J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees number came from equity and debt underwriting, with the big piece coming from debt – a quarterly record of $971 million for the bank.
Grouped under the investment bank is also trading – and fixed income once again ruled the day. Of the $6.6 billion of revenues from “fixed income/equities,” $5.23 billion came from fixed-income. The bank didn’t offer a break down i.e. how much was from FX trading, for example.
Finally, the investment bank (trading and traditional IB) contributed about 43% of the firms net income ($2.37 billion of a total $5.5 billion).
A quarter where the investment bank didn’t carry the whole day, er quarter, but carried a lot of it.
Wall Street has always been associated with trading. And volatility in trading revenues can have a huge impact on the earnings of a particular firm. As the first quarter earnings reporting season comes to a close for Wall Street’s biggest banks, we thought it would make sense to see if there were any interesting trends that developed. And boy there was: fixed-income trading fueled very strong trading results across the board. As the above chart shows, fixed-income (lumped in with forex) was on a roll for the major Wall Street banks. At Morgan Stanley (MS in the above chart), fixed-income accounted for 65% of the trading revenue. At Citigroup (C), it was 82%. The others: Goldman Sachs (GS) was 75%, Bank of America (BAC) was 77% and J.P. Morgan (JPM) was 78%.
Make no mistake about it: Goldman Sachs is a trading firm. The company reported very strong sales and profits today. And much of it was driven by trading in fixed-income, currencies and commodities. And it wasn’t all done by Goldman’s proprietary traders – the firm saw a big pickup in customer activity. And a pickup it was. Spreads were tighter, which mean middle men in a trade make less. And volatility was lower, which means fewer trading opportunities existed. That said, the firm saw trading revenues pick up sharply. How important was that fixed-income, currency and commodities increase? It was 41% of revenues in the last quarter. You see where it is now.
Merriam Webster’s definition of hedge: a means of protection or defense (as against financial loss). We thought it would be worth checking on that definition again as we read with interest MetLife’s third-quarter earnings release (just out a short while ago) that included some information about its $1.4 billion investment loss (after-tax) in the quarter. About $860 million of that loss was connected to derivatives.
