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JPMorgan (JPM) Ups '23 NII View on FRC Deal, Raises Tech Spend
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JPMorgan (JPM - Free Report) seems to be benefiting from the ongoing regional banking crisis. At the same time, signs of gradual economic deterioration can be seen. These were the key messages delivered by its top management on Investor Day.
The primary update was the rise in net interest income (NII) guidance by $3 billion to reach approximately $84 billion for 2023. The reason for this jump in target is the acquisition of First Republic Bank, which was seized by the regulators after massive deposit outflows.
This $84 billion NII represents almost a 26% year-over-year surge. This is in contrast to many other lenders like Bank of America (BAC - Free Report) and Wells Fargo (WFC - Free Report) , which are projecting modest NII growth this year, given the rise in deposit cost and gradually waning loan demand due to higher interest rates.
Bank of America projects NII (FTE) to grow in the range of 7-8% this year, while Wells Fargo is anticipating a 10% increase. Hence, the huge rise in NII for JPMorgan stands out and will be a major catalyst.
Management reiterated that the FRC deal will generate almost $500 million of “incremental net income” annually. This doesn’t include nearly $2 billion of post-tax restructuring charges anticipated this year and in 2024.
Further, the transaction will help fast-track its strategy to serve affluent clients and hugely complement JPM’s wealth management business. Though the company plans to close some of the FRC branches where it already has a presence, it intends to expand the retail branches. It targets having 70% of the U.S. population (up from the current 60%) within a 10-minute drive to the branch.
Jennifer Roberts, CEO of consumer banking, said, “You will see us build more branches then [than] we close resulting in a modestly larger branch network over time.”
The company plans to spend almost $15.7 billion in investment growth opportunities this year, with major focus on technology (nearly 50% of this expenses), hiring, marketing and digital data & AI. This is up almost 15% from last year’s spend on similar expansion efforts.
JPMorgan anticipates a $3.5 billion (including integration-related charges) rise in non-interest expenses due to the FRC transaction. So, this brings total expenses to $84.5 billion for 2023, up roughly 11% year over year.
The company expects to pay the Federal Deposit Insurance Fund a special assessment of approximately $3 billion to help absorb the losses from the seizures of Silicon Valley Bank and Signature Bank in March. Several other large and mid-sized banks, including BAC and WFC, will also be helping to cover those costs.
Additionally, the company provided guidance for investment banking (IB) and markets revenues, which are expected to be down 15% in the first half of 2023. Management expects a slight improvement in the same in the back half of the year. JPMorgan's chief operating officer Daniel Pinto, noted, “We have a period now of low volatility, but I don't think that that situation will stay for the rest of the year.”
JPMorgan has been witnessing muted IB performance amid an industry-wide slump, while markets revenues have been offering some support.
Conclusion
Despite the near-term headwinds, JPM is expected to keep benefiting from higher rates, modest loan demand, strategic acquisitions, business diversification efforts, strong liquidity position and initiatives to expand the branch network.
The current Investor Day provided more details as to how the company plans to expand and grow bigger. Going forward, JPMorgan will be able to leverage its size to improve its market share across the businesses.
Shares of JPMorgan have gained 2.9% so far this year against the industry’s decline of 9.3%.
Image: Bigstock
JPMorgan (JPM) Ups '23 NII View on FRC Deal, Raises Tech Spend
JPMorgan (JPM - Free Report) seems to be benefiting from the ongoing regional banking crisis. At the same time, signs of gradual economic deterioration can be seen. These were the key messages delivered by its top management on Investor Day.
The primary update was the rise in net interest income (NII) guidance by $3 billion to reach approximately $84 billion for 2023. The reason for this jump in target is the acquisition of First Republic Bank, which was seized by the regulators after massive deposit outflows.
This $84 billion NII represents almost a 26% year-over-year surge. This is in contrast to many other lenders like Bank of America (BAC - Free Report) and Wells Fargo (WFC - Free Report) , which are projecting modest NII growth this year, given the rise in deposit cost and gradually waning loan demand due to higher interest rates.
Bank of America projects NII (FTE) to grow in the range of 7-8% this year, while Wells Fargo is anticipating a 10% increase. Hence, the huge rise in NII for JPMorgan stands out and will be a major catalyst.
Management reiterated that the FRC deal will generate almost $500 million of “incremental net income” annually. This doesn’t include nearly $2 billion of post-tax restructuring charges anticipated this year and in 2024.
Further, the transaction will help fast-track its strategy to serve affluent clients and hugely complement JPM’s wealth management business. Though the company plans to close some of the FRC branches where it already has a presence, it intends to expand the retail branches. It targets having 70% of the U.S. population (up from the current 60%) within a 10-minute drive to the branch.
Jennifer Roberts, CEO of consumer banking, said, “You will see us build more branches then [than] we close resulting in a modestly larger branch network over time.”
The company plans to spend almost $15.7 billion in investment growth opportunities this year, with major focus on technology (nearly 50% of this expenses), hiring, marketing and digital data & AI. This is up almost 15% from last year’s spend on similar expansion efforts.
JPMorgan anticipates a $3.5 billion (including integration-related charges) rise in non-interest expenses due to the FRC transaction. So, this brings total expenses to $84.5 billion for 2023, up roughly 11% year over year.
The company expects to pay the Federal Deposit Insurance Fund a special assessment of approximately $3 billion to help absorb the losses from the seizures of Silicon Valley Bank and Signature Bank in March. Several other large and mid-sized banks, including BAC and WFC, will also be helping to cover those costs.
Additionally, the company provided guidance for investment banking (IB) and markets revenues, which are expected to be down 15% in the first half of 2023. Management expects a slight improvement in the same in the back half of the year. JPMorgan's chief operating officer Daniel Pinto, noted, “We have a period now of low volatility, but I don't think that that situation will stay for the rest of the year.”
JPMorgan has been witnessing muted IB performance amid an industry-wide slump, while markets revenues have been offering some support.
Conclusion
Despite the near-term headwinds, JPM is expected to keep benefiting from higher rates, modest loan demand, strategic acquisitions, business diversification efforts, strong liquidity position and initiatives to expand the branch network.
The current Investor Day provided more details as to how the company plans to expand and grow bigger. Going forward, JPMorgan will be able to leverage its size to improve its market share across the businesses.
Shares of JPMorgan have gained 2.9% so far this year against the industry’s decline of 9.3%.
Image Source: Zacks Investment Research
Currently, JPM carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.