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JPMorgan Chase shares fell by the most in almost four years on Friday as an underwhelming outlook for its lending business overshadowed an increase in first-quarter profits at the US’s largest bank.
The lender said net income increased to $13.4bn in the first quarter, up 6 per cent from a year earlier and better than analysts had expected. JPMorgan set aside less than analysts anticipated for loan losses.
But the bank’s guidance for net interest income disappointed investors, and its shares closed down 6.5 per cent, their biggest one-day drop since June 2020.
It reflected worries that the massive gains JPMorgan has made from higher interest rates in the past two years may have plateaued.
While JPMorgan lifted its full-year guidance for NII — broadly the difference between what it pays on deposits and what it earns from loans and other assets — outside of its trading business to about $89bn from an earlier forecast of about $88bn, it left its outlook for total NII unchanged at about $90bn.
“While the guide still strikes us as ultra-conservative . . . we suspect the unchanged outlook will disappoint investors a bit and could weigh on the stock in the immediate term,” said Scott Siefers, an analyst at Piper Sandler.
Financial markets have adjusted their rate expectations in recent weeks, with the US Federal Reserve now forecast to cut rates more slowly.
High interest rates have been good for America’s biggest banks, which have reaped billions of dollars in profits over the past two years by passing on interest rate rises to depositors more slowly than borrowers.
But banks are finally having to pass on higher savings rates to depositors, according to JPMorgan and Wells Fargo, which also reported earnings. Profits at Wells fell 7 per cent in the first quarter from a year earlier.
JPMorgan chief financial officer Jeremy Barnum told analysts that customers were moving more money to accounts that offered higher savings rates, eating into the bank’s margins from lending.
“We would still expect to see ongoing migration and yield seeking behaviour,” Barnum said.
JPMorgan also warned that it expected expenses for 2024 to be $91bn, up from $90bn previously, as it has to pay an estimated $725mn more in charges to US regulators to cover costs linked to last year’s regional bank failures.
JPMorgan chief executive Jamie Dimon said that “many economic indicators continue to be favourable”.
But he added that “looking ahead, we remain alert to a number of significant uncertain forces”, pointing to an “unsettling” global landscape and “a large number of persistent inflationary pressures”.
Rival Citigroup, meanwhile, reported better than expected quarterly profits as the bank said it was on track to shed 7,000 jobs this year. Shares in Citigroup fell 1.7 per cent on Friday.
Bank of America, Goldman Sachs and Morgan Stanley report results early next week.
Additional reporting by Harriet Clarfelt
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