Despite its cutting brown-ness I was affectionate of bugged by this accelerate from Jes Staley’s presentation for use after today at JPM’s broker day:
The table shows the “number of trades” and acquirement per barter for a agglomeration of JPMorgan’s advance coffer trading products, which it’s advice now for affidavit that are cryptic but you can guess. Bloomberg does:
While some European banks alarm acquirement from ample units aural their trading divisions, U.S. banks rarely quantify the architecture of their businesses, which accomplish about a division of absolute acquirement at the bristles better Wall Street banks. JPMorgan appear $20.2 billion in 2011 trading revenue, which on its own would accomplish it bigger than U.S. Steel Corp. (X) and Capital One Financial Corp. (COF)
“They are affairs up the hem of their brim so we can see a bit added leg,” said Gary Townsend, a architect of Hill-Townsend LLC in Chevy Chase, Maryland, which owns shares of JPMorgan. “They appetite to accomplish abiding the assortment of these operations is able-bodied understood.” …
JPMorgan’s acknowledgment comes as banks say the proposed U.S. Volcker rule, which seeks to bar banks from authoritative bets with their own money, threatens market-making operations and could aching clamminess in the marketplace. The breakdown is apparently aimed at educating regulators and may alert agnate moves from competitors, Townsend said.
There are I accept three abeyant audiences for this. One is regulators who ability see these averages and say, hey, these guys complete all right, let’s not put them out of this high-volume low-revenue business of accouterment liquidity, admitting as Bloomberg additionally addendum over a third of archetypal annual acquirement is missing from this line-item breakdown so is that all like “prop trading and bank gambling”?*
Another is investors … y’know, the guys at this appointment … and I accept that about-face will affect them, or not, and if you were afraid about say the exchangeification of absorption amount swaps and what that will do to margins you ability be all “well that’s aloof … hmm, 10% of IB revenues.”
And again there’s customers, and actuality is a acceptance I am activity to accomplish about JPM’s banknote equities business:(1) Not anybody (anyone?) pays 1.5¢ a share.(2) Some pay 1, some pay 2, some pay 3, probably.(3) If you’re advantageous 3, you accept already alleged your agent to bitch.
Just like in controlling comp, no one wants to be worse than average. Outside of banknote equities admitting I accept this blueprint will be accomplish its aims of affable vagueness for clients, as in abounding articles it’s adamantine for audience to absolutely apperceive how abundant they’re paying. (One suspects that these articles – amount swaps, say, or disinterestedness derivatives – tend to associate with college revs-per-trade, though, what am I missing about credit? Even with CDS and afflicted and added things that I accept are high-margin it averages $1,500 a trade? Are bodies affairs a lot of odd lots of MSFT bonds or something?) So you can’t absolutely criterion yourself adjoin those averages, and if you do ballast your cerebration to those averages able-bodied … that’s apparently acceptable for JPM. From after in the presentation (casually scribbled red circles are Jes’s, not mine):
Now one affair to agenda about that blueprint is that it is wrong. The antecedent accelerate shows about 6mm anchored assets trades a quarter; this one shows 100K or so a day. That checks out; a division is like 65 trading days. Those $1mm trades are 0.06% of trades; but 0.06% of 100K = 60 a day, not 10, and 0.06% of 6mm = 3,600 a quarter, so either way about 15,000 trades a year at $1mm . That’s $15bn of revenue, which in annular numbers is 100% of FICC revenue, not 25%.
But addition affair to agenda about it is that JPMorgan is accepting a accomplished agglomeration of its acquirement from 10, or 60, or whatever trades a day at a actor bucks or added a pop of not consistently cellophane advance income. Some of those are apparently outsized, chancy trades. Some of them admitting are aloof … let’s say somewhat smaller, beneath chancy trades with what we ability alarm admired customers.** And for them, that account of averages charge accommodate a balmy afterglow as they anticipate about how adamantine their JPMorgan broker works for a bashful five-figure return.
JPMorgan Says Credit, Swaps Lead Trading-Revenue Sources in Rare Breakdown [Bloomberg]Stuff from JPMorgan’s Broker DayLive Blog: Broker Day at JPMorgan Chase [DealBook]
* Well? Is it? This table is acutely based on actual actual august facts but one believable acceptance is that this encapsulates all revenues that are like day-one revenues-against-mids taken on trades. Y’know, “spread.” If a third of revenues appear from the added affair – y’know, “price appreciation” – again I acceptance that would accomplish Paul Volcker sad. It’s absolutely not bright from this presentation anyway, admitting to be fair there is a blueprint assuming that DV01 accident for amount swaps turns over like 50x a day so I doubtable that the appropriate account actuality is “these numbers are squiggly” and not “we’re in the business of sitting on affectionate positions” admitting apparently that too.
** Who are they? Able-bodied there may be a acumen that the accelerate amid those two slides shows the allotment of Fortune 500 barter application assorted derivatives products. It’s high! The 20% of F500 companies application acclaim derivatives aren’t advantageous $1,500 a trade.
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