Top US bank and prime broker JPMorgan is out with its earnings report for the second quarter. It shows that the company’s markets division is materially affected by the underlying soft patch of volatility.
While the base number of revenue in the markets and services division was down only by one percent and the markets segment was flat, the figure included a gain from the IPO of a strategic investment in Tradeweb.
Excluding this extraordinary gain, total Markets revenue was down six percent, while Fixed Income Markets revenue was down three percent. Revenue from Fixed Income Markets included relative weakness in EMEA across products, which was, however, offset by increased client activity in North America Rates and agency mortgage trading due to the changing rate environment.
Revenue from the Equity Markets division was lower by $1.7 billion, or 12 percent. The material decline was driven by more moderate client activity in derivatives as well as a relatively strong performance in the previous year.
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Securities Services revenue was $1 billion, which is lower by five percent. The figure was driven by deposit margin compression and the impact of a business exit, partially offset by increased client activity.
Noninterest expenses were $5.5 billion, which is higher by two percent. The impact of higher legal expenses was largely offset by lower performance-based compensation. The provision for credit losses was zero, compared with $58 million in the prior year.
Major Prime Brokers Slow Down
The performance of the investment banking units of major prime brokers in the second quarter appears to be starting on a slow note. With market conditions being heavily impacted by the ongoing slow patch of volatility in equity markets and foreign exchange. In this respect, JPMorgan is not an outlier.
With the ongoing rangebound market conditions in FX and the continuing slow drift higher for equity markets, the only upbeat segment is fixed income on the US side of the Atlantic. Volatility in US treasuries has been reactivated in the aftermath of the Fed’s commitment to move on rates in the near future.