Market turbulence weighs on JPMorgan fixed income revenues

CEO Jamie Dimon warns of impact of US government shutdown on economy

JP Morgan Chase & Co, America’s biggest bank, reported a 16 per cent decline in fixed income trading revenues for the fourth quarter, less than the drop its rival Citigroup reported this week

JP Morgan Chase & Co, America’s biggest bank, reported a 16 per cent decline in fixed income trading revenues for the fourth quarter, less than the drop its rival Citigroup reported this week

 

Turbulent markets caused a sharp fall in bond and currency trading revenue at JPMorgan Chase as its chief executive Jamie Dimon warned that the US government shutdown could create more challenges by bringing the economy to a standstill.

Appealing to America’s leaders to work together “to strike a collaborative, constructive tone”, Mr Dimon said political deadlock in Washington could cost the US economy and the bank dearly.

“If it goes on for the whole quarter, it can reduce growth to zero,” he said of the potential economic impact of the three-week-old shutdown. “We just have to deal with that, that’s more of a political issue than any of that. It is what it is.”

America’s biggest bank reported a 16 per cent decline in fixed income trading revenues for the fourth quarter, less than the drop its rival Citigroup reported this week. The weak trading volumes meant JPMorgan’s results missed analysts’ expectations for the first time in four years.

“One quarter is definitely not a trend,” chief financial officer Marianne Lake told reporters about the fixed income performance. “This is a business that is delivering meaningfully above the cost of capital returns for us, we’re committed to the full franchise...There is nothing at this point we need to react to.”

There has been a “decent start to January with normal seasonal strength”, she added, while cautioning that it was very early to call how trading revenues would shape up in a quarter that began only two weeks ago.

Mr Dimon downplayed the trading decline, saying he was “totally happy” with the quarter. “We’re not immune from the weather, volume and volatility, assets prices, markets going up and down,” he said. “I really don’t pay much attention [to short term turmoil]...volumes are lower in the last three weeks in December, I honestly couldn’t care less.”

JPMorgan increased net income by 34 per cent on an underlying basis in the fourth quarter to $7.07 billion (€6.15 billion), short of the $7.49 billion predicted by analysts who submitted forecasts to S&P Global Intelligence.

“A rare earnings miss from JPMorgan, in fact the first since 2014,” said Brian Foran, banks analyst at Autonomous, pointing to “weak fees with little compensation offset” and a “bigger than expected reserve build” as two of the key issues.

Revenues rose to $26.8 billion on a managed basis, coming in just shy of expectations. Staff pay across the bank rose 4 per cent in the quarter. Ms Lake said there was a “modest” cut in pay at the investment bank due to the markets’ result.

Provisions for credit losses increased $240 million to $1.5 billion across the group, partly driven by growth in its credit card business. Investments in technology were cited as one of the reasons for a 7 per cent rise in the bank’s non-interest expense. Mr Dimon said the bank was adding “good costs” and “nothing will stop us from doing that”.

Glenn Schorr, analyst at Evercore ISI, said he would “caution to not overreact too much as revenues were mostly OK and in line”. Shares in the bank recovered early losses to trade up 1.3 per cent.

JPMorgan’s consumer and community bank increased revenues by 13 per cent year on year to $13.7 billion, and Mr Dimon said the bank was seeing “terrific results” from its 10 new branch openings.

The bank’s Chase consumer brand recently opened branches in new states for the first time in almost a decade, under a $20 billion investment plan announced in the wake of America’s corporate tax cut.

Its corporate and investment bank suffered a 4 per cent fall in net revenues for the quarter versus a year earlier and a 15 per cent fall in net income, dragged down by its fixed income trading decline. JPMorgan still outperformed Citigroup, which said on Monday that its fixed income revenues fell 21 per cent in the quarter.

JPMorgan’s quarterly investment banking revenue was up 3 per cent year on year to $1.8 billion, as a 38 per cent jump in advisory revenues more than compensated for an 18 per cent fall in debt underwriting fees and a 4 per cent fall in equity underwriting.

Commercial banking revenues fell 2 per cent year on year, while asset and wealth management revenues fell 5 per cent on the same basis.

The bank’s quarterly net income rose 67 per cent year on year on a reported basis, but was up 34 per cent on an underlying basis after stripping out a $2.4bn technical write-off the bank took last year as a consequence of US president Donald Trump’s tax cut.

– Copyright The Financial Times Limited 2019