By Steve Gelsi
JPMorgan Chase & Co. no longer plans to include its Markets unit in its overall outlook for net interest income, throwing a curve at analysts.
The move by the bank came in its fourth-quarter update on Friday as it reported an 11% drop in revenue in its Markets unit to $5.3 billion, including a 16% slide in fixed-income markets and a 2% drop in equity markets revenue.
JPMorgan said it expects 2022 net interest income (NII) of about $50 billion, while the Wall Street target at the time was $55.7 billion, according to FactSet. The number appeared to be a clean miss of consensus analyst projections. But on the call with analysts, the firm emphasized that the estimate did not include net interest income from its Markets unit for the first time.
The stock /zigman2/quotes/205971034/composite JPM +0.89% dropped 3.8% toward a five-month low in morning trading Tuesday, after falling 6.2% on Friday after the fourth-quarter report.
A spokesperson for JPMorgan Chase told MarketWatch that the firm will no longer include its Markets business in its net interest income outlook estimates going forward.
UBS analyst Erika Najarian said in a note on Tuesday that JPMorgan Chase’s $50 billion estimate for net interest income turned out to be “unnecessarily confusing and complex.”
After interpreting additional comments on the firm’s quarterly call and other numbers in its earnings supplement, it’s more likely that JPMorgan will report 2022 net interest income of about $58 billion, which would beat the latest projection of about $55.7 billion, Najarian concluded.
JPMorgan’s higher outlook on 2022 expenses was a negative, she noted, with the bank expecting $77 billion, ahead of the estimate of about $72.5 billion.
Nevertheless, Najarian reiterated a buy rating on JPMorgan and said, “all the near-term ‘bad news’ is out.”
Several analysts on the call asked for clarifications on the bank’s outlook for net interest income.
Explaining the decision to omit the Markets unit in net interest income, JPMorgan CFO Jeremy Barnum said at any given moment, relatively small changes to the mix of the Markets balance sheet “can really change the NII quite significantly” even in an environment of no policy rate changes.
“In terms of Markets NII, the whole point of not guiding explicitly to Markets NII is to avoid getting distracted by the noise there, which can come from a lot of really kind of irrelevant places like interest rate hikes in Brazil and cash versus futures positions, which is the example I like to give,” Barnum said.
Meanwhile, Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS +2.53% on Tuesday missed Wall Street expectations and also notched a drop in its business of trading stocks and bonds, in the vein of both JPMorgan as well as Jefferies Financial Group Inc. /zigman2/quotes/206157580/composite JEF +2.78%
JPMorgan’s stock has slumped 8.7% over the past three months, while the SPDR Financial Select Sector exchange-traded fund /zigman2/quotes/209660484/composite XLF +1.45% has gained 1.0% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.47% has edged up 0.2%.