JPMorgan Chase & Co.
Q1 2020 Earnings Call Transcript

Published: 14 Apr 2020

[Operator:]

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s First Quarter 2020 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please 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, Jennifer Piepszak. Ms. Piepszak, please go ahead.

[Jennifer Piepszak:]

Thank you, Operator. Good morning, everyone. As you heard, Jamie is with me on the call. And I know I speak for the entire Company when I say, we’re just thrilled that he is back.

[Operator:]

And our first question comes from Erika Najarian of Bank of America.

[Erika Najarian:]

Hi. Good morning. And Jamie, we’re glad that you could join us and that you’re well enough to join us. My first question is on the forbearance activity. Jen if you could give us a sense of by product, how many of your clients for example in card and auto, home lending, are in a forbearance state, so they started to defer the payments to the percentage of your clients? And how we should think about the significant government intervention relative to the severely adverse scenarios? I believe for total losses, it’s 5.9% over nine quarters for the Fed and 4.1% for company-run.

[Jennifer Piepszak:]

Sure. So, first of all, I’ll start with that payment relief and forbearance there. I’ll start by saying that we have already refunded millions of dollars in fees. We’ve approved payment relief for hundreds of thousands of accounts across consumer lending. And we obviously expect that to be meaningfully higher through time. We’ve paused foreclosures and auto repossessions. And importantly, we’ve made the process easier for our customers through digital and self service options that we’ve built in record time. But, in terms of what we’re seeing, those are the numbers, they’re still, as I said, relatively small compared to what we think we’ll ultimately see. In mortgage, just to give you context outside of customers asking for forbearance, which is just a little over 4% of our service book at this time, the April 1st payments seems BAU. In card, we’re seeing payment rates down a bit, but still strong. And we’ve seen a slight uptick in late payments in auto. But the quality of these portfolios looks strong coming in as we’ve done surgical risk management over the last few years. And that has made these portfolios more resilient. And then, in terms of how we think about significant government intervention, I mean, I think the ultimate effectiveness of these programs, which are extraordinary in terms of the direct payments or the enhanced unemployment insurance, the ultimate effectiveness is I think, the biggest unknown. The key obviously is being able to bridge people back to employment. And so, we have assumed, as we could, for our first quarter results, the impact of those programs as well as the ultimate impact on payment relief that we’ll be providing for our customers. But that is for sure an unknown, and we certainly expect to learn a lot more about that in the second quarter.

[Erika Najarian:]

Thank you. My second question, you mentioned that you’re prepared to go below 10.5% CET1 to help your clients. Going below 10.5% is also when the automatic restrictions start kicking in from the Fed in terms of payout. So, if I understand it, it would be a 60% payout restriction on eligible net income. And I just wanted to understand your thoughts on balancing, servicing your clients and also thinking about your capital levels relative to those automatic restrictions from the regulators.

[Jennifer Piepszak:]

Sure. So, as you probably know, Erika, that the Fed made some changes there recently, which, as you say, puts us in a 60% bucket as we go below 10.5%. And we have a reasonable amount of room below 10.5% to remain in the 60% bucket. I would say that that was very helpful clarification from the regulators in terms of how we should think about using regulatory buffers. So, that was particularly helpful. And right now, we are focused on serving our clients and customers. And we’ve looked at a range of scenarios, so we can ensure that we’re managing our capital quite carefully. Jamie talked about an extreme adverse scenario in his Chairman’s letter that we’ve looked at assuming large parts of the economy remaining in lockdown through the end of this year. And in that scenario, our CET1 drops to about 9.5%. And so, we think we have significant room to continue to serve our customers and clients through this crisis, but we are managing it quite carefully and looking at a range of scenarios. So, we make sure that we’re prepared.

[Operator:]

Our next question is from Mike Mayo of Wells Fargo.

[Mike Mayo:]

Hi. And welcome back, Jamie. Questions for you. How do you thread the needle between supporting your customers and the country and doing all those things that you want to do while still protecting the resiliency of the balance sheet and not getting hit with unexpected litigation costs, as you mentioned in your CEO letter?

[Jamie Dimon:]

Yes. No, it’s a very important question. I think in times of need, banks have always been the lender of last resort to their customers. And obviously, you’ve got to be a disciplined capital provider because undisciplined loans are bad. So, you take your calculated risks. We’re making additional loans. We’re adults. We know that if the economy gets worse, we’ll bear additional loss, but we do forecast all of that so we know we can handle really, really adverse consequences. There will be a point -- and the last question brought it up was where you get below 10% CET1, even though we’ll have almost $200 billion in capital and $1 trillion liquidity, all these other constraints start to kick in, like SLR and G-SIFI, advanced risk-weighted assets that may kind of constrain it. And so, -- and then obviously, then you’ve got to look forward. So, we want to do our job. If we can help the country get through this, everybody’s better off. If we lose a little bit more money in the meantime, so be it. But obviously, we’re going to protect our company, our balance sheet,, our growth and we’ll be having close conversations with regulators about what that is. I also think, you have to take in consideration the extraordinary measures the government has taken. That’s the income to individuals, the PPP and all these Federal Reserve things.

[Mike Mayo:]

So, also in your CEO letter, you talk about the economy coming back on, online. And I guess with your reserve build, you’re assuming, what 10% unemployment, and then the economy improves in the second half of the year. So, what is your base case for how people come back to work that’s behind those assumptions? And I know you have a lot of scenarios too but just a base case.

[Jamie Dimon:]

Yes. I’ll let Jen talk about the base case. But, I think the back to work, we shouldn’t think of as a binary thing that after the CDC and we all get instructions from the government after there’s enough capacity in the hospitals, after there is proper amount of testing. Remember, a lot of people are going to work today in farms, factories, food production, retail, pharmacies, hospitals. It isn’t like no one’s going to work and you can hope that you can turn it back on where it’s very safe. There’s plenty of capacity. You’re not worried that you can’t give every American who does get sick, the best possible medical advice. And the turn on will be regional by company, all following standards of best health practices. And in some ways you need to get that done because the bad economy has very adverse consequences, way beyond just the economy. In terms of mental health, domestic abuse, substance abuse, et cetera. So, a rational plan to get back to work is a good thing to do. And hopefully it’ll be sooner rather than later, but it won’t be May. We are talking about June, July, August, something like that. So, I don’t know if that answers your whole question. And then, Jen, you give the base case.

[Jennifer Piepszak:]

Sure. So, Mike, as we closed the books for the first quarter, just to give a context, we were looking at an economic outlook that had GDP down 25% in the second quarter and unemployment above 10%. It’s just important to note that that kind of gives you a frame of how to think about it. But, there’s a lot more that goes in to our reserving including management judgment of some like world class, risk management and finance people, and also other analytics. And so, that just kind of gives you a frame of reference. But there, we did think about a number of other scenarios that we should contemplate in reserving. And we also thought about the impacts, what’s our best estimate of the impact of these extraordinary government programs as well as our own payment relief program. Since then, as I noted in my prepared remarks, our economists have updated their outlook and now have GDP down 40% in the second quarter and unemployment at 20%. That’s obviously materially different. Both scenarios, though, do include a recovery in the back half of the year. And so, all else equal and of course, the one thing probably the only thing we know for sure, Mike is that all else won’t be equal when we close the books for the second quarter. But all else equal, given the deteriorated macroeconomic outlook, we would expect to build reserves in the second quarter. But again, a lot will depend on the ultimate effect of these extraordinary programs and how effective they can be in bridging people back to employment. And we’re going to still have a number of unknowns, I would say at the end of the second quarter, but we’re going to learn a lot through these next few months that will inform our judgment for second quarter reserves.

[Operator:]

Our next question is from Steven Chubak of Wolfe Research.

[Steven Chubak:]

Hey. Good morning. And Jamie, nice to have you back. So, I wanted to ask a question on some of the remarks relating to capital. Carl has actually made some comments on Friday, alluding to efforts by the Fed to incorporate real life COVID stress in the upcoming CCAR cycle. We haven’t gotten much color since then. I’m wondering whether you received any guidance from the Fed on which changes if any they plan on contemplating for this year’s test. And maybe just bigger picture, how are you thinking about the potential impact that could have on SCB and potentially raise some of your capital requirements?

[Jennifer Piepszak:]

Sure. Thanks, Steven. So, we haven’t gotten specific guidance, but it certainly makes sense that the Fed would want to look at a scenario like that. We have been, as you might imagine, staying very close to our regulators through this crisis. So, they can have a very good understanding of how we are managing things. And then, in terms of the potential impact, we’ll learn more about that in June. We’ve given our best estimates of SCB and the impact it will have on our minimums. And that is absolutely incorporated into our thinking about how we’ll manage capital through a range of scenarios here, but we’ll learn more from the Fed in June.

[Jamie Dimon:]

I’ve always tried the floor doing one stress test, which will not be the stress you go through. JPMorgan does 100 a week. And we’re always looking at potential outcomes. And obviously we’re doing our own COVID-related type of stress testing, including extreme, and we’ll always be updating them, talking to regulars about it, because that’s what we have to deal with this time, not what I would consider a traditional stress test.

[Jennifer Piepszak:]

Yes. We look both at -- the range of outcomes probably has never been broader. And so, as Jamie said, we have -- CCAR has been a good place for us to start in terms of one scenario. But we have looked at a number of different scenarios at how this may play out. And obviously, Jamie articulated what we think could be an extreme adverse, and we’re prepared for that too. So, I think, the most important thing is that we’re prepared for a range of outcomes. And we’ll learn more about SCB in June.

[Steven Chubak:]

Got it. And just a follow-up on the securities book. Just given some of the significant declines at the long end of the curve, Jen, I was hoping you could help us think about where reinvestment levels are today, just compared with the 2.48% yield on the blended securities book? And then just separately, given the larger impact of QE driven deposit growth, how you’re deploying some of that excess liquidity in this environment?

[Jennifer Piepszak:]

Sure. So, on the investment securities portfolio, managing the balance sheet in this rate environment is obviously a different dynamic. And with lower rates, as low as the deposit growth that with the Fed balance sheet expansion, you do see a large increase in our investment securities portfolio this quarter, which makes a lot of sense. Right now, in terms of balance sheet management, we are completely focused on supporting client activity. Our balance sheet is harder to predict right now, but we are prepared for a range of outcomes.

[Steven Chubak:]

Okay. Thanks very much.

[Operator:]

Our next question comes from Saul Martinez of UBS.

[Saul Martinez:]

Good morning. I wanted to follow up on the CECL related question. Jen, you gave us a good amount of color on what the underlying economic assumptions that were used to build the reserves and in where Bruce Kasman and your economics team is now for the second quarter? But maybe thinking about it a little bit differently in terms of how to attribute them to CECL reserve build? I’m not looking for specific numbers, more just directional. How do we think about it in terms of how much is attributed to sort of mechanistic model related changes, where you calibrate your model for new economic scenario versus actual signs of stress that you’re seeing your book that maybe aren’t showing up in credit measures, but that you do think will show up in a reasonably short time period, call it within the next few quarters, how much of its growth, how much of its mix, just if you can talk to that? And I guess, what I’m trying to get at is, how much of it is more mechanistic, and how much of it is actual tangible signs that you’re seeing that of financial stress in your borrower base that could emerge in a reasonably near future as credit losses?

[Jennifer Piepszak:]

Sure. So, it’s great question, Saul. So, I would start by saying that we haven’t actually seen the stress emerge as of yet. So, I wouldn’t necessarily use the term mechanistic. But I would say that what we took in the first quarter is our best estimate of future losses. It’s also important to note that we don’t reserve for future growth. And so, future growth with all else being equal the reserve build. So, I wouldn’t necessarily think of this as materially different because of CECL. We didn’t actually really think about the impact of CECL relative to the incurred model. I mean, the regulators have given their point of view on that, given the change in the capital rules where 25% is assumed to be the difference. But that’s their view. And like I said, we did spend a lot of time thinking about it. And I would say that it is our best estimate of the losses that will inevitably emerge through this crisis. And it is life of loan, which of course is different under CECL. And so, again, all else equal, you can think hard was larger than it would have been under an incurred model. But we didn’t really think about it that way. And it’s impossible of course to know what judgment we would have applied under a different model.

[Saul Martinez:]

Okay. That’s helpful. And Jen, just on that point of growth, pivoting a little bit. What -- obviously, a lot of pressure in CET1 was because of risk-weighted asset growth and draw-downs on commitments. Where are we in terms -- where do you think we are in terms of those draw downs? I think, it’s like $350 billion still in wholesale commitment -- unfunded commitments, but like, how do we think about that and how much room there is for that to continue to maybe pressure risk-weighted asset evolution?

[Jennifer Piepszak:]

Yes. So, like so many other things, it is difficult to predict. I will say that early here in the second quarter, we have seen a pause on revolver draws. But, it could very well just be a pause. And so, we’re assuming as we think about our own capital plans that we will see revolver draws continue in the second quarter, albeit at lower level than the first quarter. And then, of course the timing and the pace of the pay-downs will depend upon the ultimate path of the virus and the economic recovery.

[Operator:]

Our next question is from Glenn Schorr of Evercore ISI.

[Glenn Schorr:]

Thanks very much. I appreciate the limited sight we all have. Maybe we could, let’s assume, hopefully sooner than later, we get past the bulk of the credit impact. On the other side of this, have you thought about lending spreads, underwriting criteria and how much terms need to tighten, given what we’ve learned or on a scenario that we didn’t capture under its previous underwriting? In other words, does lending spreads widen? And do you get paid enough for you balance sheet? I’m just curious on how you’re thinking about risk management on a go forward basis?

[Jennifer Piepszak:]

Sure. So, there I would say that, our -- we always take a long-term franchise view on things like that. And so, our philosophy has not changed. It is true, however, that the marginal cost of new activity is higher for us right now. And so, that’s a consideration. But, I would say, in terms of risk management, we do what we’ve always done and what we always do, which is manage carefully within our risk appetite. And I think that has served us well coming into this crisis. And we’ll continue to stay close to our clients and manage that carefully.

[Jamie Dimon:]

I’d just add, on the consumer side, the forward-looking view of risk, on the wholesale side, the revolvers are taken down, which is like $50 billion, our existing spreads. The bilateral stuff is being done by new credits. They’re being done at slightly different spreads and stuff like that are higher. And then trading, obviously you’re actually getting higher spreads and lot of things you do, and train your finance people and do things and stuff like that. And then you will see a tightening of credit in the market. Think of leverage lending, certain underwriting, sort of non-bank lenders who are no longer there. So, you will see an eventual tightening and eventual increase in spreads. What you won’t see banks do is price gouge, which you see in other industries. Banks are very careful to support their clients in times like this.

[Glenn Schorr:]

Okay. And then one more impossible question, Jen, maybe. Could you help qualify? I know, you can’t quantify, but exit rate revenues that you’ve kind of alluded to in some of the things like underwriting falling off. So, a tale of two quarters, the quarter itself has learned for the ginormous credit issue that we’re facing. It would have been like, revenues down a little bit, expense is up a drop, okay, but how much of the exit rate revenues are we looking at second quarter, third quarter versus the full first quarter? And that’s a hard one.

[Jennifer Piepszak:]

Glenn, I’m glad you acknowledged that it’s impossible question and a hard one. And so, there’s a reason why we gave directional guidance here in terms of what could be headwind, but it is just impossible to predict right now, as you point out. So, but I will say, like -- if you think, there’s obviously nothing that we can really say with confidence about exit rates in 2021. I will say, based upon the latest implies, if you look at NII, you could see growth in 2021 on balance sheet growth there. And then NIR is absolutely going to depend on the path of the virus and the economic recovery and when and how we all get back to work. And then, we’ve given you expense guidance to think about. And then, from a credit perspective, as I said, we could see continued build over the next several quarters, but the way CECL works in theory, again, all else equal, is that that should be -- could be behind us by the end of the year, and we then have those reserves to absorb the losses that will inevitably emerge over the back half of this year and into 2021.

[Operator:]

Our next question is from Gerard Cassidy of RBC.

[Gerard Cassidy:]

Can you I know you gave us the color on the base case downturn in the second quarter. What’s your outlook on that recovery in the second half of the year? Can you give us any color on what kind of recovery you’re expecting in the second half of the year that’s part of the CECL reserve building?

[Jennifer Piepszak:]

Sure. So, it is -- I don’t have the numbers to hand, Gerard, but they’re public. It was -- I suppose you can say, it was based on our economists’ outlook at the end of March, which did have a recovery. I just don’t have the GDP numbers to hand, I think -- and the unemployment. I think what’s most important to note, Gerard, is that what -- based upon what we’re looking at, you do have a recovery in the back half of the year, but it is -- it still leaves you from a GDP perspective and unemployment, below your launch point on absolute levels of GDP and above your launch point on absolute levels of unemployment. So, it’s a recovery, it is our latest outlook. And as I said earlier, it is probably the only thing we know for sure is that that is going to change through time. But it is a recovery in the back half of the year that doesn’t get us back to where we started. And, importantly, as we said that we’re prepared for a range of scenarios. So, while that may be the case that we based our reserve levels off, it is not being the only scenario that we’re preparing for.

[Gerard Cassidy:]

And then, just as a follow-up, on the bridge book, and I apologize if you addressed this and I missed it. I know you guys mentioned the losses in the bridge book. Could you share with us the size of the book, and then some more color on what triggered the losses in the bridge book?

[Jennifer Piepszak:]

Sure. So there, I would just start by -- I said it in the prepared remarks, but it’s worth repeating. Our bridge book is about a quarter of the size it was in the financial crisis. So, it’s about $13 billion. It’s slightly down from where we were at yea-end. Importantly, we don’t have any imminent closing deadlines. And the market is actually performing a little bit better here in the second quarter. So, we’ll see where we land at the end of the quarter. But so far…

[Gerard Cassidy:]

Just basically marking the positions to market…

[Jennifer Piepszak:]

Yes. And the good news is we’ve built in…

[Gerard Cassidy:]

Fees.

[Jennifer Piepszak:]

And with no imminent closing deadlines, it’s not necessarily the case that we’ll realize those losses. But as Jamie said, they’re mark to market at the end of the quarter.

[Jamie Dimon:]

And I would just also put this in perspective. We’re adults. We know that we have a bridge loan book, because you’re going to have quarters where things get bad and you might lose some money. We’re the leader in leverage lending, we’re the leader in high yield, the leader in loans, et cetera. And we intend to maintain that position. And every now and then you have not a particularly good quarter. So, we’re not -- we don’t worry about this very much. And like Jen said, so far if you look at spreads, it’s probably a recovery this quarter.

[Operator:]

Our next question is from John McDonald of Autonomous Research.

[John McDonald:]

Hi, Jen. Regarding credit cards, just based on payment rates that you’ve seen so far, and maybe the draws on revolves, how are you expecting card spending and card balances to trend over the next few quarters this year?

[Jennifer Piepszak:]

Yes. Hi, John. So, based upon what we’re looking at right now, spend was down. We talked about different categories, but spend in aggregate was down 13% in the month of March, year-over-year, and we’re seeing trends like that continue here in April. And so, with that, I would say that we would, given what we know today, expect outstandings to trend down from here.

[John McDonald:]

And then, can you help us think about how you do the accounting for the consumer deferrals? You keep accruing. But, do you add some kind of haircut for NII in suppression in terms of what might not be collectible, even though technically you’re allowed to accrue while you defer?

[Jennifer Piepszak:]

Yes, you got it John. So, we do continue to accrue, but it is a lower yield over the life of the loan.

[Operator:]

Our next question is from Betsy Graseck of Morgan Stanley.

[Betsy Graseck:]

Hi. Good morning.

[Jennifer Piepszak:]

Hi, Betsy.

[Betsy Graseck:]

I just want to -- I had add two questions. One, just thinking about the outlook for the next couple of quarters here. I know you mentioned that your economics team had updated their estimates. And maybe you could give us a sense as to the timing of when you clip your reserves versus those estimate changes? And part of the reason I’m asking is because of the reserve ratio move between 4Q ‘19 and 1Q ‘20 for the various segments. When I look at the CIB and the commercial bank, the reserve ratios are down from where they were in 4Q ‘19. So, I’m trying to understand how the next change in the reserving is likely to traject between the various asset classes? Is there -- as you move from an adverse case to a severely adverse case, are there different asset classes that potentially have a higher uptick in reserve ratio that we should be expecting here?

[Jennifer Piepszak:]

Sure. So, on the wholesale side specifically, Betsy, the reason you see that dynamic is because of CECL. And it’s in the presentation. So, you can see the numbers. So, we -- the CECL adoption impact in wholesale was a net release. And so, we’ve now built that. And so, that’s why you see that dynamic there. And then, in terms of the reserving, when we close the books, which was here in early April, we do have to of course kind of snap the chalk line at some point and close the books, which is why we want it to be very transparent about how we think about reserving going forward. Because like I said, all else equal, given the macroeconomic outlook that we’re looking at that we would expect to have a bill in the second quarter and perhaps, beyond, because as I said, obviously everything is incredibly fluid. And we need to -- we really need to learn a lot about the ultimate impact of these programs because they are extraordinary and should have an extraordinary impact. But, we need some time to learn.

[Jamie Dimon:]

And also just on the wholesale side, kind of at one point you have an overlay about what you expect in terms of migration downward and downgrades and stuff like that. It will also be name by name, company by company, name by name, reserve by reserve, so a real detailed review of that.

[Betsy Graseck:]

So, as we think through -- because effectively I think what we’re saying is, there’s the possibility of the severely adverse case coming, which we can look back at prior Fed stress tests to see what you anticipated that to mean for the credit losses. And maybe, Jamie, if you get an understanding as to how you’re thinking about, what your economists are looking for versus prior severely adverse stress cases that you have run on your own bank. Is this fair to look at the severely adverse stress cases on a bank-run modeling basis that we have access to and it’s in line with that kind of level or is this something that’s even a little bit tougher, and specifically around like things like commercial real estate? I get the name by name on the corporate side, that that is obviously extraordinarily granular and you have access to that. But I’m wondering on the commercial real estate side, is there anything we should be thinking about that’s different from perhaps what a Fed stress test might have suggested in the past?

[Jamie Dimon:]

I think commercial real estate, eventually it will be loan by loan and name by name too. So, you have reason to believe that a loan is bad, you’re going to write it down and put a reserve against it or something like that. This is such a dramatic change of events. So, there are no models that have done -- dealt with GDP down 40%, unemployment growing this rapidly. And that’s one part. There are also no models ever dealt with a government, which is doing a PPP program, which might be $350 billion and might be $550 billion. Unemployment, where -- it looks like 30% to 40% of people going on unemployment with higher income than before they went on unemployment. So, what does that mean for credit card or something like that or that the government is just going to make direct payments to people. So, this is all in the works right now. The Company is very good shape. We can serve our clients and we’re going to give you more detail on this, but it’s happening as we speak. And I think people are making too much of a mistake to model it. When we get to the end of the second quarter, we’ll know exactly what happens in the second quarter. Like, you know -- you’ve got to respect the credit card delinquencies and charges will go up that we’ve seen very little bit so far. But, in the second quarter, you’ll see more of it. And then, we’ll also know if there’s a fourth round of government stimulus, we’ll know a whole bunch of stuff and we’ll report that out. We hope for the best, which is, you have that recovery and plan for the worst, so you can handle it.

[Jennifer Piepszak:]

And then, in terms of planning for the worst, Betsy, maybe it’d be helpful. The extreme adverse scenario that Jamie referenced in his Chairman’s letter had 2020 credit cost of more than $45 billion. So, clearly that is not our central case, but that’s the kind of scenario that we are making sure that we’re prepared for. And then, just coincidentally, if you look at our credit costs from the fourth quarter of ‘08 to the fourth quarter of ‘09 across those five quarters, we had credit cost of $47 billion.

[Jamie Dimon:]

I’ve got the number where reserves went from like $7 billion to $35 billion back to $14 billion. Reserve in itself is counter -- pro-cyclical and often wrong. And you’re required to do it, but it certainly doesn’t match revenues and expenses. And so, we’d like to be conservative in reserving, but I have to point out the flaws of it.

[Operator:]

Our next question is from Brian Kleinhanzl of KBW.

[Brian Kleinhanzl:]

Just a couple of questions, again one on CECL maybe to start with. Can you just maybe give a little bit more qualitative disclosure on how this payment relief factors in? I mean, are you assuming some amount of government programs get used and that’s included or that’s just payment relief that you’re directly giving to consumers and corporate? Just trying to get a sense of how all these government programs going to flow through the model.

[Jennifer Piepszak:]

Sure, Brian. So, you can think about the government stimulus as being incorporated in the macroeconomic variables; and then, the payment relief. Those are -- I’m referring to our own programs there. And there, based upon our judgment and experience from the past, we applied some percentage of pull-through in the portfolio of people who will get payment relief, and then we think about the impact that that could have. Again, I would say, both, while estimated for the first quarter, we’ll know a whole lot more about both of them for the second quarter.

[Jamie Dimon:]

And Jen remind me, when we do the 10-Q for the quarter, we’re going to lay out lots of these various assumptions about CECL. And one of the problems with CECL is this precisely. We’re going to spend all day on CECL, which was $4 billion and it’s kind of a drop in the bucket, but it’s a lot of data. It’s like all the data we did after the last crisis we give you on level three, and all these assumptions and stuff like that. No one ever looks it anymore.

[Jennifer Piepszak:]

That’s right.

[Jamie Dimon:]

And every company does it differently.

[Jennifer Piepszak:]

Yes. And we still have obviously several weeks and so -- before the Q. And so, we’ll be able to give our best view on things then.

[Brian Kleinhanzl:]

And then, in the quarter -- I mean, you gave what the marks were on the bridge loan. But, is there a way to frame what the total marks were, I mean assuming credit spreads tighten kind of dramatically post quarter end? So, it seems like, it would be a reversal of some of those marks initially?

[Jennifer Piepszak:]

Yes, there could be. But, that’s only where we are at this point in the quarter. And so, it’ll obviously all depend on the market from now until the end of the quarter. But right now, the market is performing a bit better and spreads have come in, as you mentioned.

[Jamie Dimon:]

A couple of deals may be syndicated, but hopefully, might be syndicated at the end of the second or third quarter.

[Operator:]

Our next question is from Chris Kotowski of Oppenheimer.

[Chris Kotowski:]

earnings are -- pre-provision earnings minus net charge-offs .

[Jamie Dimon:]

I don’t know about you guys. I can’t -- we can’t understand a word you are saying.

[Jennifer Piepszak:]

Yes. Chris, this is unfortunately part of our -- all of our new reality is we all work remotely. We couldn’t hear you.

[Chris Kotowski:]

Sorry. Is this better?

[Jennifer Piepszak:]

Yes.

[Chris Kotowski:]

Okay. So, my apologies. At Investor Day, Jamie said something like that the real economic earnings are pre provision earnings minus net charge-offs, which I agree with. And so, if you push aside all the CECL reserving noise, I’m curious, does the customer relief, the 90-day grace period, does that change the -- alter the historic charge-off assumptions? Like for example, I mean, credit card was always pretty cookie cutter, 180 days after delinquency is charged off and maybe with auto, or will those customer relief periods push back the charge-off curve as well?

[Jennifer Piepszak:]

It may, because as long as the customer is performing under the forbearance program, they are not delinquent. But of course, it will all depend on whether these programs ultimately are able to bridge people back to employment.

[Chris Kotowski:]

Okay. So…

[Jamie Dimon:]

We’ll clearly know a lot more in 90 days about how this effect is, what we would have expected?

[Jennifer Piepszak:]

And to Jamie’s point, what we may learn over the next 90 days is, of course whether programs have been effective or whether they just delayed losses. And, of course with CECL being life of loan, if it is just delayed losses, you can expect that that would -- we would be reserving for that.

[Chris Kotowski:]

Okay. But, in terms of charge-offs . Am I getting that right?

[Jennifer Piepszak:]

It may be. It may be. But again, it’s going to just completely depend on whether people are able to remain performing under a payment relief or forbearance program. But, we don’t really think about it that way. We think about what the ultimate losses will be and we reserve for that. And then importantly, in the first quarter, the charge-offs we’re seeing, which is why I was clear to say it was consistent with prior expectations. Because the charge-offs in the first quarter of course don’t at all reflect the ultimate impact of COVID-19. They were just normal BAU, I would say.

[Operator:]

Our next question is from Andrew Lim, SocGen.

[Andrew Lim:]

Hi. Good morning. Thanks for taking my questions. So, firstly, on government guarantee loans. These are 0% risk-weighted. And I’m wondering, to what extent you’re using them to refinance existing loans on your portfolios. And if you are, to what extent risk-weighted assets have gone through, if you do this?

[Jennifer Piepszak:]

Yes. And that’s just specifically what program you’re referring to. I would just say, broadly speaking, on the Fed facilities, there are obviously very large programs rolled out very quickly and just an extraordinary response to unprecedented market conditions. Here, we are happy to leverage facilities to intermediate these programs for our clients. But, we are only using them where it makes sense to ensure the credit and liquidity is flowing to where it’s needed.

[Andrew Lim:]

So, I mean, just to maybe elaborate on that. Is there maybe some part where there’s a bit of a capital uplift, if you use government guaranteed loans to represent risk-weighting where previously you’ve...

[Jamie Dimon:]

What uplift?

[Andrew Lim:]

A capital uplift, so, your risk-weighted assets go down, say for something like government guaranteed…

[Jamie Dimon:]

We’ll incorporate all of that into how we run the company trying to serve client et cetera, et cetera. And there few things, like the PPP that you put on your balance sheet is zero RWA but it does affect a lot of other things, like SLR and G-SIFI and stuff like that. Because if you sell it to the government, those -- it all goes away. And we will manage through that as we learn how these programs are working and what want to do.

[Operator:]

And we have no further questions at this time.

[Jennifer Piepszak:]

Thanks, everyone.

[Jamie Dimon:]

Thank you for spending time with us.

[Operator:]

Thank you for participating in today’s call. You may now disconnect.