JPMorgan sees $3 billion net interest income boost from First Republic deal

By Nupur Anand, Lananh Nguyen and Mehnaz Yasmin

NEW YORK (Reuters) – JPMorgan Chase & Co (NYSE:)’s net interest income will rise $3 billion as it brings in more in interest payments from its purchase of failed First Republic Bank (OTC:) this year, according to a presentation for its investor day on Monday.

The largest U.S. lender expects its net interest income to rise to $84 billion from higher interest payments in 2023, increasing an earlier forecast of $81 billion, after it bought First Republic, which was shuttered by authorities this month.

Integration costs from the deal will add $3.5 billion to its expenses this year, adding to an earlier forecast of $81 billion. The Wall Street giant is in the process of integrating the regional lender, which will likely take about 12 months.

JPMorgan said it remains optimistic. 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.

Its shares gained 0.5% on Monday to $139.85.

First Republic was the third U.S. 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 U.S. 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.

JP Morgan President and Chief Operating Officer Daniel Pinto said while the global economy is doing fine, it is showing some signs of deterioration.

Still, U.S. consumers’ finances remain resilient, executives said.

JPMorgan plans to modestly increase its branch footprint, said Jennifer Roberts, its CEO of consumer banking. The lender serves nearly 80 million customers and 5.7 million small businesses and is the first bank to have locations in all of the contiguous 48 U.S. states.

The bank also restated its 17% target for return on tangible common equity – a key metric that measures how well a bank uses shareholder money to produce profit.

Wells Fargo (NYSE:) 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.