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JPMorgan Chase & Co.

JPMorgan Chase & Co.'s Guidance and Outlook

Net Interest Income (NII)

  • 2024 NII ex Markets: Expected to be approximately $88 billion. This implies a significant sequential decline from the current run rate, which was around $94 billion in the fourth quarter of 2023.
  • NII Sensitivity: The company remains asset-sensitive to rate cuts, meaning lower rates will reduce NII. However, the internal migration of deposits from noninterest-bearing to interest-bearing accounts (like CDs) will continue to put upward pressure on deposit margins, even in a lower rate environment.
  • Deposit Dynamics: JPMorgan expects deposit balances to be modestly down from current levels, but the company believes it can gain market share in deposits, which could partially offset this decline.
  • Loan Growth: Loan growth in the Card business will continue but at a more moderate pace compared to 2023. Outside of Cards, loan demand is expected to remain muted due to economic uncertainty and higher capital requirements under Basel III.

Non-Interest Income (NIR)

  • Investment Banking Fees: The company is cautiously optimistic about the pipeline for Investment Banking fees, particularly in debt capital markets (DCM), where pull-forward activity has been strong. However, advisory fees remain a headwind due to regulatory challenges and lower M&A activity.
  • Markets Revenue: Expected to be largely neutral to NIR, with Fixed Income and Equity Markets revenue offsetting each other. The company is well-positioned to benefit from volatility in the rate environment, which can drive risk management needs and trading activity.

Expenses

  • 2024 Adjusted Expenses: Expected to be around $91 billion, reflecting ongoing investments in technology, AI, and talent. The company remains committed to investing through the cycle, even if revenue growth is flattish or declining.
  • Cost Control: Despite the pressure on revenue, JPMorgan does not plan to cut costs drastically. Instead, it will focus on efficiency and long-term investments. The company will continue to manage expenses carefully but will not sacrifice investments that contribute to future growth and competitiveness.

Capital and Buybacks

  • CET1 Ratio: The company aims to maintain a CET1 ratio of around 15% to prepare for Basel III endgame and other regulatory uncertainties. This is higher than the minimum requirement but provides a buffer for potential changes.
  • Buybacks: The pace of share repurchases will likely remain modest at around $2 billion per quarter until there is more clarity on the Basel III endgame and SCB requirements. The company has the flexibility to increase buybacks if opportunities arise, but it prefers to build capital in the current uncertain environment.

Credit Quality

  • Card Net Charge-Off Rate: Expected to be around 3.4% for 2024, reflecting the normalization of credit performance in the consumer segment.
  • Commercial Real Estate (CRE): The company remains cautious about CRE due to higher rates and potential valuation adjustments, but it has not seen significant deterioration in its multifamily portfolio. The office sector is more vulnerable, but JPMorgan has built adequate reserves for this.

Basel III Endgame

  • Impact on Capital Requirements: The company expects a 25% increase in capital requirements, driven by higher RWA and the introduction of operational risk RWA. This could lead to a lower ROTCE unless the company can reprice or exit certain businesses.
  • Advocacy: JPMorgan is actively advocating for changes to the Basel III proposal, particularly around double-counting of operational risk and the GSIB surcharge. The company believes the current proposal could have negative consequences for the U.S. capital markets and the availability of credit.

Technology and AI

  • AI Investments: JPMorgan is doubling down on AI and data analytics to improve risk management, fraud detection, marketing, and client service. The company views these investments as essential for maintaining competitiveness and security in a rapidly evolving technological landscape.
  • Tech Spend: The company expects tech spending to remain elevated, driven by the need to stay ahead of fintech competitors and meet regulatory requirements. While some may view this as a cost burden, JPMorgan sees it as a strategic necessity.

Market and Economic Outlook

  • Economic Uncertainty: The company remains cautious about the economic outlook, citing geopolitical tensions, higher capital requirements, and the impact of QT on deposit balances. However, it is preparing for a range of scenarios and believes the consumer and businesses are currently in solid financial health.
  • Green Shoots: Despite the caution, JPMorgan sees some green shoots in capital markets activity, particularly in DCM and equity markets. However, the company is not overly optimistic and remains focused on risk management and client service.

Summary

JPMorgan Chase & Co. is navigating a complex environment with over-earning on NII and uncertainty around Basel III. The company expects NII to normalize over time, with deposit margins and loan growth playing key roles. Meanwhile, it remains committed to investing in technology and AI, viewing these as critical for long-term success. The company is also preparing for regulatory changes and economic uncertainties, maintaining a conservative capital stance while looking for opportunities to deploy excess capital when the time is right.

Last updated on 01/14/2025 05:14 AM

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