JP Morgan Wealth Customers Retreated in Second Quarter
(Adds in seventh paragraph that client advisor headcount fell 5% in the second quarter.)
Revenue at JP Morgan Chase & Co’s asset management division, which includes its wealth management and investment management businesses, fell 7% from a year earlier to $2.94 billion as assets under management, performance fees and brokerage activity plunged.
The report casts a shadow on upcoming reports from the wealth management units of other banks and broker-dealers. Wells Fargo & Co. and Citigroup will report their results on Friday, followed by Bank of America (Merrill Lynch) and Charles Schwab Corp. on Monday and by Morgan Stanley on Tuesday.
In a conference call with analysts, JP Morgan Chief Financial Officer Marianne Lake indicated that retail investors continued to show anxiety, withdrawing from stock and multi-asset investments while putting money into less lucrative fixed-income products. Net inflows into short-term “liquidity” products of $4 billion during the quarter overshadowed $3 billion that investors put into long-term fund products.
The drop in asset management revenue at JPMorgan, the largest U.S. bank by assets, was overshadowed by higher-than-expected earnings and revenue at the overall company, driven by strong gains in fixed-income trading and lower expenses.
JP Morgan, or $1.54 a share, on Thursday, a penny-a-share higher than a year ago. Analysts polled by Thomson Reuters had forecast earnings on average of $1.43 a share. JP Morgan shares were up 2.5% in morning trading.
The asset management division, which includes JP Morgan’s investment management and private banking businesses, reported a 16% jump in net income to $521 million despite lower revenue. The gain came from a 13%, $236-million year-over-year decline in quarterly expenses that strongly offset the 7% revenue plunge.
JP Morgan initiated layoffs at its private banking unit in the second quarter, signaling that overhead expenses may continue falling in the second half of the year as severance and benefit payments expire. Client advisors in the division fell 5% in the first quarter to 2,622 from 2,750 as of March 30, 2016.
The suffered a $236 million decline in revenue to $1.4 billion from the second quarter of 2015 as assets under management fell 5% to $1.7 trillion “due to the effect of lower market levels, outflows from liquidity products and asset sales,” the company said.
Private banking revenue in the division ticked up $10 million to $1.5 billion as customers’ average loan balances grew 4% from the year-earlier quarter. Deposit balances, a source of cheap funding for the bank, fell 1% from the 2015 second quarter in the asset management division, while its assets under management sunk 5% to $1.7 trillion.
“Weaker markets, lower performance fees and lower activity” translated to pallid asset-management results, Lake said. On the other hand, the bank expects consumer loan growth to continue strong throughout the bank in the second half of the year.
Asset management is the smallest of JP Morgan’s four business divisions. Its $521 million of profit and $2.9 billion of net revenue last quarter was overshadowed by Chase consumer bank’s $2.7 billion of profit and $11.5 billion of net revenue, by the corporate and investment banking division’s $2.5 billion of profit and $9.2 billion of revenue. (Commercial banking, JP Morgan’s third-largest business, generated $696 million of second-quarter profit on $1.8 billion of revenue.)