J.P. Morgan’s second quarter results are out. They’re ok, but they’re not the numbers of a bank in the middle of hiring spree. This is what you know if you aspire to work for Jamie Dimon – or if you work for him already and want it to stay that way.
1. It’s still all about costs
If you thought J.P. Morgan was going to be out there pouring money into new business areas, offering guaranteed bonuses and hiring all kinds of people, you were wrong.
As per its investor presentation in February, J.P. Morgan is pursuing ‘business simplification’ in the corporate and investment bank. CFO Marianne Lake said the bank is “self-funding” its investments. Hiring is not exactly a priority.
Instead, J.P. Morgan is still in the process of cutting $2.8bn of costs from its corporate and investment bank (CIB) before 2017. The overhead ratio in the corporate and investment bank went from 65% in the second quarter of 2014 to 59% in the second quarter of 2015 and the bank cut nearly 2,200 CIB jobs over the year.
The only good news? Year to date, average pay per head across J.P. Morgan’s CIB is actually up: it’s now $115k, compared to $109k in the first six months of 2014.
2. Equities sales and trading professionals are having a great year
2015 is turning out to be the year of the equities trader, or at least it is at J.P. Morgan.
Equities revenues at the bank were up 23% year-on-year in the first half. Historically, J.P. Morgan was comparatively weak in equities sales and trading and the bank been trying to remedy this. Speaking on today’s call, Jamie Dimon hedged a question on whether we’re back into a big bull run for the equities business, however.
3. The Chinese meltdown has been a good thing for equities revenues
China’s stock market is down 30% since June. However, it rose 150% over the previous 18 months.
All this volatility has been good for equities revenues at J.P. Morgan in China. “There was out-performance in Asia – in China and Hong Kong,” said Marianne Lake. “First as clients were interested in the rally and then as they needed to hedge.”
4. Rates professionals are having an ok year. The rest of fixed income isn’t looking so hot
Credit Suisse may have been losing a few rates traders, but at J.P. Morgan rates trading is doing fine. The bank highlighted rates as the best performing bit of fixed income sales and trading in the second quarter. Rising rates revenues were the only thing helping to mitigate declining revenues in securitization, credit, emerging markets and FX.
Dimon and Lake tried to put a healthy spin on the bank’s fixed income sales and trading business, pointing out that it wasn’t that bad in the light of the uncertainty caused by the Greek and China situations. Nor, however, was it that good: like-for-like fixed income revenues were down 10% year-on-year in the second quarter.
Overall, Dimon said J.P. Morgan’s sales and trading operation is far more stable than it used to be: “We’ve only had a handful of trading loss days this year,” he said on the conference call. “Trading has become very consistent…”
In FX, this consistency might be down to machines: 95% of J.P. Morgan’s FX trading now takes place electronically.
5. Hiring is still happening for control jobs
J.P. Morgan hired thousands of compliance staff in 2013 and 2014. It’s hiring still. Lake said control headcount had increased during today’s call.
6. It’s been an amazing year for M&A bankers
M&A bankers should be standing alongside equities professionals and cheering on 2015. Advisory revenues were at their highest level for four years in the second quarter. Nor does the Greek situation seem to be damaging the pipeline. “Greece hasn’t affected the M&A dialogue very much,” said Dimon in today’s call. He added that an interesting new trend is emerging when deals are financed: “American companies are financing in euros and swapping into dollars as it’s cheaper that way.”
7. Things are deteriorating for equity capital markets (ECM) bankers
Strangely – given strong equities sales and trading revenues – 2015 isn’t turning out so well for equity capital markets bankers. Equity capital markets revenues fell 5% year-on-year at J.P. Morgan in the second quarter versus 2014. The bank said this was partly because Q2 2014 was strong in ECM and the comparables were therefore unfavorable. It might also have to do with uncertainty surrounding Greece as the quarter progressed.
8. Risk is back in equities and FX
Dimon declared that J.P. Morgan has become much better at taking risk than it used to be. “Return on VaR was very good. Trading has become very consistent,” he said on today’s call.
There are signs that this is encouraging greater boldness in some product areas. Value at Risk (VaR) was up 29% in FX and 21% in equities at J.P. Morgan in the first six months of 2015 compared to one year earlier. However, VaR in other areas of fixed income increased by only 3% over the period. Pity the credit traders: this is not their year.