JPMorgan Bosses See Banks’ Long Trading Slump Gone for Good

Before 2020 unleashed a windfall for Wall Street traders, life in the business kept getting harder as revenue weakened. Now, as the flurry of pandemic activity fades, the question is whether the decade-long slide will continue.

The answer is no, according to Daniel Pinto, who oversees JPMorgan Chase & Co.’s massive Wall Street operations.

The industry’s collective revenue from trading -- its “wallet” -- probably reached its nadir before Covid-19, he said in an interview. And from those depths, things are likely to improve for years to come. That is, setting aside 2020.

“You’re going to have, over time, an increasing wallet,” said Pinto, the bank’s co-president and co-chief operating officer. Post-crisis regulations and changes in market structure, such as electronification, that squeezed margins are now mostly in place, and the system is working well, he said. “From here you would expect that as the world grows and capital markets grow, the trading businesses will grow.”

JPMorgan Bosses See Banks’ Long Trading Slump Gone for Good

It might be hard for shareholders to remember that optimism in coming months as investment banks face tough comparisons with 2020’s bonanza. JPMorgan and Goldman Sachs Group Inc. are set to kick off second-quarter earnings announcements next week. Already, JPMorgan Chief Executive Officer Jamie Dimon signaled a potential 38% decline from a year earlier, as he and executives from Morgan Stanley and Citigroup Inc. sought to temper expectations in recent weeks.

Altogether, the five largest U.S. banks on Wall Street will probably say their combined trading revenue fell about 27% in the period, according to analysts’ estimates gathered by Bloomberg.

For much of a decade after the financial crisis, total wallet for the 12 largest trading firms fell again and again. Their combined revenue from the business bottomed out at $110 billion in 2017 and hardly improved in the two years that followed, according to data from analytics firm Coalition Greenwich. The reasons were myriad: more stringent rules, the rise of electronic trading, persistently low interest rates, pressure from new entrants and the outright disappearance of some products post-crisis.

Many of those changes have played out, and capital markets are expanding. Pinto and colleagues said that longer-term growth trend will be apparent this year.

“If you put last year aside, which was a one-off, this year should be a very strong outcome when you put it on a multiyear basis,” said Troy Rohrbaugh, JPMorgan’s global head of markets.

Equities will expand the industry’s wallet more than fixed-income products, Rohrbaugh predicted. The U.S. remains the region generating the biggest increase, though the trend is also positive in Europe, he said. The wallet from China will likely swell, but it’s unclear what share of the additional business will go to foreign firms. They will see some, at least, he said.

Broadly, companies such as JPMorgan with the most scale and ability to invest in technology will have an advantage, though smaller firms will benefit too, he said.

Does that mean that fewer traders will be around to participate in the upswing?

“What you do will evolve,” Rohrbaugh said. “There are certainly some roles that will go away as you gain productivity. As more traditional jobs disappear, there are new jobs that pop up.”

©2021 Bloomberg L.P.

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