Investment-banking fees at JPMorgan Chase could drop 45% to 50% in this year’s third quarter, the bank’s president, Daniel Pinto, said Tuesday at an industry conference held by Barclays.
On its face, that figure may not seem much of a stretch from what the bank has already weathered this year — a 44% dip in revenue from dealmaking and debt and equity underwriting throughout the first six months of 2022, compared with the same period a year ago, according to the Financial Times. Investment-banking fees fell 54% at the bank in the second quarter alone, American Banker reported.
But as the slump extends, thoughts have turned toward headcount. Layoffs could hit Goldman Sachs, for example, as early as next week, insiders told The New York Times, and encompass hundreds of staffers, Bloomberg reported.
Pinto appeared a bit more measured Tuesday at the economic environment’s impact on his bank.
“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, according to Bloomberg.
But layoffs aren’t the only solution, he asserted.
“The banking business has a big component of variable compensation, so therefore you can adjust not just letting people go, you can adjust by reducing comp,” he added.
Banking can also be cyclical, Pinto emphasized, and staffing levels can swell and ebb in response to workload.
"Last year, we had to add a lot of bodies just to execute the huge amount of volume we were executing," he said, according to American Banker.
Banks, too, need to keep an eye on the job market, Pinto said.
“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,” he said, according to the Financial Times.
Ultimately, Pinto said, JPMorgan would “adjust over time to whatever we believe is a medium-term structure needed.”
Comments from other executives at the nation’s top six banks — some of which aired at the same Barclays conference Tuesday — stressed that each bank’s decisions on staffing levels are, indeed, individual.
Goldman Sachs’ impending moves — telegraphed as early as July, when CFO Denis Coleman said the bank would reinstate annual performance reviews — may not be JPMorgan’s. Or Citi’s. Or Morgan Stanley’s. Or Bank of America’s.
“I'm confident, if we need to manage head count, when people leave us to go join other employers, we just won't fill all the jobs,” Bank of America CEO Brian Moynihan told Fox News this week in a transcript seen by Banking Dive. “We employ 210,000 people. And we have employed that amount for the last five or seven years. So it's been relatively stable.”
In contrast to JPMorgan’s dealmaking activity, Moynihan said Bank of America’s “pipelines are very full.”
“There is a lot of activity that has been held in abeyance waiting for some stability in the market to push it through,” Moynihan said, according to Bloomberg.
Andy Saperstein, Morgan Stanley’s co-president, meanwhile, said investment banking “has remained muted through the summer.”
“At some point, that will change,” he told the Barclays conference, according to Bloomberg. “Markets will settle down and clients will transact, but that’s not imminent.”
Citi CFO Mark Mason, at the same conference, said “wallets are down some 50%-plus or so and we're down in tandem with that.”
“We think we'll end the quarter generally around where the wallet ends,” he said, according to American Banker.
For some banks, the third quarter may appear the outlier simply because it played that role last year. JPMorgan, for example, saw record advisory revenue between July and September of 2021, counting $3.3 billion in investment-banking fees for the quarter. All things being equal, a continued downturn — be it induced by inflation, interest rates or recession fears — may look worse in Q3 this year because volume was so high a year ago.
That’s not the case for everyone. Bank of America typically sees its trading revenue drop by up to 10% between the second and third quarters annually, Moynihan said, adding he expects this year’s percentage-point drop to be in the low-single digits.
The test for banks’ headcount strategy may come next month, when the third quarter’s numbers are final.