JPMorgan reaps profit boost from higher rates

JPMorgan Chase said earnings from its lending business would continue to increase this year on the back of higher interest rates as the largest US bank reported a jump in profits in the second quarter.

The group said on Friday that net income in the second quarter jumped 67 cent year on year to $14.47 billion (€12.88 billion), ahead of analysts’ estimates of $11.9 billion (€10.6 billion), according to consensus data compiled by Bloomberg.

Much of the increase was driven by higher net interest income, up 44 per cent year on year to $21.9 billion (€19.5 billion), the fifth straight quarter of double-digit growth and ahead of estimates of almost $21 billion (€18.7 billion). Net interest income is the difference in what banks pay on deposits and what they earn from loans and other assets.

JPMorgan also increased its net interest income target for 2023, excluding its trading division, to around $87 billion from around $84 billion. The Federal Reserve paused rate hikes at its most recent meeting but officials have indicated they still plan further increases.

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Big banks such as JPMorgan have been able to charge more for loans since last year when the Fed started lifting rates; they have not raised rates on deposits as much. Smaller banks have come under greater pressure to boost deposit rates to retain deposits, hurting their profit margins.

In the five quarters since March 2022 when the Fed started to raise interest rates, JPMorgan has earned $95.3 billion (€84.86 billion) in net interest income, up from $66.1 billion in the prior five quarters.

There is typically a lag between interest rates rising and savings rates going up and the question for banks like JPMorgan is when the benefits from higher rates will fade. JPMorgan’s deposits rose 1 per cent during the quarter to just shy of $2.4 trillion (€2.13 billion).

JPMorgan’s lending business received a further boost in May when it acquired First Republic, a California-based bank specialising in wealth management which lost tens of billions in deposits following the collapse of Silicon Valley Bank in March. JPMorgan also benefited from a $1.8 billion gain relating to the First Republic deal.

JPMorgan’s stock was up 2.7 per cent in pre-market trading in New York – The Financial Times Limited 2023