Following its recent purchase of First Republic, JPMorgan raised its forecast for expected earnings in its lending business this year, bucking a general trend of lower profits at U.S. banks due to deposit withdrawals.
In an investor day presentation on Monday, JPMorgan raised its 2023 net interest income (NII) target, excluding its trading arm, to about $84 billion from a previous estimate of $81 billion due to its acquisition of First Republic. NII is the difference between what banks pay for deposits and what they earn from loans and other assets.
However, JPMorgan said there were “remaining sources of uncertainty” in the guidance, with its “medium-term” outlook for the NII at around $70 billion, partly due to the eventual need to pay higher interest rates to savers, which would narrow its profit margins.
The increased guidance highlights how big banks such as JPMorgan have benefited from the recent crisis at some regional lenders, taking in new deposits and buying the remnants of First Republic at a government auction.
Big banks such as JPMorgan Chase & Co benefited from the Federal Reserve’s rate hike last year, which allowed them to charge borrowers more for loans without passing significantly higher rates on to savers.
JPMorgan also said credit losses remained below pre-pandemic levels but could see a “sustained normalization” through 2023. It estimates its company-wide net charge-off rate — the percentage of loans not expected to be collected — will recover to a pre-pandemic average of about 0.6%, from 0.3% in 2022 and 2021.
JPMorgan shares rose 0.6% in premarket trading in New York.
The bank’s investor day begins later Monday at its Manhattan headquarters, giving JPMorgan an opportunity to showcase new initiatives it’s working on.
Investors will hear from CEO Jamie Dimon, Chief Financial Officer Jeremy Barnum and the bank’s four business units: Corporate and Investment Banking, Consumer and Community Banking, Commercial Banking and Assets and Wealth manage.