Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

JPMorgan Earnings: Dire Signs for Morgan Stanley and Goldman Sachs

High-octane Wall Street investment banking is in deep trouble.

That's the message from JPMorgan Chase's earnings report Thursday. While JPMorgan did better than expected overall, it's performance was boosted by a write-down in the value of its own bonds. So the investment banking division officially earned $1.6 billion, but that includes a $1.9 billion gain from writing down the value of their own bonds to market value.

Take away those write-downs, and the investment banking division actually lost money.

Some of the ugly details (all numbers net of the bond write-down gains):

  • Investment banking fees were down 31 percent to $1 billion.
  • Debt underwriting fees were down 37 percent to $496 million.
  • Equity underwriting fees were down 47 percent to $178 million.
  • Advisory fees were down 5 percent to $365 million.
  • Fixed Income Markets revenue was down 14 percent to $2.8 billion.
  • Equity Markets revenue was down 15 percent to $1.1 billion.

This very likely means that the more pure play investment banking companies, including Morgan Stanley and Goldman Sachs , are in deep, deep trouble. What's more, with their prop trading operations badly damaged, it's unlikely that either company has managed to pull off the kind of Big Short call that helped Goldman weather the financial crisis better than its peers.

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