JPMorgan Trading Revenue Drops 20% This Year in Global Rout

The Takeaways From JPMorgan's Annual Investor Conference
  • Investment bank chief Daniel Pinto comments at investor day
  • Revenue from advising on corporate takeovers `is holding well'

JPMorgan Chase & Co.’s investment bank said revenue from sales and trading has tumbled about 20 percent this year, providing an early gauge of the pain inflicted on Wall Street’s biggest firms by the global market rout battering investors.

The drop from a year earlier also was exacerbated by the Swiss franc’s surge in January 2015, which boosted revenue at the time, the division’s chief, Daniel Pinto, said Tuesday at the bank’s annual investor conference in New York. This quarter, lower earnings from debt and equity capital markets underwriting may contribute to a 25 percent decline in the division’s fee revenue, he said. In a filing, the bank said its securities services unit for institutional investors will probably see revenue slip about 6 percent to $875 million.

“There is no doubt that it so far has been a very tough quarter,” Pinto said. Still, revenue from advising on mergers and acquisitions “is holding well,” he said.

The first quarter is typically the strongest for Wall Street investment banks, as clients shift holdings. This time, the rout is prompting investors to pull back from markets and firms such as Jefferies Group to signal weaker earnings from the business of helping companies issue and sell securities. Shareholder concerns that cheap oil and slowing growth in China will erode bank profits have contributed to a 13 percent slide in the 89-company Standard & Poor’s 500 Financials Index this year.

JPMorgan’s stock fell 4.2 percent to $56.12 in New York, the second-worst performance in the Dow Jones Industrial Average. Shares of the bank slid after it projected potential losses on loans if oil continues to slump.

Dimon Bullish

Chief Executive Officer Jamie Dimon, taking the stage after Pinto, pointed to signs that earnings may improve: The firm is gaining investment banking market share in Europe, has a couple of big deals in the works and a backlog of initial public offerings. It’s “very possible” for the market to do better in March, he said.

Dimon, 59, plowed $26.6 million of his own fortune into buying more of the bank’s stock this month after it fell below $54, the lowest in more than two years. On Tuesday, he said he would snap up the shares “all day long” at $48.

U.S. financial stocks have declined more than any other major industry this year on concern that credit costs are increasing because of exposure to energy companies. JPMorgan said it would need to boost reserves for impaired energy loans by $1.5 billion if oil prices hold at about $25 a barrel over 18 months. In a presentation, the firm estimated its first-quarter increase to reserves for oil and gas will be about $500 million, bringing the total set aside to $1.3 billion.

Credit-card issuers including JPMorgan also face mounting pressure to outbid one another to protect and win partnerships with big merchants -- deals that can help fuel future income from lending and fees. The bank estimated that extending such agreements with other companies will erode revenue by about $900 million this year. It has recently renewed deals with partners including Amazon.com Inc. and Southwest Airlines Co.

“Cards will not be as big a contributor to earnings growth at JPMorgan as I had originally expected,” as margins are squeezed by the partnership negotiations, Charles Peabody, an analyst at Portales Partners LLC, said in an e-mail.

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