Bank of America Sees Q3 Banking Fees Falling; JPMorgan Sees a Rise

Barclays held its annual financial services conference starting Monday, September 14.

Bank of America CEO Brian Moynihan spoke on day one. JPMorgan Commercial and Investment Bank co-CEO Doug Petno spoke on day two.

Both described the same quarter. One said down, the other said up.

Day One: Fees Are Falling

Moynihan's range was specific. Third-quarter investment banking fees would land between $1.6 billion and $1.8 billion.

The same line was $2.0 billion in the year-ago quarter. That is a decline of 10% to 20%.

Sales and trading revenue, he said, would be roughly flat against last year's $5.4 billion. He pointed to higher interest rates slowing financing demand.

It was an abrupt break from the prior quarter. In April through June, Bank of America grew investment banking fees 50% and trading revenue 33%.

The market did not read the range as Bank of America's alone. At Monday's close, Bank of America fell 5%, Goldman Sachs 4%, Morgan Stanley 3.6% and Citigroup 1.9%.

Day Two: Fees Are Rising

Petno spoke in the same room on Tuesday morning.

JPMorgan's third-quarter investment banking fees would rise by a mid- to high-teens percentage from a year earlier, he said. He gave the same range for markets revenue, citing broad-based strength across fixed income, currencies and commodities and across equities.

The same remarks carried a warning:

"it sort of feels like… it's too good"

JPMorgan closed Tuesday up more than 1%.

Two opposite sentences about the same three-month period, at the same conference, on consecutive days.

The Market Read It as a Disagreement

It was not a disagreement. It was two different fee mixes.

A Jefferies note covering the period through September 3 gives the industry total: investment banking fee revenue at eight major banks fell 15% year over year to $9.7 billion.

Underneath that total sit three separate lines, and they are not moving together.

Weighting each line by the dollars it actually carries makes the picture clearer.

Mergers did not stop; advisory is down 14%. The IPO window did not close either — equity issuance was the strongest line of the year.

What stopped is the bond desk.

The 10-year Treasury yield reached 5.04% on Tuesday, its highest since 2007. The fewer issuers willing to borrow at that level, the smaller the fee the underwriting bank collects.

That was Moynihan's own stated reason. More: Interest Rates and Bonds.

Same Measure, Three Different Answers

The Jefferies note also breaks the total down bank by bank.

Three banks, one market, one quarter, one rate environment. The thirty-eight-point spread between them comes from their revenue mixes, not from rates.

The bank weighted toward debt underwriting and lending absorbs most of the 32% contraction. The bank weighted toward advisory and equity issuance does not.

The Part That Does Not Fit

On Monday, Bank of America's weak guidance spread across the whole table. On Tuesday, JPMorgan said the opposite and its stock rose 1%.

Goldman Sachs fell 3.13% the same day.

The bad news travelled across the sector. The good news did not.

The past month for both banks shows these two days were not decisive on their own.

The Dow contains both JPMorgan and Goldman Sachs; the index over the same window offers a wider frame.

What Is Left

Both numbers are still forecasts. The reported figures arrive on October 13 and 14.

Until then one question stays open: with the industry fee pool down 15%, is one bank growing its own fees by a mid- to high-teens percentage taking share, or is it a timing difference?

This article draws on Reuters, Bloomberg and CNBC accounts of remarks by Bank of America and JPMorgan executives at the Barclays Global Financial Services Conference on September 14 and 15, on a Jefferies industry note covering the period through September 3, and on US closing data for September 14 and 15. The Jefferies fee-pool figures are broker estimates rather than revenue reported by the banks themselves; the $1.7 billion breakdown is derived from those percentages.