JPMorgan surpasses Wall St forecasts, winning business as crisis roils industry

By Niket Nishant and Nupur Anand

(Reuters) -JPMorgan Chase & Co beat Wall Street’s estimates for quarterly profit and raised its outlook for interest income on Friday, emerging as one of the biggest winners of a flight to safety during last month’s banking crisis.

The largest U.S. lender gained $50 billion in deposits at the end of March, even as the rest of the industry saw a 3% decline in the first quarter.

“JPM reflects our theme that ‘Goliath is Winning’ in terms of growth, scale, and resiliency,” wrote Wells Fargo analyst Mike Mayo in a research note. 

J.P. Morgan’s results underscore big banks’ resilience in the face of industry turmoil. Its diversified businesses and trillions of dollars in assets helped the lender to withstand a crisis that beset regional and smaller lenders.

Net interest income, a measure of the difference between what it pays depositors and what it charges for loans, increased 49%, boosting overall profits by 52%.

The lender also increased its forecast for net interest income to $81 billion this year, excluding profits from markets, from an earlier $74 billion.

While the crisis is not over yet, CEO Jamie Dimon said he expected the tumult from bank failures in March to eventually pass.

JPMorgan set aside loan loss provisions of $2.3 billion, up 56% from last year even though Dimon expects that recession “may still be pushed off a little bit.”

“You still see sticky inflation and then in front of us issues like higher rates, the war in Ukraine — those are still substantial concerns,” he added.

Investment banking revenue slid 24% to $1.6 billion as dealmaking remained slow.

“Our pipeline is relatively robust,” but still “sensitive to market conditions and the economic outlook,” Jeremy Barnum, the company’s finance chief, said in a conference call. “We expect the second quarter and the rest of the year to remain challenging.”

The bank’s shares rose more than 7%.

‘DEPOSITS MAY NOT BE STICKY’

Even though JPMorgan is sitting on a pile of new deposits in the aftermath of the recent bank failures, it warned that there could be outflows.

“It’s a competitive market and it’s entirely possible that people temporarily come to us, and then over time, decide to go elsewhere,” Barnum said. The new deposits were not a big factor in JPMorgan’s more optimistic income projection, he added.

“There’s no pricing power that the bigger banks have,” Dimon said.

The U.S. consumer and the economy remain robust, Dimon said, while cautioning that the banking crisis could turn lenders more conservative and impact consumer spending.

“The U.S. economy continues to be on generally healthy footings — consumers are still spending and have strong balance sheets, and businesses are in good shape,” Dimon said.

While more customers are making late payments, the delinquencies are not a problem for now, Barnum added.

Lenders could pull back on lending in commercial real estate, even though JPMorgan is not looking at immediately changing its underwriting standards in that area.

“JPM is one of those household names in a sector that we were the most concerned about reporting better than expected earnings, and that is certainly putting a bid in the stock and a bid in the market,” said Art Hogan, chief market strategist at B Riley Wealth in Boston.

Return to office

JPMorgan has asked its senior bankers to come to the office five days a week at a time when some peers, such as Citigroup, have embraced hybrid working.

“We completely understand that some people don’t want to do it — they can not do it elsewhere,” Dimon told reporters on a conference call.

The lender’s headcount rose 8% to 296,877 in the first quarter versus a year earlier. It is expected to remain flat for the rest of 2023, the executives said.

(Reporting by Niket Nishant in Bengaluru and Nupur Anand in New York; Additional reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Lananh Nguyen, Saumyadeb Chakrabarty and Nick Zieminski)