JPMorgan Chase, the largest U.S. lender, posted double-digit drops in investment banking fees in the three months through June as slowing global growth and U.S.-driven trade tensions held businesses back from making acquisitions.
Merger-advisory revenue dropped 16% to $525 million in the second quarter and stock-underwriting fees fell 11% to $505 million, the New York-based lender said, as firms across Wall Street reported drooping corporate confidence. Like rival Citigroup, which reported second-quarter earnings a day earlier, JPMorgan benefited from growth in its consumer businesses as shoppers continued to spend on credit cards.
“The consumer in the United States is doing fine,” CEO Jamie Dimon told investors and analysts. “Business sentiment is a little bit worse, mostly probably driven by the trade war.”
The international disputes, fueled by tariffs that President Trump has imposed on imports from allies and competitors alike, have pushed up supply costs for U.S. businesses, forcing some to raise prices, and prompted warnings from economists that the strategy may undermine growth from GOP-led tax cuts in late 2017.
The White House, however, has maintained the duties are necessary to eliminate trade imbalances that Trump says are hurting the U.S. He has imposed duties of 25% on $250 billion of Chinese goods so far, threatened levies of the same amount on the $300 billion in remaining imports, and placed tariffs on washing machines, solar panels, steel and aluminum.
The administration has also hinted at fees on cars and car parts, French wines and imports from India and Vietnam and said it will impose 25% charges on merchandise from Mexico unless that country lives up to Trump’s expectations in curbing illegal immigration across the southern U.S. border.
“Fears of expanding trade wars drove concerns that new tariffs on China and Mexico would erode the prospect for continued growth,” said David Solomon, the CEO of investment bank Goldman Sachs. The firm said Wednesday its profit fell 6% to $2.2 billion as merger-advisory fees and stock- and bond-underwriting shrank.
While Trump has agreed to refrain from further tariffs on China as Washington and Beijing attempt to salvage talks that stalled in May, Goldman remains cautious “on the geopolitical front,” Solomon said.
Altogether, the five largest U.S. investment banks probably posted an average drop of 14% in merger-advisory revenue, a 9% slide in stock-underwriting, and a 20% decline in debt-underwriting, Brian Kleinhanzl, an analyst with the brokerage Keefe, Bruyette & Woods, estimated before the earnings reports. Trade tensions are likely to weigh on corporate confidence through the remainder of the year, said Kenneth Leon, an analyst with CFRA Research.
U.S. economic growth, meanwhile, may dwindle to less than 2% this year as Trump’s global trade conflicts curb corporate investment, BlackRock, the world’s largest money manager, predicted earlier this month.
Trade worries have yet to significantly hurt consumers, however. Profit from JPMorgan’s consumer division, its largest, climbed 22% to $4.17 billion, while Citigroup reported gains of 11% to $1.4 billion in its competing business, and both saw companywide revenue growth.
JPMorgan’s “quarterly outcome looks, in fact, quite similar to Citigroup’s,” said Axel Pierron, managing director of capital markets management consultancy Opimas. Consumer-business expansion drove overall growth at both, while investment divisions suffered from trade concerns.
The trend “should raise serious concerns about upcoming financials from competing U.S. banks that are much more dependent on their investment banking activities and do not have such large consumer banking franchises to make up for the declining revenues in capital market operations,” he said.
