Analysts called it a “warning for the entire industry” that JPMorgan Chase could be forced to pay more for deposits this year.
Like the rest of Wall Street, JP Morgan benefited from the Federal Reserve’s interest rate hikes – which boost net interest income – the difference between what banks pay for deposits and what they earn from loans and other assets.
In the fourth quarter, the bank posted a record $20.2bn in net interest income, up 48 per cent from the same period last year.
However, JPMorgan said it expects net interest income for 2023, excluding its trading arm, to be around $74bn – much lower than many analysts had expected, sending its shares down around 3 per cent on Friday morning in New York.
The guidance is “not only below consensus of $75.5bn, but also below the bullish buy-side base case of $76bn to $77bn”, UBS analysts said.
While banks have been able to charge more for loans, they have so far offered only very modest rate increases to depositors, pushing up profit margins.
JP Morgan said deposits were $2.4tn in the fourth quarter, down 4 per cent from a year earlier. It was the bank’s first annual decline since 2016.
Investors and analysts expect banks to reward depositors with better rates to retain their business, and JP Morgan expects that to be the case in 2023.
JP Morgan’s warning shot came on Friday, with fourth-quarter 2022 net income of $11bn, or $3.57 per share, up 6 per cent from the same period last year.
Analysts had expected quarterly net income to fall to $9.3bn, or $3.10 a share, according to consensus data compiled by Bloomberg.
JP Morgan made a net allowance of $1.4bn for potential loan losses, reflecting concerns about the economic outlook and an increase in bank lending during the quarter.
The build-up of reserves was “driven by a slight decline in . . . the macroeconomic outlook, which now reflects a mild recession in the central case.
In a statement, JP Morgan Chief Executive Jamie Dimon said the US economy “is currently strong” but the impact of geopolitical tensions, persistent inflation and unprecedented monetary tightening by central banks remains unknown.
JPMorgan said the sale of 3 million of its 40 million Visa shares included a $914 million gain. This was offset by an $874mn loss on the sale of US Treasuries and mortgage-backed securities.
Investment banking revenue fell 58 per cent to $1.5bn, compared with analysts’ estimates of $1.6bn, due to an ongoing deal-making slowdown.
Revenue at JPMorgan’s trading division, which has benefited from higher activity amid recent market volatility, rose 7 per cent to $5.7bn. Analysts forecast revenue of $5.88 billion.
JP Morgan, an industry bellwether Reporting Earnings along with Bank of America, Citigroup and Wells Fargo.
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