Jay Horine:

Hi everyone, welcome to the first episode of our Security and Resiliency Initiative series. I'm Jay Horine, Global Head of the Security and Resiliency Initiative, and I'm joined by Doug Petno, Co-President of JPMorganChase and CEO of the Commercial and Investment Bank. One year ago, we launched the Security and Resiliency Initiative with an ambitious goal: to help strengthen the industries, technologies, and supply chains that underpin long-term economic security and resilience. Doug has been a strong advocate for this effort from the beginning and has had a front-row seat to its evolution over the past year. Thanks for joining us, Doug.

Doug Petno:

It's great to be here, Jay.

Jay Horine:

Let's start with how SRI came to be. Was there a moment or conversation that sparked how the effort came about?

Doug Petno:

It's a really interesting question. There was no single moment that caused us to launch SRI. It was really the unfolding of serious events that were happening around the world that caught our attention. And we were watching each of them very, very closely. I think it started in earnest when Russia invaded Ukraine. Following that, you had the "Liberation Day" and the after-effect of tariffs that were washing through global trade, and some of the export bans that exposed single points of failure in our supply chain and supply chains. And then you also saw, at this very same time, a very powerful emerging technologies like quantum and AI, accelerating rapidly. The need for the U.S. and its allies and major trading partners to actually be the end game winners in that became more pronounced. So it was really the confluence of all these things happening at the same time. In the background, we were also getting feedback from the U.S. military, somewhat in response to the geopolitical events, that the world needed to remilitarize, unfortunately. And not only did they need to find creative ways to do that and to finance that, they needed to build weapons and machinery and equipment that reflected the change in the character of war, which would really depend heavily on defense tech and new technologies. And military officials had actually reached out to J.P. Morgan and said, we're having a hard time. We're having a hard time securing those types of technologies with the procurement process. Can you help us? So when we took stock of all of these things, we said, hey, we really need to do something. This is a profound moment for us to do what we do best as a bank, bring together the broad-base capabilities of JPMorganChase, best investment bank, best capital markets provider, great advisory, subject matter experts, global perspective, and see if we can really make a difference. And do it at a scale that only J.P. Morgan could provide.

Jay Horine:

Building on that, why do you think this has resonated so strongly with clients, not only in the United States, but around the world?

Doug Petno:

I think people very quickly realized that they had supply chain vulnerabilities. And it goes all the way back to COVID. I mean, just think about the personal challenges that all of us faced during COVID, just sort of keeping your household running.

Jay Horine:

Yeah.

Doug Petno:

There was an industrial version of that. And the long, long list of single points of failure that were exposed during the pandemic. And then in the wake of "Liberation Day," in the aftermath of tariffs that went through global trade, we saw export controls shine an even brighter light on some very, very serious single points of failure in our supply chain. And I think the one that stands out to me is when the Chinese put an export control on rare earth magnets. We have rare earths in the United States, but we didn't have rare earth refining and certainly didn't have rare earth magnet production in the U.S. And those magnets are central to our industrial base and critical to our economy. So that one single item could really bring our economy, our industrial base to its knees. And so you do a little work, you quickly realize, it's not just that one item. There's a long list of critical minerals. There's critical chemicals that feed into the pharmaceutical and the healthcare industry. And the list goes kind of on and on and on. So these vulnerabilities were laid bare in the last several years. And we really were compelled to do something about it. It ties back to our purpose-driven strategy at J.P. Morgan, in this particular case is we needed resilient supply chains in order to survive whatever kind of geopolitical swings and whatever kind of market dynamics were to unfold. And so it really translated into the SRI initiative. And it's been a really profound first year for us.

Jay Horine:

So now, as we celebrate our first anniversary of this, and all these conversations you've had with global leaders and both private companies, public companies and the like, what surprised you the most after one year?

Doug Petno:

There are so many surprises. I think the most inspiring is the amount of people you included that wanted to run to the fire. We've assembled an amazing team of professionals who stopped doing what they were doing and kind of came...

Jay Horine:

They really did.

Doug Petno:

...gave everything up to come do this full-time. So that's really encouraging. There's a lot of people, the government included, that were already working on serious initiatives, private partnerships, focusing on using the government in a practical way to help sort of facilitate solving some of these problems. And there were many, many companies out there that were bringing innovation to bear. And if you sort of step back and think what is going to be one of the big defining things that gets us to where we need to be, it will be big advances in technology, big advances in industry and innovation. And as I said, we're not starting from scratch. There are many, many market participants with just unbelievable entrepreneurship. And these businesses are incredible. What they're doing across defense, supplied materials, manufacturing technologies. We've got startups and venture capitalists already seeking ways to solve those problems. It's really been quite fascinating to watch that over the last year.

Jay Horine:

One of the things that you and I have talked about is the quantum of capital, the size of what people are building, and how interconnected these things are, how you can't build this factory unless you have the energy and you can't have the energy... Talk about as part of what we're trying to do with SRI is facilitate these kinds of conversations, maybe the interconnection. That, for me, has been one of the surprises, just how interconnected and interwoven all of these things are.

Doug Petno:

There's no single loan or single financing. The solution is complex. You need policymakers, you need industrialists, you need capital formation, you need intermediaries, you need thought leadership, you need innovators. The word you use is the exact right word. It's an ecosystem of participants to get that done. And that's why J.P. Morgan, it was really special for us, just given who we are and our power to convene and Jamie's voice in the marketplace to be able to bring all of those parties to the table and to have everybody sort of run to the fire to solve these issues and to be part of the solution.

Jay Horine:

Public and private sectors have been somewhat independent, and now we see them in the U.S. and in our trading allies starting to work together. How do you think about the shift of the partnership in some cases of government, private and public companies to go towards these common goals?

Doug Petno:

I think that the challenges that we're facing in SRI are enormous. The amount of capital that we need to raise, the obstacles in front of us, the fact that some of our competitors and trading counterparties are behaving like mercantilist competitors where they're potentially keeping prices low. You're going to need the government, full stop, to be at the table and part of the solution. And so, it's been really quite constructive to see how involved they've been. We've had a long list of public-private transactions that have been purposely designed to solve some of these issues. And I think the MP Materials example sort of lit the fire in many respects. And then we've seen a series of other equivalent type transactions where, absent government involvement, we wouldn't be able to create a supply source for rare earth magnets in the way we did in that situation.

Jay Horine:

If we sit down a year from now, where do you think we need to be? We're doing policy stuff, we're doing workforce stuff, providing capital for people to start companies, build, and the like. But one year from now, what do you envision is the next step for us in being successful?

Doug Petno:

I think first, let's just take stock of what we've done in the past year. We started from nothing.

Jay Horine:

Right.

Doug Petno:

We put a team together of just a high quality team of professionals, built this boutique capability within JPMorganChase. We have a research effort, a policy effort, multiple financing work streams in place, several major projects that could really transform the economy. We've made points of contact across the U.S. economy, across the U.S. government, across multiple states around the U.S. So if you have to say, where are we going to be a year from now, it's easy to say we have high expectations. So I think we want to further advance against our financing goal. As you know, we've got one- and-a-half trillion dollar... So we expect to facilitate or originate over 10 years. We're well on our way there.

Jay Horine:

Yes.

Doug Petno:

We have a pool of equity capital we want to invest. I think we should continue to find good transactions there. We're not quite halfway through the original 10 billion. I think that number could be much, much greater. We have several policy initiatives around workforce development, shipbuilding, advanced manufacturing. Good policy could be really central to the solutions and the outcomes here. And I think our team having the power to convene and get all the right thought leaders, that's an important role. And then just education through our powers to convene, bringing people together, and through the thoughtful research that our new SRI-specific research effort is providing, educating all major stakeholders around the opportunities, the challenges, the complexities that we face. I would expect that a year from now, that would be even further developed. And then as we challenged ourselves, as you know, in our last Executive Advisory Council board session, what are two or three major transformational things where we have a chance to actually make a difference and to really bend the curve of the outcome there? And I think we're zeroing in on a few of those. I think a year from now, we'll surprise ourselves on how much progress we're going to make on that. So I'm tremendously excited about what we're doing. And, you know, the impact is is one thing. It's also just the inspiration for the company to see how this work is going to affect the security and resiliency of world markets. And it's just, these are huge challenges that we've waded into with courage, and with capital, and not just financial capital, with a lot of human capital.

Jay Horine:

It's really been remarkable, and I know there's a lot more to do. So thanks for joining me.

Doug Petno:

It's been great to be here. Jay, thank you. Excited about the next year.

Jay Horine:

Thanks.

END