JPMorgan to Witness 20% Drop in Q2 Market Revs - Analyst Blog

In the quarterly filings with the Securities and Exchange Commission (SEC), JPMorgan Chase & Co. JPM provided its latest outlook. It expects second quarter 2014 market revenues to be down approximately 20% year over year. Following this filing, the shares of JPMorgan fell nearly 1.5% in after-hour trading on Friday.

JPMorgan anticipates market revenue to be roughly $4.3 billion, based on the market revenue results to date. The company stated that the overall economic environment had continued to remain challenged and client activity was lower as well. Notably, market revenue had declined 17% in the first quarter.

We believe that the primary reason for the continued slump in market revenues is the downward trend being witnessed in Fixed Income Markets (down 18% in the first quarter). Moreover, the Federal Reserve's decision to taper bond buying is also pushing market revenues down.

Further, equity income is also declining as the investors continue to be wary of economic challenges. In the first quarter, equity income was down 3% year over year.

JPMorgan's presumption of a continued slump in market revenues sounds a warning bell for other banks. Though market revenue results have varied as an outcome of different component mixes, almost all other major banks including Bank of America Corp. BAC, Citigroup Inc. C, The Goldman Sachs Group Inc. GS and Morgan Stanley MS have been facing a steady pressure as well.

Apart from offering insight into its market based revenues, JPMorgan also provided an outlook for certain other items. The company expects mortgage banking servicing revenue to decline sequentially from $713 million in the first quarter to the range of $600-650 million in the current quarter, with around 10% fall to be continued in the third and fourth quarter as well. Further, securities services revenue is expected to rise by nearly $100 million from the prior quarter, primarily driven by seasonality.

Additionally, treasury services revenues will remain flat at $1 billion for each of the remaining quarters of 2014. Also, JPMorgan reiterated its expense outlook and predicted overall expenses this year to be lower than 2013 level.

We expect JPMorgan to remain continually pressurized by lackluster consumer and corporate activities, soft trading volumes and sluggish mortgage banking in the near term. Though cost containment efforts are noticeable, fundamental pressure from a low interest rate environment and sluggish loan growth will likely be a persistent drag for the top line growth.

Currently, JPMorgan carries a Zack Rank #3 (Hold).