The performance of stock and bond trading businesses at JPMorgan Chase, the first of the major Wall Street banks to report quarterly earnings, will give investors a chance to gauge how the firms are capitalizing on market volatility from President Trump’s international trade disputes.
Revenue at the New York-based lender’s stock trading unit likely rose 6 percent from a year earlier to $1.68 billion during the three months through June, according to Susan Roth Katzke, an analyst with Credit Suisse.
“With a pickup in the pace of capital markets activity in June, second-quarter expectations for trading and investment-banking revenues look all the more achievable,” she wrote.
JPMorgan’s total trading revenue probably climbed just 1 percent, reflecting a dip in the fixed-income business, and ranked below the 5 percent average growth at all five of the firms, Katzke estimated. Throughout the quarter, Trump’s imposition of tariffs on billions of dollars in imports spurred investors to adjust their holdings to capture growth or safeguard existing wealth, all of which pushed up transaction fees for bank trading businesses.
“This trade stuff is a negative,” dragging on economic optimism fueled by last year’s tax cuts, Chief Executive Officer Jamie Dimon noted in June. “It’s going to hurt sentiment. It’s badly thought through. It’s not strategic. There are legitimate complaints about trade, but this is not the way to go about it. And you see it in the volatility in the market.”
Corporate executives across a range of industries have echoed those sentiments, joining economists and even lawmakers from Trump’s own party. They warn the protectionist policies, including tariffs on $34 billion in Chinese goods so far and the threat of at least $416 billion more, accompanied by levies on metals and, potentially, auto imports risk igniting a trade war that undermines the benefits of last year’s tax cuts and potentially tips the world into recession.
The president has shrugged off their concerns, maintaining his policies will ultimately yield better trade deals for the U.S. and chip away at trade imbalances.
At JPMorgan, trading gains may fuel companywide profit growth of more than 20 percent to $2.22 a share, the average estimate from analysts surveyed by FactSet. Revenue may climb 8 percent to $27.6 billion, reflecting gains in overall lending and higher interest revenue.
The bank’s earnings may also have been buoyed by growth in net interest margin, the difference between interest paid to depositors and charged to borrowers, said Jason Goldberg, an analyst with British lender Barclays Plc. The measure may have expanded as much as 15 basis points to 2.46 percent, according to FactSet estimates, reflecting three rate increases by the Federal Reserve in the past year.
Lenders typically benefit from passing such increases on more quickly to borrowers than depositors, though the revenue stream was crimped when the Fed kept interest rates at nearly zero for seven years to buoy the U.S. economy after the 2008 financial crisis.
The largest U.S. lender, JPMorgan works with roughly half of U.S. households and plans to open roughly 400 new branches in as many as 20 new markets, including Washington, D.C., over the next five years.
“While we don’t expect the branch count to increase this quarter, we look for it to remain committed,” Goldberg said.
