JPMorgan’s results are out .
Ostensibly, they’re not too bad: fourth quarter profit was down, but this was to be expected.
As ever, however, the reality is slightly different to the headline figures. JPMorgan’s headline results include accounting allowances for changes in the value of its own credit (DVA). In the fourth quarter – unlike the previous three – DVA had a negative effect.
When DVA is stripped out for the full year, JPMorgan’s 2011 profits at its investment bank are lower by a massive 42% at ‘just’ $3.9bn. Similarly, excluding DVA’s flattering effect on revenues, the compensation ratio at the investment bank, which JPMorgan proudly states was 34% last year, comes in at 38%.
More confusingly, JPMorgan’s quarterly shareholder presentation still contains the words (on page 22): “Headcount-related expense includes salary and benefits (excluding performance-based incentives), and other non-compensation costs related to employees,” suggesting its compensation figures don’t actually include bonuses. Last time we enquired about this, JPMorgan was unable to explain its meaning.
Overlooking all this, JPMorgan appears to have been true to its word and isn’t really reducing pay by much at all. For 2011 it’s paying its investment bankers an average of $341k, down only 8% from the $370k it paid them last year. Headcount cuts seem gentle rather than aggressive: in Q411 a mere 315 fewer investment bankers were employed than in Q410, a reduction of 1%.
When DVA is stripped out., JPMorgan’s FICC business did rather well last quarter. Revenues there rose 7% year on year compared to Q410. In equities, however, revenues fell 13% excluding DVA. And in equity underwriting they were down 65%. Unless things change fast, the implication is that 2012 will be the year in which IBD teams – rather than FICC businesses – suffer the biggest headcount fall.
And in other news:
SocGen’s cutting 100 people from its corporate and investment bank in Asia. (Wall Street Journal)
Deutsche Bank is scaling back its equities business inAustriain order to focus it on Frankfurt andLondon. People will obliged to migrate. (Bloomberg)
Barclays announced 422 IT jobs would go from its retail bank with some roles going offshore to Lithuania. (Guardian)
Horta-Osório, who started in the job less than a year ago, could have claimed a maximum bonus of £2.4m last year, or 225% of his basic salary, but won’t. (Guardian)
It has not gone unnoticed that the staff cuts will take the division’s employee numbers back to around their level at the start of the last decade when RBS’s then Corporate Banking and Markets business employed 14,000. (Telegraph)
John Hourican made a paper profit of £250k yesterday. (Financial Times)
All the truly capital-intensive businesses at RBS will be retained…Hester is gambling that the new markets division can generate a 12% average return on equity on around £100 billion ($153.3 billion) of risk-weighed assets on a Basel III basis. That effectively means the new unit must generate around £1.2 billion of earnings, more than the old division is expected to deliver this year, on roughly half of the balance sheet previously envisaged—and in a business in which the willingness to take risk has traditionally been critical. (Wall Street Journal)
Tracy Wood, Ernst & Young’s youngest-ever partner at 27, deferred and then abandoned a place at Cambridge University because she wanted to be an accountant. (Financial Times)
MBA students have no regrets about spending all that money. (Poetsandquants)
How likely is a runaway greenhouse effect on earth? (Technology Review)