JPMorgan sees $3 billion in net interest income from First Republic deal

NEW YORK (Reuters) – JPMorgan Chase & Co.’s net interest income will rise by $3 billion as it brings in more interest payments from its purchase of failed First Republic Bank this year, executives told investors on Monday.

The largest US bank expects net interest income to rise to $84 billion from higher interest payments in 2023, up from an earlier forecast of $81 billion, after it bought First Republic, which was shut down by authorities this month.

Integration costs from the deal will add $3.5 billion to its expenses this year, on top of a previous forecast of $81 billion. The Wall Street giant is in the process of consolidating the regional lender, which will likely take about 12 months.

JPMorgan said it remains optimistic. He emerged as one of the biggest beneficiaries of the recent banking crisis due to an influx of deposits from customers who sought safety in larger institutions.

The First Republic was the third US regional lender to fail since March in sector-wide turmoil that roiled financial stocks, deepening fears of a crisis and putting pressure on mid-sized banks.

Bank failures exposed cracks in balance sheets as rising interest rates eroded portfolio values ​​and commercial mortgages worsened.

“We cannot ignore that there are a lot of challenges at this time and sources of uncertainty,” said Daniel Pinto, President and Chief Operating Officer of JPMorgan.

Pinto added that while the global and US economies are doing well, there are signs of deterioration as consumers erode savings, interest rates rise and inflation persists.

Economists have warned that a US default could trigger a market sell-off, an increase in borrowing costs, and a blow to the global economy that could rival the crash of 2008.

Investment and commercial banking revenues are expected to decline 15% in the second quarter, Pinto said, adding that he expects market volatility to increase as central banks approach the end of monetary tightening cycles.

JPMorgan shares fell 0.7 percent to $138.14 on Monday.

However, co-head of investment banking and global corporate banking, Vis Raghavan, said: “High-quality bond deals are still slowly coming back.”

Last week, the boom in investment-grade corporate bond deals, including Pfizer (PFE.N) and Charles Schwab (SCHW.N), confirmed that companies prefer to borrow sooner rather than later because executives don’t expect rates to drop this year.

JPMorgan also re-set its target of 17% for return on tangible common stock — a key metric that measures how well the bank uses shareholder money to generate profit.

Jennifer Roberts, CEO of Consumer Banking, said JPMorgan plans to modestly increase the size of its branches. The lender serves nearly 80 million customers and 5.7 million small businesses and is the first bank to have locations in all 48 contiguous US states.

Wells Fargo analysts led by Mike Mayo said the bank’s presentation reflected the “Goliath wins” theme.

“The tranches reflect the benefits of scale given its objective and ability to generate a ROTCE superior to one of the highest levels of capital among major banks,” the brokerage said in a note.

Additional reporting by Nupur Anand and Lanan Nguyen in New York and Mehnaz Yasmin in Bengaluru; Edited by Soumiadeb Chakrabarty

Our Standards: The Thomson Reuters Trust Principles.

Because it’s Nguyen

Thomson Reuters

Lanan Nguyen is the US Finance Editor for Reuters in New York, leading coverage of US banks. She joined Reuters in 2022 after writing on Wall Street for the New York Times. Lannan has spent more than a decade at Bloomberg News in New York and London, writing extensively on banking and financial markets, and previously worked for Dow Jones Newswires/The Wall Street Journal. Mr. Lananeh holds a BA in Political Science from Tufts University and an MA in Political Science. in Finance and Economic Policy from the University of London.

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