JP Morgan raises earnings outlook after First Republic deal

JPMorgan Chase raised its outlook for how much it expects to earn from its lending business this year after its recent purchase of First Republic, bucking a broader trend among US banks of shrinking profits due to deposit withdrawals.

In a presentation for its investor day on Monday, JPMorgan raised its 2023 target for net interest income (NII) excluding its trading division to about $84 billion from $81 billion previously, as First Republic’s It was a deal. NII is the difference between what banks pay on deposits and what they earn from loans and other assets.

However, JP Morgan said that “sources of uncertainty remain” in the guidance and that its “medium-term” outlook for NII was in the mid-$70 billion range, partly due to the need to pay higher interest rates to savers. which reduce its profit margin.

The increased guidance underscores how big banks like JPMorgan have benefited from the recent crisis among some regional lenders, with the company taking in new deposits and buying the remains of First Republic at a government auction.

Large lenders such as JPMorgan have benefited from raising interest rates by the US Federal Reserve last year, which enabled them to charge borrowers more for loans without passing on the higher rates to savers.

The bank said its deposits, which totaled $2.3 trillion at the end of March, were “down a bit” year over year. Chief Financial Officer Jeremy Barnum said the expectation was that system-wide deposits at US banks would continue to decline as the Fed tightened monetary policy and customers chased better yields on their cash.

Barnum said, “We will fight to preserve the primary banking relationship but we are not going to chase every dollar of deposit balances.”

JPMorgan is paying depositors an average of 1.21 percent, less than its peers’ average of 1.75 percent, according to data from industry tracker BankReg.

The bank also said loan losses remain below pre-pandemic levels, but “normalization will likely continue” through 2023. It forecast that its firmwide net charge-off rate — the percentage of its loans from which it is not expected to collect loans — will slide back toward the pre-pandemic average of about 0.6 percent from 0.3 percent in 2022 and 2021.

JPMorgan’s Investor Day, which is held at its Manhattan headquarters, provides an opportunity for it to showcase new initiatives it is working on.

Investors will hear from Chief Executive Jamie Dimon, Barnum & Bank’s four business divisions: Corporate and Investment Banking, Consumer and Community Banking, Commercial Banking, and Asset and Wealth Management.

JPMorgan’s share price was up 1.4 per cent in early trading in New York on Monday.