JPMorgan’s earnings beat expectations but the bank warns of margins

JPMorgan Chase reported better-than-expected fourth-quarter results, but warned its profit margins could suffer as it is forced to pay more for deposits next year.

JPMorgan said Friday that net income for the trailing three months of 2022 was $11 billion, or $3.57 per share, up 6 percent from $10.4 billion for the same period in March corresponds to the 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.

The bank benefited from Federal Reserve rate hikes, with net interest income — the difference between what banks pay on deposits and what they earn on loans and other assets — of $20.2 billion in the fourth quarter, an increase of 48 percent compared to the previous year.

JPMorgan said it expects net interest income of around $74 billion in 2023, excluding its trading arm.

Analysts at Oppenheimer said that “while the interest rate environment is unprecedented in many respects, we expect this forecast to ultimately prove overly conservative.”

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.

Investors and analysts believe that banks will eventually need to reward depositors with better interest rates to stay in business, and JPMorgan said “the dynamics of deposit repricing remains uncertain,” but hinted that it might be in 2023 would rise.

JPMorgan also provided a net $1.4 billion for potential loan losses, reflecting heightened concerns about the economic outlook as well as the increase in loans the bank originated during the quarter.

The bank said the reserve build was “driven by a slight deterioration in the . . . macroeconomic outlook now reflecting a mild recession in the pivotal case”.

In a statement from JPMorgan chief Jamie Dimon, the US economy “remains strong at present”, but the impact of geopolitical tensions, persistent inflation and unprecedented monetary tightening by central banks remained unknown.

JPMorgan said the quarter included a $914 million gain on the sale of 3 million of its 40 million shares in Visa. This was offset by an $874 million loss on the sale of US Treasuries and mortgage-backed securities.

JPMorgan stock fell about 2.75 percent in premarket trading in New York.

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.

JPMorgan, an industry pioneer, is reporting earnings along with Bank of America, Citigroup and Wells Fargo.

https://www.ft.com/content/df30d836-80ce-444d-a15c-4863756e4144 JPMorgan’s earnings beat expectations but the bank warns of margins

Adam Bradshaw

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