JPMorgan Chase & Co. forecast "meaningful" sequential quarterly declines in net interest income in 2024, reflecting its asset sensitivity and market expectations for six interest rate cuts by the Federal Reserve this year.
The bank reported about $97 billion in annualized net interest income (NII) for the 2023 fourth quarter, and $94 billion excluding its market business. It projected $90 billion for 2024 and $88 billion excluding markets. Markets NII is largely offset by opposite moves in noninterest revenue in the business.
The anticipated decline reflects expectations for higher rates paid on deposits and further migration into more expensive deposit categories, partially offset by loan growth, including still robust but slower growth in credit card loans.
The outlook is consistent with JPMorgan Chase's repeated message that it has been "over-earning" as its deposit costs have not moved up as quickly as it had previously anticipated, CFO Jeremy Barnum said during a conference call with analysts. Excluding $2.9 billion in a special assessment to the Federal Deposit Insurance Corp. and net securities losses of $743 million, the bank posted a return on tangible common equity of 19% for the quarter, which Barnum said is 4 percentage points above its through-the-cycle target.
JPMorgan Chase's NII increased 5.8% sequentially to $24.05 billion, ahead of the consensus forecast of $23.04 billion. The bank lifted its projection for net interest income several times in 2023. The projection for 2024 is above the consensus forecast as of Jan. 12 for $86.14 billion. For the full year 2023, JPMorgan Chase's NII increased 33.8% to $89.27 billion.
Executives have given $80 billion as a rough guide for normal annual NII. The guidance for 2024 implies "us kind of marching on the path to that" $80 billion, Barnum said. "Whether we ever get to the [$80 billion] or not and when is maybe a topic for later in the year or next year."
The bank ended 2023 with total deposits up 2.6% for the year to $2.401 trillion. "We expect balances to be very modestly down from current levels" in 2024, Barnum said. "While lower rates should decrease repricing pressure, we remain asset sensitive, and therefore, lower rates will decrease NII, resulting in more normal deposit margins."
The bank maintained its guidance for credit card net charge-offs (NCOs) of less than 3.5% in 2024, with measures of consumer health and credit performance now having fully normalized from abnormal strength during and after the pandemic, Barnum said.
"The consumer credit narrative broadly is that the consumer is fine," he said on a conference call with reporters. "What really matters is the strength of the labor market."
JPMorgan Chase's NCO ratio increased 21 basis points sequentially to 68 basis points, including an increase of 25 basis points in wholesale loan NCOs to 31 basis points. Its provision for credit losses increased 20.7% from the year prior and almost doubled from the previous quarter to $2.76 billion as it added reserves for credit card loan growth and deterioration in the outlook for commercial real estate prices.
The ratio of credit loss allowance to total retained loans increased 2 basis points sequentially to 1.75%, but was down from 1.81% in the year prior.
