JPMorgan shares fall after it reins in expectations for next year

Gabby Jones/Bloomberg

JPMorgan Chase shares took a dip Tuesday, falling by 7% at some points, after the bank implied that analysts were overly optimistic about its 2025 performance.

President and Chief Operating Officer Daniel Pinto cautioned that analysts' expectations for the $4 trillion-asset bank's revenue and expenses next year are "not very reasonable," as interest rate cuts weigh on the company's interest income and costs continue to rise as a result of inflation.

Though Pinto said the consensus estimates for 2025 — $90 billion in net interest income and $93.7 billion on expenses — are off, he declined to offer JPMorgan's own projections. In 2024, the bank is on track to collect about $91 billion of net interest income, and it will likely spend about $92 billion on expenses.

Pinto explained that as rates fall, the bank's loans are expected to reprice more quickly than its deposits.

He added that the bank's expenses will be higher than they are in Wall Street's calculations because inflation is still impacting JPMorgan's investments. The bank is spending on its technology, where a costly "big agenda" will lead to future growth, Pinto said.

JPMorgan, which last year saw investments in artificial intelligence drive about $1.5 billion in value, will see the technology add closer to $2 billion in benefit this year, Pinto said.

"So the process of modernization of the technology stack — going to the cloud, going to the new data centers, refactoring applications, having a technology stack that is modern and effective and efficient that allows us to deliver more with the dollars of investment — that agenda requires a lot of work," Pinto said. "We've made a huge amount of progress, but it's still a long way to go."

Samuel Corum/Bloomberg

The unexpected update on 2025 came as Pinto reiterated the company's 2024 guidance.

Scott Siefers, an analyst at Piper Sandler, wrote in a note that most other banks' mid-quarter updates have been more benign than JPMorgan's was, though the other banks have had less to say about their expectations for next year.

"While we understand the negative knee-jerk reaction, the swoon seems overdone," Siefers wrote in reference to JPMorgan's stock price decline on Tuesday. Piper Sandler maintained its "overweight" rating on the bank.

Despite Tuesday's wobble, JPMorgan's stock price is still up nearly 20% for the year. Its stock price trades at a premium, according to Siefers, who said that the company has been a top performer so far this year.

"Thus, it stands to reason that some uncharacteristic negative guidance would be poorly received," he wrote. "Nevertheless, from our standpoint, the outlook from management is likely conservative."

JPMorgan's share price closed down 5.2% Tuesday even though the Federal Reserve signaled early in the day that its long-awaited proposal for bank capital requirements will be far milder than previously anticipated.

Fed Vice Chair for Supervision Michael Barr offered an update about the so-called Basel III endgame rules, saying that the number of banks to be impacted will be smaller than under the central bank's previous proposal, and the overall capital requirement will be nearly half what it was before.

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The Fed's proposal, written in partnership with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, has been a major point of contention in the industry, especially among megabanks like JPMorgan.

Still, the potential capital relief didn't protect JPMorgan's stock price from its largest single-day drop since April 2020.

Many other banks also saw their stock prices fall on Tuesday. Ally Financial recorded a 17.6% price drop, Capital One had a 3.2% decline, Goldman Sachs' share price fell 4.4% and First Citizens BancShares' dipped by 3.9%.

Two already-beleaguered banks — New York Community Bancorp and First Foundation — saw further stock price drops of 7.8% and 7.1%, respectively.

The KBW Nasdaq Bank Index was down 1.8% on Tuesday.