Investment banking revenue may fall 24 percent in the second quarter as the effect of the European Central Bank’s 1 trillion-euro ($1.3 trillion) of loans to the banking system wears off, JPMorgan (JPM:US) Chase & Co. analysts said.
Revenue from fixed-income, currencies and commodities trading may fall 32 percent while income from equities may drop 14 percent from the first quarter, analysts including London- based Kian Abouhossein said in a report to clients today.
The ECB in December and February offered banks unlimited three-year loans after funding markets froze and yields on southern European government debt hit euro-era records. The move helped to reduce yields on both bank and government bonds. The “positive momentum” generated by the Long Term Refinancing Operation slowed in April, Deutsche Bank AG (DBK) Chief Financial Officer Stefan Krause said April 26.
“Without LTRO liquidity and credit spreads widening again, we expect overall investment banking revenues are in an accelerated seasonal quarter-two/quarter-one decline due to material client flow activity slowdown,” the JPMorgan analysts said. The “deteriorating macro newsflow is leading to increased risk aversion,” leading to a decline in fixed income, currencies and commodities income, they said. Greece will go the polls on June 17 after an election on May 6 failed to produce a government. The country’s credit rating was reduced one level by Fitch Ratings yesterday amid concern it won’t muster the political support needed to remain a member of the 17-nation euro area. Almost $4 trillion has been wiped from global equity markets this month amid mounting concern the country will have to leave the euro.
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