J.P. Morgan and Citigroup both reported strong first quarter results on Friday, easily topping analysts’ expectations. There were, however, both highs and lows for those working at the two U.S. banks, particularly within investment banking and trading. Here are the implications.
If you pass a banker on the street who’s grinning ear-to-ear, there’s a decent chance he or she is an equities trader. J.P. Morgan booked record revenue and profit totals in the first quarter, carried particularly by its stock trading unit. Equities trading revenue at JPM hit $2.02bn, up 26% over a year ago.
The volatility in the market did even more for stock traders at Citi. Its equities trading unit saw revenues increase by a ridiculous 38% to $1.1bn. With market volatility likely going nowhere, equities is great place to be working moving forward.
Citi Chief Executive Michael Corbat’s most recent annual letter contained a graphic touting the bank’s fixed income team, noting that Citi ranked first in market share for the second consecutive year in 2017. Next year’s letter may not contain a similar graphic. Fixed income trading revenue dropped a surprising 7% to $3.4bn, easily missing expectations. That compares to an 8% gain at J.P. Morgan. Bond traders whiffed at Citi during the first three months of the year.
"Significant volatility isn’t helpful, and really impacted the G10 rates business and really spread products in March in particular," CFO John Gerspach said on the earnings call in relation to the bank’s fixed income business. J.P. Morgan traders weren’t as affected by the volatility, it seems. They did just fine.
If you want to work within J.P. Morgan’s investment banking division, M&A looks like your best bet. The bank’s advisory unit accounted for $575m in revenue during Q1, up 15% year-over-year.
However, J.P. Morgan’s M&A group was the lone winner within the investment banking division. Its equity and debt underwriting teams underwhelmed, with revenues falling 19% and 18%, respectively, compared to the first quarter of 2017. M&A is where you want to be at J.P. Morgan. Overall, investment banking revenue dipped a surprising 7% at J.P. Morgan.
Meanwhile, Citi saw a 14% drop in advisory revenue. It too struggled with its underwriting businesses, with both groups posting double digit percentage drops year-over-year.
Compensation expenses increased at both Citi and J.P. Morgan, but that should be assumed. After all, net income climbed 13% at Citi and 35% at J.P. Morgan. Increases in pay would never meet those levels obviously, but they weren’t all that close. The total compensation pool at Citi increased 5% year-over-year to $5.53bn. At J.P. Morgan, the pool grew by 7% to $8.86bn. Comparatively speaking, it seems J.P. Morgan bankers may have a bit of a gripe.
Citi seems to be fighting itself a bit when it comes to compensation. The bank's efficiency ratio for the quarter was a full percentage point off its goal, according to Bloomberg. Paying its bankers less is the easiest manner in which to reach that goal.
Meanwhile, the bank dropped a rather interesting note in its latest annual report, listing employee retention as an official risk factor. The lengthy paragraph focused almost entirely on pay, noting that "the banking industry generally is subject to more stringent regulation of executive and employee compensation than other industries. Citi often competes in the market for talent with entities that are not subject to such significant regulatory restrictions on the structure of incentive compensation." Banks are truly stuck between a rock and a hard place when it comes to pay.
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