Investment Banking Falls Further than Expected

United States banks are experiencing the industry’s worst two years of revenue growth since the Great Depression, according to Mike Mayo, an analyst with independent research firm CLSA in New York. JP Morgan Chase & Co (NYSE:JPM), the largest United States bank by assets, said fourth-quarter profit fell 23 percent. Trading revenue, including an 18 percent drop from a year earlier and investment-banking fees, declined as well. Chief Executive Officer Jamie Dimon forecast in December that investment-banking revenue would be “essentially flat” from the third quarter’s $6.37 billion, but the drop was larger than he expected.

Investment banks are disclosing plans to reduce staff by more than 200,000, to compensate for falling trading revenue. Royal Bank of Scotland Group Plc, (NYSE:RBS), Britain’s biggest government-owned bank, said this week it would cut about 4,800 jobs. Slowing economic growth, mounting mortgage liabilities, and increased worries that Europe’s debt crisis will continue and reach others has influenced bank stocks the entire year. Just two of the 24 companies in the KBW Bank Index (NYSE:BKX) posted a gain in 2011, and the worst performer, Bank of America Corp. (NYSE:BAC), was down 58 percent. Total revenue fell 30 percent to $4.36 billion, which was reflected in the behavior of clients staying out of the picture wrought with concern over Europe’s debt crisis.

“It was a rough ride for bank-stock investors in 2011 as slowing growth expectations, persistent capital uncertainty and unprecedented regulatory reform weighed heavily on the sector,” Todd Hagerman, an analyst at Sterne Agee & Leach Inc. in New York, wrote in a December 21 research note. “The events of the 2011 bank-stock meltdown are a vivid reminder that shifting views of risk can have a major impact on market direction, not to mention bank stocks,” according to Bloomberg.

Further Reading: JPMorgan Chase & Co. Earnings: Bad Luck Continues>>

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