JPMorgan Chase & Co.’s investment bank said revenue from sales and trading has tumbled about 20 percent this year, providing an early gauge of the pain inflicted on Wall Street’s biggest firms by the global market rout battering investors.
The drop from a year earlier also was exacerbated by the Swiss franc’s surge in January 2015, which boosted revenue at the time, the division’s chief, Daniel Pinto, said Tuesday at the bank’s annual investor conference in New York. This quarter, lower earnings from debt and equity capital markets underwriting may contribute to a 25 percent decline in the division’s fee revenue, he said. In a filing, the bank said its securities services unit for institutional investors will probably see revenue slip about 6 percent to $875 million.
“There is no doubt that it so far has been a very tough quarter,” Pinto said. Still, revenue from advising on mergers and acquisitions “is holding well,” he said.
The first quarter is typically the strongest for Wall Street investment banks, as clients shift holdings. This time, the rout is prompting investors to pull back from markets and firms such as Jefferies Group to signal weaker earnings from the business of helping companies issue and sell securities. Shareholder concerns that cheap oil and slowing growth in China will erode bank profits have contributed to a 13 percent slide in the 89-company Standard & Poor’s 500 Financials Index this year.
JPMorgan’s stock fell 4.2 percent to $56.12 in New York, the second-worst performance in the Dow Jones Industrial Average. Shares of the bank slid after it projected potential losses on loans if oil continues to slump.
Chief Executive Officer Jamie Dimon, taking the stage after Pinto, pointed to signs that earnings may improve: The firm is gaining investment banking market share in Europe, has a couple of big deals in the works and a backlog of initial public offerings. It’s “very possible” for the market to do better in March, he said.
Dimon, 59, plowed $26.6 million of his own fortune into buying more of the bank’s stock this month after it fell below $54, the lowest in more than two years. On Tuesday, he said he would snap up the shares “all day long” at $48.
U.S. financial stocks have declined more than any other major industry this year on concern that credit costs are increasing because of exposure to energy companies. JPMorgan said it would need to boost reserves for impaired energy loans by $1.5 billion if oil prices hold at about $25 a barrel over 18 months. In a presentation, the firm estimated its first-quarter increase to reserves for oil and gas will be about $500 million, bringing the total set aside to $1.3 billion.
Credit-card issuers including JPMorgan also face mounting pressure to outbid one another to protect and win partnerships with big merchants — deals that can help fuel future income from lending and fees. The bank estimated that extending such agreements with other companies will erode revenue by about $900 million this year. It has recently renewed deals with partners including Amazon.com Inc. and Southwest Airlines Co.
“Cards will not be as big a contributor to earnings growth at JPMorgan as I had originally expected,” as margins are squeezed by the partnership negotiations, Charles Peabody, an analyst at Portales Partners LLC, said in an e-mail.
COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020
Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.
This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.
In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.
The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.
Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.
She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.
She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.
Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.
“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.
Crude Oil, Other Commodities Closing Price for Monday
Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.
Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.
The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.
Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
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