Analysts React To JPMorgan's Massive Trading Loss

Banks have been struggling to keep their trading revenues up as the industry is in a rut. JPMorgan JPM on Friday, May 2, announced a 20 percent year-over-year drop ($5.37 billion to $4.3 billion) in second quarter revenue.

Several analysts have chimed in on JPMorgan’s trading hit.

Credit Suisse expects about one third of the revenue weakness to be offset by reduced expenses. Despite the cost reduction, EPS estimates for the second quarter and fiscal year are estimated to drop $0.10 to $1.34 (6.94 percent) and $5.60 (1.79 percent).

Analysts at Citigroup think the drop in trading revenue will have a greater effect on the company’s profitability. Full year EPS was cut by $0.20, or 3.67 percent. The Citi note also references difficulties in the mortgage business and increased corporate expenses as areas of concern, and is cutting the FY EPS estimate by an additional $0.25 to $5.00.

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Keefe, Bruyette & Woods is slightly less concerned about the announcement than other analysts. The 20 percent drop in revenue is being compared to the second quarter of 2013, to which KBW analysts commented, “We believe that JPM may have benefited more than peers that quarter as JPM’s management indicated that the company benefited from trading risk discipline that quarter.”

Similar to Credit Suisse, Barclays is cutting JPMorgan's fiscal year EPS estimate by $0.10 to $5.60 and seems to think that revenue problems may be more cyclical than secular.

A key takeaway from these analyst reports is that most may expect revenues to rebound after the second quarter. The minor and single quarter EPS adjustments indicate this may be true.

Shares of JPMorgan have been hit hard on the news and are down 2.66 percent since Friday. The company was last trading at $54.20.