Capital Returns and ROTCE
Q: Do Basel III changes support higher ROTCE than 17%?
A: No, it's hard to imagine ROTCE increasing above the 17% target due to potential Basel III revisions. Most outcomes involve expanding the denominator, and mitigants won't boost ROTCE. The capital hierarchy remains unchanged: grow the business organically and inorganically, maintain a sustainable dividend (increased to $1.25, a 19% increase from last year), and consider buybacks. Deploying excess capital is a matter of when, not if. - -

NII Outlook and Over-earning
Q: Is NII normalizing higher as deposit pressures abate?
A: It's too early to end the over-earning narrative. While deposit pressures have slightly eased, net headwinds remain. The main change in guidance is due to fewer expected Fed cuts (2 cuts vs. 6 earlier). We expect NII normalization primarily from higher deposit costs and potential yield curve effects. - -

Stress Capital Buffer
Q: What's the update on the stress capital buffer and Fed dialogue?
A: We believe the Fed's preliminary 3.3% SCB includes an OCI gain that's unusually high. Adjusting it could raise our SCB. Any discussions with the Fed are private. The SCB's volatility complicates capital management, leading to excessively high buffers—a system we find problematic. -

Investment Banking Outlook
Q: How is the Investment Banking environment across DCM, ECM, M&A?
A: We're seeing progress with Investment Banking fees up 50% year-over-year. Dialogue in ECM and M&A is elevated, but DCM activity reflects pull-forward effects, making us cautious for the second half. ECM isn't as strong as expected due to muted mid-cap tech performance and high private valuations. Regulatory overhang persists in advisory. -

Consumer Credit Health
Q: Are credit card delinquencies stabilizing or showing trends?
A: Delinquencies are normalizing, not deteriorating, aligning with expectations. There's subtle weakness in lower-income segments, with spending shifting from discretionary to nondiscretionary categories, consistent with a moderating economy. -

Deposit Migration Impact on NII
Q: What are you seeing with noninterest-bearing deposits?
A: We anticipate ongoing migration from noninterest-bearing to interest-bearing deposits, leading to modest NII headwinds. This shift happens both internally and externally, but we're capturing much of the yield-seeking flow through CDs and money market offerings. -

C&I Credit Quality
Q: Any early signs of cracks in C&I loans?
A: No early signs of issues in C&I loans. Charge-off rates remain very low, though some upward pressure is expected over time. Current results aren't indicative of broader concerns. -

Extending Duration Strategy
Q: What triggers would lead you to extend duration?
A: We've added some duration recently but don't anticipate major changes. The inverted yield curve doesn't make extending duration compelling, and we aim to stay balanced regarding rate sensitivity. -

Deploying Excess Capital
Q: Are you leaning into trading assets or loans to deploy capital?
A: Trading asset growth is client-driven and not capital-intensive. Outside of Card, loan demand remains muted. We're cautious about extending lending beyond our risk appetite despite excess capital.

Over-earning Narrative
Q: What would end the over-earning narrative?
A: The narrative would end when annual returns approach our 17% ROTCE target. Normalizing deposit margins, currently above historical norms, is the primary factor. -

Capital Return Guidance
Q: How do you decide on buyback amounts like the $4.9B?
A: We don't provide buyback guidance but act based on current conditions. The $4.9 billion repurchase included proceeds from liquidating a significant Visa position, redeployed into our stock. Without returning capital, our CET1 ratio would grow excessively. -

ROTCE Normalization Factors
Q: What's driving ROTCE from 20% back to 17%?
A: Factors include NII normalization due to higher deposit costs, yield curve effects, rising expenses from inflation and investments, and anticipated expansion of the denominator from Basel III changes—all contributing to a return to our 17% target. -

Private Credit and Asset-backed Finance
Q: Any progress in private credit or asset-backed finance?
A: The private credit market is quieter, with more capital chasing fewer deals. There's a convergence between direct lending and syndicated lending. We haven't observed significant trends in asset-backed finance. -

Yield Curve Effects on NII
Q: How does the yield curve impact NII and NIM?
A: We don't view yield curve steepness as a structural source of NII or NIM. Relying on term premiums is speculative, and extending duration amid expected Fed tightening poses risks. -

Provision for Credit Losses
Q: Is the $10.7B provision appropriate given Card growth?
A: Our expected Card allowance build is slightly above $2 billion for the year, aligning with prior comments. The consensus seems low, considering a higher revolving mix and seasoning of earlier vintages. -

Loan Demand Outlook
Q: Any change in loan demand outside of Card?
A: Loan demand remains subdued outside of Card. We're not inclined to extend lending beyond our risk appetite, even with excess capital.

Consumer Spend Patterns
Q: Any notable trends in consumer spending?
A: We're seeing slight weakness in lower-income segments, with a shift from discretionary to nondiscretionary spending, reflecting modest economic moderation. -