JPMorgan expects a $3 billion increase in net interest income from the First Republic deal

JPMorgan Chase raised its outlook for how much revenue it expects from its lending business this year following its recent purchase of First Republic, bucking a broader trend of declining profits among U.S. banks due to deposit withdrawals.

JPMorgan raised its 2023 target for net interest income (NII) excluding the trading division to about $84 billion due to the First Republic deal in Monday’s investor day presentation. NII is the difference between the amount banks pay on deposits and the income they receive from loans and other assets.

However, JPMorgan said “sources of uncertainty remain” in its guidance and its “medium-term” outlook is for net debt investments in the mid-$70 billion range, in part because of possible higher interest rates for savers, reducing your profit margin.

The increased guidance highlights how big banks like JPMorgan benefited from the recent crisis at some regional lenders, when the company took on new deposits and bought the remnants of First Republic in a government auction.

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Big lenders such as JPMorgan benefited from the Federal Reserve raising interest rates last year, which allowed them to charge borrowers more for loans without passing on significantly higher interest rates to savers.

The bank said its deposit portfolio, which stood at $2.3 billion at the end of March, was “down slightly” year-on-year. CFO Jeremy Barnum said systemic deposits at U.S. banks are expected to continue to decline as the Fed tightens monetary policy and customers seek better cash yields.

“We will fight to preserve primary banking relationships, but we will not chase every dollar of deposit balance,” Barnum added.

JPMorgan pays depositors an average of 1.21 percent, lower than its peers’ average of 1.75 percent, according to industry tracker BankReg.

The bank also said loan losses remained below pre-pandemic levels, but a “steady normalization” was likely in 2023. According to the bank’s estimate, the company-wide net discount rate — the percentage of its loans that does not include debt — would creep back from 0.3 percent in 2022 and 2021 to the average pre-pandemic level of 0.6 percent.

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The bank said it plans to spend $15.7 billion this year on new initiatives that include hiring, marketing and technology investments. That would be $2 billion more than in 2022, signaling to rivals that the largest bank by US assets is looking to grow even bigger.

JPMorgan’s investor day, held at its Manhattan headquarters, is an opportunity to showcase new initiatives it’s working on.

Investors will hear from CEO Jamie Dimon, Barnum and the bank’s four lines of business: corporate and investment banking, consumer and community banking, commercial banking and asset and wealth management.

JPMorgan shares were unchanged in mid-morning trading in New York on Monday.