JPMorgan Chase & Co., the world’s biggest investment bank by revenue, said Wall Street’s trading slump has deepened and could last through the second quarter.
Fixed-income and equities trading revenue will drop about 20 percent from a year earlier at the New York-based company amid “a continued challenging environment and lower client activity levels,” JPMorgan said yesterday in its quarterly regulatory filing.
Chief Executive Officer Jamie Dimon, 58, was the first head of a major U.S. bank to warn investors this year that trading was down, saying in February that revenue had fallen 15 percent. Continued weakness has spurred analysts including Chris Mutascio of Stifel Financial Corp.’s KBW unit to ponder whether the drop in fixed-income trading might persist through 2014 and beyond.
“It’s an industry phenomenon, and other banks allow JPMorgan to grease the skids for them so there can be a gentle letdown process,” said Charles Peabody, an analyst at Portales Partners LLC.
A 20 percent revenue slide from the $5.37 billion JPMorgan posted in last year’s second quarter would mean results of $4.3 billion this period. That figure, along with the first quarter’s $5.06 billion, would mark the bank’s worst first half in trading since the financial crisis.
The trading division’s actual results will hinge on its performance during remaining months in the quarter, which “can be volatile,” the company said.
Analysts have cited the Federal Reserve’s decision to slow its bond purchasing program for some of the decline, which eroded first-quarter results at the biggest U.S. financial firms from Bank of America Corp. to Goldman Sachs Group Inc.
Morgan Stanley, which is concentrated more on equities than bonds, was alone in registering a trading rise during the first three months of the year. Still, Chief Financial Officer Ruth Porat said she saw continued weakness.
“The volumes that we talked a lot about during the first quarter -- lower activity -- we’re continuing to see that really does persist into the second quarter,” Porat said in a Bloomberg Television interview this week.
JPMorgan gave forecasts on other business units in a new section called “selected outlook items.” The company affirmed that mortgage banking will post a pretax production loss of $100 million to $150 million in the second quarter, driven by higher interest rates. Companywide expenses will be lower than the $59 billion reported last year.
First-quarter profit fell 19 percent to $5.27 billion, driven by a 21 percent tumble in fixed-income trading, JPMorgan said April 11. The stock declined 5 percent this year through yesterday’s close of regular New York trading, compared with a 1.8 percent increase for the Standard & Poor’s 500 Index.
“We can’t predict trading like we can’t predict interest rates,” Chief Financial Officer Marianne Lake said in a conference call with reporters last month. “We’re not going to call a position on the market but we do hope that activity levels will pick back up.”