JPMorgan Sees ‘High Teens’ Decline in Trading Revenue

JPMorgan Chase & Co. (JPM) probably will report a “high teens” percentage drop in fourth-quarter trading revenue from a year ago, Chief Financial Officer Marianne Lake said. The shares fell as much as 2.3 percent.
Most of the revenue decline will stem from the sale of the bank’s physical-commodities business and higher interest costs from the issuance of preferred stock, Lake said today at an investor conference in New York. The “core performance” of the trading business probably will slip 4 percent, she said.
JPMorgan’s projection follows a forecast yesterday from Citigroup Inc. that its trading revenue will slide about 5 percent from a year ago. Bank of America Corp., the second-biggest U.S. bank after New York-based JPMorgan, predicted a decline for the business from both the third quarter and a year ago, without giving an estimate for the size of the drops.
The industry’s revenue from trading stocks and bonds has suffered with the rise of electronic trading and periods of low volatility, as well as new rules that limited bond inventories and restricted firms’ ability to speculate for their own accounts. Trading revenue at the 10 largest global investment banks dropped by $70 billion, or 38 percent, from 2009 to 2013, according to data from industry analytics firm Coalition Ltd.

Photographer: Jin Lee/

Marianne Lake, chief financial officer of JPMorgan Chase & Co., said prospects for... Read More

JPMorgan, the largest trading firm in the world, reported an 11 percent decline in revenue from that business in the first nine months of 2014. The bank generated $14.4 billion from trading in the period, 20 percent of its total revenue.

Cost Cuts

Eight percentage points of the fourth-quarter drop will result from JPMorgan’s previously announced “business-simplification” efforts, which include the sale of physical-commodities units and the firm’s Global Special Opportunities Group investment portfolio, Lake said. That revenue decline of about $300 million will be offset by a cost decrease of a “similar magnitude,” she said.
Five percentage points will be driven by increased interest expense from preferred shares that’s deducted from trading revenue because that business uses them for funding, Lake said. Most other banks don’t include that cost in trading revenue and JPMorgan will “think about changing the way we present that,” she said.
Lake said prospects for 2015, while “respectable,” will continue a “transitional phase” for the company. The trading environment will remain “challenging” next year, she said, adding that total adjusted expenses will decline.
JPMorgan dropped 1.1 percent to $61.40 at 11:03 a.m. in New York, after falling to as low as $61.02 earlier today, the biggest decline on the 24-company KBW Bank Index. (BKX)