The country’s biggest and most profitable bank intends to get even bigger and take in more income in 2023 despite chaos in its industry and a possible recession.
That was the message delivered by key executives of JPMorgan Chase (JPM) Monday morning during the New York lender’s annual investor day.
A key update was that JPMorgan raised its forecast for net interest income, the difference between what it earns on its loans and pays for its deposits, by $3 billion. That jump is due to JPMorgan’s May 1 acquisition of the bulk of First Republic, which was seized by regulators after a massive outflow of deposits.
The bank now expects net interest income to be $84 billion in 2023. Many banks, especially regional lenders, are projecting lower net interest income this year as they pay more for deposits and keep pace with rising interest rates.
The bank said the First Republic acquisition would “modestly” improve its overall net income at an annual rate of $500 million before including a restructuring cost over the next two years.
"If we wind up doing better than we assumed, great," said JPMorgan CFO Jeremy Barnum.
JPMorgan’s stock rose 1.2% Monday morning before turning roughly flat. Since the beginning of the year, the stock has gained 3%, making it one of the few US bank stocks with year-to-date improvement.
For the same period, the KBW bank index has fallen 23%.
JPMorgan provided several examples Monday of areas where it expects additional investments and growth.
Global chief information officer Lori Beer said the company plans to invest an additional $1 billion into artificial intelligence investments by the end of the year, while its CEO of consumer banking said JPMorgan also expects to add more brick-and-mortar bank buildings across the US.
JPMorgan anticipates that it will be able to cover 70% of the US population within a 10 minute drive of its branches, up from 60% today, said Jennifer Roberts, CEO of consumer banking. The company currently has more than 4,800 retail locations.
“You will see us build more branches then we close resulting in a modestly larger branch network over time,” she said.
The First Republic deal is helping JPMorgan add to its heft. The acquisition added 200 advisers and $200 billion in client assets to JPMorgan’s wealth management operations. The number of financial advisers went up 5.3%, to 4,950.
The bank said it will close some First Republic branches where they already have brick-and-mortar banks nearby while others in "premium locations" including San Francisco and New York City will help accelerate its strategy with affluent clients.
JPMorgan's chief operating officer Daniel Pinto said the US economy “at the moment is doing fine” but “it's very unlikely that we are not going to have a recession.”
"We cannot ignore that there are plenty of challenges at this time and sources of uncertainty."
He cited his Argentine background to say that he has lived through inflation and hyper-inflation, and that a recession is “a good price to pay” to solve the problem of inflation.
JPMorgan did set aside $22.8 billion in reserves for credit losses during the first quarter, up from 22% from a year ago, because it anticipates deteriorating credit quality, loan growth and economic conditions.
It also expects expenses to rise another $3 billion due to the First Republic acquisition, to $84.5 billion.
Pinto said JPMorgan expects investment banking fees and trading to be down roughly 15% through the second quarter from the year-ago period, with a pickup in the third and fourth quarters of the year.
“We have a period now of low volatility, but I don't think that that situation will stay for the rest of the year,” he said of the trading segment.
And JPMorgan won’t be able to completely escape the fallout from the Silicon Valley Bank and Signature Bank failures in March. It said it expects it will have to pay the Federal Deposit Insurance Fund a special assessment of $3 billion to help absorb the losses from those seizures.
Other large and mid-sized banks will also be asked to help cover those costs.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance