It’s US bank results week. JPMorgan’s third quarter results are now properly out after they were accidentally released early. Citi’s third quarter results are out too. What do they say? What are the learnings for your own job in banking? Well.
1. Fixed income sales and trading revenues will not rescue bonuses, or jobs
Fixed income currencies and commodities (FICC) revenues didn’t decline year-on-year in the third quarter, but neither did they show much sign of rushing back and rescuing traders’ jobs or traders’ bonuses.
Last week, Antony Currie, associate editor of BreakingViews, estimated that Goldman Sachs, Morgan Stanley and JPMorgan collectively needed to make an extra $12bn from fixed income trading in the third quarter if they wanted to raise their return on equity to an acceptable 15%.
Today’s results confirm that this will not happen. At JPMorgan, fixed income markets revenues were up only 2% or $73m year-on-year in the third quarter. At Citigroup they were up only 5%. Currencies and emerging markets were comparatively strong at JPM.
With fixed income revenues flat, it seems likely that banks will trim a few more fixed income traders before the end of the year. Cuts are unlikely to be deep though – in September, Marianne Lake, CFO at JPMorgan said she was hopeful that fixed income revenues will rebound in 2015.
2. Return on equity remains a big issue and will force job or pay cuts unless it can be addressed
Citigroup doesn’t break out return on equity (RoE) for its institutional clients group, but at JPMorgan’s corporate and investment bank, the RoE situation was already bad and is getting worse.
In the third quarter of 2014, the RoE for JPMorgan’s corporate and investment bank was 10%. In the third quarter of 2013 it was 16%. RoE is supposed to be improving. At JPMorgan it is moving the wrong direction, fast.
3. Trading jobs are becoming less exciting as risk is cut
Citigroup also doesn’t break out its Value at Risk (VaR). JPMorgan does, and it’s low – lower than it’s been for a long, long time.
In the third quarter, overall VaR at JPM’s corporate and investment bank was $35m, down from $45m in the third quarter of 2013.
In FICC, VaR at JPMorgan was a mere $28m in the third quarter, down from $43m last year and $118m in 2012. Risk is off, still.
4. JPMorgan’s attempts to improve its equity trading business have come to nothing. Citi’s improvements have come to fruition
JPMorgan and Citi have been trying to rejig their equity trading businesses. Only one of them has been successful.
Earlier this year, JPM said it was going for a top three position in equities trading and that it wanted to invest it in its equities business. Citigroup didn’t make such bold statements, but quietly appointed new heads of its equities business globally and in Europe.
At JPMorgan, equities revenues fell 1% in the third quarter. At Citi, they rose by an impressive 14%. JPMorgan is doing something wrong.
5. Your job is safe if you work in investment banking, unless you work in debt capital markets at JPMorgan
JPMorgan and Citi’s results confirmed that 2014 has been kind to investment banking divisions (IBD). However, it’s been more kind to Citi’s investment banking division than to JPMorgan’s. And it hasn’t been kind to JPMorgan’s debt capital markets (DCM) bankers at all.
In the third quarter, DCM revenues at JPMorgan fell 16%. At Citi they rose 9%.
Across IBD (equity capital markets, DCM and M&A), revenues at Citi were up 32%. At JPMorgan they were up 2%. JPMorgan seems to be misfiring here too.
6. Even if you have a bad quarter, you will be paid more – if you’re at JPMorgan
Despite the failings of JPMorgan’s corporate and investment bank in the third quarter, pay across the business is rising. The compensation ratio increased from 28% in the third quarter of 2013 to 32% in the third quarter of 2014. JPM cites “higher compensation expenses,” in the presentation accompanying its results. Given the overall picture at JPMorgan’s CIB, this seems strange. Can you really still gain a pay increase when shareholders are losing out and you’re under-performing your peers? Apparently you can.