Two truths at Goldman Sachs and JPMorgan: Lower pay, more tech

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Two truths at Goldman Sachs and JPMorgan: Lower pay, more tech

Goldman Sachs and JPMorgan both reported their results for the second quarter today. If you work for either bank you'd better get with the new schedule: your pay is being cut while spending on technology increases. 

Ok, so this isn't exactly a new trend, but both banks' results very clearly illustrate the ongoing direction of travel. At JPMorgan, spending on 'technology, communications and equipment' was up 12% in the first half of 2019 compared to the same period of 2018. At Goldman Sachs, spending on 'communications and technology' was up 13%. There's a distinct similarity there. 

While technology spend rises, human bankers and traders are being squeezed. At Goldman Sachs, pay per head in the first half averaged 'only' $185k in the first six months of the year. That might sound like a lot, but in the same period of 2018, pay per head at Goldman averaged $215k - a drop of 14%. At JPMorgan's corporate and investment bank, compensation is now down to 28% as a proportion of revenue (compared to 30% last year) for 2019 year-to-date, and the bank says 'performance-based compensation' (ie. bonuses) are down.  

While the pay squeeze is unlikely to go away soon, banks' spending on tech may be plateauing. Speaking on today's investor call, JPMorgan CEO Jamie Dimon said the bank will keep investing in tech, "regardless of the environment," but that tech spending is going further by virtue of tech advances. Innovations like the cloud and artificial intelligence are enabling JPMorgan to get more from its technology investments, said Dimon. This should pave the way for plateauing or falling technology spending in future. 

A difficult quarter, except in equities at Goldman Sachs

Another clear signal from the banks that have reported so far is that the second quarter was a 'challenge.' 

As the chart below shows, with the exception of equities sales and trading at Goldman Sachs ('second highest quarterly performance in four years'), the second quarter was one of shriveling revenues. 

Both JPMorgan and Citi  benefited from the sale of Tradeweb, which flattered their fixed income sales and trading revenue numbers. Without this, fixed income sales and trading revenues at both banks fell as per the chart below. However, revenues at Goldman Sach fell most of all.

It's easy to see why. Citi said yesterday that "macro uncertainty" has been discouraging trading activity among its "investor clients" in fixed income, while activity from its corporate clients has been stable in rates and currencies. Goldman Sachs, needless to say, is more exposed to the investor client base, and is clearly suffering as a result of this. 

 

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