JPMorgan shares fell as expectations of higher profits were overshadowed

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JPMorgan Chase shares fell the most in nearly four years on Friday as a disappointing outlook for its lending business overshadowed a first-quarter profit increase at the largest U.S. bank.

The bank said net income rose to $13.4 billion in the first quarter, up 6 percent from a year earlier and better than analysts expected. JP Morgan allocated less to loan losses than analysts expected.

But the bank's guidance for net interest income disappointed investors, and its shares closed down 6.5 percent, their biggest one-day decline since June 2020.

This reflects concerns that JPMorgan's massive gains from rising interest rates in the past two years may have plateaued.

While JPMorgan raised its full-year guidance for National Insurance Co – broadly the difference between what it pays on deposits and what it earns on loans and other assets – outside its trading business to about $89 billion from a previous forecast of about $88 billion, it left unchanged. Its forecast for total national insurance is about $90 billion.

“While the guidance still strikes us as very conservative… “We think the unchanged outlook will disappoint investors a little and could weigh on the stock in the near term,” said Scott Sievers, an analyst at Piper Sandler.

Financial markets have adjusted their interest rate expectations in recent weeks, and the US Federal Reserve is now expected to cut interest rates more slowly.

Higher interest rates have been beneficial to the largest US banks, which have reaped billions of dollars in profits over the past two years by passing on interest rate increases to depositors more slowly than to borrowers.

But banks must finally pass on higher savings rates to depositors, according to JPMorgan and Wells Fargo, which also reported earnings. Wells' profits fell 7 percent in the first quarter compared to the previous year.

Jeremy Barnum, JP Morgan's chief financial officer, told analysts that customers were moving more money into accounts offering higher savings rates, eroding the bank's margins on lending.

“We still expect to see continued migration and yield-seeking behavior,” Barnum said.

JPMorgan also warned that it expects expenses for 2024 to be $91 billion, up from $90 billion previously, as it must pay an estimated $725 million in additional fees to US regulators to cover costs associated with the failure of regional banks last year.

“Many economic indicators remain favorable,” said Jamie Dimon, CEO of JP Morgan.

But he added that “looking ahead, we remain alert to a number of significant uncertain forces,” citing a “worrying” global landscape and “a plethora of persistent inflationary pressures.”

Meanwhile, rival Citigroup reported better-than-expected quarterly earnings, with the bank saying it was on track to cut 7,000 jobs this year. Citigroup shares fell 1.7 percent on Friday.

Bank of America, Goldman Sachs and Morgan Stanley will announce their results early next week.

Additional reporting by Harriet Clarvelt