JPMorgan Chase & Co, the largest US bank by assets, yesterday reported a slump in bond trading revenue that it blamed on market volatility and a smaller-than-expected quarterly profit.
Overall adjusted fixed income trading revenue fell 18% as investors fled commodities and credit trading markets due to spikes in volatility toward the end of 2018.
Equities trading revenue rose 2% from a year earlier, helped by strength in prime brokerage, which serves hedge fund clients.
JPMorgan chief financial officer Marianne Lake told reporters on a conference call that one down quarter in fixed income does not mean a trend and that the trading environment had improved by the start of the year.
“It is too early to call it, but a decent start to January,” she said.
Volatility can help boost trading activity, but sharp spikes can drive customers to the sidelines and hurt the bank’s own market exposure.
Investment banking revenue rose 3% on higher advisory fees, even as underwriting fees declined.
Revenue in asset and wealth management fell 5% as market declines translated into lower asset levels and management and performance fees.
Trading desks at banks have been shaken by global growth concerns and the ongoing trade war between the United States and China.
Bank stocks underperformed the S&P 500 index in 2018 by 13%.
JPMorgan said expenses rose 6%, outpacing revenue growth as it invested in technology, marketing and real estate.
Net income increased 67% to $7.07bn, or $1.98 per share, from a year ago, when it took a one-time charge due to the US tax overhaul.
But it missed analysts’ average estimate of $2.20 per share, according to IBES data from Refinitiv.
Net interest income was up 9% to $14.5bn on higher interest rates in 2018.
The bank’s average core loan book grew 6% from the year-earlier quarter.
Revenue rose 4.1% to $26.80bn, shy of the average analyst expectation of $26.83bn.
Wells Fargo & Co yesterday said its loan book shrank and quarterly revenue fell in all of its major businesses, especially consumer banking, sending its shares lower.
The fourth-largest US bank has struggled to regain its footing since sales practices abuses came to light in its consumer bank more than two years ago.
Management has centralised risk controls and overhauled how retail employees deal with customers and get paid.
Wells Fargo is also under an asset cap imposed by the Federal Reserve last year as a punishment for the abuses, which included opening millions of fake accounts in customers’ names and overcharging hundreds of thousands on auto loans and mortgages.
The bank expects that restriction to remain for all of 2019, chief executive officer Tim Sloan said on a conference call with analysts, noting that progress towards lifting the cap was slower than initially expected.
Under shareholder pressure to boost profits even as revenue has faltered, Sloan outlined a multi-year cost cutting plan in 2017 that has since been updated.
The bank has intentionally pulled back from some businesses, like auto lending, and faced cyclical pressures in mortgage lending, once its main money-maker.
Wells Fargo’s loans and deposits dropped in the fourth quarter compared with the year-earlier period.
Consumer loans fell 3%, hurt primarily by more people paying off their mortgages than taking out new ones.
Mortgage banking revenue fell by half.
Profit of $5.71bn, or $1.21 per share, was down 1% from the $5.74bn, or $1.16 per share, in the fourth quarter of 2017.
Analysts expected earnings of $1.19 per share, on average, according to IBES data from Refinitiv.
It was not immediately clear if the results and forecasts were comparable.
Revenue fell 5% to $20.98bn, below Wall Street’s $21.73bn estimate.
Excluding one-time items, Wells Fargo met the goal Sloan laid out to keep non-interest expenses in a range of $53.5bn to $54.5bn last year.
The bank is now aiming to cut those expenses down to a range of $52bn to $53bn this year, and $50bn to $51bn by 2020.
Wells Fargo remains on track to hit those goals, Chief Financial Officer John Shrewsberry said in a statement.
Delta Air Lines
Delta Air Lines Inc yesterday posted a slight beat in fourth-quarter profit but forecast a decline in revenue growth in the first quarter, hit by a partial government shutdown and worries about whether airlines can raise fares in an uncertain global economy.
Delta, the No 2 US airline, warned that revenue per mile flown would be hurt in the current quarter by the timing of Easter, increasing foreign exchange headwinds, and the ongoing US government shutdown, which entered its 25th day yesterday.
Travellers are enduring long airport lines as an increasing number of security screeners are not showing up for work during the shutdown, and airlines face delays in federal certification for new routes and aircraft.
Delta chief executive officer Ed Bastian said the partial shutdown will cost $25mn per month in reduced government travel.
The company’s first-quarter target for unit revenue, a closely watched metric of revenues per mile flown, could be at risk if the shutdown drags on past January, Baker added.
Delta operates around 86 daily flights from Washington-area airports.
Delta said unit revenue will range between flat to 2% higher in the first quarter, compared with 3.2% growth in the fourth quarter ended December 31.
Sub-prime lender Provident Financial Plc said yesterday it expects earnings for 2018 to be at the lower end of market expectations, citing modestly higher payment arrangements at its credit card business Vanquis Bank. Provident Financial, which traces its history back to 1880, said profit for the year would be toward the lower end of £151mn ($194.71mn) to £166mn ($214.06mn) forecast by the market.
The FTSE 250 company pegged exceptional costs of about £55mn in 2018 for its home credit recovery plan, among other items.
Traders expect Provident’s shares to fall about 15% yesterday.
The company, which provides credit to people who do not meet the loan criteria of bigger banks, said the addition of new customers in its troubled home credit business was marginally above plan during the last quarter of 2018.
That indicated a move in the right direction for Provident, which has been trying to win back customers after a botched reorganisation of its home credit arm led to a string of management changes, profit warnings and regulatory probes.
“We have been progressively tightening our underwriting standards throughout the group in anticipation of the current uncertain UK economic environment we are facing,” the company said as it reported a 71,000 drop in new account bookings in Vanquis for 2018.
Shares of Spire Healthcare Group Plc fell 12% yesterday, after Britain’s second-largest healthcare firm trimmed core earnings forecast for the full year below analysts’ consensus.
The company said earnings before interest, tax, depreciation and amortisation will be between £119mn ($153.15mn) and £120mn for the year ended December 31, below estimates compiled by analysts.
Analysts had expected the company’s EBITDA to be £123.1mn, according to IBES data from Refinitiv.
The company had earlier forecast the range to be between £120mn and £125mn.
To mitigate the hit from fewer NHS referrals, Spire said in September that it was reducing capital spending further and focusing on self-paying patients and its own general practitioners.
Britain’s second biggest housebuilder Persimmon Plc said yesterday it expects full-year pre-tax profit to be modestly ahead of market consensus, boosted by new projects.
The company, which has focused on building cheaper family houses that are less prone to tightening at the top of the UK housing market, said the market has continued to benefit from robust employment levels, low interest rates and a competitive mortgage market.
The FTSE company’s revenue rose 4% to £3.74bn ($4.82bn) for the year ended December 31, with sales rising 3% to 16,449 units.
Average selling price also ticked up 1% in 2018.
“We believe the update reads relatively well and does not suggest the group has seen any sharp deterioration in trading recently.
The next significant catalyst will be how the spring selling season performs in 2019 with all the Brexit turmoil in the background,” Canaccord Genuity analyst Aynsley Lammin wrote in a note.
Forward sales stood at about £1.4bn at the end of last year, 3% higher than last year on the back of strong sales in the second half.
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