JPMorgan raises 2022 interest income outlook ahead of investor conference

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(Reuters) -JPMorgan Chase & Co lifted its forecast for interest income and affirmed its profitability target as it opened an investor conference on Monday, where executives are expected to face questions on the bank’s expenses and management of its capital.

The country’s largest lender said it now expects net interest income (NII), excluding markets, of $56 billion in 2022. It had earlier forecast NII outside its market business to reach a “couple billion” more than $53 billion in 2022, up from its $50 billion outlook in January.

Shares were up 1.4% at $119.50 in premarket trading.

“This is a good start,” analyst Susan Roth Katzke of Credit Suisse wrote in a note after seeing the presentation slides.

Investors are keeping an eye on the prospects for banks to increase their net interest income, or the difference between income from loans and interest paid on deposits and other funds, as they benefit from higher interest rates.

However, as the U.S. Federal Reserve rushes to contain decades-high inflation, investors are also worried that overly aggressive monetary policy tightening will tip the economy over into a recession. These fears have driven the S&P 500 banks index down 21.5% so far this year.

JPMorgan (NYSE:JPM) scheduled the investor conference following a one-day drop in its stock in January when it said it would allow expenses to increase 8%, or $6 billion, this year as it funded business investments that it did not persuasively justify to investors.

Chief executive Jamie Dimon on Monday looked to reassure investors over those increased investments, in particular the bank’s technology expenditure.

“We have always earned good returns while making investments,” Dimon said as he opened the conference.

JPMorgan said its 2022 outlook for NII was based on an assumption that the Fed raises short-term rates up to 3% by year-end. It also assumed high single-digit loans growth and a “modest” step up in securities investments.

Charge-offs for bad loans are estimated to rise to pre-pandemic levels “over time” but not until after 2022, thanks to strong consumer and business balance sheets, the bank said.

Provisions to build loss reserves will increase with loan growth, JPMorgan added.

The company also affirmed target for a 17% return on tangible capital equity (ROTCE) and said it may be achieved in 2022. ROTCE is a key metric which measures how well a bank uses shareholder money to produce profit.

For 2023, the bank expects its investment spending growth rate “will moderate”, but for 2022, expense forecast was kept unchanged at $77 billion.

JPMorgan noted that in 2023 it could shift some of its plans for investment spending, such as for credit card marketing, depending on the economic environment.

Of the $6.7 billion tech spend expected in 2022, the biggest chunk of $3.1 billion will go towards the investment bank segment, JPMorgan said.

JPMorgan also said it expects its regulatory capital requirements to increase over the next two years, but said it would have excess capital in the range of $13 billion to $22 billion in the first quarter of 2024, that would be available for business investments or distributions to shareholders.

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