Income

JPMorgan raises 2022 interest income outlook, shares rebound 7%

A view of the exterior of the JP Morgan Chase & Co. headquarters in New York May 20, 2015. REUTERS/Mike Segar

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May 23 (Reuters) – JPMorgan Chase & Co (JPM.N) raised its interest income forecast and confirmed its profitability target at its investor conference on Monday, where executives are expected to face questions over spending of the bank and the management of its capital.

The country’s biggest lender said it now expects net interest income (NII), off markets, of $56 billion in 2022. It had previously forecast that figure to reach “a few billion” more than $53 billion in 2022, up from $50 billion. outlook in January.

The news sent the bank’s shares jumping more than 7% and helped lift the shares of other major US banks.

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“It’s a good start,” Credit Suisse analyst Susan Roth Katzke wrote in a note.

Investors are watching the prospects for banks to increase net interest income, or the difference between loan income and interest paid on deposits and other funds, as they benefit from higher interest rates.

However, while the U.S. Federal Reserve has been scrambling to contain high inflation for decades, investors are also worried that too aggressive a tightening of monetary policy could tip the economy into a recession. These fears have caused the S&P 500 Banks Index (.SPXBK) to fall 21.5% so far this year.

JPMorgan said its NII forecast was based on the assumption that the Fed would raise short-term rates to as much as 3% by the end of the year. He also assumed high single-digit loan growth and a “moderate” increase in securities investment.

JPMorgan scheduled the investor conference after its shares fell one day in January, when it said it would allow spending to increase by 8%, or $6 billion, this year as it funded projects. commercial investments that he had not convincingly justified to investors. Read more

Chief Executive Jamie Dimon on Monday sought to reassure investors of these increased investments, particularly the bank’s technology spending.

“We’ve always gotten good returns while making investments,” Dimon said.

Bad debt write-offs are estimated to rise to pre-pandemic levels “over time”, but not before 2022, thanks to strong balance sheets for consumers and businesses, the bank said.

Provisions for building up reserves for losses will increase with loan growth, JPMorgan added.

The company said its target of a 17% return on tangible equity, a key metric that measures how well a bank uses shareholder money to generate profits, could be achieved in 2022.

Christopher Grisanti, chief equity strategist at MAI Capital Management, said the news from JPMorgan showed investors were too pessimistic about bank stocks.

“Banking is generally quite good, credit issues are low, at least for now, and the net interest margin remains quite healthy as short rates haven’t risen much yet. So that’s another example of the fact that the market misfortune and sadness are exaggerated,” he said.

For 2023, the bank expects its rate of growth in capital spending to “moderate”, but for 2022 the spending forecast was unchanged at $77 billion. Of the $6.7 billion in technology spending expected in 2022, the bulk of $3.1 billion will go to the investment banking segment, JPMorgan said.

Marianne Lake, co-head of consumer and community banking, said her company invested an additional $3.3 billion from 2019 to 2022 to grow the franchise. Such investments are like “a coil spring of future earning power and operating leverage,” Lake said.

JPMorgan also said it expects its regulatory capital requirements to increase over the next two years, but said it would have excess capital in the range of $13 billion to $22 billion. dollars in the first quarter of 2024, which would be available for commercial investments or distributions to shareholders.

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Reporting by David Henry in New York and Niket Nishant in Bengaluru; additional reporting by Anisha Sircar; Editing by Shounak Dasgupta, Michelle Price and Nick Zieminski

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