JPMorgan and Morgan Stanley earnings bode ill for Wall Street traders

NEW YORK, July 14 (Reuters) – Fears of a big hit to investment banking on Wall Street in the second quarter appeared to be confirmed on Thursday, with JPMorgan Chase & Co and Morgan Stanley reporting that revenue from the business had risen than halved.

JPMorgan’s investment banking revenue was $1.4 billion, down 61% from the year-ago quarter, largely due to a 54% drop in fees on all products, while the bank also took cuts on some loans in its investment banking business of around $250 million. In income.

Morgan Stanley reported a 55% drop in investment banking revenue to $1.1 billion as the bank’s advisory business suffered a 10% hit. Underwriting income from equities and fixed income also fell 86% and 49%, respectively.

Both lenders attributed the crisis to the difficult macroeconomic environment, including increasing volatility caused by the conflict in Ukraine, which left companies hesitant to venture into the market to close deals and raise equity and capital. debts.

While that volatility drove fixed-income and equity trading revenue up 15% at JPMorgan and 8% at Morgan Stanley as clients rushed to rearrange their portfolios, it wasn’t enough to offset the fall in transactions after an exceptional quarter last year largely due to monetary policy. Aggressive interest rate hikes by the US Federal Reserve have turned off those taps.

“Risk taking in investment banking has fallen off a cliff,” wrote Chris O’Keefe, senior portfolio manager at Logan Capital Management, in an email. “It’s no surprise that advisory and equity underwriting have hit the pause button on recession fears. Clients are heeding the old adage, ‘don’t fight the Fed.’

Morgan Stanley’s investment banking fees missed consensus estimates, analysts said. JPMorgan’s capital markets business also missed estimates, which “bodes negatively for other Wall St banks,” Wells Fargo analysts wrote.

Citigroup Inc. and Goldman Sachs Group, the other two dealing giants, will report on Friday and Monday, respectively.

Speaking to analysts, executives from Morgan Stanley and JPMorgan said their deal pipelines were strong, but deals may not close due to uncertain economic and market conditions.

“Larger transactional M&As will really depend on price discovery and how markets open up over the next six months,” said Sharon Yeshaya, chief financial officer.

Speaking in another call later Thursday morning, Yeshaya said institutions and companies are still taking advantage of good days in the market to close deals. “From this point of view, the market works,” she added.

JPMorgan chief executive Jamie Dimon said the bank reduced its portfolio of bridge loans, which banks often use to fund transactions with customers, but suffered losses in the quarter due to deterioration in market conditions.

Dimon said the loss was smaller than it could have been “because we got out of the market. And that was a good thing because a lot of people can lose a lot of money there, and we We lost some.”

Losses on bridge loans and some smaller losses on equity investments dragged 9 cents a share from JPMorgan’s earnings, according to Barclays analyst Jason Goldberg.

Transactions in the global equity market fell nearly 69% to $263.8 billion in the first half of the year compared to the same period in 2021, while debt transactions fell nearly 26%, according to Dealogic data. Read more Mergers and acquisitions had a mixed first half, with the impact of the Russian invasion felt hardest in the second quarter when the value of announced deals fell 25.5% year-on-year to 1,000 billion, according to Dealogic. Read more

Morgan Stanley CEO James Gorman said the bank’s institutional fixed income and equity team had been “very cautious and appropriate”, adding that now was not the time to aggressively try to woo new business. “We will be with our eyes wide open, but we are not trying to win the game at the moment.”

Oppenheimer analysts said the overall results could have been much worse given market conditions.

“We should breathe a sigh of relief as these are the sorts of markets in which, historically, things could go off the rails for large investment banks,” they wrote on Thursday.

Written by Michelle Price. Reporting by Saeed Azhar and David Henry in New York Editing by Nick Zieminski


Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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