JPMorgan Chase & Co. JPM expects to see a mid-teens percentage increase in trading revenue in second-quarter 2016 compared with a weak year-ago period, as disclosed by Daniel Pinto, Chief Executive Officer of the Corporate & Investment Bank at JPMorgan.
According to Pinto, market activity was weak in the first two months of 2016. However, there was a lift in market activity in March and higher fixed-income client activity continued in the subsequent months. This is expected to result in improved trading revenue in the second quarter.
“January and February were weak months, and we recovered momentum in March,” Pinto said at a conference in New York sponsored by Deutsche Bank AG DB. “That momentum has continued into April and May, essentially with higher client activity in fixed income, and with slightly weaker client activities in equities, mainly equity derivatives.”
“It feels that probably we are getting toward the end of the cycle of contraction now,” Pinto added. “We are in a good position to face the next stage, when that comes.”
This depicts optimism for Wall Street, which has been facing revenue challenges in fixed-income business amid stringent regulations, declining liquidity and maintenance of higher capital against risky assets. While the second quarter of last year was a particularly weak one for the industry, market revenue has been under strain since years.
In the wake of muted profits, several banks have reduced staff in this business. While banks like Morgan Stanley MS have been very aggressive in axing jobs and slashing the capital allocated to fixed income operations, JPMorgan and The Goldman Sachs Group, Inc. GS have been bidding their time by holding on to most of their fixed-income operations despite cutting costs.
According to Pinto, compensation and fixed income at JPMorgan has gone down 25% in the last five years, while headcount has gone down over 10%. However, the bank has been holding or increasing its market share of fixed-income businesses in anticipation of improved profits in the future.
“Our strategy has been, for a number of years, to be able to put mainly the fixed income business in a position where we can wait for that recovery and being profitable along the way,” Pinto said.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
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