JP Morgan raises earnings outlook following First Republic deal

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

In its investor day presentation on Monday, JP Morgan raised its 2023 target for net interest income (NII), excluding its trading arm, to around $84bn from $81bn previously due to its deal for First Republic. NII is the difference between what banks pay out on deposits and what they earn from loans and other assets.

However, JP Morgan said there were “sources of uncertainty” in the guidance and its “medium-term” outlook for NII is in the mid-$70bn range, partly due to the need to pay higher interest rates to savers and shrink its profit margins.

The increased guidance underscores how big banks such as JPMorgan have benefited from the recent crisis among some regional lenders, with the firm taking on new deposits and buying up remnants of First Republic in government auctions.

Big lenders like JP Morgan benefited from the U.S. Federal Reserve raising interest rates last year, which enabled them to charge borrowers more for loans without offering significantly higher rates to savers.

The bank said its deposits were “slightly down” year-on-year, from $2.3tn at the end of March. Chief Financial Officer Jeremy Barnum said system-wide deposits at U.S. banks are expected to continue to decline as the Fed tightens monetary policy and customers chase better yields on their money.

“We’ll fight to keep the primary bank relationships, but we’re not going to chase every dollar of deposit balances,” Barnum added.

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JPMorgan pays depositors an average of 1.21 percent, lower than its peers’ average of 1.75 percent, according to data from industry watchdog BankReg.

The bank said loan losses were below pre-pandemic levels, but there would be “persistent defaults” throughout 2023. Its firmwide net charge-off ratio — a percentage of its loans — it doesn’t expect to charge. Debt – will return to the pre-pandemic average of 0.6 percent, up from 0.3 percent in 2022 and 2021.

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

Investors will hear from chief executive Jamie Dimon, Barnum and the bank’s four business units: corporate and investment banking, consumer and community banking, commercial banking and asset and wealth management.

JPMorgan shares rose 1.4 percent in early New York trading on Monday.

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