JPMorgan Chase said it could be forced to pay more for deposits this year in what analysts called “a warning shot for the entire industry.”
Like other Wall Street banks, JPMorgan has benefited from Federal Reserve rate hikes, which have boosted net interest income — the difference between what banks pay on deposits and what they earn on loans and other assets.
Fourth-quarter results on Friday showed that JPMorgan, the largest US bank by assets, generated a record $20.3 billion in net interest income, up 48 percent from the same period last year.
However, JPMorgan said it expects net interest income excluding its trading arm to be about $74 billion in 2023 — well below many analysts’ forecasts.
The guidance was “not only below the consensus of $75.5 billion, but also below the buy-side bullish baseline of $76 billion to $77 billion,” UBS analysts said.
While banks have been able to charge more for loans, so far they have only passed on more modest rate increases to depositors, which has pushed up profit margins.
Bigger banks like JPMorgan entered 2022 with record deposits thanks to pandemic-era stimulus packages.
But in an early sign that customers are willing to move their money in search of better returns, JPMorgan said deposits were $2.4 trillion in the fourth quarter, down 4 percent from the previous quarter corresponds to the previous year. This was the bank’s first year-on-year decline since 2016.
JPMorgan said the prospects for raising deposit rates are “uncertain” but noted that the firm-wide average cost of deposits could rise from around 1 percent in 2022 to as much as 2 percent in 2023. The bank estimates that each basis point higher is an additional $250 million in interest costs.
JPMorgan’s warning shot, as UBS analysts put it, came as the bank reported net income of $11 billion, or $3.57 per share, for the fourth quarter of 2022, up 6 percent from the same period of the year previous year.
Analysts had estimated quarterly net income would fall to $9.3 billion, or $3.10 per share, according to consensus data compiled by Bloomberg.
JPMorgan reported earnings Friday along with Bank of America, Citigroup and Wells Fargo.
BofA said its net interest income was up 29 percent year over year to $14.7 billion, Citi’s was up 23 percent to $13.3 billion, and Wells Fargo’s net interest income was up 45 percent to $13.4 billion increased.
JPMorgan shares started Friday down about 3 percent but pared losses in morning New York trading to trade slightly higher. BofA was down 0.6 percent and Citi was down 0.1 percent.
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Wells, which reported that its overall earnings fell by half in the final quarter of 2022 after being hit with multibillion-dollar fines, saw its share price fall almost 1.3 percent.
JPMorgan also provided a net $1.4 billion for potential credit losses in the fourth quarter. The bank said the reserve build was “due to a slight deterioration in . . . macroeconomic outlook now reflecting a mild recession in the pivotal case”.
“We do not know it. It may be a mild recession, maybe not,” Chief Executive Jamie Dimon told reporters. “I’m just pointing out that there are the geopolitical uncertainties that are real and we just kept our eyes on that.”
JPMorgan’s investment banking revenue fell 58 percent to $1.5 billion, compared to analyst estimates of $1.6 billion, due to the continued slowdown in business completion.
Revenue in JPMorgan’s trading arm, which has benefited from strong activity during recent market volatility, rose 7 percent to $5.7 billion. Analysts had forecast sales of $5.88 billion.