JPMorgan Offers Peek into Trading Magic Circle

Agenda-Setting Financial Insight.
Feb. 29 2012 5:06 PM

JPMorgan Offers Peek into Trading Magic Circle

116622561
Jimmy Lee, Vice Chairman of JPMorgan Chase & Co., speaks at a gala for the Make-A-Wish Foundation of Metro New York. JPM recently granted shareholder wishes by being more forthright about its trading and market-making revenue.

Photo by Andrew H. Walker/Getty Images for Make-A-Wish Foundation of Metro New York

Jes Staley is not going to be popular in Wall Street’s trading brotherhood. The head of JPMorgan’s investment bank has broken a code of silence by revealing how much the firm rakes in as a market-maker.

Shareholders will consider that a smart move. The new disclosures at the bank’s investor day on Tuesday gave them needed insight into the trading tricks investment banks typically keep under wraps. Banks usually bundle their 25 or more fixed income, currency and commodity products into just one revenue number, perhaps adding a little data-light color during earnings calls. Aside from that, all investors have to go on is trading desk gossip.

Goldman Sachs revealed a sliver more last year by divulging the pre-tax margin for its trading unit as well as for its other major businesses. But Staley has, as he put it, “opened the kimono” much further by breaking out the average revenue per trade the bank earned last year in 11 major FICC products and four equities ones.

Interest-rate swaps came top at $12,000 a pop. Trading loans or asset-backed bonds brought in $10,000 a time. These amounts reflect illiquidity or the fact the trades are tailor-made for clients, in both cases leaving the middleman with extra risk. Foreign exchange spot and forward trades were the least profitable per transaction at just $70. But they’re also the most popular, at five million trades a quarter, and mostly done electronically at low cost.

This gives investors useful extra information to include in their models. JPMorgan, which may only want to release the data once a year, is taking the risk that analysts and shareholders will push for more frequent updates, and for more detail.

But the bank, headed by Jamie Dimon, is also sending a message to regulators and lawmakers by offering a peek inside the trading magic circle. All the data points reflect deals with clients, not other banks. And they represent 70 percent of trading revenue, with the rest coming from net interest income, prime brokerage and other client businesses. In other words, Staley is trying to show a skeptical audience that banks - well, JPMorgan at least - provide valuable services rather than indulging in trading for their own account.

There’s probably not yet enough information to quell lingering suspicions that Wall Street still engages in some proprietary trading. But Staley’s looser kimono is usefully revealing all the same.

Read more at Reuters Breakingviews.

Antony Currie has more than a decade of experience as a financial journalist, having worked with Euromoney since 1996, most recently as a US editor. He has worked on assignments in the major financial centres of Europe and the US and written stories on capital markets, global economies and the investment banking industry.

TODAY IN SLATE

Medical Examiner

Here’s Where We Stand With Ebola

Even experienced international disaster responders are shocked at how bad it’s gotten.

Why Are Lighter-Skinned Latinos and Asians More Likely to Vote Republican?

A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

The XX Factor
Sept. 22 2014 12:29 PM A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

Subprime Loans Are Back

And believe it or not, that’s a good thing.

It Is Very Stupid to Compare Hope Solo to Ray Rice

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

How Ted Cruz and Scott Brown Misunderstand What It Means to Be an American Citizen

Divestment Is Fine but Mostly Symbolic. There’s a Better Way for Universities to Fight Climate Change.

  News & Politics
Politics
Sept. 22 2014 6:30 PM What Does It Mean to Be an American? Ted Cruz and Scott Brown think it’s about ideology. It’s really about culture.
  Business
Moneybox
Sept. 22 2014 5:38 PM Apple Won't Shut Down Beats Music After All (But Will Probably Rename It)
  Life
Dear Prudence
Sept. 23 2014 6:00 AM Naked and Afraid Prudie offers advice on whether a young boy should sleep in the same room with his nude grandfather.
  Double X
The XX Factor
Sept. 22 2014 7:43 PM Emma Watson Threatened With Nude Photo Leak for Speaking Out About Women's Equality
  Slate Plus
Slate Plus
Sept. 22 2014 1:52 PM Tell Us What You Think About Slate Plus Help us improve our new membership program.
  Arts
Brow Beat
Sept. 22 2014 9:17 PM Trent Reznor’s Gone Girl Soundtrack Sounds Like an Eerie, Innovative Success
  Technology
Future Tense
Sept. 22 2014 6:27 PM Should We All Be Learning How to Type in Virtual Reality?
  Health & Science
Medical Examiner
Sept. 22 2014 4:34 PM Here’s Where We Stand With Ebola Even experienced international disaster responders are shocked at how bad it’s gotten.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.