In the quarterly filings with the Securities and Exchange
JPMorgan Chase & Co.
) provided its latest outlook. It expects second quarter 2014
market revenues to be down approximately 20% year over year.
Following this filing, the shares of JPMorgan fell nearly 1.5% in
after-hour trading on Friday.
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JPMorgan anticipates market revenue to be roughly $4.3 billion,
based on the market revenue results to date. The company stated
that the overall economic environment had continued to remain
challenged and client activity was lower as well. Notably, market
revenue had declined 17% in the first quarter.
We believe that the primary reason for the continued slump in
market revenues is the downward trend being witnessed in Fixed
Income Markets (down 18% in the first quarter). Moreover, the
Federal Reserve's decision to taper bond buying is also pushing
market revenues down.
Further, equity income is also declining as the investors
continue to be wary of economic challenges. In the first quarter,
equity income was down 3% year over year.
JPMorgan's presumption of a continued slump in market revenues
sounds a warning bell for other banks. Though market revenue
results have varied as an outcome of different component mixes,
almost all other major banks including
Bank of America Corp.
The Goldman Sachs Group Inc.
) have been facing a steady pressure as well.
Apart from offering insight into its market based revenues,
JPMorgan also provided an outlook for certain other items. The
company expects mortgage banking servicing revenue to decline
sequentially from $713 million in the first quarter to the range
of $600-650 million in the current quarter, with around 10% fall
to be continued in the third and fourth quarter as well. Further,
securities services revenue is expected to rise by nearly $100
million from the prior quarter, primarily driven by seasonality.
Additionally, treasury services revenues will remain flat at $1
billion for each of the remaining quarters of 2014. Also,
JPMorgan reiterated its expense outlook and predicted overall
expenses this year to be lower than 2013 level.
We expect JPMorgan to remain continually pressurized by
lackluster consumer and corporate activities, soft trading
volumes and sluggish mortgage banking in the near term. Though
cost containment efforts are noticeable, fundamental pressure
from a low interest rate environment and sluggish loan growth
will likely be a persistent drag for the top line growth.
Currently, JPMorgan carries a Zack Rank #3 (Hold).