Summary

• JPMorgan Chase reported Q4 earnings above expectations with a 6% rise in profit and 17% rise in revenue.
• The bank's net interest income was $20.3 billion, surpassing estimates, but also made a provision of $2.3 billion for expected defaults.
• Despite this, CEO Jamie Dimon stated that the U.S economy remains strong, but acknowledged potential risks and provided muted guidance for 2023.

JPMorgan Chase on Friday reported fourth-quarter earnings that exceeded expectations, with profit and revenue rising 6% and 17% respectively from the previous year. The bank's net interest income was $20.3 billion, surpassing the StreetAccount estimate by $1 billion, due to higher interest rates and loan growth. This was driven by a 48% increase in interest income as well as an increase in average loans by 6%. However, a $2.3 billion provision for credit losses was made in the quarter, a 49% increase from the previous quarter, in anticipation of expected defaults. This move was driven by a "modest deterioration in the Firm's macroeconomic outlook, now reflecting a mild recession in the central case," as well as loan growth from customers using their Chase credit cards, the bank said. The recession, in which U.S. unemployment could reach 4.9%, is expected by JPMorgan economists to hit in the fourth quarter of this year, CFO Jeremy Barnum told reporters Friday in a media call.

Despite this, CEO Jamie Dimon declared that the U.S economy remains strong, thanks to well-financed consumers and businesses, but acknowledged the various risks such as geopolitical tensions, inflation, and quantitative tightening. He said “We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening,” Dimon said. Quantitative tightening refers to central banks’ moves to shrink their balance sheets by halting or reversing previous bond-buying programs.

JPMorgan, the biggest U.S. bank by assets, is closely watched for clues on how the industry is navigating an economy at a crossroads. Analysts expected a mixed bag of conflicting trends from banks. Higher rates help lenders earn more interest income, but some of that boost was offset by bigger provisions for expected loan losses as the economy slows.

The company also provided some muted guidance for 2023, saying that it expects about $73 billion in net interest income, which implies a decline from levels in the fourth quarter of 2022. And the bank said that expenses will reach about $81 billion this year, up from $75.9 billion in 2022, because of wage inflation, hiring plans, and investments in technology. When pressed about the bank’s ill-fated acquisition of college financial planning platform Frank, Dimon defended his bank’s record on technology spending, but acknowledged it was a “huge mistake.”

Dimon rattled markets last year when he said an economic “hurricane” caused by the Federal Reserve was headed for the U.S. He declined to update his forecast in a media call on Friday. Shares of JPMorgan have climbed 4% this year before Friday, compared with the 6% rise of the KBW Bank Index. The other large retail banks, including Bank of America, Wells Fargo, and Citigroup, also released results Friday, while Goldman Sachs, and Morgan Stanley are scheduled to report Tuesday.