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JPMorgan (JPM) Upgrades Platform Amid Bond Selling Pressure
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Amid the current market decline primarily due to the Russian invasion of Ukraine, dealers across Wall Street are seeking to offload securities on behalf of their clients. Thus, JPMorgan Chase (JPM - Free Report) is boosting its electronic trading platform so that it becomes easy for the bank to sell corporate bonds.
JPM has been building the JPMorgan Liquidity Network for months now. Per Austin Garrison, the head of North America credit trading at JPMorgan, the network has been designed in a way that it can now send requests to customers to bid on corporate bonds, which earlier only allowed for customers to ask the firm for bids.
While the move comes at a time when investors are seeking to offload debt securities, it is not necessarily in response to the current drop in bond prices. Notably, JPM has been working on its electronic trading platform for several months now.
Garrison stated, “We’re trying to make sure we continue to provide best-in-class liquidity as the market structure changes and client needs become more nuanced and in some ways more complex.”
At the start of the pandemic in 2020, it was difficult to search for buyers of bonds, with risk premiums on high-grade U.S. corporate bonds shooting up. Amid the crisis, the Federal Reserve took a series of steps (including its bond-purchase program) to prevent the markets from the negative impacts of the pandemic.
With the Fed taking such steps, many Wall Street banks were prompted to increase investments in algorithmic credit trading technology to improve their performance when bond prices move steeply.
In the current scenario, when the Fed has decided to hike interest rates and investors are becoming more reluctant to enter the markets because of the massive risk involved, the corporate bond market is facing new selling pressures. Because of this, the risk premium on high-grade U.S. corporate bonds has reached its highest level since late 2020.
However, even when bond prices are falling sharply, the overall corporate bond trading volumes (which should go up when prices fall) have gone down from a year ago.
Coming to JPM, as part of its current up gradation efforts, the bank also plans to connect its European and emerging market corporate bond trading desks to the electronic trading platform in the first half of 2022.
Garrison said that the JPMorgan Liquidity Network has begun automating the bank’s requests for quotes and bids on municipal bonds as well, which were historically done manually.
Notably, the JPMorgan platform, which has been rolled out in phases from the last quarter of 2020, now allows clients to electronically trade North American corporate and municipal bonds, with JPM as the sole dealer. With the move, the bank’s clients, who might otherwise have to trade through a third party, will save costs in terms of fees.
The platform also gives clients access to JPM’s data and includes pre and post-trade analytics and services. The platform works with JPMorgan’s algorithmic trading technology, which can price and trade some bonds without any human input.
Pasquale Cataldi, the head of JPMorgan’s Digital Markets Lab, which has designed the electronic platform, stated, “Our algorithmic trading capabilities have been largely improved over the last several years, and they’re connected to this network. In general, our ability to give quotes during highly volatile periods has significantly increased, as we tap multiple sources of internal and external liquidity in real time.”
Our Take
JPMorgan’s digitization efforts are expected to continue to support its financials. However, the bank has been witnessing expense pressure for the past several years. For 2022, adjusted operating expenses are projected to be $77 billion, up 8% year over year. The increase is largely due to “revenue and volume-related expenses,” technology upgrade costs, and the impact of expenses related to the strategic acquisitions that JPM has been engaging in.
Shares of JPM have lost 18.8% over the past six months compared with a 4.5% decline of the industry.
Image Source: Zacks Investment Research
Currently, JPMorgan carries a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for Hancock Whitney’s current-year earnings has moved up by 7.3% over the past 60 days. Shares of HWC have gained 23% in the past year.
The consensus estimate for First Bancorp’s 2022 earnings has increased 11.5% over the past 60 days. Over the past year, the FBNC stock has declined 8.9%.
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JPMorgan (JPM) Upgrades Platform Amid Bond Selling Pressure
Amid the current market decline primarily due to the Russian invasion of Ukraine, dealers across Wall Street are seeking to offload securities on behalf of their clients. Thus, JPMorgan Chase (JPM - Free Report) is boosting its electronic trading platform so that it becomes easy for the bank to sell corporate bonds.
JPM has been building the JPMorgan Liquidity Network for months now. Per Austin Garrison, the head of North America credit trading at JPMorgan, the network has been designed in a way that it can now send requests to customers to bid on corporate bonds, which earlier only allowed for customers to ask the firm for bids.
While the move comes at a time when investors are seeking to offload debt securities, it is not necessarily in response to the current drop in bond prices. Notably, JPM has been working on its electronic trading platform for several months now.
Garrison stated, “We’re trying to make sure we continue to provide best-in-class liquidity as the market structure changes and client needs become more nuanced and in some ways more complex.”
At the start of the pandemic in 2020, it was difficult to search for buyers of bonds, with risk premiums on high-grade U.S. corporate bonds shooting up. Amid the crisis, the Federal Reserve took a series of steps (including its bond-purchase program) to prevent the markets from the negative impacts of the pandemic.
With the Fed taking such steps, many Wall Street banks were prompted to increase investments in algorithmic credit trading technology to improve their performance when bond prices move steeply.
In the current scenario, when the Fed has decided to hike interest rates and investors are becoming more reluctant to enter the markets because of the massive risk involved, the corporate bond market is facing new selling pressures. Because of this, the risk premium on high-grade U.S. corporate bonds has reached its highest level since late 2020.
However, even when bond prices are falling sharply, the overall corporate bond trading volumes (which should go up when prices fall) have gone down from a year ago.
Coming to JPM, as part of its current up gradation efforts, the bank also plans to connect its European and emerging market corporate bond trading desks to the electronic trading platform in the first half of 2022.
Garrison said that the JPMorgan Liquidity Network has begun automating the bank’s requests for quotes and bids on municipal bonds as well, which were historically done manually.
Notably, the JPMorgan platform, which has been rolled out in phases from the last quarter of 2020, now allows clients to electronically trade North American corporate and municipal bonds, with JPM as the sole dealer. With the move, the bank’s clients, who might otherwise have to trade through a third party, will save costs in terms of fees.
The platform also gives clients access to JPM’s data and includes pre and post-trade analytics and services. The platform works with JPMorgan’s algorithmic trading technology, which can price and trade some bonds without any human input.
Pasquale Cataldi, the head of JPMorgan’s Digital Markets Lab, which has designed the electronic platform, stated, “Our algorithmic trading capabilities have been largely improved over the last several years, and they’re connected to this network. In general, our ability to give quotes during highly volatile periods has significantly increased, as we tap multiple sources of internal and external liquidity in real time.”
Our Take
JPMorgan’s digitization efforts are expected to continue to support its financials. However, the bank has been witnessing expense pressure for the past several years. For 2022, adjusted operating expenses are projected to be $77 billion, up 8% year over year. The increase is largely due to “revenue and volume-related expenses,” technology upgrade costs, and the impact of expenses related to the strategic acquisitions that JPM has been engaging in.
Shares of JPM have lost 18.8% over the past six months compared with a 4.5% decline of the industry.
Image Source: Zacks Investment Research
Currently, JPMorgan carries a Zacks Rank #4 (Sell).
A couple of better-ranked stocks from the banking space are First Bancorp (FBNC - Free Report) and Hancock Whitney Corporation (HWC - Free Report) . Both First Bancorp and Hancock Whitney sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Hancock Whitney’s current-year earnings has moved up by 7.3% over the past 60 days. Shares of HWC have gained 23% in the past year.
The consensus estimate for First Bancorp’s 2022 earnings has increased 11.5% over the past 60 days. Over the past year, the FBNC stock has declined 8.9%.