Are you a fixed income currencies and commodities (FICC) trader at J.P. Morgan? Did you get paid well compared to your friends at other banks for last year? You probably should have been: J.P. Morgan said today that its front office fixed income traders generate higher revenues per head than rivals at any other bank on the Street.
The revelation was buried in today’s investor day presentation from the U.S. investment bank and is based on figures for the first half of 2017 from research firm Coalition which are not usually made public. Coalition’s figures are confirmed by rival research firm Tricumen, which says productivity per head on fixed income trading floors is highest at J.P. Morgan, along with RBS and Citi.
If you’re a trader at J.P. Morgan and you didn’t get paid last year, there might be a valid reason for your disappointment, however. – Needless to say revenue productivity is not the whole of the story.
During today’s presentation, J.P. Morgan also disclosed that return on equity in its fixed income division fell from 16% in 2016 to 12% last year. It said too that its FICC market share went from 11.7% to 11.4% over the same period as revenues declined more than rivals’ (although this may understate the decline given that J.P.M. was boasting of a 12.0% share of 2016 FICC revenues at its investor day in 2017).
At the same time, FICC is almost certainly consuming a significant portion of J.P. Morgan’s massive $10.8bn technology budget as a growing proportion of trades take place electronically. Today’s presentation revealed that 97% of macro trades and 51% of credit trades at J.P. Morgan took place using the bank’s electronic trading systems in 2017. J.P. Morgan CFO Marianne Lake said the bank is investing in electronic trading and that the key to success in the future will be to improve the use of algorithms in electronic execution and to use new technology like artificial intelligence. While individual traders become more productive, the implication is that there will be fewer of them.
If J.P. Morgan’s highly productive fixed income traders are losing market share and potentially suffering at bonus time because of it, its equities traders are gaining. J.P. Morgan set itself a target of improving its market share in equities sales and trading several years ago, and has achieved it. J.P.M’s equities business went from ranking fourth globally in 2010 to joint first in 2017 according to today’s presentation.
For those who want to join J.P. Morgan’s corporate and investment bank (CIB), 2018 may provide an opportunity. – J.P.M is investing an additional $500m in the CIB this year. Much of this will undoubtedly go on technology spending but today’s presentation also declared J.P. Morgan’s intention of making, “senior banker hires in targeted areas.”
The bank’s recruiters are likely to be choosy. In typically blunt terms, CEO Jamie Dimon said today that J.P.M doesn’t just want a “bunch of deadhead bankers” and pointed out that the top people there tend to stick around: Dimon said the bank’s 50 top executives have tenures averaging 17 years.
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