Heads of JP Morgan and BAML say FICC stronger after election

JP Morgan chief Jamie 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 signalled a similar gain for his bank’s fixed-income trading business.

Moynihan didn’t give further details, but last month his chief operating officer, Tom Montag, said Bank of America’s trading was fuelled 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 US banks is weakness at European rivals. Dimon, for instance, said JP 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, 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 JP 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 Moynihan said he wasn’t surprised people were “much more optimistic” about the banking industry and the US in the wake of the election. He added that Trump’s victory had “reshaped the thinking” of sceptical 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.

JP Morgan’s stock is up around 18% during that period and has been hitting new all-time highs of late. That prompted questions during the December 6 conference about when or if JP Morgan will stop buying back stock.

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,” 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.”

Moynihan was also asked if his bank would start to focus more on raising the dividend than buying back stock. “Our stock is cheap,” 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

This article was published by The Wall Street Journal

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