Good morning, ladies and gentlemen. Welcome to JPMorgan Chase's Fourth Quarter 2015 Earnings Call. This call is being recorded. Your lines will be muted for the duration of the call. We will now go live to the presentation. Please stand by. 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.

Thank you. Good morning, everybody. I'm going to take you through the earnings presentation, which is available on our Web site. Please refer to the disclaimer regarding forward-looking statements at the back of the presentation. Starting on Page 1, the firm reported net income of $5.4 billion, EPS of $1.32, and a return on tangible common equity of 11%, on $23.7 billion of revenue. Included in the result is legal expense of $400 million after tax for a range of matters and we continue to put some issues behind us. This is reflected in a reduction of more than $1 billion to our reasonably possible loss estimate this quarter. In addition, we recognized the benefit of a settlement reached of $300 million after tax which related to moneys owed to Washington Mutual in connection with a failed savings and loan institution. We've shown these on the page as legal related and the benefits recorded in revenue in Corporate. Much like we saw in the third quarter, the overall company's performance benefited from diversification across our businesses. We saw strong growth in consumer drivers, on the back of improvement in the U.S. economy in large part generating core loan growth of 16% for the company. Global markets remained challenged across a number of fronts leading to lower client activity and lower inventory. Against this backdrop the CIB delivered solid performance across products. And in the quarter, we continued our trend of strong balance sheet, capital and expense discipline and exceeded targets. Shifting to the full year's results, if you skip over Page 2, on Page 3, the firm earned record net income of $24.4 billion and record EPS of $6 a share and a return on tangible common equity of 13.5% on revenue of nearly $97 billion. Revenue was down 1%…

Your first question comes from the line of Brennan Hawken with UBS.

Good morning, Marianne.

Good morning.

So curious about whether or not you all have seen the stress we've seen in some of the credit and equity markets and some of the volatility impacting M&A velocity appetite amongst Boards and C-suites broadly in your conversations and throughout the IB?

So I mean, again, I would say that the pipeline coming into 2016 in M&A was good, solid, up, in fact. Obviously, volatility can dampen the confidence of Boards and CEOs. Dialogs are pretty active and we think the types of deals that we'll see in 2016 will look different. But I think in the first couple of weeks it's not being particularly strong and we do need to see some of the stability come back I think for us to really see that conversion start to pick up.

And just by different, is that a reference to the size or can you be a bit more specific on what you mean?

Yes. Less mega deals, more mid-sized deals, more cross border, it's a little different. Actually more deal count, less big mega deals could be very constructive for revenue but we're likely to see it be a little bit different in 2016. But honestly the pipeline is good. And, yes.

That's helpful.

North America will be a tough comp. It was very strong in 2015, but Europe could be very constructive.

Terrific. Helpful. And then you referenced energy prices staying this low would lead to a significant reserve build, you expect in your energy book. Can you maybe give a little bit more color around that? How would you define significant and how long would oil need to stay down here in order to see some of that reserve action?

Yes. So the way we do our reserves, just for context because I think it's important is obviously the oil price outlook is important and instructive and it's very clearly going to drive how we think about probabilities of default and loss given default [for certain] [ph] customers. But I think it's also the case just for context to know that it is very name by name specific, specific conditions at clients matter greatly and so when we do these estimates they are directionally correct and order of magnitude correct, but that's just for context. Oil, we said last quarter, if oil reached $30 a barrel, here we are and stayed there for call it 18 months, you could expect to see reserve builds of up to $750 million and that assessment hasn't fundamentally changed. So it is not the current market expectation that oil will flat line. It is the expectation right now that there will be a modest recovery. Based upon that we would expect to take some additional reserves but for them to be more modest, less significant. But that's kind of the range if oil's at $30 and stays here for a long time, up to $750 million.

[Operator Instructions] Your next question comes from the line of Mike Mayo with CLSA.

Hi. I wanted to follow up on the oil and gas question. It just seems as though $124 million in additional provisions for oil and gas could be low, at least based on the one year forward prices for oil, which are still in the 30s and so my question's for Jamie. As you look back, how does the oil and gas situation today compare to prior periods of stress? We have 2002. We had the TMT meltdown when you were at Bank One you reduced the lines of credit. You got ahead of that early. In 2007, you weren't exactly at the start but then you adjusted and you said hey, this is a big issue. Now we have oil and gas, which could be another industry specific stress and you're only taking additional provisions of $124 million. Is that going to be enough and one year from now are you going to look back and say whoops we didn't get ahead of this enough.

I think we try to be very conservative always and so we're not trying to put up as little as possible. You know me, I'd put up more if I could but accounting rules dictate what you can do. And these are baskets -- the real risk is in producing wells, cash flows are down, surprisingly the cost of getting the oil out of the ground has also dropped dramatically and probably much more than most of us would have expected. So you take these producing wells, you take the cash flow, you discount, you discounted it 8% or 9%, you lend against it. And so these are our forecasts. Our energy book isn't that large relative to JPMorgan Chase. We're not worried about the big oil companies. These are mostly the smaller ones that you're talking about these reserve increases on.

I also think Mike just a --

And the forward curve is -- at the end of the year for 2016 is like 41 or 42 or something like that.

Forty eight. So hey, Mike, the other thing to know about the sort of profile of reserves, three things. The first is, it's not linear. So just the oil price decline and the decline in the forward curve that we saw towards into December and to the end of the year, that's the impact it had on our reserves. It's fallen significantly in the first two quarters. That was not a knowable condition and we can't reserve for that at the end of the year. That's why we said we would expect to take some more reserve increases in the next couple of quarters. But again, it's a name specific thing and lots of other conditions at clients' matter including their hedging, their cash flows, the level of security, all those things.

And how do you use CDS to help protect yourself on that portfolio?

We don't.

Okay, you don't. And then, the last follow-up. Do you intend to keep lending to the oil and gas companies as they run into problems? On the one hand, you have the risk of throwing good money after bad. On the other hand, if you stop lending as much and you have the high-yield market retreating and you have private equity firms retreating, maybe it becomes a liquidity crisis for some of the oil companies. Which is it, do you lend more or less to the oil and gas sector?

The oil folks have been surprisingly resilient. Remember, these are asset backed loans. A bankruptcy doesn't necessarily mean your loan is bad; have to be a little bit careful. There is also, Mike a philosophical thing, a bank is supposed to be there for clients in good times and bad times. So it's not a trading market where you try to support clients. So then we can responsibly support clients, we are going to. And we lose a little bit more money because of it so be it. We've done that around the world. We did it in 2007, 2008 and 2009. We tried to do responsibly. If banks just completely pull out of markets every time something gets volatile and scary, you'll be sinking companies left and right.

Your next question comes from the line of John McDonald with Stuart Bernstein.

Hi, good morning. Marianne, I was wondering if you could remind us where you are on your expense reduction targets in the consumer and the investment bank and how does that translate to some thoughts about the expected trajectory of total firm-wide expenses for this year?

So let me just deal with where are against our targets. So the most notable targets were $2 billion in the consumer businesses in 2017 versus 2014 and $2.8 billion in the CIB in 2017 versus 2014. You probably heard my comment, but to clarify on an apples-to-apples basis we're halfway through on consumer. We have done $1 billion this year. You don't see that 100% translate into the results partly because of legal expense which is not something that we particularly can predict and hopefully won't see that forever. Also because we intentionally decisioned in 2015 in the fourth quarter in particular, mostly, to increase our investments in the consumer businesses by $150 million. So we've achieved the $1 billion. We chose to reinvest a portion of it. Another $1 billion we're on track for. We will potentially reinvest some of that too and Gordon and we will talk to you about the basis for that at Investor Day. On the $2.8 billion in the CIB, we're $1.3 billion through at the end of the year and we talked before about the fact that the first $1.3 billion is largely on business simplification. We've had the revenue decline. We need to have expense decline and we worked hard to deliver that and we have. The next chunk is to do with technology and operations and infrastructure and organization and it's harder. And so we will continue with them on track to deliver it, but it's going to be a job through 2016 and into 2017.

And how does that all net into an outlook for this year if you're willing to give us some thoughts on that.

Yes, I can give you some thoughts that won’t totally satisfy you which is our core expenses will continue to trend down on the back of delivering against them. We will make investment decisions that we think are good for the company, accretive for shareholders, that will respend some of that money. And so we'll give you that shrink and grow at Investor Day.

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

Thanks. Good morning. I was wondering if you could talk to us a little bit about the benefits from rates as they come through, obviously your commentary that NII will be even flattish in the first quarter adjusted for day count and even with some securities gains in the numbers this quarter presumes that a nice helper from that first move. And you guys are really conservative on your deposit beta thoughts when you talked about them previously. I know probably haven't seen much change yet but you how are you expecting the deposit behavior to act and there has been any change to your modeling expectations about what might come through as we get through the first couple of hikes.

So just on NII, yes, we are seeing embedded in that sort of NII flat to slightly. We are seeing a nice lift associated with the rate hike in December across businesses as well as the continued benefit of the mix towards loans in our balance sheet, but we were flatted in our NII this quarter by $178 million on securities gains in CIO. So that's going to mean the comparison is changing and day count is obviously seasonal. So that's being dynamic. We are seeing the rate benefit. We do expect to see it as I said in my remarks for the full year. Look, we think we are appropriately conservative on deposit meters. It is not -- it is way too early to have any idea. Virtually nothing has moved yet. And so our job and what we are doing is paying very close attention to the competitive landscape. These deposits that we're talking about that have the high basis are valuable deposits with valuable clients for us and we want to be competitive and pay fair rates. But it's so early in the movie that we haven't changed much in our modeling assumptions.

Okay. And my second question, if I can ask an ex-energy credit question. A lot of concerns we're going to get into some type of broader deterioration of which your numbers showed no signs of heading towards --what are you looking for? Are you seeing any signals of ex-energy changes in either delinquencies or watch trends and are you still comfortable with kind of that low 4s type of charge-off expectation that you guys had talked about previously? Thanks.

So energy, metals and mining, we're watching very closely industries that could have knock on effects like industrials and transportation but we're not seeing anything broadly in our portfolio right now. We're just watching very closely, which is why -- now, obviously, you can take our reserve build number and you can say it's almost essentially all made up of oil and gas and metals and mining and behind the scenes we've had upgrades and down grades of a number of other different companies across sectors but nothing particularly thematic yet but we're watching.

Now, you point out that credit card, Commercial Bank, middle market, large Corporate credit is as good as it's ever been. Obviously, it's going to get a little bit worse. I wouldn't call it a cycle per se. If you have a recession you will see a normal cyclical increase in all those losses. We're not forecasting a recession. We think the U.S. economy looks pretty good at this point.

Your next question --

So based on that with the obvious caveat of what happens with oil prices and energy over the course of the near future, yes, we would still expect our charge-offs to be relatively low.

Your next question comes from the line of Glenn Schorr with ISI.

Hi, thank you. So I think you talked about some of this Marianne in terms of the method 2 of surcharge now estimated at 3.5. I'm just curious, I think if the numbers are right, you took down notionals and there is about $4.321 trillion in level three assets, $50 billion in non-op deposits. You've said that you don't want to be an outlier, so you're whittling that down. I'm curious of the driving force behind it, what kind of revenue give-up there is in such a move like this because we like it and thoughts on the go forward.

Yes. So look, we talked about achieving 4% last quarter I think and for disclosure we were quite close to 3.5. At that point it becomes increasingly compelling to want to look at the margin for what you could do to get within the bucket and so that is what we did in the fourth quarter is spend time really focusing on getting to that achievable boundary which we thought at that point its was. And remember, if not nothing in the year that we started the year thinking we would exit $100 billion of non-operating deposits and while there still could be some volatility in that number of course, we've almost doubled that or doubled that in fact. So we got some wind to our backs in doing it. It's also the case that when you get the entire business and company attuned to the sense of urgency and desire to want to be increasingly efficient in this way, that at the margin in our 100 different things little benefits accrue. So we're at about 3.5, we're just inside the 3.5% bucket as best we estimate it. It's not as much important whether we're basis points or surcharge points below or above it, it's much more what we do now to get safely in the bucket. And that's going to still take work. So that's why he we'll obviously talk to you more about this at Investor Day. In terms of the give up from an economic perspective we wouldn't have done it at any cost. We have done it because we think it is important to do because we think it's going to be constructive for the company and because the revenue give-ups were not significant but they weren't zero either. But to be able to reduce a constraint that is in one way or another likely to bind us in multiple ways in fact likely to bind us. It was a -- I think very good trade.

It was done effectively, client by client.

Yes.

Make sure we are trying to do the right things for our clients not just jamming our balance sheet down and hurting people.

Fair enough. I just had one quick follow-up on Ken's last question. If two-third of the economy is consumer led. You look at all your early stage delinquencies like Ken said. And Jamie to your comments, things look okay. I hate putting words in your mouth but what do you think the disconnect then is between what's going on in the markets versus what's going on in the trends in your business, both in terms of growth and forward-looking credit books.

The U.S. economy has been chugging along at 2% to 2.5% growth for better part of five years now. In the last two years it has created 5 million jobs. And when you look -- if you look at the actual household formation, car sales, wage, people working, it still looks okay. Corporate credit is quite good. Small business formation, it's not back to where it was but it's quite good. Household formation is going up. So, obviously, market turmoil we all look at it every day but I'm not sure most of the 143 million Americans look at it that much who have jobs and you have a big change in the world out there. People are getting adjusted to China slowing down. When you have commodity prices go down like that there are big winners and losers. The oil companies are the losers. Consumers are the benefit. Brazil gets hurt. India benefits. South Korea benefits. Japan benefits. And those kind of terribly worse and hopefully this will all settle down. It's not the beginning of something really bad.

Your next question comes from the line of Brian Foran with Autonomous.

Hi. The disclosure around the oil and gas is really helpful. And I was wondering, if you could just walk through something similar on metals and mining. So you gave us the -- I think you said $68 million of full year reserve build and you gave us the not significant if things stay where they are. Can you give us the balance and then is there a comparable $500 million to $750 million stress test for oil and gas or stress case, is there a comparable, what is the stress case if broader commodities in metals and mining comes in worse.

Okay. So our total reserves on balance sheet for metals and mining notwithstanding we built $60-odd million. This year it's over $200 million. So the coverage ratio is pretty good. The exposure is about -- I haven't got the precise numbers in front of me. They're a third the size of our exposure to oil and gas. So that 2% of our overall wholesale credit exposure. So considerably more modest, which is why if energy prices and general commodity weakness and stress stays where it is right now, even for an extended period we would think that the incremental reserves would be considerably more modest.

And it's also that one is mostly name by name.

Yes, for sure.

It's not big asset based reserves. It's the big corporate credits name by name.

And so both oil and gas and metals and mining in our portfolio, oil and gas is close to 60% investment grade and metals and mining about half.

And then on I guess staying with credit, on home equities and the whole issue of free cash from interest home-made amortizing. Can you kind of lay out how it's progressed relative to your expectations so far and also remind us how big the allocation of the reserve is against that and I guess not to lead the witness, but is that an area where things are trending early days better than expected and could provide some buffer against maybe anything else that happens on the C&I side?

Yes. So with respect to home equity reclass, remember the majority of the problematic home equity underwriting for 2005 to 2008. So here we are at the beginning of 2016 with sort of [indiscernible]. But we're monitoring it closely and we have some reclass that have happened, obviously interest rates are low. Home price appreciation on the other hand [indiscernible] and there are puts and takes. We've been monitoring I would say at the margin or more than at the margin at early stages coming in better than we had modeled and remember from an incurred loss perspective we would consider these reclass risks to be largely incurred. So we tried to reserve them to the best of our ability, so we feel good about our reserve but I think we disclosed them. But so far from a performance perspective, I would say slightly better than our models but we continue to monitor it because it's still relatively early.

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

Hi, good morning.

Good morning.

Marianne, I know that the Basel committee put our their fundamental review of the trading book proposal this morning, so clearly no one's had time to really go through it in detail. However, I'm sure you've already gone through the prior proposals and done the QISs for the last couple of years. The proposal is better than what had been -- the ruling is better than what the proposal most recently had been. Just wanted to get a sense from you as to how you can manage to this 2019 implementation timeframe. Are there things set in motion already or is this something that you would start from here? And if you could just give us some broad strokes on how you think about overall impact that would be helpful.

Yes. So, obviously, you'll forgive me because we've been on call since it came out but yes we have been working on this for years. The problem with this particular rule is as you stated based upon the four QISs that were done there were some -- I would characterize significant challenges with respect to the rules as written and we were expecting there to be a number of meaningful changes and there have been. In many cases meaningful improvements. But it's very technical and there's been a lot of changes so we need to suture it to figure out net-net everything. Although it is clear that net-net despite factors the faith and intention of the committee wasn't necessary to increase market risk capital across the industry, it will be higher but by how much it's really going to need to be sifted through and for that same reason, for both those same reasons, I'm sorry, for the reason that the rule has not been stable and there have been significant questions, many of which have been either addressed or partially addressed many I guess that have not. It would have been premature to have taken any actions in advance of figuring out where this has landed and you as you know the period, so the comply is three years. So it's more of a start from here to figure out how to manage with this after we sifted through the details. So I wish I were able to give you a little bit more of a detailed answer but we're going to need to take the time to go through it.

Right. I totally understand that. And I guess my basic question is, you can take action as opposed to just deal with what the current decision would be for you. There are actions that you can take to reduce the impact.

Well, there are always actions we can take to reduce the impact. And so we have to think about them in the context of our overall capital optimization program, and again, if there are -- if some of the things that we hope -- and honestly I've been on call since it came out. Some of the things we hoped were going to be addressed have not. They could have had or may have meaningful impact on the specific types of activity. And we will have to react accordingly. And yes, we will take actions if that's the right answer. I wish I could give you more details but we just need to go through it.

Your next question comes from the line of Steve Chubak with Nomura.

Hi, good morning.

Good morning.

So I had a couple of questions on capital. The first relates to the RWA progress which did surprise positively in the year by about $50 billion ahead of expectations. And I was just hoping you can give a better sense, Marianne, just given some of your prepared remarks, as to how much of that incremental $50 billion reduction was a function of more proactive mitigation efforts, maybe even tied to the mitigation efforts that you guys had talked about which should presumably remain in the run rate versus balance sheet shrinkage that may be due to the risk loss environment that we're experiencing today.

Yes. So, I would say that based upon our sort of fourth quarter balance sheet given that market risk was a driver, given that balance sheet levels were a driver particularly on standardized, we could give back on standardized as much as 10 to 20 bps of capital, of the 10.7% capital accretion. But the bigger points on the RWA outlook is that we expect to be bound over the medium term by standardized and standardized is going to always have a neutral to upward pressure as we continue to grow these high quality loans. So even though the RWA is being at the 1.5-ish trillion dollars sooner than we expected is obviously good news regardless of how much that may in the short-term reverse. Our job is going to be to continue to become more efficient to try and keep it there just given the natural upward pressure of the standardized calculations. We can become more efficient in advance but we're unlikely to be bound by it in the medium term. So that's what we're focused on. I wouldn't take the 1.5 trillion in read through that we'll be continuing to decline from here on standardized. We'll be continuing to work hard to make sure that we can grow those loans that we love but that have [indiscernible] under a standardized basis.

Understood, Marianne. That's very helpful. And then maybe just switching gears to the G-SIB surcharge. Clearly the progress surprise positively, getting down to 3.5%, I was just wondering how you guys are thinking about establishing minimum capital targets. I recognize you'll likely lay that out at Investor Day. Just want to get a better sense as to what methodology are you employing in terms of thinking about a management buffer and all the different binding constraints that you have to manage to day-to-day and thinking about through the cycle target that you guys would like to manage to.

Okay. If I missed something at the end remind me. So in terms of how we think about buffers just really conceptually, the firm manages and the Board has set for the firm a risk appetite. That risk appetites has a number of features and capital depletion in a stress environment is one of them. And so when we think about setting buffers we think about it just broadly you in the contexts of allowing ourselves enough room to absorb losses within our risk appetite and not have to take premature actions from a capital perspective. So but having said that, our buffer has been pretty consistent at the 50 basis point level for a reasonable period of time and we'll update you on all of that at Investor Day. With respect to our target, it's a little bit more complicated than minimum regulatory capital because as you say we're bound potentially by multiple constraints and one of them may be CCAR. Plus -- well, it is CCAR I should say because as you know the first two quarters of this year, our capital distribution plans have already been approved. And we haven't done CCAR but this is not any kind of prediction, but it wouldn't surprise you to know that it's unlikely we will pay out 100% of our earnings in CCAR going forward. So we are on a path to continue to accrete capital though we would like to move in our payout range. So given that we're still moving towards our 12% target and we will update you if any of that changes at Investor Day. We'll also as you know potentially going to understand whether or not the Fed changes any of the CCAR parameters and whether that has an impact. So at the moment the best we know is that we're going to continue to accrete capital albeit more slowly as we hope to move up in the payout range. But we haven't done CCAR yet. And that's if the rules don't change. So 12% is for now.

Your next question comes from the line of Eric Wasserstrom with Guggenheim Securities.

Thanks. Marianne, if I could just clarify your NII comment from the very beginning of the call. Do I understand correctly that the $2 billion of incremental NII that you've cited is just a function of the repricing dynamic as they move through your balance sheet or is there also I guess a contribution from loan growth?

So think about in a rate scenario when you can pick whether you believe the market, or whether you think the market is or whether you believe the [indiscernible]. And I think it's going to be data dependent. So we're not going to have a stated opinion on that. But because of the mix in our balance sheet in 2015 as well as our expectation of continued loan growth we would expect mix to contribute about half of that and the first 25 basis points about the next half because we are more sensitive to the front of rise and the first 25 basis points. And you can see that in our earnings and risk disclosures. So even if we see nothing else. Obviously, we believe and the market believes that you're going to see a couple more hikes. That would be on average another 25 basis points. That would be incremental NII again.

Great. Thank you. And so I know we just touched on RWAs but how do you suggest we think about GAAP assets for this year?

I would say I would think about them in a somewhat similar directional way, given that our balance sheet ended below $2.4 trillion. A little bit of it market delivered a lot of it purposeful. But we do intend to continue to gather deposits and extend loans and portfolio loans as well. So while you will see some security balances decline and the like, I would say again net modest growth, about modest and very lending driven.

Your next question comes from the line of Jim Mitchell with Buckingham Research.

Hey, good morning. I just wanted to -- I had a follow-up question on fixed income trading. I think Dan Pinto has talked benefits from higher rates and so I guess number one, I wanted to see if you had had any thoughts on that, have you seen any initial benefits to spreads in the fixed trading market with the first rate hike. In contrast you've had a couple of competitors announce or at least reported that they're cutting headcount. That seems to be a little bit in contrast to the expectation that fixed income to pick up with higher rates. So if you could sort of talk through your thoughts on fixed income. I do notice that you did mention 1Q is off to performing well. So maybe that's part of it too. But if you could help on that, that would be great.

So in terms of the impact of rates, obviously, there was a lot of monetary policy confusion broadly in the fourth quarter, the ECB underwound the Fed. There was a lot of confusion. By the time the rate hike happened it was obviously pretty well understood. We did see strong activity or strong client activity relatively speaking on the back of that in the rates business, more so than necessarily about spreads. With respect to the fixed income business, we've always been very disciplined about how we think about the staffing levels and expenses in that business. We've managed it very carefully. The compensation has come down across the trading businesses and it wouldn't surprise you that some of that -- a lot of that has been in fixed income. And business is upscale and productive. So --

So you still feel pretty comfortable with your outlook that things could improve and market share gain potential as competitors pull back.

You've even in fixed income -- we have a very good fixed income operation globally around the world. Rates themselves don't filter through fixed trading directly. I think what Danny was talking about if you have a healthy economies and confident investors you have more volume in things like that. We do see a little bit of repricing taking place. Prime broker, repo, conduit some of those run through FERC. That is going to take place as the world adjusts to new -- all the new capital requirements. And obviously, a lot of seasonality in the business which you've experienced for the last decade.

Your next question comes from the line of Erika Najarian with Bank of America-Merrill Lynch.

Hi, good morning. My questions have been asked and answered.

Thanks, Erika.

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

Hi. If we look at credit spreads in the bond market even ex-energy they've widened considerably and I'm wondering if this has resulted in wholesale credit being repriced at all. I realize the bond market doesn't set bank loan pricing but just wondering if you've been able to reprice some of the wholesale customers or expect being able to do so.

We've seen no real repricing in loans on the balance sheet. You have seen a little bit of it, people are getting other revenues to make up for their credit exposure.

Yes. I mean think about the bank loans as being relationship loans that need to be sort of in the context of relationship and everybody is they --

They bought them. They really repriced in 2008 and 2009. Banks were continue to lend up at existing price but these were long-term relationships. Bank loan not reprice like the markets do.

I guess I wonder why like we saw pricing in the debt markets come in considerably over the last several years. C&I pricing came in. I realize it might take some time. But I would think there's some opportunity for some repricing around the edges, no?

Well, we haven't seen it.

Also, it's very, very competitive. Everybody has been chasing these loans. And so that's a factor too. So we haven't seen it yet.

The number at middle market lending, if I remember correctly, if you look at it by client, 60% of the revenues are not loan related. So clients, they also know what the relationship is to the bank. While we need to make a good return on capital, capital tied to a client is only partially loan related. That capital on its own doesn't earn an adequate return. Simple lending on its own generally not an adequate return business.

Your next question comes from the line of Gerard Cassidy with RBC.

Thank you. Good morning. Jamie to follow up on your comments about maybe some better pricing in prime brokerage and repo because of the capital requirements or requiring you guys to raise prices, can you expand upon that? Do you see it growing where you could get even better pricing going forward because of less competition. Can you give us more color there?

I think the better way to look at it is people seem in certain of our businesses and I mentioned those and there are some other ones, capital has been deployed, people have adjusted to the new rules and you've seen pricing go up. But it goes up a lot. I wouldn't count on it going up a lot more from there. The markets are going to be competitive at that point. The use of balance sheet, the cost has gone up. Not loans but most of the other stuff.

And remember we think about our prime brokerage business going hand in glove with equity.

That's correct, Marianne.

And so while the repricing is helpful and everybody is going to continue to always observe their pricing. We built our platform internationally, Europe we are seeing strong demand for our traffic product. In Asia we're adding clients. We've got the wind to our backs. So it's an important business to our clients. You're right there are some other people potentially not going to be as aggressive and if we can take share, we certainly will.

Great. And then the follow-up question is obviously the FASB is coming out this quarter with the new loan loss reserve methodology, the current expected credit loss versus what we're using today. Obviously the incurred loss model. There's going to be a true-up for everybody. Have you guys given any thought that when this goes into place when you may take that true-up, assuming say you have to implement it by 2019, or something like that, would you do it much before that or can you give us some thoughts on your thinking about what's going to happen.

Well, obviously we expect any transition adjustment to go through equity. If we are able to adopt it early we might do that. I'm not aware that we are.

Your last question comes from the line of Paul Miller with FBR Capital Markets.

Thank you very much. We know that you implemented a new disclosure form in the mortgage banking space trend. Did that have any -- you guys had very good mortgage banking results. Did that have any impact whatsoever on your operations in the mortgage bank?

So, yes, obviously it was -- I think if you add up other servicing rules, print them out, put them on the floor and stand them next to me they're a foot taller. They are very complicated. There's a lot of operational complexity to complying. And we're working very hard at doing that. I would say in the quarter we did as part of being cautious about making sure that we're complying, our cycle times were a couple days, few days worsened. And so volumes, our origination volumes are a little lower than we would have otherwise seen that's a lot. And that's just timing and it's just days. But not really from a financial results perspective because of the way we recognize revenue. So I would call it a little bit of teaming products across the industry, by the way, not just us, nothing significant. We are going to get the work finished and so it talks. It is what it is.

And then a follow-up question on your portfolio. You look like you grew your residential loans by about $11 billion. Last quarter you said it was a mix between agency and jumbo. If it's a big chunk of it's agency can you give us your thoughts on portfolio of that agency product.

Yes. so, it's about 60% jumbo, 40% agency or conventional performing and it's a better execution decision. So when we look at the better economics between selling or portfolioing the mortgage we'll generally choose the better economics but we also prefer the annuity nature of the NII, the lower servicing risk and the better capital efficiency. So it has been the case over the course of the last several quarters that it has been the best execution to portfolio of these mortgages and actually they are generating a nice return on equity.

And you do have a follow-up question from John McDonald with Sanford Bernstein.

One quick follow-up, Marianne. You've had some pretty big tax gains the last couple quarters, running below 30% of your tax rate. At some point do you pull forward future benefits and run with a higher tax rate in the future.

We have had pretty big tax gains over the course of the last -- most notably over the last quarter, of course, the last couple of years. Most of those related to the sort of call it 2003 through 2008 tax period when we were going through the financial crisis and so some of the matters were more complex and we took appropriate reserving decisions on that. There are many less of those very complicated matters ahead of us and so we wouldn't expect to see the same sort of size of tax benefit going forward as we've seen in the past. But we had some this quarter. So we'll have a few and generally speaking they are because of the nature of the reserving perhaps generally speaking we take a conservative approach and bias to the positive but it could be much more plus or minus zero at this point.

So what's your natural tax rate if you don't have those. Is around 30 or is it closer to -- ?

Thirty.

Thanks.

You have another follow-up question from the line of Brian Foran with Autonomous.

Hi, Brian.

I was wondering if I could just sneak in on credit cards. Do you think the competitive environment has hit a plateau and on co-brands are there any kind of large upcoming repricing events and is there any bigger than a bread box size you can give on, Marianne?

So do I think it's plateaued? I think it remains incredible competitive generally, particularly in the co-brand space. So plateaued at a very competitive level I suppose. But in terms of -- I'm not going to talk about any specific names, actually, Brian in terms of the potential for repricing. It's an important part of our business and we're going to defend our business.

Thank you very much.

Your next question is a follow-up question from Gerard Cassidy with RBC.

Hi, Gerard.

Thank you. Hi, Marianne. If the regulators lift the dividend payout ratio in this year's CCAR to 40%, would you guys consider lifting your dividend payout ratio something closer to that?

Well, it's a Board decision and so neither have we received that guidance from the regulators nor have we done CCAR and had that discussion yet with the Board. But we have generally said that the Board likes to have the flexibility to increase dividends over time and we have had our dividend most recently sort of at or close to that soft cap. So we would love that capacity and I would imagine that over time it may be used but again, it is a Board decision, not a management decision.

Thank you. And then just one last follow-up. On the G-SIB buffer, obviously you guys have done an incredible job in bringing it down to where it is today. When do you expect the regulators to put you into that bucket assuming you guys are obviously looking at the same types of numbers?

So, from we do have -- so, first of all, I would say the following. Right now my understanding and if I'm wrong forgive me is that your spot balance sheet two years prior that would drive your two years forward. But the reality is, if you want my opinion given that we're going to be reporting quarterly going forward and because of the likelihood that G-SIB may or may not feature into CCAR. I think it's going to be less important necessarily what you're at any one moment in time, but where you are projecting to be or stay. I suspect that we will get the benefit potentially of this, not today. We disclosed our balance sheet. But I think it's going to need to be a little bit more dynamic going forward as it guess potentially introduced into stress test.

Great. Thank you.

But I don't know that.

At this time, there are no further questions.

Thank you everyone.