Net interest income contracted quarter-on-quarter, and JPMorgan Chase's stock pr

In the first quarter, JPMorgan Chase's net interest income was $23.2 billion, a year-over-year increase of 12%, but a sequential contraction of 4%. This marks the end of a streak where JPMorgan Chase's net interest income set new records for seven consecutive quarters.

Profit growth did not overshadow market concerns about the pressure on JPMorgan Chase's net interest margin.

Earnings report data released on April 12, Eastern Time, showed that for the first quarter, JPMorgan Chase's net profit was $13.419 billion, with sequential and year-over-year increases of 44% and 6%, respectively. The company's net interest income (NII) was $23.2 billion, up 12% year-over-year, but contracted sequentially, marking the first time since 2021.

Following the release of the first quarter financial report, JPMorgan Chase's stock closed down 6.5% on April 12, Eastern Time, the largest single-day drop since June 2020.

Looking at the full year, JPMorgan Chase estimates that in 2024, net interest income will be around $90 billion.

The pressure on net interest margins is not unique to JPMorgan Chase. Earnings report data released on the same day, April 12, Eastern Time, showed that for the first quarter, Wells Fargo's net interest income was $12.2 billion, a year-over-year decrease of 8.3%, slightly below the analyst expectation of $12.3 billion.

As a result, the KBW Nasdaq Bank Index fell by 1.5% during trading on April 12, Eastern Time, and has fallen by 6.5% this month. This reflects investors readjusting their expectations that the banking industry may perform better when interest rates are declining. On the same day, the stock prices of Citigroup and Wells Fargo also fell.

Xinkota, a senior analyst at Gain Capital Group, stated that although JPMorgan Chase's operating revenue and net profit for the first quarter exceeded expectations, the performance guidance for net interest income was below expectations, leading to a drop in its stock price.

However, looking at the longer term, in a high-interest-rate environment, JPMorgan Chase has been quite profitable. As of April 11, Eastern Time, JPMorgan Chase's stock price has risen by 14.9% this year.Net Interest Income Hits a New Quarterly High and Then Levels Off

Financial report data indicates that in the first quarter, JPMorgan Chase's net interest income (NII) reached $23.2 billion, a year-on-year increase of 12%, with a 4% sequential contraction, marking the first time since 2021. This concludes the seven-quarter streak of setting new highs for JPMorgan Chase's net interest income.

Looking at the full-year perspective, JPMorgan Chase anticipates that for 2024, net interest income will be around $90 billion, which is essentially in line with previous statements.

Net interest income is a key indicator of a bank's profitability, reflecting the difference between the earnings generated by a bank's assets and the costs incurred to attract funds (including deposits).

The pressure on net interest income is due, in part, to the narrowing gap between the interest earned on loans and the interest paid on deposits as the Federal Reserve's rate hikes near their end. Many banks have stated that higher rates have forced them to pay higher deposit rates, but their core loan income is expected to decrease in 2024, and this pressure does not seem likely to ease soon.

From the deposit side, in the first quarter, JPMorgan Chase paid a deposit rate of 2.85%, higher than the 1.85% of the same period last year. From the loan side, although stronger loan growth can offset higher deposit costs, higher interest rates can also dampen loan demand. In the first quarter, JPMorgan Chase's average loan balance decreased sequentially.

This is not unique to JPMorgan Chase. In the first quarter, Wells Fargo paid a deposit rate of 2.34%, almost double that of a year ago. For Citibank, this figure was 3.7%. Over the same period, Wells Fargo's average loan balance also decreased sequentially.

On the other hand, there has been a decrease in deposit balances in consumer banking. JPMorgan Chase's Chief Financial Officer, Barnum, stated that customers are moving more funds to accounts with higher savings rates, eroding the bank's lending profits. Against the backdrop of high U.S. interest rates, the yields on certificates of deposit, Treasury bills, and money market products are higher.

This has caused market concerns that the substantial profits JPMorgan Chase has reaped from the high-interest-rate environment over the past two years may be leveling off. Data shows that JPMorgan Chase, Wells Fargo, Citibank, and Bank of America's net interest income for the entire year of 2023 reached $253 billion, a 19% increase from the total of 2022.The interest rate environment is a key factor affecting net interest margins. As JPMorgan Chase's net interest margin comes under pressure, the US interest rate environment is also expected to change.

Previously, the market widely anticipated that the Federal Reserve would cut interest rates three times in 2024, with the first cut possibly in June. However, the latest data from the US Department of Labor shows that US inflation has not yet stabilized, which implies that the Federal Reserve may not start the rate-cutting process too early.

Affected by this, the yield on the 2-year US Treasury note, which is closely related to interest rate expectations, has soared to nearly 5%. The latest data from the Chicago Mercantile Exchange's FedWatch shows that the market's bet on the Federal Reserve cutting rates at the June meeting has fallen below 20%, with the first cut likely to come in September.

JPMorgan Chase's CEO, Jamie Dimon, has even warned that under inflationary pressure, US interest rates could reach 8% or higher.

Investment banking income exceeds analysts' expectations.

With net interest margins under pressure, mid-sized and small banks face greater pressure than large banks. This is because the latter have more diversified sources of income, as well as investment banking and wealth management businesses.

In response, the capital market has reacted. In the 12 months of the previous high-interest-rate environment, the KBW Bank Index rose by more than 20%, while the regional bank index only rose by 6%.

As for JPMorgan Chase, in the first quarter, its investment banking business income reached $2 billion, exceeding analysts' expectations.

Some analysts believe that although the recovery of the IPO business will take some time, the prosperity of the debt market on Wall Street in the first quarter has increased the revenue of investment banking businesses for major banks. As of March 27, the financing amount of US investment-grade corporate bonds in the first quarter reached $529.5 billion, surpassing the historical high of $479 billion set in the first quarter of 2020.

At the same time, in the Asia-Pacific region, investment banks are also seeking new ways out. Many market participants believe that the trading prices of many companies listed in Hong Kong, China, are currently lower than those in Europe and America. Investors may take this opportunity to conduct more mergers and acquisitions and privatization transactions, which could provide new business opportunities for investment banks.Looking at other business segments, JPMorgan Chase's retail banking revenue grew by 7% in the first quarter. Both equity and fixed income trading businesses performed better than expected.

JPMorgan Chase paid a special fee of $725 million to the Federal Deposit Insurance Corporation (FDIC) due to the bank failures in 2023, compared to a special fee of $2.9 billion in the previous quarter.

Additionally, JPMorgan Chase reported a provision for credit losses of $1.88 billion for the first quarter, significantly lower than the analysts' expectation of $2.7 billion, with a sequential and year-over-year decrease of 32% and 17%, respectively.

Dimon cautioned that, while many economic indicators continue to be favorable, it is important to remain vigilant about several significant uncertainties. First, geopolitical tensions are increasing. Second, ongoing inflationary pressures may persist. Third, the unprecedented quantitative tightening is taking place.