JPMorgan profits beat expectations but bank warns on margins

JPMorgan Chase warned that its margins may suffer as it is forced to pay more for deposits this year, threatening a major source of profits at the biggest US bank.

The Wall Street bank said on Friday that net income for the final three months of 2022 was $11bn, or $3.57 per share, up 6 per cent from $10.4bn in the same period last year.

Analysts had estimated quarterly net income would fall to $9.3bn, or $3.10 per share, according to consensus data compiled by Bloomberg.

JPMorgan benefited from Federal Reserve interest rate hikes, with net interest income — the difference in what banks pay on deposits and what they earn from loans and other assets — of $20.2bn in the fourth quarter, up 48 per cent year on year and a record for the bank.

The bank said it was expecting net interest income for 2023, excluding its trading division, to be around $74bn. 

Analysts at Oppenheimer said that while “the rate environment is in many ways unprecedented, we expect that this guidance will ultimately prove excessively conservative”.

While banks have been able to charge more for loans, they so far have only passed on more modest rate increases to deposit holders, boosting profit margins.

Investors and analysts anticipate that banks will eventually have to reward deposit holders with better rates to retain their business and JPMorgan said “deposit reprice dynamics remain uncertain” but indicated it would rise in 2023.

JPMorgan also provisioned a net $1.4bn for potential credit losses, reflecting heightened worries about the economic outlook as well as the increase in loans the bank made during the quarter.

The bank said the build up of reserves was “driven by a modest deterioration in . . . macroeconomic outlook, now reflecting a mild recession in the central case”.

In a statement, JPMorgan chief executive Jamie Dimon said the US economy “currently remains strong” but the impact from geopolitical tensions, persistent inflation and unprecedented monetary tightening by central banks remained unknown.

JPMorgan said the quarter included a gain of $914mn from the sale of 3mn of its 40mn Visa shares. This was counterbalanced by a $874mn loss on the sale of US Treasuries and mortgage-backed securities.

JPMorgan’s stock was down around 2.75 per cent in pre-market trading in New York.

Investment banking revenue was down 58 per cent at $1.5bn, compared with analysts’ estimates for $1.6bn, due to the continued dealmaking slowdown.

Revenues in JPMorgan’s trading division, which has benefited from heavy activity during the recent market volatility, were up 7 per cent at $5.7bn. Analysts had forecast revenue to be $5.88bn. 

JPMorgan, an industry bellwether, is reporting earnings along with Bank of America, Citigroup and Wells Fargo.