NEW YORK – J.P. Morgan Chase & Co., the second-largest U.S. bank holding company, said on Wednesday it expects its trading revenues for the second, third, and fourth quarters to be lower than its first-quarter results because of seasonal patterns and market conditions.
Weak stock markets continue to plague three of J.P. Morgan's key businesses — stock trading, investment banking, and the company's own investment portfolio. Fewer stock offerings and mergers mean less banking fees, while lower stock market volatility means the firm can't make as much money trading on share price movement.
"It shouldn't be that much of a surprise," said Andy Collins, an analyst at ABN Amro. "They want to get people calmed down on the stock."
J.P. Morgan's shares were down $2.04, or 4 percent, on the news at $46.46 in morning trading on the New York Stock Exchange.
J.P. Morgan reported trading revenues of $2.09 billion in the first quarter, and Collins said he expected the company to post trading revenues between $1.6 billion to $1.7 billion in the year's remaining quarters.
The company also said in a regulatory filing that weak stock market conditions continue to hurt investment banking revenue opportunities.
Few companies are choosing to sell stock, fearing their shares will perform poorly amid the weak conditions. M&A activity has fallen as companies are loath to use their battered shares as currency in a deal.
Besides trading and investment banking, the company's investment portfolio is also taking a hit in the second quarter.
Write-downs and write-offs of investments in private companies held in its J.P. Morgan Partners (JPMP) portfolio more than offset gains from its publicly held investments in the first two months of the second quarter, J.P. Morgan said.
"They've had about $150 million in unrealized gains so far this quarter, but they're just not getting the cash gains," said Jim Mitchell, an analyst at Putnam Lovell Securities.
"The write-downs on top of that (means) instead of a couple hundred million in gains this quarter, it looks like it could be flat to negative," he said.
The company's ability to make cash gains on some of its investments has been hampered by a dearth of initial public offering and mergers and acquisitions, it said. The sluggish IPO and M&A activity means J.P. Morgan can't sell off its stakes in private companies to the public or other companies.
"I don't think it's a big surprise," said Diana Yates, an analyst at A.G. Edwards. "If IPO activity is down, private equity will be down."
Analysts expect J.P. Morgan to earn between 62 to 93 cents a share in the second quarter, with a mean of 78 cents, according to Thomson Financial/First Call.
The announcement indicates even conservative earnings estimates are too high and a round of estimate cuts is expected, said Diane Glossman, an analyst at UBS Warburg.
"Even for those of us who have been fairly conservative ... this throws cold water on" the estimates, she said. Because J.P. Morgan did not give specific guidance on the numbers, it will be hard to estimate the impact the shortfall will have on the bottom line, she said.
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