Heads of J.P. Morgan, Bank of America Say FICC Stronger
07 December 2016 - 4:40AM
Dow Jones News
The heads of the two biggest U.S. banks by assets, J.P. Morgan
Chase & Co. and Bank of America Corp., said Tuesday that their
trading businesses are set to close the year on a strong note as
investor activity has picked up in the wake of the U.S.
presidential election.
J.P. Morgan Chase chief James Dimon said at a Goldman Sachs
financial-services conference that his bank expects fourth-quarter
trading revenue to be up around 15% from a year earlier. Bank of
America head Brian Moynihan signaled a similar gain for his bank's
fixed-income trading business.
Mr. Moynihan didn't give further details, but last month his
chief operating officer, Tom Montag, said Bank of America's trading
was fueled by the surprise election of Donald Trump. That has sent
stock markets soaring and changed investors expectations about
economic growth and interest rates.
If the quarter plays out as the banks are expecting, it would
mark three consecutive periods in which such activity has been
strong at Wall Street banks. That is a marked turnaround from
recent years in which trading revenue, particularly in the areas of
fixed-income, currencies and commodities, had shrunk globally. That
has forced big investment banks to refocus their businesses and
scale back operations.
The improvement in current quarters suggests the fixed-income
business has stabilized. And the prospect of regulatory changes
promised by the incoming Trump administration could also set the
stage for growth.
Another factor that has helped big U.S. banks is weakness at
European rivals. Mr. Dimon, for instance, said J.P. Morgan had
picked up share by a "little bit" in the interest-rates business
given European bank exits.
While there are new entrants to the fixed-income trading
business, such as hedge funds, Mr. Dimon said the bank is "pretty
comfortable using our technology, scale, globality, volume and
size" to maintain a healthy market share. He added that electronic
trading in this business is "absolutely critical" and that J.P.
Morgan is continuing to invest there.
Equities trading for years has largely been electronic, but
there are large parts of bond and derivative markets that have yet
to fully move in this direction.
Looking beyond trading, Bank of America's Mr. Moynihan said he
wasn't surprised people were "much more optimistic" about the
banking industry and the U.S. in the wake of the election. He added
that Mr. Trump's victory had "reshaped the thinking" of skeptical
investors about banks' ability to return capital.
Bank of America's stock is one of the chief beneficiaries. The
shares are up about 28% since the election, far surpassing an
around 19% gain for the KBW Nasdaq Bank index.
J.P. Morgan's stock is up around 18% during that period and has
been hitting new all-time highs of late. That prompted questions
during Tuesday's conference about when or if J.P. Morgan will stop
buying back stock.
Mr. Dimon said he would owe investors an answer on that issue,
but that they will have to wait until the bank's late February
annual Investor Day or his annual chairman's letter, typically out
in April.
"I've always had this issue about stock buyback and capital
allocation," Mr. Dimon said. "We're forced to buy back stock and
(if) stock is high, we shouldn't be doing that."
He said the bank will have to make a determination on when the
time is to stop buying back stock. "Will we make that public? I
don't know," he said. "We don't want to share that with people on
the other side of the trade."
Mr. Moynihan was also asked if his bank would start to focus
more on raising the dividend than buying back stock. "Our stock is
cheap," Mr. Moynihan replied, saying it is "still in a range where
share buybacks make more sense."
Write to Emily Glazer at emily.glazer@wsj.com and Christina
Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
December 06, 2016 12:25 ET (17:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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