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Is JPMorgan (JPM) Stock Likely to Have Impressive 2024 Too?
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JPMorgan’s (JPM - Free Report) shares have rallied 24% this year, significantly outperforming the industry’s rise of 10.2% and the Zacks Finance sector growth of 14.1%. This also marks a turnaround from dismal 2022 performance, wherein the stock lost 15.3%.
So, what led to the reversal?
This year started on a positive note on the back of the Federal Reserve’s monetary tightening to control ‘sticky’ inflation. Nonetheless, the early March regional banking crisis that led to the fall of three large banks because of deposit flight to higher-yielding investment options was a wake-up call for banks and regulators alike.
The ultra-aggressive pace of rate hikes turned counterproductive for banks that generally perform well in the higher interest rate regime. Though big banks weathered this turmoil better than their smaller regional peers, they, too, faced pressure from rising deposit and funding costs. This, thus, adversely impacted net interest income (NII) and margins.
The bright spot from the crisis for JPMorgan was it acquired First Republic Bank, the third large bank to collapse in 2023, for $10.6 billion. It must be noted that JPM is not permitted to buy another bank because of its size and scale. But this time, these factors helped the company secure the deal.
Following the transaction, JPMorgan’s balance sheet has swelled to almost $3.9 trillion. The deal resulted in increased penetration within the high-net-worth clients and added prime locations in wealthy markets. Recently, at an investor conference call, top management noted that they were able to retain 90% of FRC clients and the integration process is on track.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
While the current higher rate environment is hurting other big banks like Bank of America (BAC - Free Report) and Citigroup (C - Free Report) , JPMorgan (driven by the FRC deal) witnessed robust improvement in NII. In the nine months ended Sep 30, 2023, the company’s NII jumped 40% to $65.2 billion. BAC recorded a 14% rise in NII and the metric for C grew 16% in the same time frame.
Additionally, JPMorgan kept on raising its 2023 NII guidance. Now, the company expects NII to be roughly $88.5 billion, driven by higher rates and slower-than-expected deposit repricing across both consumers and wholesale. Earlier, the company had guided NII to be $87 billion for this year.
Nevertheless, this Zacks Rank #3 (Hold) company believes that the current NII run rate is not sustained as competition for deposits and annual NII is estimated to be near $80 billion over the medium term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Though the latest Summary of Economic Projections doesn’t indicate a recession for the U.S. economy, the growth rate will slow down to 1.4% in 2024. For 2023, the U.S. economy is anticipated to grow 2.6%. Thus, the demand for loans is expected to remain moderate over the next year. This, along with the central bank signaling 75 basis points cut in interest rates in 2024, the company’s NII is not expected to improve much.
JPMorgan is heavily investing in technology, spending more than $12 billion annually. Thus, its expenses keep on mounting. The company’s non-interest expenses witnessed a five-year (ended 2022) compound annual growth rate (CAGR) of 5.3%. Further, the First Republic acquisition is expected to result in $2 billion of post-tax restructuring charges to be incurred this year and in 2024. For 2023, management anticipates adjusted expenses to be approximately $84 billion (including integration-related charges) amid inflationary pressure.
Though some green shoots are visible in the investment banking (IB) business, IB fees are less likely to improve soon. This, along with the volatile nature of the capital markets business and high mortgage rates, will likely hamper JPMorgan’s fee income growth. In the first three quarters of 2023, the metric grew just 14%.
Thus, slowing NII growth, challenging fee income growth and elevated expenses are worrisome.
Yet, one should keep this banking behemoth on the radar due to its scale and leverage in terms of its huge branch network and presence in 48 of 50 states in the United States over other big banks like Bank of America and Citigroup.
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Is JPMorgan (JPM) Stock Likely to Have Impressive 2024 Too?
JPMorgan’s (JPM - Free Report) shares have rallied 24% this year, significantly outperforming the industry’s rise of 10.2% and the Zacks Finance sector growth of 14.1%. This also marks a turnaround from dismal 2022 performance, wherein the stock lost 15.3%.
So, what led to the reversal?
This year started on a positive note on the back of the Federal Reserve’s monetary tightening to control ‘sticky’ inflation. Nonetheless, the early March regional banking crisis that led to the fall of three large banks because of deposit flight to higher-yielding investment options was a wake-up call for banks and regulators alike.
The ultra-aggressive pace of rate hikes turned counterproductive for banks that generally perform well in the higher interest rate regime. Though big banks weathered this turmoil better than their smaller regional peers, they, too, faced pressure from rising deposit and funding costs. This, thus, adversely impacted net interest income (NII) and margins.
The bright spot from the crisis for JPMorgan was it acquired First Republic Bank, the third large bank to collapse in 2023, for $10.6 billion. It must be noted that JPM is not permitted to buy another bank because of its size and scale. But this time, these factors helped the company secure the deal.
Following the transaction, JPMorgan’s balance sheet has swelled to almost $3.9 trillion. The deal resulted in increased penetration within the high-net-worth clients and added prime locations in wealthy markets. Recently, at an investor conference call, top management noted that they were able to retain 90% of FRC clients and the integration process is on track.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
While the current higher rate environment is hurting other big banks like Bank of America (BAC - Free Report) and Citigroup (C - Free Report) , JPMorgan (driven by the FRC deal) witnessed robust improvement in NII. In the nine months ended Sep 30, 2023, the company’s NII jumped 40% to $65.2 billion. BAC recorded a 14% rise in NII and the metric for C grew 16% in the same time frame.
Additionally, JPMorgan kept on raising its 2023 NII guidance. Now, the company expects NII to be roughly $88.5 billion, driven by higher rates and slower-than-expected deposit repricing across both consumers and wholesale. Earlier, the company had guided NII to be $87 billion for this year.
Nevertheless, this Zacks Rank #3 (Hold) company believes that the current NII run rate is not sustained as competition for deposits and annual NII is estimated to be near $80 billion over the medium term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Though the latest Summary of Economic Projections doesn’t indicate a recession for the U.S. economy, the growth rate will slow down to 1.4% in 2024. For 2023, the U.S. economy is anticipated to grow 2.6%. Thus, the demand for loans is expected to remain moderate over the next year. This, along with the central bank signaling 75 basis points cut in interest rates in 2024, the company’s NII is not expected to improve much.
JPMorgan is heavily investing in technology, spending more than $12 billion annually. Thus, its expenses keep on mounting. The company’s non-interest expenses witnessed a five-year (ended 2022) compound annual growth rate (CAGR) of 5.3%. Further, the First Republic acquisition is expected to result in $2 billion of post-tax restructuring charges to be incurred this year and in 2024. For 2023, management anticipates adjusted expenses to be approximately $84 billion (including integration-related charges) amid inflationary pressure.
Though some green shoots are visible in the investment banking (IB) business, IB fees are less likely to improve soon. This, along with the volatile nature of the capital markets business and high mortgage rates, will likely hamper JPMorgan’s fee income growth. In the first three quarters of 2023, the metric grew just 14%.
Thus, slowing NII growth, challenging fee income growth and elevated expenses are worrisome.
Yet, one should keep this banking behemoth on the radar due to its scale and leverage in terms of its huge branch network and presence in 48 of 50 states in the United States over other big banks like Bank of America and Citigroup.