The world’s markets are about to get calmer — and Wall Street could end up worse off for it.
Big investment banks could see revenue fall by as much as 20 percent in the third quarter compared with the previous three months, as choppy market conditions hurt trading and deal activity, JPMorgan Chase said in a report Thursday.
Markets around the world went haywire in August after China devalued its currency. The move sparked a global sell-off as investors worried that the world’s biggest economy was slowing.
While the initial jolt led investors to churn through their portfolios, trading activity will decline once the markets settle down by the end of the month, according to JPMorgan analyst Kian Abouhossein.
“Recent strong turnover, especially in equities, could decline materially once markets settle — not just in Asia but globally,” Abouhossein wrote in a research note to clients.
Stock trading desks should brace for the worst — as much as 20 percent less than last quarter — after the spike in trading volume recedes, he said.
Trading in bonds, currencies and commodities could also tighten by 18 percent because of “potential defaults,” Abouhossein said.
“Volume is lower often in a highly volatile period,” said Erik Oja, an analyst at S&P Capital IQ.
The more volatile markets could affect deals through the end of the year, dragging down revenue from mergers and acquisitions by 17 percent, according to Abouhossein.
JPMorgan isn’t the only one pessimistic about the investment banks.
Trading volume has been lower than normal for most of the quarter, except during the most recent spike in trading, according to Michael James, an analyst at Wedbush Securities.
Banks with big brokerages, such as Goldman Sachs and Morgan Stanley, could see a 15 percent slide in revenue — even with the recent spike in trading, according to boutique bank Evercore.
But as Evercore analyst Glenn Schorr said in his note on the markets: “While the third quarter could be a tough one … it ain’t over yet.”