J.P. Morgan’s Q3 results suggest that investment bankers shouldn’t be feeling too pessimistic. If you work in JPM’s corporate and investment bank, the results were very good – its best Q3 ever, in fact, with net income of $2.9bn.
These are the details you need to know
Barclays and Deutsche Bank are rolling out hiring freezes, investment banks are still cutting jobs and hiring prognoses are bleak. But J.P. Morgan has increased headcount since the last quarter – it now employs an additional 371 people than it did in Q3. In fact, its headcount of 49,176 is the highest since the end of 2015. But, it still has 208 fewer employees than this time last year.
Typically, analyst and associate programmes arrive in Q3, but the increase in 2016 is better than last year. Headcount in Q3 2015 was up by a mere 17 people, suggesting any cuts at JPM are less dramatic so far in 2016.
Credit Suisse, which has retreated from rates trading, is likely to look on results this quarter and wince. J.P. Morgan increased year-on-year revenues in fixed income by 48% in Q3. Yes, last year was when things started to unravel, but JPM is still up 19% year to date in fixed income.
J.P. Morgan said that rates performance was “particularly strong” due to a combination of increased demand since Brexit, and volumes in anticipation of more central bank action.
FICC generally was good, said CFO Marianne Lake: “We were firing on all cylinders,” she said. Q3 was consistently good across all business areas, and this is unusual. "It would be hard to imagine replicating this over time consistently," she said.
2015 was a stellar year for M&A activity, and the continued uncertainty has meant volumes are down by 22% year on year, according to Dealogic. J.P. Morgan has slipped down the rankings – from second to third, it suggests.
Nonetheless, revenues in JPM’s advisory business are up 5% for the first nine months of 2016, and by 15% year on year in the third quarter. It’s no surprise that most big banks are still talking up the need to hire senior investment bankers.
Credit traders are coming off the back of a bad few years, but 2016 looks like a bit of respite from the storm. Credit, and securitised products were up because of “improving market sentiment across primary and secondary markets which produced robust issuance volumes and strong client trading activity.”
Year on year, J.P. Morgan has fewer people working in CIB and it’s paying them less. Because JPM bunches its lower paid corporate bankers together with its investment bank, it’s difficult to get a true impression of what’s really happening to compensation. However, so far for 2016, compensation is down by 3% year on year. On a per-head average basis, pay has slipped from $164.2k in the first nine months of 2015 to $159.6k so far in 2016.
Globally, equity capital markets activity has slumped to a four-year low, according to Dealogic. At J.P. Morgan, revenues are down by 23% for the first nine months of the year. But, in the third quarter, ECM revenues are up 38% year on year.
This time last year, return on equity (RoE) was languishing at 8% in JPM’s CIB, and overhead costs were at 75%. In the third quarter of 2016, RoE is now at 17% and costs are at a 12-month low of 52%. J.P. Morgan has stripped out $1bn of costs over the past year. Maybe it’s paying off.
Daniel Pinto, CEO of JPM's CIB, committed to stripping out $2.8bn of expenses from the division with an annual target of $19bn in the investment bank. Lake said that it was in the "latter stages" of this programme. "However, we pay for performance and if our business significantly outperformed relative to our expectations you can expect some variable costs associated with that," she said.