US bank boosts 2023 forecast for net interest income by $3bn following First Republic deal
JPMorgan Chase is planning an “unmatched” spending spree on new initiatives this year of more than $15bn, a sign of how the largest US bank is planning to grow even bigger.
The bank said at its investor day on Monday it planned to spend $15.7bn on new initiatives in 2023, which would include hiring, marketing and investment in technology. This would be $2bn more than it spent last year.
“Our capacity for investment is unmatched,” said Marianne Lake, co-head of the bank’s consumer and community division. Her business unit is expected to spend $7.9bn on new investments, an increase of $800mn from 2022.
“Our competitors have not and cannot invest at the levels that we do. And these investments represent significant future operating leverage for years to come,” said Lake, who is seen as among the candidates to succeed chief executive Jamie Dimon in the future.
In a further sign of an increasing bifurcation between bigger US banks and smaller lenders that have come under pressure this year, JPMorgan also lifted its outlook for how much it expects to earn this year from its lending business following the recent purchase of First Republic.
The bank raised its 2023 target for net interest income, 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.
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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.
JPMorgan shares closed 0.8 per cent lower on Monday.
Dimon also warned shareholders that “everyone should be prepared for rates going higher from here”.
“I think you have the chance bond rates will be ticking up and not to 3.78 [per cent]. I’m talking about 4.25, 4.5, 5, 6 maybe even 7 [per cent],” he said.
The increased guidance underscored how big banks such as JPMorgan have gained 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 have also 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.
JPMorgan 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 said.
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.
Dimon also indicated he planned to stay on as chief executive for the foreseeable future, having led the bank since 2005. Morgan Stanley boss James Gorman announced last week he planned to give up his role within a year.
Asked how many more years he wanted to stay on for, Dimon quipped “three and a half” before adding: “I can’t do this forever. I know that. But my intensity is the same. I think when I don’t have that kind of intensity, I should leave.”
