XP to Grow ‘Less Aggressively’ Amid High Rates, CFO Says

Key Takeaway

• XP Inc. projects slower retail revenue growth due to high interest rates, with Q1 retail revenue at $611 million, close to estimates.
• JPMorgan raises 2024 NII forecast to $91 billion, expecting only two Fed rate cuts this year; shares rose 0.8%.
• JPMorgan's expense guidance increased to $92 billion, including a $1 billion donation; management changes announced amid Basel III Endgame concerns.

XP Inc. Retail Revenue Growth

Brazilian investment firm XP Inc. has reported that its retail revenue and net new money are expected to continue growing, albeit at a slower pace than previously anticipated. Chief Financial Officer Bruno Constantino highlighted that high interest rates and reduced risk appetite are influencing these projections. Speaking at a press conference about the company’s first-quarter results, Constantino noted, “High interest rates will remain with us a little longer, and this brings many opportunities for the world of fixed income.”

For the first quarter, XP Inc.'s retail revenue reached 3.13 billion reais ($611 million), which was close to the consensus estimate of 3.22 billion reais ($629 million). The firm’s fixed income division saw a significant increase, with revenue jumping 112% from the previous year to 704 million reais ($137 million). Constantino emphasized that a more favorable scenario for stocks could positively impact results, but until then, the company will focus on controlled growth and efficient expense management.

JPMorgan Raises NII Guidance

JPMorgan Chase & Co. has revised its forecast for this year’s net interest income (NII), now expecting to generate $91 billion in 2024, up from the previous forecast of $90 billion. This adjustment comes as the bank anticipates the Federal Reserve will lower interest rates at a slower pace than initially predicted. The company now expects just two rate cuts this year, down from six projected in January. Shares of JPMorgan rose 0.8% in early New York trading following the announcement.

The bank has benefited from rising interest rates over the years, but with inflation still high and the Fed holding off on lowering borrowing costs, there is a shift in customer behavior. Customers are pulling back on loan demand and moving their cash to higher-yielding alternatives, putting pressure on NII. Despite this, JPMorgan reported $23.1 billion in NII for the first quarter of 2024, an 11% increase from the previous year, although it was the first time in seven quarters that the bank did not report a record haul for this metric.

Management Changes and Expense Guidance

JPMorgan has recently undergone a series of management changes, with Jenn Piepszak and Troy Rohrbaugh named co-heads of a commercial and investment-banking unit, and Marianne Lake taking sole leadership of the consumer arm. Additionally, the company has raised its expense guidance for the year to $92 billion, reflecting a $1 billion donation to the JPMorgan Chase Foundation. This contribution, tied to the firm’s exchange of Visa Inc. shares, will pre-fund donations to the foundation for the next several years.

The bank also provided details on potential impacts from proposed changes to capital requirements for big banks under the Basel III Endgame. JPMorgan indicated that two-thirds of consumers might have to pay a monthly service fee for their checking accounts if the proposals are implemented, although this does not reflect the bank’s current plans. CEO Jamie Dimon has called the proposals “hugely disappointing,” and the firm expects “broad and material changes” to the capital requirements, though the specifics remain uncertain.

Management Quotes

• Bruno Constantino, CFO of XP Inc.:

  "High interest rates will remain with us a little longer, and this brings many opportunities for the world of fixed income."
  "Until this happens, we will continue to grow at less aggressive rates than we could grow and efficiently control our expenses."