JPMorgan expects $3bn boost to net interest income from First Republic deal

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

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

However, JPMorgan said “sources of uncertainty remain” in the guidance and that its “medium-term” outlook was for NII in the mid-$70bn range, in part because of an eventual need to pay higher interest rates to savers, which would 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 company taking in new deposits and buying the remnants of First Republic in a government auction.

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

The bank said its deposits, which totalled $2.3tn at the end of March, were “down slightly” year on 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.

“We will fight to keep primary banking relationships but we are not going to chase every dollar of deposit balances,” Barnum added.

JPMorgan is paying 1.21 per cent on average to depositors, lower than the 1.75 per cent average of its peers, according to data from industry tracker BankReg.

The bank also said credit losses remained below pre-pandemic levels, but that there would probably be “continued normalisation” throughout 2023. It estimated that its firmwide net charge off rate — the percentage of its loans from which it does not expect to collect the debt — would creep back up towards the pre-pandemic average of about 0.6 per cent, from 0.3 per cent in 2022 and 2021.

The bank said it planned to spend $15.7bn on new initiatives this year which will include hiring, marketing and investment in technology. That would be $2bn more than in 2022 in a signal to rivals how the biggest bank in the US by assets intends to grow even bigger.

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 and the 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 flat in mid-morning in trading in New York on Monday.