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We Care About Debt Trading, Jamie

We know you'd rather forget those underwhelming weeks, but they matter.
Photographer: Marlene Awaad/Bloomberg
At Closing, May 25th
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It's sort of funny that on the same day that Congress held a hearing about fixed-income market structure, JPMorgan Chase & Co. CEO Jamie Dimon delivered these choice words for reporters and analysts:

"Who cares about fixed-income trading in the last two weeks of June? I mean seriously.”

Well, a lot of people do, including regulators, politicians, analysts, Gadfly columnists and not least of all JPMorgan shareholders, all for some legitimate reasons (again, not least of all the bank's shareholders, and Gadfly columnists). 

Dimon obviously wasn't thinking about the House Financial Services Committee hearing but trying to forget his bank's underwhelming trading profits in the second quarter. But the two are somewhat related.

Disappointed Traders

While JPMorgan shares have generally climbed this year, they dropped following second-quarter results

Source: Bloomberg

The trading results that JPMorgan reported on Friday were worse than the bank had indicated in late May, with debt trading coming in below analysts' already muted expectations. Dimon's flippant complaint, said in exasperation, rings of "doth protest too much."

This is a time of uncertain economic growth, persistently low benchmark yields and volatility and increasing standardization in historically lucrative markets. That's an inauspicious mix for debt-trading profits.

Meanwhile, renewed interest in debt-market structure by regulators and politicians will most likely only further crimp bank revenues in this area. Consider that of the five listed speakers Friday in front of the House committee, three of them focus on electronic debt trading -- John Shay, head of fixed income and commodities at Nasdaq; Alex Sedgwick, head of fixed-income market structure and electronic trading at T. Rowe Price; and Matthew Andresen, head of Headlands Technologies LLC. Computer-based marketplaces tend to rely on greater transparency, meaning that it makes it harder for traders to earn large commissions on single trades. (In addition to the hearing, the Securities and Exchange Commission created a new Fixed Income Market Structure Advisory Committee earlier in the week.)

To be clear, JPMorgan isn't exactly hurting, even with debt-trading profits that were 19 percent below those in the same period last year. The firm just reported the best 12-month profit, of $26.5 billion, of any American bank ever. Dimon is right that there's more to banking that just debt trading; his firm posted unprecedented revenue from its commercial bank and higher profit at its asset and wealth-management division.

Debt-Trade Drop

JPMorgan reported a 19% decline in debt-trading revenues for the second quarter of 2017

Source: Company filings

And of course compared with global warming and world hunger and crumbling infrastructures and tensions between nuclear nations, the amount of money someone makes punting around a legally constructed agreement to borrow and lend money seems ... insignificant.

But the $3.22 billion of revenue that this business delivered to JPMorgan in the second quarter isn't. In recent quarters it has accounted for 15 percent of the bank's entire revenue.

It Still Matters

Fixed-income trading is still a significant source of revenue for global investment banks

Source: Bloomberg Intelligence

Debt trading is an important component of both bank earnings and the U.S. financial market. It isn't going to fade quietly into the background for the financial world, regardless of Dimon's little tantrum.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Lisa Abramowicz in New York at labramowicz@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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