It’s J.P. Morgan’s 2017 investor day. The bank is outlining to investors why they should be putting their money in J.P. Morgan’s stock. In the process, it’s also doing a good job of explaining why you should want to work there rather than, say, Barclays, or maybe Goldman Sachs.
J.P. Morgan has already put the presentations that will constitute its pitch on its investor site. These include the presentation from Daniel Pinto, head of the corporate and investment bank (CIB). If you’re thinking of working in a markets or investment banking role at J.P.M, it’s Pinto’s presentation that should pique your interest.
Predictably, Pinto says J.P. Morgan is great. This is why…
1. J.P. Morgan has met its cost cutting targets already
While banks like Credit Suisse keep striving for more and better cost cuts in their investment banks (and particularly their markets businesses), J.P. Morgan is done. Last year, it aimed to get its CIB expenses down to $19bn and to achieve a 13% return on equity. In fact, it got its expenses down to $19bn and achieved a return on equity of 16%. Long term, it’s aiming for a 55% overhead ratio; last year it achieved an overhead ratio of 53%. – J.P. Morgan’s corporate and investment can spend more in future.
Of course, J.P. Morgan’s CIB may not spend more actually paying people. As the chart below shows, spending on compensation for people in the front office has fallen by 13% since 2012, while its spending on controls has risen by 22%.
Source: J.P. Morgan
2. J.P. Morgan is top in investment banking, and has been hiring people
J.P. Morgan is the queen of M&A. As the chart from Staley’s presentation below shows, its M&A market share went from 6.4% in 2012 to 8.6% in 2016. Impressive (Goldman Sachs took first place last year according to Dealogic). Following Pinto’s promise to hire “dozens” of senior M&A bankers in 2015, his presentation also proclaims the successful addition of “senior bankers in key geographic regions and industries,” without naming names.
J.P. didn’t do quite so well in debt capital markets (DCM), where its share went from 8.2% to 7.9% over the same period. In equity capital markets (ECM), it went from 7.2% to 7.6%.
Source: J.P. Morgan
3. J.P. Morgan is the best in fixed income currencies and commodities (FICC) sales and trading
While banks like UBS and Morgan Stanley have curtailed their involvement in fixed income sales and trading, J.P. Morgan (like Goldman Sachs), has been steadfast. Pinto’s bank has been rewarded for this: its market share in fixed income sales and trading went from 8.6% in 2010 to 12.0% last year.
Source: J.P. Morgan
4. J.P. Morgan is nearly the best in equities sales and trading
J.P. Morgan has also greatly improved its standing in equities sales and trading. In 2010 it was fourth. Now Pinto says it’s second (although KBW puts it third, behind Goldman Sachs and Morgan Stanley). J.P. Morgan’s improved standing in equities sales and trading was partly the work of Tim Throsby, who became head of Barclays’ investment bank in January: Throsby helped improve J.P. Morgan’s cash equities business and is expected to attempt something similar at Barclays.
Source: J.P. Morgan
5. J.P. Morgan is pioneering the move to “low touch” trading in cash equities
Sales jobs in markets business nowadays are all about “high touch” and “low touch” approaches. As Oliver Wyman partner Arran Yentob explained last year, high touch sales are those which involve a lot of interaction between human salespeople and clients. Low touch sales are those which are mediated by computers so that human on human interaction is minimal.
As Pinto’s chart below shows, J.P. Morgan’s success in cash equities has a lot to do with its shift to a low touch model. Low touch revenues have increased 31% in two years. High touch revenues are down 13%.
Source: J.P. Morgan
6. J.P. Morgan’s trading business is making more money and taking less risk than before
The Holy Grail nowadays is making more out of trading with lower costs, less risk, and fewer risk weighted assets (RWAs). J.P. Morgan is well on the road to all this. As the chart below shows, revenues in its markets business have generally been on an upward trend since 2012 while loss making days have generally diminished. The evolution of RWAs is less clear cut: they’re down 17% on the old “standardized” measure, but up 8% on the new “advanced” measure. At the very least, this implies that J.P. Morgan is willing to keep backing its trading business with increased inventory – even if that inventory is simply amplified by regulation.
Source: J.P. Morgan
7. J.P. Morgan’s trading business is also hugely more profitable than it was two years ago…
Even better, Pinto stresses that J.P. Morgan has increased the profitability of its sales and trading (markets) business by over 40% while keeping costs stable.
Source: J.P. Morgan
8. Every product in J.P. Morgan’s markets business covers its cost of capital, and revenues on most desks are increasing
As we noted yesterday, some banks (Credit Suisse) in some jurisdictions (the U.S.) don’t seem to be covering their cost of capital.
On a product by product basis, this doesn’t apply at J.P. Morgan. As Pinto’s chart below shows, all J.P. Morgan’s sales and trading businesses generate a fully loaded return on equity (RoE) above their cost of capital. – Even commodities, which didn’t in 2015.
Source: J.P. Morgan
9. J.P. Morgan still has plenty of need of human traders
If you’re a talented trader, you might think J.P. Morgan doesn’t want you what with all its electronic trading and low touch market making (see 5.) Actually, it does. As the chart below shows, electronic trading is growing fast at J.P. Morgan (up nearly 30% in two years) but it’s still a tiny proportion of the total. Moreover, Pinto thinks only another $5bn of J.P. Morgan’s current $21bn in trading revenues are susceptible to future electronification. Human beings are still required.
Source: J.P. Morgan
10. And Daniel Pinto wants you
Lastly, if you’re a special person you should go to J.P. Morgan because Daniel Pinto wants you. One of his priorities is to, “ensure we continue to attract the best talent in the industry.” Get in touch – especially if you’re a senior M&A banker with a big client list or an equities trader with skills akin to Tim Throsby.
Follow @MadameButcher
Contact: sbutcher@efinancialcareers.com
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