JPMorgan is cutting costs. Daniel Pinto, chief executive of the corporate and investment bank, is reportedly casting around, looking for paper clips and other costs to eliminate. Pinto also seems to be quietly cutting pay: today's second quarter results from JPMorgan show that pay per head at the corporate and investment bank fell by 7% year-on-year in the second quarter of 2014, and by 11.5% year-on-year in the first half.
While JPMorgan seems to be squeezing its corporate and investment bankers, Goldman Sachs has most recently been increasing pay across the firm. Goldman's own second quarter results reveal a pay-per-head increase of 4% year-on-year in the second quarter. Overall, Goldman's compensation bill rose 6% over the same period, driven by a 6% increase in revenues.
Does this make Goldman Sachs more alluring than before? Maybe. The firm is slowly increasing its compensation to revenue ratio and seems to be hiring - Goldman added 700 new people between June 2013 and June 2014. Less promisingly, many of the new hires are likely to have turned up at Goldman's 'low cost locations' like Salt Lake City, and 200 people (probably from fixed income trading) were cut between March and June 2014. It's also worth noting that across the whole of the first half of 2014, Goldman cut pay by 3.4%, meaning that pay isn't on track to rise for the full year, although it won't be falling much at this rate either.
Why is pay being squeezed? Both JPMorgan and Goldman Sachs echoed Citi's struggles in fixed income currencies and commodities trading, but JPMorgan seems to suffering more. At JPMorgan, FICC revenues fell 18% year-on-year in the first half of 2014. At Goldman Sachs, they fell a mere 11%. Marianne Lake, CFO of JPMorgan admitted that JPM seems to be losing market share and said this was partly due to aggressive pricing by competitors (which it seems JPM is unwilling to match for fear of eroding its margin). Lake also said that FICC trading seemed to be coming back for a few weeks in June, but that this increased activity "hasn't continued into July so far." As a result, Lake predicts that JPM's third quarter FICC revenues won't be too hot either.
While the fixed income revenue engine is spluttering, both JPM and Goldman are still suffering from rising non-compensation costs. Lake said JPMorgan's fixed cost base is one of her "primary focuses." However, Jamie Dimon - who spoke on JPMorgan's call despite his cancer treatment, said cutting fixed costs won't stop JPMorgan from investing in, "better bankers" and "better training," while Lake said the bank will be "protecting the franchise" and investing in controls whilst making "select front office hires."
Earlier this year, JPMorgan said it plans to build in equities and that it especially wants to increase its electronic equities trading capabilities. So far, this hasn't come to much - JPMorgan's equity sales and trading revenues fell 10% year-on-year in the second quarter, despite an increase in risk taking in the equities business. That doesn't look too bad, however, considering that Goldman's 'equities client execution revenues' fell 24% over the same period...
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