JPMorgan posts surprise drop in fixed-income trading revenue

JPMORGAN Chase reported a surprise drop in fixed-income trading revenue in the third quarter, the first such decline in more than two years.

The fixed-income haul fell 4 per cent from the year-ago period, according to a statement on Tuesday (Oct 13). That brought total trading revenue to US$10.3 billion for the period, while analysts were expecting US$10.5 billion. 

“Large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions continue to shift under the surface,” CEO Jamie Dimon said in the statement. “These forces may be manageable, but we remain prepared for a wide range of outcomes.” 

Still, shares of the company erased earlier losses after JPMorgan said it now expects to earn about US$106.2 billion in net interest income this year, more than the roughly US$105.5 billion it predicted in July, and that its “central case” for next year is about US$107 billion in NII excluding its markets business. Both figures are ahead of analysts’ estimates.

The shares, up 3.8 per cent this year to Monday, rose 1 per cent in early New York trading.

JPMorgan kicked off third-quarter bank earnings on Tuesday alongside Goldman Sachs, Citigroup and Wells Fargo, with Bank of America and Morgan Stanley slated for Wednesday.

Wall Street trading desks are facing fallout from rising interest rates, after the Federal Reserve raised its benchmark rate in September to contain inflation and 10-year Treasury yields approached the highest level in almost a quarter century earlier this month.

Higher yields push down the value of existing debt, which can crimp demand for trading services but boost revenue from lending businesses. 

The 15 per cent climb in total trading revenue and 14 per cent jump in investment-banking fees came in at the lower end of the range the firm telegraphed at an industry conference last month.

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At the time, JPMorgan saw both rising by a percentage in the mid to high teens.

Even so, stock traders notched their best third quarter on record, with a 49 per cent jump from a year earlier to US$4.95 billion. That came in ahead of expectations and marked the latest in a series of bumper quarters for that business. 

JPMorgan’s investment-banking fees were US$3 billion for the quarter, in line with expectations. Fees from advising on mergers and acquisitions beat estimates, while those for equity and debt underwriting fell short.

Dimon said on Bloomberg Television last week that there was “a little bit of a slowdown in September” for the investment-banking business.

The results also included US$658 million of net investment securities losses that Dimon called “discretionary” in the statement.

JPMorgan’s NII for the third quarter came in at US$27 billion, above estimates. Expenses for the quarter were US$27.3 billion, more than expected, and the bank lifted its full-year adjusted expense guidance to about US$108.6 billion, above the US$107.5 billion executives expected in July. 

The firm increased its pile of money set aside for potentially soured loans by US$539 million. That reserve build was primarily tied to the wholesale business and “predominantly driven by net lending activity and changes in the credit quality of certain exposures”, according to the statement. BLOOMBERG