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

JPMorgan Chase raised its forecast for how much it expects to earn this year from its lending business after its recent purchase of First Republic, bucking a broader trend among US banks of shrinking profits due to deposit withdrawals.

In an Investor Day presentation on Monday, JPMorgan raised its 2023 target for net interest income (NII), excluding the trading division, to about $84 billion from $81 billion previously, due to its First Republic deal. NII is the difference between what banks pay on deposits and what they earn on loans and other assets.

However, JPMorgan said that “sources of uncertainty remain” in the guidance and that its “medium-term” outlook was for the NII in the mid-$70 billion range, in part due to the eventual need to push rates forward. Higher interest for savers, which would reduce their profit margins.

The increased guidance underscores how big banks like JPMorgan have benefited from the recent crisis among some regional lenders, taking in new deposits and buying what’s left of First Republic at a government auction.

Large lenders like JPMorgan benefited from the US Federal Reserve’s interest rate hike last year, which enabled them to charge higher fees to borrowers on loans without passing much higher rates to savers.

The bank said its deposits, which totaled $2.3 trillion at the end of March, fell “slightly” year on year. Chief Financial Officer Jeremy Barnum said the expectation is that systemwide deposits in US banks will continue to decline as the Fed tightened monetary policy and customers sought better returns on their money.

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

JPMorgan pays depositors an average of 1.21 percent, less than the 1.75 percent average of its peers, according to data from industry tracker BankReg.

The bank also said credit losses remained below pre-pandemic levels, but that there was likely to be “continued normalization” throughout 2023. The bank estimated a company-wide net discount rate — the percentage of its loans from which it does not expect to get debt — would That would rise back to the pre-pandemic average of about 0.6 percent, from 0.3 percent in 2022 and 2021.

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

JPMorgan’s Investor Day, which takes place at its Manhattan headquarters, provides an opportunity for it to showcase new initiatives it’s working on.

Investors will hear from CEO Jamie Dimon, Barnum and the bank’s four business divisions: Corporate and Investment Banking, Retail and Community Banking, Commercial Banking, and Asset and Wealth Management.

JPMorgan’s share price was flat in mid-morning New York trading on Monday.