Global investment banks may see revenue drop 19%, J P Morgan says

Revenue from equities trading may drop 20 per cent in that period instead of 16 per cent.
Revenue from equities trading may drop 20 per cent in that period instead of 16 per cent.PHOTO: AFP

LONDON (BLOOMBERG) - Global investment banks may see revenue drop 19 per cent in the third quarter, lowering earnings per shares across the industry, as a surge in volatility caused by turmoil in China recedes, according to analysts at JPMorgan Chase & Co.

"Recent strong turnover, especially in equities, could decline materially once markets settle - not just in Asia but globally," analysts led by Kian Abouhossein wrote in a report on Thursday.

"Although volatility is good for investment banks," it "could impact deal completion in the third quarter and potentially the fourth quarter," they wrote, when cutting their estimates for earnings-per-share by an average of 2 per cent to 3 per cent through 2017.

China has roiled markets around the world in the past two months after poor economic data fed fears its economy is slowing more than expected, leading to a crash in domestic shares that wiped out almost US$4 trillion (S$5.6 trillion) of value. The country also staged a shock devaluation of the yuan and intervened in the stock market. China is now shutting down its exchanges and banks until Monday to commemorate the 70th anniversary of Japan's World War II defeat, giving investors and bankers four days of respite.

At the world's top investment banks, excluding Goldman Sachs Group Inc., revenue from fixed income, currencies and commodities trading will fall 18 per cent in the third quarter from the second instead of a previously projected 14 per cent, with "currencies expected to be the best-performing asset class followed by rates and credit," the analysts wrote.

Revenue from equities trading may drop 20 per cent in that period instead of 16 per cent, according to the note.

At UBS Group AG, analysts' top pick of the global trading and advisory firms, earnings per share will be 3 per cent lower on average through 2016, driven by lower equity and corporate advisory revenues, according to the report. At Goldman Sachs and Morgan Stanley, estimates for earnings per share were also cut by 3 per cent for 2015, with with Deutsche Bank AG's and Barclays Plc's forecasts down 2 per cent and 1 per cent, respectively.

"We prefer cash equity and macro geared investment banks," the analysts wrote in the report, when citing UBS and Deutsche Bank.