Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong growth in the Consumer & Community Banking (CCB) division, with 2 million net new checking accounts in 2023, 8% growth in active card accounts, and an increase in deposit market share by 180 basis points over the last 3 years. JPMorgan is also investing in expansion by building 166 new branches in 2023 and planning a similar number this year.
- Effective adaptation to competitive pressures in private credit, with enhancements to compete effectively against private credit providers and capitalize on new opportunities. JPMorgan is starting to see results across both the Commercial Bank and the Corporate & Investment Bank, demonstrating its ability to maintain market position.
- Strategic investment in AI to enhance productivity and efficiency, with dedicated leadership and a disciplined approach focusing on high-impact use cases, indicating future operational improvements and cost efficiencies.
- JPMorgan expects Net Interest Income (NII) excluding Markets to decline from $94 billion to approximately $88 billion in 2024, implying meaningful sequential quarterly declines throughout the year.
- Deposits are projected to be modestly down in 2024 due to the impact of Quantitative Tightening (QT) withdrawing system-wide deposits, with less offset from the Reverse Repo Program (RRP).
- Expenses are expected to increase to about $90 billion in 2024, up $7 billion year-on-year, driven by growth in compensation, marketing, technology investments, and other areas, which could pressure profitability.
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NII Sensitivity to Fed Rate Cuts
Q: How sensitive is net interest income to potential Fed rate cuts?
A: JPMorgan remains asset-sensitive and estimates that a 100 basis point move in rates would impact net interest income (NII) by about $2 billion, according to their Earnings at Risk (EAR) model. The bank uses the forward curve in their outlook, which currently assumes six Federal Reserve rate cuts in 2024. -
Expense Outlook and Drivers
Q: What's driving the increase in expenses to $90 billion in 2024?
A: JPMorgan projects expenses of $90 billion in 2024, an increase of $7 billion year-over-year. Key drivers include investments in branch expansion—building around 166 new branches—increased marketing for card products, hiring advisors, and technology modernization efforts across various businesses. The Consumer & Community Banking segment sees expenses rise due to these growth initiatives, which are yielding results like 2 million net new checking accounts and 8% growth in active card accounts. -
Capital Return and Buyback Plans
Q: What are your thoughts on share buybacks given capital strength?
A: JPMorgan plans to maintain a modest pace of buybacks, consistent with about $2 billion net buyback per quarter. Despite strong organic capital generation, the bank is cautious due to uncertainties around regulatory proposals and the need to build additional capital buffers. -
Credit Outlook and Soft Landing
Q: Do you see increased likelihood of a soft landing, and what's your view on consumer resilience?
A: JPMorgan acknowledges a higher probability of a soft landing in the economic outlook. Consumers are resilient, with key metrics normalized, though spending behavior may adjust as cash buffers return to normal levels. A strong labor market supports consumer credit, and the bank sees evidence of continued robust consumer performance. -
Commercial Real Estate and Multifamily Exposure
Q: Are you seeing any weakness in commercial real estate affecting multifamily apartments?
A: JPMorgan is not seeing significant issues in its multifamily portfolio. Pressure in multifamily housing is more pronounced in higher-end markets, whereas the bank's exposure is in affordable, supply-constrained markets that continue to perform robustly. -
Impact of AI on Technology Expenses
Q: How is AI impacting your technology approach and expenses?
A: JPMorgan views AI as a significant opportunity and has appointed a leader for AI strategy at the operating committee level. The focus is on a disciplined approach with high-impact use cases linked to tangible outcomes, starting with improving productivity among technology developers. -
Private Credit Competition
Q: How is the growth of private credit affecting JPMorgan, and how are you adapting?
A: The rise of private credit is an important competitive factor. JPMorgan is enhancing its capabilities to compete effectively, offering both traditional syndicated lending and competing directly with private credit providers when clients desire. The bank ensures it meets client needs across all segments while monitoring regulatory developments. -
First Republic's Impact on NII
Q: How does the First Republic acquisition affect your NII forecast amid potential rate cuts?
A: While not providing specific guidance on First Republic, JPMorgan notes that the Earnings at Risk (EAR) model fully includes First Republic's assets and liabilities. Rate movements would impact NII as per the EAR, and overall NII sensitivity remains asset-sensitive. -
Loan Loss Reserves and Macro Outlook
Q: How did changes in the macro outlook affect loan loss reserves this quarter?
A: There were no significant revisions in the macro outlook affecting loan loss reserves. The weighted average unemployment rate in the bank's models remains at 5.5%, with the central outlook peak at 4.6%. The bank maintains a slight skew to the downside, recognizing elevated risks. -
Capital Markets Rebound
Q: What is your outlook for capital markets activity in the coming year?
A: JPMorgan anticipates improvement in capital markets activity, supported by a more dovish rate environment. In Equity Capital Markets, higher equity markets and favorable conditions are expected to drive a rebound, though some challenges exist due to recent IPO performances. Debt Capital Markets should benefit from lower rates, with timing influenced by corporate refinancing strategies. M&A activity shows signs of pickup despite regulatory headwinds.