JPMorgan raises 2022 interest income outlook ahead of investor conference

JPMorgan Chase & Co raised its interest income forecast and affirmed its profitability target by opening an investor conference on Monday, where executives are expected to face questions about the bank’s spending and its capital management. The nation’s largest lender said it now expects net interest income (NII), excluding markets, of $56 billion in 2022. It had previously forecast the NII outside of its market would reach “a few billion” over $53 billion in 2022, up from its outlook of $50 billion in January.

The shares rose 1.4% to $119.50 in premarket trading. “It’s a good start,” Credit Suisse analyst Susan Roth Katzke wrote in a note after viewing the presentation slides.

Investors are watching the prospects for banks to increase net interest income, or the difference between loan income and interest paid on deposits and other funds, as they benefit from higher interest rates. However, while the U.S. Federal Reserve has been scrambling to contain high inflation for decades, investors are also worried that too aggressive a tightening of monetary policy could tip the economy into a recession. Those fears have driven the S&P 500 Banks Index down 21.5% so far this year.

The bank scheduled the investor conference after its shares fell one day in January, when it said it would allow spending to increase by 8%, or $6 billion, this year as it funded commercial investments that it had not convincingly justified to investors. The meeting is scheduled to begin at 8 a.m. ET in New York.

JPMorgan said its 2022 outlook for NII was based on the assumption that the Fed would raise short-term rates to 3% by the end of the year. He also assumed high single-digit loan growth and a “moderate” increase in securities investment. Bad debt write-offs are estimated to rise to pre-pandemic levels “over time”, but not before 2022, thanks to strong balance sheets for consumers and businesses, the bank said. Provisions for building up reserves for losses will increase with loan growth, JPMorgan added.

The company also affirmed its target of 17% return on tangible equity (ROTCE) and said it could be achieved in 2022. ROTCE is a key metric that measures how well a bank uses shareholders’ money to generate a profit. For 2023, the bank expects its rate of growth in capital spending to “moderate”, but for 2022 the spending forecast was unchanged at $77 billion.

JPMorgan noted that in 2023 it may alter some of its capital spending plans, such as credit card marketing, depending on the economic environment. Of the $6.7 billion spent by tech in 2022, the bulk of $3.1 billion will go to the investment banking segment, JPMorgan said.

JPMorgan also said it expects its regulatory capital requirements to increase over the next two years, but said it would have excess capital in the range of $13 billion to $22 billion. of dollars in the first quarter of 2024, which would be available for commercial investments or distributions to shareholders.

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