JPMorgan's investment bank: paying less to more people for the same result
If first quarter hiring is supposed to have slowed, JPMorgan doesn't seem to have got the message. Today's first quarter results from the US bank reveal that JPMorgan's corporate and investment bank added 900 people between January and April 2023, compared to 746 people in the first quarter of last year.
The additions, combined with hiring throughout 2022, mean that in Q1 '23 the number of people employed by JPMorgan's corporate and investment bank was up 9% year-on-year.
However, despite all the new employees, the performance of JPMorgan's corporate and investment bank didn't much change: revenues were stable; profits were up 1%; the return on equity was the same at 16%.
JPMorgan's corporate and investment bank includes corporate banking services like lending and payments, with the latter performing better than the former. Within the investment bank specifically, debt capital markets (DCM) revenues were most dismal compared to the previous year's first quarter, but other areas of the investment bank were down by low double digits - which is arguably quite an achievement given that Q1 2022 hadn't been hit by the uncertainty created by the Ukraine war.
The more interesting comparison is arguably with the fourth quarter of 2022. Sales and trading revenues invariably rise in Q1 and this year's first quarter at JPM was no different. However, fixed income currencies and commodities (FICC) sales and trading revenue rose by less quarter on quarter than in Q1 2022 (52% versus 72%), as did equities sales and trading revenues (39% vs. 56%). Investment banking revenues, meanwhile, didn't repeat last year's war-induced slide, and DCM revenues actually showed signs of recovery versus Q4. This might even be cause for optimism.
JPMorgan attributed the increase in its fixed income sales and trading revenues to strength in rates and credit trading, while emerging markets and FX trading revenues fell.
Although employee numbers increased 9% year-on-year, the bank's spending on compensation in the corporate and investment bank fell 2%, meaning that average pay per head declined 6% over the period. JPMorgan said 'revenue-related compensation' (AKA bonus accruals) were cut in Q1 '23 compared to the previous year.
JPMorgan cut a few technology staff in February 2023, but CEO Jamie Dimon has said that he tends "not to stop growing because you have a recession." Despite stagnant deals, CFO Jeremy Barnum said today that the bank has made additions to its investment banking and advisory team. While the recent hires in the CIB don't appear to have been revenue or profit accretive yet, this may change. - It usually takes several months for recruits to become fully functional.
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