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JPMorgan’s Equity Derivatives Haul Soars to $1.5 Billion

Michelle F. Davis, Donal Griffin and Max Abelson

(Bloomberg) -- Revenue is swelling in a key part of JPMorgan Chase & Co.’s trading division as its teams stay engaged through violent price swings that have prompted some market players to pull back.

The bank’s equity derivatives traders have generated roughly $1.5 billion in revenue so far this year, according to a person with knowledge of the situation who asked not to be identified because the numbers are confidential. That’s almost what JPMorgan reported from all equity markets businesses in last year’s first quarter -- and at least twice what that derivatives desk usually earns, people familiar with the bank’s performance said.

It’s a snapshot of the way the coronavirus crisis is shifting fortunes on Wall Street. It also shows the intensity of the pace for employees who keep reporting to offices to navigate the turmoil. Some members of the derivatives desk could still be seen sitting closely together inside the bank’s Manhattan offices late last week, despite pleas from public health officials and the bank’s own leaders to help stop the spread of the deadly virus by keeping distance.

A bank spokesman declined to comment on the unit’s earnings. The company’s technicians have been working as fast as possible to move hardwired desks farther apart to ensure safety, a person with knowledge of the matter said.

“We have taken many precautions over the past several weeks to spread traders out within floors and across buildings, and from what we’ve seen they are adhering to social distancing guidance,” the biggest U.S. bank said in a statement.

The revenue boon from equity derivatives at JPMorgan and other Wall Street firms will help offset pain elsewhere. Bank stocks have plunged on expectations that low rates will crimp lending margins, plunging markets will weigh on some trading groups and wealth-management fees, and spiking unemployment will boost loan losses. JPMorgan’s shares jumped 5.2% at 10:05 a.m. in New York, but are still down 31% this year.

JPMorgan controls the largest share of the market for equity derivatives, according to the most recent Coalition data from 2018. This year’s windfall isn’t just a result of the market’s elevated volume, according to people with knowledge of the matter.

During normal times, high-frequency traders and hedge funds play a role in facilitating transactions, but record-setting price swings have strained the ability of algorithms to anticipate moves. That’s forced some of those firms to limit their transactions and leave market share for banks.

By early March, JPMorgan and Citigroup Inc. had together generated about $500 million in additional revenue from equity derivatives, compared with the same period a year earlier, people familiar with the figures said at the time. In the days since, JPMorgan’s boost -- then estimated at about $300 million -- has soared further.

Like rivals across Wall Street, JPMorgan has sent much of its global workforce home to help stem the spread of the coronavirus. But not all employees are able to work remotely, because they rely on tools and high-speed connections available only in offices. In early March, JPMorgan split its sales and trading staff into groups, leaving some at the bank’s Madison Avenue tower and assigning others to work remotely or from back-up trading floors in New Jersey and Brooklyn.

Last week, New York Governor Andrew Cuomo ordered all workers in nonessential businesses to stay home. But he exempted some of the workers who keep Wall Street running and making money.

(Adds stock performance in 6th paragraph.)

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