JPMorgan, BofA trading revenue on pace to drop at least 10%

Bank of America said revenue from the business will be 10 per cent to 12 per cent lower, though first-half results should be stronger.
Bank of America said revenue from the business will be 10 per cent to 12 per cent lower, though first-half results should be stronger.PHOTO: AFP

NEW YORK (BLOOMBERG) - JPMorgan Chase and Bank of America, the two biggest United States banks, said second-quarter trading revenue is on pace to drop at least 10 per cent because tranquil markets are curbing demand.

Bank shares slid after the revenue updates and led the Dow Jones Industrial Average lower. Markets revenue at JPMorgan was down about 15 per cent in April and May from a year earlier, driven by a slump in fixed income, chief financial officer Marianne Lake said Wednesday at an investor conference in New York. At Bank of America, revenue from the business will be 10 per cent to 12 per cent lower, though first-half results should be stronger, CEO Brian Moynihan said at a separate event.

A top Goldman Sachs Group executive agreed that clients' trading remains "subdued", while, on Thursday in Beijing, Morgan Stanley CEO James Gorman indicated his firm is seeing a similar trend.

Analysts at JPMorgan warned this month that revenue at the world's biggest investment banks is likely to drop in the second quarter because of the decline in fixed income. The United Kingdom's exit from the European Union and Donald Trump's surprise election win had been fueling wagers on corporate bonds and the direction of interest rates over the past year, boosting Wall Street trading results. Those types of stimulants have been more scarce in recent months.

"There haven't been that many idiosyncratic events, and we need a few more of them," Ms Lake said. "As a sweeping generalization, low rates, a more cautious outlook on rates, and low volatility have led to low client flows and a generally quiet, subdued and challenging trading environment."

In rates trading, clients are cautious because of conflicting signs from unemployment and inflation data, Ms Lake said. In corporate bonds, "people have cash but no conviction" as spreads are tight, she said. Equities, corporate derivatives and the prime brokerage were sources of strength in the quarter, she said.

"Client activities, which were more subdued in the first quarter, have in these first two months, continued in a comparable fashion in the second quarter," David Solomon, Goldman Sachs's co-president, said at the same conference, declining to project the impact on the firm's revenue.

Shares of Goldman Sachs fell 3.3 per cent to a six-month low of US$211.26 in New York on Wednesday, while JPMorgan slid 2.1 per cent to US$82.15. The pair were the day's worst performers in the Dow. Bank of America, which isn't in the index, dropped 2.2 per cent to US$22.41.