J.P. Morgan and Citi have both released their third quarter results. One (Citi) is doing far better than the other (J.P. Morgan) when it comes to investment banking and sales and trading. If you work for either bank now - or are thinking of joining either bank, this is what you need to know.
Citi's Institutional Clients Group (ICG) - its investment bank - is now superior to J.P. Morgan's corporate and investment bank (CIB).
The chart below applies to the first nine months of this year. A similar pattern was visible in the third quarter, when revenues fell 9% and profits fell 14% at J.P. Morgan's CIB, but rose 8% and 15% at Citi's ICG.
Citi is clearly doing something right. J.P. Morgan is not.
Earlier this year, Daniel Pinto said cost cutting was over at J.P. Morgan. After the past quarter, he might want to think again.
Declining profitability is weighing upon the return on equity (RoE) in J.P. Morgan's investment bank. In the third quarter of 2017 it was 13%. In the third quarter of 2016 it was 17%.
This was a universally bad quarter for fixed income salespeople and traders - but it was worse at J.P. Morgan. J.P. Morgan blamed, "low volatility and tighter credit spreads, against a very strong prior year quarter". Citi blamed "comparison to higher Brexit-related activity in 3Q’16 and low volatility in 3Q’17, as well as lower activity in spread products."
J.P. Morgan's equities business also didn't look too hot - despite the bank's focus on growing it. It blamed this on "lower revenue in derivatives predominantly offset by strength in prime Services and cash equities." Citi, on the other hand, spoke of, "continued momentum in cash, derivatives and prime finance."
As the chart below shows, something also went very right for Citi's ECM business in the third quarter. J.P. Morgan didn't share this luck: its own ECM revenue growth went into reversal. The bank didn't mention a cause, possibly hoping it would go away.
Across the full nine months of 2017, investment banking divisions (IBD) at both banks have been the places to be. M&A and debt and equity capital markets revenues are rising. Sales and trading revenues are not.
J.P. Morgan doesn't break out regional revenues. Citi does. The picture for Asia is not entirely pretty. If it's supposed to be a growth region, it's not doing much to show it.
Citi doesn't break out headcount or compensation for its ICG. J.P. Morgan breaks out both for its CIB. The J.P.M. figures, which combine both investment and corporate bankers, show pay slightly falling in the first nine months of 2017. Given the points above, it could have been (much) worse.
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