JPMorgan’s Dimon Sees Banks Hurt by Emerging Market DropMichael J. Moore
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon praised his traders’ handling of a plunge in emerging-market assets last month and cautioned that other banks may not have fared as well.
“Our folks in emerging markets also did a spectacularly good job, because I think you might see some real differentiation there from some other folks on how their numbers come out,” Dimon said today on a conference call with analysts after the New York-based bank reported second-quarter earnings. “Obviously, when spreads widen out, certain businesses are more at risk than others. In emerging markets, we probably saw the most volatility.”
Risk premiums on emerging market debt widened after Federal Reserve Chairman Ben S. Bernanke indicated the central bank might taper its $85 billion in monthly bond purchases, which have boosted demand for higher yielding assets. Prices of emerging-market government and corporate bonds fell 6.23 percent in the quarter, according to Bank of America Corp. data.
Stocks also fell as manufacturing in China contracted and protests erupted in Brazil and Turkey. The MSCI Emerging Markets Index dropped 16 percent from May 21 to June 24.
JPMorgan, whose emerging-markets trading is overseen by London-based James Kenny, generated $4.08 billion in revenue from fixed-income trading during the quarter, up 17 percent from a year earlier. That topped the 5 percent increase expected by Deutsche Bank AG analyst Matt O’Connor and the 4 percent rise predicted by Wells Fargo & Co.’s Matt Burnell. Equity-trading revenue rose 24 percent from a year earlier to $1.3 billion.
While Dimon warned about divergence among banks’ trading performance, some analysts took the firm’s better-than-expected revenue as a good sign for the industry, including Goldman Sachs Group Inc., which reports results on July 16.
“Traders know how to manage money in a volatile fixed-income environment -- nothing really blew up,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said on “The Hays Advantage” Bloomberg Radio program. “So I’m optimistic about Goldman going forward, because if Jamie did well, this is usually a good sign that the other trading house did well.”
JPMorgan’s results in June weren’t as strong as those in April and May, Chief Financial Officer Marianne Lake said. That month featured declines in the Standard & Poor’s 500 Index and corporate and Treasury bonds after Bernanke said the Fed would consider cutting back stimulus efforts if economic growth improves.
The bank’s value-at-risk, an estimate of potential trading losses, fell to $40 million in its corporate and investment bank during the quarter, the lowest since JPMorgan bought Bank One Corp. in 2004. The drop in the measure, which climbed in June, was driven by lower volatility in asset prices and a reduction in JPMorgan’s own risk appetite, Lake said.
“The client flows, they held up,” Lake said on the call. “So if you surround that with robust and strong trading risk discipline, that’s pretty much how it panned out.”