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JPMorgan sees a net interest income increase of $3 billion from the First Republic deal

NEW YORK, May 22 (Reuters) – JPMorgan Chase & Co’s ( JPM.N ) net interest income will rise by $3 billion as it takes in more interest payments from its purchase of failed First Republic Bank this year, executives told investors on Monday .

The largest US lender expects net interest income to rise to $84 billion from higher interest payments in 2023, up from an earlier forecast of $81[ads1] billion, after it bought First Republic, which was shut down by authorities this month.

Integration costs from the deal will add $3.5 billion to costs this year, adding to an earlier forecast of $81 billion. The Wall Street giant is in the process of integrating the regional lender, which is likely to take around 12 months.

JPMorgan said it remains optimistic. It emerged as one of the biggest beneficiaries of the recent banking crisis due to an influx of deposits from customers seeking safety in larger institutions.

First Republic was the third US regional lender to fail since March in a sector-wide upheaval that rattled financial stocks, raised fears of a crisis and increased pressure on mid-sized banks.

The bank failures exposed cracks in their balance sheets as rising interest rates eroded the values ​​of their debt portfolios and soured commercial real estate loans.

“We cannot ignore that there are many challenges at this time and sources of uncertainty,” said JP Morgan President and CEO Daniel Pinto.

While the global and US economy is doing well, there are signs of deterioration as consumers erode savings buffers, interest rates rise and inflation remains persistent, Pinto added.

JPMorgan Chase Bank is seen in New York City, U.S., March 21, 2023. REUTERS/Caitlin Ochs

Economists have warned that a US default could trigger a market sell-off, a rise in borrowing costs and a blow to the global economy that could rival the 2008 crash.

Investment banking and trading revenues are both expected to fall 15% in the second quarter, Pinto said, adding that he expects market volatility to increase as central banks near the end of their monetary tightening cycles.

Shares of JPMorgan fell 0.7% to $138.14 on Monday.

Still, “high-quality bond deals are slowly coming back,” said Vis Raghavan, co-head of global investment banking and corporate banking.

Last week, a boom in investment-grade corporate bonds including Pfizer ( PFE.N ) and Charles Schwab ( SCHW.N ) underscored that companies prefer to borrow sooner rather than later, as executives do not expect interest rates to fall this year.

JPMorgan also resumed its 17% target for return on tangible equity — a key metric that measures how well a bank uses shareholder money to produce profit.

JPMorgan plans to increase the division’s footprint modestly, said Jennifer Roberts, managing director of consumer banking. The lender serves nearly 80 million customers and 5.7 million small businesses and is the first bank to have locations in all 48 contiguous US states.

Wells Fargo analysts led by Mike Mayo said the bank’s presentation echoed the “Goliath wins” theme.

“The slides reflect economies of scale given its size and ability to generate superior ROTCE at one of the highest levels of capital among major banks,” the brokerage said in a note.

Reporting by Nupur Anand and Lananh Nguyen in New York and Mehnaz Yasmin in Bengaluru; Editing by Saumyadeb Chakrabarty

Our standards: Thomson Reuters Trust Principles.

Lannh Nguyen

Thomson Reuters

Lananh Nguyen is the US finance editor at Reuters in New York, and leads coverage of US banks. She joined Reuters in 2022 after reporting on Wall Street at The New York Times. Lananh spent more than a decade at Bloomberg News in New York and London, where she wrote extensively on banking and financial markets, and she previously worked at Dow Jones Newswires/The Wall Street Journal. Lananh holds a BA in Political Science from Tufts University and an M.Sc. in Finance and Economic Policy from the University of London.

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