JPMorgan profit rises on interest income boost

JPMorgan's earnings also got a boost from its acquisition of First Republic Bank in May

JPMorgan Chase beat expectations for third-quarter profit on Friday as a tighter monetary policy and the acquisition of failed First Republic Bank drove its interest income to a record high.

The white-knight rescue of First Republic in May added billions of dollars worth of consumer loans to JPMorgan's balance sheet, bolstering its net interest income (NII), or the difference between what banks earn on loans and pay out on deposits.

Shares of the bank rose 1.1% to $147.40 in premarket trading.

JPMorgan Chase Tower

The JPMorgan Chase Tower on Park Avenue on midtown Manhattan. (Tim Clayton/Corbis via Getty Images / Getty Images)

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Chief Executive Officer Jamie Dimon said that although U.S. consumers remained healthy, several geopolitical factors including the war in Ukraine and conflict in Israel could keep inflation at elevated levels.

"This may be the most dangerous time the world has seen in decades," Dimon said.

JPMorgan CEO Jamie Dimon

JPMorgan Chase CEO Jamie Dimon speaks during the Institute of International Finance (IIF) annual membership meeting in Washington, D.C., on Oct. 13, 2022. (Ting Shen/Bloomberg via Getty Images / Getty Images)

NII rose 30% to $22.9 billion, the bank said. Excluding the impact of First Republic, it still rose 21%.

Ticker Security Last Change Change %
JPM JPMORGAN CHASE & CO. 182.87 -12.37 -6.34%

The Federal Reserve has held interest rates steady in the 5.25-5.5% range but has indicated it could keep borrowing costs higher for a prolonged period, allowing JPMorgan to hike its 2023 NII forecast to $89 billion, excluding markets, compared with prior expectations of $87 billion.

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The provision for credit losses was $1.4 billion, 10% lower than last year as the bank released $113 million of reserves.

INVESTMENT BANKING LULL

While the market for mergers and acquisitions (M&A) and initial public offerings (IPOs) is showing signs of a recovery, lingering economic uncertainty continues to be a drag on dealmaking activity.

September saw stock market debuts of several high-profile companies, including SoftBank Group's 9984.T chip designer Arm Holdings ARM.O and grocery delivery app Instacart CART.O. JPMorgan was an underwriter for both of those listings.

But these newly listed companies have given back most of their gains after their first-day pop, crushing hopes of a meaningful recovery in the IPO market.

Investment banking revenue at JPMorgan fell 6% to $1.6 billion.

Unlike some of its peers on Wall Street, JPMorgan has so far managed to avoid mass layoffs. The bank boosted its headcount by nearly 3%, or 8,603 employees, to 308,669 at the end of the quarter.

But that could soon change, CFO Jeremy Barnum warned, saying that headcount will be sized as appropriate for the investment banking environment

The bank has reorganized the leadership in its investment bank, promoting a new head in North America to succeed Fernando Rivas, who plans to retire, Reuters reported last month.

Rivas, who previously ran the financial institutions group, was one of JPMorgan's lead negotiators in its purchase of First Republic.

He will be replaced by Jay Horine, who is currently the global industry co-head for energy, power and renewables, metals and mining, according to the memo.

The lender's profit rose 35% to $13.15 billion, or $4.33 per share, for the three months ended Sept. 30.

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Excluding one-time costs, the bank reported a profit of $4.50 per share, above analysts' average estimate of $3.96 per share, according to LSEG IBES data.

Peer Wells Fargo also reported third-quarter profit above expectations.