J.P. Morgan and Citi are the first major U.S. investment banks to unveil their Q2 results for 2017. Most banks have already warned investors that the fixed income currencies and commodities (FICC) party that characterised the first quarter is well and truly over. What's more, J.P. Morgan's dominance of the investment banking league tables and market share within most trading businesses are more likely to lead the charge than set the pace. But, what do you need to know?
Like most investment banks J.P. Morgan trimmed headcount during the first quarter, ejecting 367 in Q1, or a mere 1% of its total headcount in its corporate and investment bank. It's now back up again for the first time since the third quarter of last year, when the annual intake of graduate hires always bolsters employee numbers. J.P. Morgan now has 49,228 people employed in the division - an increase of 423 people on the previous quarter. Every little helps.
J.P. Morgan's compensation spend so far this year is down on 2016. In Q2, it accrued $2.4bn in compensation costs - a 10% reduction on the same period last year. J.P. Morgan bundles its investment bank in with corporate bankers, who are usually paid less, so its compensation revenue remains tiny relative to its competitors, at 28% of revenues.
The second quarter of 2017 was slower for investment bankers than the same period last year, according to Dealogic, but a big start to the year has meant that the first half was up 11% on the $36bn generated last year. However, M&A activity in the second quarter was down 9.2% globally. J.P. Morgan's investment bankers have managed to avoid this slip and revenues were up by 8% in the division.
J.P. Morgan ranks number one across the board, so its not a big surprise to see revenues increase in all its advisory businesses. Equity capital markets teams have continued to enjoy a resurgence (up 80% in the first half) and J.P. Morgan's division is up by 29% on last year during Q2. So far this year, debt capital markets revenues are on a par with 2016, but J.P. Morgan's DCM bankers were up 5% in Q2.
If J.P. Morgan's investment bankers have been going against the grain, Citi's have had a great second quarter - at least compared to last year. Its equity capital markets revenues were up by 70%, to $225m, while advisory revenues increased by 32% and DCM was up by 9%.
Citi has been focusing more on its investment bank and making some big hires. One recent heavy-hitter to join was Alison Harding-Jones who came in as head of M&A in Europe, the Middle East and Africa and vice-chairman of corporate and investment banking in the region.
Analysts had factored in a 15% decline in fixed income revenues this quarter at J.P. Morgan, but it ended up down by 19%. Universal banks like J.P. Morgan and Citi were expected to benefit from rising interest rates, especially if they have "macro footprints" in FX and rates, according to a note issued this week by UBS analyst Brennan Hawken, but this has largely helped consumer divisions. J.P. Morgan blamed the FICC results on "sustained low volatility and tighter credit spreads". It doesn't break out revenues by division, but said that rates, credit and commodities were particularly badly affected.
Meanwhile, Citi's fixed income division was down by just 6%. Again, it says that its rates division was the primary reason for this. Spreads tightening and last year there was a big bump in revenues because of the Brexit vote. Citi is closing the gap on J.P. Morgan and has continued to make some big hires in FICC, most recently Martin Cross, the former head of gilt trading at J.P. Morgan who came of retirement to join Citi.
J.P. Morgan said that Q2 2016 was a particularly strong quarter for its equities business, so a 1% decline in revenues seems like a positive. The bank said that its corporate derivatives and prime services divisions were particularly strong in the last three months. Citi wasn't so lucky - its 11% year on year decline in equities revenues was due to lower volatility it said.
The one area that higher interest rates have benefited within J.P. Morgan's investment bank is its treasury services division. An 18% uptick in revenues year on year, to $1.1bn, is the strongest year on year improvement across the CIB.
J.P. Morgan's traders are not exactly being given the freedom to extend themselves. Its value at risk (VaR) across its CIB was down 40% year on year. The biggest reduction was within fixed income, which was down by 64% on Q2 last year.
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