JPMorgan expects $3bn boost from First Republic deal

New York  — JPMorgan Chase expects its net interest income to rise by $3bn in 2023 due to its purchase of failed First Republic Bank, according to a presentation published ahead of its investor day on Monday.

The largest US lender agreed to take into its books $173bn of the failed bank’s loans, $30bn of securities and $92bn of deposits after First Republic was shuttered by authorities earlier in May.

The Wall Street giant is integrating First Republic, which is likely to take about 12 months.

JPMorgan said it remains optimistic about the purchase as it emerged as one of the biggest beneficiaries of the recent banking crisis due to an influx of deposits from customers who sought safety in larger institutions.

First Republic was the third US regional lender to fail since March in a sector-wide upheaval that roiled financial stocks, deepened worries of a crisis and heaped pressure on mid-sized banks.

The bank failures revealed cracks in balance sheets as rising interest rates eroded values of debt portfolios and worsened commercial real estate loans.

Economists have cautioned that a US default could trigger a market sell-off, a surge in borrowing costs and a blow to the global economy that could rival the 2008 crash.

JPMorgan president and COO Daniel Pinto said while the global economy is doing fine at the moment it is showing signs of deterioration.

The lender said it expects expense growth at low- to mid-single digits in the medium term and restated its 17% target for return on tangible common equity (ROTCE) — a key metric that measures how well a bank uses shareholder money to produce profit.

Wells Fargo analysts led by Mike Mayo said the bank’s presentation reflects the “Goliath is winning” theme. “The slides reflect benefits of scale given its aim and ability to generate superior ROTCE on one of the highest capital levels among big banks,” the brokerage said in a note.

Reuters