Today is the day. JPMorgan and Citi are the first banks to divulge just what went on in the three months to October and in the first nine months of this year. If you're an employee in JPMorgan's corporate and investment bank (CIB) or Citi's institutional client group (ICG), the message from both banks is strangely similar. - You are being sweated more than before.
Both banks have squeezed costs and achieved an increase in profit margins in their investment banking units in the first nine months of the year. Coincidentally, the squeeze has had an identical effect: at both banks, profits now account for 33.5% of revenues, where last year they accounted for 31%. At JPMorgan's investment bank, profits were up an impressive 15% in the first nine months of 2018 versus the same period last year; at Citi they were up 10%. Revenues were up by a lesser 8% and 2% respectively.
The cost squeeze reflects an ongoing attempt to keep a handle on expenses which is likely to make itself felt in the 2018 bonus round, particularly for front office staff. Citi doesn't break out headcount in its institutional clients group, but J.P. Morgan has been doing some heavy hiring this year, adding 2,652 people to its corporate and investment bank in the third quarter alone. It's safe to assume that a large proportion of these hires (many of them likely recent graduates) will be joining the technology team, which already employed 50,000 people at the end of last year, and is in growth mode. Salespeople, traders and investment bankers can expect to have their compensation held steady to help accommodate all these new programmers - and indeed, pay per head at JPM plateaued at an average of $150k in the first nine months.
Away from the squeeze, JPMorgan and Citi's results had conflicting messages about the health of individual business areas. Citi had a great third quarter in fixed income (revenues up 9% on rates, currencies and credit), JPMorgan did not (revenues down 10% on rates, credit and securitized products). JPMorgan had an excellent quarter in equities trading and equity capital markets (revenues up 17% and 40% respectively) and Citi did not (revenues up 1% and down 17% respectively). It might even be said that the two banks' businesses are complementary.
For the first nine months of 2018 as a whole, however, there is one clear winner at both banks: equities sales and trading professionals. If anyone gets paid more in 2018 it should surely be equities traders. It's unfortunate, then, that equities trading is now one of the most heavily automated areas of the securities business - increased technology spend is likely to squeeze compensation for human beings here too.
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