JP Morgan expects investment banking fees this quarter to fall by 45%–50% from a year earlier after a slump in dealmaking across the industry, but it forecast a slim rise in trading revenues.
Citigroup and Bank of America executives also said fees from investment banking in the July-September quarter could halve from record levels a year ago, as the bleak first half of the year had continued. Equity underwriting fees have crashed and debt underwriting and M&A are also down, although there has been a pick-up in debt issuance in recent weeks. Citi said its trading revenues will also be down slightly on a year ago.
Daniel Pinto, head of JP Morgan's corporate and investment bank, said the gloomy performance in underwriting and advisory in the first half had continued in the current quarter. "It will be around 45%–50% down," he said.
But Pinto said Q3 markets revenues are likely to show "around a 5% increase" from a year earlier. "It’s a solid quarter," Pinto said on Tuesday on a webcast of the Barclays financial conference in New York. He said the performance was weaker in equities and stronger in fixed income.
JP Morgan's FICC and equities trading revenues in the third quarter of 2021 were US$6.3bn, so the guidance suggests trading revenues will be around US$6.6bn this quarter. Investment banking fees totaled US$3.3bn in Q3 2021, indicating they will be about US$1.75bn this quarter.
Pinto said both areas continue trends seen in the first half. JP Morgan's markets revenues in the first half were up 4% from year-earlier levels, but investment banking fees were down 44%.
JP Morgan kicks off Q3 results for US banks on October 14.
Citigroup finance director Mark Mason said concerns about inflation, recession, interest rates, energy prices and supply chains were all contributing to wary and volatile markets.
“In investment banking, in light of the volatility and uncertainty, wallets are down some 50% or so, and we’re down in tandem with that. We think we’ll end the quarter generally around where the wallet ends, so investment banking will see that pressure," Mason said at the same Barclays conference.
He said Citi's Q3 trading revenue is on track to be down 5%–9% from a year ago. “In markets, quarter-to-date we're running down in the mid to high single digits (percent) and we’ll likely end the quarter there, although there are a few weeks left," he said.
Mason said, in FICC, the performance in foreign exchange and rates trading had been strong but was offset by weakness in securitised products. In equities trading, he said levels were closer to 2019's, after last year's revenues were swelled by strong equity derivatives trading.
Bank of America chief executive Brian Moynihan said BofA is likely to see a drop in investment banking fees in the third quarter in line with the rest of the industry.
"In the near term in investment banking we won’t look a lot different to the market because the financing side has taken a hit, and that’s our strong suit," Moynihan said. "The team has done a good job to hold our relative share, but the industry fees are down."
Global fees from advisory, underwriting and syndicated loans this year were down 31% at the end of August from the record level of 2021, according to Refinitiv data. Equity capital market fees were down 68% from a year earlier while fees from debt underwriting were down 25%, and M&A fee income was down 15%.
Moynihan said the deal pipeline is strong and bankers are optimistic that activity will pick up when markets stabilise. "The pipelines are very full and there’s a lot of activity that’s been held waiting for some stability ... It’s not theoretical deals that could happen, it’s stuff that’s ready to go, but it will require the markets to stabilise to have that happen," he said.
Moynihan said trading revenues will be slightly down from the second quarter, but that indicated they will be up slightly from a year ago. "On the trading side, typically from the second quarter to the third quarter it is down high single digits percent, that was the typical downdraft. We’ll do better than that this quarter and we’ll be down low single digits type of reduction from the second quarter of 2022 to the third quarter of 2022," he said.
BofA's sales and trading revenue in the second quarter was US$4bn, indicating revenues for July–September will be about US$3.8bn. In the third quarter last year, sales and trading revenues were US$3.63bn.
Updated story: Adds comments from Citigroup CFO paras 2 and 8-11