It's JPMorgan (JPM) results day. As ever, the U.S. bank is the first to report. It's first quarter dashboard is here. If you're disinclined to scrutinize the presentations and reports, this is what you need to know.
Junior M&A bankers are still being worked very hard and recruiters have been commenting on the big demand for junior M&A bankers to help out for a while. Now we know why: M&A revenues at JPMorgan rose 50% year-on-year in the first quarter.
Equity derivatives recruiters are in the doldrums. Earlier this week, one told us that equity derivatives hiring has ground to a halt as banks prepare to make ED professionals redundant. Again, JPMorgan's results illuminate why this is. Despite a strong start in equity capital markets (revenues at the bank were up 29% year-on-year) and a good quarter for cash equities, all equities sales and trading revenues at JPM were down 3%. Equity derivatives were reportedly to blame.
JPMorgan's corporate and investment bank (CIB) is still its most profitable business, but it's less profitable than before. Year-on-year, net income declined 22% excluding debt valuation adjustment in the first quarter. Return on equity fell from 19% to 13% and expenses rose from 60% to 65% of net revenues.
The rise in expenses at the CIB came despite an 8% cut in compensation costs during the first quarter ('primarily driven by lower performance-based pay'). Non-compensation fixed costs are rising; JPMorgan's bankers can expect to be paid less as a result.
We've already documented JPMorgan's reduced appetite for risk taking. Value at Risk (VaR) in the investment bank was down 50% year-on-year in the fourth quarter. This trend seems to be continuing. In Q1, JPMorgan cut VaR again - excluding diversification benefits risk taking in the investment bank was down 5% on Q4 and 35% on Q1 2013.
As with other banks (Credit Suisse), there are signs that JPM is only really interested in hiring juniors and MBAs and is cutting other people. Headcount across the corporate and investment bank fell by 413 people (8%) between the fourth quarter of 2013 and the end of the first quarter. However, it was up by 203 people year-on-year following the addition of nearly 700 people in the third quarter of 2013 (which is when MBAs and university leavers typically arrive).
Debt capital markets issuance isn't too hot. JPMorgan's DCM revenues were down 22% year-on-year in the first quarter. This is feeding through to revenues in the secondaries market, with JPMorgan's FICC revenues down by 21%. This doesn't bode well for the likes of Deusche Bank and Barclays, which are far more dependent on FICC and have proven less able to withstand market downturns that JPMorgan in the past. Now is probably not the time to try for a job on a fixed income trading desk.