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JPMorgan Traders Are Taking Market Share, O’Connor Says

JPMorgan Chase & Co., the most profitable U.S. bank, is taking trading revenue from Goldman Sachs Group Inc. and Bank of America Corp. as investments including its $1.7 billion purchase of RBS Sempra’s commodities business begin paying off, Deutsche Bank AG analysts said.

JPMorgan’s share of total trading revenue among the top five broker-dealers has risen to 24 percent during the first quarter from 21 percent a year before, Deutsche Bank analysts Matt O’Connor and David Ho told clients in a research note after meeting with Chief Financial Officer Doug Braunstein yesterday.

“We came away more confident than ever that share gains in FICC trading are sustainable as management noted that strong relative trading results recently reflect the benefits of investment spend over the past couple of years,” the analysts said, referring to JPMorgan’s fixed-income, interest-rate, currency and commodities trading unit.

Goldman Sachs, which had 26 percent of the trading market last March, and Bank of America, which had 21 percent, both lost ground to JPMorgan, according to Deutsche Bank’s data. Goldman Sachs’s market share fell to 24 percent, while Bank of America’s dropped to 19 percent. Run by Chief Executive Officer Jamie Dimon,

JPMorgan is already seeing higher revenue from individual clients from investments in its capital markets business, O’Connor and Ho wrote.

First-quarter net income for the New York-based bank climbed to a record $5.56 billion. Almost 43 percent of that profit came from the investment bank, where earnings fell 4 percent to $2.37 billion from a year earlier. Fixed-income and equity markets revenue, where trading results are reported, was $6.6 billion, or 81 percent of the investment bank’s revenue in the first quarter.

Proprietary Trading Restrictions

Regulatory restrictions on proprietary trading and international capital rules won’t result in a “meaningful” loss in revenue for the second-largest U.S. bank by assets, O’Connor and Ho said. They reiterated their “buy” recommendation on the stock and raised their 12-month price target to $54 from $52 a share. JPMorgan fell 87 cents to $43.13 at 4:15 p.m. in New York Stock Exchange composite trading.

Expenses will remain high and JPMorgan’s mortgage book has cost the company $22 billion since 2009, averaging $3 billion to $4 billion a quarter, according to the note. Braunstein said “additional mortgage hits were likely and could linger for another 12 to 24 months,” O’Connor and Ho said. They estimated the company will take another $3 billion in mortgage-related litigation charges this year and again in 2012, “although our bias is they could be higher.”

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