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A sign outside the headquarters of JPMorgan Chase & Co, in New York, on Sept. 19, 2013.Mike Segar/Reuters

JPMorgan Chase JPM-N reported its best-ever annual profit and forecast higher-than-expected interest income for 2024, even as its quarterly profit fell.

The largest U.S. lender also took a nearly $3 billion charge to replenish a government deposit insurance fund.

JPMorgan benefited from its acquisition of failed First Republic Bank in May, which brought in billions of dollars of loans and bolstered its net interest income (NII) – the difference between what banks make on loans and pay out on deposits.

The bank expects full-year net interest income (NII) of $90 billion. That was higher than estimates of $86.2 billion, according to LSEG data. In the quarter, NII rose 19% to a record of $24.2 billion.

Shares hit record-high after markets open but corrected during trading hours and were flat.

CEO Jamie Dimon reiterated his view that the U.S. economy was steady, but warned that inflation could be more persistent than expected and rates higher for longer.

“The U.S. economy continues to be resilient, with consumers still spending, and markets currently expect a soft landing. It is important to note that the economy is being fuelled by large amounts of government deficit spending and past stimulus,” Dimon said.

Despite the dip in quarterly profit, analysts cheered the results.

“They had a really good 2023 so it will be difficult to repeat that but they have been building their reserves, focusing on capital and working at keeping the fortress balance sheet that way while remaining cautious but constructive,” said Stephen Biggar, an analyst at Argus Research.

The pipeline for its investment banking unit is “robust” due to a more dovish interest rate environment, Chief Financial Officer Jeremy Barnum said, but warned of persisting uncertainty which could affect its pipeline as headwinds remain.

Despite global M&A activity falling to a decade low last year, some signs of recovery appeared in the fourth quarter as industry-wide deal volumes climbed 19%, according to Dealogic.

Investment banking fees climbed 13% in the quarter, helped by strong equity and debt underwriting fees. Fixed income markets revenue also rose 8%.

Profit for the fourth quarter was $9.31 billion, or $3.04 per share, for the three months ended Dec. 31, the bank said on Friday. That compares with $11.01 billion, or $3.57 per share, a year earlier. Annual earnings hit a record $49.6 billion.

The bank reported a 12% jump in revenue to $38.57 billion.

JPMorgan and several major banks are taking a hit to their quarterly profits as they are required to pay a bulk of the $16 billion to replenish the Federal Deposit Insurance Corporation’s deposit insurance fund (DIF), which was drained after Silicon Valley Bank and Signature Bank failed last year.

“Overall, another solid quarter from JPM, as the firm utilized abnormally low credit costs to slightly reposition its securities portfolio and absorb the expected FDIC charges,” David George, analyst at Baird Equity Research, said in a note.

Average deposits were flat compared with the prior quarter. Depositors have moved their money out of banks in search of higher-yielding alternatives like money market funds and this trend is likely to continue even in a low-rate environment, Barnum warned.

U.S. consumer finances remain largely healthy, the bank said adding that consumer credit metrics across the portfolio had “normalized.” Net charge-offs – debt owed to a bank that is unlikely to be recovered – increased to $2.2 billion in the fourth quarter.

Even though overall loan growth is expected to remain muted, improvement in credit cards is expected to continue but not at the same pace as in 2023, said Barnum.

The CFO once again highlighted that the draft regulations on capital could prompt lenders to pull back and stymie economic growth and also suggested that taking action against banking regulators could be considered.

“We’re not going to get that specific about potential litigation strategy at this point. But obviously, you know, suing your regulator is never your preferred option. But it can’t be taken off the table when you’re talking about something of this seriousness,” Barnum told reporters.

Dimon has also previously blasted stricter capital rules proposed by U.S. regulators.

The issue also came up at a Senate hearing last month, when big bank CEOs rejected the proposals for more onerous capital rules known as the Basel III endgame. If implemented, they could increase JPMorgan’s capital requirements by $50 billion, the bank has warned previously.

Federal Reserve officials are considering possible adjustments to the proposal, the central bank’s supervision chief said on Tuesday.

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