JPMorgan warns of up to 50% drop in investment banking fees
Gloomy outlook underscores Wall Street anxiety over global economy and debt markets
JPMorgan Chase’s third-quarter investment banking revenues could be as much as 50 per cent down on last year’s, one of the bank’s most senior executives warned on Tuesday.
Daniel Pinto, JPMorgan president and head of the corporate and investment bank, said he expected third-quarter investment banking fees to be down 45-50 per cent on the $3.3bn achieved a year earlier, having fallen 44 per cent in the first six months of 2022. The bank will announce its results on October 14.
The gloomy forecast for the largest US bank by assets, which is an industry bellwether, underscores the anxiety on Wall Street over a dealmaking slowdown amid economic uncertainty, war in Ukraine and unsupportive debt markets for leveraged buyouts.
The slump in fees follows a blockbuster 2021 and has raised the spectre of lower bonuses and potential lay-offs on Wall Street. Goldman Sachs is planning to start a job-cutting programme in the coming weeks that could affect hundreds of employees.
Pinto said JPMorgan would “adjust over time to whatever we believe is a medium-term structure needed, and overall banking business size needed, to cater to that wallet size”.
“You need to be very careful when you have a bit of a downturn, to start cutting bankers here and there, because you will hurt the possibility for growth going forward,” Pinto said.
“So if anything in an environment like this, there may be some very, very top bankers that you could not access or hire in the past and now they’re available to be hired.”
Given that the lion’s share of banker pay packets is made up of performance-based compensation, Pinto said the bank can “adjust not just letting people go, you can adjust by reducing comp”.
He added that JPMorgan’s trading business, which has benefited this year from volatile equity, credit and commodity markets, was on track to be up about 5 per cent year-on-year in the current quarter. In the first six months of the year, trading revenue was up 4 per cent year-on-year.
Pinto also said interest rate rises by the Federal Reserve, increasing loan demand and higher revolving balances at its cards business would boost lending business more than the bank had previously anticipated. JPMorgan’s latest guidance for full-year net interest income, excluding its trading business, was $58bn-plus. Pinto said the current environment meant that plus was now “bigger”.
Despite worries of a potential US recession and high inflation, Pinto said JPMorgan views the US consumer as being “in a very good place”.
“People are not touching much . . . of the wealth that they accumulated over the last couple of years. And they are saving less to pay to maintain consumption and to pay for higher prices,” Pinto said.