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Banks expected to report revenue drop

New York Times / July 11, 2011

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NEW YORK - Only a few short months ago, JPMorgan Chase traders were on such a roll that they did not have a single losing day in the first quarter.

But when the bank reports its second-quarter results this week, that hot streak will have come to an end. Analysts expect JPMorgan to count about a 20 percent drop in its sales and trading revenues, reflecting a slowdown in investor activity and the dismal performance of its fixed-income and commodities groups.

Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley are expected to report similar news. After helping prop up Wall Street during the financial crisis, core trading revenue is projected to drop, on average, by as much as 25 percent from the first quarter, according to Credit Suisse research.

That will put further pressure on their growth prospects, which are already strained by stagnant loan growth and more stringent regulation. It is also prompting nearly every major Wall Street firm to contemplate another round of layoffs amid growing concerns that at least part of the weak results are permanent.

“We are undoubtedly being impacted by lower levels of activity,’’ said William Tanona, a financial services analyst with UBS. “There is a lot of uncertainty out there.’’

Together, the five Wall Street banks are still going to take in more than $20 billion from their core trading operations, largely from business done on behalf of clients. For example, the banks routinely help airlines hedge oil prices or bring together buyers and sellers of stock, bonds and other complex securities - often putting their own money on the line to facilitate a trade. But during the second quarter, the business was particularly hard hit.

Trading volumes fell sharply as investors became unnerved by the running debt crisis in Europe, the political standoff over the debt ceiling in the United States, and lingering concerns over the anemic growth of the broader economy. Even when investors did place their bets, they were far more hesitant to take big risks. That meant the banks missed out on the lucrative fees they can generate by selling more high-octane products, like complex options and derivatives.