Shares of JPMorgan Chase & Co. (JPM) have fallen nearly 1.5% since the Morgan Stanley Financial Conference held at New York on Wednesday. There, the company’s Chief Financial Officer (CFO) Marianne Lake stated that in case trading revenues do not rebound as expected, there could be job cuts in the Investment Banking division, with compensation levels going down as well.
Notably, JPMorgan expects second-quarter 2014 market revenues to be down approximately 20% year over year. This is per the guidance provided in the quarterly filings with the Securities and Exchange Commission (SEC) in May 2014. (Read more: JPMorganto Witness 20% Drop in Q2 Market Revs)
The CFO stated that JPMorgan’s magnitude will enable it to withstand the present slump in trading revenues which appears to be cyclical. However, in case the market lull continues over the longer term, management will have to seek avenues to aid bottom-line growth. One of the ways is to cut costs by lowering compensation expenses through job reductions.
Lake’s statement comes amid declaration of job cuts by Morgan Stanley (MS) in the same conference on Tuesday. The company’s Chief Executive Officer James Gorman had announced nearly 100 job cuts in the fixed-income currency and interest rates trading businesses. (Read more: Morgan Stanley to Slash Jobs in Trading Biz)
Almost all the major global banks are expected to report lower trading revenues for the current quarter. Apart from JPMorgan, Citigroup Inc. (C) anticipates total trading revenues to be down 20% to 25% year over year, while institutional revenues are expected to decline following lower trading activity.
Further, The Goldman Sachs Group Inc.’s (GS) president Gary Cohn, while blaming the monetary and fiscal policies at a Sanford Bernstein conference last month, did not quantify the actual decline in the company’s market revenues,.
We expect JPMorgan to remain under continual pressure due to lackluster consumer and corporate activities, soft trading volumes and sluggish mortgage banking in the near term. In spite of noteworthy cost containment efforts, a low interest rate environment and sluggish loan growth will likely be persistent drags on top-line growth.
Currently, JPMorgan carries a Zack Rank #4 (Sell).
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