Bloomberg News

Morgan Stanley, JPMorgan Point to Difficult Trading Environment

September 13, 2011

Sept. 13 (Bloomberg) -- JPMorgan Chase & Co. and Morgan Stanley warned investors that their stock- and bond-trading businesses are facing a difficult third quarter as the U.S. economy weakens and Europe’s debt crisis intensifies.

JPMorgan’s trading revenue will drop about 30 percent this quarter from the prior three months, James E. Staley, chief executive officer of the firm’s investment bank, said today at a Barclays Capital conference in New York. Morgan Stanley Chief Financial Officer Ruth Porat said at the same event that the fixed-income trading environment has been worse than in 2010’s fourth quarter, when the five biggest U.S. investment banks posted their lowest trading revenue since the financial crisis.

Corporations pulled back from the market, particularly in August, when the Dow Jones Industrial Average posted 400-point moves on four consecutive days for the first time ever, Staley said. Investors have been grappling with fallout from Standard & Poor’s downgrade of the U.S. credit rating and the risk that a default by Greece could hurt European banks.

“This quarter, the market environment clearly remains difficult with challenging credit markets in particular due to wider spreads and illiquidity,” Porat, 53, said. “Macro products have been relatively better than credit, but the volatility has prevented clients from taking much risk given difficulty in trading.”

Morgan Stanley, based in New York, posted negative fixed- income trading revenue of $29 million in the fourth quarter of 2010, or positive $813 million excluding the impact of its own credit spreads, the lowest figure since 2008. The firm reported $2.09 billion of fixed-income trading revenue last quarter.

Value-at-Risk

Morgan Stanley continued to reduce its value-at-risk during the third quarter after cutting back in mid-June, Porat said. While equity volume has increased this quarter, much of the business has been in lower-margin electronic trading, she said.

JPMorgan, also based in New York, earned $5.5 billion in equity and fixed-income trading during the second quarter. Third-quarter fees from investment banking will fall by about half, Staley said, projecting about $1 billion in total fees compared with $1.92 billion in the second quarter.

JPMorgan will report a “modest loss” in its private- equity unit of about $100 million and asset-management revenue will likely be hurt by the equity-market declines, Staley, 54, said.

--Editor: Steve Dickson

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Dawn Kopecki in New York at dkopecki@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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