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 U.S. banks of shrinking profits due to deposit withdrawals.

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

However, JPMorgan said “sources of uncertainty remain” in guidance and that its “medium-term” outlook is for an NII in the middle of the $70 billion range, in part because of a possible need to pay higher interest rates to savers, which would shrink its profit margins.

The increased guidance underscores how big banks such as JPMorgan have benefited from the recent crisis among some regional lenders, with the company accepting new deposits and buying the remnants of First Republic in a government auction.

Big lenders like JPMorgan benefited from the U.S. Federal Reserve’s rate hike last year, which allowed them to charge borrowers more for loans without passing significantly higher rates on to savers.

The bank said its deposits, which stood at $2.3 trillion at the end of March, were “down slightly” year-on-year. Chief Financial Officer Jeremy Barnum said deposits at U.S. banks system-wide were expected to continue to decline as the Fed tightened monetary policy and customers sought better returns on their money.

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

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

The bank also said credit losses remained below pre-pandemic levels, but that there would likely be “continued normalisation” in 2023. It estimated that its firm-wide net charge-off rate – the percentage of its loans that it does not expect to accumulate debt — will creep back to its 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 technology investments. That would be $2 billion more than in 2022 in a signal to rivals how the biggest U.S. bank by assets intends to grow even more.

JPMorgan’s Investor Day, held at JPMorgan’s Manhattan headquarters, provides an opportunity to showcase new initiatives it is working on.

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

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