JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) 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.