JPMorgan Chase & Co. (NYSE:JPM.PK) Goldman Sachs 2022 U.S. Financial Services Conference December 6, 2022 12:20 PM ET
Company Participants
Marianne Lake – Co-CEO
Conference Call Participants
Richard Ramsden – Goldman Sachs
Richard Ramsden
We’re delighted to have Marianne Lake with us as our next presenter. She is the Co-CEO of the consumer and community banking businesses [indiscernible]. She has three leading businesses observation and finance. She’s been with the firm for over 20 years and the last at this conference 2017, and she was CFO. So Marianne, welcome back.
Marianne Lake
Thank you. It’s great to be back. As Richard said, the last time I were here in 2017, I think now it’s got to be like ’19. So the last 5 years.
Richard Ramsden
It’s not like nothing happened in the last 5 years or so.
Marianne Lake
I know. Trust me.
Question-and-Answer Session
Q – Richard Ramsden
So why don’t we start off with just a more discussion about the macroeconomic environment. I know there’s a lot of moving pieces here and a lot can change. Can you talk about 2 things. First is, what’s your view of the currency of the economy? What are your expectations? Do we head into next year around inflation, interest rates and monetary policy? And how do you see it playing out from here over the next 12 months?
Marianne Lake
Okay. So look, as we sit here today, the U.S. economy is still strong. I’m sure we will talk more about it. My sort of center of gravity being in consumer banking and lending, consumers and for businesses are still generally in good shape, and so everything today is pretty good.
I do think as we look forward is generally a lease. We’re supported of moderating the pace of rate hikes looking forward, more in restricted territory, no longer need a shocking approach to one of the policy. Inflation expectations at live maybe, either older. And so our economist looking forward has obviously a 50 basis point hike and another 50% over. Clearly, there’s been a pretty risk that will go higher. At this time, we don’t think that there’s necessarily going to be a need to do that could happen. We are seeing signs that inflation will moderate through ’23 and ’24, but remaining meaningfully above target, but still show we think clear inciting signs of moderation.
And then I think the labor market is still super tight no matter how you measure it, obviously. But it does feel like in the end of 2022, brings increasing lightly. And so feels a bit like with a peak of wage inflation. Now we might have to that was true coming into 2022, and there was a lot of wage actions in 2022. But it does feel like we’re past the peak of wage inflation. It feels like they’re sort of frenzy on hiring, and they’re like super elevated attrition rates for us and generally have abated a bit. And so we look for that to soften into 2023. We can clearly be wrong.
With that, updating our outlook for unemployment has unemployment moving higher in ’23, peaking in ’24 at or slightly above 5%, which in the context of any kind of stress or in the context of history is like really quite modest. So a fallow and short-lived recession at the end of next year, again, with all of the caveats around that.
What does it mean for us without being flippant in any way? It will be what it will be. We don’t manage the company based upon short-term macro expectations. We understand that there are a range of potential outcomes. We look at all of those, including the sort of tail risks, there will be impact. We can talk more about them.
We have worsened our central case very slightly on macro variables, including unemployment. That comes with impact, most notably on reserve, less so losses in the near term. And a great terminal rate of 5%, a little less cost and sell higher through ’23 and ’24, which we think will be likely the case. That we could earn some more NII as that happens, but reprice is a wildcard and QT is a wildcard. I think we’re pretty sanguine at the moment. So obviously, the way is long, and we’ll update you as we know more.
Richard Ramsden
Just as a very quick follow-up. Has your view of the economy for over the last 3 months?
Marianne Lake
I would say that we feel like a modest recession is more in our near term. So the probability of recession has gone up. We’re actually looking for that right now. We see like a lower case. And I think if you — we’ll talk, I’m sure, about credit and risk and tightening, but unemployment of 5% is not super elevated in the context of how we think about running our businesses. We know we’re on entry cycles.
Richard Ramsden
Maybe can you talk about what you’re seeing in your platform in terms of consumer spending happens. How has that changed from the fourth quarter, either compared to last year or compared to the third quarter? And then it would be really interesting to hear if you’ve seen anything different by — in terms of trend by consumer segment.
Marianne Lake
Okay. So consumers, small businesses, obviously, sentiment reflects recessionary fears not yet fully reflected in the data. So if you start looking at consumer spend, and you know this, this has been pretty well telegraphs like us and others. Nominal spend is up strongly since pandemic up year-on-year. That’s across sectors. It’s, of course, risk profiles and income levels across other cities. So nominal basis strong. Then trends are moderating through 2022. So we’re ending the year above ’21, but at a much more normal level. And that more seats to the base of X of ’21, which was going into the direction.
If I’m thinking about areas where we’re watching, subsequent to the third quarter, we started to see retail spend a little softer. Now base effects matter. Fourth quarter of last year was very strong. So I don’t think there’s anything flashing amber or read right now, but it felt a little faster. The holiday period will be a watch item. So far, so good on the holiday period, it could break either way, but I would say solid.
And then in terms of areas where I still think that potentially there is room to go. I think travel. We still feel like travel momentum is like in the run rate, and so we’re sort of looking for that to continue into 2023.
Cash balance is credit. I mean the work we’ve used continue to be true, slow normalization. They’re continuing to normalize, continue to normalize somewhat slowly. Obviously, normalization is deterioration on an absolute basis, but it’s not accelerating, and we’re not back at the pandemic levels. But that normalization is that ranking exactly how you would expect. Sort of higher risk, lower income, consumers normalizing faster.
And then if you look at the small business space, it’s pretty similar stories. Businesses have been very durable. They were able to pass on a lot of costs for a long time. More recently, from over the last few months, the smaller end of small businesses, particularly consumer-facing ones, have had more margin pressure, but still a reasonably healthy margins.
And there, too, cash is normalizing credit performance remains strong. And there, too, normalizing faster on the smaller end of the business. So pretty much how we expected with everything on a normalization part of 2023. We can talk about where we think those things will end up. But it’s true in consumer, and it’s true in small business that normalization is faster at the lower end of the spectrum.
Richard Ramsden
So I know on the third quarter earnings call, genset cash act next year. Can you just expand on that? Do you still think that’s something that could happen? And what are you seeing seen the fourth quarter? Has anything stood out to you or surprised you?
Marianne Lake
Yes. So just in the fourth quarter, nothing has specifically set out. And we haven’t seen a step change or a material change in the sort of pace of change, let’s say that.
There are a couple of different ways you can look at liquidity in consumers’ accounts. And so I think if you just look at the absolute level of deposits, right, absolute deposits today versus pandemic, it is absolutely true that they’re elevated and remain significantly elevated. But lots of things have changed since the pandemic, and inflation has had an impact both on inflows and outflows for consumers.
So one of the ways that we like to look excess liquidity in consumer accounts is to take a stable cohort of customers that were our customers at the time the pandemic and to take a look at how much cash do they have on hand today. So how many days worth of operating expense can they pay today, acknowledging that their operating expenses today are higher than they were. So we call that a cash buffer. We measure it in days. And basically, it says how much cash does the average consumer has today to pay their bills in comparison to how much cash do they have relative to the outflows before pandemic.
So if you look at the lower income sector less than $50,000, they’re about halfway back. They are down year-over-year. They are normalizing faster. They are not yet at pre-pandemic levels, and so that’s good even with inflationary pressures. There’s still this excess liquidity when you look at how they’re paying the bill.
If you just slow that forward and you don’t — all other things are equal, that’s when we would see the middle of next year being important. If you go forward, those rates of change, then they would be back to effectively pre-pandemic levels of capacity to pay bills, call it, the middle of next year. And so we’re expecting that to be the case. They are a large portion of our deposit base.
So while the overall picture is slightly different and a bit longer, it’s a pretty instructive base. That’s what we’re looking for. And we’re looking at all of our metrics normalizing through 2023, and what that tells you is that you should start to see things change because that’s all other things being equal. Clearly, depending on the macro environment, it could be faster or slower. But also, we would expect consumers to start to change behaviors in more noticeable way to start pulling back on spending to start releveraging maybe in a the credit metrics or sort of normalizing a little faster. So that kind of second quarter of next year, I think, is going to be pretty instructive. We could be wrong about the exact pay but that’s what we see happening.
Richard Ramsden
So let’s talk a little bit about credit. It’s very much top of mind. Obviously, you’ve been a focus all year, but credit conditions remain pretty benign at least through the third quarter. So maybe you can talk a little bit about what you’ve seen in the fourth quarter. Are you seeing anything stand out to you? Maybe talk about what you are tracking most closely, and then maybe talk about what your expectations are for credit normalization next year.
Marianne Lake
Okay. And if I miss any of those things, you can remind me. So I mean I said it for delinquency levels, loss rates remain relatively low in comparison to pre-pandemic levels. We told you we were expecting card loss rate for this year to be 1.5%. We still are, but you know that we expected them to be a bit higher than that coming into the year. So normalization has been lower so far this year than we thought.
As I think about things — oh, I should say that you will all have a view. I do not think that there is a fundamental change in how people think about managing or using credit, which means that when I think about normalized performance, I am thinking about reverting that to kind of normal pre-pandemic levels, my view.
So things that we’re looking at. Obviously, we look at payment rates in cards, and payment rates are still very elevated. They’ve come off the peak a bit, but they’re still very elevated. We look at how many people are making in pays. That’s usually a leading indicator when people start migrating to making in pay. We haven’t really seen much movement in that space yet. We look every day at the liquidity trends. In particular, we look at entry into that first bucket. If you look at energy entry to delinquency, we’re at about 80% of pre-pandemic levels at the top, so we’re all over half way back and continuing to normalize.
There too, by the way, if we project that forward, we see the sort of entry to link normalizing in mid of next year. And just knowing how to install from bucket, that means that if we’re right, losses will normalize over to the first quarter of 2024.
So nothing has changed in the fourth quarter, the continuation of what we saw. I told you what we’re expecting to happen in terms of unemployment next year, it will have a minimal impact on losses next year. It will take time for that to roll through, peaking out or above 5% in 2024. So for 2023, we’re still going to be on a normalization pace for that full year.
Right now today, with all the caveats around it, we would take card losses would come in around 2.6%. I’d say that a little bit more specifically and a little bit more kind of falling only give you guidance but not just for next year because that also happens to see what you guys have in your models, and so I think it’s a good place to start.
So health warning on it is the following. We’ve been wrong about the pace of normalization so far. If things normalize more slowly, it will be better if it normalizes faster. It will be worse, so there’s a plus or minus around that, and we’ll have to watch that and see.
Where I think a slightly worsening central case for macro variables does have an impact in the near term is on reserve levels. So obviously, our central case features in our reserve models and methodology. And so in the fourth quarter, we were already going to be building reserves as we’re growing card loans strongly and grow more broadly. We will be incrementally adding to our reserves, reflecting those tightly updated are variables.
And as we sit here today based upon assumptions of the third quarter, and you all know what goes into modeling CECL outcomes, we would expect for consumer that our reserve build would be about $1 billion plus or minus, a firm of about $1.5 billion plus or minus. So based on the third quarter assumptions, that incorporates both growth and the update to our central case around macro variables.
I should just put that in — I know Jamie made a comment, I think, in third quarter earnings, that if we saw unemployment debt to 6%, you could be talking about reserve builds of the order of magnitude of $5 billion or $6 billion.
So 2 things. The first is this is a small asset. We don’t know that that’s where things are going to go. That’s not our benefit expectation. And for reserve levels to get to that level, you — it’s not just the peak that matters, to matter a lot, but you need to see things worsen a bit more land there to be a higher level of uncertainty. But the point that he was making that even if we see on in front of those levels, even if it happens more quickly than we’re expecting that the kind of reserves that we would need to build our in the context of our capital and our earnings relatively manageable is still true. So this is a modest down payment on whatever the end result will be.
Richard Ramsden
Okay. That was a very comprehensive answer. But let me ask you a follow-up in terms of underwriting standards, and you are very consistent underwriter over the cycle. Are there areas in the consumer business that you have tightened underwriting standards over the last 3 or 6 months in any meaningful way? And other lending categories where you think it is an attractive at the moment, just given where spreads are relative to your perception of the risk?
Marianne Lake
Right. So to kind of start with a very big picture and the very big part is not a lot tightening yet. Why is that? Because we underwrite 3 cycles. We know that there are cycles. We incorporate an expectation that they will be stressed in how we think about onboarding new relationships. We didn’t widen our buy box before the outperformance over the last 2 years. Back to my point that we think normalized performance would look like that pre-pandemic, where we’ve been underwriting, all those things are we going to more back just on small changes in expectation environment.
We want to be coming through the cycle. So that’s all been true. Obviously, if you get per detailed on granular, of course, we are fighting. And I’ll just give you a few examples. In home lending, we saw home prices reiteration about 6% over the last few years. We’re expecting it to come off the peak this year to go down, nationally by about 5%. You’ll have your own view clearly, there were markets that had more significant appreciation that may come off a little more. We’re obviously looking therefore at LTVs in certain of the hottest markets around — still pretty marginal, but we are obviously doing that.
Auto has seen more normalization a bit faster. Our policy actually has been a little bit faster, still pretty marginal, but in retail indirect used cars. LTVs again, being something that we’re tightening slightly at.
The area where it’s honestly tweaking a card, and I should start by saying always tightening and we’re always also expanding. We’re always trying to sort in goods and swap out ad based upon improved modeling and data and expectations at the margin of our most marginal new customer acquisition sales. We are paying more attention to low tenure on bureaus. We’re paying more attention to — we’re paying more attention to customers who have a taste relationship for tweaking at the margin of customer acquisition.
And so we’ll always be doing that. I think there will be more tightening ahead of us. But again, I just think we have to look at a 5% unemployment number as not being a bad outcome relatively speaking and certainly not one that we don’t contemplate happening over the course of relationships with consumers when we onboard them.
Richard Ramsden
So before we talk about strategy, maybe we can just talk about the current quarter just from an update perspective. So could you — and I appreciate even a longer CFO, but flash back to 2017. But maybe you can talk a little bit about whether anything has changed either in terms of guidance on NII. I think you talked a little bit about credit. I don’t know if there’s anything else you want to talk about there, but also around the trading environment in terms of investment and equity in fixing in credit.
Marianne Lake
No good will soon keeping going down the credit road. So hopefully, that was helpful. In terms of NII and expense for the fourth quarter, I would say things have set out pretty much in line with the guidance on each, if a little better, right?
So Jeremy gave your guidance for NII for the fourth quarter. You have on your expense guidance, the fourth quarter coming in line with our expectations a little better on each. So I’m not going to do 2023, I’ll leave that. We’ve only got a few weeks to wait for Jeremy. You had the health warning about reprice next year is going to be a prominent feature in terms of whether you should or could annualize the fourth quarter NII. So take that help warning that I think Jeremy gave in the third quarter, and we would continue to see that an area you should be somewhat cautious.
Richard Ramsden
On trading?
Marianne Lake
Right. So pipeline is relatively robust. Catalyst to convert haven’t materially sort of resolved themselves or volatility, macro uncertainty, et cetera. The overall wallet, as you know, is down about 60% year-on-year, down in better than that. The fourth quarter increase.
And then in markets, I think the performance of markets as far this quarter is good, good particularly in fixed income specifically in macro. The last 3 weeks of the quarter are always hard to predict, so I will give you quarter-to-date year-on-year guidance, which is up about 10%. So Quarter-to-date year-on-year up in the pit. What should be your guess is as good as mine. Somebody else’s guess is better than mine.
Richard Ramsden
And just to be clear, that’s what is —
Marianne Lake
Yes, off the market.
Richard Ramsden
Okay. So maybe we can go on and talk a little bit about deposits and deposit bases. Obviously, a critical component to your overall asset sensitivity is something that’s getting a lot of focus at this conference. So maybe you can talk a little bit about deposit on this quarter, how they’ve tracked, what you’re seeing in terms of deposit pages. And if you can talk across consumer corporate, I think that would be helpful. Also perhaps talk a little bit about what your expectations are for both positive flows and bases as we head into next year with Fed funds at 4% in Q2 ongoing.
Marianne Lake
Okay. Again, if I miss, so that. So far in 2022, I think our deposit levels, and deposit rates have generally tracked in line with our expectations. I’m not telling you something you don’t know when I say in detail. I’m happy to answer consumer, I’m not telling you anything you don’t know when I say that in retail, it’s not just a function of product level pricing, but very, very importantly, a function of migration as there’s money in motion, people seeking higher yields.
So the starting point matters a lot in any cycle. The starting point in this cycle is one where there’s significant excess liquidity in the system in bank balance sheet, also one where we’re coming off a decade of lower rates and near 0 rates in many cases. And so that matters a bunch.
The second thing that matters, and I think it’s specific to us that may not be unique to us, is mix masses. Business banking deposits is a bigger part of our deposit base today than it has been in previous cycles. And business banking deposits of our — they behave like operating deposits, they are operating deposits, and so they have a little bit less price sensitivity. So just a bit of context.
That said, this cycle is already different. Rates are heavier. They move faster. The expectations that are higher, and we do expect that repricing rates will continue to react. We’ve had a decade of discussions or factors that feature into repricing higher or lower technology. People can move money easier, but they also love the convenience yield of living their life in one app. Liquidity, excess liquidity means competition is lower, but bank level specific liquidity might mean competition is higher. And smaller banks may see that manifest more quickly. Macro factors matter. So we’ve had all of those debates.
We pro lag the real. We’re experiencing them. The industry is experiencing. They will continue into 2020. The NII benefit is real, but it is somewhat transitional because we are continuing to expect our model that both migration and reprice will happen.
So when we think about our strategy then, what do we care about? We don’t care about protecting outflows at all costs. That’s not what matters to us. We want primary bank relationships. We want to both grow them and defend them. We want to compete on unit value and not price. We want to capture money in motion. We think we have the right products to do it, right? So we are seeing migration in the CDs. It’s just we’re seeing it from a pretty small base. So it’s having a not particularly big impact on average rate figure, but we are seeing it. It will continue. We do think we’re competitive on CDs.
And then we look at flows. We look at flow inflow and out on a growth basis every day, every week, every month. We’re capturing a healthy share of those infill well management complex. We’ve been investing heavily in that. So we’re happy with that. And therefore, we look at and we adjust our going forward.
We haven’t changed our view on deposit flows overall, which is we will continue to see that through the cycle. Our overall deposits should be flat to slightly down because we are going to see some outflows that we think are natural that don’t meet that sort of set of framework criteria that we used, and we continue to add new relationships, and we continue to do this. And they do completely offset, but they are an offset. So our deposit levels are expected to be the kind of honestly down. They’re up year-on-year, but now quarter modestly at the beginning of that, and we don’t — we haven’t changed our expectations.
Richard Ramsden
Just very briefly active environment to compete for consumer deposits. Has that changed materially 3 to 6 months?
Marianne Lake
I mean it’s changing all of the time, right? With rates rising at the level they’re at, we’re pricing our nationally at 3%. That was not true 3 months ago. I’m trying to think that — yes, it was not true 3 months ago. We started that. And yes, everything is improving. But I don’t think it is irrational. I don’t see, yes, online banks pay more. We know why smaller banks have a different pricing methodology. We know the value that we’re providing to our customers. Liquidity matters. Nothing — yes, it’s changing obviously, and every day. And we look at it every day, and we look at it every week and — but nothing that I think is unexpected.
Richard Ramsden
Got it. So it’s quite on dependent. And again, maybe you can to loan demand. So if you can talk about loan demand, both in terms of what you’ve seen so far this quarter, but then again, talk a little bit about how you think play out over the course of next year. Do you think there’ll be more of a bifurcation between consumer and corporate loan demand as we head into ’23?
Marianne Lake
Right. So I’ll start with the area of strength for us in consumer, just with which is card, and you’ve seen the industry see from growth in total outstanding. We are not an exception. Obviously, open growing over pandemic level was all a part of that. We’ve seen our total outstandings grow and our revolving valances grow about 20% year-on-year. In fact, if you look at revolving balances now on an absolute basis at pre-pandemic level. So if that were your benchmark for back then the back. If you actually look, however, customers like a stable cohort of customers, and are they back to pre-pandemic levels? On a per customer basis for something at about 13%. Now they were down 20%, and so they’re nearly halfway back. But that will be a tailwind for 2023. But we still have not seen on a per customer basis for leave releveraging alone, the kind of growth we would have seen had they not in the pandemic.
So I think card growth looking into 2023 will still be strong. Overall, it will moderate through the year, and I would say double-digit growth totaling but with strong growth in the fold, which is obviously pretty important looking into next year.
The story on secured lending is totally different for reasons that are obvious. Obviously, the macro environment has had an impact, pretty significant impact to the size of the market this year is 1.2 trillion for mortgage. It will be less than that next year, pretty much gone. And then we specifically, as you know, a pretty publicly said are also very actively managing our balance sheet, and it is still having an impact.
So demand on a much, much lower market rates much higher, is pretty low at our pending to historical lows. Home buyer sentiment is low. So our average balances in mortgage to be as through 2023. And in auto, flat to slightly down because higher rates writing, and inventories are still a little constrained. But I’ll deal with very small business rather than corporate more broadly.
In small business, we talked about cash balances are still elevated. More businesses are focused on managing expenses. That’s what’s top of mind. Ruling is not top of mind right now. And while there is still real healthy demand for credit, like more traditional lending and utilization is low. It remains low, and we expect it to stay quite low in 2023, which means that our business plan will be lower year-over-year a bit.
Richard Ramsden
So let’s talk about your strategic and investment priorities for the consumer business over the next few years. When I think at the Investor Day, you said that you’re going to invest $7.5 billion in the business this year. and an additional $4 million in card marketing. How should we think about the trajectory of that investment spend? How should we think about the competitive growth for the consumer business, given the inflationary environment that we’re in? And how should we think about the return on those?
Marianne Lake
Okay. So we showed you what we thought we would spend in investments in 2022 at Investor Day. That is still our outlook, maybe a little bit inside of $7.5 billion, but in the context of where it becomes that’s still a pretty good number. We showed you what we’re spending it on, right? And we’re spending on things that are very important to the long-term strategic growth and profitability of the franchise. That’s how we’re spending our money.
We are spending about $3 billion, a little bit less than $3 billion in a product. That has set up a lot over the last several years, both a combination of an increased investment in modernization. We’re seeing some benefits from that already, but that’s a part of it. But also in other places on as we focus on not just modernization but on utilities and platforms and products and customer experience and how we deliver products. We are investing more heavily in products and design.
And so we saw bigger changes in that in the years running up to 2022. We do — we are hiring. We do still have a healthy backlog of strong business cases. We are still, therefore, expecting amount to spend on tech and product to go up, but at a much, much lower rate in 2023. And as I say, we have strong business cases. We want to get this work done.
And that’s pretty much the story across all of the categories, branches. The strategy is working. We’ve added 500 over the last 5 years, #1 retail deposit share, 60 basis points of share year-over-year, record branch customer satisfaction. We’re now #1 in the top markets in the U.S. We feel great about the investments we’ve made. 20% of the network is still young. That’s a huge amount of positive opportunity, but we still have more opportunity in these exciting for high-growth markets like Boston and Philadelphia and D.C., where we are underpenetrated, and branch share efforts. But we will continue to be expanding in expansion markets, yes, optimizing but expanding.
Marketing, I think I get to deck Investor Day, I hope. And all I will say is that we have been acquiring customers very strongly this year that we’re excited about the performance. It’s even a little better than we showed you at Investor Day. And so as we grow that business, we would expect. Our investments in commerce are largely behind us. It’s still a business that we intend to grow, and wealth management, too.
All of that is to say that we felt great about the investments we’re making. They will be higher year-on-year in 2023. They will be higher at a much more moderated pace because we’ve caught up some of the modernization and other things that we wanted to get done, and it’s all in the guidance Jeremy gave you for 2023.
So this is not new news. This is not something that you can already have largely in your expectations, and I think it’s all a bunch of investments that you feel great about. And how do you measure the performance? I know that everybody was want to ask like how the business case is that we measure the performance of that, are we able to generate industry-leading profitability returns, market share, market share gains in this year while we still continue to invest significantly in long-term rates and profitability so that we can defend it in the future. And I think if you look over the last several years and if you look forward, you will feel about that, too.
Richard Ramsden
So we’ve got a few minutes left. So let me ask about the branch strategy as well. And I think you gave some interesting numbers in yesterday. I think you said the average branch serves 25% more household in 2017 and then a 20% deposit market share is something that Jamie talks about. So do you think the comp —
Marianne Lake
Long game.
Richard Ramsden
So long game. But do you think the current platform is sufficient get you to 20% and other products or geographies are particularly excited about when you think about the long-term growth?
Marianne Lake
So I gave you some thoughts a bit earlier about how we think about the markets we’re expanding in. We’re expanding in high-growth markets where we are currently hunting below our weight, and we will continue to identify our presence in those markets. We are in all 48 states, so we have that done. Now we need to get more share in some markets. That’s not to say we won’t be consolidating or densifying elsewhere. That’s true.
It is definitely true that front share is strongly correlated to the poster. And it is also true that in markets where we have more branches, our digital channels performed better, and they performed better across products. So we are focused on all of investing in our digital channels investing in like products and services, yes, investing in growth in the network because it matters not just for the deposit base, but it matters across products.
Do we have the network between the bench? So if you look at our ratio of deposit share versus branch share, it’s a little less than Q1. If you do use that as a low over inflation, you want 10% market share in branches over 20%. While we definitely have that in some of our more mature markets, we definitely don’t in others.
So again, another way of saying we continue to be committed to densifying in key growth markets. There will be some offsets, but it’s a long game. And in the next several years, we’ll continue on that journey.
Richard Ramsden
Okay. So just final question. Can we just talk about the regulatory landscape, again, briefly in terms of what you’re focused on, obviously, a lot of focus on capital requirements for those going to evolve, but there’s also new leadership of the FTV, the OCC? I mean what’s the top of mind when you think about regulation over the next couple of years?
Marianne Lake
Yes, and I’m not going to be able to give you any like particularly new insights. But when we think about our advocacy for regulation, we think customer first, we think systems second, we think competition third. And we don’t think hostile or safer. We think is robust and all of those things.
And so you know our view. We’ve been pretty public about the things that we think could or should be changed, but hope is not a strategy. And so we are optimizing the business and the company under current order of engagement, and you’ve seen us make patient progress doing that. It is regrettable that to do it. It has an impact on important parts of the business at the worst most in mind.
So for me, the consumer lending is an area when you are trying to build capital, you think what you can. And consumer lending is an area we’ve been very focused on thinking about balance sheet in RWA rotation, which is a change. But we’re optimizing to the current rules of engagement. We’re supportive of the overall cohesive reviews, the regulatory framework and really believe that it’s an opportunity for there to be many things. We calibrated and used many moving people not on RWA, and so hopeful that there is a further to the incremental capital in the system certainly not for us. But I have no invite. We have a good relationship with our regulators. It’s challenging and robust as it absolutely should be.
Richard Ramsden
Okay. And that, we’re out of time. But Marianne, thank you very much for joining us. And hopefully, we’ll see you again in less than 5 years.
Marianne Lake
Thank you. Five more years.
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