(Bloomberg) – Before 2020 unleashed a boon for Wall Street traders, life in the company was getting harder and harder as revenues weakened. Now, as the wave of pandemic activity wears off, the question is whether the decade-long fall will continue.
The answer is no, according to Daniel Pinto, who oversees JPMorgan Chase & Co.’s massive operations on Wall Street.
The industry’s collective income from commerce – its “portfolio” – likely hit its lowest point before Covid-19, he said in an interview. And from those depths, things are likely to improve for years to come. That is to say by putting aside 2020.
âYou are going to have, over time, a growing portfolio,â said Pinto, co-president and co-chief operating officer of the bank. Post-crisis regulations and changes in market structure, such as electronization, that have reduced margins are now mostly in place, and the system is working well, he said. âFrom there, you would expect that as the world expands and capital markets expand, business activities expand. “
It might be difficult for shareholders to recall this optimism in the months ahead as investment banks face difficult comparisons to the 2020 windfall. JPMorgan and Goldman Sachs Group Inc. are expected to launch the announcement of the 2020 boom. second quarter results next week. Already, JPMorgan CEO Jamie Dimon has signaled a potential 38% drop from a year earlier, as he and executives at Morgan Stanley and Citigroup Inc. have sought to temper expectations in recent weeks.
In total, the five biggest U.S. banks on Wall Street are likely to say their combined trading income fell about 27% during the period, according to analyst estimates gathered by Bloomberg.
For much of a decade after the financial crisis, the total portfolios of the 12 largest trading companies repeatedly plummeted. According to data from analytics firm Coalition Greenwich, their combined business revenue reached $ 110 billion in 2017 and has hardly improved in the next two years. The reasons are multiple: tighter rules, rise of electronic commerce, interest rates still low, pressure from new entrants and the pure and simple disappearance of certain products after the crisis.
Many of these changes have taken place and capital markets are booming. Pinto and his colleagues said the long-term growth trend will be apparent this year.
âIf you put aside last year, which was a one-off, this year should be a very solid result when you put it on a multi-year basis,â said Troy Rohrbaugh, Global Head of Markets at JPMorgan.
Equities will expand the industry’s portfolio more than fixed income products, Rohrbaugh predicted. The United States remains the region generating the largest increase, although the trend is also positive in Europe, he said. China’s portfolio is likely to swell, but it’s unclear how much of the extra activity will go to foreign companies. At least they’ll see some, he said.
Generally speaking, companies like JPMorgan with the largest scale and ability to invest in technology will have an advantage, although small businesses will benefit as well, he said.
Does this mean that fewer traders will be present to participate in the recovery?
âWhat you do will change,â Rohrbaugh said. âSome roles will disappear as you become more productive. As more traditional jobs disappear, new jobs appear.
(Updates with lower quarterly trading revenue estimated in the sixth paragraph.)
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