JPMorgan's second quarter results came out last week. We have touched upon them already (here and here). The CIO loss aside, these are our conclusions after giving them a harder prod.
1. US banks have an incentive to build in Europe. They may even be hiring
Far from reducing headcount in its investment bank, JPMorgan is increasing it. It added 826 people last quarter. There was no elaboration as to where this hiring took place, but earlier this year Jamie Dimon said there were no immediate intentions of adding headcount in Asia. Could it be some of this additional headcount is in Europe? We don't know, but analysts at Morgan Stanley point out this morning that JPMorgan has the potential to benefit from European deleveraging. JPMorgan's already been adding market share in Europe, they point out. Claims that US banks have the potential to grow in Europe are reminiscent of Goldman COO Gary Cohn's claims that Europe is the big growth market in the short term.
Conclusion: Send your CV to a US bank.
2. Actually, it does not appear that Jamie Dimon will be retiring from JPMorgan
Last week's claims that the big loss at the CIO was partially down to traders deliberately mis-marking trades marks a clear attempt by Jamie Dimon and senior management to distance themselves from the problems at the CIO and continue in their current roles. Dimon said it was an "isolated event" that the company has been "shaken to the core" but that basically everything is continuing much as before. At one point it looked like JPMorgan was in for a period of prolonged instability as insiders briefed against Jamie Dimon. This no longer appears to be the case.
Conclusion: It is still safe to send your CV to JPMorgan.
3. If you want a job, you may need to accept lower compensation
As we noted, pay per head at JPMorgan fell 12% to $185k in the first quarter. On an annualized basis, this suggests average compensation at JPMorgan's investment bank of $370k (£238k). This doesn't compare badly to the past (2010 was $349k, 2009 was $379k), but like most banks JPMorgan was eager to broadcast its cost cutting credentials, insisting during last week's conference call that: "If you look at the expense number, it’s down, but it’s primarily driven by compensation expense."
Conclusion: Don't make a big deal of your pay expectations if you intend to get hired.
4. Maybe equities isn't so bad after all - as long as you work for a big flow house
JPMorgan's equities business didn't do too badly in the first quarter. Yes, revenues were down 9% excluding DVA, but they were down 17% in fixed income and 35% in investment banking.
Much has been made of redundancies in equities businesses. At JPMorgan, it looks more like redundancies should come in M&A/capital markets or fixed income.
Conclusion: The worst may be over for equities sales and trading professionals - as long as they work for market leaders (market leaders being BAML, Goldman Sachs and JPMorgan).
5. Fixed income businesses are taking more risk and making less money
There were some signs of desperation in JPMorgan's fixed income sales and trading business. As the Financial Times' Lex column points out, VaR increased 50% year on year for fixed income sales and trading. However, JPMorgan's fixed income sales and trading revenues fell 17%.
Conclusion: Now that bonuses are risk adjusted, fixed income sales and trading professionals can expect to earn a lot less this year.
6. Risk has become much more about operational risk models
As we've mentioned already, JPMorgan's CIO loss can be seen as an operational risk failure.
The bank seems to have interpreted it this way to and is making far more of its use of operational risk models.
The investment bank is the heaviest user of this models, said CFO Douglas Braunstein: "We’re dealing with parallel testing, back testing, running the operational model themselves."
Conclusion: Now is the time to be an operational risk veteran with strong "process" expertise.
7. Investment banking revenues in the third quarter look pretty similar to the second quarter
JPMorgan strangely omitted to give any guidance on investment banking in its Q2 results presentation. However, during the accompanying conference call Doug Braunstein suggested Q3 is panning out pretty similarly to Q2. "Right now, it looks similar to what it was last quarter," he said, "That can change at any one point in time."
Conclusion: There won't be any big hiring. Visibility remains....poor.