Even though its quarterly earnings decreased, JPMorgan Chase announced its highest-ever annual profit and projected higher-than-expected interest income for 2024.

In addition, the biggest US lender paid about $3 billion to top up a government fund that insures deposits.

After purchasing the bankrupt First Republic Bank in May, JPMorgan was able to increase its net interest income (NII), or the difference between what banks take in from deposits and what they make on loans, by billions of dollars.

The bank projects $90 billion in net interest income (NII) for the entire year. LSEG statistics showed that this was more than the $86.2 billion estimated amount. NII increased by 19% during the quarter to a record $24.2 billion.

Shares hit record-high after markets open but corrected during trading hours and were flat.

CEO Jamie Dimon restated his belief that the US economy is stable but issued a warning that inflation may endure longer than anticipated and that interest rates may rise.

“The U.S. economy is still strong, with consumers continuing to spend, and markets are now projecting a gentle landing. It is crucial to remember that significant government deficit spending and prior stimulus are driving the economy,” Dimon stated.

The quarterly earnings decreased, but experts were nonetheless pleased with the outcome.

“They had a really good 2023 so it will be difficult to repeat that but they have been building their reserves, focusing on capital and working at keeping the fortress balance sheet that way while remaining cautious but constructive,” said Stephen Biggar, an analyst at Argus Research.

Chief Financial Officer Jeremy Barnum stated that the investment banking unit’s pipeline is “robust” because of the more dovish interest rate environment, but he cautioned against the continued uncertainty that could impact the pipeline as long as headwinds persist.

Global M&A activity reached a ten-year low last year, but according to Dealogic, there were some encouraging indications in the fourth quarter as deal volumes across the board increased by 19%.

Strong equities and debt underwriting fees contributed to a 13% increase in investment banking fees during the quarter. Revenue in fixed income markets increased by 8% as well.

The bank reported on Friday that its profit for the fourth quarter came to $9.31 billion, or $3.04 per share, for the three months that ended on December 31.

This is in contrast to $11.01 billion, or $3.57 per share, in the previous year. The record annual earnings were $49.6 billion.

Revenue at the bank increased by 12% to $38.57 billion.

Due to their obligation to pay the majority of the $16 billion needed to replace the Federal Deposit Insurance Corporation’s deposit insurance fund (DIF), which was depleted following the failure of Silicon Valley Bank and Signature Bank last year, JPMorgan and a number of other major banks are experiencing a decline in their quarterly profits.

“Overall, another solid quarter from JPM, as the firm utilized abnormally low credit costs to slightly reposition its securities portfolio and absorb the expected FDIC charges,” David George, analyst at Baird Equity Research, said in a note.

Compared to the previous quarter, average deposits were unchanged. Money market funds and other higher-yielding options have drawn depositors’ money away from banks, and Barnum cautioned that this tendency is likely to continue even in a low-rate environment.

Consumer credit metrics across the portfolio have “normalised,” the bank added, adding that U.S. consumer finances are still generally sound. In the fourth quarter, net charge-offs—debt owing to a bank that is unlikely to be recovered—rose to $2.2 billion.

Credit card growth is predicted to continue, albeit not as quickly as in 2023, according to Barnum, despite the overall loan growth remaining modest.

The CFO emphasised once more that the proposed capital limits would force lenders to shrink and impede economic expansion. He also hinted that legal action against banking authorities might be taken.

“We’re not going to get that specific about potential litigation strategy at this point. But obviously, you know, suing your regulator is never your preferred option. But it can’t be taken off the table when you’re talking about something of this seriousness,” Barnum told reporters.

Dimon has also previously attacked stricter capital limits suggested by U.S. regulators.

The topic was also raised last month during a Senate hearing when the CEOs of large banks objected to the Basel III plan, which calls for stricter capital regulations. The bank has already cautioned that if they are put into effect, they might raise JPMorgan’s capital requirements by $50 billion.

The head of the Federal Reserve’s supervisory division stated on Tuesday that the proposal may need to be modified.

(Adapted from SCMP.com)