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Investment bank income seen down 19% in Q3 from rocky markets

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China's slowing economy will suppress global bond yields even as the Federal Reserve considers a rate increase, threatening returns for investors who rely on higher coupon payments, according to JPMorgan Chase & Co and Nomura Holdings Inc.

[LONDON] Investment banks' revenue is likely to drop by almost a fifth in the third quarter from the previous three months as volatile market conditions hurt equities and credit trading and deal activity, analysts at JPMorgan said.

JPMorgan analyst Kian Abouhossein forecast revenue for major investment banks, including Morgan Stanley, Deutsche Bank and Barclays, would fall 19 per cent on average in July-September from the second quarter.

He predicted an 18 per cent drop in fixed income, currencies and commodities (FICC) revenues, a 20 per cent fall in equities trading and a 17 per cent decline in advisory and investment banking fees.

Some market volatility can boost investment banks' revenue by increasing trading activity in foreign exchange, equities, and other products, but concerns about China's economy have led to a spike in volatility and stormy global financial markets in recent weeks that could hurt income.

"Recent strong turnover, especially in equities could decline materially once markets settle - not just in Asia but globally," Mr Abouhossein said in a note for clients.

He said potential defaults could impact spread levels and client activity in credit trading, while volatility could impact deal completion for the rest of this year in advisory and underwriting activity.

Mr Abouhossein cut his earnings per share forecasts for the banks by 2-3 per cent on average for 2015-17.