JPMorgan raises net-interest-income guidance to reflect $3 billion bump from First Republic Bank takeover

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JPMorgan Chase & Co. raised its net-interest-income guidance on Monday by $3 billion to reflect the bump it will get from its takeover of First Republic Bank.

The bank is now expecting its 2023 net interest income (NII) to come to $84 billion, up from $81 billion forecast in April. That’s well above the current FactSet NII consensus of $80.83 billion.

The stock

fell 0.8% in Monday afternoon trading, to reverse an earlier intraday gain of as much as 1.8%.

The banking giant also said it still expects total integration costs associated with the purchase of First Republic’s assets and the assumption of its deposits and certain liabilities to be about $3.5 billion.

“We’re currently assuming that about half of the integration expense will be incurred this year as we continue integrating the First Republic franchise,” said Jeremy Barnum, chief financial officer at JPMorgan, speaking at the annual Investor Day, according to a FactSet transcript. “We expect to have choices about the service model, which may result in higher expense, all else equal.”

Barnum added that if expenses are higher, they will also come with additional revenue.

He explained that the company’s conservative approach to the deployment of the increase in liquidity resources during the pandemic era, such as a big jump in deposits, led to an increase in excess capital.

As JPMorgan Chief Executive Officer Jamie Dimon “always says,” Barnum noted, “excess capital is just future earnings.” It is that excess capital, the CFO said, that allowed the bank to do the First Republic deal at “extremely attractive returns.”

Regarding concerns about deposit outflows into money-market funds following the recent collapse of several regional banks, Barnum said he expects systemwide deposits to continue to decline.

“In light of these pressures, it’s therefore important to reiterate our deposit strategy,” Barnum said. “We will fight to keep primary banking relationships, but we are not going to chase every dollar of deposit balances.”

The stock has gained 3.0% in the year to date, while the Financial Select Sector SPDR exchange-traded fund

has dropped 4.4% and the S&P 500

has gained 9.4%.


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