JPMorgan Chase said it could be forced to pay more for deposits this year, which analysts called a “warning shot for the entire industry”.
Like the rest of Wall Street, JPMorgan has benefited from Federal Reserve interest rate hikes that boost net interest income — the difference between what banks pay on deposits and what they earn on loans and other assets.
In the fourth quarter, the bank earned a record $20.2bn in net interest income, up 48 per cent on the same period last year.
However, JPMorgan said it expects net interest income for 2023, excluding its trading division, to be around $74bn – lower than analysts had expected, sending shares down around 3 per cent on Friday morning in New York.
The guidance is “not only below consensus of $75.5bn, but below the bullish buy-side base case of $76bn to $77bn”, UBS analysts said.
When banks have been able to charge more for loans, they only passed on more modest rate increases for depositors, boosting their profits.
JPMorgan said deposits in the fourth quarter were $2.4tn, down 4 percent from a year earlier. This is the bank’s first annual decline since 2016.
Investors and analysts are hoping that banks will eventually have to reward depositors with better rates to keep them in business and JPMorgan says that is expected to happen by 2023.
The warning shot from JPMorgan, according to UBS analysts, came on Friday as the bank reported net income for the fourth quarter of 2022 of $11bn, or $3.57 per share, up 6 percent from the same period last year.
Analysts had expected quarterly net income to fall to $9.3bn, or $3.10 per share, according to consensus data compiled by Bloomberg.
JPMorgan also provided $1.4bn net for potential credit losses, reflecting concerns 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 “led by a modest deterioration in the . . . macro economic outlook, now reflecting a mild recession in the middle case”.
In a statement, JPMorgan chief executive Jamie Dimon said the US economy “remains strong” but the impact of geopolitical tensions, persistent inflation and unprecedented monetary tightening by central banks remains unknown.
JPMorgan said the quarter saw a gain of $914 million from the sale of 3 million of Visa’s 40 million shares. This was offset by an $874 million loss from the sale of U.S. Treasuries and mortgage-backed securities.
Investment banking revenue fell 58 per cent to $1.5bn, compared with analysts’ estimates of $1.6bn, as the dealmaking slowdown continued.
Revenue at JPMorgan’s trading division, which has benefited from heavy activity during recent market volatility, was up 7 percent at $5.7bn. Analysts had predicted revenue of $5.88bn.
JPMorgan, the industry bellwether, reported earnings along with Bank of America, Citigroup and Wells Fargo.