have to happen to us. It can happen to someone else. We still analyze everything that, you know, maybe we were on the wrong side of something, too. But at the end of the day, in all of our businesses, we are here to serve clients all the time.

That means taking rational, thoughtful, disciplined risk to do that.

Matt OConnor -- Deutsche Bank -- Analyst

And then, just separately, you had mentioned earlier that you weren't looking to deploy large amounts of your liquidity. And I guess, the question is, you know, you might get the rate benefit just from Fed funds going up, but is there an opportunity to accelerate that benefit just by moving some cash into shorter-term treasuries?

Jamie Dimon -- Chairman and Chief Executive Officer

Yes.

Matt OConnor -- Deutsche Bank -- Analyst

We've obviously had a big move in --

Jamie Dimon -- Chairman and Chief Executive Officer

Guys, we're just talking about interest rates going up maybe more than 3%. Convexity is going up. AOCI is going up. All these -- there are all these various reasons not to do that.

We're not going to do it just to give you a little bit more NII next quarter.

Jeremy Barnum -- Chief Financial Officer

Yeah. And, Steve, to just go one level deeper there for a second, right? So, you talked about deployment. Of course, as Jamie says, we're always going to take relative value opportunities in the portfolio. You know, mortgage spreads have widened.

There's interesting stuff to do. So, in that sense, yeah, deployment out of cash into various sorts of spread product that looks more interesting. We do that all the time. The high-level simple question of buying duration, you know, as Jamie says, balance sheets extended a little bit.

That was never -- we were never planning to do that much of that anyway. And, you know, frankly, given the timing and expected speed of the rate hikes, increasingly, it just kind of doesn't matter that much. And yeah, so I think it's helpful to keep that in mind.

Matt OConnor -- Deutsche Bank -- Analyst

OK. Thank you.

Operator

The next question is coming from Jim Mitchell from Seaport Global Securities. Please go ahead.

Jim Mitchell -- Seaport Global Securities -- Analyst

Hey, good morning. Maybe you could just talk about how you're thinking about the trajectory of loan growth from here, where you're seeing the biggest pockets of strength. And specifically in cards, is the significant year-over-year growth driven more by slowing paydowns? Or is that increasing demand or a combination of both? Thanks.

Jeremy Barnum -- Chief Financial Officer

Yes, sure. So, you'll remember in the fourth quarter that we talked about the outlook based on sort of high single-digit loan growth for the year. And, you know, this quarter, we've roughly seen that. Interestingly, it's a little bit more driven by wholesale this quarter, which sort of brings us to your question of card.

So, overall card loan growth is reasonably robust when you adjust for seasonality and so on. And that's really primarily driven by spend, which, as you know, is very robust. The question inside of that is then what's going on with revolve. And I think our core revolve thesis of getting back to the pre-pandemic levels of revolving balances by the end of the year is still in place to a good approximation.

At the margin, we probably saw the like takeoff moment delayed by six weeks or so because of omicron. But some of that's reaccelerating now. We see that in some of the March numbers. So, we'll see how it goes.

But also, just a reminder that, you know, there's a very, very close linkage between what we see in revolve and what we see in charge-offs. And so, in the moments where revolve is lagging potentially, certainly, that was true throughout the pandemic period relative to what we thought. We also saw exceptionally lower charge-offs. So, on a bottom-line basis, the run rate performance, there's significant offset there.

But the core thesis is still there. Spend is robust. We are seeing spend down and some of the cash buffers in the customer segment that tends to revolve. So, more or less, as anticipated, I would say.

Jim Mitchell -- Seaport Global Securities -- Analyst

OK. And then, maybe just on -- skipping over to trading. Clearly, a stronger quarter, must have finished off strongly in March. So, any confirmation of that? And how do we -- you know, if you're expecting more volatility around Fed in QT, is it -- should we be thinking that this could be a better than normalization year? How are you thinking about trading, I guess, going forward?

Jeremy Barnum -- Chief Financial Officer

Yeah. I mean, you know that we're going to be reluctant to like predict the next three quarters of trading performance. But --

Jim Mitchell -- Seaport Global Securities -- Analyst

Yeah, I could try.

Jeremy Barnum -- Chief Financial Officer

Yeah, obviously, yeah. But just to your point about normalization, right? We've been saying that, of course, we expect some normalization. The question is, if you define normalization as a return to kind of like 2019-type trading run-rate levels, we never expected that because there's been a bunch of organic growth in the background, some share gains. And we had said that as we emerge from the pandemic and monetary policy normalized, that was going to add volatility to the markets.

And that, you know, with any luck and good risk management, that would net-net help a little bit to mitigate what we might otherwise expect in terms of the drop from the very elevated levels that we saw during the pandemic. So, obviously, there are some particular things that played out this quarter. But one of those was more volatile rate market, and that helps a little bit. So, yeah, all else equal, the much more dynamic environment right now would mute the normalization you would see otherwise.

But our core case is still that the pandemic-year period market's performance is not repeatable.

Jamie Dimon -- Chairman and Chief Executive Officer

And I'll just add to that. I cannot foresee any scenario at all where you're not going to have a lot of volatility in markets going forward. We've already spoken about the enormous strength of the economy, QT, inflation, war, commodity prices. There's almost no chance you would have volatile markets.

That could be good or bad for trading.

Jim Mitchell -- Seaport Global Securities -- Analyst

OK.

Jamie Dimon -- Chairman and Chief Executive Officer

But [Inaudible] chance it won't happen. And I think people should be prepared for that.

Jim Mitchell -- Seaport Global Securities -- Analyst

All right. I appreciate the color.

Operator

The next one is from Ebrahim Poonawala from Bank of America Merrill Lynch. Please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning. I guess just one more question on the macro outlook. I guess we can debate whether or not we get into a recession over the next year. But, Jamie, would love to hear your thoughts around as we think about just the medium term, do you see a better capex cycle for the U.S.

economy? We've heard a lot about reshoring, labor productivity, how companies are dealing with it. Just given the lens you have in terms of large corporate and middle-market customers, do you see some pent-up demand for capex spending that's going to be a big driver of growth, maybe not for the next six months, but as we think about the medium term next few years?

Jamie Dimon -- Chairman and Chief Executive Officer

Yes, in general because as people are spending money and you need to produce more goods and all that, yes, and generally see capex going up. And I forgot the exact number. You're better off looking at our great economist forecast for that than asking me. And we see in the borrowing a little bit of --

Jeremy Barnum -- Chief Financial Officer

Yeah, we do see a pretty nice loan growth in the commercial bank. I mean, there's a bunch of different factors there. It could be some inventory effects and so on, but, you know, we'll see. But, yeah.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

And just on that front, like, have you seen any improvement in supply chains? And how big a setback was the Russia war to supply chain improvements?

Jamie Dimon -- Chairman and Chief Executive Officer

It's very hard to tell. There was some improvement and then there was Ukraine. And now, it's all mixed again. So, it's hard to tell.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just one follow-up around you launched the U.K. digital bank last month. Any early wins in terms of how that's playing out? Any perspective on what the markers are as we think about how that strategy plays out? I'm sure you're going to talk about that at investor day, but just wondering any early thoughts.

Jamie Dimon -- Chairman and Chief Executive Officer

We'll leave that to investor day.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And the next question is coming from Erika Najarian from UBS. Please go ahead.

Erika Najarian -- UBS -- Analyst

Hi. Good morning. My questions have been asked and answered. I'll see you guys at investor day.

Jeremy Barnum -- Chief Financial Officer

All right. Thanks, Erika.

Operator

And there are no further questions in the queue.

Jamie Dimon -- Chairman and Chief Executive Officer

Well, thank you very much.

Jeremy Barnum -- Chief Financial Officer

Thanks very much.

Jamie Dimon -- Chairman and Chief Executive Officer

See you, I guess, at investor day.

Jeremy Barnum -- Chief Financial Officer

May 23rd.

Jamie Dimon -- Chairman and Chief Executive Officer

OK. Goodbye.

Operator

[Operator signoff]

Duration: 52 minutes

Call participants:

Jeremy Barnum -- Chief Financial Officer

John McDonald -- Autonomous Research -- Analyst

Ken Usdin -- Jefferies -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Jamie Dimon -- Chairman and Chief Executive Officer

Steven Chubak -- Wolfe Research -- Analyst

Glenn Schorr -- Evercore ISI -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

Matt OConnor -- Deutsche Bank -- Analyst

Jim Mitchell -- Seaport Global Securities -- Analyst

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Erika Najarian -- UBS -- Analyst

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